REQUEST FOR PUBLIC COMMENT CITY OF EVANSTON SUBSTANTIAL AMENDMENT NEIGHBORHOOD STABILIZATION PROGRAM 2 The City of Evanston plans to submit a Substantial Amendment to its Neighborhood Stabilization Program 2 (NSP2) Action Plan to the U.S. Department of Housing and Urban Development (HUD). The amendment requests approval to include two NSP2 eligible activities in the City s NSP2 Action Plan: 1. Land banking City would retain ownership of certain properties with the intent to develop within ten years of NSP grant closeout. 2. Demolition of blighted foreclosed housing Demolition of property either to address a public safety and/or health concern or to implement a comprehensive neighborhood strategy of housing preservation and demolition. The addition of these eligible activities does not change the amount of funding, the number of foreclosed and vacant residential properties whose negative effects will be mitigated or the geography in which the program is implemented. The full text of the proposed Substantial Amendment is attached to this notice. The Planning and Development Committee of the Evanston City Council will consider the draft Substantial Amendment at its January 28, 2013 meeting, and bring a recommendation to the City Council the same evening. The Planning and Development Committee meeting agenda will be posted on the City s web site by January 25, 2013. Comments will be accepted on the proposed Substantial Amendment during the 10 day public comment period, which opens on January 18 and closes at 12 Noon on January 28, 2013. Comments will be accepted in writing at the Planning & Zoning Division Office, Room 3100, Lorraine H. Morton Civic Center, 2100 Ridge Avenue, Evanston, Illinois, 60201 or by email at nsp2@cityofevanston.org. For additional information contact: Jolene Saul, NSP2 Specialist City of Evanston Planning & Zoning Division Phone: 847 448 8166 jsaul@cityofevanston.org The City of Evanston is committed to making all public meetings accessible to persons with disabilities. Any citizen needing mobility or communications access assistance should contact Facilities Management at 847/866 2916 (Voice) or 847/448 8052 (TDD). La ciudad de Evanston está obligada a hacer accesibles todas las reuniones públicas a las personas minusválidas o las quines no hablan inglés. Si usted necesita ayuda, favor de ponerse en contacto con la Oficina de Administración del Centro a 847/866 2916 (voz) o 847/448 8052 (TDD).
City of Evanston Proposed Substantial Amendment Neighborhood Stabilization Program 2 The City of Evanston, working with its development partner, Brinshore Development, has made significant progress in implementing our program to date. During that time, we have identified conditions that were not anticipated in our application and need to be addressed using additional strategies. As indicated in our application to HUD and our action plan, the City s program has two components: Scattered Site. The mitigation of the negative effects of 100 units of foreclosed or abandoned housing through the acquisition, rehabilitation, and sale or rental of those units. Emerson Square, Phase One. Redevelopment of a vacant brownfield site into a 32-unit, mixed-income, New Urbanist rental project located on the City s west side. Program Status As of January 16, 2013, we have site control of 96 units towards our goal of mitigating the negative effects of 100 units of foreclosed or abandoned units. Of those 96 units, we have acquired 89 units. A summary of our progress is noted below. Fifty-nine units have been rehabbed Eleven rehabbed units have been sold and one is under contract Twenty-two rehabbed units are rented. Eleven for sale units and three rental units are on the market. Fifteen units are currently being rehabbed or built Eight units (four properties) have been demolished. While our original budget anticipated that the scope of rehab would range from minimal to moderate to gut, we are discovering that most of the properties, except for the condominium units, require gut rehabilitation to meet the City s Building Code and NSP2 energy efficiency standards. The most common unanticipated rehabilitation issue has been failing or missing foundations. In addition, there is a much higher incidence of substandard plumbing and electrical systems than we anticipated when applying for NSP2 funding. In November 2011, following the commitment of Low Income Housing Tax Credits and other financing, City Council approved an amendment to our existing redevelopment agreement ( RDA ) with Brinshore that committed $2.085 million of NSP2 funds along with $1 million of other City funds to Emerson Square. (The RDA originally included only the Scattered Site phase.) The City received a draft no further remediation ( NFR ) letter from the Illinois Environmental Protection Agency ( IEPA ) on May 25, 2012 and the site was acquired in July. After demolition and the first phase of environmental 1
