STRATEGIC PRIORITY: Housing & Homelessness Solutions
AGENDA DATE: June 12, 2024
COUNCIL DISTRICT(S): All
DEPARTMENT: Department of Housing & Neighborhood Revitalization
EXECUTIVE: Robin Bentley
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SUBJECT
Title
Authorize an amendment to (1) the Dallas Housing Policy 2033, as shown in the attached Exhibit A page 11 to (a) require 50% of the Department of Housing & Neighborhood Revitalization’s annual funding to Equity Strategy Target Areas; (2) the Dallas Housing Resource Catalog to New Construction and Substantial Rehabilitation Program, as shown in the attached Exhibit B pages 31-39 to (a) add a preference to award to developer partners with no current outstanding housing projects with the City; (b) cap all gap funding provided to a developer at a maximum 25% of total development cost or $5,000,000.00, whichever is less (subject to exceptions for affordable housing projects in target areas and developments with specific project initiatives); (c) revise and provide consistency in repayment terms for annual cash surplus payments for developers; (3) Single Family Development Requirements/Underwriting, as shown in the attached Exhibit B pages 71-81 to (a) add a preference for single-family and homeownership development; (b) add a preference to award to developer partners with no current outstanding housing projects with the City; (c) cap all gap funding provided to a developer at a maximum 25% of total development cost or $5,000,000.00, whichever is less (subject to exceptions for affordable housing projects in target areas and developments with specific project initiatives); (d) revise and provide consistency in repayment terms for annual cash surplus payments for developers; and (4) the Land Transfer Program, as shown in the attached Exhibit B pages 44-49 (a) to authorize the City Manager to provide a defaulting developer’s third-party private financial institution an opportunity to cure the developer’s default before the City exercises its Right of Reverter with a right of reentry for affordable multi-family rental or single-family homeownership projects when the third-party lender’s loan is in an amount greater than the City’s financing - Financing: No cost consideration to the City
Body
BACKGROUND
Dallas Housing Policy 2033 (DHP33) - The DHP33 was adopted to replace the Comprehensive Housing Policy (CHP) by Resolution No. 23-0443 on April 12, 2023, based on the fundamental premise that equity reduces disparities while improving outcomes for all. The following preference is proposed to provide equitable investments and opportunities in target areas throughout the City utilizing a targeted approach.
The proposed policy amendment to the DHP33 will require 50% of the Department of Housing & Neighborhood Revitalization’s annual funding to Equity Strategy Target Areas as outlined in Exhibit A described as Pillar One Smartie Goals.
New Construction and Substantial Rehabilitation Program - The City Council authorized the adoption of the CHP by Resolution No. 18-0704 which included developer programs: New Construction and Substantial Rehabilitation Program (NCSRP), the Single-Family Homeownership Development Requirements Program (SFHDRP), and the Land Transfer Program (LTP). Since the inception of the policy, multiple amendments have been authorized.
On August 7, 2020, the Notice of Funding Availability (NOFA) for gap financing in the form of repayable loan support for acquisition and rehabilitation of affordable housing units was created. The NOFA was issued by the Department of Housing & Neighborhood Revitalization (Housing) in accordance with the CHP, as restated as the DHP33 and Dallas Housing Resource Catalog (DHRC). Housing administers both the NCSRP and the SFHDRP to appropriately incentivize private investment for the development of quality, sustainable housing that is affordable to the residents of the City. Specifically, Housing administers the NCSRP which, when necessary, seeks to provide financial assistance to new developments or to substantially rehabilitate existing developments. All projects seeking financial assistance are required to submit a Notice of Intent to apply for financial assistance through NOFA to develop affordable homeownership and rental housing. As outlined in the NOFA, multiple sources of funding are available; however, proposed projects must meet specific thresholds to qualify for the use of a specific funding source. At minimum, each proposed project must be composed of at least five affordable units and must achieve a fundable score as outlined in the NOFA solicitation.
Challenges facing the NCSRP are due to the current conditions in the real estate market including frequent and large gap financing requests during the fiscal year from the same developers which results in the depletion of available gap financing to smaller developers. In an effort to be more equitable in the disbursements of gap funding to small, mid-size, and large-scale developers, setting parameters around the number of times a NOFA application is submitted during a fiscal year as well as capping the amount of gap financing would create equitable outcomes for all.
