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8.1. HRSR 08-03-2020 City of Elk - RiVer Request for Action To Item Number Housing and Redevelopment Authority =8.1 Agenda Section Meeting Date Prepared by Work Session August 3,2020 Colleen Eddy, Economic Development Specialist Item Description Reviewed by Blighted Properties Residential Forgivable Loan Amanda Othoudt,ED Director Program and Policy Discussion Reviewed by Cal Portner, City Administrator Action Requested Information presented for discussion purposes. Background/Discussion In August of 2019, the HRA discussed two HRA programs to improve the community's housing stock, the Blighted Properties Residential Forgivable Loan Program and the HRA Rehabilitation Loan Program. Since August,the commission heard from Kristin DeGrande,Housing Coordinator from Coon Rapids about their Front Door Program and a presentation from staff on the Richfield Rediscovered program. At their November 4, 2019, meeting,the HRA consensus was to continue discussing changes to the Blighted Properties Program and policy to allow flexibility for builders to acquire these types of homes with the caveat that the properties will be owner-occupied upon completion. On January 6, 2020, they reviewed the HRA attorney's recommendations to allow for flexibility. Due to time constraints,the discussion was tabled for continued review and evaluation against the HRA's long-term goals. In May, attorney Fiorini discussed the proposed changes to the policy and worked with staff continued on policy changes directed by the HRA. In June,the HRA discussed the revisions and the attorney's recommendations. The HRA asked staff to revise the attachments check list and bring it back for review. The HRA also asked for clarification on when, and in what form,would the loan be forgiven. Financial Impact N/A Mission/Policy/Goal The goal of the HRA is to improve existing housing stock by offering incentives for demolition activities when an imminent redevelopment opportunity does not currently exist. Attachments ■ HRA Blighted Properties Residential Forgivable Loan Program The Elk River Vision A Y�elcoming community nvith revolutionary and spirited resourcefulness, exceptional P U W E H E o s r service, and community engagement that encourages and inspires prosperity ,g /` UR 00� City of ver Itki Residential and Redevelopment Authority Blighted Properties Demolition & Forgivable Residential Loan Program Policy Guidelines & Application HRA Adopted Februarys 1, 2016 City Council Adopted: February 16, 2016 HRA Amended: 12020 City Council Amended: ,2020 Citv of Elk River Housing and Redevelopment Authority 13065 Orono Parkwav Elk River,MN 55330 763.635.1040 www.elkrivermn.gov P 0 W E R E 0 0 Y 'w— ""No A Blighted Properties Demolition&Forgivable Residential Loan Program 498470v2 JSB EL185-13 BLIGHTED PROPERTIES DEMOLITION & FORGIVABLE RESIDENTIAL LOAN PROGRAM APPLICATION TABLE OF CONTENTS Introduction Purpose/Background 1 Funding Availability 1 Deadlines/Requirements I Application Fee 1 Qualifying Projects I Eligible Applicants 2 Eligible Program Costs 2 Terms 2 Forgiveness 2 Expected Value Upon Completion 3 Awarding Loans 3 Simultaneous Microloans 3 Cost of Review 3 Procedural Guidelines for Appointment and Approval 3 Microloan Policy Review 4 Right to Refusal 5 Preferred Score 5 Application Cover Page 6 Site Identification and History 6 Valuation 6 Maps and Site Features 6 History 7 Current Conditions and Development Potential 7 Cost Analysis 7 Sources and Uses of Funds (Budget Table) 9 Analysis of Loan Need 9 Financial Information 9 Attachment Checklist 11 Agreement 13 Application Review Worksheet 14 Blighted Properties Demolition&Forgivable Residential Loan Program 498470v2 JSB EL185-13 BLIGHTED PROPERTIES DEMOLITION & FORGIVABLE RESIDENTIAL LOAN PROGRAM POLICY INTRODUCTION PURPOSE/BACKGROUND: The city of Elk River Housing and Redevelopment Authority (HRA) has developed a program to meet the untapped need for assistance with demolition and other redevelopment activities when either there is no current development plan or where future development visions are hindered by current blight. In some cases, despite a potential for future redevelopment,hazardous conditions or other public safety factors may become a community's immediate concern. Securing and maintaining vacant dilapidated structures is costly. Therefore,the Elk River HRA has created the Blighted Properties Demolition&Forgivable Residential Loan program to include loan funds for demolition activities when an imminent redevelopment opportunity does not currently exist. FUNDING