remediation, ownership of the property was transferred to the developer in late October 2012. Construction is now underway and is expected to be complete by yearend 2013. Our total budget for both components of our NSP2 project is approximately $37.2 million. Of this amount, $22.2 million is City NSP2 funds (including program income). The City is also providing an additional $1 million in HOME, TIF, and Affordable Housing Fund funds. A detailed budget is on the following page. The City has expended approximately $17.6 million to date. We have generated approximately $1.2 million in program income to date and expect to generate approximately $3 million in total. Evanston NSP2 Program Budget Scattered Site NSP2 Program Funds $13,777,090 NSP2 Program Income $3,847,700 Bridge Financing $880,000 HOME $790,000 Permanent Financing $480,000 TOTAL $19,774,790 Acquisition & Demolition NSP2 Program Funds $621,860 Land Bank NSP2 Program Funds $125,000 Emerson Square LIHTC $8,613,000 Other State Sources $2,190,000 NSP2 Program Funds $1,811,050 Construction Loan $650,000 TIF $600,000 HOME $300,000 Federal Home Loan Bank - AHP $227,000 Deferred Developer Fee $120,000 Evanston Affordable Housing Fund $100,000 TOTAL $14,611,050 Administration $1,815,000 GRAND TOTAL $36,947,700 2
Proposed Changes Based on budgetary and other considerations learned in the course of our first two years of the program, we request approval of the following changes to our Action Plan: Inclusion of land banking as an activity Inclusion of demolition as an end use as an activity These changes and their impact on individual factors and sub-factors are detailed in the following sections of this memorandum. In addition, we have detailed the reallocation of funds between approved activities, as requested. 1. Need/Extent of the Problem a. Target Geography. Unchanged. The City will continue to undertake its NSP2 activities in the two census tracts proposed in its original application, 8092 and 8102. At the time of our NSP2 application, census tract 8092 had foreclosure and vacancy scores of 19 and 20, respectively, while 8102 had scores of 17 and 19, respectively. The average max score for the target geography was 19.5. b. Market Conditions and Demand Factors. Unchanged. The two NSP2 target areas continue to be the City s highest areas of need. In addition, the demand for quality rental and for sale housing affordable to low, moderate and middle income households has been demonstrated through the response to the City s NSP2 program. To date, almost 800 households have registered for our homeownership program and 180 for rental. 2. Demonstrated Capacity and Relevant Organizational Staff Past Experience of the Applicant Unchanged Management Structure - Unchanged 3. Soundness of Approach a. Proposed Activities. The activities proposed in the original NSP2 application and stated in the action plan are: Acquisition and rehabilitation (including reconstruction) of 100 units of scattered site rental and homeownership units. Approximately 50 units would be for sale and 50 units for rent. Financing mechanisms for the purchase and redevelopment of foreclosed residential properties (ultimately included with acquisition and rehab for second mortgage assistance for homes rehabbed with NSP2 funds) Demolition of blighted structures. Redevelopment of demolished or vacant properties. We have implemented minor changes in these activities based on our experience in market; these changes are outlined below. 3
Terms of second mortgage have been modified based on guidance from HUD and to improve the marketability of for-sale units. Whereas it was originally proposed that all second mortgages would be forgiven over a five-year period and that appreciation over 5 percent would be split with the City, current second mortgage terms differ. All second mortgages use recapture provisions. For single-family homes, the second mortgage has a fifteen year affordability period, regardless of the size of the loan. For condominium units, the affordability period follows the HOME regulations and is based on the amount of the direct subsidy to the homebuyer. As stated in the City s application and action plan, approximately 25 condominium units will be acquired with NSP2 funds. We have sold five condos to date with little issue regarding first mortgage financing, but are aware that some buyers may have difficulty obtaining sufficient financing for condos, particularly for those that are not FHA-approved. We have worked with two local banks, who have agreed to finance condo purchases and hold those loans in their portfolios. However, they generally restrict those loans to no more than 80 percent loan-to-value, even when a buyer could qualify for a larger loan. To avoid over-subsidizing those potential buyers, the City proposes to offer a second loan in addition to the forgivable loan used to maintain the affordability restrictions using recapture. This additional loan would fill the gap between what the bank will lend based on LTV and what a buyer can afford so that all buyers are treated equitably. This additional loan would carry an interest rate in line with the market and would be repaid to the City, generating additional program income and reducing the potential of over subsidizing condo buyers. In addition, the application stated that all scattered site rental units would target households that earn no more than 50 percent of area median income. However, it became apparent that the cash flow from the scattered-site rental