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HRA 08/11/1994 - 29574� CITY OF FRIDLEY HOIISING & REDEVELOPMENT AIIT80RITY MEETING, AIIGIIST 11, 1994 CALL TO ORDER• Chairperson Commers called the August 11, 1994, Housing & Redevelopment Authority meeting to order at 7:30 p.m. ROLL CALL• Members Present: Larry Commers, John Meyer, Jim McFarland Members Absent: Virginia Schnabel, Duane Prairie Others Present: William Burns, Executive Director of HRA Barb Dacy, Community Development Director � Grant Fernelius, Housing Coordinator Jim Casserly, Development Consultant Craig Ellestad, Accountant APPROVAL OF JUNE 22, 1994, HOUSING & REDEVELOPMENT AUTHORITY MINUTES• Mr. Ellestad stated, under item l, paragraph 2, the last sentence ^ should read, "The payment schedule shows a payment of 3 089 twice a year starting in 1996 and continuing through 2003. MOTION by Mr. McFarland, seconded by Mr. Meyer, to approve the June 22, 1994, Housing & Redevelopment Authority minutes as amended. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOII3LY. 1. RESOLUTION TO AMEND HOME MORTGAGE ASSISTANCE PROGRAM Mr. Fernelius stated there is one proposed change to the program rather than two as stated in the memo. The first issue concerns the requirement under the Home Mortgage Assistance Program. The borrower needs to make a minimum of $15,000 worth of improvements to the property to be considered. If buying a home or refinancing, at least 10% of the mortgage must be for improvements to the property. In our experience working with the program, staff has found this requirement is too restrictive and is not workable for the program. Borrowers have been turned down or have withdrawn from the program because they do not want to or cannot make that amount of improvements for the deal to work. Realtors who have shown some interest in the program have indicated this restriction is too much to make it workable. Staff is recommending to reduce the requirement from $15,000 to � $5,000. By doing so, he would hope more people would apply and the program would be successful. The other recommendation, which � HOUSING & REDEVELOPMENT AUTHORITY MTG.. AUGUST 11, 1994 PAGE 2 they are retracting, is the issue of sweat equity. Under the current program, the borrower i� not allowed to do any of the work involved in the project. Staff had made the recommendation to allow the homeowner to do the work in order to make the program more workable because a borrower had been turned down when he wanted to do the work. We have found, however, in talking with other cities that have similar programs have the same requirement. A contractor is brought in primarily so the work is done in a professional manner and is done on time. Our lender did not have a requirement for the borrower to do the work. Staff now feels it is a good idea to keep this requirement as part of the program. Staff is asking for approval on the recommendation to change the minimum rehab level to $5,000. Mr. Meyer asked if a potential borrower brings in a bid from a contractor. Mr. Fernelius stated the program requires a borrower to come in with an estimate of the work to be done. Mr. Meyer asked the basis on which the contractor gives an estimate. Does the program have any requirements? � Mr. Fernelius stated there are no particular requirements which is a problem they are running into and hope to address. It is up to the borrower to work with the contractor. It is a problem for some borrowers who have never done this before and do not know what to look for. The proposed improvements must meet the guidelines which states these are to be basic improvements or repairs that increase the value of the property. Mr. Meyer expressed his concern that a borrower would receive an unfair estimate from a contractor. Mr. Fernelius stated the program does not have a requirement that the borrower provide competitive estimates, although staff encourages them to do so. The bank looks at the estimates to make sure they are reasonable. Mr. Meyer asked if the contractors must be approved and/or licensed contractors. Mr. Fernelius stated the program required a licensed contractor. A licensed contractor is licensed through the State of Minnesota. The State licenses remodeling contractors. Ms. Dacy stated the City does not duplicate a license issued from the State. The City will license specialty contractors. � Mr. Meyer stated he is trying to protect the borrower. The program forbids the borrower to use sweat equity but we will put /'� � � HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11. 