Meeting_Body
PLANNING AND PROGRAMMING COMMITTEE
OCTOBER 23, 2024
Subject
SUBJECT: MARIACHI PLAZA JOINT DEVELOPMENT
Action
ACTION: APPROVE RECOMMENDATION
Heading
RECOMMENDATION
Title
CONSIDER:
A. AUTHORIZING the Chief Executive Officer, or designee, to execute and enter into a Joint Development Agreement (JDA), ground lease (Ground Lease), and other related documents with East Los Angeles Community Corporation (ELACC) (Developer), for the construction and operation of an affordable housing project (Project) on two separate parcels, totaling approximately 33,000 square feet, of Metro-owned property located at the corner of Pennsylvania Avenue and North Vicente Fernández Street in Boyle Heights (Site) in accordance with the Summary of Key Terms and Conditions attached hereto as Attachment A and upon receipt of concurrence by the Federal Transit Administration (FTA);
B. AUTHORIZING a 65%, or $2,200,000, discount to the appraised fair market rental value of the Site under the Ground Lease;
C. FINDING that the Project is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 21080(b)(9) and 21084 of the California Public Resources Code and Section 15332 (In-Fill Development Projects) of the CEQA Guidelines, consistent with the environmental studies and reports set forth in Attachment B and authorizing the Chief Executive Officer or designee to file the appropriate Notice of Exemption for the Project in accordance with said finding by the Board; and
D. DECLARING the Site to be exempt surplus land, pursuant to the Surplus Land Act (SLA), Government Code Section 54220 et seq, based on the qualifying factors and criteria described herein.
Issue
ISSUE
Since 2018, staff and the Developer have collaborated under a Board-authorized Exclusive Negotiation Agreement and Planning Document (ENA) to conduct community outreach, refine the Project design, negotiate key terms and conditions for a JDA and Ground Lease, and study relevant CEQA issues. In order to advance the project into construction, staff recommends that the Board authorize the CEO to execute a JDA and Ground Lease according to the negotiated terms and conditions presented in Attachment A; approve a $2,200,000 (65%) discount on fair market value of the site; adopt environmental findings consistent with CEQA; and make determinations with respect to SLA.
Background
BACKGROUND
Following a competitive solicitation process and Board approval, on March 15, 2018, an ENA was executed with the Developer for the Site. The ENA has allowed staff and the Developer to explore the feasibility of the proposed Project; conduct additional, project-specific community outreach; study relevant CEQA issues; and negotiate the key terms and conditions of the JDA and Ground Lease that will ultimately provide for the Project’s construction and operation on the Site.
On December 3, 2020, the Board passed Motion 12.1 by Directors Solis and Dupont-Walker to ensure preservation of culture at Mariachi Plaza by developing a cultural preservation strategy for Mariachi Plaza, and to work with the Developer on strategies to meet the housing needs of the immediate neighborhood, especially people exploring homelessness (Attachment C).
In June 2021, the Board approved an update to the Joint Development Policy which allows flexibility to discount ground lease rent commensurate with the community benefits. However, under the Joint Development Policy in place at the time of the 2018 ENA, a discount that exceeds 30% of the FMV required Board authorization.
The Project and the Site
The Site is comprised of approximately 33,025 square feet on two separate Metro-owned properties separated by North Vicente Fernández Street running north-south, and street frontage along Pennsylvania Avenue running east-west. Parcel A contains approximately 27,025 square feet and “Parcel B” containing approximately 6,000 square feet (depicted in Attachment D). The Metro E Line Mariachi Plaza Station is adjacent to the south of the Site. This Site was originally purchased for the laydown and staging of the construction of the Metro E Line’s Eastside Extension and is no longer needed for this purpose.
The Project contemplates 59 affordable rental apartments, with one unrestricted property manager’s apartment, approximately 4,500 square feet of community space, 42 residential parking spaces, and a total of 55 bicycle parking stalls. The project will also provide 5,888 square feet of open space. A site plan and renderings for the Project are identified in Attachment D. The affordable rental apartments are made up of studio, one-, two-, and three-bedroom units with affordability levels ranging from 30% of area median income (AMI) to 60% of AMI for Los Angeles County. The Developer’s initial proposal called for a maximum income limit of 50% of AMI. However, after further analysis it was determined that a broader range of affordability levels would ensure access to all available capital sources, as well as the financial feasibility of the project.
The community space will be located steps away from Mariachi Plaza facing 1st Street and a community garden will be located on the entirety of Parcel B on the corner of Pennsylvania Avenue and North Vicente Fernández Street in Boyle Heights. The spaces are envisioned as an amenity for the residents, mariachi musicians and the greater neighborhood.
