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HomeMy WebLinkAbout20 HA40790B and Res HA-104 - Pacific West Communities - 269 Affordable Housing UnitsSTAFF REPORT PALM DESERT HOUSING AUTHORITY Development Services Department MEETING DATE: August 26, 2021 PREPARED BY: REQUEST: Recommendation Jessica Gonzales, Senior Management Analyst Adoption of a Resolution of the Board of the Palm Desert Housing Authority (i) authorizing the execution and delivery of a conditional agreement between the Authority and Pacific West Communities, Inc., conditionally approving a loan in the amount of $6,030,000 from the Authority's Housing Asset Fund to fund the purchase by Pacific West Communities, Inc. of property and construction of 269 affordable housing units; (ii) appropriating funds; and (iii) taking related actions. That the Housing Authority Board: 1. Waive further reading and adopt Authority Resolution No. HA-104, a resolution: (i) Authorizing the execution and delivery of the Conditional Agreement Regarding Vitalia between the Authority and Pacific West Communities, Inc. ("Pacific West") in substantially the form attached to the Resolution ("Agreement"), conditionally approving a loan ("Loan") in the amount of $6,030,000 from the Authority's Housing Asset Fund for the purchase of land and construction of 269 affordable housing units ("Project"); and (ii) Authorizing the Director of Finance to appropriate $6,030,000 from Unobligated Housing Asset Fund Balance to the appropriate budget line item; (iii) Authorizing Authority staff and legal counsel to negotiate and prepare such agreements and documents as described in the Agreement, or which are otherwise required, to effectuate the Resolution and the Authority's funding commitment for the Project as set forth in the Agreement; and (iv) Authorizing Pacific West to submit, an application, including the Agreement, to the California Debt Allocation Committee ("CDLAC") for an allocation of four percent tax-exempt bonds ("Tax Bonds"), Tax Credit August 26, 2021 — Staff Report Housing Authority - Pacific West Communities, Inc., Conditional Agreement Page 2 of 4 Allocation Committee ("TCAC") for an allocation of Federal Tax Credits ("Federal Tax Credits") and TCAC for an allocation of State Tax Credits ("State Tax Credits"). Strategic Plan Obiective One of the priorities of the City of Palm Desert's ("City") Envision Palm Desert Strategic Plan, as part of Land, Use, Housing and Open Space, is to facilitate development of high quality housing for people of all income levels. This request meets that objective by diversifying the City's housing stock for lower income households. Executive Summary Approval of staff's request would conditionally approve the Loan from the Authority to Pacific West for the Project, authorize Pacific West to submit an application to CDLAC, TCAC for Tax Bonds, Federal Tax Credits and State Tax Credits, and any other funding source, and authorize the Authority's staff and legal counsel to proceed to negotiate and prepare the agreements and documentation necessary for the financing and construction of the Project. If the Tax Bonds, Federal Tax Credits and State Tax Credits are awarded to Pacific West, then staff and legal counsel would negotiate and prepare, among other items, (i) a loan agreement, (ii) a promissory note, (iii) a deed of trust and (iv) a regulatory agreement, each by and between, or for the benefit of the Authority or Pacific West (collectively, "Documents"). The Documents will generally require the following: 1. Proiect. The Project will be operated for a period of fifty-five (55) years following the date of completion of construction and obtaining a certificate of occupancy for the Project to provide rental housing affordable to persons and families of low, very - low, and extremely low income in accordance with the affordability restrictions contained in the Loan Agreement and in accordance with the Low -Income Housing Tax Credit financing being used for the Project. To the extent necessary, the Authority will subordinate the deed of trust securing the 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 to such liens or encumbrances. 2. Authority Loan Terms. The Loan shall be in the principal amount of $6,030,000, have a term of fifty-five (55) years commencing as of the effective date of the Loan Agreement, bear simple interest at three percent (3%) per annum, and will be repaid from fifty -percent (50%) of the Project's residual receipts remaining after payment of fees and expenses. P6401-0001\2546673v1.doc -2- August 26, 2021 — Staff Report Housing Authority - Pacific West Communities, Inc., Conditional Agreement Page 3 of 4 3. Regulatory Agreement: The regulatory agreement will restrict 100% of the units in the Project for rental at affordable rents to individuals and families with incomes that do not exceed the following percentages of the area median income (AMI): 30% of the AMI or less (approximately 30% of the units), 59% of the AMI or less (approximately 50% of the units), and 80% of the AMI or less (approximately 20% of the units). Background Analysis The Project is being proposed as