portfolio would not be sustainable for the 15-year affordability period if restricted to the LH25 target. In addition, because of the close proximity of properties acquired, this would result in a concentration of lowest income households rather than the desired mix of incomes and tenures. Therefore, to maximize neighborhood stability, rental units will serve a mix of low, moderate and middle income households as described in our Action Plan. Last, the scope of Emerson Square was reduced based on our grant award. The application proposed approximately 100 units for the Emerson Square development. However, that development has been divided into two phases and only the first phase of the development will completed with NSP2 funding, yielding 32 units of mixed-income rental. Twenty-eight of the units will be affordable to households earning no more than 60 percent of area median income. The change in scope for Emerson Square detailed above were reflected in the City s Action Plan and previously approved by HUD. Inclusion of Land Banking and Demolition as an End Use in Action Plan This substantial amendment requests that the City of Evanston be allowed to add Eligible Use C land banks for residential properties that are foreclosed or 4
abandoned. The amendment also requests permission to have demolition as an end use. Currently demolition is approved for Emerson Square. The City is seeking to add acquisition and demolition of foreclosed residential property under the demolition activity. The proposed changes are detailed below. As previously indicated, the condition of the foreclosed properties we have acquired through NSP2 is significantly worse than anticipated in our original application. Most of the properties require gut rehabilitation. Many properties have had significant structural issues, including failing and in some cases, non-existent foundations, as well as major plumbing and electrical systems deficiencies and code violations discovered when walls are opened up. These issues are due to the length of time properties have been vacant and to prior modifications and additions that were done without permits that significantly increase project budgets. An Evanston architect noted that the NSP2 properties he has worked on were in the worst condition he has seen in the City in his almost 20 years of experience. From the viewpoint of neighborhood stabilization, these are the very properties that our program must address. However, due to these unforeseen circumstances, an already constrained budget has become even tighter. The City requests approval to include land banking among its HUD-approved activities to have increased flexibility to meet its goal of mitigating the negative effects of 100 units of foreclosed and abandoned housing. Land banking will allow time to secure additional funding and ensure that when properties are in such poor condition that they must be demolished rather than rehabbed, we will be able to undertake the most appropriate development (in terms of number of units, tenure and income levels) to stabilize the blocks and make optimal use of very limited land. The City estimates that approximately five properties, accounting for 7-10 units of our 100-unit goal would be entered into in a land bank. Currently, an affiliated-entity of Brinshore Development takes title to NSP2 properties. If HUD grants permission for properties to be land banked, title would be transferred to the City. The cost to maintain the land banked properties would come from anticipated NSP2 program income. Properties currently being considered for land banking or demolition as an end use are: 1941 Jackson Avenue. This property, built as a single family home and converted to a two-flat, was acquired in August 2010. The 1900 block of Jackson was once the block with the most police calls in the City. The City has undertaken several efforts to reduce crime and increase the quality of life here that have resulted in a 70 percent decrease in crime. In addition, this property is located across the street from the second phase of Emerson Square and its redevelopment could be included in that phase once financing is secured. Given the progress that has been made in this block and the property s proximity to current development efforts, we believe it would be to the neighborhood s benefit to hold off on redevelopment of this key parcel so that it can be incorporated into the larger Emerson Square project. A single- 5