Execution of the JDA will provide the required documentation needed to apply for other funding sources, namely federal and state tax credits from the California Tax Credit Allocation Committee (TCAC). The anticipated total amount of equity that will be generated from the sale of the tax credits is approximately $33,500,000 and represents 70% of total development cost.
Community Engagement
In 2018, the Developer initiated community outreach. This outreach consisted of 22 community meetings including outreach to the Mariachi community, quarterly stakeholder meetings, door-knocking within a 0.25 miles radius of the site and hosting Affordable Housing 101 workshops which have included updates on the Project.
Three of the meetings mentioned above occurred between July 2018 through February 2022 and were with the Boyle Heights Design Review Advisory Committee (DRAC), created by Metro in 2016. The Developer provided a project update with design review and received feedback that informed changes in the design. The most recent of these meetings concluded with the approval of the schematic design by the DRAC, which enabled the Developer to submit its entitlements package to the City of Los Angeles for consideration.
In March 2022 the Developer provided a Project update to the Boyle Heights Neighborhood Council Planning and Land Use Committee (PLUC). At this meeting, the Developer gave an overview of the Project, received input on community needs and concerns, and obtained feedback on proposed design elements. In October 2024, the Developer provided an update on the Project to the Boyle Heights Neighborhood Council and held a community meeting on October 2, 2024, to present a project update and a workshop on applying for affordable housing.
Outreach efforts will continue throughout the term of the JDA to keep the community informed of the Project’s progress leading to the execution of the Ground Lease and eventual start of construction.
Discussion
DISCUSSION
JDA and Ground Lease Terms
The terms of the JDA are focused on the Developer bringing the Project through full financing and construction readiness. Specifically, the JDA:
• Provides a Term of 18 months with an option to extend up to two additional 12-month periods.
• Requires a Holding Rent of $2,500/month during the JDA term.
• Provides Metro with the right to review and approve the design of the Project as it progresses to completion.
• Recovers Metro’s transaction-related and other support costs, including the cost of in-house staff time (except for Joint Development staff) and fees related to consultants and other third parties (except for in-house and outside legal counsel with respect to negotiation and preparation of the JDA and Ground Lease); and
• Sets forth the conditions for execution of the Ground Lease including that project financing, governmental approvals, payment and performance bonds, and the completion guarantee are in place.
The unsubordinated Ground Lease will be executed once the conditions set forth in the
JDA are met. Key terms of the Ground Lease include:
• A term of 75 years.
• Restrictions to ensure continued affordability for the full term of the Ground Lease including rent levels in compliance with Surplus Land Act Section 54221(f)(1)(F).
• Metro’s receipt of a one-time capitalized rent payment of $1,200,000 upon execution of the Ground Lease.
• Metro’s receipt of 33% of all net refinancing proceeds and a 33% share of all net sales proceeds less accumulated Ground Lease payments not to exceed the FMV of the land.
The Ground Lease will provide language allowing the occupancy and rent restrictions to be modified to meet the debt service requirements of the Project so long as the rents stay affordable and units are available to tenants whose incomes are no greater than 80% of AMI, adjusted for household size. In no event shall the maximum affordable rent level be higher than 20 percent below the median market rents for the neighborhood in which the Site is located.
This would only be implemented in extreme cases to ensure the residual receipts loan(s) provided to the Project are fully paid with a zero balance at the end of the Project Term. This scenario would not be allowed to be contemplated until the end of the 15-year tax credit compliance period and only after Metro’s independent review of the Project financials to confirm the need to create more revenue.
Attachment A provides a summary of key terms and conditions for the JDA and Ground Lease.
Ground Lease Rent Discount
Affordable housing development relies on multiple sources of funding such as tax credits, housing vouchers, bank debt, and investor equity to provide the capital necessary for development. Land costs, particularly when the site is owned by a public agency, may be discounted to reduce total development cost, and make the project economically feasible. The discounted land then becomes one of the sources of development capital. The amount of discount required depends on the overall project feasibility. Relative to this transaction, staff proposes a one-time prepaid ground rent of $1,200,000, which is approximately a 65% discount from the Fair Market Value (FMV) rent of $3,400,000.
Given the challenging economic environment, limited subsidies available, and the provision of 59 affordable units targeting extremely low, very low and low-income residents, staff recommends approving this discount, which is equivalent to contributing approximately $36,667 per unit to the Project. With a total development cost of $47.9 million, Metro’s land discount of $2,200,000 represents 5.60% of the project’s total capital sources. Over the course of the 75-year Lease, Metro’s cost to ensure affordability represents a cost of $489 per unit, per year. The completed Project will benefit qualified low-income residents in need of housing, increase ridership near transit and further activate the public plaza and station.
