The Long Beach City Council on Tuesday unanimously approved a plan to use tax-exempt bonds to pay for the purchase and development of 580 residential units on the “Midblock” site at the Civic Center.
Under the plan, the City Council will enter into an agreement where the California Community Housing Agency would issue $490 million in tax-exempt bonds to buy the land and develop the Midblock site.
Though City Manager Tom Modica called the financing mechanism “really complex” and “something new for us,” the council ultimately agreed to the plan without any amendments or modifications.
Under the plan, a joint powers authority formed by state and local governments would own the new project while Plenary, the landowner, would manage it.
The property management company Greystar would then manage the two 290-unit buildings, which will include ground-floor retail space. Once those units are filled, the rent they generate would cover the bonds and any other fees and taxes that need to be paid.
The financial structure is intended to shield the city from any liability for the bonds while providing financing for Plenary to build the project. However, deals like this have proven to be risky because they depend on economic stability for decades; in this case, the 40-year lifespan of the bonds being repaid by rent.
The city would receive its portion of property taxes from the development in the form of an annual $650,000 “host fee,” which city officials say will not be passed on to renters.
Developing the Midblock has been on hold as Plenary has failed to find someone to buy the property and develop the project’s two-building residential centerpiece.
While Councilwoman Suzie Price questioned staff on the risk associated with the deal, Development Services Director Oscar Orci told her the joint authority, and not the city, would assume all the risk.
Nonetheless, an analysis by a city-hired consultant noted that the deal’s bonds, which span 45 years, still carries risks “because it is highly sensitive to market conditions.”
“Small variations to the current assumptions of rent growth and vacancy have the potential to dramatically reduce—or increase—the surplus sale proceeds,” the analysis said.
Councilwoman Mary Zendejas said she was “really excited about the project” because of all the affordable housing it would bring.
Though the city promotes the project as being 100% affordable, nearly 80% of the rents would be based on Tax Credit Allocation Committee income limits, which have significantly higher qualifying income for a two-person household ($94,600) than state limits ($64,000)
The lower monthly rents will be reserved exclusively for studios ($1,442) and one-bedroom units ($1,655) while units using the TCAC median income limits will cost significantly more, according to an analysis provided to the city.
A one-bedroom unit will cost $2,460 per month with two-bedroom ($3,063) and three-bedroom ($3,389) units coming in under market value but more than some of the Oceanaire units, which have been criticized for not being affordable.
Because of the differing rent structures, only 120 out of the 580 units will count toward the city’s Regional Housing Needs Assessment goal of creating 4,158 moderate-income units over the next eight years.
The city could eventually force a sale of the building at any time after year 15, with a likely scenario being at year 40, according to the analysis.
Sale of the building could bring between $385 million and $315 million, not accounting for the $137.7 million in property taxes owed to other agencies, which city officials plan to make whole after the sale of the building.
When Councilman Daryl Supernaw asked if such a sale could lead to a sharp rise in rents, Orci said that deed restrictions in the property would keep rents from rising to market rates. Though the deal lacks a formal enforcement mechanism, he said, the city would monitor the property each year.