Staff Report
PREPARED BY: ARN ANDREWS
Assistant Town Manager
Reviewed by: Town Manager, Town Attorney, Finance Director, and Community Development Director
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
TOWN COUNCIL REPORT
MEETING DATE: 2/6/2018
ITEM NO: 13
DATE: JANUARY 30, 2018
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
RECOMMENDATION:
Staff recommends that the Town Council review submitted Below Market Price (BMP)
proposals and adopt a disposition strategy.
BACKGROUND:
In 2009, the Town’s former Redevelopment Agency (RDA) purchased 20 Dittos Lane as part of
an affordable housing proposal with ROEM Corp. The ROEM project consisted of 32 units of
affordable housing which was never approved by the Town. On March 16, 2016, the Town
Council declared 20 Dittos Lane surplus property and directed staff to seek opportunities to sell
the property. On January 13, 2017, the Town issued a Request for Proposal (RFP) soliciting
responses for either market rate proposals or affordable housing proposals. The RFP resulted
in one market rate proposal and one affordable housing proposal. The market rate proposal
was submitted by 381 Pennsylvania Ave LLC for the amount of $1.5 million dollars. The
affordable housing proposal was submitted by Habitat for Humanity and included a request for
the Dittos property to be donated in order to facilitate the three to four 3 - and 4-bedroom
homes.
On September 19, 2017, the Town Council provided guidance in open session regarding the
disposition of 20 Dittos Lane. The Town Council confirmed that the property should be utilized
for Below Market Price (BMP) housing in keeping with the original intent of the property
acquisition. In addition, the Council opined that the preferred goals for the property would
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
N:/MGR/Confidential & Closed Session/TC Closed Session/11-14-17TC/Closed Session Draft Properties Update.doc 1/31/2018 3:09 PM
BACKGROUND (Cont’d):
entail a maximum of four units, target low and moderate affordability income ranges, and lastly
attempt to preserve the historic and environmental nature of the site. Per the Council’s
direction, interested parties were encouraged to submit proposals reflective of the
aforementioned goals by October 22, 2017. Staff received five proposals which are evaluated
in the Discussion section of this report.
DISCUSSION:
As previously noted, staff received five proposals for the development of 20 Dittos Lane. The
five proposals all have varying degrees of challenges associated with the unique nature of the
property and the Council’s stated objectives. Provided below is a summary of the BMP
proposals, market rate proposal, and legal considerations regarding preferential housing laws .
Below Market Price Proposals
Proposal #1 – Support Teacher Housing
Support Teacher Housing is an effort being spearheaded by Sarah Chaffin with the stated
mission to “Provide low cost rent and down payment savings and assistance for teachers for the
future purchase of a house…” The project envisions developing 2 homes and 2 accessory
dwelling units (ADUs). The two homes would have 3 bedrooms/3 bathrooms and
approximately 2,000 square feet each. The ADUs would have 1 bedroom/1 bathroom and
approximately 600 square feet each. The proposal states that it would provide “sustainable
teacher housing for low and moderate income teachers…” The units are intended to sit on the
historic footprint of the former buildings on the site in order to preserve the historic and
environmental nature of the site. The proposal included multiple personal and professional
references and a letter of good standing from Wells Fargo Private Bank (Attachment 1).
Project Challenges: The architectural rendering provided by the applicant illu strates that the 3-
bedroom homes are designed for communal living with each bedroom housing non-related
individuals. The Town’s BMP program would look at all three individuals’ incomes in total to
determine eligibility as an affordable unit. Under the Town’s current construct, the proposal
would not meet our BMP guidelines. It should be noted that the proposer has stated flexibility
in altering the design in order to conform with existing policy. The Town’s BMP program allows
for Low (Below 80% AMI) and Median (80-100% AMI) income units. Therefore, the Town
currently requires Median or Low units pursuant to our BMP program, but a respondent could
request that Council allow Moderate (80-120% AMI) income units. Similar to other responses,
ingress/egress from Dittos Lane may be difficult and dependent on obtaining easements, the
proposed site plan, and County Fire concurrence.