a 100% affordable, 269 unit, multi -family apartment community located on the south side along Gerald Ford Drive at the intersection of Rembrandt Parkway directly east of the Riverside County Sheriff Station. The Project, the Vitalia community, will provide apartments for households with incomes at or below 80% of the AMI. The subject property planned for the development of the Project is owned by the Successor Agency to the Palm Desert Redevelopment Agency ("SARDA") and is included on SARDA's State Department of Finance -approved Long Range Property Management Plan ("LRPMP"). Consistent with the LRPMP, on September 2020, the SARDA Board authorized the Executive Director to enter into an Exclusive Negotiating Agreement ("ENA") with Pacific West for the purpose of negotiating the terms and conditions upon which SARDA would sell to Pacific West the subject property, which is an approximate +/-11.94-acre portion of APN 694-310-006, for the development of the Project. Pacific West has submitted a funding request to assist in the purchase of the SARDA property and constructing the Project. Total development costs are estimated at $76.3 Million. The Project is intended to be funded and developed by leveraging multiple funding sources including Tax Credits and State Tax Credits and the Loan. In order to evaluate Pacific West's funding request, the Authority engaged the services of KMA Consulting, Inc., a national provider of affordable housing consulting services, to provide technical assistance related to determining whether or not the Project's pro forma projections, feasibility and Authority loan request were reasonable. In evaluating Pacific West's request for a loan in the amount of $6,030,000 to facilitate the development of the Project, KMA conducted a detailed review of the developer's financial pro forma and the appraisal of the subject property. The Project's assumptions, methodologies, and calculations were reviewed and evaluated for reasonableness and accuracy. In addition, secondary sources of information were consulted to confirm or validate the pro forma and additional information was requested of Pacific West to clarify or support specific items in the pro forma. KMA presented its analysis in a project review memorandum, which is attached to this staff report as Attachment No. 2. By making the Loan to Pacific West, the Authority will benefit from a 55-year affordable restricted community available to lower income households. Therefore, staff requests approval of the actions described herein in order to allow Pacific West to meet the September 9, 2021 deadline to submit a tax credit application. If the Board approves P6401-0001\2546673v1.doc -3- August 26, 2021 — Staff Report Housing Authority - Pacific West Communities, Inc., Conditional Agreement Page 4 of 4 such request and Pacific West is awarded the Tax Credits and State Tax Credits, staff will bring back the finalized versions of the Documents for review and approval by the Authority Board at a future Authority Board meeting. Fiscal Analysis An appropriation will be necessary to fund the requested Loan in an amount not to exceed $6,030,000. Funds are available from the Housing Asset Fund Unobligated Fund Balance. This transaction will not impact the City's General Fund. The above -identified funding will only be provided upon the Authority and Pacific West entering into the Documents and Pacific's satisfaction of the terms and conditions contained therein, including, but not limited to, providing proof, satisfactory to the Authority, that the Developer has financing commitments from all other sources of financing necessary to fund the entire Project and the Project is permit ready LEGAL REVIEW DEPT. REVIEW FINANCIAL REVIEW ASSISTANT CITY MANAGER RH due eeja. Counsel to the Authority Eric Ceja Interim Director of Development Services Jose/ L tAi/s, EspiA(La3,cL-Andy firestine For Janet M. Moore Director of Finance Executive Director, L. Todd Hileman: L. Todd H-il,ewt.av� ATTACHMENTS: Andy Firestine Assistant City Manager 1. Resolution No. HA-104 2. KMA Memorandum (Financial Review of The Pacific West Communities Project, dated August 12, 2021) 3. Draft Conditional Agreement (Contract No. HA40760B) 4. Project Site Map, Project Site Plan and Project Renderings p BY HOUSING AUTHORITY-0 O D8 A0 - c9 /3J VERIFIED BY: IXm�/%tJ Original on file with City Clerk's Office fh'Es'. /4ai'n rk, J nafhxir1; Aieslande, QCurlki.nil//, f l y AloES P6401-0001\2546673v1.doc -4- RESOLUTION NO. HA-104 A RESOLUTION OF THE PALM DESERT HOUSING AUTHORITY APPROVING A CONDITIONAL AGREEMENT REGARDING VITALIA BETWEEN THE AUTHORITY AND PACIFIC WEST COMMUNITIES, INC., APPROPRIATING FUNDS IN CONNECTION THEREWITH, AND TAKING RELATED ACTIONS RECITALS: A. Pursuant to AB X1 26 (enacted 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 Agency") was dissolved as of February 1, 2012, the Successor Agency to the Palm Desert Redevelopment Agency (the "Successor Agency"), as the successor entity to the Former Agency, was constituted, and a board of the Successor Agency (the "Board") was established. B. AB X1 26 added Part 1.8 (commencing with Section 34161) and Part 1.85 (commencing with Section 34170) to Division 24 of the California Health and Safety Code ("HSC") (such Parts 1.8 and 1.85, including amendments and supplements enacted after AB X1 26, being referred to herein as the "Dissolution Act"). 