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Letter May 27, 2014 Ms. Sarah LaValley Conservation, Preservation and Land Use Planner City of Northampton 210 Main Street - Room 11 City Hall Northampton, MA 01060 Re: 129 Pleasant Street Northampton, MA Dear Ms. LaValley: I am writing to request that the City of Northampton’s Community Preservation Committee (“CPC”) consider an expedited review of an application by HAP, Inc., for $300,000 toward the acquisition of the Northampton Lodging property, located at 129 Pleasant Street in downtown Northampton. HAP’s goal in acquiring the property is to ultimately redevelop it for commercial and residential uses, with the rental apartments containing a mix of both affordable and market rate units. As described below, HAP requests approval of CPC funds in September 2014 and availability of funds for acquisition of the property prior to December 31, 2014. This letter and attached materials explain HAP’s plans for the acquisition and redevelopment of the property, and the rationale for an expedited review of an application for CPC financing. Acquisition, Relocation & Re-development Plan Acquisition HAP has signed a six-month Option to Purchase Agreement to acquire the 58-room Single Room Occupancy Northampton Lodging property for $1.6 million from current owner October 8, 2014 Bowditch LLC. The Option to Purchase Agreement expires . Pending satisfactory completion of due diligence investigations, HAP intends to exercise the option and December enter into a Purchase & Sale Agreement, with an expected title closing date prior to 31, 2014 . HAP intends to purchase the property and manage it in its existing condition until financing is secured to construct a new five-story mixed-use, mixed-income building on the site. Given the demand for affordable housing resources, it may take as much as three years after purchase before HAP is able to secure all necessary financial resources for the project and commence construction. The new building, further described below, will contain 78 studio and one-bedroom rental apartments and ground floor retail space. The completed development will be managed by HAP. Apartment rents will be tiered to include market rates and rates affordable to persons earning up to 80%, 60%, 50%, and 30% of Area Median Income. - 1 - The sources and uses of funds for the purchase of the property and three years of projected income and expenses for the interim management of the existing building are attached to this letter as Acquisition & Interim Operating Budget. In order to finance the purchase of the property, HAP is negotiating with Community Economic Development Assistance Corporation (“CEDAC”) for an acquisition loan of $1,600,000. The loan would carry an interest rate of 5.5% for a term of three years. HAP would need to make quarterly interest payments only during the loan term. The principal amount of the loan would be repaid to CEDAC at closing on the financing for the construction of the new building. The attached acquisition budget shows HAP drawing as much as $1.5 million of the CEDAC loan, including up to $264,000 with which to pay CEDAC annual interest payment of $88,000. CEDAC is also expected to approve a separate $400,000 loan to HAP to pay for third- party pre-development expenses for the re-development project. These funds will be used for architecture and engineering, appraisal, market study, survey, environmental and other costs. Additional sources of acquisition financing are $200,000 from HAP and $300,000 requested herein from CPC. The CPC funds are critical to reducing the amount borrowed from CEDAC, and thus the interest expense. Relocation The Northampton Lodging building is an 11,700 s.f., 3-story, partially below-grade brick building, constructed in 1967 as a dormitory for the now-defunct Northampton Commercial College. It presently functions as 58 single-room rentals, plus a manager’s room, with a common kitchen on the lower level. Men’s rooms are located on the upper two floors and a woman’s room is on the lower level. Rooms are rented weekly or monthly. The current owner has no leases with any tenants. The tenant population of Northampton Lodging is notable for both its transience and long-term residents. As of May 2014, 45% of tenants had moved into the property within the preceding 24 months. However, 19% had been in residence for over ten years. During its interim management of the building, and upon redevelopment, HAP will work with local social service providers to offer case management, job development, and a range of counseling and other services to residents. HAP will assign a full-time Property Manager to 129 Pleasant Street. Because the length of the interim operating period is unknown and tenant relocation is expensive, during the first year of the interim operating period, HAP will not rent any vacant rooms, unless occupancy falls below +/- 40 rooms. If HAP rents rooms during the interim operating period, new tenants will be required to waive their rights to relocation benefits. At the time of HAP’s first financing application to MA Department of Housing and Community Development, all tenants, except any that waived their right to relocation benefits, will receive written notice from HAP that they may be subject to relocation and eligible for relocation benefits in the event HAP is awarded funds and proceeds with the project. Once redevelopment financing is secured, HAP will provide temporary relocation benefits to all eligible tenants. Such tenants will be temporarily relocated to SRO, studio and - 2 - 1BR apartments in Northampton and nearby communities. HAP will engage the services of an experienced Relocation Coordinator, and will pay for tenant moving expenses, rent differential, etc. Relocated tenants will be offered apartments in the new building at approximately the same rent they paid at the time of their relocation, plus any appropriate escalation. HAP estimates the cost of tenant relocation is $250,000. Redevelopment After closing on all necessary development financing and tenant relocation, the building will be demolished. HAP’s preliminary plan calls for construction of a new five-story, approximately 73,000 s.f., 78-unit apartment building. Features of the completed development will include:  28 