The city will administer a $1.5 million state loan to South
County Housing so the nonprofit can continue building its downtown
Cannery project, which has been hampered by the housing market.
The city will administer a $1.5 million state loan to South County Housing so the nonprofit can continue building its downtown Cannery project, which has been hampered by the housing market.
SCH and the city have been planning for the money since October, but it was originally intended to help subsidize the final phase of the nonprofit’s three-phase, 210-unit project, the majority of which includes affordable housing. Since the housing market has dipped, however, SCH has not made enough money from its first-phase, market-rate units, the profits from which it planned to use to subsidize the other affordable units.
An auction April 20 could sell off the 28 remaining market-rate units in the 39-unit first phase, but SCH needs the $1.5 million as soon as possible to finish the mostly affordable 32-unit second phase, known as Alexander Place, that is inching along now. The 139-unit third phase, known simply as the Cannery, is on hold altogether while SCH figures out how to proceed, but the city council’s unanimous decision Monday night is a good sign for the nonprofit.
“From November 2007, (when the initial application for the $1.5 million was made for the Cannery phase), to the present, it has become apparent that SCH would need to complete the Alexander Place phase well in advance of the Cannery phase in order to keep the project economically feasible,” wrote Housing and Community Development Coordinator Marilyn Roaf. “Completion of the (second) phase could increase property values and spur other development to further enhance Gilroy’s downtown.”
SCH President and CEO Dennis Lalor agreed.
“When the market crashed, we didn’t have much of a choice but to work really hard to get state and federal subsidies to make that up,” Lalor said last week. “At the time we structured (the Cannery Project), we felt we could depend on the market to create enough margin to subsidize the low-income units because we could not depend on what (government) subsidy sources would be available.”
With interest, SCH will have to repay the city $1.73 million within four years, and the city, in turn, guarantees it will repay the state by holding the 32 property titles behind the two banks that have already loaned SCH $5.4 million, according to Roaf. When SCH completes construction in 2009, Alexander Place will be work about $12.5 million, according to Roaf.
The $1.5 million loan will also help SCH make 3-percent-fixed-rate loans to affordable home buyers. Some of these buyers are even helping to paint and landscape 21 of the affordable units at Alexander Place. Another four units are market rate, and the remaining seven are below-market-rate units without the option for “sweat equity,” Lalor said. Expanding the sweat equity program and getting the $1.5 million will help SCH make up for lost market-rate revenue, Lalor added.
City officials and housing experts have agreed, though, that for the past 20 years, SCH’s market-cum-affordable strategy has worked, especially in Gilroy, which has a self-imposed growth limit and lacks a redevelopment agency to help finance affordable housing. For these two reasons, the city’s current housing plan did not satisfy regional affordable housing quotas and did not receive state approval. This meant Gilroy was barred from the state’s $2.8 billion pot for affordable housing, and SCH has had to adjust accordingly, lest no affordable housing exist.
While SCH is bound to fulfill its affordable housing quota as long as it keeps the affordable units, Lalor said the nonprofit will reconsider the Cannery’s layout to make the entire project pencil out; until then, he could not say how many affordable units the third phase will ultimately include.
“Affordable housing” is reserved for those earning up to 120 percent of the county’s median income, or $88,600 for an individual and $126,600 for a family of four. In 2006, the nation’s median annual household income was $48,201, according to the U.S. Census Bureau. In California, that figure was $64,563, according to the USCB. The median house price in Gilroy is $581,9000, according to MLS, a real estate listing service.
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