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11-15-82 agendaHOUSING AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No. 43 Agenda November 15, 1982 Housing and Redevelopment Authority Commissioners City of Richf field Dear Commissionerso Subjecto Considerations Related to Preparing an Application for the Establishment of A Single Family Mortgage Revenue Bond Program in Richfield With the recent congressional changes to the mortgage rev- enue bond program, it may now be possible to offer qualifying first-time homebuyers in our community below market interest rate mortgages. During January, 1983, the Minnesota Housing Finance Agency (HFA) will be evaluating proposals submitted by cities to utilize a portion of the state's housing mortgage revenue bond authority. These proposals must be submitted to MHFA by January 3, 1983. The city council initiated the process for preparing and submitting a proposal at their meeting on November 8, 1982 by adopting a resolution establishing the date of public hearing on certain elements of the application for December 13, 1982. The application would be made in .the name of the city, and it would be necessary for- the HRA to provide significant financial support for the program. If the HRA does not authorize prepar- ation of an application, the December 13, 1982 hearing would be cancelled. At the November 15 HRA meeting, it would be appropriate for the HRA to discuss the desirability of participating in the housing revenue bond program. This letter contains informa- tion on revenue bonds, the use of bonds to finance housing pur- chases, the proposal preparation process, HRA and City Council goals, and related items to provide background for that dis- cussion. Tax-exempt bonds have been issued for housing purposes since just after World War II, but not until the early 1970's were they issued in any great quantity. In the 70's, many stye housing finance agencies began to issue tax-exempt bonds for mortgages on apartment buildings and owner occupied houses. In 1978, local governments began to issue bonds for mortgages on owner-occupied houses. The authority for their issuance HRA Letter No. 43 -2° November 15, 1982 was based on Industrial Development Revenue Bonds (IDRB) enabling legislation. Federal law and regulation imposed few restrictions on these bonds, provided that they were issued under the auspices cf a state or local government. However, in 1979, Congress became concerned about the large federal revenue losses associ- ated with the growing bond volume and the possibility that the volume of housing bonds would push up interest rates on tax- exempt bonds issued for more traditional public purposes. Con- gress also felt that the subsidy provided by these bonds should be. available to homebuyers of more modest incomes. Some states and cities were providing the benefits of these bonds to people who purchased very expensive housing. In response to these concerns, Congress enacted the Mortgage Subsidy Bond Tax Act of 1980. This is also known as the Ullman Legislation. This act sharply limited tax-exempt bonds for owner occupied housing and denied tax-exemption on nearly all bonds for owner occupied housing issued after December 31, 1983. Additional restrictions from the legislation passed in 1980 restricted use of the bonds substantially. There are limits on the amount of bonds that each state may issue for owner-occupied housing with the limit in Minnesota being around $200 million. Additionally, issuers can charge homeowners interest rates no more than 1.125 percentage points above the interest rate on the bonds; 90 percent of the proceeds must be used by first time homebuyers; and purchase price limits are imposed on housing financed by bond proceeds. Interest on these bonds is tax-exempt, therefore, bond- holders are willing to accept a lower interest rate than on comparable taxable securities. This enables a below market in- terest rate to be offered to homebuyers on their mortgages. The. federal government subsidizes the issue in that it loses the taxes that would otherwise be paid on bond interest. The subsidy is divided between the bondholders and the homebuyers, with some portion also going to the various intermediaries in the process. In 1981, state legislative action pursued by the League of Minnesota Cities, allocated a portion of the Minnesota limit of $200 million to cities. The MHFA utilizes the balance to finance housing development throughout the state. In 1983, the amount of bonding authority for cities is expected to be approx- imately $.27.5 million. The request for mortgage revenue bonds, included in all programs of any applying city cannot exceed $10 million. Because of the economics of scale, it is not practical for a city to submit a grogram application