Agenda Item - 2024-06-18 - Number 07.3 - Resolution 24-25, Tax Exemption for the Mercy Affordable Housing Development Ocal)0,1'4_
COUNCIL REPORT
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Subject: Resolution 24-25, Mercy Housing Northwest Low Income Housing Property Tax
Exemption
Meeting Date: June 18, 2024 Staff Member: Jessica Numanoglu, Director
Report Date: June 7, 2024 Department: Community Development
Action Required Advisory Board/Commission Recommendation
❑ Motion ❑ Approval
❑ Public Hearing ❑ Denial
❑ Ordinance ❑ None Forwarded
❑X Resolution ❑X Not Applicable
❑ Information Only Comments:
❑ Council Direction
❑X Consent Agenda
Staff Recommendation: Adopt Resolution 24-25, granting an exemption from Lake Oswego
property taxes for the Mercy Housing Northwest Mercy Greenbrae affordable housing
development located at 3190 Furman Drive per Ordinance 2945.
Recommended Language for Motion: Move to adopt Resolution 24-25.
Project/ Issue Relates To: Council Initiative to "Continue work on key housing initiatives, the
housing production strategy, guiding the HACC/Metro project on the Boones Ferry Road, and
support for other non-profit led housing projects."
Issue before Council: Consider the adoption of Resolution 24-25 to grant a property tax
exemption to the Mercy Greenbrae affordable housing project at Marylhurst Commons.
❑X Council Goals/Priorities ❑Adopted Master Plan(s) ❑Not Applicable
EXECUTIVE SUMMARY
Mercy Housing Northwest is requesting a property tax exemption for the Mercy Greenbrae
affordable housing project under Ordinance 2945, which would exempt the property from the
City tax levy for the upcoming tax year (Attachment 1). Property taxes from other taxing
districts would still apply and the applicant must apply annually to renew the City tax
exemption.
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503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO,OR 97034 WWW.LAKEOSWEGO.CITY
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BACKGROUND
Mercy Housing Northwest is an affordable housing developer with recognized 501(c)(3) status
that has recently completed the Mercy Greenbrae affordable housing project in Lake Oswego at
Marylhurst Commons. The project is a 100-unit multi-family residential building that is income-
restricted to households earning 60 percent or less of the Area Median Income for Clackamas
County.
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Site of Mercy Greenbrae at Marylhurst Commons—Located at 3190 Furman Drive
The City Council approved Ordinance 2945 on May 7, 2024, which amended LOC Chapter 24,
establishing a property tax exemption program for nonprofit corporation low income housing,
pursuant to ORS 307.540- .548. The ordinance, which became effective on June 6, 2024, allows
for a property tax exemption for affordable housing projects that meet certain criteria. See the
Discussion section below for an analysis of the specific criteria outlined in the ordinance as they
relate to this request.
Mercy Housing Northwest is requesting a City property tax exemption (Attachment 1) for the
above-referenced property, which is leased from the Society of the Sisters of the Holy Names of
Jesus and Mary. If the exemption is approved, the property would no longer be subject to the
City tax levy. Other tax districts, including Clackamas County and the Lake Oswego School
District, would continue to collect property tax. LOC 24.10.040.b provides for an exemption to
the combined tax levy for all applicable taxing districts, but the applicant has not requested that
option.
DISCUSSION
LOC 24.10.010—24.10.070, specifically LOC 24.10.030(a), includes a set of criteria that a
development must meet to be eligible for the property tax exemption:
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a. A property is exempt from property taxation as provided by LOC 24.10.010 to
24.10.070 if:
i. The property is owned or being purchased by a corporation described in section
501(c)(3) or(4) of the Internal Revenue Code that is exempt from income taxation
under section 501(a) of the Internal Revenue Code;
ii. Upon liquidation, the assets of the corporation are required to be applied first
in payment of all outstanding obligations, and the balance remaining, in cash
and in kind, to be distributed to corporations exempt from taxation and operated
exclusively for religious, charitable, scientific, literary or educational purposes or
to the State of Oregon;
iii. At the time the application is filed, the property is:
A. Occupied by low income persons; or
B. Held for a period not to exceed two years from the date the exemption
is granted,for the purpose of developing low income housing.
iv. The property or portion of the property receiving the exemption, if occupied, is
actually and exclusively used for the purposes described in section 501(c)(3) or(4)
of the Internal Revenue Code;
Response: The City Attorney's Office has reviewed the above criteria and relevant documents
provided by Mercy Housing Northwest and concluded that all criteria above have been met
(Attachment 3).
v. The exemption has been approved as provided in LOC 24.10.060.
