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HomeMy WebLinkAboutResolution HA-97 Refinancing and Rehabilitation Hovely Gardens Re-Syndication STAFF REPORT PALM DESERT HOUSING AUTHORITY Community Development Department MEETING DATE: June 25, 2020 PREPARED BY: Jessica Gonzales, Senior Management Analyst Adoption of a Resolution of the Housing Authority Board of the REQUEST: Palm Desert Housing Authority ("Authority") authorizing the execution and delivery of a letter by the Authority to Palm Communities, on behalf of PD Hovley LP ("PD Hovley"), conditionally approving the proposed re-syndication, refinancing and rehabilitation of Hovley Gardens ("Project"). Recommendation By Resolution that the Housing Authority Board, 1. Waive further reading and adopt Authority Resolution No. HA- 97, a resolution conditionally approving the re-syndication and restructuring of the Project and the Authority's existing loan with respect thereto, as described in the letter attached hereto as Attachment "A"("Letter"); and 2. Authorize staff and legal counsel to negotiate and prepare such agreements and documents as described in the Letter, or otherwise required, to effectuate the re-syndication, refinancing and rehabilitation of the Project; and 3. Authorize Palm Communities, on behalf of PD Hovley, to submit on July 1, 2020, an application, including the Letter, to the California Tax Credit Allocation Committee ("TCAC") for a new allocation of nine percent (9%) low income housing tax credits ("Tax Credits"). Strategic Plan Objective Land Use, Housing & Open Space Priority 2: Facilitate development of high-quality housing for people of all income levels. Executive Summary Approval of staff's request would (i) authorize Palm Communities, on behalf of PD Hovley, to submit an application to TCAC on July 1, 2020 for the Tax Credits and (ii) authorize the staff and legal counsel to proceed to negotiate and prepare the documentation necessary for the re-syndication, refinancing and rehabilitation of the Project. June 25, 2020 — STAFF REPORT City— Approval of Proposed Re-Syndication, Refinancing, and Rehabilitation of Hovley Gardens Page 2 of 4 If the Tax Credits are awarded to PD Hovley, then staff and legal counsel would negotiate and prepare, among other items, an amendment to the existing (i) Disposition and Development Agreement ("DDA"), (ii) Promissory Note, (iii) Deed of Trust and (iv) Regulatory Agreement and Option, each by and between, or for the benefit of the Authority, as successor-in-interest to the former Palm Desert Redevelopment Agency ("Former Agency"), and PD Hovley as successor-in-interest to Palm Desert Development Company (collectively, "Documents"). The Documents, as amended or otherwise modified, will generally do the following: 1. Project. The Project will be operated for a period of fifty-five (55) years following the date of completion of the rehabilitation of the Project to provide housing affordable to persons and households of low and very-low income in accordance with the affordability restrictions contained in the DDA and in accordance with the Low- Income Housing Tax Credit financing being used by the Project. To the extent necessary, the Authority will subordinate the Deed of Trust securing the Authority Loan (as described below) to the liens and encumbrances of the Project's construction and permanent lenders. However, the Authority will not subordinate its interests in the Regulatory Agreement currently affecting the Project to such liens or encumbrances. 2. Transfer of Land to Project Owner. PD Hovley shall convey the Project to a new owner which shall be a California Limited Partnership ("Project Owner") whose administrative general partner is either Palm Communities, or an affiliate entity of Palm Communities, or Danavon L. Horn, or an entity controlled by Danavon L. Horn. The managing general partner of the Project Owner shall be a nonprofit corporation. 3. Authority Loan Terms. The existing loan made by the Former Agency pursuant to the DDA in the original principal amount of Seven Million Six Hundred Fifty- Nine Thousand Four Hundred Thirty-Seven Dollars ($7,659,437.00) ("Authority Loan") will be modified to extend its maturity for fifty-five (55) years commencing as of the effective date of the amended DDA, and shall bear interest at the greater of (i) the current Applicable Federal Rate at the time the Amended DDA is executed by the parties, or (ii) one percent (1%) per annum, and will be repaid from seventy-five percent (75%) of the Project's residual receipts remaining after payment of fees and expenses. In addition, the outstanding principal amount of the Authority Loan shall be prepaid in the amount of One Million Dollars ($1,000,000.00) at the closing of the construction loan. Background Analysis Hovley Gardens Apartments is a 100% affordable, 162 unit, multi-family apartment complex located off 42nd Avenue constructed and occupied in 2003. The Project provides apartments for households with incomes between 45% and 60% of the area median income, with low