1994 PAGE 3 them at the mercy of someone who can gouge them. He recommended requiring estimates from two licensed contractors. Mr. Fernelius stated that requirement could be included. He felt the borrower would do that anyway. One change staff is looking at is the idea of bringing in a rehab counselor who would walk the borrower through the process from the initial inspection and deciding what will be done, helping them prepare a set of specifications so they can get comparable estimates, and helping them in the bidding process. That is the part of the program that is perhaps missing. Mr. Meyer expressed his concern that, if it is much easier for people to participate in the program, we will see a group of people who have not seen fit to participate before and it may be they are more vulnerable to a dishonest contractor. If we can require two bona fide estimates, we will have done them a favor as long as we are lowering the requirement to make it more appealing to participate. Mr. Fernelius stated this might work in some cases and not in others. If you make this change, there is no guarantee the borrower will get comparable estimates. The contractor needs to look at a set of specifications or work write up so they know what is being asked. That is the part of the program he would recommend changing in the future, and he thought this would make an improvement to the program. The reduction in the minimum rehab amount will also make an improvement and make the program more successful. There has been some interest, a few people have gone through, but no one has actually closed on a mortgage. Mr. Meyer stated he agreed with having specifications or plans. Even though having two estimates is imperfect, it is better than just one person walking through. He felt lowering the minimum was a good idea, but felt there should also be two estimates. Mr. Fernelius stated he had no objection. This was not an additional burden on the borrower and may provide more protection. Mr. Casserly stated, as a procedural matter and in order to keep the program limitations formalized and program operations more informal, he recommended a motion directed to staff to, whenever possible, to secure more than one bid would be in order. The resolution before the commission is much more formal because it tries to more specifically describe who is eligible to participate rather than stating how to operate the program. He also recommended a motion to modify the resolution to delete the sweat equity provision. /"� � � ,"'� HOUSING & REDEVELOPPRENT AUTHORITY MTG.. AUGUST 11, 1994 PAGE 4 MOTION by Mr. McFarland, seconded by Mr. Meyer, to modify a Resolution Authorizing the Modification of the Fridley Home Mortgage Assistance Program to delete the sweat equity provision. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOIISLY. MOTION by Mr. Meyer, seconded by Mr. McFarland, to approve Resolution No. HRA 6- 1994, Authorizing the Modification of the Fridley Home Mortgage Assistance Program, to reduce the remodeling requirement from $15,000 to $5,000. IIPON A VOICE VOTE� ALL VOTING AYEs CHAIRPER30N COMMER3 DECLARED THE MOTION CARRIED IINANIMOIISLY. MOTION by Mr. Meyer, seconded by Mr. McFarland, to the HRA staff require two bids and/or estimates from licensed contractors for any rehab work for which a mortgage would be considered prior to authorization. Mr. Burns stated he assumed this would apply to multi- contractors. One project may have a number of contractors involved. Is it the intent that two estimates be obtained from each specialty? Mr. Meyer stated all subcontractors who are part of the $5,000 or more total package for which a loan is being requested should all be subject to the two estimates. Mr. Casserly stated he would preface his observations with "whenever reasonable and possible" to try to secure two bids. Mr. Commers stated the Commission can direct staff that our policy is to try to achieve two bids from licensed contractors on all rehab programs. We have not used the program so it is hard to tell. Let us try this, and staff will need to use their best efforts. Mr. Meyer stated, when you get two estimates, each should be written out as to what that bidder is going to do. This is standard for a contractor to do. It does put a burden on staff but, as long as we are trying to help people, we may as well make it good for them. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOII3LY. a HOUSING & REDEVELOPMENT AUTHORITY MTG.. AUGUST 11. 1994 P�GE 5 r"� 2. AUTHORIZE ACQUISITION OF 550 HUGO STREET N.E. Mr. Fernelius stated staff has negotiated with the owner of this property. The.property is a single family home with 700 square feet, one story, and no basement. The owner basically used the house for storage. It has been vacant approximately two years and is in extremely poor condition. The house in on a nonbuildable lot so what would'be done with the property once acquired is at this time questionable. It does meet the objective of the program to remove substandard housing. The property is located next door to 560 Hugo Street which the HRA has tried to acquire previously, and next to 540 Hugo Street which the HRA has also tried to acquire. If, in the future, the HRA acquires the other two properties, there is the potential to combine the parcels and create a buildable lot. The property was appraised at $36,000. The assessor has the property valued at $37,000. Staff were able to negotiate a purchase price of $34,800 so it is within the guidelines established for this program. Staff is requesting authorization to buy the property and for the Executive Director to enter into a purchase agreement. Once acquired, the building would be torn down and the vacant parcel maintained by the HRA as part of the program. �,.