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HomeMy WebLinkAboutStaff Report 5.B 02/04/2019DATE: Im FROM: February 4, 2019 Honorable Mayor and Members of the City Council through City Manager Sue Castellucci, Housing Administrato IUW SUBJECT: Resolution Authorizing Amendments to Existing Affordable Housing Loan Documents in Connection with the Rehabilitation and Resyndication of the Existing Old Elm Village Affordable Housing Project, Approving a New Loan to a New Limited Partnership that will be Affiliated with and Controlled by Burbank Housing Development Corporation, and Authorizing the City Manager to Sign Documents Related to the Rehabilitation and Financing of the Project. RECOMMENDATION It is recommended that the City Council adopt the attached Resolution authorizing amendments to existing affordable housing loan documents in connection with the rehabilitation and resyndication of the existing Old Elm Village affordable housing project, approving a new loan to a new limited partnership that will be affiliated with and controlled by Burbank Housing Development Corporation, and authorizing the City Manager to sign documents related to the rehabilitation and financing of the Project. BACKGROUND The Old Elm Village Apartments project is an existing'87-unit affordable housing rental apartment facility, located at 2 Sandy Lane in Petaluma. The project was built in 2001 and provides affordable housing to a community of low-income families, and individuals with special needs. It also includes a childcare facility and a space used by the City of Petaluma's Police Department as a sub -station. The property has 9 studios, 22 one -bedroom units, 12 two - bedrooms units, 38 three-bedroom units and 6 four-bedroom units. The current project will include substantial rehabilitation to address replacement of major building systems, such as replacement of boiler and heating systems, replacement of tank water heaters, adding water conservation measures in bathrooms, full exterior re -paint, new appliances, replacement,of forced air heating systems, rehabbing community room, and will increase energy and water efficiency. This project was originally financed with 9% low-income housing tax credits, and is subject to 55 -year affordability restrictions that require the property to remain affordable through 2056. A new partnership that will be controlled by Burbank Housing Corporation, will acquire, rehabilitate and refinance the Project using a combination of 4% federal low-income housing tax credits and tax-exempt bonds. In connection with the refinancing, the Project will be subject to new affordability restrictions for a term of 55 years commencing upon completion of the rehabilitation, i.e., through 2075. The current City affordability restrictions, which keep the property affordable to low income households, associated with existing City funding (see below) expire in 2032. Rents will be restricted to households with incomes no greater than 80% of the area median income, except for current tenants with incomes greater than 80% AMI who qualified as low- income at initial occupancy. Average affordability of the units, post -rehabilitation, will not. exceed 59% of area median income. DISCUSSION Burbank will serve as the developer and as the sole member and manager of the general partner of the limited partnership that will acquire, refinance and rehabilitate the Old Elm Village Apartments. There will be several transactions that the City will be entering into with Burbank for this rehabilitation. The existing loans as well as the Deed of Trusts on the property will need to be amended; a new promissory note and Deed of Trust will be executed for the new funds that would be allocated to the project; and existing Regulatory Agreements will be amended. The property is over 17 years old, and is in need of rehabilitation to address deferred maintenance issues as listed in the background section earlier in this report. Although low-income housing tax credit equity and tax-exempt bond financing will cover 90% of the cost of this project, there still is a gap in financing. To fill the gap in financing this rehabilitation, Burbank is requesting the City provide a loan in the amount of $1,120,000 to preserve the affordable housing. In 2015, Burbank refinanced the Park Lane Apartments, and the cash proceeds from that transaction and residual receipts from an assigned note receivable which total $1,978,544 has been paid to the City and those funds are recommended to be used to fund this gap. The term of the new loan would be 55 years, and the interest rate is estimated to be approximately I%. The terms of the new City loan will be refined and finalized prior to the closing date, which might be in May or June of 2019. The City of Petaluma currently has two loans on the property: a City HOME loan with an outstanding principal balance in the amount of approximately $2,128,854, including acciued interest, and a Housing loan which encompasses Community Development Block Grant (CDBG) funds, Housing funds, and General Funds with an outstanding principal balance in the amount of approximately $2,594,560, including accrued interest. The term of the amended loans will be 55 years from completion of the rehabilitation, and the interest rate would be approximately 2.3 %, depending upon the applicable federal rate at the time of closing. The financial projections and figures, including the amount of accrued interest to be included in the amended loans and the interest rate and terms of the amended loans, will be refined and finalized prior to the closing date. The City currently has a HOME Regulatory Agreement on the property which will be amended, and the City will execute a new Regulatory Agreement in connection with the new City loan. The purpose of the Regulatory Agreement is to regulate and restrict occupancy, rents, operation, ownership and management of the property. 