Response: As discussed under the criteria, above, staff finds that the Mercy Greenbrae property
meets the criteria for approval. If Resolution 24-25 is approved by the Council, it will be
forwarded to the Clackamas County Assessor as set forth in ORS 307.512 to certify that the
property is exempt from taxation under the levy of the City.
FISCAL IMPACT
Mercy Housing Northwest estimates that their City property tax contribution for the Mercy
Greenbrae property without the exemption would be approximately$18,000 per year.
RECOMMENDATION
Approve Resolution 24-25 (Attachment 2) granting the property located at 3190 Furman Drive,
site of the Mercy Greenbrae affordable housing development tax exemption status from the
City tax levy.
ATTACHMENTS
1. Tax Exemption Request Memo (Oct. 24, 2023)
2. Draft Resolution 24-25
3. City Attorney's Office Tax Exemption Analysis Memorandum, dated June 7, 2024
Respect. Excel'ence. Trust. Service,
503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO,OR 97034 WWW.LAKEOSWEGO.CITY
ATTACHMENT 1
1PmercyHousiNG
To: Erik Olson, Long Range Planning Manager
Jessica Numanoglu Community Development Director
Martha Bennett, City Manager
From: Joe Thompson, President,Mercy Housing Northwest
Re: Property Tax Exemption—Affordable Housing&Marylhurst Commons
As we have previously discussed with City Staff,Mercy Housing Northwest proposes to work
with the City of Lake Oswego to implement a real estate property tax exemption for affordable
housing. The benefits of a tax exemption for affordable housing are further outlined below.
To maximize the benefits to Mercy Greenbrae at Marylhurst Commons, the future Lake
Grove Affordable Housing development, and our future residents,we propose and plan
to support the City in implementing a tax exemption policy that goes into effect on or
before July 1, 2024
Background
Mercy Housing Northwest is a non-profit, affordable housing developer, operator, and service
provider. We have over 55 properties throughout western Washington,and Oregon. Mercy
Housing Northwest is currently under construction at Mercy Greenbrae at Marylhurst
Commons, a 100-unit affordable housing community at the former Marylhurst University
Campus.
We applaud and appreciate the City's strong support for developing affordable housing at
Marylhurst Commons and at the Lake Grove site. We understand that affordable housing
production remains a priority for the City, and we are committed to being a partner for the city
to achieve its housing production goals. Property tax exemption is an important tool utilized by
many jurisdictions to advance affordable housing production.
For the benefits and rationale discussed in detail below,we support the City's adoption of a
property tax exemption policy to promote affordable housing for Lake Oswego and its residents.
We encourage the city to adopt a tax exemption policy ahead of the city's housing production
strategy. Because Mercy Greenbrae is under construction and scheduled to start move-ins in
April, the city has a rare opportunity to directly impact the lives of soon-to-be residents of the
Mercy Greenbrae project. Furthermore, the Lake Grove affordable housing project,now in the
pre-development phase,will benefit from significantly from the certainty provided by a city-wide
tax exemption policy.
Mercy Housing Northwest ATTACHMENT 1/PAGE 1 OF 4
6930 Martin Luther King Jr Way S,Seattle,Washington 98118 o 1206-838-5700 f 1206-838-5705 I mercyhousingnorthwest.orgL VE IN HOPE
4 Mercy Housing is sponsored by communities of Catholic Sisters
Putting Resident Needs First
Ensuring our residents have access to stable, affordable housing is core to our mission. Mercy
Housing Northwest prides itself on working with residents and providing the necessary
supportive services to ensure everyone has access to housing they can afford.
• Reducing operating costs,including property taxes,is a critical tool for ensuring
operations and services staff have the resources and flexibility they need to meet the
dynamic needs of the communities they serve.
• In 2020 and 2021, affordable housing providers experienced high resident receivables, as
families were unable to pay their rent due to pandemic related job-impacts. MHNW
committed to a total rent freeze and moratorium on evictions in a way to ensure resident
housing stability,which put strain on operating budgets.
Measures that reduce ongoing operating costs,including property taxes,have a direct impact on
an organization's ability to work with residents during challenging economic times to ensure
housing stability. It also ensures every property can cover its costs and retain a high standard of
maintenance and operations.
Ensuring Long-Term Stability for Mission-focused Affordable Housing Providers
Property tax exemption for affordable housing properties supports long-term financial stability.
As mission-oriented,long-term owners, operators, and service providers, our organizational
mission is to ensure our properties are places where families can thrive.