for less than $8 million. Also, MHFA will likely receive applications which exceed the $27.5 million available. The successful applications may receive bonding authority for less than re- quested. Thus, it would be desirable to submit an application for $10 million. HRA Letter No. 43 -3- November 15, 1982 4Jhen MHFA receives proposals for more than the amount of bonding authority available, the programs are ranked on three tie-breaking criteria. The first factor used is the proportion of the proposed issue reserved for at least a six-month period for households with incomes below 80 percent of the area median income limit, or $22,880. A second factor is the proportion reserved for families below 90 percent of the median income, or $25,740. The final factor is the percentage of the proposed bond program that represents non-bond proceeds, ioe. a cash contribution. In undeveloped communities, a developer typically will provide cash to the city for the right to utilize the tax- exempt financing for the development. In a program designed for financing_the sale of existing homes, such as in Richfield, it would be necessary for the HRA or the City to provide a sig- nificant portion of the cash contribution. By about February 1, 1983, NIFiFA will have reviewed each of the proposals submitted and selected participant cities. These cities are the n authorized by the NIIiFA to sell the housing revenue bonds through an underwriter, retained by the city. Local lenders, who have agreed to participate in the program or- iginate, and may service the insured mortgages. The bond pro- ceeds are used to purchase the mortgages. As with IDRB's, these bonds are not backed by the city's full faith and credit. The bondholders and mortgage insurers assume the risks of default. In addition to the Ullman restrictions, mortgage revenue bonds are issued in accordance with Minnesota Statute, Chapter 426 C (1980), as amended. The application to be submitted by January 3, 1983 must include the following: -An adopted general housing plan and a financing program considered at a public hearing. The documents set forth: A. The housing needs of the city and the data demon- strating those needs; B. The plan of the city to meet identified housing needs, and the specific methods to be used to carry out the plan; C. Target areas, if any, of the city for each method; D. The financing program or programs to be included in the plan; E. The number and qualif ications of lenders eligible to participate in such programs; F. The estimated amount of mortgage loans to be made or purchased in each program and the estimated amounts and timing of the sale of revenue bonds required to finance such loans, fund appropriate reserves and pay costs of issuance; HRA Letter No. 43 -4- November 15, 1982 G. Methods for monitoring the implementation by partici- pants to insure that the programs will be consistent with the plan and its objectives; H. The administrative capacity of the city to monitor and supervise housing finance programs; I. The cost to the city, including administrative costs: J. An analysis of how the programs will meet the needs of low and moderate income families in the city; K. Maximum purchase prices or appraised values of single family residences to be financed. -The housing plan must be submitted to the Metropolitan Council for review and comment. The staff would be assisted in preparing these documents by our financial consultant, Evensen-Dodge, Inc., a bond under- writing firm and bond counsel from our city's attorney's office. If Richfield was not selected, the cost of preparing the applic- ation would be under $5,000. The underwriter would be paid if our application was selected and bonds were sold. In their deliberations regarding participation in this program, the City Council and the HRA need to consider several issues. Both the HRA and tkle City Council have identified ob- jectives which this program would help to achieve. That is, the need to provide housing opportunities for young couples in their family formation years. Related to this is the need to provide older homeowners, "empty nesters", with an opportunity to sell their homes to younger families. This program would help to achieve these objectives. However, at this time, the city has a limited amount of alternative housing to which the older families could relocate. This would be one of the few times the HRA and the city would be involved in a housing assistance program that was targeted to participants having close to a median income rather than low or moderate incomes. The income range for persons eligible for mortgages is influenced by the mortgage bond interest rate and the cost of housing. As indicated previously, the bond pro- gram would require initial sales to be .targeted to those