vacancy rate. However, the Project, at seventeen years of P6401-0001\2427697v2.doc -2- June 25, 2020 — STAFF REPORT City—Approval of Proposed Re-Syndication, Refinancing, and Rehabilitation of Hovley Gardens Page 3 of 4 age, could benefit from some rehabilitation although the property remains in excellent condition. In 2001, the Former Agency entered into several agreements with Palm Desert Development Company (now known as Palm Communities) to assist in building the Project. The Project was originally funded and developed by leveraging multiple funding sources including nine percent (9%) tax credits and the Authority Loan, and a low interest loan from the Agency in the amount of Seven Million Six Hundred Fifty-Nine Thousand Four Hundred Thirty-Seven Dollars ($7,659,437.00), which was assigned to the Authority during the Redevelopment Agency dissolution process. The Project included an affordability covenant recorded against the property and for the benefit of the Former Agency that restricted, among other things, the affordability of the units for at least 55 years, the incomes of the households that would continually occupy the property, and the occupancies (in terms of household size so there were no empty bedrooms). The Project has been complimentary to the City's affordable housing goals and Palm Communities has continued to take an active role in the Project. The current owner is a partnership that includes the Developer and several other limited partners. The Developer desires to acquire the current limited partner's interest, apply for tax credits to fund a rehabilitation of the property and create a new limited partnership to complete the rehabilitation. The renovations will include upgrades to current ADA standards, energy efficiencies, a refresh of the exterior and common areas (repainting, landscaping, new playground equipment, laundry rooms), and upgrades to the interiors of the units (flooring, cabinets, countertops, appliances and fixtures). By agreeing to amend the Documents, the Authority will benefit from a new 55-year affordability period, availability of 18 units reduced from low to very low households, and a refreshed property in its portfolio. The Authority Loan would also be extended for a new 55-year term, with annual payments based on a similar formula to the current calculation with the exception of a possible suspension of the principal loan payment for the 18-24 month construction timeframe. The current agreements allow for a payment in lieu of property taxes (PILOT). In the event the DDA is amended, and the property is transferred, the PILOT would no longer be allowed under current law. The Authority will receive an annual compliance fee in the amount of Sixty-Five Thousand Dollars ($65,000.00), which shall increase at the rate of two percent (2%) annually, to ensure continued affordability during the new period. Therefore, staff requests approval of the actions described herein in order to allow Palm Communities to meet the deadlines to submit a tax credit application by July 1, 2020. Staff will bring back the finalized versions of the agreements for review and approval by the Authority Board at a future Authority Board meeting. P6401-0001\2427697v2.doc -3- June 25, 2020 — STAFF REPORT City— Approval of Proposed Re-Syndication, Refinancing, and Rehabilitation of Hovley Gardens Page 4 of 4 Fiscal Analysis Staff does not see a substantial long-term fiscal impact from these actions, with the exception of the changes noted herein and the actions related to the amended loan terms and payment structure. If, after the finalization of the amendments, there is a fiscal impact that is not already noted in this report, staff will provide that information to the Authority Board when the documents are presented in their final form. LEGAL REVIEW DEPT. REVIEW FINANCIAL REVIEW ASSISTANT CITY MANAGER sfcu RWG Ya.H, 141. flo Andy-Firesone Ryan Stendell Janet M. Moore Special Counsel to the Director of Community Director of Finance Andy Firestine Housing Authority Development Assistant City Manager City Manager, Lauri Aylaian: cQ ATTACHMENTS: A) Letter of Agreement B) Housing Authority Resolution, HA-97 ' M Li BY HOUSING AUTHORITY 5 ON ' ' , ' ;aca VERIFIED BY: a`�' Original on file with City Cler 's Office (ay g'. -0 n ikaM he u ; Kfy, r, tiqSslmc- Nc S'. P6401-0001\2427697v2.doc -4- .. -���.... PRIM DESERT HOUSING OUTHORITY Io FRI WAR N(, DRIVI'. /pi � 73-5 D w_. � , PALM DIaEEIn, CAI.IFOR\IA 92260-2578 "t� - - TEI.: 760 346-0611 .