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Home My WebLink About12 Hovley Gardens - Rehab-Refi-ResyndicationSTAFF REPORT PALM DESERT HOUSING AUTHORITY Community Development Department MEETING DATE: PREPARED BY: REQUEST: March 25, 2021 Jessica Gonzales, Senior Management Analyst Request for Approval to Negotiate and Prepare Documentation Necessary for the Re-Syndication, Refinancing, and Rehabilitation of the Hovley Gardens Project Recommendation By Minute Motion, that the Authority Board: 1. Authorize staff and legal counsel to proceed to negotiate and prepare documentation for the re-syndication, refinancing and rehabilitation of the Hovley Gardens Project (“Project”); and 2. Authorize Palm Communities, on behalf of PD Hovley LP ("PD Hovley") to apply the Project’s 2020 fiscal year positive net cash flow towards the Authority loan principal payment as agreed in the Conditional Agreement terms, as part of the proposed re-syndication and refinancing of the Project. 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 direct staff to prepare the final documentation needed to memorialize the re-syndication, refinancing and rehabilitation of the Project. Staff is also recommending that Palm Communities be allowed to apply the Project’s 2020 fiscal year positive net cash flow towards the one-time payment to the principal amount of the Authority Loan required at the closing of the construction loan, as agreed to in the Conditional Agreement terms as part of the proposed re-syndication and refinancing of the Project. Pending approval of the Authority Board, Palm Communities is preparing to begin the Project rehabilitation in the summer of 2021. March 25, 2021 - STAFF REPORT Housing Authority – Hovley Gardens Rehabilitation / Palm Communities Page 2 -4- P6401-0001\2427697v2.doc Background Analysis In 2001, the former redevelopment agency (“Agency”) entered into several agreements with Palm Desert Development Company (now known as Palm Communities) to assist the Developer with building the Project. The Project was originally funded and developed by leveraging multiple funding sources including 9% tax credits and a low interest loan from the Agency in the approximate amount of $7.65M. The Authority was assigned the loan during the redevelopment agency dissolution process. On June 25, 2020, the Authority Board approved a Conditional Agreement for the proposed re- syndication and restructuring of the financing for the Project, including the Authority Loan. Thereafter, PD Hovley submitted an application 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 which was awarded in October 2020. Since then, PD Hovley has performed their due diligence in planning and preparing for the re- syndication of the Project and is anticipating escrow closing in the next month or two. Staff with assistance of legal counsel are in the process of completing negotiations and to prepare the necessary documents to secure the Authority Loan. It was agreed in the Conditional Agreement, under Authority Loan Terms, a one-time payment towards the principal amount of the Authority Loan would be paid at the closing of the construction loan. Staff is recommending that PD Hovley be allowed to redirect and apply the Project’s 2020 fiscal year positive net cash flow due in April 2021, towards the one-time Authority loan principal payment agreed to in the Conditional Agreement terms as part of the proposed re- syndication and refinancing of the Project. With the annual debt service payment for the existing Authority loan payable at the end of the month as customary. The following is a summary of the existing and new loan agreement terms. Current Terms New Terms Palm Desert Housing Authority Housing Authority Loan ▪ Initial Loan Amount: $7,659,437 ▪ Loan Balance (as of 6/20/20): $6,148,813 ▪ $5,148,813 Principal ▪ Annual principal payments from available cash flow, as defined, due on April 1 of every year ▪ April 1, 2020 payment to apply towards pay