purchasers with incomes not exceeding 80% of the median income of $22,880. After the first six months, if there were not enough mortgage activity, the inoome limit could be raised to 90% and still later to the maximum allowable income, 110% of median income ($31,460). The size of the eligible housing supply in Richfield and the rate of sales in the past two years indicates that there is an adequate housing market for this type of bond program. Using present program requirements, although they are subject to change, mortgages could finance houses selling for a maximum sale price of 575,680. According to Hennepin County Assessing Department HRA Letter No. 43 -5- November 15, 1982 data, of the 10,9 38 homesteaded residences in Richfield, 7,913 units (or 76%) have an estimated market value under $75,600. Of 265 residential sales (September, 1981 to August, 1982), 162 (or 61~) of those actual sales were under $75,000. It is not known how many of these sales were by "empty nesters". (These numbers do not include the sale of Lake Shore Drive condominiums or unrecorded contract for deed sales). A $10 million bond issue could support approximately 140 mortgages. As mentioned earlier, a cash contribution would probably be required in order for Richfield to be successful in a proposal for bonding authority. In part, this contribution is required because the Mortgage subsidy Bond Tax Act of 1980, as amended, tightened the arbitrage rules for these bonds. The act requires that mortgage interest rates be no .more than 1.125 percentage points above bond interest rates, and that any profit earned on non-mortgage investments be rebated to the homeowners or to the federal government. However, the act so limits the yield on investments made with bond proceeds that the yields are not high enough to cover interest due on the bonds and other re- lated expenses, and still leave a balance for unexpected ex- penses. A second reason for this cash subsidy is simply that A1HFA uses it as a means to rank proposals. In the past, the minimum cash contribution, which cities gave pledged, has been 3 to 5 percent of the size of the issue. How- ever, MHFA has recently indicated that to be competitive for the limited amount of bonding authority ($27.5 million) up to a 10% contribution may be appropriate. Thus, on a $10 million issued, based on past competitions, $300,000 to $500,000 would be adequate; but if competition is strong, up to a 10 percent or $1 million contribution might be needed to be selected. Following is some information related to actual contributions provided: -Nationwide, the cash contribution varies widely but averaged 8.7 percent of the total amount of bonds issued for single family houses in 1981. -In Minnesota, during the 1982 bond competition, the follow- ing cities, issue.. sizes and cash contributions were sub- mitted and given authority to sell bonds by r1HFA: Ci ~ Size of I Size of Local - ssue _. Contribution Edina $ 1.50 million 50.0% Sauk Rapids 8.00 million 4.68% St. Cloud 10.00 million 3.68% Eagen 9.00 million 6.80% Moorhead 8.00 million 3.55% Duluth 1.00 million 22.00% Robbinsdale 7.10 million 6.37% Brooklyn Center 8..25 million 3.86% Columbia Heights 8.40 million 3.48% HRA Letter No. 43 -6- November 15, 1982 There are limited sources of revenue for these funds. The orily~: funding source staff has been able to identify is the L/H/N Capital Fund. That fund is projected to have a balance of $1,555,997 at the end of 1983. It is the recommendation of the staff that the contribution to the single family mort- gage program from this fund not exceed $300,000. Recommenda- tion for such a limit is because the Capital Fund is virtually the only source providing complete flexibility in its potential uses. It is probable that some monies from this fund will be necessary to provide incentives for achieving redevelopment of the Godfather Block. In addition, this fund is the most likely source of funding any redevelopment initiatives in the 76th Street and Lyndale Avenue area, or at the Cedar Avenue Liquor Store site. The future of housing development at Legion Lake and the continued search for potential in the redevelopment of the Lincoln Hills School site for housing purposes, may also need to tap this source for financial support. ' The staff is continuing to seek clarification from the De- partment of Housing and Urban Development as to eligibility of CDBG to provide a portion of the local contribution. However, at this time it appears unlikely that CDBG monies will be avail- able. The staff will also be meeting with local lenders in the next few days to determine their interest in participating in this program. They may be willing to provide a cash contribu- tion equal to two to two and one-half percent of the requested bonding authority for the opportunity to participate in the program. If they actively participated in the prograrn during ~/ its projected two-year life, it may be possible to return to them a dollar amount equal to their original contribution. For a $10 million application, a 3% contribution from the HRA and a 2 to 3 % contribution from lenders should provide a good competitive proposal. ~- The cash contribution does not have to be provided until after the city has been selected by MHFA..