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 Agency, 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 Agency be transferred to the Palm Desert Housing Authority (the "Authority"). D. The Successor Agency and Pacific West Communities, Inc. (the "Developer") entered into an Exclusive Negotiation Agreement, dated as of October 21, 2020, for the purpose of negotiating the terms and conditions upon which the Successor Agency would sell to the Developer the approximately +/- 11.94-acre portion of real property owned by the Successor Agency located in the City along Gerald Ford Drive and identified as APN 694-310-006 (the "Property") for the purpose of constructing thereon a 269-unit multi -family residential apartment community for households with incomes between 30% and 80% of the area median income (the "Project"). The Property is described in Exhibit "A", attached hereto and incorporated herein. E. An appraisal of the Property was ordered from Novogradac Consulting, LLP, received and dated March 25, 2021. The report places the current appraised value of the Property at $4,500,000. F. The Developer has submitted a funding request to the Authority to make a loan to the Developer in the amount of $6,030,000 (the "Loan") to assist the Developer in the purchase of the Property from the Successor Agency and the development of the Project. The Project is intended to be funded by leveraging multiple funding sources RESOLUTION NO. HA-104 including four percent tax exempt bonds, federal tax credits, state tax credits, and the Loan. G. The Authority, as the housing successor to the Former Agency, wishes to approve the Conditional Agreement Regarding Vitalia between the Authority and the Developer attached hereto as Exhibit "B" and incorporated herein by reference (the "Agreement") which provides for the Authority to make the Loan to the Developer subject to the terms and conditions therein. H. At its meeting on August 26, 2021 the Board of the Successor Agency will consider approval of a purchase and sale agreement (the "PSA") for the sale of the Property to the Developer for a purchase price equal to its appraised value, subject to approval of the PSA by the Countywide Oversight Board of the County of Riverside and, if necessary, the approval or deemed approval by the State Department of Finance. NOW, THEREFORE, THE PALM DESERT HOUSING AUTHORITY DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: Section 1. The above recitals, and each of them, are true and correct and are a substantive part of this Resolution. Section 2. The Agreement, in the form attached hereto as Exhibit "B", is hereby approved. The Executive Director of the Authority is hereby authorized to execute and deliver, for and in the name of the Authority, the Agreement in substantially such form, with such changes thereto as the Executive Director, in consultation with the Authority legal counsel, may deem appropriate or necessary and consistent with the purposes of this Resolution (such approval to be conclusively evidenced by the execution and delivery thereof). Section 3. The Developer is hereby authorized to submit, an application, including the Agreement, to the California Tax Credit Allocation Committee ("TCAC") for an allocation of tax-exempt bonds, federal tax credits and state tax credits as described in the conditional agreement. Section 4. The Director of Finance is hereby authorized to appropriate $6,030,000 from Unobligated Housing Asset Fund Balance to the appropriate budget line item. Section 5. The Authority will not be bound by the Agreement or otherwise with respect to assisting the Project unless the Tax Credit Allocation shall have been awarded to the Project, all other conditions described in the 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 Board, and the Board authorizes their execution and delivery, as appropriate. Section 6. The members of this Board and the staff of the Authority are hereby authorized, jointly and severally, to do all things which they may deem necessary or 2 P6401-0001\2546752v2.doc RESOLUTION NO. HA-104 proper to effectuate the purposes of this Resolution, including negotiating and preparing agreements and documents, and any such actions previously taken are hereby ratified and confirmed. APPROVED and ADOPTED this 26th day of August, 2021. ATTEST: NORMA I. ALLEY, SECRETARY KATHLEEN KELLY, CHAIRMAN 3 P6401-0001 \2546752v2. doc EXHIBIT "A" The Land referred to herein below is situated in the City of Palm Desert, County of Riverside, State of California, and is described as follows: LEGAL DESCRIPTION A PORTION OF PARCEL 1 OF THAT CERTAIN CERTIFICATE OF COMPLIANCE NO. 88-1, RECORDED JUNE 1, 1988 AS INSTRUMENT NO. 146461 OF OFFICIAL RECORDS. IN THE CITY OF PALM DESERT, COUNTY OF RIVERSIDE, STATE OF CALIFORNIA, LOCATED IN THE NORTHWEST QUARTER OF THE NORTHEAST QUARTER OF SECTION 32, TOWNSHIP 4 NORTH, RANGE 6 