down at construction loan closing (if approved by Authority Board on 3/25/21) ▪ $1,000,000 one-time pay down at construction loan closing minus any positive net cash flow from the Project's 2020 Fiscal Year (estimated $115,874, if approved). ▪ To be deferred until 6/1/23 ▪ Annual repayment at 75% of residual receipts after fees & expenses due June 1 of every year Interest ▪ Simple interest at the rate of 1 percent per annum on the unpaid principal balance. ▪ Annual interest payments, due on April 1 of every year (April 1, 2021 to be paid) ▪ 1% per Annum or current Federal Rate, whichever is greater at time of closing ▪ First payment due 6/1/22 (interest will not be deferred during rehabilitation) To the City of Palm Desert PILOT Payment ▪ $80,000 per year, to increase 2% annually ▪ April 1, 2021 to be paid (last payment) ▪ $0, No longer permitted under current law. Annual Compliance Fee ▪ $0, Not applicable ▪ $65,000 Annually, to increase 2% annually ▪ First payment due 6/1/22 March 25, 2021 -STAFF REPORT Housing Authority -Hovley Gardens Rehabi lit ation / Palm Communities Page 3 Staff requests approval of the actions described herein in order to allow PalmCommunities , staff and legal to proceed preparing for the re-syndication documents and closing. Staff will bring back the finalized versions of the agreements for review and approval by the Authority Board at a future Authority Board meeting . Fiscal Analysis With the proposed re-syndication and restructuring of the financing for the Project, there are no substantial fiscal impacts to the Authority . The primary fiscal impact from this transaction is to the City 's general fund related to the payment in li eu of property taxes (PILOT) under the existing agreements that is due to the City. With the amendment of the current Disposition and Development Agreement ("DOA") and the transfer of ownership of the Project, the PILOT payment cannot continue under current law . The Authority instead is requiring the new owner to pay an annual compliance fee to ensure continued affordability during the new affordability period , and will be paid to the Authority . The following Fiscal Impact Summary is being provided as an oveNiew of the impact of the ODA terms . Fiscal Impacts FY 2020-2021 FY 2021-2022 Comment • Minus any positive net cash flo w from the Principal • $ 0 • $ 1,000,000 Project's 2020 Fisca l Year (estima ted $115,8 74, if approved). Interest • Estimated $1 77,894 • Esti mated $77,590 • Interest is off-set by principal payment PILOT Payment • $107,000 • $0 • Paym ent no longer permitted under current law . Ann ua l Compliance Fee • $0 • $65,000 • Paym ent to in cre ase 2% annually If , after the finalization of the amendments , there is a fiscal impact that has not already been 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 ~d'°t.cHc.clc.LL 9-""""cr 1-11. 1-1100-,,e, :A.n ay :Firestine RWG Special Counsel to Ryan Stendell Director of Community Janet M. Moore Andy Firestine the Housing Authority De ve lopment Director of Finance Assistant City Manager Executive Director , Todd H ileman : L. To(i{(i{ f-t[Lev-vt~ V\, ATTACHMENTS: 1) PD Hovley 1 R Limited Partnership Request (Letter dated March 5A 202 B TV 2) Project Site Map A~pro ve cf (5-QJ3 Y HOUSING UTH RI P6401-000112427697v2 .doc ON o -25 -1-0.2-j VERIFIED BY: (;:LR / sr s: ' O riqinal on file with City Clerk's Office -4-fl'lf:S :-t-tetrh·,J;", 13""011C(-than, NestMde, ~in-rttnill et 1<t-1<'.