- However, the applica- tion must indicate the amount and the expected source. Present- ly, it is not known which, if any, banks are desirous of par- ticipating in the program, and if they would be interested in making a cash contribution to the program to obtain additional business. Another consideration to be evaluated derives from the need income, or $31,460. The amount of subsidy to be provided fam- ilies with income levels at these amounts must be considered in light of other priorities. HRA Letter No. 43 -7- November 15, 1982 In conclusion, due to 1982 legislative changes, the city has an opportunity to compete for an allocation of bonding authority to provide below market interest rate mortgages. To participate in this program would help achieve some objectives previously identified by the City Council and the HRA, while making it more difficult to achieve other objectives. The decision to participate has to be made by both the City Council and the HRA in that the city would seek the bond authority and the HRA would provide at least a significant portion of the local contribution. It is recommended that the HRA take the following actions: 1. Authorize the staff working with our financial consultant and underwriter to prepare an applica- tion for housing revenue bond authority in the $8 to $10 million range; 2. Make available from the L/H/N Capital Fund up to $300,000 as a local cash contribution; 3. Select Dain Bosworth, Inc. of Minneapolis, a mort- gage banker, as the underwriter for this issue; 4. The HRA is encouraged to attend the City Council meeting on December 13, 1982 at 7:00 p.m. for the public hearing on this application. Respectfully submitted, ~ ~~~~ Karl Nollenberger Executive Director cc: Community Development Director Housing and Redevelopment Coordinator KN/ej a _. _ .-~._. _. _ _. L -- HOUSING AND REDEVELOPf~IENT AUTHORITY Office of Executive Director HRA Letter D1o . 4 2 Agenda November 15, 1982 Housing and Redevelopment Authority Commissioners City of Richfield Dear Commissioners.: Subject: Harriet Avenue Utilities Relocation Change Order No. #2 On September 13, 1982, the HRA awarded a contract in the amount of $103,052 to G. L. Contracting, Inc. for the reloca- tion of certain Harriet Avenue utilities. The project provided for the relocation of Harriet Avenue utilities to Grand Avenue and 67th Street so that the Harriet Avenue public right-of-way could be vacated for the Richfield State Agency project. This project has recently been completed. At the time of the contract award, change order number one was approved. This added $4,095 to the $103,052 bid amount and permitted augering beneath the ground in front of the Lund property, rather than digging an open trench. Change Order number two in the amount of $7,455 is now being presented to the HRA for approval. At the time the speci- fications for the project were formulated, it was assumed that 67th Street pavement was 4.5 inches thick. However, because 67th Street is a Minnesota State Aid road, the pavement is seven inches thick. To maintain D1SA standards, it was necessary to increase the pavement to seven inches. Thus, the total amount of the contract is now estimated to be $114,602. The exact amount will be determined by the exact quantity of materials used. It is recommended that the HRA adopt a motion approving change order number two in the amount of $7,455 to the contract with G. L. Contracting, Inc. Respectfully submitted, ~~J2. /~a~....~.~,~ Karl T~lollenberger Executive Director cc: Community Development Director City Engineer Finance Coordinator ~~ HOUSING-AND REDEVELOPMENT AUTHORITY Office of Executive Director HRA Letter No .. 41 Agenda November 15, 19 Housing and Redevelopment Authority Commissioners. City of Richfield Dear Commissioners: Subjeet: Request for Authorization to Initiate Ne- gotiations for~Purchase-_of Property in the "Godfather Block" Since 1980, the HRA has been purchasing property in the "Godfather Block"~ The HRA now owns four properties at 744, 738 and. 732 West 66th. Street,. and at 735 West 65th St.