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
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DISCUSSION (Cont’d):
Legal Considerations: As stated above, the current proposed project would not meet our BMP
guidelines. The Town could amend the BMP guidelines to include the type of project proposed,
but there would be ramifications as the BMP guidelines must be applied unifor mly for all BMP
projects.
Proposal #2 – Habitat for Humanity
Habitat for Humanity submitted two proposals. The first proposal was a resubmission of their
original response from January 17, 2017 to the Town’s original RFP. That response indicated
that Habitat for Humanity would develop the site with three to four 3- and 4-bedroom homes.
The units would range in size from 1,200 to 1,400 square feet. In addition, the resubmittal
indicates that they would be willing to develop the site with the existing access through Dittos
Lane provided “Santa Clara County Fire Department and immediate neighbors including the
owners and residents of El Gatos Apartments will support and allow the development of 3 to 4
affordable units” (Attachment 2a).
Their second proposal was based on accessing the property from College Avenue. Habitat
believes that their engineering analysis of the site makes access f rom College Avenue feasible.
In order to achieve appropriate economics for the project, the more expensive access from
College Avenue would be mitigated by expanding the number of units. This proposal envisions
a minimum of 12 homes within two story structures as condominiums/townhomes ranging in
size from 1 to 3 bedrooms. Attachment 2b contains the last draft development proposal
provided to staff for with access off of College Avenue. Habitat believes they can reuse many of
the blocks and stones from the existing retaining walls as part of the design. In addition, the
proposal states that units would be offered to families earning below 120% of Area Median
Income (AMI) and give priority to people currently working in Los Gatos (teachers, public
servants, etc.).
Project Challenges: Similar to other responses, ingress/egress from Dittos Lane may be difficult
and dependent on obtaining easements, the site plan, and County Fire concurrence. The
Town’s BMP program allows for Low (Below 80% AMI) and Median (80-100% AMI) income
units. Therefore, the Town currently requires Median or Low units pursuant to our BMP
program, but a respondent could request that Council allow Moderate (80-120% AMI) income
units.
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
N:/MGR/Confidential & Closed Session/TC Closed Session/11-14-17TC/Closed Session Draft Properties Update.doc 1/31/2018 3:09 PM
DISCUSSION (Cont’d):
Proposal #3 – 381 Pennsylvania Avenue LLC
The principals of 381 Pennsylvania Avenue LLC (381 LLC) are the adjoining property owners of
the fourplex known as 18 Dittos Lane. Gregory Howell of Howell Development & Investments
Inc., is the managing member of 381 LLC and would be most involved in the proposed
development. The introduction to the proposal states, “It is our understanding there is no
recorded easement to cross 18 Dittos which could create an insurmountable burden for any
other prospective buyer.” The proposal offers $50,000.00 for the property and envisions
development of a minimum of two and a maximum of four market rate residences. In
exchange for each market rate unit, the proposal offers to convert, on a one-to-one basis,
apartments at 18 Dittos Lane as BMP units. The conversion would be deed restricted
moderate-priced rental housing reserved for residents of Los Gatos who work in education or
public safety; are Town employees; and/or are employed in other appropriate jobs within the
Town of Los Gatos boundaries (Attachment 3).
Project Challenges: As the adjacent property owner, the proposal is uniquely positioned to
mitigate some of the ingress/egress issues. However, this proposal draws into question the
value received by the Town due to the developer potentially remaining the property owner and
continuing to receive rents. If less than four units end up being converted, the developer has
received market rate property and also retains partial ownership of 18 Dittos Lane. The Town’s
BMP program allows for Low (Below 80% AMI) and Median (80-100% AMI) income units.
Therefore, the Town currently requires Median or Low units pursuant to our BMP program, but
a respondent could request that Council allow Moderate (80-120% AMI) income units.
Legal Considerations: More legal research is needed to determine if it is possible to place d eed
restrictions for teachers, public safety and/or Town staff.
Proposal #4 – Legacy Wealth Ventures
The proposal was submitted and signed by Tony Alarcon on behalf of Legacy Wealth Ventures.
