PREPARED BY: CHARLES CHING DATE OF MEETING: 12/17/18
SUBJECT:
TITLE
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN PABLO APPROVING THE ASSIGNMENT AND MODIFICATION OF A LOAN IN THE AMOUNT OF $1,450,000 ORIGINALLY MADE BY THE FORMER SAN PABLO REDEVELOPMENT AGENCY FOR DEVELOPMENT OF THE MONTEVISTA SENIOR APARTMENTS AND AUTHORIZING THE EXECUTION OF AN ASSIGNMENT AND ASSUMPTION AGREEMENT AND A SUBORDINATION AGREEMENT IN CONNECTION THEREWITH
Label
CITY MANAGER RECOMMENDATION
Recommendation
Adopt Resolution
Body
Compliance statements
Fiscal Resiliency Policies: Affordable higher quality & market rate rental housing projects are adopted policy items under the FY 2018-21 Council Priority Workplan, effective November 1, 2017.
CEQA Compliance Statement
This proposal is not a project as defined by CEQA (Public Resources Code Section 21000 et seq., in particular, Section 20165) because it will not cause either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment. The Project was completed in 2004 and the rehabilitation activities proposed are focused on upgrades to the existing buildings for energy efficiency, including new energy efficient appliances, windows and air conditioning units.
BACKGROUND
On January 6, 2003, the Redevelopment Agency of the City of San Pablo (the “Agency”) entered into an Owner Participation Agreement (the “OPA”) with San Pablo Housing Investors, L.P., a California limited partnership (the “Participant”), for the development of an affordable senior housing complex containing eighty-two (82) rental dwelling units (the “Project”; now commonly referred to as the “Montevista Senior Apartments”) on real property located at 13728 San Pablo Avenue in San Pablo, California (the “Site”). The Project was completed in 2004. San Pablo Housing Investors, L.P. is still the current owner of the Project and Site.
Pursuant to the OPA, the Agency made two loans to San Pablo Housing Investors, L.P.: (1) a loan of $99,000 for City fees applicable to the Project (the “City Fees Loan”); and (2) a loan of $1,100,000 for development of the Project (the “Project Loan”). The City Fees Loan was paid in full in 2013. The Project Loan bears annual interest of 5.7%, matures on June 30, 2023, and is repaid in annual installment payments equal to 50% of residual receipts from the Project (gross revenue minus annual operating expenses). As of June 2018, payments totaling $266,693 have been made toward the Project Loan. As of November 2018, the remaining balance on the loan is $1,736,757.
San Pablo Housing Investors, L.P., now desires to sell the Project and Site to Montevista San Pablo AR, L.P., a California limited partnership comprised of TELACU Homes, Inc., a California nonprofit public benefit corporation as the managing general partner, HCHP Affordable Multi-Family, LLC, a California limited liability company as the administrative general partner, and Victoria Capital, LLC, a California limited liability company as the limited partner. The new owner is proposing to invest approximately $2,100,000 to upgrade and rehabilitate the Montevista Senior Apartments.
In connection with the acquisition and rehabilitation of the Montevista Senior Apartments, the new owner will obtain tax-exempt bond financing, will apply for tax credits and is requesting that the City authorize the assignment of the Project Loan to the new owner under the following conditions:
(1) At the closing, the City would receive payment of that portion of the Project Loan balance exceeding $1,450,000 (estimated to be slightly more than $285,000 assuming a closing in early 2019);
(2) Upon assignment to/assumption by the new owner, the Project Loan would be modified as follows:
(a) Annual interest would be reduced from 5.7% to 3%;
(b) Annual payments would be reduced from 50% of residual receipts from the Project to 37.5% of residual receipts from the Project;
(c) The maturity of the Project Loan would be extended from June 30, 2023, to a date thirty-five (35) years from the closing (assuming a closing in early 2019, maturity would be early 2054).
(3) Subordination of the Project Loan by the City to the new lender.
The details of the request and description of the current and new ownership structure are more particularly set forth in the attached letter dated July 6, 2018, from Highridge Costa Housing Partners, LLC, the developer for the rehabilitation of the Project. A draft Omnibus Assignment and Assumption and Amendment Agreement and a draft Subordination Agreement are also attached.
The City’s rights and interest in the Project Loan and related agreements are housing assets, and therefore the assignment and modification thereof must comply with the provisions of Health and Safety Code Section 34176.1, in particular, the funds must be expended for housing affordable to and occupied by households earning 80% or less of the area median income. The new owner has proposed a mix of units in the Project that satisfy that requirement.
FISCAL IMPACT
Approval of this proposal would provide a cash payment in excess of $285,000 to the City’s Low and Moderate Income Housing Asset Fund at the time of the closing (estimated to be early 2019). However, the outstanding principal balance of $1,450,000 plus interest would not be repaid in 5 years (2023) but would be repaid over a longer period, at a lower interest rate, and would not mature until 2054 if not earlier repaid.