=eet. The remaining property is owned by two priva•~e pasties; Mrrs. A~Os and Daniel Heilicher own the Godfather Restaurant real estate, and Mr. Gordon Strom owns. the remaining properties 3n the block.. It would be appropriate for. the HRA to authorize the Execu- tive Director to initiate negotiations for purchase of the=prop- erty awned by Mr. Strom.. The LxH/N redevelopment plan provides for HRA acquisition of the entire Godfather Block. Although the HRA has not executed an agreement with a developer, this would be an appropriate time to initiate negotiatioons. In October, 1980, the HRA requested the city council to establish a development moratorium on the block. The council responded by establishing a one-year moratorium with the adoption of an ordinance on November 24, 1980 . The moratorium was sub- sequently extended for a second 12-month period; this extension will expire on January 10, 1983. During the moratorium, build- ing permits were not issued for new construction.. However, once the moratorium expires, property owners will be able to seek building permits. Any new construction will increase the value of the property to be purchased, so that presumably it would be less costly to negotiate a purchase now rather than later. There is also a possibility of litigation occuring if the moratorium expires and no attempt has been made to initiate property acquisition. HRA Letter No. 41 -2- November 15, 1982 The types of uses existing vn the property owned by 1~lr. Strom are not in the best interests of the L/H/N redevelopment project... The industrial uses are contrary to the. adopted plan for the L/H/N and the commercial uses are for the most part, of a deteriorated nature.. It is important to the overalY success of the L/H/N project that. these properties be purchased, im- provements.eliminateci and redevelopment occur. This redevelop- went is important even if the proposal by Derrick Land Develop- ment Company would not be followed through to completion. for some reason.. Mr. Strom has recently indicated a willingness to negotiate the sale of his property to the IiRA. The funds for the purchase of. the property would be pro- vided by a bond sale paid for from tax increments in the L/H/N. The financial condition of the project would a]~ow for a bond sake of 51,000,000-:now, even under conservative projections of tax increment. The property is' expected .to exceed that Bost, however, In the event that development of the parcel has not been completed in time to provide the necessary tax increments for debt service, any debt serviee payments in excess of the- tax increment flow. could be supplemented from the L/H/N Capital Projects Fund. A specific- reserve of a portion of the L/HXN Capital Project Fund could be: established for this purpose. There are adequate funds available for-such a reserve. It is recommended that the HRA.adopt the attached resol- ution, authorizing the Executive Director to initiate negotiations for the purchase of Mr. Strom's property in the area. commonly known as the Godfather Block.. Respectfully submitted, Kw..Q. Ne~~~ Karl Nollenberger Executive Director cc: Community Development Director Administrative Services Director Housing and Redevelopment Coordinator Finance Coordinator .City Attorney KN/ej a HRA RESOLUTSON NO. AUTHORIZING THE INITIATION OF NEGOTIA'ESONS FOR PURCHASE OF PROPERTY IN THE LHN PROJECT WHEREAS, the Housing and Redevelopment Authority in and for the City of Richfield (HRA) desires to purchase certain real property pursuant to and in furtherance of the L/H/N Redevelopment ° Project (LHN) amended heretofore adopted by the City of Richfield and the HRA; and WHEREAS, the area bounded by Lyndale Avenue, West 66th Street, Graham Avenue and-West 65th Street (Area) tirithin the LHN has been identified for acquisition within the meaning of Minnesota Statutes 462.411; and WHEREAS, the HRA has previously acquired property in the Area; and WHEREAS, Gordon Strom o~rns real property in the Area identified in Exhibit A; and WHEREAS, the HRA has access to funds for the purchase of real property in the Area. NOW, THEREFORE, BE IT RESOLVED BY THE RICHFIELD HOUSING AND REDEVELOPMENT AUTHORITY: 1. The Executive Director- is authorized and directed to' initiate negotiations for the purchase of the subject real property. 2. The Executive Director is directed to take whatever actions are necessary to implement the purchase of the subject property and from time-to-time to recommend to the HRA appropriate actions it may take to facilitate the purchase. Passed by the Housing and Redevelopment Authority of Richfield this 15th day of November, 1982. Thomas E. Harms, Chairman ATTEST: Michael 0. Freeman, Secretary ~+ t~ ..~ ~ ~. . N ' : N'f M ~ I• V ~~ ~ ~ ~ ~~ 1~i . 1r~i ~ ~N ~. 1. h L I _ _ I L 9 it F t w ~ 7 - ~ ~ ~ °e E ~ $ ..Y ~ o e~ ~ ~ ~ ~ ~ ~ u I X ~ ^ s8s t 1~ 1 ! ~ °I „t, cb ! r •°~ s I~ ~ 0 t.~ ; ®' c~ o r 'Ac+c ~ ~ - I ~'~ry e ~ ~• ~• 'j{ ~ L61 ~A t:~::a::::::,~i::iri :::; ~• ~ ~r • . 