Councilman Dion Bracco thinks he made a mistake voting against a
bailout for South County Housing’s signature downtown housing
project three months ago, and Monday night he successfully
convinced the council to reconsider that mistake.
Councilman Dion Bracco thinks he made a mistake voting against a bailout for South County Housing’s signature downtown housing project three months ago, and Monday night he successfully convinced the council to reconsider that mistake.
Bracco asked the council Monday to reconsider taking a new vote on the bailout at a later date, and the body voted 5-1-1 to do so, with Councilman Bob Dillon voting no and Councilman Perry Woodward recusing himself because he owns and rents a townhome in the neighborhood located near Lewis and Forest streets.
“This is really a question of whether or not the council wants this matter to come back for further consideration,” City Administrator Tom Haglund said Monday night before the vote.
In March, Bracco and Councilmen Craig Gartman and Dillon voted against spending $676,100 to buy a 50 percent stake in four unsold townhouses in the first phase of South County Housing’s Cannery project. That left the vote stalled at 3-3, effectively killing the bailout.
At the time, Bracco said he wouldn’t invest his own money in the market-rate homes – which would give South County financial breathing room to collect state loans and build additional affordable units he said would further flood the local housing market – and Bracco also said the city would rather spend the money on first-time home buyers seeking loan assistance. Mayor Al Pinheiro and Council members Peter Arellano and Cat Tucker voted in favor of the bailout, which South County President and CEO Dennis Lalor characterized as necessary to keep the company solvent and keep the $100 million, 210-unit Cannery project alive.
While the details of the proposal still remain the same, Bracco and Lalor said the company has since committed to paying a regular rather than a deferred interest rate between 1 and 10 percent. The state has also guaranteed South County $1.5 million in down payment assistance for Cannery home buyers on top of an additional $1.5 million construction loan Sacramento would send down for construction of the Cannery’s second, affordable phase if the city loans the company money that would free it from the Union Bank lien that is currently on that second phase.
“The main message is this council has supported the idea of the Cannery in principle but had concerns about risk (last March), and in the meantime we have reduced and eliminated that risk because funding from the state that wasn’t sure back then is now committed and on its way,” Lalor said last week. “If the council doesn’t lend this money, then we will continue to try and sell our remaining units.”
Bracco has also met with at least three Cannery residents, he said, but Gartman and Dillon said they had not been contacted or lobbied by anyone since the March vote.
“The residents down there are really sticking it out, and they’re asking for help because it’s looking worse and worse for them,” Bracco said last week. “Before I didn’t want the city to be buying houses, but now (South County) has committed to paying interest on the loan and giving them that money would free up the state money.”
Under the terms of the resuscitated proposal, the nonprofit would manage and rent the four-bedroom, 1,590-square foot units at $338,023 each – down from an original asking price of $610,000 – through 2014 before selling and repaying the city. City projections show Gilroy would net about $157,000 from rental incomes, interest and the equity earned on the homes if their values increase annually by 2 percent starting in 2010.
Bracco knocked that 2 percent projection last March and also said spending $676,100 of the city’s Housing Trust Fund money on market-rate homes amounted to a misuse of the fund meant to prop up affordable housing. The Cannery’s affordable units are in its partially built second phase and un-built third phase. Money from the sale of market-rate Forest Park units was suppose to finance the affordable sections, but when the housing market crashed, so did those plans.
South County needs the loan – and the potential rental income – to help pay off $1.3 million of a $17 million loan from Union Bank that was due in December. That’s down from the $3.6 million South County owed in March, Lalor said. Since then, the company sold four townhomes and has another two into contract, which Councilman Craig Gartman pointed to as evidence that the company does not need help.
“It looks like the market is picking up pretty good, and I haven’t seen anything to change my mind about this proposal,” Gartman said Monday afternoon.
Dillon added that he was wary of “bringing the same thing back in new clothes” but said he would also consider what Bracco had to say Monday night.
For Mayor Al Pinheiro, the largest proponent of downtown revitalization on the council, Bracco’s about-face put a smile on his.
“This is an opportunity to have such a great impact on our community and the downtown,” Pinheiro said Monday afternoon. “I have not changed any of my mind on this issue, and I think if a council member decides to do that, that’s a great thing.”
The potential loan would come from the city’s Housing Trust Fund, which officials started in 1999 with seed money from the sale of South County Housing units. Restricted deeds on affordable properties require sellers to give Gilroy the first chance to buy the home and preserve its affordability, or else the city allows the market-rate sale and then collects a 50 percent stake in the equity.
Since 1999, city officials estimate that the fund – which began the fiscal year with a balance of $4.1 million – has received more than $4 million from the market-rate sale of 47 affordable units at various South County developments. Collecting interest on those millions throughout the years and distributing loans to first-time home buyers have augmented the fund.
At least 33 first-time home buyers have borrowed a total of $1 million in Housing Trust Fund loans this fiscal year. Only four buyers borrowed from the city last fiscal year, and the city has historically issued about $250,000 in loans a year. Because of such low home prices, housing officials have said qualified home buyers are taking advantage of cheaper inventory. While this means more loan repayments, the slow sale of affordable and market-rate homes means officials expect revenue from equity shares to shrink from about $550,000 to less than $160,000 this year.