Summary Analysis of Financial Terms
On April 15, 2024, staff received a third-party consultant report describing the financial feasibility of the Project, the proposed discount to the ground lease payment and the overall financial offer to Metro. The summary findings are as follows:
• The November 2023 appraisal concluded that Metro’s fair market value/leased fee interest in the subject property is valued at $3.4 million.
• The Project design is sound, and the total development costs in the Developer-provided underwriting analysis are reasonable and supportable given current market construction cost data.
• The operating proforma is based on reasonable assumptions about rents, vacancies, and operating expenses.
• The Developer's proposed financing plan includes a mix of tax credit equity, Developer equity, assumed grants, and a conventional permanent loan. Upon reviewing the proforma and the proposed sources and uses and conducting an independent residual land value analysis, discounting the Metro land to $1,200,000 is necessary to ensure Project feasibility.
Mariachi Cultural Center
The Developer provided Metro staff with a Cultural Preservation Plan with the objective to identify a strategy to preserve the culture of mariachi musicians who utilize the adjacent Mariachi Plaza and to increase opportunities for low-income mariachis in housing, employment, and related services. The Plan has informed the Mariachi Cultural Center (MCC).
The MCC will be located in a portion of the Project’s first floor community space adjacent to Mariachi Plaza facing 1st Street. Through the MCC, the Developer will (a) support mariachis and mariachi culture; (b) ensure that the proposed MCC contributes to the preservation and cultural significance of Mariachi Plaza, including the ability of mariachis to perform and seek employment at this location; and (c) collaborate with stakeholders to ensure the launch, funding and continued operation of the proposed MCC. Prior to the end of construction, the Developer will release a Request For Proposal (RFP) seeking qualified organizations to manage and maintain programming activities in support of the creation and long-term management of the MCC. The successful applicant will contract with the Developer to provide day-to-day management of the MCC and serve as a key link between the mariachis, ELACC, the residents of the Project, and the community at-large.
The Ground Lease will include provisions to maintain the interests and cultural significance of the mariachis. For example, if the MCC is not operational for more than three consecutive months, the Developer shall be responsible for the maintenance, management and programming of the MCC until such time the Developer finds a new operator through an open and competitive process, i.e. RFP. During the Term of the Ground Lease, if it is determined the MCC is no longer a feasible activity, Metro will request the Developer to recommend an alternative community use for the space, which Metro will review and approve at is sole and absolute discretion.
Community Garden
A Community Garden is the designated programming for Parcel B. During the JDA phase, the Developer would conduct face-to-face meetings, surveys, and focus group sessions to ensure the spaces will be programmed and well-managed to fit current and future community needs. The Developer will maintain the Community Garden and keep it free from litter, weeds, debris and other visual blight. The garden shall be secured during hours of non-use and used solely to grow fruits and vegetables and to provide community education and related horticultural activities. If the Community Garden is not used or maintained as described or an alternative use approved by Metro is not in place, a monthly rent of Parcel B shall be assessed at the fair market value rental rate. In addition, fair market rent will be assessed if construction on Parcel B is not completed within 12 months following the close of construction on Parcel A.
Local Housing
In response to the community’s desire to have the Project meet the housing needs of mariachis and local community residents, the Developer, in consultation and coordination with Metro, will implement the inclusion of a local preference to the general affordable units, to the extent feasible and permissible under relevant state and federal laws. This includes, but is not limited to, the Local Tenant Preferences to Prevent Displacement Act, California Government Code 7061 et seq. Before execution of the Ground Lease, the Developer will submit a Local Preference Plan for Metro’s approval. If feasible and legally permissible, the parties shall incorporate the appropriate local preference requirements into the Ground Lease.
Notably, the Los Angeles City Council recently passed a motion which requests the Los Angeles Housing Department to work with the applicable Federal and State agencies to prepare a local preference policy for subsidized affordable housing units for tenant selection and leasing. This is notable since the Site is located in the City of Los Angeles.
Federal Transit Administration Review
The Site was acquired in 1999 using grant funding from the Federal Transit Administration (FTA). Metro has submitted the terms of the JDA and Ground Lease to FTA through their Joint Development Review process to ensure that FTA is aware of the proposed Term Sheet and has no objections to the overall deal structure, including the proposed rental discount for affordable housing. Execution of the JDA is subject to receipt of FTA concurrence.
