TO: Roger L. Stancil, Town Manager
FROM: J.B. Culpepper, Planning Director
Loryn Clark, Housing and Neighborhood Services Coordinator
SUBJECT: Request from Orange Community Housing and Land Trust to Modify the Terms of a Loan for a Greenway Condominium
DATE: April 15, 2009
PURPOSE
The purpose of this memorandum is to respond to a request from Orange Community Housing and Land Trust to modify the terms of a loan issued in 2007 for the acquisition of a Greenway Condominium.
Adoption of the attached resolution would convert the Town’s $60,000 loan from the Affordable Housing Fund into a grant to Orange Community Housing and Land Trust.
In a letter dated March 20, 2007, Robert Dowling, Executive Director of Orange Community Housing and Land Trust, requested using up to $60,000 from the Affordable Housing Fund to purchase a Greenway Condominium (140-208 West Barbee Chapel Road) in Meadowmont. Funds were requested so that the unit would be affordable to a buyer earning less than 80% of the area median income.
On April 11, 2007, the Council: (1) adopted a resolution to provide a $60,000 acquisition loan from the Affordable Housing Fund to Orange Community Housing and Land Trust to purchase the unit at Greenway Condominiums; (2) authorized an exception to the regulations of the Affordable Housing Fund to extend the loan term to two years; and (3) required the Land Trust to execute a Performance Agreement with the Town, and provide the Town with a Promissory Note and Deed of Trust on the property to secure the loan (see Attachment 2). The Town entered into an Agreement with the Land Trust for this property on June 26, 2007. The Agreement expires on June 26, 2009.
There is currently $58,000 available in the Affordable Housing Fund for eligible activities.
THE REQUEST
In a letter dated March 27, 2009, the Land Trust requested that the Town’s loan be converted into a grant to the Land Trust. Converting the Town’s funds into a grant would allow this condominium to remain more permanently affordable.
DISCUSSION
Since 2007, we have discussed with the Land Trust staff the challenge of maintaining the affordability of six Greenway Condominiums. The Land Trust determined that the Greenway units, particularly the two-bedroom units, were not initially sold at an affordable price. The two-bedroom units were initially priced to be affordable to households earning between 80% and 100% of median income. However, since 2003 when these units were built, 100% of median income has actually declined In order to resell these units affordably, subsidy is needed to reduce the sales prices. Since the Town’s loan was issued in 2007, the Town has provided grants to the Land Trust to reduce the sales prices of three other Greenway condominiums.
Funds provided by the Town to the Land Trust are offered as a grant because the homes are required to be permanently affordable. The Town requires the Land Trust to record restrictive covenants on the property requiring that it be used exclusively for affordable housing purposes. Protecting the Town’s investment with restrictive covenants helps to keep Land Trust homes more permanently affordable because there is not the option of repaying the Town’s funds and releasing the property from the affordable housing requirement. In addition, the Land Trust’s ability to market the homes is enhanced when the advertised price is reduced by the amount of the public subsidy that is granted the project.
Though the loan for this property is larger than other grants that have been provided for the Greenway properties, for the reasons discussed above, we think it would be reasonable for the Council to convert the Town’s funds into a grant. We think that ensuring the long term affordability of homes is crucial in order to maintain these units as part of the Town’s affordable housing stock. If the Town wishes to keep these units affordable forever, the subsidy must also be permanent. Given the circumstances of stagnant HUD income limits and increasing costs, requiring the subsidy funds to be repaid would cause the unit to be unaffordable.
If the Council approves this request, we would release the Town’s Deed of Trust on this property, but the Restrictive Covenants would remain in place.
RECOMMENDATION
We recommend that the Council adopt the attached resolution to convert the Town’s $60,000 loan from the Affordable Housing Fund into a grant to Orange Community Housing and Land Trust to purchase a unit at Greenway Condominiums.
ATTACHMENT