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L;ii7 ~,^i ~ • ~ /~ • ~ ~ Cllr (. 0 t J r^~`i~i:?f; ~~{ ~ ~ , )~ ' ~ , ~~, ~ ~ ~ Q .y~ \/[` ~•i ~ ~ • ,~,~ '~ t~ ~ .. ` • •,• ~v`s a . ~ ~ ~ s~rn Q ~ ~ ~ ~: ~ `~ J -- ~' ° ~ ~ ~y ~ ., ~ ~,~''°' ~ ~ ' ° ' •.~ • v HOUSING AND REDEVELOPMENT AUTHORITY Off ice of Executive Director HRA Letter No. 40 Agenda November 15, 1982 Housing and Redevelopment Authority Commissioners City of Richf field Dear Commissioners:. Subject: Lincoln Hills Housing Project According to provisions of the agreement between the HRA and the School District, the HRA_.must notify the Rich- field School District by December 1, 1982, of the HRA's in- tent to purchase the Lincoln Hills School property. As in- dicated earlier ,'Lincoln Hills was not selected by~the U.S. Department of Housing and Urban Development for Section 202./8 funding. It is the opinion of the staff that, given the re- sources available to the HRA at this time, it is not .possible to formulate an alternative financing package to provide housing at the Lincoln Hills facility. This letter further explains the staff's findings in exploring financing alternatives, discusses the future status of the property, and recommends ' that the HRA adopt a resolution authorizing termination of the. purchase option for the property. There is also a brief discussion of why Lincoln Hills was not selected for funding. For the past several months, the staff has been evaluating financing alternatives, other than Section 202/8, for the=_Lin- coln Hills site. With the limited types of financing available., the housing alternatives evaluated as having the greatest po- tential were rental units and cooperatives. The project spons- or, the Community Development Corporation (CDC), and their fin- ancial consultant, the Metropolitan Council, and its new "housing development assistance team", and the city staff all had a role in evaluating alternatives. Based on the same assumptions that were made for the Lincoln Hills 202/8 project, i.e. an HRA writedown on the $700,000 land cost, and interest rates in a range of i1~ to 15~ for long-term financing, neither type of housing could be financially feasible to create housing for the low to moderate income elderly. To create a rental project, for instance, an additional up front cash subsidy of approximately $1.7 million by the HRA could produce only non- Section 8 rental units costing a minimum of 5350 per month. That is as much as elderly persons are paying now in existing rental units rented at market rates. It was estimated that a cooperative project would cost $790 per unit per month. This is a higher monthly cost than similar units at the Lake Shore Drive condomimium project. HRA Letter No. 40 -2- November 15, 19'82 While the market has become more favorable recently, it is still believed that the project is not feasible for low. and moderate income persons. Based on this conclusion, CDC and the local non-profit corporation, Lincoln Hills Inc. (LHI), met on October 25, 1982, to,.discuss the alternatives available to LHI. That discussion resulted in adoption of a resolution that for- mally terminates the option agreement for the school between LHI and the HRA. Without LHI's action, the option would have terminated at the end of October. A second resolution was also adopted, requesting the City of Richfield to continue to pursue the acquisition of Lincoln Hills for purposes of providing affordable housing for lower income elderly and handicapped per= sons. Included in the resolution was a request that, if an al- ternative funding source were ::found, the city consider desig- nating LHI as the developer because of their previously expressed commitment, and the commitment of sponsoring Richf field church groups to the project. . It i~-appropriate.at_th~s time that the HRA take a similar action and terminate the option agreement between the HRA and the school district.. This action would have the following results: -the school district would, presumably, attempt to sell the site on the open market; -the HRA would lose its $1,000 earnest money deposit paid to the school district; -the city would lose the opportunity it had for secur- ing the western portion of the site for open space, unless it negotiates a separate agreement with the school district; -$400,000 in CDBG funds will have to be reprogrammed; -the HRA would not be responsible for the provision of additional fuel oil when the supply runs out at Lincoln Hills. While the school district seeks a future course of action for them to take with regard to the Lincoln Hills property, some favorable developments may occur in the next several months. One would be a continued improvement in interest rates for long- term financing. A second would be another opportunity to com- pete for Section 202/8 