EAST, SAN BERNARDINO MERIDIAN, MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWEST CORNER OF SAID PARCEL 1; THENCE NORTH 89°55'15' EAST, ALONG THE NORTHERLY LINE OF SAID PARCEL 1, SAID LINE ALSO BEING THE SOUTHERLY RIGHT-OF-WAY LINE OF GERALD FORD DRIVE, A DISTANCE OF 514.35 FEET; THENCE SOUTH 47°23'23" EAST, A DISTANCE OF 34.01 FEET; THENCE SOUTH 00°03'36" WEST, A DISTANCE OF 942.64 FEET; THENCE NORTH 89°56'24" WEST, A DISTANCE OF 539.40 FEET; THENCE NORTH 00°03'36" EAST, ALONG THE WESTERLY LINE OF SAID PARCEL 1 AND THE SOUTHERLY EXTENSION THEREOF, A DISTANCE OF 964.39 FEET, TO THE POINT OF BEGINNING; SUBJECT TO EXISTING EASEMENTS, COVENANTS, RIGHTS AND RIGHTS -OF - WAY OF RECORD. CONTAINING 520,257 SQUARE FEET OR 11.943 ACRES MORE OR LESS. AS DEPICTED ON EXHIBIT "B" ATTACHED HERETO AND MADE A PART HEREOF. THIS LEGAL DESCRIPTION DOES NOT DESCRIBE A LEGAL PARCEL OF LAND. IT IS NOT TO BE USED FOR CONVEYANCE OR FINANCING OR ANY OTHER PURPOSE THAT WOULD BE A VIOLATION OF THE CALIFORNIA SUBDIVISION MAP ACT. 1 OF 1 RESOLUTION NO. HA-104 0' EXHIBIT 'B' P.O.B. NW CDR PARCEL 1 CERTIFICATE OF COMPL4ANCE NO. 88-1 INST NO. 1988-148461 200 400' SCALE 1"-200' N DO-03'36" E 964.39' Np' pF Gp c3a8 8$ G GC�Z� �• gyp. 1 '1IN9 `NS G RE GERALD FORD DRIVE N 89'55' 15' E 514.35' 5 4723'23" E-/ 34.01' S 0703'36" W 942.64' REMBRANDT PARKWAY N 89'5624- W 539.40' MSA CONSULTING, INC. ti > PLANNING > CIVIL ENGINEERING > LAND SURVEYING 34200 BOB HOPE DRIVE, RANCHO MIRAGE. CA 92270 760320.9811 MSACONSULTINGINC.COM J.N. 2619 PORTOLA AVENUE SHEET 1 OF 1 P6401-0001\2546752v2.doc 5 RESOLUTION NO. HA-104 EXHIBIT "B" CONDITIONAL AGREEMENT August 26, 2021 Caleb Roope Pacific West Communities, Inc. 430 East State Street, Suite 100 Eagle, ID 83616 Re: Conditional Agreement Reaardina Vitalia Dear Mr. Roope: The Palm Desert Housing Authority (the "Housing Authority"), has approved a request from your firm, Pacific West Communities, Inc. ("Pacific West"), to finance a loan for the purchase of a +/-11.94-acre portion of APN 694-310-006 (the "Property"), located on the south side along Gerald Ford Drive at the intersection of Rembrandt Parkway directly east of the Riverside County Sheriff Station for the fair market price (as established by a third party appraiser), in the total amount of Six Million Thirty Thousand Dollars ($6,030,000.00) (the "Housing Authority Loan") for the development of a 269-unit multi- family apartment community located on that certain real property located in the City of Palm Desert, California (the "City") and known as Vitalia Apartments (the "Project"). As of August 26, 2021, the Authority has conditionally approved of the proposed Loan commitment of the Housing Authority Loan to Six Million Thirty Thousand Dollars ($6,030,000), 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 Project and issuance of a certificate of occupancy to provide affordable housing to persons and households of low and very -low income in accordance with the affordability restrictions contained in the Loan Agreement (as defined below) and in accordance with the Tax Exempt Bonds and Low -Income Housing 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 not subordinate its interests in the regulatory agreement referenced in Section 3 below, and the City will not subordinate its interest in any regulatory agreement that is required to be recorded against the Property by virtue of a density bonus granted pursuant to Ordinance No. of the City, to the liens or encumbrances of the Project's construction and permanent lenders. 6 P6401-0001\2546752v2.doc RESOLUTION NO. HA-104 2. Project Owner. The Project owner shall be a California limited partnership whose administrative general partner is controlled by Pacific West Communities, Ins., an Idaho corporation, or its affiliates. 3. Housing Authority Loan Documents. The proposed structuring of the Housing Authority Loan will be evidenced by, among other things, a loan and development agreement (the "Loan Agreement"), and a promissory note, deed of trust and regulatory agreement, (collectively, the "Loan Documents"), each in form and substance acceptable to the Housing Authority and its counsel, and executed by the Project Owner and the Housing Authority as applicable. 4. 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 Loan Agreement and shall bear simple interest at three percent (3%) per annum. The Housing Authority Loan shall be repaid from fifty -percent (50%) the Project's residual receipts remaining after payment of fees (including deferred developer fees, investor fees, partnership fees, and management fees), debt service and operating expenses. 5. Affordability Restrictions. (i) A total of 81 Units are to be restricted by Health and Safety Code Sections 50106 and 50053 as Extremely -Low Income units: a. 39 one -bedroom units b. 21 two -bedroom units c. 21 three -bedroom units (ii) A total of 186 Units are to be restricted by Health and Safety Code Sections 50079.5 and 50053 (assuming rent is calculated at 80% of the Riverside County Area Median Income instead of 50% AMI) as Low Income Units: a. 92 one -bedroom units b. 46 two -bedroom units c. 47 three -bedroom units (iii) Three 2-bedroom units will be unrestricted and used as onsite manager units. 