• Typically, affordable housing owners operate with thin financial margins, often operating
at near break-even operating budgets to maintain the deepest long-term affordability for
residents most in need of the housing we provide. Unanticipated events can create long-
term challenges for affordable housing developers and operators, as the combination of
thin margins and strictly regulated rents limit our ability to recoup losses.
• Having predictable annual expenses helps ensure our properties are more financially
resilient, and able to absorb changing economic conditions. The last several years have
been especially challenging with the COVID-19 pandemic and associated supply chain
challenges, and more recently with dramatic increases in wages, benefits, and property
insurance premiums.
Advancing the City's Goals for Housing Production
A property tax exemption for affordable housing helps the city adhere with Title 7 of Metro's
Urban Growth Management Functional Plan,which requires cities to "include in their plans
actions and implementation measures designed to maintain the existing supply of affordable
housing as well as to increase the opportunities for new dispersed affordable housing."
Exempting affordable housing from property taxes helps existing affordable housing properties
(we are aware of two other affordable housing properties in Lake Oswego) conduct maintenance
and make capital improvements, and serve their low-income residents with on-site services. For
new affordable housing production, a tax exemption helps developers secure competitive Metro
Mercy Housing Northwest ATTACHMENT 1/PAGE 2 OF 4
6930 Martin Luther King Jr Way S,Seattle,Washington 98118 o 1206-838-5700 f 1206-838-5705 mercyhousingnorthwest.org
Mercy Housing is sponsored by communities of Catholic Sisters
and State funding for new, dispersed affordable housing by adding more certainty to on-going
operating costs.
Many peer cities have adopted property tax exemption policies using ORS 307.540,including
Wilsonville,Milwaukie,and Hillsboro. Property tax exemption is proven to be an effective tool
that directly improves the feasibility of affordable housing developments and would support
additional affordability in the City consistent with Title 7.
Substantial Benefits at Minimal Cost to the City
The cost of an affordable housing property tax exemption to the city is relatively small,but an
exemption would have substantial benefits for sustainable operations of affordable housing, and
substantial benefits for current and future low-income residents. The Marylhurst Commons
property is currently, and has been historically,tax-exempt.
• Existing Affordable Housing: We are aware of two other affordable housing
properties in Lake Oswego, both owned by Northwest Housing Alternatives. Combined,
we estimate that the City of Lake Oswego collects about $3,200 per year from the two
properties.
• Creating New Affordable Housing: We estimate that the city's portion of annual
property taxes owed by the Mercy Greenbrae project will be approximately$18,000 per
year. We are also aware that the Lake Grove property is slated for redevelopment as
affordable housing.That site is also current city-owned and tax exempt.
Collectively,we estimate that exempting these two properties, and the two existing properties
outlined above,would reduce the city's total annual property tax revenue by an estimated
$30,000 per year,less than .001% of the city's total annual property tax revenue.
While a marginal decrease to the city, the benefits ensure decades of operational stability for the
non-profit organizations that own the properties, ensuring the properties are well-maintained
and adequately staffed. Furthermore,we expect the revenue foregone as a result of a tax
exemption program for affordable housing will be small given the limited number of properties
suitable for affordable housing projects within the City.
Finally, ensuring affordable housing operators have the resources to provide necessary on-site
services can reduce financial burdens on other public services,like schools,parks and recreation,
emergency response, and libraries. When residents have resources and support from their home
community, they rely less heavily on other resources.
Promoting Community Goals with Additional Funding
Reducing property taxes allows projects to leverage more private funding. By reducing operating
costs, affordable housing projects can secure additional debt from private lenders, reducing the
need for public resources, and enabling projects to invest in additional durability, sustainability,
and livability measures.
• At the Mercy Greenbrae project,reducing the operating costs associated with property
taxes would directly enable the project to invest in a larger solar photovoltaic array,
Mercy Housing Northwest ATTACHMENT 1/PAGE 3 OF 4
6930 Martin Luther King Jr Way S,Seattle,Washington 98118 o 1206-838-5700 f 1206-838-5705 mercyhousingnorthwest.org
Mercy Housing is sponsored by communities of Catholic Sisters
reducing the building's energy usage,reducing on-going operating costs, and improving
resilience in extreme weather.
• Reduced property taxes will also allow existing and future projects to pursue
sustainability and resilience upgrades like conversion to 100% electric operations,
upgrading to higher efficiency heating and cooling systems, and on-site power generation
through solar photovoltaic arrays or other means of renewable energy production.
In closing, a city property tax exemption policy will have an immediate impact on the Mercy
Greenbrae project: Mercy Housing Northwest will be able to make additional investments in
durability and sustainability if the policy is adopted in 2024.
