Memorandum

City of Lawrence

City Manager’s Office

TO:	Mayor and City Commissioners
FROM:	Dave Corliss, Interim City Manager
CC:	Barbara Huppee, Director – Lawrence Douglas County Housing Authority
Date:	June 13, 2006
RE:	Clinton Place Apartments – 2125 Clinton Parkway

On December 5, 2005, the City of Lawrence received a notice of foreclosure from the U.S. Dept. of Housing and Urban Development (HUD) regarding the Clinton Parkway Apartments. The notice was forwarded to the Lawrence Douglas County Housing Authority (LDCHA) for comment. On December 20, 2005, the LDCHA indicated its interest to HUD in purchasing the property. Letter

Currently the property consists of 58 one-bedroom units. It is an elderly housing development, but also has a limited number of non-elderly disabled residents. If purchased, 10% of the units must be set aside for homeless individuals per HUD’s regulations. Rent charged will be regulated by the HUD fair market rent (FMR). According to LDCHA, the actual FMR is unknown at this time, but will likely range between $448.00 and $585.00 per unit per month. If fully occupied the property could generate between $279,552.00 and $365,040.000 annually. Any funds generated may only be used for operating and maintenance costs of the property.

The standard foreclosure sale procedure for HUD is to acquire the contract price in cash at the time of the sale. LDCHA will receive the first opportunity to purchase the property as it is a local housing authority entity. Once the initial offer comes in from HUD, LDCHA has two weeks to accept their non-negotiable offer. If the offer is accepted, LDCHA has 30 days to close. If LDCHA foregoes purchasing the property or does not close on time, the property will be placed up for public auction. Even if LDCHA passes on the first offer, purchasing the property at public auction is still an option. The current HUD mortgage is $1,110,076.00. A discount from the mortgage value is not likely despite the foreclosure status of this transaction. HUD indicates it will not discount the contract price to allow for the cost of known repairs.

This property needs numerous repairs. The building needs new siding, estimated at $107,00.00. The will also require a new roof and extensive repairs on the HVAC system. Extensive renovations on the interior are needed as well. The current management company estimated the repairs needed in excess of $600,000.00. LDCHA estimated $500,000.00. City staff asked for an itemized description of the repairs, but has not received it to date. LDCHA desires to complete all repairs immediately after purchasing the property.

LDCHA is able to proceed with the purchase alone if the entire transaction (renovations included) does not exceed $1,000,000.00. For LDCHA to complete this transaction alone the contract sale price of the land would need to be $400,000.00 or 40% of the face value of the mortgage. This will most likely not occur. For any total amount above $1,000,000.00 they are asking for the City’s financial backing. Per Resolution No. 3524, any property purchased by the LDCHA must be titled to the City.

Currently this property is on the tax roll, and has been assessed at $1,500,000.00. It is believed by some this assessment does not accurately represent the dilapidated state of the building. To make a well-informed decision the Commission must know the fair market value of this property before it can proceed. At this time, we do not know what the fair market value is. One condition of purchasing this property is that 10% of the units must be set aside for homeless individuals. These units will be non-income generating for the duration of the City’s possession of the property. HUD will likely charge near market price for the property, but no discount will be given for this encumbrance. Once purchased, this property will be tax exempt.

Unlike other properties titled to the City and run by LDCHA, this particular property will have a twenty-year land use agreement contract attached to the title of the land. Under this contract, the property may not be used for any purpose other than HUD qualified housing for twenty years. At that point, as long as LDCHA continues to accept subsidies from HUD, the restrictions will continue to be enforced upon the property. The restrictions are extensive, but are of the type that LDCHA is proficient in managing.

Because the land is titled to the City, the City will be the entity signing the use agreement contract, imposing contractual liability upon the City in the event of a breach. LDCHA will be responsible for administering the property and maintaining HUD’s standards, but in the event LDCHA fails to do so, the City will bear the responsibility. If the City desires to sell this property it must receive approval from HUD. Any profit derived from a sale of this property must return to HUD.