� Mr. Meyer asked when the house was built. Mr. Fernelius stated the house was built in the mid-1940's. MOTION by Mr. Meyer, seconded by Mr. McFarland, to authorize staff to purchase 550 Hugo Street AT.E. for $34,800 and to authorize the Executive Director to execute a purchase agreement for the property. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMER3 DECLARED THE MOTION CARRIED IINANIMOII3LY. 3. CONSIDER LOAN FOR MOORE LAKE APARTMENT PROJECT Ms. Dacy stated the property is located on the west side of Polk Street and extends to Hillwind. The City owns the lot at 5720 Polk Street. After the City bought the lot, the house was demolished and the City is now maintaining the lot. The owners of Moore Lake Apartments have applied to the MHFA for rental rehab monies under the old grant program. They have completed the grant process and, with an equal contribution on their part, they have installed a new roof, upgraded appliances, updated the water softeners, etc. The last piece was to repave the parking lot. The parking lot, because of the age of the building, is undersize. Some of the tenants have been parking on the street south of the project. The City Council has established a no � parking zone on that street, and the City Council wants to adhere to that policy due to safety issues. The owner is looking at ^ HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11. 1994 PAGE 6 options for expanded parking. Six months ago, they started looking at the property north of the apartments. The other property owners do not seem willing to sell a portion of their property for parking. Staff checked to see if we could help them attain a 35 foot strip to expand their parking area. Ms. Dacy stated the proposal is that the City would convey 35 feet from the lot at 5270 Polk Street to allow the creation of 15 parking spaces. The owners feel this would solve the problem of having tenants park on the street. Selling the land would leave a sizeable piece of property for the construction of a single family dwelling. In meeting with Mr. Stewart, the owners' representative, he stated he would have trouble financing the entire amount for the parking lot construction and asked for help from the HRA. Staff is suggesting the following agreement: 1. The City agrees to sell a strip of property necessary for e�ansion of the parking area to Mr. Stewart for $5,000. 2. The Fridley HRA agrees to loan the Moore Lake Apartments the sum of $10,000 for total project costs. The loan would be repayable over a 10-year period, with principal and interest payments being deferred for two years. ^ Mr. Commers asked if there would be screening between the parking area and the vacant lot. Ms. Dacy stated, because of the change in elevation between the apartment property and the vacant lot, a 5-foot retaining wall would be constructed. The code requires a fence above the retaining wall so there would be screening. Mr. Commers asked if the dumpster is also required to be screened. Mr. Burns stated the dumpster must also be screened. Ms. Dacy stated another property owner, Mr. Gilstad, is willing to convey an easement but he is not willing to sell the property. Mr. Burns stated the terms of the loan would be $10,000 over a 10-year period at 5% interest with two years of deferred principal and interest payments. The City would sell the portion of the property for the parking lot for $5,000. That is a good purchase price and the terms of the loan is also favorable. He spoke with Mr. Stewart who thinks this is good for him. Mr. Commers asked if the HRA could get some personal guarantees. It appears there is other financing on the building which does � not provide much protection. HOUSING & REDEVELOPMENT AUTHORITY MTG.. AUGUST 11, 1994 PAGE 7 �. Mr. Burns stated he thought he had mentioned personal guarantees in the negotiating session. Mr. McFarland asked if this was a new owner for this property. Ms. Dacy stated the current owners acquired the property at least three years ago, to her re�ollection. The owners are a group of partners. Mr. McFarland asked if there is enough cash flow for this property that they need subsidies. Ms. Dacy stated, as the owners explained it, besides the MHFA grant and loan, they have put in additional dollars to turn the project around. Mr. Burns stated, before formalizing, we can require looking at their financial statements and looking at their cash flow situation. . Mr. McFarland stated this was not his question. A