Thank you for your consideration of this request and we look forward to continuing to work
with the City staff to advance the City's housing production goals and affordability.
Sincerely,
Joe Thompson, President
Mercy Housing Northwest ATTACHMENT 1/PAGE 4 OF 4
6930 Martin Luther King Jr Way S,Seattle,Washington 98118 o 1206-838-5700 f 1206-838-5705 mercyhousingnorthwest.org
Mercy Housing is sponsored by communities of Catholic Sisters
RESOLUTION 24-25 ATTACHMENT 2
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE OSWEGO APPROVING A TAX
EXEMPTION FOR THE MERCY GREENBRAE AFFORDABLE HOUSING DEVELOPMENT LOCATED AT
3190 FURMAN DRIVE FROM THE CITY TAX LEVY.
WHEREAS, the Lake Oswego City Council approved Ordinance 2945 on May 7, 2024, which
amended LOC Chapter 24 to establish a property tax exemption program for nonprofit
corporation low income housing, pursuant to ORS 307.540- .548; and
WHEREAS, Mercy Housing Northwest, a nonprofit corporation with 501(c)(3) status, as
determined by the Internal Revenue Service, filed an application requesting an exemption to
the City tax levy for the 100-unit Mercy Greenbrae affordable housing development located at
3190 Furman Drive; and
WHEREAS, the Lake Oswego City Council considered the application at its June 18, 2024, meeting
and found that the application met the criteria for an exemption to the City tax levy pursuant to
LOC 24.10.030; and
NOW,THEREFORE, BE IT RESOLVED by the City Council of the City of Lake Oswego that:
Section 1. The City Council approves an exemption to the City tax levy for the Mercy
Greenbrae affordable housing development at 3190 Furman Drive.
Section 2. Effective Date. This Resolution shall take effect upon passage.
Considered and enacted at the regular meeting of the City Council of the City of Lake Oswego on
the 18th day of June, 2024.
AYES:
NOES:
EXCUSED:
ABSTAIN:
Joseph M. Buck, Mayor
ATTEST:
Kari Linder, City Recorder
APPROVED AS TO FORM:
Ellen Osoinach, City Attorney
Resolution 24-25
Page 1 of 1 ATTACHMENT 2
p s4 MEMORANDUM ATTACHMENT 3
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TO: Mayor and City Council
Jessica Numanoglu, Community Development Director
CC: Ellen Osoinach, City Attorney
FROM: Evan Boone, Deputy City Attorney
SUBJECT: Mercy Greenbrae
Determination of Eligibility for Tax Exemption under Ord. 2945
Nonprofit Corporation Low Income Housing
DATE: June 7, 2024
BACKGROUND:
The City Council adopted Ord. 2945 on May 7, 2024, which codified in LOC 24.10.010—
24.10.070 the City's election to adopt the provisions of ORS 307.540—307.558 to grant tax
exemption status to qualifying nonprofit corporations for low income housing from the City's
tax levy.
Mercy Housing Northwest requested the tax exemption by memo received October 24, 2023.
The determination of eligibility is now being made, following the adoption of the tax exemption
program by Ord. 2945.
QUESTION AND ANSWER:
Does the housing development known as Mercy Greenbrae at Marylhurst Commons qualify for
the tax exemption under Ord. 2945 (and ORS 307.540—307.558)?
Yes. Below are the listed criteria and findings determining that the criteria are met.
DISCUSSION:
Per LOC 24.10.030(a)(i)—(iv), real property is eligible for a tax exemption from the City tax levy
if:
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a. A property is exempt from property taxation as provided by LOC 24.10.010 to 24.10.0701 if:•
i. The property is owned or being purchased by a corporation described in section 501(c)(3)
or(4) of the Internal Revenue Code that is exempt from income taxation under section
501(a) of the Internal Revenue Code;
The project site at 3190 Furman Drive is leased by The Society of the Sisters of the Holy
Names of Jesus and Mary (Owner) to MHNW 20 Marylhurst Limited Partnership (Lessee)
pursuant to the terms of a Ground Lease. Lessee limited partnership consists of two
entities: a general partner, MHNW 20 Marylhurst GP, LLC (General Partner LLC), and one
limited partner. The General Partner LLC has one member/manager, Mercy Housing
Northwest, a Washington nonprofit corporation, with its sole member being Mercy
Housing, Inc, a Nebraska nonprofit corporation.
"Property is... being purchased by"
The property is not being purchased, it is being leased from the Owner by the Lessee.