~lllj t-1° E-5 : None.. PD Hovley 1111 Limited Partnership March 5, 2021 Gina Nesumde Executive Director Palm Desert Housing Authority 73-510 Fred Waning Drive Palm Desert, CA 922W Regarding: Conditional Agreement Regarding Hovey Gardens Re -Syndication dated June 25, 2020 Dear Ms. Nestande, The above -referenced Condidanal Agreement ("Agreement") far the Hovley Gardens re-.ryndication contemplates a current Housing Authority Loan principal balance of approximately $6,200,000 (the exact loan balance as &June 25, 2020 was $6,148,813), a loan paydown of $1,000,000 at the rtv syndication closin& and a remaining principal balance of $5,148,813 to be coned forward in the re - syndication (please see the Agreement attached as Exhibit A). Currently, the closing of the re-syndicaYion is scheduled for mid -April 2021. However, the annual debt service payment for the Housing Authority Loan (based on the 2020 financials attached as Exhibit BI will be made in March of 2021 and will Consist of a principal paydown of $115,874 (please see the loan payment calculation attached as Exhibit Q. The Housing Authority than balance after this payment will be $6,032,939. As a result, the Housing Authority Loan amouMthMwill car yfical In the re, syndication, after the $1,000,000 paydown, will be $115,874 less than anticipated. I am respectfully requesting that this $115,874 principal payment be considered part of the $1,000,000 paydown, such that the loan balance carried forward in the re-swMication remains at the originally anticipated amount of $5,148,813, thereby avoiding a funding gap. tf you have any questions or need anything else, please contact me at (949) 878-9367. Regards, PD Hovley IR Limited Partnership, a California limited partnership By: PC Hovley 1R Developers LLC, a Wlgorma limited liability company, Its administrative general partner 100 P"Hi", Sell, M Irvine. SA 92618 reiWIVSi 98iex 885478.A% PD Hovley 1R Limited Partnership BY' Palm Communities, a California corporation, its Sole rnernber and manager By. Danavon L. Horn resident 104 Pacifica. Suite 03 irMiue, CA Mig r ..I 94 9.878.9299 .... 949.87 R.93 9 9 E hibb A 11111M WIN HINNINII 0111HORM 7 3 —5 1 O Fmi. p WAIti P,L: i}ritl'E Pni.ni DE�iEro-C.4iYmuNr6 a�2a6a=i57$ 3'ro,:76a 3 46-06 11 5aNiN ciIjutpiInutrE4=.to-rg ,rune _ 21020 Dmavori I1. Horn, Prc:;idcnt Palm omrrlur�i[ies 100 Pacifica, Suite 205 Irvitle, CA 9.1618 lac; Coi1ditional Agreemctit Re n ard i ng HIovIey Gardens Re- Syridieatim Dear -Mr. 1 Iorr7; The Palnz Dew11 Housing Aulhcorily (Ihc `Housing ALiLhoilty"), as suum5sor in inLeresL to the former Palm Desert Redeveloprnenl Agency, is a party to that certain Disposinon and Development Agreernerrt (as arrotyr dcd, [lh(- "DDA") with Palrrr C0111rrlUnities {the ` Valm Comirtttrsitics"}, as suee,ssor- in-irxterest Co Paltu 1Dcsert IDevcIoprncnt C.ompa,nv, dared as uI`Junv 14. 2001, and by which a loan wa,,� made, to the Palm ('c)rnulunlLle�j in Lhe [original principal amount of Se ven MiIIion Six Hundicd Fitly -Nine Thousaurd Four HUIOreci Thirty-SL;ven DoIlar,.S {S7,659,4 37.00) (the "Housing Axodiority Loan") for the developrrtent of a 163-unit apartmciii complex located on ilia[ certain rtal property located in Palm Desett, Califoniia and ecru raonly kloown as Hovley Gardens AparttneiiU {11ie :.1'ro eci'' . The, currenl principal balfurcc of the Housing Aulhor].Ly t_oan is appruximatoly Six Million Two Hundred Thousand Dollars ($6,200,000.00). An affiliate of Nlm CornT-nuniticq aC,Ls aaq the Administrative Cieneml Partner of the partnership. Palm Carmnunities has n-guested to rc-syndicate aaLd rCstrueLtue the; filnpincing of the I'rcljeet to oblain a ri€.w allucntion of nine percent (9%) Low Income ioTLsing T Credits (thc "Tait Credit AI location") to allow for an ex#easive reliabiIitmion of the Project, Put-SLtar.L tco the Resolution of the Palin Desert Housing Aut1jority dared as of June 25, 20�0, auached to [his letter a�; AL lachiiicnt 1, the Housing ALithckriLy has conditiorwlIy approved ordic, propased restrucwring of (lie Housing Authority Loan Lea extend the tenn and reduce zl7e prilicipal amount to tlxe appraximate amount of Fiva MiIIion Two Efundred Thousand DoIIars ($5, 00.000.00). subject to the follo-wing; L Proms. The Project will lie operated For a period of tifty-five (55) years following th€: d2 ac of compiction of the rohabilitation of iltc; project to providc affordable housing to persons and households of low and very -low inoorne in ccord uace