The proposal envisions units being sold at cost with no developer profits but instead utilize an
annuity approach with a portion of Homeowner Association (HOA) payments flowing to a
leasehold estate. The proposal states that the project would result in a higher unit count than
stipulated by the Council due to most residences having a market rate granny unit. The market
rate granny units will provide market rents to help subsidize the main residences. Main
residences are described as two story 2-bedroom/2-bath to enhance affordability. Units are to
be designated for “public servants” with some units strictly for teachers (Attachment 4).
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
N:/MGR/Confidential & Closed Session/TC Closed Session/11-14-17TC/Closed Session Draft Properties Update.doc 1/31/2018 3:09 PM
DISCUSSION (Cont’d):
Project Challenges: The proposal states that College Avenue would be the desired
ingress/egress point. The proposal does not appear to be a BMR proposal in that it states “We
are open to a BMR unit if required.” The proposal states that it will have a higher unit count
than the Council guidance.
Proposal #5 – Terry Martin Associates on behalf of Gerald Scott
The proposal submitted envisions to design concepts both consisting of between 20 and 30
units. The first proposal is described as a compilation of tiny homes and would require minimal
revisions to the current lot configuration. The second proposal is described as a more
traditional multi-unit development with the garages below grade to provide a lower profile to
the development (Attachment 5).
Project Challenges: The proposal does not state where ingress/egress to the project would
occur but the illustrations provided appear to indicate that access would be from Dittos Lane.
Similar to other responses, ingress/egress from Dittos Lane may be difficult and dependent on
obtaining easements, the site plan and County Fire concurrence. The proposal has no mention
if units are intended to be BMP units.
Market Rate Proposals
As previously stated, the original RFP also solicited market rate responses and the Town
received a single market rate submission. The market rate proposal was submitted by 381
Pennsylvania Ave LLC for the amount of $1.5 million dollars. On January 26, 2018 staff received
an updated market rate proposal from 381 Pennsylvania Ave LLC for the amount of $1.5 million
dollars. If the unique nature of the Dittos Lane property ultimately proves undevelopable for
the intended purpose of BMP housing, the Council may wish to consider monetizing the
property for market rate development and transferring the proceeds to the Town’s Affordable
Housing Fund.
Prior to the RDA’s purchase of the Dittos Lane Property there were 4 affordable units on the
property. The purchasing documents did not require a minimum number of affordable housing
units be built on the property nor is there any deed restrictions associated with the property.
At the time of its dissolution, the former RDA transferred the ownership of the Dittos Lane
property to the Town of Los Gatos in its capacity as housing successor of the former RDA. The
transfer was approved by the Successor Agency Oversight Board and the California Department
of Finance in accordance with Health and Safety Code Section 34 176. The Town did not use the
Dittos Lane property to meet its Regional Housing Needs Allocation numbers in its Housing
Element. Therefore, based upon a preliminary review of the law, the Town is not bound to
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
N:/MGR/Confidential & Closed Session/TC Closed Session/11-14-17TC/Closed Session Draft Properties Update.doc 1/31/2018 3:09 PM
DISCUSSION (Cont’d):
produce any set amount of affordable units on the property. Any and all proceeds from the
sale of the property must be placed in the Town’s BMP fund.
Legality of Preferential Treatment in Housing
Four of the five proposals reference the proposer’s intention to make the units provided
available to specific groups including teachers, public servants, residents , etc. Prior to the
Council deciding whether or not to accept a proposal, it is important to provide additional
information regarding the legality of the Town providing land and potential funding for a
housing project of that nature. Any time a government, a housing provider, or anyone else
gives housing preferences for a particular class of people, the preferences must be examined to
make sure they comply with the nation’s fair housing laws.
The following is a very short basic primer on the laws and issues.
The Federal Fair Housing Act states, “it is illegal for anyone to advertise or make any statement
that indicates a limitation or preference based on race, color, national origin, religion, sex,
familial status, or handicap” (42 U.S.C. § 3604).