CEQA Actions
Staff has reviewed the environmental studies and reports set forth in Attachment B which demonstrates the Project qualifies for a categorical exemption under Sections 21080(b)(9) and 21084 of the California Public Resources Code and Section 15332 (Class 32 - In-Fill Development Projects) of the CEQA Guidelines. None of the exceptions to the In-Fill exemption found in CEQA Guidelines Section 15300.2 apply to the Project.
The Project qualifies for the Class 32 exemption because of qualifying factors including: (a) the Project is consistent with the project site’s RD1.5-1 RIO-CUGU (Restricted Density Multiple Dwelling Zone-Height District No. 1-River Implementation Overlay District-Clean Up Green Up: Boyle Heights) Zone designation and all applicable zoning regulations, as well as with the General Plan land use designation of Low Medium II Residential and all applicable general plan policies; (b) the Project site is less than five acres and within the municipal limits of the City of Los Angeles; (c) the Project is located in an urban area with no value as habitat for endangered, rare, or threatened species; (d) approval of the Project would not result in any significant effects relating to traffic, noise, or air or water quality; and (e) the Project can be adequately served by all required utilities and public services. Further details can be found in Attachment B, CEQA Exemption Summary of Details.
In acting as the governing body of a responsible agency for the Project, the Board’s consideration of the documentation in Attachment B, and the Board’s independent finding that the Project meets all criteria of the In-Fill Development categorical exemption and that the Project will not cause a significant impact on the environment, will satisfy the Board’s CEQA responsibilities for the Project. Subject to and consistent with said findings, it is recommended that the Board authorize staff to file an appropriate Notice of Exemption with the Los Angeles County Registrar-Recorder/County Clerk and the State Clearinghouse of the Governor’s Office of Planning and Research.
Surplus Land Act
It has been determined the Project Site, as presented, qualifies for Board declaration of the Site as exempt surplus land, pursuant to the Surplus Land Act (SLA), Government Code Sections 54221(f)(1)(F) of the SLA. This determination has been made based on qualifying factors and criteria including the following:
1. The surplus land was put out to open and competitive bid by Metro, and all entities pursuant to Government Code Section 54222(a) were invited to participate in the competitive bid process.
2. The Project Site will restrict 100 percent of the residential units to persons and families of low or moderate income, with at least 75 percent of the residential units restricted to lower income households, as defined in Health and Safety Code Section 50079.5, with an affordable rent as defined in Health and Safety Code Sections 50052.5 or 50053.
3. In no event will the maximum affordable rent level be higher than 20 percent below the median market rents for the neighborhood in which the Site is located.
4. Once completed, rental housing in the Project will be subject to an affordability covenant recorded against the land for a term of 75 years, which is longer than the minimum threshold of at least 55 years set forth in the SLA.
Upon the Board’s declaration that the Site is exempt surplus land, Metro staff would then ensure completion of all related actions as required by Government Code Section 54221 et seq., including but not limited to, providing appropriate notice to the California Department of Housing and Community Development (HCD) of the Board’s declaration of the Site as exempt surplus land.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
Approval of this item would improve safety and security conditions immediately around the Mariachi Plaza station by replacing the vacant fenced lot with a 24-hour presence of new residents and community organizations that will have eyes on the plaza. The Developer will pay for Construction Management staff to oversee the construction of the Project to ensure that it does not adversely impact Metro property or the continued safety of staff, contractors and the public. Project oversight will be conducted via existing Metro processes: the Developer will submit Construction Work Plans, Track Allocation Requests, and all other required documentation for review and approval by Metro staff. All safety measures and associated requirements to be met by the Developer and its construction contractor will be identified in the JDA and subsequent Ground Lease.
Financial_Impact
FINANCIAL IMPACT
Taking into account the land discount, which is consistent with the Board-adopted Joint Development Policy, financial compensation under the JDA and the Ground Lease is fair and reasonable as determined in the third-party financial feasibility study dated April 15, 2024.
Impact to Budget
Funding for activities related to the Project are included in the FY25 Budget under Project Code 401300 (Joint Development 10K Homes), Cost Center 2210. Furthermore, Metro staff, legal, and consultant costs (excluding JD staff and in-house counsel time, which are covered by the program budgets) would be recovered from the Developer via a nonrefundable fee of $45,000. No Metro funds are used to entitle and construct the Project.
Equity_Platform
EQUITY PLATFORM
The proposed development at the Mariachi Plaza adjacent site is representative of Metro’s Joint Development Policy goal to deliver as many homes as possible, as quickly as possible, for those who need it most. The proposed action will allow Metro to work with the Developer to secure financing, conduct additional outreach and obtain permits for 59 units of affordable housing, 4,566 square feet of community space, a community garden, enhanced public infrastructure, jobs and other transit-supportive amenities. The Project is one of several recent housing developments that Metro’s Joint Development program has worked to authorize and/or complete in order to assist in addressing the local affordable housing crisis.