family, for-sale property would be considered to diversify the types of housing stock and tenancy, dependent on stabilization of the for-sale market and financing. In addition, Evanston Township High School recently expressed interest in a building an affordable, for-sale home as part of its curriculum, following a model established in Colorado. While this project is still in the exploratory phase, 1941 Jackson has been considered as a potential site for this exciting project. In that case, this property would meet an objective through demolition and the home would be built and completed during the 2013-2014 school year. This project would leverage additional funding in the form of building materials and labor. It would also address City goals of expanding hands on educational opportunities for youth who may not have post-secondary education plans. 2122 Darrow Avenue. Bank of America donated this property to our NSP2 program in exchange for the City waiving $70,000 in fines for code violations against the property. The property consists of a single family home on a double lot that is adjacent to a City park. The City s Building Official determined that the house should be demolished based on its deteriorated state. Current zoning would allow construction of up to four housing units on the site, providing an incredible opportunity to add a small multi-family building compatible with the character of the neighborhood that would further expand affordable housing or offer the opportunity for a mixed-income building on a desirable site in our landlocked community. However, given that only one unit would count towards our 100-unit goal, it is not budget-efficient to construct more, even though that would be the best and highest use for the site. Land banking would allow time to secure sufficient funds to develop the property for its highest and best use. 1509 Emerson Street. The original plan was to rehab this three-unit property as rental. When walls were opened up following acquisition, it was discovered that it was originally a single-story home (built in the late 1800s) to which two floors were added for apartments over time. These additions compromised the structural integrity of the building and resulted in the determination by the developer and City building officials that the building should be demolished. Due to its proximity to the Emerson Square project (less than 100 feet from Gilbert Park which would be part of the second phase of the development), 1509 Emerson could be redeveloped as part of the second phase of Emerson Square. There may be a minimal number of additional properties identified among the remaining units to be acquired that would be considered for land banking or demolition in order to ensure that we undertake the optimal course of development. Reallocation of Funds As we proceeded to implement our NSP2 program, several changes to the budget became necessary, particularly because the nature and location of foreclosed 6
properties available for purchase differed from our projections in our application submitted in 2009. In addition, program income projections were not included in the April 2011 update to the Action Plan. This reallocation of funds does not affect the achievement of the City s requirement to mitigate the negative effects of at least 100 units of foreclosed or abandoned housing. Following the direction of the City s HUD local field representative at the time, budgets were updated in DRGR in June 2012 to reflect these changes and they are explained as part of this Substantial Amendment, as requested. A summary of the changes is presented in the table below. Program Budget Activity Action Plan as of April 20, 2011 Proposed Program Program Funds Funds Program Income Acquisition & Rehab $14,850,000 $13,777,090 $3,847,700 8092 LH25 - Rental $2,237,500 $2,735,050 $ - 8092 LMMI - For Sale $3,080,000 $3,675,520 $2,617,380 8092 LMMI - Rental $2,732,500 $2,355,240 $ - 8102 LH25 - Rental $2,300,000 $1,424,080 $ - 8102 LMMI - For Sale $2,420,000 $1,873,640 $1,230,330 8102 LMMI - Rental $2,080,000 $1,7173,554 $ - Land Bank* $ - $125,000 $ - Scattered Site Acquisition $621,860 $ - & Demolition $ - 5090 LH25 - Emerson Square $1,185,000 $1,683,460 $ - 5080 LH25 - Demolition $300,000 $127,590 $ - Administration $1,815,000 $1,815,000 $ - Total $18,150,000 $18,150,000 $22,207,610 *Land bank line item includes carryings costs. These changes are due to several factors: Our rental properties are now expected to be almost exclusively two- and three-unit properties; larger properties that were in foreclosure in 2009 were not available for acquisition following our grant award. Based on the availability of properties that meet NSP2 and budget requirements, the majority of our rental units are located in census tract 8092. Since we are meeting our 50% AMI set aside requirement through rental, this results in more of our LH25 funds being expended in that census tract. Also due to the type of eligible properties in census tract 8102, the overwhelming majority of our for-sale units in this census tract are condominiums. Acquisition costs for condos have been lower than anticipated compared to our original budget. This allows a significant portion of those funds to be reallocated to other activities, particularly the rehab of one- to three-unit properties that require gut rehabilitation instead of moderate rehab as anticipated in the original budget. 7
