Loans made by the Morgan Hill redevelopment agency to affordable home buyers at Madrone Plaza will not be jeopardized by the bank’s partial takeover of the project, city staff said.
The city council last week approved giving the developer, South Valley Housing, more time to build out the allotments they previously received through the city’s growth control policy. The developer needed the extension due to the fact the market-rate homes went back to the bank late last year, and the builder is having trouble gaining financing for the project – a similar position many builders in Morgan Hill and throughout Santa Clara County find themselves in, according to city staff.
The project, at the corner of Monterey and Cochrane roads, consists of 134 units, of which the city has awarded the builder 102 allotments through the residential development control system since 2006, according to city staff. Only 18 of the units have been constructed so far.
Most of the remaining home sites are now owned by Santa Barbara Bank & Trust due to foreclosure, assistant city manager Leslie Little said.
However, the homes and sites that are restricted to affordable or below-market-rate sales are still owned by the private developer, Little said. Under city policy, housing developers typically agree to make a portion of multi-unit projects available to lower and moderate-income buyers to gain approval for construction.
At Madrone Plaza, those units, as well as the down payment assistance loans offered to buyers from the RDA, are not affected by the foreclosure of the more expensive units – even if buyers remain scarce due to ongoing turmoil in all sectors of the market.
“The piece of property taken back by the bank has no market restrictions,” Little said.
The financing for the affordable properties – which number about a dozen out of 102 allotments – was acquired through Wells Fargo bank, Little explained.
South Valley Developers, the builder of the market-rate properties, was granted an extension of 18 months to start construction on 18 of the already-allotted units, and a 12-month extension for 13 others.
The builder has also opted to participate in the city’s “BMR reduction” program, which allows developers to pay a fee instead of building their required portion of affordable homes. The city offered the program to builders in response to the recent recession, as the market-rate homes are more sellable and more profitable than affordable homes in the current housing slump.
BMR reduction requires developers to pay the city $75,000 for each affordable home they were originally required to build, if they choose to build market-rate homes instead, according to city staff.