with [he affordability reslriaicrns contained in the DDA and ill accordance: with thv Low-I1loorrtc Housing Tax Credit fin€aicing being used by the Project. To the extent necessary, tine llowuig Authority shall gubotAinate the deed of u'us( securing the Hoilsing ALLLhor'tty T.o�in to Lhe lien,, and encunibrarilces of the Rruluct's eonsiruction and permanent lendcrs, The Housing Authority wilt IYIi"Y 15 ii Yr. kw . any►"'4)11 L. Horn, President Palm Communities June 25, 2020 Page 12 not subordivxte its interou, bi the regulat:ocy agi-ooinent currently affecting the Pi-ojeut to the liens or cmc-umbmces of the Projeffs c€nvirtiction and porrnanc:iii lenders. 2. lrTjeg_• wrior. ` lie. Project owner shall. ire a Califomia lijiiiic:d putnerrship ("Project O�nc;r") whose �OminWraLlvu gencrat partner is either Palm Communities, or € n affiliate enti Ly of Palm C ommuni Lie,;, or Dam von L. Horn, m- an eiWty c:on1m]led by Dan�ivun L, Harn. The tnana�nng goncra1 partner of the Project O wnor sha.fl be a no;)profit coToratian. Tlxe Project Owner will b4ve one oy moiv, Iimited partner investors selcmd by 11mavon L. Horn. 3. Traasfer of rand to I!Mj�q Owner. Pall in Comm Lmities shall QnmFey the Project- ter the Project Owner in cotxjunction with the exocution of the restructurod Housing Authm ity Loan. .1. H()usir1g Authority I.ounl)oc-u]nents. The proposed restrumirirxp. of tlxe I-Yousing Authority Loan will be cvid(,-ticodb,yby, among other things, an amclulcd DDA (the "Arnffndcd DDA'), a1ui un fili-ielided pyomissory ame, deed er Lru%L and regulatoxry agreement, {c«Ifecti Fely, the `Loan Documents"), each cxceuted by the PrajccL O ner and the Housing Auffiotity �mhcrc applicable, IJousinV Mlhorily Lp, ui 'ramp. The Housing Autiority 1,oan shall have a terrn of fifty --five. ( years, commencing as of the of ec#ivc date of the Amended DDA and shall bear ititcrest at dic: gr ter of 0) the Quru alit Applicable 'FAr'al Rate at the tim4�� flie Aruended 1)DA is executed by the part its, or (ii) one porcenl (1%) per amium, The Housing Aulhorily Loan shall be repaid f om 5evenly- ve percent (7 %) the Projcct's residual receipts rctmmning after paymc t of fees and expenses. The mtstanding prirxcipal mnount of the I-]ousing Authority Loan small lie prepaid in tho arnouut ofOnc Million Dollars ($1,000,O00A) at the clo;ing of the Ccx3Wul�Lioil Ioan. Animal klonitori�l eq. Corniyien ig t}n the draw the cun5truction lunn c:onvcrts to a pefnumei)t Io4x, the Project Owner. sha,JI pay the F1ousing Authority m annual rnonitoring fee in (lie amounf of ixty-Five Thousand Dollars ($65,000.00) and shall I inc rc a,se at the rate of two percent (2%) ail mid Iy Loan DcxcrLinw,ni.s, The Loan Documents, wind all rebated docu mnts aUld instrumcats, shill be submitted to the Housing Authority for Its approval and shall be its form and ;ub me e acceptable to, and approved by, tho, Boaixl of the l iousinu Authority and ik roumel. 171 clYY of P E I m 5 f S I � I P640'1 •QOd 1'�2427158V5,dor 611-111;-1:, lif Darla von 1„ 1 torn- Presidenl PUIDI C011unuIlifies .ttinc 25, 020 Page 3 9. ?1vvzird of Ta,x C rc,-dit Allocation. ThQ7 Projeci sh,,lll have been awardcd the. Tax Credit ,+ lloc3Lion pU]'RLlanL. LC} an �ippjicaL]oli Lherefor by Palm Communi Lies to the C-LA ifornia Tax Credit ?illoca[ion Coininittoc and daiLod July 1. 2 02 0. 9- No Third.I'arLy Beneficiaries. This letter is solely f'oj' the! lenefiL 0fthe jIg , wfinrity amid Palm C;OMMUnities, and shall not inure to ilic bcnefii Of or be rolial upon by, ally IiLhc-r person car entit,v. 10. C:I untcMcirt,�- This IeLter may he executed in cnunteri legs, Ixith Lhe s;]Ine clfeot at; if each counterpad Were arm krigiraal CIOCLurietit. Very trtdy you-rs, Palm D on HOLIsing Authorioy B, Nati c: Gina Nestande Iiw; Executive Director AGORE'Fil BY PALM COMMUNITIES PALM C;C)MMU ` IFS By- Dtirlavon L. Horn. k'restcjurit I C I I Y 66 PRIM 01S[R1 ATTACIHNIE NTI Pa-Im -1) o�,,grl HO Usin Q ALP LhOli Ly Re4o I igi on da �Jun 0 � JZ()20 �� --.