Title
Report regarding a resolution approving the sale of a City-owned Below Market Rate (BMR) housing unit at 2230 Gellert Boulevard, Unit 3209 (APN 104540190) and authorizing the City Manager to execute related sale documents. (Elia Moreno, Management Analyst I)
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RECOMMENDATION
Recommendation
Staff recommends City Council adopt a resolution approving the sale of a City-owned Below Market Rate (BMR) housing unit at 2230 Gellert Boulevard, Unit 3209 (APN 104540190) to a qualified buyer earning up to 100% of the area median income in accordance with the City’s BMR restrictions, priced at the time marketing begins, and authorizing the City Manager to execute a Grant Deed, Affordable Housing Resale Restriction Agreement, and any other documents necessary to effectuate the sale of the BMR unit.
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BACKGROUND
Following the unsuccessful marketing and sale of the BMR unit located at 2230 Gellert Boulevard,
Unit 3209 (the “Property”), as detailed extensively in the October 23, 2024, City Council staff report included as Attachment 1, City Council authorized the purchase of the unit to ensure it would not be sold at market rate. The City took title to the 2-bedroom, 2-bathroom unit on November 15, 2024, for a purchase price of $676,781 - the resale price as determined by the resale restriction agreement executed between the City and the BMR owner. The City is now in the position of being able to re-evaluate the income eligibility of the unit and the appropriate sales price given today’s interest rates and the community’s housing needs.
DISCUSSION
The City acquired the Property using Commercial Linkage Fees, Fund 823, which requires investment in housing for households making 120% or less of the Area Median Income (AMI). The unit was previously sold to an 80% AMI household, so the unit was restricted to being resold to a new household at that income level by its resale restriction agreement. (See Attachment 2 for a table of incomes by household size at all AMI levels.) While the City spent $676,781 to acquire the Property, the City does not have to fully recoup this expense. The City may further subsidize the unit, offering it for sale at an even lower price in order to be affordable to more households.
The City’s Inclusionary Housing Program requires that BMR units are sold at two income thresholds: to households earning up to 80% AMI, and households earning up to 120% AMI. This range of incomes is considered the “missing middle”. While the Inclusionary Ordinance does not currently require BMR units be sold at other income limits, there are a number of 100% AMI ownership BMRs in the City either restricted prior to the Inclusionary Ordinance or through negotiated Development Agreements. Below market rate units are not typically marketed to households under 80% AMI because of other homeownership readiness qualifications that would likely not be met, such as sufficient down payment, high credit score, and low monthly expenses. Households in these lower income bands are served by affordable rental housing.
Pricing
City staff use a calculator to determine the price for the sale of affordable housing units. Inputs used to calculate pricing include monthly and annual cost estimates including property tax, insurance, utilities, HOA fees, mortgage loan interest rate (a rolling six-month average prior to pricing the unit), and a five percent down payment. See Attachment 3 for sample pricing.
Staff Recommendation
In thinking about how to price the sale of the Property, staff first reviewed the City’s existing inventory of BMR units. Staff found nearly half of all BMR units to be restricted to households making less than 80% AMI. Should the Property be marketed to households earning under 80% AMI, it would need to be priced at approximately $293,021 to be truly affordable. This is more than $383,760 less than the City paid for the Property.
In consideration of this, staff recommend marketing the unit to median income households (those making no more than 100% AMI). In this case, the sale price will be approximately $507,490. Staff are confident this sale price, with an income restriction of 100% AMI, will result in successful marketing and sale of the Property.
Earlier this year, the City experienced a similar scenario where approval of the acquisition of a BMR unit was received, and the resale followed set with the income restriction of 100% AMI. A total of seven (7) applications were received from pre-qualified applicants, and the City was able to successfully close escrow with an eligible buyer in early October 2024. The new property owners are first-time homeowners and are employed within South San Francisco. Proceeds from the resale have been received and replenished back into Fund 823.
The current market for both BMR and market rate units was also a consideration when making this pricing recommendation. The proposed affordable sale price of roughly $507,490 is well below the market price for a similarly situated for-sale condominiums in South San Francisco. Similar units sold in the past six months have transacted for $720,000 to $965,500 on the open market.
Alternative to Staff Recommendation
Should Council desire to recuperate more of the funds expended on the purchase of the Property, the income eligibility limit could be raised to 120% AMI and an affordable price for households in that income range would be approximately $657,770.
Marketing and Sale Process
The City will select a listing agent from its prequalified list to assist in the process of marketing and sale of the BMR unit. The marketing plan will include making the home available for open houses and showings by appointment, listing the unit on the Multiple Listing Service, and announcing its availability in the Mayor’s newsletter, on City social media channels, and on the City’s website at <https://www.ssf.net/departments/economic-community-development/housing/below-market-rate-bmr-housing/program-procedures-and-guidelines>.
The property will accept applications for no fewer than 21 days with applications due to the listing agent during that period. After the application window closes, qualified buyers will be entered into a lottery as per the BMR program standard process, with preferences given to those who live or work in the City of South San Francisco. City staff and the BMR program consultant review applications and verify documents to determine eligibility.
ENVIRONMENTAL REVIEW
The sale of this BMR unit is evaluated to qualify for the general exemption in CEQA Guidelines Section 15061(b)(3), which exempts projects where it can be seen with certainty that there is no potential for significant environmental effects.
FISCAL IMPACT
On October 23, 2024, City staff received approval to use Commercial Linkage Fees (Fund 823) for the purchase and preservation of the Property. The proceeds from the resale will partially reimburse Fund 823 for the purchase. There is no impact to the General Fund from this action.
CONCLUSION
Staff recommends City Council adopt the associated resolution authorizing the sale of a City-owned Below Market Rate (BMR) housing unit at 2230 Gellert Boulevard, Unit 3209 (APN 104540190) to a qualified buyer earning up to 100% of the area median income in accordance with the City’s BMR restrictions, priced at the time marketing begins, and authorizing the City Manager to execute a Grant Deed, Affordable Housing Resale Restriction Agreement, and any other documents necessary to effectuate the sale of the BMR unit.
ATTACHMENTS
1. October 23, 2024, City Council Staff Report
2. Table of Income Limits
3. City of South San Francisco Affordable Housing Price Calculator