Funding for Santa Rosa affordable housing project in peril

As Sonoma County grapples with the lack of affordable housing, one effort to help move some local families into home ownership faces uncertainty due to the aftereffects of the 2008 financial crisis.

Barring a legislative fix, crucial funding is in jeopardy for the $22 million Catalina Townhomes project. The 60-unit affordable housing complex in Santa Rosa is slated to be completed by the end of 2016, but has been hampered by delays attributed to the 2008 financial crisis.

The project had been awarded $3.8 million in 2011 through a state program administered by the California Department of Housing and Community Development (HCD). But the money cannot be released until the homebuyers close on their respective lots, which at the earliest would be in about nine months.

Local officials are grappling with a tight deadline because the grant will revert back to the state on June 30 if not spent. That would put the sponsors of the project, Burbank Housing and the city of Santa Rosa, on the hook to make up a shortfall needed to repay a $5 million loan.

“The financial impact would not only jeopardize the homebuyers, but Burbank’s financial viability, as well. It would also likely cause significant impacts for the City of Santa Rosa and our Housing Authority,” Santa Rosa Mayor John Sawyer wrote in a May 12 letter to Assemblyman Jim Wood, D-Healdsburg.

Today, Wood will offer an amendment in the Assembly Committee on Appropriations that would extend funding for two additional years.

“This is a huge issue,” Wood said of the North Bay’s affordable housing crisis. Wood noted that HCD was unable to address the issue administratively, forcing his last-minute legislative gambit.

He expressed some frustration “because some sort of goofball error on a project of 60 homes is going down the tubes.”

But Wood will likely have some allies in his push, as other California communities are in the same predicament with the HCD grant program. Kings County and the cities of Palmdale, Morgan Hill and Ceres also face a June 30 deadline on their respective affordable housing projects.

“There is a huge need for this,” Wood said. “We could have 10 to 20 projects like this and still not come close to making a dent.”

Most of the foundations for the first phase of 32 homes have been poured, said Chuck Cornell, executive director for Burbank Housing, a nonprofit that has helped build more than 3,700 housing units in the area. The group is developing the Catalina project, located at 2740 Dutton Meadow.

So far, 32 low-income families have qualified for the first phase, and another 18 have been approved for the second phase, Cornell said. More than 700 applications for the units have been received, highlighting the need for affordable housing in Sonoma County.

“The Great Recession stalled this project,” Cornell said. He said the appraisals for the units were too low and below cost in the aftermath of the financial crisis, so no project lenders at the time would support it at the average cost per unit of $367,000.

With real estate rebounding, the project is now viable as appraisals come in above cost.

But that also brings a downside because it makes it difficult for low-income families to qualify with an average mortgage ranging from $180,000 in the first phase of construction to $190,000 in the second phase. The goal is to provide the homeowner an overall monthly payment of $1,540 including mortgage, taxes, insurance and homeownership dues.

The maximum income that a family of four can have to qualify is $64,000 annually. There is no minimum, but the buyer must qualify for a mortgage of at least $150,000, which typically takes a yearly income of $40,000.

To make up the difference between the cost and the first mortgage, the project relies on grants, deferred loans and sweat equity by applicants, who spend up to 30 hours per week to help build their unit. But even that is not enough as Burbank needs an average mortgage of $210,000 to break even on the second phase of the project. Thus, the nonprofit is prepared to make up as much as a $20,000 shortfall on some applications so the project can be completed successfully.

If the funding is not restored, the onus would likely fall on the city of Santa Rosa because Burbank does not have the money to repay with only about $2 million of potentially available funds, Cornell said. Under the worst-case scenario, if the city failed to cover the costs, the construction lender could foreclose, he said.

“It would be a very messy situation,” he said if the legislative fix does not pass.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.