commercial operation is for profit. These are new owners. What has changed since purchase other than they made a bad investment and need to � come to the City for a subsidy? Mr. Burns stated the profit situation in the apartment rental business is marginal, and it is very difficult to get additional money because most are fairly highly leveraged. He has not seen financial statements for Moore Lake Apartments, and he can request to see them before providing a subsidy where none is needed. Mr. Commers asked if the owners were actually spending $31,500 for the parking. Mr. Burns stated this was an estimate arrived at during the meeting between staff and Mr. Stewart. There will be more work done on the estimate. Also, the mayor is interested in trying �o see if the owners would be willing to construct garages, thereby generating additional taxes. Mr. Stewart is willing to consider that if the City was willing to loan a higher amount. He would prefer to take one thing at a time and get HRA's conceptual approval for the parking lot as this time. Mr. McFarland asked if the apartments were deteriorating. Mr. Burns stated the owners are doing a lot of improvements inside and have been very cooperative with staff. Staff has a good rapport with them and would like to help. ,� HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11, 1994 PAGE 8 � Mr. Commers stated Mr. McFarland makes some good points. If the HRA is going to start doing things of this nature and assist multi-property owners, we should look at their financial statements before getting into it too far. There is a point whereby it is not like a homeowner. This is a business agreement. We do not want the property to deteriorate because they are not making money, but we also want to make sure there is a need. Mr. McFarland asked if getting more information on their financial status would stall the project. Mr. Burns stated staff would have to come back with a formal agreement. He would like to have an understanding to authorize staff to negotiate with the owners, look at and verify their financials, and bring it back to the next meeting. If they are ready with an agreement, we can bring that forward at the same time. Mr. Meyer stated on one hand we want to make sure they can give us personal guarantees so we get repayment, but on the other hand we are looking at their financial information to see if they really need the money. For any monies that we authorize for n lending, we have never really given a means test. Mr. Burns stated they have looked at financial information for other projects. Mr. Commers stated these are looked at individually. Homeowners who apply for rehab loans need to show their income. In the case of McGlynn Bakeries, he looked at this as far as keeping jobs in the community. This is the first time for a request from a multiple housing program. This is not bringing jobs in, but HRA is trying to rehab the multiple housing stock to make sure it is liveable and maintained. To him, this is a mixture between single family and commercial. Perhaps they should not do this at all. Mr. Meyer stated he thought they should, but he is trying to apply a means test to this situation. Means is not a real factor in any of the others they have examined. Mr. Burns agreed that they have not been consistent. Mr. Meyer stated there is no parking on Lynde Drive. The choices are to get rid of the apartments, tell the people not to drive cars, or help provide parking for the cars. So, this is a public purpose being served. ,^ Mr. McFarland thought the owner has an obligation to provide the tenants with a place to park. If he wants tenants, he needs to ^ HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11, 1994 PAGE 9 provide amenities. If not, the class of tenant will deteriorate which is a situation we are trying to avoid. But he felt they as investors had made a bad deal and now the HRA is paying for it. Mr. Meyer asked if they then tell them they are investors and to find their own parking or help them with their parking. Mr. Commers stated the City is trying to help by selling a parcel of land, and they want us to finance a loan. If we can get personal guarantees, there may not be a reason to get into financials. He did not thing it an unreasonable inquiry to make. Mr. Casserly stated he did not think they would be setting a precedent. The apartment complex has been there for some years. The problem is not the no parking zone. We seem to be solving a parking problem. He was not sure they were getting off the track in talking about cash flow and financial statements. Mr. Commers stated it is their obligation to solve their own parking problem. Mr. Casserly stated that problem has not changed for this owner or for previous owners. n Mr. Commers stated is sounds like the City just changed their policy and put No Parking signs on Lynde Drive. Ms. Dacy stated the issue is with current management who has been