AVAILABILITY: Available funding amounts vary per budget cycle. DEADLINES/REQUIREMENTS: Applications are due on the first Monday of each month. Completed applications and supporting documentation must be received by the city of Elk River by 4:30 p.m. on the due date to be considered for funding. APPLICATION FEE: The applicant must submit an application fee of$500 plus legal and any other out-of-pocket costs incurred by the HRA at the time of submittal. QUALIFYING PROJECTS: A project qualifies for a loan if the following conditions are met: 1.Upon completion of the proposed project,the structures on the property will be owner- occupied dwellings that align with the surrounding neighborhood. The dwelling will include at a minimum 1600 finished square feet with 2 bedrooms and 1.5 baths and a two-car garage; 2.The current structures constitute a threat to public safety because of inadequate maintenance, dilapidation, obsolescence, or abandonment; 3.Upon completion of the demolition,the HRA reasonably expects that the property will be improved and these improvements will result in redevelopment benefits to the municipality. 4.The structure must be defined per MN State Statue 117.025, Subdivision 7 as "structurally substandard". "Structurally substandard" means a building: (1) that was inspected by the local government and cited for one or more enforceable housing, maintenance, or building code violations; (2) in which the cited building code violations involve one or more of the following: (i) a roof and roof framing element; (ii) support walls, beams, and headers; (iii) foundation, footings, and subgrade conditions; (iv) light and ventilation; (v) fire protection,including egress; (vi) internal utilities,including electricity,gas, and water; 1 498470v2 JS13 ELI 85-13 (vii) flooring and flooring elements; or (viii) walls,insulation, and exterior envelope; (3) in which the cited housing,maintenance, or building code violations have not been remedied after two notices to cure the noncompliance; and (4) has uncured housing, maintenance, and building code violations, satisfaction of which would cost more than 50 percent of the estimated market value for the building, excluding land value. (5) Applicants must submit evidence that the property is "structurally substandard" in the form of a property inspection report. The property inspection report may be completed by City staff and the fee for the City's services is included in the $500 application fee.. ELIGIBLE APPLICANTS: Eligible applicants for this program must be either: 1. Individual who will build, own and occupy a new owner-occupied dwelling following the demolition of the existing structures; or 2. Contractor who will build an owner-occupied home on the property following the demolition of the structure. Property owners,unless licensed in the trade specified, may not put any sweat equity into the demolition or construction of the foundation,wall/roof framing, shingling, exterior work, electrical/plumbing/HVAC systems or interior carpentry. ELIGIBLE PROGRAM COSTS: The Blighted Properties Demolition&Forgivable Residential Loan program can pay up to $20,000 of the Demolition Costs for a qualifying site. "Demolition Costs" means the costs of demolition,destruction,removal, and clearance of all structures and other improvements on the project site,including interior remedial activities, and proper disposal thereof As used in this subdivision, "structure"has the meaning given it in section 116G.03, subdivision 11. Costs incurred before the loan is awarded are not eligible for payment. TERMS: Loans for Demolition Costs may be made subject to the following terms and conditions: 1. The agreement to repay the loan must be a personal obligation of the property owner, payable primarily from an identified source of income of the property owner, or other security subject to review and approval by the HRA board of commissioners. 