funds. This fall, Congress authorized a spending bill that includes loan funds for the Section 202 program. The Department of HUD feels confident that, after Thanksgiving, Section 8 rental subsidy funds would be included to allow another Section 202/8 competition in the spring of 1983. One consideration would be whether the .Lincoln Hills project would be successful if re-submitted for Section 202/8 funds. The following information discusses this, and may also answer questions about why the initial submission was not funded. Attached to this letter is a ranking for the 1982 competition. HRA Letter No. 40 -3- Nouember 15, 1982 Because of HUD's "freedom of information" versus data confidentiality policies, the information on the Lincoln Hills ranking is rather sketchy even after weeks of pursuit. However, we have found that Lincoln Hills was ranked 12th of metropoli- tan area applications. Only the first seven were selected. Some of the reasons for the Lincoln Hills position are that according to a summary ranking, the Lincoln Hills application could have been improved upon in: -its explanation of local community support, further detail perhaps; -if it were closer to shopping, medical facilities, transportation, churches, recreational facilities, and other services for the intended occupants; -reasonableness of the cost per unit and suitability of the property for the intended use; -its evaluation as modest cost design since rehabilita- tion often creates more inefficient space and costs more per unit than new construction. HUD has stated that ours was a good application, but so were others. Depending on HUD's interpretation of CDC's applica- tion, perhaps an additional six to eight points might have been possible. The ranking score then could increase from 61 points to 67 or 69 points. These extra points are significant, in that they might have permitted Lincoln Hills to be funded in this year's competition. The greatest hurdle, it appears, is to overcome an evaluation bias of HUD's that rehabilitation pro- jects will always be less efficient in utilization of space .and operation and more costly to actually rehabilitate and operate, than new cons"truction projects. It would take an engineering analysis and completely detailed final building plans and speci- fications to demonstrate that the actual costs of rehabilitation and operation of this project were appropriate. The expense of a proper evaluation prevents this type of detailed work from being cost effective when there is no guarantee of project funding. Thus, it would now be appropriate for the HRA to adopt the attached resolution, authorizing the termination of the option agreement between the HRA and the School District. Respectfully submitted, Karl Nollenberger Executive Director cc: Community Development Director Housing and Redevelopment Coordinator KN/eja HRA RESOLUTION NO. AUTHORIZING. THE. TERMINATION OF AN OPTION. CONTRACT BETWEEN INDEPENDENT SCHOOL. DISTRICT NO.. 280 AND THE- HOUSING AP7D REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF RICHFIELD,. MINNESOTA FOR THE- - ~ PURCHASE OF THE LINCOLN HILLS SCHOOL SITE WHEREAS, the Housing and Redevelopment Authoriay in and for the City o£ Richfield. (HRA) and_Independent School District No. 280 entered. into an Option Contract on June 28, 1982; and WHEREAS, at a cost of one thousand dollars ($1,000), the HRA was granted. the option to purchase the Lincoln Hills School building and site for one..million, one hundred thousand dollars ($1,100,Ob0) for creating a-multi-unit housing.. project for the elderly; and. , WHEREAS, the HRA in turn executed an option agreement with a local non-profit developer, Lincoln Hills, .Inc.. (LHI); and WHEREAS, the financing to create a multi-unit housing pro- ject cannot be secured within the time specified by the contract deadline of December l., 1982; and WHEREAS, Lincoln Hills, Inc.- has-acted to terminate its ' option with the HRA;. and " WHEREAS, during the contract. period,. the HRA has been responsible-for ensuring that. there would be an adequate supply of heating oil to keep-the building properly heated. NOW THEREFORE, BE IT RESOLVED by the. Housing and Redevelopment Authority of Richfield, Minnesota: 1) That the action of LHi terminating the option with the HRA is acknowledged. 2) That the option contract between the HRA and School District No. 280 is terminated. 3) That the HRA is no longer responsible for ensuring an adequate supply of heating oil to the school building. 