For the NCSRP, staff recommends policy amendments to the DHRC adding the following preferences for project selection: 1) awards to new developer partners or current partners that have not been awarded in the past two years to allow equitable distribution of gap financing; 2) cap all gap funding provided to a developer at a maximum 25% of total development cost or $5,000,000.00, whichever is less (subject to exceptions for affordable housing projects in target areas and developments with specific project initiatives); and 3) revise and provide consistency in repayment terms for annual cash surplus payments for developers.
Single-Family Homeownership Development Requirements Program - For the SFHDRP, staff recommends policy amendments to the DHRC adding the following preferences for project selection: 1) single-family and homeownership development; 2) awards to new developer partners or current partners that have not been awarded in the past two years to allow equitable distribution of gap financing; 3) cap all gap funding provided to developers at a maximum 25% of total development cost or $5,000,000.00, whichever is less subject to exceptions for affordable housing projects in target areas and developments with specific project initiatives; and 4) revise and provide consistency in repayment terms for annual cash surplus payments for developers.
Use of Right-of-Reverter with Right of Reentry (ROR) in Land Transfer Program - Under the DHP33 and the DHRC, the LTP authorizes the sale of surplus lots (subject to Texas Local Government Code, Section 272.001(g)) or tax-foreclosed lots (subject to Texas Tax Code, Section 34.051) to qualified developers. The sale of land transfer lots to qualified developers facilitates the construction of affordable housing units for low- and moderate-income households (as well as targeted commercial uses). Pursuant to applicable law, the City sells the property subject to a right-of-reverter with right of reentry to ensure that construction and sale or rental of the affordable units actually takes place and imposes deed restrictions to ensure that the housing units constructed remain affordable for a certain period of time as specified by the LTP.
The LTP requires the developer to sell the newly constructed home to a qualified homebuyer and that any subsequent resale of the home by the initial qualified homebuyer must be to another qualified household during the 5-year affordability period (“resale deed restriction”) if the qualified homebuyer is not a Dallas Homebuyer Assistance Program (DHAP) participant. If the qualified homebuyer is a DHAP participant the LTP resale deed restriction is released and replaced with DHAP (“recapture deed restriction”) for the specified affordability period ranging from five to 15 years depending on the amount homebuyer assistance provided to the qualified homebuyer.
State law authorizes the City to sell the LTP lots without public notice and bidding if the sale is for a public purpose - affordable housing. To ensure that the city is not providing an unconstitutional gift to developers by selling them public property at below market value, the LTP imposes various deed restrictions and a right of reverter with right of reentry (ROR) on the lots to ensure compliance with the public purpose-affordable housing - as established by the City Council.
The deed restrictions on all LTP parcels require: 1) the property to be developed per the size, quality, public infrastructure access and other requirements in the development agreement; 2) a defined number of units to be developed for low- to moderate-income households and remain the primary residence for qualified homebuyers for the affordability period; and 3) a cap on the sales price based on the AMI income band.
The conditions under which the City exercises the ROR are if the developer: 1) fails to take possession of land within 90 calendars after receiving the deed; 2) fails to complete construction of housing units or other development on real property, or fails to ensure occupancy by eligible households within timeframe set forth in the development agreement; 3) incurred a lien on property due to violations city ordinance and failed to fully pay off lien within 180 days of the City’s recording of lien; or 4) sold, conveyed, or transferred land without the City’s consent. Ultimately, the City releases the ROR when developer completes construction and sells to qualified homebuyer within the required timeframe.
The ROR is superior to (precedes) the developer’s third-party lender’s liens. Current challenges regarding the use of the ROR in LTP development deals whereby construction financing is provided by a third party. Issues have centered around whether the City’s ROR is absolute and without notice or right to cure which have complicated developers’ ability to secure construction financing. To address this challenge, the LTP is being amended to allow the city to provide the third-party lender with a right to cure a developer’s default before the City exercises its reverter right in instances when the third-party lender’s construction loan exceeds the amount of the City’s loan.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
The Housing and Homelessness Solutions Committee was briefed on the “Update on Development Programs” on March 25, 2024, and on April 22, 2024.
The Housing and Homelessness Solutions Committee was briefed by memorandum regarding this matter on May 24, 2024. <https://cityofdallas.legistar.com/View.ashx?M=F&ID=12967221&GUID=EB998357-1BE8-431F-A3EC-335F90DCD556>
FISCAL INFORMATION
No cost consideration to the City.