0) There are several documents anticipated to be needed for this transaction, including the following: • A Loan Agreement with the new partnership • Amended Promissory Notes for the existing HOME promissory note and the City Housing promissory note • A new promissory note for the $1,120,000 new loan • Amended Deeds of Trust for the existing HOME and the City loans • A Deed of Trust for the new City promissory note • Regulatory Agreements for both HOME and the City funds to specify the affordability restrictions. • Subordination Agreements with the construction and conventional mortgage lender The recommended resolution presented for the City Council's approval authorizes the City Manager to execute the foregoing documents and any other documents related to the Project and City financing consistent with the terms outlined in this Staff Report and in such form as approved by the City Manager in consultation with the City Attorney. FINANCIAL IMPACTS This project fulfills the City Council's goals and priorities of the 2015-2023 Housing Element and the 2015-2020 Consolidated Plan in preserving affordable housing in Petaluma. The new promissory note of $1,120,000 will be funded by sales proceeds and residual receipts received from Burbank in connection with the resyndication of the Park Lane Apartments. The City loans will be paid back from residual receipts from the Project. ATTACHMENTS 1. Resolution ATTACHMENT # 1 RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PETALUMA AUTHORIZING AMENDMENTS TO EXISTING AFFORDABLE HOUSING LOAN DOCUMENTS IN CONNECTION WITH THE REHABILITATION AND RESYNDICATION OF THE EXISTING OLD ELM VILLAGE AFFORDABLE HOUSING PROJECT, APPROVING A NEW LOAN TO A NEW LIMITED PARTNERSHIP THAT WILL BE AFFILIATED WITH AND CONTROLLED BY BURBANK HOUSING DEVELOPMENT CORPORATION, AND AUTHORIZING THE CITY MANAGER TO SIGN DOCUMENTS RELATED TO THE REHABILITATION AND FINANCING OF THE PROJECT WHEREAS, in 2001, the City provided a loan to Old Elm Partners, L.P., a California limited partnership affiliated with Burbank Housing Development Corporation, a California nonprofit public benefit corporation (`Burbank") to assist in the development of Old Elm Village (the "Project"), an affordable housing project consisting of 87 units of multifamily housing located at 2 Sandy Lane; and WHEREAS, Burbank will serve as the sole member/manager of the general partner of a limited partnership that intends to acquire, refinance and rehabilitate the Project; and WHEREAS, in connection with the refinancing of the Project, the term of affordability restrictions will be extended for a term of 55 years commencing upon completion of the rehabilitation to 2075; and WHEREAS, to ensure the financial feasibility of the Project, Burbank has requested that the City (i) amend the existing promissory notes payable to the City to provide for an extension of the maturity date and modification of the terns, a reduction of the interest rate, and assignment to the partnership, and (ii) provide an additional loan in the approximate amount of $1,120,000 (the "New City Loan"); and WHEREAS, the New City Loan will be funded with a portion of the sale proceeds and residual receipts received by the City from Park Lane Apartmbnts, an affordable housing community in Petaluma, that was resyndicated in 2015; and WHEREAS, the rehabilitation of the Project will include but not be limited to replacement of boiler system and heating systems, replacement of tank water heaters, adding . water conservation measures in bathrooms, full exterior re -paint, new appliances, replacement of forced air heating systems, and rehabbing the community room of the Project; and 0 WHEREAS, in connection with the refinancing and rehabilitation of the Project, the City Attorney's office will review and prepare amendments to the existing City loan documents and documents for the New City Loan, including a loan agreement, promissory note, deed of trust, and affordable housing regulatory agreement; and WHEREAS, in connection with the rehabilitation, conventional lenders will provide construction and permanent financing, and may require the subordination of certain of the City loan documents. hereby: NOW THEREFORE BE IT RESOLVED that the City Council of the City of Petaluma 1. Finds that the modification of the existing City loan documents and the provision of the New City Loan as described in this Resolution and the accompanying Staff Report are necessary to accomplish the rehabilitation of the Project and make the Project financially feasible and affordable to lower income households. 2. Approves the modification of the existing City Loans and the provision of the New City Loan in accordance with the terms described in this Resolution and the accompanying Staff Report. 3. Authorizes the City Manager or his designee to execute and deliver amendments to the existing City loan documents, and documents related to the New City Loan consistent with the terms outlined in this Resolution and the accompanying Staff Report, in such form as approved by the City Manager in consultation with the City Attorney. 4. Agrees to subordinate the HOME Regulatory* Agreement and City Regulatory Agreement and the deeds of trust executed or to be executed in connection with the financing of the Project to the deeds of trust and the regulatory agreements to be executed by Developer for the benefit of the Project construction and permanent lenders, provided that the City is provided reasonable protections including reasonable notice and cure rights in the event of a default under the senior documents. 5. Authorizes and directs the City Manager and his designees to execute all documents and to take all actions reasonably necessary to implement this Resolution and the transactions described herein. 5 PASSED AND ADOPTED AT A REGULAR MEETING OF THE CITY COUNCIL OF THE CITY OF PETALUMA ON , 2019 BY THE FOLLOWING VOTE: AYES: NOES: ABSTAIN: ABSENT: ATTEST: City Clerk rol