more aggressive with maintenance and trying to address these issues with the tenants. As far as the No Parking zone, the management has requested the City Council to remove the No Parking signs which they did not want to do. Staff was asked to resolve the problem. Mr. McFarland stated he did not think they were setting a precedent. It bothers him that these businessmen have used bad judgment. As Ms. Dacy stated, over time people who used to have one car now have two and that is where the problem has evolved. Mr. Casserly,stated the point is well taken. He was not sure that part of this isn't the City asking the HRA to help them solve an overall development problem. This seems to be a solution. He did not know how much time they wanted to spend given the size of the project. Mr. Meyer stated, let us say for example we are in favor of the project, except for asking for financial information and finding out if they can do this, what do we say then. Do we turn them down because they do not need the money? If we are not taking it ^ seriously, why bother? ^ HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11, 1994 PAGE 10 Mr. McFarland suggested taking a second mortgage on the property as security. Mr. Casserly stated the City owns the property so the City would have a first lien on the property which puts the HRA in a secure position. The HRA should take a lien particularly if it is the first. MOTION by Mr. McFarland, seconded by Mr. Meyer, to approve the terms of the agreement as recommended subject to negotiations with the Executive Director and his request of the owners for a guarantee. IIPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOIISLY. Mr. Commers stated he thought they should discuss guidelines before taking further requests, if there are going to be other rehabilitations on commercial buildings. 4. REVENUE AND EXPENSES Mr. Ellestad stated the checks to be approved are 25207-25240 � plus the additional expenses as outlined on the handout distributed dated August 11,' 1994. MOTION by Mr. Meyer, seconded by Mr. McFarland, to approve the check register, checks 25207-25240, plus the additional expenses. IIPOAT A VOICE VOTE, ALL VOTING AYE� CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED IINANIMOU3LY. 5. HOUSING PROGRAM UPDATE FOR JULY Mr. Fernelius reviewed the housing program update. On the housing rehab program, 20 people have been selected for the home improvement block grant program. Those people will be assisted by ACCAP in their applications, doing inspections, getting estimates, etc. Mr. Fernelius stated the scattered site program, with the one approved this evening, now has four properties. Two others being looked at are 683 Glencoe and 677 Hugo. Both properties have been appraised and offers made, but he has not yet heard from the owners. If they accept the offer, we may have something at the September meeting. Mr. Fernelius stated the Minnesota Cities Participation Program is a first time homebuyers program. Another lender has been � added to the list making the total seven. Marquette Bank - Brookdale has indicated they have closed five mortgages under the HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11. 1994 PAGE 11 �"'� 1993 program for $360,520. Some people took advantage of that program, and he has had inquiries for this year's program as well. 6. LAKE POINTE MARKETING UPDATE Ms. Dacy stated that two 2-sided signs have been erected, and each side of the sign has approximately 50 square feet. Cost estimates to extend the electrical cable 2,000 feet and put a spot light on each of the signs is approximately $8,000. If the Commission wants to pursue lighting, she recommends lighting only the Highway 65 side. However, $5,000 for lighting one sign does not seem feasible. Staff will still evaluate if existing lights make the sign readable at night. Ms. Dacy showed a proof of the ad for the magazines Twin Cities Business Monthlv, Corporate Report, and Minnesota Real Estate Journal. The inserts for the brochures are almost done, and they have a mailing list of 310 real estate brokers in the Twin Cities area. The mailing should be going out within the next week. Merrill Busch wants to follow that up with another mailing in October. The programming is in place for the fall. ^ Mr. Meyer suggested outlining the boundary of the 33 acres. Ms. Dacy thought this would be a worthwhile e�fort. Mr. Burns stated Mr. Stuebner of Five Star Realty is interested in acting as a potential consultant to market the property. Mr. Stuebner will be presenting a proposal next week. The advantage of having Mr. Stuebner is that he has more nationwide contacts. Mr. Stuebner contacted the City to do this and it may be that the HRA would like to also consider others. 