Should City Give $2M Loan to Affordable Apartment Developer?

The Elk Grove City Council this week will discuss giving a $2 million loan to developers planning a low-income apartment complex on Elk Grove Boulevard near Backer Ranch Road.

The 64-unit Avery Gardens complex would be nestled between the Carlton Senior Living Complex and the Nugget Market, and could be built in about a year–but needs to find funding first.

An outside financial consultant found several problems with the developer's finances and the developer disagreed with some of the basic terms of the loan proposal, but city staff are recommending the council approve the loan.

The developer, Pacific West Communities, Inc., has more than 100 affordable housing projects in the western United States, but only earns money from continued development, according to an Elk Grove City Council staff report.

"If new construction cannot continue at its current pace, it is unclear if there is sufficient revenue to continue operating," Anastasia Efstathiu of MFC, Inc., wrote in an analysis of the project.

And the developers assume 5 percent of the units will be vacant, even though existing affordable housing projects in Elk Grove have a vacancy rate of 6.5 percent.

"A higher vacancy rate of 7 percent would mean that the project could not meet all its financial commitments, even when excluding payment of the deferred developer fee," the city staff report states.

And if things go south, there's no collateral to back up the city's loan: According to Efstathiu's analysis, the property is estimated to be worth $1.9 million–about the same amount of a permanent loan that would get priority over the city's.

"In essence the City’s loan appears to be unsecured if it is required to be in second position behind the permanent lender, which is typically the standard," Efstathiu wrote.

The developer needs the city's loan to apply for a 9 percent tax credit, and if the loan is denied, "the developer would likely not be able to move forward with this project as proposed at this time," the staff report states.

The full staff report can be viewed here.

--

Elk Grove City Council meeting
6 p.m. Wednesday
8400 Laguna Palms Way

--
Sign up for the free Elk Grove Patch newsletter | Like Elk Grove Patch on Facebook | Follow @ElkGrovePatch on Twitter | Blog for Elk Grove Patch