The California Fair Employment and Housing Act, prohibits an owner to inquire about; make
known any preference or limitation as to; discriminate; or harass a person based on the
person's race, color, religion, sex, gender, gender identity, gender expression, sexual
orientation, marital status, national origin, ancestry, familial status, source of income, disability,
or genetic information (Government Code Section 12955).
The California Unruh Civil Rights Act, prohibits business establishments from discriminating on
the basis of sex (including gender), race, color, religion, ancestry, national origin, disability,
medical condition, genetic information, marital status, or sexual orientation, and provides civil
remedies for violations of its provisions (Civil Code Section 51).
Based upon the above laws, if a housing preference is adopted with the intent of excluding,
discouraging, or otherwise imposing different terms or con ditions on a protected class, that
preference cannot stand. A housing preference will also violate the Fair Housing Act if it has
the effect of excluding, discouraging, or otherwise imposing different terms or conditions on a
protected class without a legitimate governmental purpose. Even if there is a valid
governmental purpose, the preference may still violate the Fair Housing Act if the government’s
goal can be achieved by other, less discriminatory means. See, e.g., Huntington Branch
N.A.A.C.P. v. Town of Huntington, 844 F.2d 926 (2d Cir. 1988) (establishing standard for
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
N:/MGR/Confidential & Closed Session/TC Closed Session/11-14-17TC/Closed Session Draft Properties Update.doc 1/31/2018 3:09 PM
DISCUSSION (Cont’d):
assessing whether facially neutral policy or practice has a disparate impact on a protected class
in violation of the Fair Housing Act).
However it should be noted that in 2016, California passed the Teacher Housing Act. The
purpose of the bill is to “facilitate the acquisition, construction, rehabilitation, and preservation
of affordable rental housing for teachers and school district employees.” It authorizes school
districts statewide to lease property owned by the district for the development of employee
housing (leases for the development of housing on district sites typically run for 66 years). The
bill permits school districts and developers in receipt of local or state funds designated for
affordable rental housing to restrict occupancy to teachers and employees. In this way,
Districts can lease their property for the development of workforce housing and use
government low-income housing tax credits without violating federal Fair Housing laws.
Although the Teachers Housing Act appears to only protect school districts, research indicates
that the City of San Francisco partnered with a School District and entered into an MOU
whereby the City is leasing land to the School District and committing public funds toward
building affordable housing for teachers. In addition, research indicates that Habitat for
Humanity is teaming up with the Roaring Fork School District and Pitkin County in Colorado on a
27-unit teacher housing project.
If the Council is interested in pursuing a housing program for the exclusive use of teachers, the
project would likely need to include a School District as a partner in order to take advantage of
the Teachers Housing Act. Therefore, if the Town decides to move forward with such a project,
the developer should be required to engage a School District in discussions and to hire an
expert to analyze these issues to make certain we are in compliance with Federal and State law.
CONCLUSION:
Based on the staff report, Council deliberations, public and proposer input, the Council may
choose to consider the proposals and potential decisions in the following sequence:
1. Review Below Market Price (BMP) proposals;
2. Determine if any of the BMP proposals are feasible;
3. Based on feasibility of BMP proposals, decide to pursue a BMP disposition option or
market rate option;
4. If the Council prefers a BMP option, select the proposal for which the Town staff should
engage;
5. Provide any further direction regarding proposals.
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SUBJECT: REVIEW SUBMITTED BELOW MARKET PRICE (BMP) PROPOSALS FOR
DITTOS LANE AND SELECT A DISPOSITION OPTION
DATE: JANUARY 30, 2018
N:/MGR/Confidential & Closed Session/TC Closed Session/11-14-17TC/Closed Session Draft Properties Update.doc 1/31/2018 3:09 PM
COORDINATION:
This report was coordinated with the Town Attorney’s Office and Director of Community
Development.
FISCAL IMPACT:
No fiscal impact at this time.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Support Teacher Housing Proposal
2. Habitat for Humanity Proposals (a and b)
3. 381 Pennsylvania Avenue LLC Proposal
4. Legacy Wealth Ventures Proposal
5. Terry Martin Associates on behalf of Gerald Scott