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
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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
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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
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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)