7. UPDATE ON DAIRY QUEEN MOVE Ms. Dacy stated the Mississippi Street Dairy Queen would be relocating to the former Marquette Bank building on Osborne Road. The HRA will have no costs as part of the move. She did not have a detailed list of what Mr. Fitch is taking out of the current location. Her impression is that he would take those items he would need for the operation of his business. She did not know what would be left behind and the cost of disposal. She will find that out. Mr. Burns stated he would like to see the building taken down quickly. At other sites, there have been problems with scavenging, and there is concern about the public safety. �, HOUSING & REDEVELOPNlENT AUTHORITY MTG.. AUGUST 11, 1994 PAGE 12 � 8. UPDATE OF FRIDLEY TOWN SQUARE Ms. Dacy provided an update to the Commission on the Fridley Town Square project in her memo dated August 4, 1994. 9. CONSIDER ACQUISITION OF GUNDERSON PROPERTY Ms. Dacy stated Mrs. Gunderson had called her in July to find out the HRA's willingness to acquire her property. The decision last year was to acquire the Hedman property and extend the option on the Gunderson property. Mrs. Gunderson wants to sell and relocate. When asked if she would be willing to extend the purchase agreement another year if the HRA chose not to proceed at this time, Mrs. Gunderson stated maybe. The remaining amount of purchase is $88,500. The estimated current market value is $79,600, and the City's assessed value is $73,200. Mr. Commers asked if this property is needed because of the environmental concerns by having traffic going into Lake Pointe. Ms. Dacy stated the actual travel lanes of the new roadway would be 5 feet to 10 feet from the house. � Mr. Commers asked, if they do find a developer, will they need � that property. Ms. Dacy stated they must make a determination of whether or not to complete the intersection improvements. If that intersection is to be upgraded, staff recommends acquiring the property. The issue is whether to do this now or later. Mr. Commers asked what additional improvements will be made. Ms. Dacy stated both legs of the intersection will be widened to provide two left turn lanes onto Highway 65. There is now one turn lane, one lane straight ahead, and one right turn lane. The leg that is there now would move toward Moore Lake. It is necessary to move the opposite leg in order to match up the lanes. On the east side, traffic is beginning to block intersections. Mr. Commers stated, if the bottom line is that the property is needed sooner or later, he would hate to buy it and hold it. But, if the property will need to be paid for sooner or later, it may be worth the effort to see what could be negotiated. Ms. Dacy recommended taking the same approach as done previously to sell the building to a mover to get it off the property. Another option is to work with ACCAP to move the building but n they will not pay for the house. HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11, 1994 PAGE 13 �. Mr. Commers asked staff to see what they could negotiate and update the Commission at the September meeting. 10. UPDATE ON DEMOLITION OF SCATTERED-SITE PROPERTIES Mr. Commers stated the information included in the agenda mentions the problem of damage to properties as a result of scavenging. If there anything that can be done about the damage when properties are acquired? Mr. Burns stated the City could try to go after the vandals but it is probably more trouble than what it is worth. He suggested shortening the time between the time when the property is vacated and the time when it is torn down. The Fire Department burned one property but there was a delay during which people broke into the home. Having the Fire Department burn a property does not really save any money. A contractor must still be brought in to haul away debris. Ms. Dacy stated the Fire Department tries to schedule training at certain times during the years. This may or may not coincide with what staff wants to do. Other things can also come up to cause delays. She and Mr. Fernelius are working to try to close � in-coming acquisitions within days of each other and also get quotes for demolition to occur about the same time. Mr. Commers stated demolition is increasing costs significantly. Ms. Dacy stated demolition has been accounted for in the budget. 11. CONSIDER PARTICIPATION IN ACCAP ACQUISITION AND REHABILITATION PROJECTS Ms. Dacy stated ACCAP would like to purchase and rehabilitate properties located at 5908 and 5916 - 2 1/2 Street, 6008 - 2nd Street, and 6501 and 6513 Channel Road and is requesting participation from the HRA. Ms. Dacy stated the first properties are located at 5908 and 5916 -2 1/2 Street and 6008 - 2nd Street. The buildings on 2 1/2 Street have seven one-bedroom units in each building. The building on 2nd Street is a four-plex. ACCAP monitors MLS records and HUD housing to get market opportunities as they come available. These properties have been one the market for 8 to 9 months. The 2nd Street property is being foreclosed. All buildings are in a distressed condition. ACCAP wants to own the buildings, rehabilitate