4) That the Executive Director is. authorized and directed to take appropriate action to implement this resolution. Passed by the Housing and Redevelopment Authority of Richfield this 15th day of November, 1982m Thomas Ee Harms, Chairman ATTESTa Michael Freeman, Secretary -- ARCHDIOCESE OF SAINT PAUL AND MINNEAPOLIS 328 West Sixth Street Saint Paul, Minnesota 55102. Community Development Corporation October 29, 1982 Housing and Redevelopment Authority Mr. Thomas Harms,Chairman 6700 Portland Avenue South Richfield, MN 55423 Re: Lincoln Hills Elementary School Dear Mr. Harms: 612-291-1750 As you know, the application submitted by Lincoln Hills, Inc., for .Section 202 Direct Loan financing from the Department of Housing and Urban Development (HUD) to convert Lincoln Hills Elementary S:chaolto housing for elderly and handicapped persons, was not selected for funding. The corporation was advised by HUD, that they felt the school site was not as convenient as it could have been for elderly persons to walk to grocery-and other shopping services. . As a result, on October 25, 1982, the Board of Directors of Lincoln Hills, Inc. met to consider other possible alternatives to provide housing-which would be affordable to lower income elderly and handicapped persons. After a discussion of the al- ternatives, which have been discussed with city representatives for the past several months, it has been concluded that the type of housing., which both Lincoln Hills, Inc. and the City of Rich- field desire for the school site, is not feasible under the pre- sent market conditions. It is therefore, with regret that the Board of Directors of Lincoln Hills, Ii~c. adopted a resolution to formally terminate its option for the purchase of the Lincoln Hills site. A second resolution was also adopted requesting that the city. of Richfield continue to pursue acquisition of the Lincoln Hills school site to develop affordable housing for elderly and handi- capped persons, if further negotiations for such acquisition is at all possible. ' ~~C~~~~ V 0 ~ 19a2 ND E~~i~ A recipient agency of the Annual Catholic Appeal ~~~ Page two Included in the resolution is also a request that should such housing be determined to be feasible through another funding source, the City consider again designating the non profit Lincoln Hills corporation as the developer based on its commitment and the commitment of the sponsoring church groups- to increasing afford able housing opportunities for lower income elderly persons. The Board of Directors greatly of City Officials and staff in to HUD. ~"le only regret that we this time in the development of appreciates all of the cooperation the. preparation of the application are not able to work together at this housing endeavor. Sincerely, Diane F. Nelson, Development Coordinator DFN:cs The 1982 Section 202/8 Ranking of Funding Those funded in Metro Area, in order of selections Ranking-Score Project Size/ (100- points Project Location Type possible) Sponsor Mound ~ 42 units/ 70 Community Development Corp. elderly- - - Little. Canada 41 units/ - 70 ~ Community Development Corp. elderly Mahtomedi 61 units/ 67 Community Development Corp, elderly St. Cloud 36 units/ 66 Catholic Charities handicapped St. Paul 36 units/ 66 National. Handicapped handicapped Ho-using Institute Eden Prarie 61 units/ 65 Twin City Christian Homes elderly Duluth 40 units/ 63.5 Diocese of Duluth elderly Those funded in non.-Metro Area., in order of selections Ranking Score Project Size/ (100 points Project Location T pe _~ossible) Sponsor Sandstone 8 units/ 80 Community Involvement • handicapped Programs Milaca 8 units/ 76 Community Involvement • handicapped Programs Winona 24 units/ 64 Group Homes of Winona handicapped LeSueur 37 units/ 58.5 Mn. Valley Memorial elderly Hospital Halstad 20 units/ 56.5 Halstad Lutheran Memorial elderly Home Faribault 30 units/ 55 St. Lucas Riverside Apts. elderly - Chatfield 24 units/ 51.5 Chosen Valley Housing , elderly Kenyon 9 units/ 42 Kenyon Sunset Homes handicapped • ®2v Those submitted as alternates, in order of rankingo Ranking Score Project Size/ (100 points • Project Location Type possible) Sponsor St. Anthony 50~ uriit~/ 63 Augustana Homes elderly Maple Plain/ 74 units/ 62.75 Community Development C®rp. Rodgers elderly Blaine 42 units/ 6275 Community Development C®rp. elderly Fosston 12 units/ 62 Polk Community Group Homes handicapped Columbia Heights 75 units/ 62 Crestvieca Lutheran Home elderly Richfield 67 units./ 61 Community Development Corp. elderly Crystal 80 units/ 60.5 Volunteers of America elderly Bloomington 60 units/ 59 Presbyterian Homes. elderly Anoka 62 units/ 58.5 Anoka Lions _ elderly Minneapolis 24 units/ 58 Community Involvement handicapped Program Monticello 36 units/ 57.25 Health Central Inc. elderly Duluth 71 units/ 55 Duluth Teachers Retirement elderly Fund Duluth 60 units/ 55 Board of Social Ministry elderly Perhan 37 units/ 50.25 Memorial Hospital elderly Mankato 40 units/ 50 National Handicapped handicapped Housing Institute Blue Earth 24 units/ 43.5 St. Lukes Lutheran HomE elderly