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CR 92-29 Application MHFA Blighted Property Acquisition \ 1" Y 0 CJ "'" January 13, 1992 o p council Report 92-29 APPLICATION FOR THE MHFA BLIGHTED RESIDENTIAL PROPERTY ACQUISITION AND REHABILITATION PROGRAM Proposed Action staff recommends approval of the following motion: Approve submission of an application for the MHFA Bliqhted Residential Property Acquisition and Rehabilitation Program. with approval of this action the application will be submitted to the Minnesota Housing Finance Agency for their review and consideration. Overview The Minnesota Housing Finance Agency (MHFA) is soliciting applications for participation in the Blighted Residential Property Acquisition and,Rehabilitation Program. This program provides grant funds to cities to acquire blighted property and either rehabilitate the property and sell to a median income homebuyer or demolish the structure, rebuild and sell the new home to an eligible buyer. The cost of acquisition and rehabilitation or new construction less the sale price of the improved property (the "gap") is provided as a grant to the homebuyer through this program. The application requests $120,000 to complete four projects in the Peaceful Valley neighborhood of Hopkins. Primary Issues to Consider o What are the benefits of participating in this program? o What is the cost to the City for participating in program? , o What are the requirements of the program? o How much money should the City request? o Why is the Peaceful Valley neighborhood targeted? I MHFA Application Rpt. 92-29 page 2 Primary Issues to Consider o What are the benefits of participating in this program? Under this program, four blighted structures will be either substantially rehabilitated or demolished and new homes built in their place. This will increase the market value of those properties and have a positive effect on the neighborhood. A scattered site acquisition program such as this has been discussed in the past as a valuable program for Hopkins. This grant program would give the city experience in delivering this type of program while not costing the city a great deal of money. o What is the cost to the City for participating in program? The costs to the City for participating in this program includes the staff time necessary to administer the program and the cost of advertising for the purchase of homes and the subsequent sale of the properties. There will also be some legal work associated with the purchases and sales. Although the entire amount of grant funds will be given to the City upon approval, there may be a need for short term financing as properties are sold and rehabilitated or demolished. If this is the case, the HRA may be asked to provide this short term financing. o What are the requirements of the program? Eligible uses of grant funds under this program are as follows: o Financing acquisition of blighted properties. o F.inancing demolition of blighted properties. o Providing gap financing for rehabilitation of blighted properties (the difference between the sum of the cost of acquiring and/or rehabilitating a property and the market value of the property upon sale). o Providing gap financing for construction of new housing on blighted properties (the difference between the sum of the cost of acquiring and/or demolishing and constructing new housing on the site and the market value of the property upon sale). MHFA Application Rpt. 92-29 page 3 Grant funds may not be used for administrative costs. Funds must be expended by December 31, 1993 in the form of loans or grants to eligible mortgagors. The income guideline for program is the County mediah, which is currently $48,000 per year. o How much money should the City request? staff is recommending that the City apply for $120,000 in grant funds. It is anticipated that this amount will fund four projects. These four projects will either include acquisition and substantial rehabilitation or acquisition, demolition and new construction, whichever is found to be most cost effective for the properties purchased. Properties will be purchased on a voluntary basis. The following is the proposed budget for the program: Acqusition/Rehab Acouisition/Demo/Const. Acquistion $ 55000 Demolition Construction Rehabilitation $ 40000 $ 45000 $ 5000 $ 70000 Total $ 95000 Market Value/Sale Price - $ 70000 $120000 - $ 85000 Gap Financing Required $ 25000 $ 35000 o Why is the Peaceful Valley neighborhood targeted? Under the guidelines of the Blighted Residential Property Acquisition Program, a city must target a specific neighborhood. The Peaceful Valley neighborhood is being recommended for targeting due to the existence of a higher concentration of substandard structures. Although it is generally stable, scattered deterioration has a blighting effect on the entire neighborhood. Alternatives The Council has the following alternatives regarding this issue: o Approve submission of the application as recommended by staff. MHFA Application Rpt. 92-29 page 4 o Amend the application to target a different neighborhood or limit activities. o Decide not to participate in the Blighted Residential Acquisition Program and deny the application.