6. Construction and Permanent Lender Loan Documents. The loan documentation pertaining to the proposed construction and permanent loans to finance the Project, and all related 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. 7 P6401-0001\2546752v2.doc RESOLUTION NO. HA-104 7. Award of Tax -Exempt Bonds from CDLAC . Prior to Loan closing and funding, the Project shall have all of their funding sources committed. This includes but is not limited to have been awarded the allocation of tax- exempt bonds pursuant to an application therefor by Pacific West Communities, Inc. to the California Debt Limit Allocation Committee (CDLAC), California Tax Credit Allocation Committee for State Tax Credits and any other funding source. 8. No Third Party Beneficiaries. This letter is solely for the benefit of the Housing Authority and Pacific West Communities, Inc., and shall not inure to the benefit of, or be relied upon by, any other person or entity other than the Project Owner. 9. 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 PACIFIC WEST COMMUNITIES, INC.: By: Caleb Roope, President Date: , 2021 8 P6401-0001\2546752v2.doc KE&2EIf WVIf21O14 V22OCIV1E2" KEX2EIf WVIf21O1/1 V22OCIV1E2" KEA2EK V ADVISORS IN: Real Estate Affordable Housing Economic Development BERKELEY A. Jerry Keyser Timothy C. Kelly Debbie M. Kern David Doezema Kevin Feeney LOS ANGELES Kathleen H. Head James A. Rabe Gregory D. Soo-Hoo Kevin E. Engstrom Julie L. Romey Tim R. Bretz SAN DIEGO Paul C. Marra To: From: Date: Subject: L2? L2 KEA2EIf WVIf21O14 V22OCIV1E2" KEX EIf WVIf21OV1 V22OCIVJE2" KEA2EIf rrr x 7 CK IMHV7 T CITA F/77nr'WHT I V1 x7C1C TW\f Tf L1 MJ7n/"R/I 1 VGx7C[r IA MEMORANDUM Jessica Gonzales, Senior Management Analyst Palm Desert Housing Authority Julie Romey August 12, 2021 Vitalia Apartments — Financial Gap Analysis (Revised) At the request of the Housing Authority (Authority) in the City of Palm Desert (City), Keyser Marston Associates, Inc. (KMA) updated the June 14, 2021 financial gap analysis to reflect the revised The Pacific West Communities (Developer) proposal to develop a 269 unit affordable apartment project (Project) on the 11.94-acre site located on the south side of Gerald Ford Drive at the intersection of Rembrandt Parkway directly east of the Riverside County Sheriff Station (Site). The Site is owned by the Successor Agency to the Palm Desert Redevelopment Agency (SARDA). The Developer proposes to purchase the Site from SARDA at the fair market value and construct the Project with financial assistance from the Authority, acting as the Housing Successor (collectively referred to as "Authority"). EXECUTIVE SUMMARY In late 2020, the Developer's proposal was received by the Authority detailing a financial assistance request to secure the Site and assist with the construction of the Project. In June 2021, KMA concluded that the Developer's request for $6,030,000 or $22,400 per unit was warranted. Since June 2021, the Developer's proposal has been updated to increase the number of onsite manager units from two to three, include additional amenities required by the community, reflect a decrease in the utility allowance published by Riverside County and an increase in typical Tax Credit equity rates. However, the financial request continues to be $6,030,000, or $22,400 per unit, from the Authority's Low and Moderate Income Housing Asset Fund (LMIHAF) in exchange for 500 SOUTH GRAND AVENUE, SUITE 1480 LOS ANGELES, CALIFORNIA 90071 ' PHONE 213.622.8095 W W W.KEYSERMARSTON.COM 2108009:PD;JLR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 2 81 units to be restricted to extremely -low income (ELI) households and 185 units to be restricted to low income (LI ) households. Three unit will be unrestricted and set -aside for three onsite managers. It should also be noted that the anticipated non -Authority funding sources have not changed, and are as follows: Funding Source Allocation Entity Status Tax -Exempt Bonds (TEB) California Debt Allocation Committee (CDLAC) Competitive Process (Approximately Four Awards/Year) Federal Low Income Housing Tax Credits (Federal Tax Credits) Tax Credit Allocation Committee (TCAC) Automatically awarded with the TEBs State Tax Credits TCAC Competitive Process (Two Awards/Year Varies) KMA performed a revised financial gap analysis and concluded the following: 1. KMA concluded that the development costs estimated at $76,303,000, or $283,700 per unit, by the Developer are reasonable given the Project scope of work and current market conditions. Assuming the above mentioned funding sources are provided to the Project, KMA concludes that the Project continues to have a $6,030,000 financial gap, which is equal to the Developer's request for financial assistance from the Authority and equates to $22,400 per unit. 2. The financial assistance will be provided as a $6,030,000 residual receipts loan that will be subordinated to the construction and permanent lenders and will have a 55 year term and a 3% simple interest rate. The annual payments will be made from 50% of