The completed Project will benefit qualified low-income residents in need of housing, as well as qualified households with disabilities who will be awarded one of the Americans with Disabilities Act (ADA) accessible units. The Project is located within an Equity Focused Community and offers housing for individuals earning 30% to 60% of LA County AMI, which are appropriate levels of affordability accessible to the local Boyle Heights community. These income-restricted units will benefit Metro’s ridership base by offering housing accessible to the majority of the 83% of Metro riders who reported household incomes under $50,000 in the 2022 Customer Experience Survey. By offering affordable housing adjacent to the Mariachi Plaza E line station and the Metro 106 bus line, the project will enhance access to these modes of transportation and encourage transit use among the Project’s residents. The Project will also benefit adjacent community members who may use the community space and community garden. The community space will be programmed to fit the needs of the local community, mariachis and Project residents.
Once completed, the 59 units of affordable housing will be protected by a long-term affordability restriction that will serve to address historical concerns regarding gentrification and economic dislocation expressed by residents and Community Based Organizations (CBOs) in Boyle Heights. Metro has been committed to working with community partners, collaborating with them for over eight years to design a unique tailored project that is responsive to this community’s needs. This includes working with the Developer to implement the inclusion of a local preference policy for the general affordable units, to the extent feasible and permissible under relevant state and federal laws, which has never been implemented on past Metro developments.
Staff will evaluate and explore if implementing a local preference may serve as a model for future affordable housing projects on Metro sites. Further, the Project will offer a Mariachi Cultural Center to support mariachi musician and assist in preserving mariachi art and culture for the community at large at the historically significant Mariachi Plaza which is adjacent to the Project.
Since 2018, the Developer and Metro staff have conducted extensive outreach events to incorporate community input from the Boyle Heights Design Review Advisory Committee, Boyle Heights Neighborhood Council, CBOs, residents, and the business community. The Developer continues to actively engage with and be responsive to all of these stakeholders through a coordinated community outreach process that involves multiple public engagement opportunities. The Developer will continue building on the years of prior community outreach established for the Project in the upcoming JDA period. As in previous Joint Development outreach efforts, engagement will be conducted in English, Spanish, and other languages deemed appropriate to reach a broad audience of stakeholders
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
Enhance communities and lives through mobility and access to opportunity, Initiative 3.2: Metro will leverage transit investments to catalyze transit-oriented communities and help stabilize neighborhoods where these investments are made
Alternatives_Considered
ALTERNATIVES CONSIDERED
The Board could choose not to authorize execution of the JDA and Ground Lease. Staff is not recommending this option because the proposed Project is the product of competitive solicitation and several years of extensive community engagement and is consistent with the goals of Metro’s Joint Development Policy. Further, the terms of the proposed JDA and Ground Lease are fair and reasonable. Electing not to authorize execution of the JDA and Ground Lease would unnecessarily delay development of the Site and jeopardize- the build-out of 60, in-demand housing units, 59 of which are covenanted to extremely low-, very low-, and low-income households.
Next_Steps
NEXT STEPS
Upon approval of the recommended actions and necessary approval by FTA, staff would work to complete and execute the JDA file the Notice of CEQA Exemption with the County Clerk and State Clearinghouse and provide notice to the State HCD if the Board’s exempt surplus land declaration. Staff and the Developer will work to satisfy the conditions under the JDA necessary to finalize the Ground Lease in preparation for the construction of the Project. The JDA, Ground Lease and related documents will be executed thereafter in substantial accordance with the terms and conditions set forth in Attachment A. In particular, the Developer will diligently attempt to secure all financing necessary for construction of the Project and staff and the Developer will work to advance the final design and construction documents to completion.
Attachments
ATTACHMENTS
Attachment A - Summary of Key Terms and Conditions
Attachment B - CEQA Studies and Reports
Attachment C - Motion 12.1
Attachment D - Site Plan and Renderings
Prepared_by
Prepared by: Olivia Segura, Senior Manager, Countywide Planning & Development, (213) 547-4203
Carey Jenkins, Senior Director, Countywide Planning & Development, (213) 547-4356
Wells Lawson, Deputy Executive Officer, Transit Oriented Communities, (213) 547-4204
Nicholas Saponara, Executive Officer, Transit Oriented Communities, (213) 922-4313
Holly Rockwell, Senior Executive Officer, Countywide Planning & Development, (213) 547-4325
Reviewed_By
Reviewed by: Ray Sosa, Chief Planning Officer, (213) 922-2920