• � Ia��. into uc'ityofpalmdrscrt.urg 3 June 25, 2020 Danavon L. I-Iorn, President ATTACHMENT "A" Palm Communities 100 Pacifica, Suite 205 Irvine, CA 92618 Re: Conditional Agreement Regarding Hovley Gardens Re-Syndication Dear Mr. Horn: The Palm Desert Housing Authority (the "Housing Authority"), as successor in interest to the former Palm Desert Redevelopment Agency, is a party to that certain Disposition and Development Agreement (as amended, the "DDA") with Palm Communities (the "Palm Communities"), as successor-in-interest to Palm Desert Development Company, dated as of June 14, 2001, and by which a loan was made to the Palm Communities in the original principal amount of Seven Million Six Ilundred Fifty-Nine Thousand Four Hundred Thirty-Seven Dollars ($7,659,437.00) (the "Housing Authority Loan") for the development of a 163-unit apartment complex located on that certain real property located in Palm Desert, California and commonly known as Hovley Gardens Apartments (the "Project"). The current principal balance of the Housing Authority Loan is approximately Six Million Two Ilundred Thousand Dollars ($6,200,000.00). An affiliate of Palm Communities acts as the Administrative General Partner of the partnership. Palm Communities has requested to re-syndicate and restructure the financing of the Project to obtain a new allocation of nine percent (9%) Low Income Housing Tax Credits (the "Tax Credit Allocation") to allow for an extensive rehabilitation of the Project. Pursuant to the Resolution of the Palm Desert Housing Authority dated as of June 25, 2020, attached to this letter as Attachment 1, the Housing Authority has conditionally approved of the proposed restructuring of the Housing Authority Loan to extend the term and reduce the principal amount to the approximate amount of Five Million Two Hundred Thousand Dollars ($5,200,000.00), subject to the following: 1. Project. The Project will be operated for a period of fifty-five (55) years following the date of completion of the rehabilitation of the Project to provide affordable housing to persons and households of low and very-low income in accordance with the affordability restrictions contained in the DDA and in accordance with the Low-Income Ilousing Tax Credit financing being used by the Project. To the extent necessary, the Housing Authority shall subordinate the deed of trust securing the Housing Authority Loan to the liens and encumbrances of the Project's construction and permanent lenders. The Housing Authority will Danavon L. Horn, President Palm Communities June 25, 2020 Page 12 not subordinate its interests in the regulatory agreement currently affecting the Project to the liens or encumbrances of the Project's construction and permanent lenders. 2. Project Owner. The Project owner shall be a California limited partnership ("Project Owner") whose administrative general partner is either Palm Communities, or an affiliate entity of Palm Communities, or Danavon L. Horn, or an entity controlled by Danavon L. Horn. The managing general partner of the Project Owner shall be a nonprofit corporation. The Project Owner will have one or more limited partner investors selected by Danavon L. Horn. 3. Transfer of Land to Project Owner. Palm Communities shall convey the Project to the Project Owner in conjunction with the execution of the restructured Housing Authority Loan. 4. Housing Authority Loan Documents. The proposed restructuring of the Housing Authority Loan will be evidenced by, among other things, an amended DDA (the "Amended DDA"), and an amended promissory note, deed of trust and regulatory agreement, (collectively, the "Loan Documents"), each executed by the Project Owner and the Housing Authority where applicable. 5. Housing Authority Loan Terms. The Housing Authority Loan shall have a term of fifty-five (55) years, commencing as of the effective date of the Amended DDA and shall bear interest at the greater of (i) the current Applicable Federal Rate at the time the Amended DDA is executed by the parties, or (ii) one percent (1%) per annum. The Housing Authority Loan shall be repaid from seventy-five percent (75%) the Project's residual receipts remaining after payment of fees and expenses. The outstanding principal amount of the Housing Authority Loan shall be prepaid in the amount of One Million Dollars ($1,000,000.00) at the closing of the construction loan. 6. Annual Monitoring Fee. Commencing on the date the construction loan converts to a permanent loan, the Project Owner shall pay the Housing Authority an annual monitoring fee in the amount of Sixty-Five Thousand Dollars ($65,000.00) and shall increase at the rate of two percent (2%) annually. 7. Loan Documents. The Loan Documents, and all related documents and instruments, shall be submitted to the Housing Authority for its approval and shall be in form and substance acceptable to, and approved by, the Board of the Housing Authority and its counsel. CITY DE PRAM DESERT P 6401-0001\242 7158v5.d o c ��SAn1,J uS RIOLiC SARIS Danavon L. Horn, President Palm Communities June 25, 2020 Page 13 8. Award of Tax Credit Allocation. The Project shall have been awarded the Tax Credit Allocation pursuant to an application therefor by Palm Communities to the California Tax Credit Allocation Committee and dated July 1, 2020. 9. No Third Party Beneficiaries. This letter is solely for the benefit of the Housing Authority and Palm Communities, and shall not inure to the benefit of, or be relied upon by, any other person or entity. 