the residual receipts and the loan will be due and payable at the end of the loan term. 3. The proposed financial assistance request meets the LMIHAF income targeting requirements and the Authority, which acts as the Housing Successor, will remain in compliance with State law. 4. The affordability restrictions that will be placed on the Project by the Authority in exchange for the financial assistance are in accordance with California Health and Safety Code (H&SC) Section 50053: a. Thirty-nine (39) one -bedroom, 21 two -bedroom, and 21 three -bedroom units will be restricted ELI households at ELI rents; and 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 3 b. Ninety-two (92) one -bedroom, 46 two -bedroom and 47 three -bedroom units will be restricted to LI households at Low rents set at 80% of the Riverside County area median income (AMI). c. The affordability restrictions will remain in place for 55 years from Certificate of Occupancy (COO). d. The regulatory agreement will not be subordinated to the construction and permanent lenders. BACKGROUND STATEMENT The Site was purchased by the former Palm Desert Redevelopment Agency prior to 2012, when the redevelopment agency was dissolved. At that time, the property was transferred to the newly created SARDA, which is tasked with selling the Site at the fair market value. In addition to transferring the Site to the Successor Agency, the former redevelopment agency transferred the affordable housing assets and responsibilities to the Authority. The funds that are transferred to and earned by the Authority are deposited into the LMIHAF. The State of California (State) has applied various restrictions on the use of the LMIHAF money that had to be taken into account when structuring the proposed transaction. Due to requests from the surrounding community, the Developer has agreed to increase the level of amenities and add a block wall to surround the Project. As such, the total development costs have increased by approximately $1,034,000, or 1.4% since the June 2021 analysis. In addition, the size of the Project requires three rather than two onsite manager units, which will not generate income for the Project. These cost increases and decreases in projected income have been offset by an increase in Tax -Exempt Bonds and Tax Credit proceeds due to the decrease in the Riverside County utility allowances for 2021 that were released in July. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 4 The KMA financial analysis is supported by a pro forma analysis, which is organized as follows at the end of this memorandum: Table 1 Table 2 Table 3 Table 4 Table 5 PROJECT DESCRIPTION Estimated Development Costs Stabilized Net Operating Income Financial Gap Analysis LMIHAF Income Targeting Analysis Cash Flow Analysis The proposed scope of development can be described as follows: 1. The Site is comprised of 520,106 square feet of land area and was a portion of a larger parcel consisting of 24.7 acres. The present zoning for the Site is Planned Residential (P.R.) with a designated zoning allowance for 20 units per acre, or 238 units. The Developer is in the process of receiving approval for entitlements that include 35% density bonus through the City's Density Bonus Ordinance. It should be noted that the Project, with 269 units, only needs a 13% density bonus. 2. The Site is vacant and no environmental remediation is expected to be required. 3. The Project will include 269 rental housing units, which equates to a density of 23 units per acre, in 14 two and three story buildings with the following unit mix: Number of Units Unit Sizes (Sf) 1-Bedroom Units 2-Bedroom Units 3-Bedroom Units Total Units/Average Unit Sizes 131 70 68 269 577 755 1,034 739 4. The gross building area (GBA) for the Type V buildings is 202,841 square feet, which equates to a FAR of 0.39, and includes the following: Gross Building Area (Sf) Residential Living Area 198,749 Community Room / Leasing Offices 4,092 Total Square Footage 202,841 2108009: P D;J LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 5 5. A total of 420 surface parking spaces will be provided, which equates to a 1.56 spaces per unit parking ratio. 6. The Project amenities will be located in a centralized recreation area and include: Leasing Office Fitness Center Dog run / park Swimming Pool Child Care Room (Provider not confirmed) Gated Controlled Access to Property Community Room Covered Community Patio Outdoor Children's Playground BBQ Area Laundry Facilities in Residential Buildings 7. The targeted population will be extremely -low, very -low and low income families as well as seniors given the Palm Desert market and number of one -bedroom units included in the Project. Three 2-bedroom units will be set -aside for three onsite managers. a. The proposed affordability restrictions for the LMIHAF income targeting purposes are as follows: LMIHAF Income Targeting Units <=30% AM I >30% & <60% AMI 60% to 80% AMI Total City Restricted Units 81 0 185 266 b. The proposed affordability restrictions that the City can receive Regional Housing Needs Assessment (RHNA) credit for are as follows: RHNA Credit Extremely -Low Income Units Very -Low Income Units Low Income Units Moderate Income Units Unrestricted Units Total RHNA Credit 81 0 185 0 3 269 8. The Project will be managed by a professional third -party firm, most likely ConAm Management Corporation. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 6 9. Onsite services are proposed to be provided by Central Valley Coalition, a third party service provider, for a period of 10 years. The tenant services will include adult education classes such computer training, home buyer education, GED, resume building, ESL, nutrition, exercise, health information/awareness, art, parenting, on -site food cultivation and preparation, and smoking cessation classes. Individualized health and wellness services such as crisis intervention, practical counseling and emotional support, cleanliness and hygiene assessment, government and insurance entitlements, and physical and mental assessment will be provided as well. 10. The following summarizes the revised projected timeline for the Project. Development from entitlements approval to Permanent Loan Conversion is anticipated to take approximately 30 months. July 8, 2021 August 26, 2021 September 7, 2021 September 9, 2021 December 2021 June 2022 December 2023 January 2024 February 2024 Planning Commission Approved the City Land Use Entitlements City Land Use Entitlements Secured Commitment Letter Approved by Authority Purchase and Sale Agreement Approved by Successor Agency Purchase and Sale Agreement Approved by Oversight Board' CDLAC Application State Tax Credits Application CDLAC Award Approval State Tax Credits Award Approval Authority Loan Documents Executed Financing / Land Closing Construction Commences Construction Completed Certification of Occupancy Placed in Service FINANCIAL ANALYSIS KMA reviewed the Developer's updated pro forma submitted on August 4, 2021 to assist in evaluating the proposed Project. 1 The State of California's Department of Finance (DOF) has 60 days from the Oversight Board approval to object to the proposed transaction. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) Estimated Development Costs (Table 1) August 12, 2021 Page 7 KMA reviewed the Developer's development cost estimates and found the estimates to be reasonable and are described as follows: Land Acquisition Costs The Site was purchased by the former Palm Desert Redevelopment Agency and transferred to SARDA in 2012 with the caveat that the property must be sold at the fair market value. Based on an appraisal prepared by Novogradac Consulting LLP (Appraiser) and dated December 4, 2020, the fair market value of the property is $4,500,000, or $9 per square foot of land area and $16,700 per unit. The proposed purchase and sale agreement (PSA) between SARDA and the Developer sets the purchase price for the Site at $4,500,000. Direct Costs The direct cost estimates assume that the Project will not be subject to State or Federal Davis Bacon prevailing wage requirements. In addition, the construction costs include the solar requirements per the recent change in State building codes. 1. The Project is required to provide offsite improvements on Rembrandt Road, which is estimated to cost $640,000. This assumption should be verified by City Staff. 2. The Site improvements, including the parking lot and onsite drainage improvements, as well as the inclusion of a block wall surrounding the Project, are estimated at $3,640,000, or $7 per square foot of land area. 3. The proposed swimming pool is estimated to cost $360,000, which takes into account the doubling in size of the pool. 4. The building shell costs are estimated at $190 per square foot of residential living area or $140,000 per unit. The community room and fitness center are estimated to cost $269 per square foot. The total shell costs equate to $38,7668,000. 5. Furnishings, fixtures and equipment (FF&E) for the Project are estimated at $50,000 for the common areas. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 8 6. The Developer estimated the contractor fees and general requirements allowance at approximately 14% of the construction costs, which is the maximum allowed by TCAC. It should be noted that the general contractor is likely to be Pacific West Buildings, which is a related -party of the Developer. Thus, it is recommended that the City require the Developer to obtain three additional quotes from third party general contractors to ensure the chosen general contractor has competitive price. 7. The construction insurance is estimated at 1% of the construction costs. 8. The direct cost contingency allowance is estimated at 6% of other direct costs. This estimate is over the typical 5% allowance for new construction. However, given the estimated time until the general contractor agreement can be entered into and the current high increase in material prices, KMA has determined that this assumption is appropriate. The total direct costs are estimated at $53,013,000, which equates to $197,100 per unit or $261 per square foot of GBA. This cost estimate is $703,000 higher than the estimate in June 2021, which is an approximately 1% increase. Indirect Costs The following summarizes the Developer's indirect cost assumptions: 1. Architecture, engineering and consulting costs are estimated at 2% of direct costs, which totals $1,040,000. This estimate is at the low end of the typical range. 