However, per LOC 24.10.030(b)2, a lease is deemed equivalent to a purchase of the property
if the lessee is obligated by the lease to pay the real property taxes. Under Section 2.f of
the Ground Lease, the Lessee is obligated to pay the real property taxes, complying with
this portion of subsection a(i).
"a corporation described in section 501(c)(3) or(4) of the Internal Revenue Code that is
exempt from income taxation under section 501(a) of the Internal Revenue Code"
The lessee is not a corporation, it is a limited partnership, with a General Partner LLC. The
General Partner LLC's sole member is Mercy Housing Northwest. Mercy Housing Northwest
has provided a 2011 IRS determination that it is a tax-exempt entity. Per ORS 307.022, for
purposes of the property tax laws of Oregon, because Mercy Housing Northwest is an IRC
501(c)(3) nonprofit corporation that is the sole member of the General Partner LLC, the
General Partner LLC is treated as a corporation exempt from taxation under section
501(c)(3) or (4) of the Internal Revenue Code.
Per LOC 24.10.030(c), a partnership entity that is the lessee shall be treated the same as a
corporation lessee if"the corporation [or general partner LLC, under ORS 307.022] is a
1 The code provisions mimic the statutory requirements of ORS 307.540—307.558. For reader's ease,only the
reference to the Code are cited.
2 "b. For purposes of LOC 24.10.030(a)(i),a corporation that has only a leasehold interest in property is deemed to
be a purchaser of that property if:
i.The corporation is obligated under the terms of the lease to pay the ad valorem taxes on the real and personal
property used in this activity on that property,or
ii.The rent payable by the corporation has been established to reflect the savings resulting from the exemption
from taxation.
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general partner of the partnership [lessee], and responsible for the day-to-day operation of
the property that is the subject of the exemption."
According to the terms of the Amended and Restated Limited Partnership Agreement of the
Lessee, Section 5.1, the General Partner is to exercise full and exclusive control over the
affairs of the Partnership, which would be the day-to-day operations of the Partnership
assets, including Mercy Greenbrae.
This criterion is met.
ii. Upon liquidation, the assets of the corporation are required to be applied first in
payment of all outstanding obligations, and the balance remaining, in cash and in kind,
to be distributed to corporations exempt from taxation and operated exclusively for
religious, charitable, scientific, literary or educational purposes or to the State of Oregon;
Per ORS 307.022, the "corporation" in this case is the General Partner LLC, with its sole
member being Mercy Housing Northwest. Staff has reviewed the Mercy Housing Northwest
Second Restated Articles of Incorporation and finds that per Section VII, it meets the
requirement relating to distribution of its assets upon liquidation to an entity operated
exclusively for charitable and educational purposes. This criterion is met.
iii. At the time the application is filed, the property is:
A. Occupied by low income persons; or
B. Held for a period not to exceed two years from the date the exemption is granted,for
the purpose of developing low income housing.
Director Numanoglu has confirmed that the property is occupied by low income persons as
of May 30 2024. This criterion is met. Further, the housing project has received a
Reservation of 4% Low Income Housing Tax Credits from the Oregon Department of
Housing and Community Development. That Reservation and Extended Use Agreement,
Section 4, requires a covenant recorded against the property requiring that it be maintained
to be used exclusively to provide housing to low income individuals, defined under ORS
307.540(2). The covenant will be recorded against the property within two years, for
receipt of the tax credits. This criterion is met.
iv. The property or portion of the property receiving the exemption, if occupied, is actually
and exclusively used for the purposes described in section 501(c)(3) or(4) of the Internal
Revenue Code;
Per the Reservation and Extended Use Agreement Oregon Department of Housing and
Community Development, all 100 units in the Mercy Greenbrae development will be
exclusively used for income-restricted housing for households earning 60 percent or less of
the Area Median Income for Clackamas County. This criterion is met.
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Documents Reviewed
1. Ground Lease Agreement Between The Society of the Sisters of the Holy Names of Jesus
and Mary (Landlord) and MHNW 20 Marylhurst Limited Partnership (Tenant), dated
Sept. 1, 2022.
2. IRS Determination Letter to Mercy Housing Northwest, dated Jan. 26, 2011
3. Oregon Housing and Community Services Department 4% Low-Income Housing Tax
Credit Reservation and Extended Use Agreement, dated September 1, 2022
4. Amended and Restated Limited Partnership Agreement of the MHNW 20 Marylhurst
Limited Partnership, dated September 15, 2022
5. Mercy Housing Northwest Second Restated Articles of Incorporation, dated August 22,
2010.
6. Memorandum from Sarah Yednock, Kantor Taylor, attorneys to Mercy Housing
Northwest, dated June 6, 2024.
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