— _ CITY 9 F PHIM A f 51 P T W. 1:!, 44 P! -. I ; R. 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 BATTERS RECITALS; A. Pursuant to AR X1 26 (which became effective in ,dune 011) and the California Supreme Court's decision in Caiifomia Redevelopment Association, ct al. v. Aria Matosanlos, of aL, 53 CaL4th 2,31 (201 t}, the former Malin Desert Red eve lopmant Agency (the "Former RDA") was dissolved as of February 1, 2012, the Successor Agenoy was constituted, and the Oversight Board of the Succea8ar Agency (the "Oversight Board") was established. B. Pursuant to Section 417'5(b) of the Galifornfa Health and Safety Code ("HSC" ), assets of the f~oner RDA transferred to the control of the Successor Agency by operation of law. G. Pursuant to HSC Section 34176(b), the City Council of the City of Palm Desert (the "Git ") adopted Resolution No, 201-07, electing for the City to not retain th e 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 "-lensing Authority ("Housing Authority") D. The Housing Authority, as successor in interest to the Former RDA, is a party to that certaln Disposition and Development Agreement (as amended, the "D A") with PD Hovley Limited Partnership (the "Partnership") dated as of .dune 14, 2001, and by which a loan was made to the Partnership in the original principal amount of Seven Billion Six Hundred Fifty -Nine Thousand Four Hundred Thirty -Seven Dollars ( 7r639,437,00) (the "Housing Authority Loan") for the development of a 163-unit apartment complex located on that certain} real property located in Palm Desert, Californfa, and commonly knovin as Hovley Gardena Apartments {the "Projecf'}. The current principal balance of the blousing Authority Loan is approximately Six Million Two Hundred Thousand Dollars ( 6,2Q0,000.00). F, An affiliate of balm Communities ants 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 allocatlon of nine percent (9%) Low Income dousing Tax Credits (the 6Tax Credit Allocation") to allow for an extensive ref}abilltation of the Project, R The Dousing Authority wishes to approve of the proposed re -syndication and restructuring of the financing of the Project, including the Blousing Authority Loan, as described in the letter addressed to Palm Communities and attached hereto (the "Letter Agreern ent"). RESOLUTION NO. HA-°9 NOVI, THEREFORE, THE PALM DESERT HOUSING AUTHORITY DGE HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. recitals. The above recitals, and each of them, are true and Qorrect ecliorl 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 mousing Authority Loan, as describad in the attached Letter Agreement. Section 3. Further Conditions_ The Housing Authority will not be Bound by the attached Letter Agreement or othet ise 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 Latter Agreement shalt have been satisfied, and all documents pertaining thereto (including, without lirnigation, the loan documentation pertaining to the proposed construction and permanent loanq) shall have been submitted in final form and approved by the Palm Desert hloustng Authority Board (the "Board"), and the Board authorizes their execution and delivery, as appropriate. Section 4. Other Acts. The Executive Director of the dousing Authority and a I I other officers of the Housing Authority are hereby authorizes, 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 Aesoiution. Any actions previously taken by officers of the Housing Authority consisten I with the purposes of this Resolution are hereby ratified and confirrnad. PASSED, APPROVED, AND ADOPTED at a regular meeting of the Palm Desert Hausing Authority, on the 5tt' day of June, 2D20. by the following vote, to wit: AYES- HARNIK, JUNATTIAN, KELLY, WMER, AND NESTANDE NOES- NONE ASSENT, iaowr: ABSTAIN. tour. INA NE TANDE, GHAtRMAN ATTEST.- GRAC5E L. ROGHA, ACTIN, SECRETARY PALM DESERT HOUSING AUTHORITY P6401-ow?l,?42810Ev2. WC 74501 42nd Avenue * Multi‐Family Community * 162 Units