them, and rent out the units. The remaining properties are located at 6501 and 6513 Channel Road which is east of Highway 65 and north of Mississippi Street. � These two buildings are four-plexes. ^ HOUSING & REDEVELOPMENT AUTHORITY MTG.. AUGUST 11, 1994 PAGE 14 Ms. Dacy showed slides of the properties showing what improvements are necessary. The property on 2nd Street is vacant and is non-conforming. The windows need replacing as well as extensive interior work. The properties at 2 1/2 Street are occupied. The owner is currently trying to sell the buildings. The properties on Channel Road are in better condition. These buildings have three-bedroom units. Seven out of eight units have Section 8 tenants. . Mr. Commers asked by Section 8 does not require the buildings to be rehabilitated. Ms. Dacy stated Section 8 has minimum housing quality standards. On Channel Road, the tenants have been there a long time but Section 8 will not recommend they go to properties where they see deferred maintenance. These buildings are in fairly good condition and are in a nice area next to a single family neighborhood. Ms. Dacy stated ACCAP wants to acquire the Hyde Park property, own and manage these apartments. They want to provide these units for low income people and are proposing a single room occupancy project. They do not want to carry a mortgage on the � property. They are asking for MHFA dollars to fund a significant part of the acquisition. They are ask'ing Anoka County for $130,000 in HOME funds. The HRA is being asked for.participation in the rehab costs. To acquire and rehab the buildings in Hyde Park will cost a total of $538,000, assuming a maximum of $10,000 per unit for rehab. For the properties on Channel Road, ACCAP wants to continue to provide affordable family housing keeping the three-bedroom units. This project would support a mortgage. Acquisition and rehab costs are estimated to be $5,000 per unit, perhaps less. Ms. Dacy stated ACCAP is asking for rehab assistance from the HRA and wants the Council to look at a leasehold cooperative tax status. This is an intermediary step between renting and owning. In this case, the tenants will not own a share as in a cooperative; the tenants will lease a share and ACCAP will own the unit. The advantage is that this is a lower tax status. The HRA does not have to discuss tax status issue. This is more for the City Council. The HRA is asked to look at the options for rehab assistance. ACCAP wants to put.together an application to MHFA for monies to accomplish the project and, with local participation, their chances will be increased to receive funding. Ms. Dacy stated staff has come up with four options. Option 1 would be to do nothing. ACCAP states they will have a better �� chance of funding if the HRA participates but they could conceivably do the project without HRA assistance and by just �� HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11, 1994 PAGE 15 getting the tax status changed. Option 2 would be to use the typical loan policy on a rental rehab program. Money is allocated in the budget but have had no requests for assistance. The amount of assistance for the Hyde Park area buildings would be $11,200 or approximately 20 of the total cost. For the Channel Road buildings needing less rehab would also be 2� of the total cost. Option 3 would be to provide a deferred loan. In the case of a deferred loan, the formula could be used for up to 50% of the rehab costs or up to $90,000, but the loan is due on sale of the property. This represents 170 of the total cost. On Channel Road, the loan would be $20,000 or 6% of the total cost. Option 4 is a combination of a deferred loan with some type of pay back over, for example, a 30-year period to get some of the money returned to the HRA. By doing this, the rehab can be done and the HRA gets the money back. Ms. Dacy stated staff's recommendation is to get the HRA's authorization for staff to negotiate with ACCAP to start with, in the Hyde Park area, with a deferred loan and mortgage. For Channel Road, start with the current method which would be to provide $800 per unit and have the option of a deferred loan. Staff believes strongly that 18 units is a lot of units in the Hyde Park area. ACCAP is a good owner with a good track record ^ and should achieve some stability in that area. This is a high priority area. Their funds are leveraged. The damage done to these properties warrants a higher participation by the HRA. This is an opportunity to provide unique affordable housing. On Channel Road, ACCAP plans to finance with a first mortgage, and HRA would take the second position. By participating with ACCAP on this project, it will help to stabilize the area and preventing it from turning into something worse. If the owners of the Hyde Park properties came to the City and asked for assistance, the Housing Coordinator would work with them. There is justification