The addition of $790,000 in City HOME funds for acquisition and rehab in the Scattered Site phase enabled us to allocate more NSP2 financing to the Emerson Square development. All NSP2 funds invested in Emerson Square will be used toward our LH25 requirement, as 14 (44 percent) of the 32 units in the first phase of the project will serve households earning no more than 50 percent of area median income. The total project budget is approximately $15 million, of which $2.085 million is NSP2. b. Project Completion Schedule. Revised project schedule is attached. c. Income Targeting. The application originally called for all scattered site rental to be for household earning no more than 50 percent of AMI. That is no longer the case so in order to ensure the ongoing financial feasibility of our rental units and to achieve a broader mix of incomes in census tract 8092 which has the majority of NSP2 rental properties due to the available housing stock that meets NSP2 acquisition requirements. d. Continued Affordability. All rental and single-unit, detached and semi-detached properties will remain affordable for 15 years for rehab and 20 years for new construction. Condominium units will follow HOME regulations based on the amount of the second mortgage provided to the homebuyer. e. Consultation, Outreach, Communication. Unchanged. f. Performance and Monitoring. Unchanged. 4. Leveraging/Rubric a. Leveraging. The City s redevelopment plan is leveraging a significant amount of non-federal funds. However, the amount leveraged as presented in our original application has been reduced due to the award amount being less than that requested in the City s original application. (The City requested $40.6 million in its application and received an award of $18.15 million.) Please see attached leveraging chart. b. Rubric. Unchanged. 5. Energy Efficiency Improvements and Sustainable Development Factors a. Transit accessibility. Unchanged. b. Green building standards. Unchanged. c. Re-use of cleared sites. The application states that 100 units will be put back in service during the grant period. While it is the City s intention to utilize all NSP2 acquired sites as residential, as we are requesting permission to land bank some properties, all units will not be back in service with the grant period. d. Deconstruction. Unchanged. 8
6. Neighborhood Transformation and Economic Opportunity Unchanged. We look forward to your response on the issues detailed above. If you have any questions, please feel free to contact Jolene Saul at 847.448.8166 or jsaul@cityofevanston.org. 9
Program Schedule - NSP2 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 Submission of NSP2 Application Award of NSP2 and Contract Signing Neighborhood Revitalization Site Acquisition Rehabilitation Marketing Homeowner Counseling and Training Closings on Homes Leasing of For-Rent Homes Emerson Square Redevelopment Site Acquisition Site Plan Process (includes community input) Zoning Approval Submit LIHTC application to IHDA Design Development Plat Approval Obtain LIHTC Award Environmental Remediation Demolition Construction of Emerson Square Marketing Leasing
Amount Leveraged Investment Application Proposed Exchanged City Land: The exchange of a City park, Gilbert Park, was anticipated for redevelopment to complete both phases of Emerson Square as originally proposed in our application. A new, smaller park, part of which will be included in the first phase of Emerson Square, would be built within the development, so the net donation of land will amount to approximately 20,000 SF. This land is valued at approximately $25/SF. however, the site of the park would be incorporated into the second phase of Emerson Square. $500,000 NA for Phase One Evanston Affordable Trust Fund: The City of Evanston anticipates investing approximately $250,000 of grant funds from the Affordable Trust Fund for the rehab or new construction components of this proposal. $250,000 $100,000 Private Investor Equity: Brinshore will secure investor equity generated from the syndication of LIHTC s and the Illinois Donation Tax Credits through the Richman Group Capital Corporation. These funds will be used for the $9,500,000 $9,297,706 development of Emerson Square. Illinois IKE Funds: Emerson Square, Phase One. $0 $1,500,000 Federal Home Loan Bank Affordable Housing Fund: Emerson Square, Phase One. $0 $227,553 Private Developer Equity: Brinshore will contribute funds for predevelopment activities as well as ongoing redevelopment costs for construction, marketing and professional services. $1,500,000 $120,000 Private Bank Construction Loans: Brinshore will secure construction loans for both Emerson Square new construction as well as the rehabilitation components of the plan. The Emerson Square loan is estimated at $10,550,000 $650,000 $9,900,000 and the rehab loan will be approximately $650,000 Private Bank Permanent Loans: Brinshore will secure permanent loans for both Emerson Square new construction as well as the rehabilitation components of the plan. $1,600,000 $480,000 TIF Funds: The City anticipates investing TIF fund to partially finance the improvement of the new streets and park, by the approved West Evanston master plan, subject to City Council approval and available increment. A developer $1,700,000 $600,000 contribution for park improvements is also expected. City HOME Funds. Scattered Site and Emerson Square. $0 $1,090,000 Bond Volume Cap: The City anticipates making available $6,000,000 in Bond Volume Cap, subject to City Council approval. $6,000,000 $6,000,000 Other Capital Improvements: the City anticipates making approximately $1 million in additional capital investments in the two target census tracts in 2009-2010. $1,000,000 $1,000,000 Total Leveraging $32,600,000 $21,065,259