10. Counterparts. This letter may be executed in counterparts, with the same effect as if each counterpart were an original document. Very truly yours, Palm Desert Housing Authority By: Name: Its: AGREED BY PALM COMMUNITIES PALM COMMUNITIES By: Danavon L. Horn, President Date: , 2020 CITY Of PRIM DESERT P 6401-0001\2427158v5.doc "PPiPif?.1.if(.:If0 PI PIP ATTACHMENT 1 Palm Desert Housing Authority Resolution dated June 25, 2020 CITY Of POLM DESERT C�PP NIID U PIf Pt IID PAPIP RESOLUTION NO. HA-97 A RESOLUTION OF THE PALM DESERT HOUSING AUTHORITY APPROVING A LETTER AGREEMENT REGARDING THE RE- SYNDICATION OF PD HOVLEY LIMITED PARTNERSHIP AND RELATED MATTERS RECITALS: A. Pursuant to AB X1 26 (which became effective in June 2011) and the California Supreme Court's decision in California Redevelopment Association, et al. v. Ana Matosantos, et al., 53 Cal.4th 231 (2011), the former Palm Desert Redevelopment Agency (the "Former RDA") was dissolved as of February 1, 2012, the Successor Agency was constituted, and the Oversight Board of the Successor Agency (the "Oversight Board") was established. B. Pursuant to Section 34175(b) of the California Health and Safety Code ("HSC"), assets of the Former RDA transferred to the control of the Successor Agency by operation of law. C. Pursuant to HSC Section 34176(b), the City Council of the City of Palm Desert (the "City") adopted Resolution No. 2012-07, electing for the City to not retain the responsibility for performing housing functions previously performed by the Former RDA, and determining that all of the assets, as allowed by law, and all rights, powers, liabilities, duties, and obligations associated with the housing activities of the Former RDA be transferred to the Palm Desert Housing Authority ("Housing Authority"). D. The Housing Authority, as successor in interest to the Former RDA, is a party to that certain Disposition and Development Agreement (as amended, the "DDA") with PD Hovley Limited Partnership (the "Partnership") dated as of June 14, 2001, and by which a loan was made to the Partnership in the original principal amount of Seven Million Six Hundred Fifty-Nine Thousand Four Hundred Thirty-Seven Dollars ($7,659,437.00) (the "Housing Authority Loan") for the development of a 163-unit apartment complex located on that certain real property located in Palm Desert, California and commonly known as Hovley Gardens Apartments (the "Project"). The current principal balance of the Housing Authority Loan is approximately Six Million Two Hundred Thousand Dollars ($6,200,000.00). E. An affiliate of Palm Communities acts as the Administrative General Partner of the Partnership. Palm Communities has requested to re-syndicate and restructure the financing of the Project to obtain a new allocation of nine percent (9%) Low Income Housing Tax Credits (the "Tax Credit Allocation") to allow for an extensive rehabilitation of the Project. F. The Housing Authority wishes to approve of the proposed re-syndication and restructuring of the financing of the Project, including the Housing Authority Loan, as described in the letter addressed to Palm Communities and attached hereto (the "Letter Agreement"). RESOLUTION NO. _HA-97 NOW, THEREFORE, THE PALM DESERT HOUSING AUTHORITY DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. Recitals. The above recitals, and each of them, are true and correct. Section 2. Approval of Proposed Re-Syndication and Restructuring of the Project. The Housing Authority hereby approves the re-syndication and restructuring of the Project and the Housing Authority Loan, as described in the attached Letter Agreement. Section 3. Further Conditions. The Housing Authority will not be bound by the attached Letter Agreement or otherwise with respect to the re-syndication or restructuring of the Project unless and until the Tax Credit Allocation shall have been awarded to the Project, all other conditions described in the Letter Agreement shall have been satisfied, and all documents pertaining thereto (including, without limitation, the loan documentation pertaining to the proposed construction and permanent loans) shall have been submitted in final form and approved by the Palm Desert Housing Authority Board (the "Board"), and the Board authorizes their execution and delivery, as appropriate. Section 4. Other Acts. The Executive Director of the Housing Authority and all other officers of the Housing Authority are hereby authorized, jointly and severally, to execute and deliver any and all necessary documents and instruments and to do all things which they may deem necessary or proper to effectuate the purposes of this Resolution. Any actions previously taken by officers of the Housing Authority consistent with the purposes of this Resolution are hereby ratified and confirmed. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Palm Desert Housing Authority, on the 25th day of June, 2020, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: GINA NESTANDE, CHAIRMAN ATTEST: GRACE L. ROCHA, ACTING SECRETARY PALM DESERT HOUSING AUTHORITY P6401-0001\2428106v2.doc 2 ATTACHMENT 1 [Attach Form of Letter Agreement] (see attached)