2. The loan shall bear interest at a rate equal to three percent; 3. The loan shall be forgiven if the requirements under the heading"Forgiveness" are met. 4. The principal amount of a loan may not exceed$20,000; 5. Loan proceeds shall be disbursed for eligible Demolition Costs as incurred or paid by the borrower and upon submission of invoices and other supporting documentation satisfactory to the Executive Director. FORGIVENESS: The HRA will forgive the principal of and interest accrued on the loan up to 100 percent of the original loan amount,not to exceed the costs of demolition upon the submission to the HRA's Executive Director o£ (i) a certificate of occupancy is issued by the City for the 2 498470v2 JS13 ELI 85-13 property; and (ii) a signed certificate from the first owner of the property certifying that the property will be owner-occupied and the property will qualify for homestead designation. In addition,the Borrower must receive a certificate of occupancy for the new building within 1 year from demolition. If the above conditions are not met,the loan will be due and payable in full. EXPECTED VALUE UPON COMPLETION: The applicant must submit evidence of the current assessed value of the property and the projected assessed value of the property upon completion as determined by the local assessor. AWARDING LOANS: The HRA will award loans to projects that provide the highest return in public benefits for the public costs incurred and meet all of the statutory requirements. In order to evaluate the applications for public benefits with respect to the costs incurred, the law specifies priorities that the HRA must consider. Awards are based on the availability of funds. SIMULTANEOUS MICROLOANS The simultaneous use of different HRA microloan programs by any one borrower or for any one project is prohibited. COST OF REVIEW The applicant will be responsible for all legal, recording, and other fees required for protection of a security interest in the loan,payable by a $500 processing fee,which is paid at the time of application,plus legal and any other out-of-pocket costs incurred by the HRA. In addition to the processing fee, all legal and filing fees shall be paid by the borrower at loan closing. PROCEDURAL GUIDELINES FOR APPLICATION AND APPROVAL 1. All applicants shall first contact a primary lending institution which will be assisting with the financing of the overall project. 2. The applicant shall then meet with city staff to obtain information about the microloan program,discuss the project,and obtain application forms. 3. The applicant shall complete and submit an application form to the city, along with a $500 processing fee plus legal and any other out-of-pocket costs incurred by the HRA. The fee is used to cover processing expenses and any remaining funds will be returned to the applicant. The applicant must provide a letter of commitment for conventional financing from the primary lending institution or evidence of sufficient equity to complete the project. 4. The HRA is a governmental entity and as such must provide public access to public data it receives. Data deemed by applicant to be nonpublic data under State law should be so designated or marked by applicant. See Minnesota Statutes, Chapter 13, as amended. 5. The application will be reviewed by the city staff to determine if it conforms to all city policies and ordinances and to consider the following: a. The availability and applicability of other governmental grants and/or microloan programs. 3 498470v2 JS13 ELI 85-13 b. Whether the proposed project after demolition will result in conformance with building and zoning codes. c. Whether it is desirous and in the best interests of the public to provide funding for the project. 6. The HRA Commissioners will review each application in terms of its consistency with the goals of the city's Comprehensive Plan and the Housing and Redevelopment Authority's Strategic Plan and in relation to the project's overall impact on the community's economy. 7. The HRA Commissioners will evaluate the project application in terms of the following: a. Project Design- Evaluation of project design will include review of proposed activities, time lines and a capacity to implement the project and whether the proposed Project meets the requirements of this policy. b. Financial Feasibility- Availability of funds,private involvement, financial packaging and cost effectiveness. • Appropriate ratio of private funds to Microloan funds. • Sufficient cash flow to cover proposed debt service as demonstrated by financial statements. • Letter of Commitment from applicant pledging to complete the project during proposed project duration,if the loan application is approved. • Letter of Commitment from other financing sources stating terms and conditions of their participation in the project if applicable. c. All other information as required in the application and/or additional information as may be requested by the Economic Development staff. d. Project compliance with all city codes and policies. e. Microloan Objectives - the applicant must demonstrate how the proposed activities will meet at least one of the following objectives: • The project contributes to the fulfillment of the city's approved and adopted economic development and/or redevelopment plans. • The project prevents or eliminates slums and blight. 