for going beyond that. The buildings have been on the market for some time, and she did not think the owners would rehab to the level the HRA would insist. Ms. Dacy stated $110,000 was allocated in the 1994 budget which has not been expended at this time. It was to be granted for matching funds for multiple family rehab. Any amount decided upon would be within the budget. Mr. Commers stated, if we have a due on sale arrangement, the HRA will not know when that will come back. Ms. Dacy stated this was correct. Mr. Commers asked if there was Minnesota Housing Finance Rehab Funds for the properties on Channel Road. /"Z � ^ HOUSING & REDEVELOPMENT AUTHORITY MTG., AUGUST 11, 1994 PAGE 16 Ms. Dacy stated her understanding is that the rehab funds came from a Federal funding source which no longer exists. There are no grants. . Mr. Commers stated he did not understand why we don't go to the owner and make them do the rehab. Ms. Dacy stated this was a good point. The City has been operating its rental inspections on a complaint basis. She thought the HQS addresses exterior deterioration very minimally. Their primary concerns are interior and real safety issues. Mr. McFarland asked the value of the properties. Ms. Dacy stated she thought the value of the Channel Road properties to be $163,000 each and are selling for $165,000. The owner has been talking to ACCAP and are willing to go lower down to perhaps $158,000. In this case, there is a motivated seller. Mr. McFarland asked if the appraisal is based on income. Ms. Dacy stated the County did the appraisal, and she did not have the details. Mr. McFarland asked how they establish the value of the four-plex apartment properties. Ms. Dacy stated the County had the apartment property valued at $98,000 and ACCAP was working on a purchase agreement for $90,000. She did not know how they arrived at that figure. Mr. Commers stated staff is recommending a combination for the Hyde Park properties and asked what that meant. Ms. Dacy stated ACCAP wanted what amounts to a grant. Mr. Burns and Ms. Dacy are suggesting a 50/50 approach - 50a in the form of a deferred loan and 50% amortized over some term to be negotiated and see if ACCAP will agree to a monthly payment. She has asked ACCAP for their proposed cash flow analysis, operation and maintenance, tax allocations, and their proposed rental rate return at $250 per month per unit. Mr. Commers stated he did not see much difference bet�een $45,000 approval and one amortized over 30 years other than the HRA receives some minor payments. Mr. Casserly asked if staff was suggesting a$90,000 loan but $45,000 be deferred. Mr. Burns stated yes. In essence, half the amount is a grant and half is a loan. � HOUSING & REDEVELOPMENT AUTHORITY MTG.. AUGUST 11. 1994 PAGE 17 Mr. Casserly stated half is a loan being amortized over 30 years and the other half is due on sale of the property. Mr. Commers asked from which program these funds were coming. Ms. Dacy stated the funds were from the multiple family program. The HRA has two accounts for 1994 -$142,500 for the 1994 rental rehab program and $110,000 to be allocated toward the grant application which was not approved. Staff proposes using the $110,000 in that "grant" account. Ms. Dacy stated ACCAP is putting together an application to MHFA which must be completed by August 26. ACCAP is asking for a letter from the Executive Director providing conceptual approval for rehab assistance and participating in the project; and, if the HRA wishes to commit to some type of terms, to indicate those terms. Staff recommends starting with a negotiating approach. Mr. Burns stated staff recommends starting with a mixed approach and ending with the $90,000 deferred loan. Mr. Commers asked the Commission members if they had any objections to the concept. �, The Commission members concurred. They had no objections. Mr. Commers asked if inembers wished to get into more detail at this point. Mr. McFarland recommended going forward on the basis of negotiating for the best the HRA can get. Mr. Meyer agreed. Mr. Commers stated the HRA had consensus for the Executive Director write a letter to ACCAP to do as recommended usir�g the combination for the Hyde Park properties. Mr. Commers asked what staff had intended for the properties on Channel Road. Mr. Burns stated staff would like the latitude to go to $20,000. They would start at $6,400 and it may go as high as $20,000. That brings the total to $110,000 if we go to the extremes of our bargaining powers. Conunission members concurred. ADJOURNMEATT � ^ HOUSING & REDEVELOPMENT AUTHORITY MTG.. AUGUST 11, 1994 PAGE 18 MOTION by Mr. McFarland,�seconded by Meyer, to adjourn the meeting. IIPON A VOICT VOTE� ALL VOTING AYE� CHAIRPERBON COMMERS DECLARED THE MOTION CARRIED AND THE AIIGII3T 11, 1994, APPEAL3 COMMI38ION MEETING ADJOIIRNED AT 10:10 P.M. Respectfully submitted, `�� Vo�� � Lavonn Cooper Recording Secretary � �