studio apartments (23 affordable/income restricted & 5 market rate)  50 one-bedroom apartments (35 affordable/income restricted & 15 market rate)  4,500 square feet of retail space  On-site parking for 20 vehicles (none required Downtown Business zoning district)  4 apartments fully accessible for persons with physical handicaps  All apartments visitable by persons with physical handicaps  HAP property management office with space for service providers  Tenant laundry room and meeting space  Bicycle storage Given its location and surrounding land uses, HAP believes that the property is best developed as smaller rental units for one and two-person households. A preliminary plan of the street-level and upper floors is attached. The proposed tiers of affordability are shown on the following chart: AFFORDABILITY RESTRICTIONS Extremely Extremely Low-Very Low-Low-Moderate Project Total Low-Income Income Income Income Income Market Rate <30% AMI <30% AMI <50% AMI <60% AMI <80% AMI Rental Assisted Unrestricted Studio 4 4 4 6 5 5 28 1 BR 4 4 4 18 5 15 50 TOTAL: 8 8 8 24 10 20 78 % of total: 10% 10% 10% 31% 13% 26% 100% Under HAP’s plan, 48 apartments (61%) will meet affordability requirements of the Low Income Housing Tax Credit (“LIHTC”) program. These apartments will be rented to households earning up to 60% of Area Median Income (“AMI”). For a two-person household in Hampshire County in 2014, 60% of AMI equates to a total annual household income of $41,280. Of these 48 apartments, 16 will be rented to households at or below 30% of AMI, which for a two-person household is an annual household income of $20,600. In order to avoid economic displacement, all relocated tenants who elect to return to the new building will pay rent comparable, with usual - 3 - escalations, to rent paid at the time they left 129 Pleasant Street. An additional 10 apartments will be rented to households earning at or below 80% of AMI, or $51,150 for a two-person household. In total, 58 apartments (74% of total) will be income restricted. HAP has selected Northampton Architect Peter Frothingham to design the new building. A preliminary cost range for construction of the new building is $12-15 million. Financing is expected to come from many sources, including: CEDAC, Low Income Housing Tax Credits, MA Department of Housing and Community Development affordable housing funds, a bank construction loan, permanent financing from either a bank or Massachusetts Housing Partnership, and Northampton’s Community Preservation Committee. HAP is also preparing an application to the City of Northampton requesting $150,000 from its Community Development Block Grant allocation. The new building will be designed to be highly energy efficient and use sustainable materials where possible. It will conform to the existing Downtown Business zoning district requirements. No zoning variance or waiver is anticipated. Review and approval by the City’s Central Business Architectural Commission will be sought prior to acquisition of the property. The site is centrally located in downtown Northampton and walking distance to many nearby amenities, including convenient access to public transportation. The property is directly adjacent to a bike path and 500 feet from a planned Amtrak station. Daily train service to Northampton is scheduled to begin in late 2014. Pioneer Valley Transit Authority (“PVTA”) bus service to the VA Hospital in Leeds and Williamsburg, as well as to Easthampton and Holyoke Community College is available on Pleasant Street directly in front of the property. PVTA bus service to Hadley, Amherst and the University of Massachusetts is available approximately .3 miles (1500 feet) from the site. Peter Pan inter-city bus service is available approximately .3 miles (1500 feet) from the site. Request for Expedited CPC Review HAP respectfully requests an expedited review of its application for $300,000 of CPC funds for acquisition of 129 Pleasant Street. CPC approval in September 2014 will enable HAP to exercise its option to purchase the property by October 8, 2014. Availability of CPC funds is requested so that HAP could take title to the property prior to December 31, 2014. The acquisition and redevelopment of 129 Pleasant Street is important to the City of Northampton and the CPC for the following reasons:  The property is currently home to many individuals who might otherwise be homeless. HAP is prepared to purchase the property subject to existing tenancies. As a regional housing organization, HAP will work to improve the quality of life of current residents, assist them in finding better quality housing, and/or relocating and returning residents to the completed development.  The site is an under-developed prime parcel of land in downtown Northampton. Its re-development is inevitable. HAP’s plan adds new units of affordable and market rate rental housing to the City and in so doing achieves many of the goals set forth in the City’s 2011 Housing Strategic Plan. - 4 -  The property currently has no affordability restrictions. HAP’s plan will retain many of the current residents of Northampton Lodging and provide them with greatly improved housing with deed restrictions insuring affordability. A critical aspect of HAP’s request for CPC funds is the timing of CPC affordability restrictions. HAP certainly recognizes the requirement that CPC funds be used for affordable housing, and accepts that as a condition for receipt of funds. However, in the event that HAP is unable to obtain all funds necessary to start construction on the new building, it may be necessary to sell the property. In that event, HAP would want to re-pay the CPC funds and, by pre-agreement, release the property from CPC affordability requirements. Please contact me either by telephone at (413) 233-1728 or by email at pserafino@haphousing.org if you have any questions about this letter, the attached materials, or you require any additional information. I am available to attend a CPC meeting to make a presentation of this request and answer any questions. Sincerely, Peter A. Serafino Project Manager cc: Peg Keller/Northampton Housing Partnership Attachments: Acquisition & Interim Operating Budget Street-level and upper level floor plans CPC Eligibility Determination Form CPC Application - 5 -