8. The HRA Commissioners will approve,deny, or request a resubmission of any application submitted under this policy. MICROLOAN POLICY REVIEW The above criteria will be reviewed on an annual basis to ensure that the policies reflected in this document are consistent with the economic development goals set forth by the city. 4 498470v2 JSB ELI 85-13 RIGHT OF REFUSAL The HRA may deny any application if it is found not consistent with the goals of the city's Comprehensive Plan and Housing and Redevelopment Authority Strategic Plan, or Mississippi Connections Plan and in relation to the project's overall impact on the community's economy. PREFERRED SCORE: Precedence will be placed on applications which meet a "preferred" score of 75 or more. To fulfill this requirement of reviewing applications in an objective and fair manner,the following criteria have been assigned maximum point values in order to systematically award loans. All assigned scores will be relative to scores awarded to other applications. 5 498470v2 JSB ELI 85-13 Blighted Properties Demolition & Forgivable Residential Loan Application Cover Page Applicant: Applicant Address: city: Zip Code: Project Manager Contact (if different from above) Phone: - - E-mail: Mailing Address: Application Author Author's Phone& email Provide a written executive summary of the project, including the applicant's involvement in the project to date and how the applicant intends to manage the project should a loan be awarded. 6 498470v2 JSB EL185-13 I. SITE IDENTIFICATION AND HISTORY SITE INFORMATION 1. Name of Site: Site Address: City: Zip Code: Acreage of Site: Sq. Ft. of Site: 2. A. Does the applicant own the property? B. If not, at what point will the applicant acquire the property? C. What is the purchase price? Attach the Purchase Agreement or other evidence of the commitment of both parties. D. Is it anticipated that the property owner will retain ownership of the property once the demolition is complete? 3. Provide a legal description of the site. SITE VALUATION 4. What is the current assessed value of the Site? Attach the assessor's value. 5. What is the projected assessed value after the demolition activities have been completed (prior to development)? Attach the assessor's value. 6. What is the projected assessed value after the proposed development is complete? MAPS AND SITE FEATURES 7. Attach an accurate and legible site and location map indicating the site showing locations of prominent and relevant site features such as buildings,retaining walls, etc. (NOTE: maps shall include property boundaries, a north arrow and bar scale). The map(s) should show the following: a) The current condition of the site including labeled structures and where and for what activities the HRA money will apply. b) The proposed potential development of the site including labeled structures if known. 8. Please provide current photographs of the site. Note: Photographs are a very important 7 498470v2 JSB ELI 85-13 part of review process. HISTORY 9. Please attach a synopsis on the history and general background of the site. This includes, but is not limited to, a description of the former and current uses of the site,as well as an explanation of what has occurred on the site,leading to its current dilapidated condition. CURRENT CONDITIONS 10. How many buildings are currently on site? Residential How many are occupied? If vacant, for how long? 11. Year building(s) was/were built: II. COST ANALYSIS 14. How much money are you seeking from the HRA? (May not exceed $20,000) 15. Fill out the budget table below indicating the uses, and amounts of all funds that will be used for eligible costs as defined. The table should indicate the total project budget non-incurred costs. 8 498470v2 JSB ELI 85-13 III. SOURCES AND USES OF FUNDS Demolition Uses of Funds for the Project(Budget Table) Use of Funds (Activity) Amount Date Activity Will Occur Demolition Interior Abatement for Demolition Other: Total IV. ANALYSIS OF LOAN NEED 16. Describe how the structures on the property constitute a threat to public safety, are functionally obsolete, or are economically unfeasible to repair. 17. Describe how demolition of the site will reduce blight and improve the property's economic vitality, functionality and aesthetics. 18. Describe how close the property is to existing sufficient public infrastructure. 