Loading...
HomeMy WebLinkAboutMINUTES - 07072015 - C.69RECOMMENDATION(S): APPROVE and AUTHORIZE the Conservation and Development Director, or designee, to execute documents to release Neighborhood House of North Richmond from $480,000 in Community Development Block Grant loans. FISCAL IMPACT: No General Fund impact. Community Development Block Grant funds are provided to the County on a formula allocation basis through the U.S. Department of Housing and Urban Development. BACKGROUND: In 2003, the Neighborhood House of North Richmond (NHNR) purchased a three-story, 35,000 square foot property located at 820 23rd Street in the City of Richmond (the Property) for $2.2 million. NHNR has used the building primarily to conduct a residential treatment program for drug and alcohol recovery on the second floor, and to provide transitional and permanent housing on the third floor. NHNR used the first floor for staff offices and for driving under the influence programs. Additional space on the first floor was made available for lease to other community-based organizations as office space. In 2004, the County loaned $200,000 in Community Development Block Grant (CDBG) funds to NHNR. The funds were used to rehabilitate portions of the building to support a residential treatment program. In 2007, the County loaned NHNR an additional $280,000 in CDBG funds for more rehabilitation to expand the residential treatment program. Pursuant to CDBG regulations, the loan was made to NHNR as a developer of housing for persons with special needs rather than as a CDBG subrecipient carrying out a public service activity. The County typically APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 07/07/2015 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Candace Andersen, District II Supervisor Mary N. Piepho, District III Supervisor Karen Mitchoff, District IV Supervisor ABSENT:Federal D. Glover, District V Supervisor Contact: Kara Douglas 674-7880 I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: July 7, 2015 David Twa, County Administrator and Clerk of the Board of Supervisors By: Chris Heck, Deputy cc: C. 69 To:Board of Supervisors From:John Kopchik, Director, Conservation & Development Department Date:July 7, 2015 Contra Costa County Subject:Release of $480,000 Community Development Block Grant Loans from Contra Costa County to Neighborhood House of North Richmond BACKGROUND: (CONT'D) > provides CDBG funds as loans to developers and grants to subrecipients. Revenue from special needs housing is inadequate to make any regular payments on a CDBG loan and unless a building is sold the County is rarely repaid. However as a lender on title, the County is part of discussions with other lenders to seek ways to work out the borrower's financial problems if any arise during the loan term. Although CDBG regulations do not require the County to impose any term of affordability, each loan imposed a 20-year use restriction. For the past 11 years, NHNR has continuously provided services to CDBG eligible beneficiaries pursuant to a CDBG Regulatory Agreement and has met a CDBG National Objective. Since acquiring the building, NHNR was never able to fully implement its master plan to utilize the entire building. While it has provided both out-patient and residential programs, it was not able to fully sublet extra space to other agencies to generate adequate revenue to cover its expenses. As a result, NHNR has not been able to meet its financial projections and has not made mortgage or property tax payments for several years. Existing debt: NHNR has approximately $4.4 million of debt that is secured by the Property. Mechanics Bank is the senior lender, with approximately $2.85 million outstanding. The junior lenders are the County ($480,000), the City of Richmond ($285,000), and the Northern California Community Loan Fund (NCCLF) ($283,519). In addition, NHNR owes delinquent property taxes ($503,000). The County Tax Collector sent NHNR a notice stating that it will record a Power of Sale on July 1, 2015. Request for loan forgiveness: In 2014, NHNR determined the best way to continue to operate and provide services to a vulnerable population would be to relocate the programs to smaller facilities and to sell the Property. NHNR has succeeded in locating a buyer and has entered in a purchase and sale agreement to sell the Property for $1.15 million. Because the sale price is insufficient to pay both the property taxes and the senior lender in full, NHNR is requesting that the County, the City of Richmond, and NCCLF fully release their loans and permit the sale to close. (NHNR request is attached.) Mechanics Bank has agreed to allow the short sale to occur, provided the proceeds of the sale are applied only to the property taxes and the Mechanics Bank loan. County staff understands that this is an arms length transaction and that the purchaser is not otherwise affiliated with either NHNR or Mechanics Bank. The buyer has deposited funds in escrow and NHNR wishes to close on the sale by July 10, 2015. County staff understands that the buyer proposes to use the Property as a mixed-use commercial and residential building, which is a continuation of its current use. The buyer will invest approximately $3 million to upgrade the building systems and make other improvements. As proposed, the first floor will continue to be used as office space. The second and third floors will be converted from transitional to permanent housing. Based on the stated plans for the building, the tenants will be lower-income. County options: The County's options are limited: The County can either (i) release the existing loans, permitting NHNR to sell the Property, or (ii) let the Property go into either foreclosure or a County property tax auction. If the County and other junior lenders do not release their loans, Mechanics Bank will likely foreclose, and the County will lose its loan security through foreclosure. The Property would then be vacant until a new purchaser is found and could become blighted. The property would have to sell for more than $3 million before there could be even a small repayment of the CDBG loans. County staff from the Behavioral Health division of the Health Services Department, and Conservation and Development Department have worked with NHNR for the past two years to explore options that would enable NHNR to maintain its programs at the Property. Those efforts were not successful. Behavioral Health has continued to work with NHNR to ensure a smooth transition for the programs and clients to other facilities. The CDBG loans will not be forgiven until the Department of Conservation and Development receives a letter or memorandum from Behavioral Health stating that NHNR is complying with all of its requirements regarding the transfer of programs and clients from the Property to other facilities. In addition, the release of the CDBG loans will be conditioned upon the County receiving a proportionate share of any payments made to junior lenders. County documents for this transaction may include a zero demand payment and a reconveyance of the deeds of trust and regulatory agreement. CONSEQUENCE OF NEGATIVE ACTION: The Property would not be sold to this buyer. Mechanics Bank would likely foreclose and the County loans would be lost through foreclosure. CHILDREN'S IMPACT STATEMENT: ATTACHMENTS NHNR Request