CalHFA board approves $36.5 million permanent loan for 831 Water Street in Santa Cruz

The California Housing Finance Agency board of directors on Oct. 16 approved a permanent financing package for 831 Water Street, a new-construction mixed-income, family and special-needs development in Santa Cruz.

The board adopted Resolution 25-25 by roll call vote after a staff presentation and discussion of underwriting exceptions. The financing approved includes a $36,500,000 first-lien permanent loan and a $4,000,000 mixed-income subordinate loan, both with 17-year terms. CalHFA will act as issuer for the project’s tax-exempt and taxable bond issuances.

Steve Gallagher, CalHFA deputy director of multifamily programs, told the board the development will include 140 residential units in two buildings (five and six stories). Rents for 139 units will be restricted to roughly 30–80% of Santa Cruz County area median income (AMI). Gallagher said the project has been allocated nearly $54,000,000 in tax-exempt bonds from the California Debt Limit Allocation Committee and anticipates about $21,000,000 of taxable bonds, along with $44,200,000 in federal tax credits and $11,300,000 in state tax credits. The construction lender is Citibank and the tax credit investor is R4 Capital (identified in staff materials as the investor partner).

Gallagher described household targeting and services: 64 units will be covered by project-based vouchers (including 16 units reserved for disabled households on the county waiting list), 15 units will be Veterans Affairs Supportive Housing (VASH) units, four units are reserved for transition-age youth, and the remaining 29 voucher units will serve non-targeted eligible applicants on the county waiting list. The project will also include five live-work units, a commercial space planned as a bike repair shop/coffee shop, photovoltaic solar panels, water-efficient landscaping, electric vehicle charging stations and about 300 bicycle spaces.

Gallagher also disclosed underwriting exceptions that the board considered. CalHFA’s regulatory agreement will be subordinate to the Santa Cruz density bonus agreement; CalHFA described mitigation through a subordination/standstill agreement to be executed at permanent loan closing. To meet investor requirements to repay a deferred developer fee within the first 15 years, the borrower will receive a larger-than-standard distribution of surplus cash (estimated at 65%) until year 15, after which distributions will revert to a 50/50 split. Staff’s exit analysis projects the loans will be repaid at refinance in year 16. The agency accepted utility allowances calculated under the California utility allowance calculator (CUAC), which staff said are lower than HUD allowances because of the project’s energy-efficiency measures.

Gallagher notified the board of a late-change to construction approach: the modular manufacturer originally planned for the project folded, and the developer now anticipates a stick-built framing approach while continuing to evaluate other modularized components (prepanelization and modularized kitchenette systems).

Developers answered board questions about schedule, construction-readiness and energy monitoring. Iman Novin, principal of Novin Development Corporation, told the board the team had experience with modular projects and said general contractors bidding for traditional framing indicated they could meet schedule and cost goals. Novin said some modular suppliers faced intellectual-property and factory issues that caused the change. On energy performance, Novin and staff described plans for post-occupancy monitoring and management practices (including water metering for property management rather than utility billing) and noted resident education would be part of ongoing operations.

Director Michael Prince, who moved adoption of the resolution, said he appreciated the developer’s agreement to reduce the early surplus distribution from 100% to 65%, adding, “I still feel like we have a stronger negotiating position than that, but at least it's moving in the direction that I've been hoping.” Director Henning seconded the motion. The board called the roll and the recorded yes votes were Chair Cervantes, Deputy Secretary Kurgan, Mr. Hardiman, Director Prince, Mr. Fiegel, Miss Seager, Dr. White and Mr. Williams. The resolution carried and staff noted it is the final MIP 2024 commitment, bringing CalHFA’s MIP 2024 commitments to more than $290,000,000 in permanent loans and nearly $46,000,000 in mixed-income subordinate loans, per staff analysis.

During discussion board members emphasized the role of local housing authorities in making projects financially feasible through project-based vouchers and urged continued partnerships in future strategic planning. Board members also asked staff and the developer to provide ongoing information on solar performance and utility benchmarking so lower CUAC allowances reflect actual resident energy costs.

The developer, Novin Development Corporation, was identified in the staff presentation as an emerging developer; Gallagher said the firm’s principal, Iman Novin, has an established record in the affordable housing sector and that Novin Development has 13 projects totaling 801 units in the Bay Area.

Resolution 25-25: adoption of the permanent first-lien loan of $36,500,000 and a $4,000,000 subordinate mixed-income loan for 831 Water Street, Santa Cruz, was approved on Oct. 16 by recorded roll call.