21. Describe how the community is stabilized, health is improved or any environmental benefits are achieved by the demolition of the site. V. FINANCIAL INFORMATION 9 498470v2 JS13 ELI 85-13 22. Submit Historical Financial Statements: Financial statements should cover the past twee years. Financial Statements should include: Personal Tax Returns,Personal Financial Statement,and details on existing debt agreements.A commitment letter from the primary financial institution must accompany the application. 23. Will the property be used as a primary residence? 10 498470v2 JSB ELI 85-13 VI. ATTACHMENTS CHECKLIST Please attach the following: A) Residential Loan Program 1. Site Information 2. Site Valuation 3. Maps and Site Features 4. Histo 5. Current Conditions B) Cost Analysis C) Sources and Uses of Funds D) Analysis of Loan Need E) Financial Statements 1. Three One Years of Personal Tax Returns 2. Details of Existing Debt Agreements H) Letter of Commitment from Applicant Pledging to Complete During the Proposed Project Duration I) Letter of Commitment from the Other Sources of Financing, Stating Terms and Conditions of their Participation in Project J) Application Fee of$500 plus legal and any other out-of-pocket costs incurred by the HRA I<) Inspection report by an appropriate local government which identifies that the property is cited for one or more enforceable housing,maintenance, or building code violations. (L) If the applicant is a builder,builder's financial capability statement (a statement from a financial institution indicating willingness,with standard contingencies, to provide sufficient construction capital to complete the project.). (N/1) If the applicant is a builder,references of(i) five satisfied customers, and (ii) three major suppliers, one being the construction supplier, and (iii) Building inspectors from two cities where the Builder has constructed new housing within the past three years; OR previous positive experience working with the Elk River HRA (as determined by HRA Staff). 11 498470v2 JS13 ELI 85-13 (N) If the applicant is a builder,proof of builder's comprehensive general liability with property damage protection insurance and other customary insurance (0) If the applicant is a builder,proof of builder's worker's compensation insurance 12 498470v2 JSB ELI 85-13 VI. AGREEMENT I /We certify that all information provided in this application is true and correct to the best of my/our knowledge. I / We authorize the City of Elk River Housing and Redevelopment Authority to check credit references and verify financial and other information. I /We agree to provide any additional information as may be requested by the HRA. APPLICANT SIGNATURE BY DATE 13 498470v2 JS13 ELI 85-13 APPLICATION REVIEW WORKSHEET TO BE COMPLETED BY CITY STAFF 1. In the event of multiple applicants, and limited funds dedicated to the program, the attached worksheet will be used to determine how the funds will be allocated. The project meets the criteria set forth in Section IV of the Blighted Properties Forgivable Residential Loan Policy. Check those n.,hich apply. ❑ Upon completion of the project, the property and structures will be owner-occupied dwellings; (50 points) ❑ The current primary structure constitutes a threat to public safety because of inadequate maintenance, dilapidation, obsolescence, or abandonment; (10 points) ❑ Upon completion of the demolition,the HRA reasonably expects that the property will be improved and these improvements will result in redevelopment benefits to the municipality; (10 points) ❑ The project results in the sale and/or redevelopment of structurally substandard properties as inspected by the appropriate local government and cited for one or more enforceable housing,maintenance, or building code violations. ; (5 points) Subtotal Section 1(maximum 75points) 2. Consideration of Capacity. Check those nrhich apply. Must meet all four to score 20 points. 0 points if any boxes are unchecked. ❑ Applicant included a realistic implementation /project schedule; (5 points) ❑ Applicant has the ability to administer and monitor project; (5 points) ❑ Applicant has the ability to conform to city, state and federal requirements;(5 points) ❑ Applicant has obtained a letter of commitment to finance the project from their primary lender; (5 points) Subtotal Section 2(maximum 20 points) 14 498470v2 JS13 ELI 85-13 3. Vacancy, Development Potential and Proximity to City Services The length of vacancy of the property; o 0-1 year: 1 point o 2 years: 2 points o 3 years: 3 points o 4 years: 4 points o 5+ years: 5 points Subtotal Section 3(maximum 10points) Subtotal Sections 1-3(maximum 105points) Sub-Total Points: of a possible 105 points. 15 498470v2JSB EL185-13