The Housing Authority is the owner of fifteen properties in the Civic Center area that were acquired from the former Redevelopment Agency (RDA).  The RDA had acquired the properties over the course of many years for purposes of consolidating them for a Civic Center project.  Twelve of the properties are developed with single-family homes and three are unimproved. Of the twelve single-family homes, all but three were acquired from the RDA in 2007 for temporary rental to low income families while the RDA acquired the properties necessary for a larger redevelopment project in the City’s Civic Center area.  The other three had been acquired by the RDA with its low-moderate income housing fund and were transferred to the Housing Authority in 2012 following the dissolution of the RDA.  The three unimproved parcels were transferred to the Housing Authority in 2007.  One of the unimproved parcels remains vacant while two are currently being used by the City for its Community Gardens project.  The Developer has agreed to allow the Community Gardens to continue until the current program ends in early 2017.

The properties with single-family homes will soon require the expenditure of substantial funds to rehabilitate them and maintain them in the required condition for human habitation.  One of the single-family homes could not be rented at this time because it requires substantial rehabilitation work to make it habitable.  Due to the dissolution of the RDA and the reduction in Federal and State funding for low income housing programs, the properties are quickly becoming a liability for the Housing Authority.  In addition, the properties are scattered throughout the Civic Center area and the dissolution of the RDA will not make it possible to continue to acquire the additional properties that would be needed for a proper Civic Center project or a viable low income housing project. In early 2015, Mr. Shaheen Sadeghi of the Lab Holding, LLC (the “Developer”) submitted a letter of interest to the City to acquire the properties for a reuse commercial project. Discussion with City staff pertaining to the condition of the properties, their market values, and suitability for rehabilitation and reuse of the structures, culminated in the Disposition and Development Agreement being presented to the City Council concurrently with this Purchase and Sale Agreement. The Developer is proposing to acquire the twelve single-family homes to rehabilitate them and reuse them for low-impact commercial uses consistent with the City’s Zoning regulations applicable to the Civic Center area. The Developer is not able to purchase the unimproved properties at this time.  However, the Developer is willing to lease the unimproved properties to relieve the Authority and the City of the maintenance and repair responsibilities for the unimproved properties, and incorporate them into its larger reuse project.  The City will lease the three vacant properties from the Housing Authority for a term of twenty years for $1.00 per year, and will sublease them to the Developer for a term of 15 years for the same rental rate. The sublease with the City will contain a Right of First Refusal that will give the Developer the opportunity to purchase the vacant properties in the future at fair market value at the time of purchase. The vacant properties expose the Authority to maintenance liability and are not suitable for a long term housing project.

The lease with the City and the sublease with the Developer will assign the maintenance responsibilities and liability to the Developer until such time as the Developer is able to acquire the properties at market value. The Developer has agreed to pay $3,386,287.50 for the 12 single-family homes subject to a 20% cash down payment of $677,257.50 and an interest-only short term loan of five years in the amount of $2,709,030.  The loan is subject to interest at 4% per annum.  The loan will be secured by a deed of trust and may be prepaid prior to the five-year term without penalty.  The City and the Developer have agreed to a six month escrow period to allow the parties to complete their due diligence with respect to the transfer of the properties.  Similarly, although the lease of the properties to the City will become effective immediately, the sublease to the Developer won’t become effective until the escrow for the twelve single-family homes closes in about six months’ time.

The sale and lease of the properties will reduce the Housing Authority’s liabilities for maintenance and repair and will generate funds in the next five years to be deposited in the Housing Authority’s low-moderate income fund to assist future housing projects. It is expected that transaction costs, which include escrow charges and title reports, will be covered by loan interest revenue.

It is recommended that the City Council:

• Adopt the Resolution approving the Purchase and Sale Agreement with the Housing Authority for the acquisition of twelve single-family Civic Center properties;

• Adopt the Resolution approving the lease of three unimproved Civic Center properties from the Housing Authority.