2. The Developer estimated the permits and fees at $10,900 per unit, or $2,941,000. This estimate should be verified by City Staff. 3. The taxes, insurance, legal and accounting costs are estimated at 2% of direct costs, which equates to $800,000. This estimate is considered appropriate for a project of this size. 4. The Developer estimated an allowance of $183,000 for marketing and leasing costs, which is a $38,000 increase from the estimate in June due to additional research by the Developer regarding marketing and leasing larger affordable housing projects. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 9 5. The Developer Fee is estimated at $9,184,000, which is the maximum fee allowed by TCAC for a new construction, TEB project. The Developer Fee is based on approximately 15% of the eligible basis less the Developer Fee. It should be noted that TCAC also requires that any amount over $2,500,000 plus $20,000 times the number of units over 100, to be deferred or contributed as equity. Therefore, the Developer will receive up to $5,880,000 in cash during the development period and the remaining $3,304,000 will be paid to the Developer by Project cash flow. It should be noted that the $130,000 increase in Developer Fee is offset by a $130,000 increase in the deferred Developer Fee. 6. The contingency allowance is estimated at $500,000, which is 4% of the other indirect costs. The total indirect costs are estimated at $14,648,000, which is a $168,000 increase in costs since June 2021. Financing Costs The following summarizes the Developer's financing cost assumptions: 1. Interest during construction is estimated to total $2,490,000, as follows: a. Series A of the bonds will be tax-exempt and is estimated to total $40,000,000. The rate is estimated at 4.00% with a 20 month development period and a 69% average outstanding balance. b. Series B of the bonds will be taxable and estimated to total $16,000,000, which is a $1,000,000 increase from the June 2021 proposal. This series will be taken out earlier than Series A by equity and therefore has a 20 month term, a 4.00% rate and an estimated 60% average outstanding balance. 2. The financing fees are estimated at $1,063,000 based on the following: a. Construction Loan fees are set at 0.96 points; b. Permanent loan fees are set at 0.76 points; c. Issuance costs are estimated at 0.41 points; and d. The TCAC fees are estimated based on the following: 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 10 A $2,000 application fee; ii. A 1% of one year of gross tax credits; and iii. A $410 per unit monitoring fee. 3. The capitalized operating reserves are estimated at $589,000, which is three months of operating expenses and debt services payments. The total financing costs are estimated at $4,142,000, which is a $164,000 increase in costs since June 2021. Total Development Costs The total development costs are estimated at $76,303,000, or $283,600 per unit. The $1,035,000 increase in costs since June 2021 are directly tied to the increase in Project amenities and onsite improvements. Stabilized Net Operating Income (Table 2) The Project's proposed funding sources include TEBs, Federal and State Tax credits and LMIHAF funds from the Authority. Each of the funding sources have income and rent requirements as well as the Project's use of the Density Bonus Ordinance. Income limits are published for households that are qualified to reside in the units that have received assistance from these sources. The rent standards for the TCAC and CDLAC funds are based on rents published annually by TCAC. The rent standards for the Authority's LMIHAF funds and the Density Bonus Ordinance are provided in H&SC Section 50053. The Developer will be required to adhere to the strictest of the standards imposed by the funding sources for a period of 55 years. The following summarizes the affordability restrictions as proposed:2 Proposed Affordability Mix 1- 2- 3- Bedroom Bedroom Bedroom Total Units Units Units Units 30% AMI TCAC / ELI H&SC 30% AMI TCAC / ELI H&SC City / VLI H&SC DB 59% AMI TCAC / 80% Low H&SC 80% AMI TCAC / 80% Low H&SC Total Affordable Units 20 19 65 27 131 15 6 34 12 67 16 5 34 13 68 2 Three 3-bedroom units will be set -aside as onsite manager's units and will be unrestricted units. 51 30 133 52 266 2108009: P D;J LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 11 Achievable Rental Income The Project rents must adhere to the most restrictive of the requirements imposed by the funding sources and regulatory agreements. The rents used in this analysis are based on the 2021 rents published by TCAC and income information published by HCD. The maximum allowable rents, which are net of the 2021 utility allowances, are estimated as follows:3 2021 Rent Restrictions 1-Bdrm Units 2-Bdrm Units 3-Bdrm Units 30% TCAC / ELI H&SC City TCAC Rent City Rent Applicable Rent $373 $365 $365 $446 $436 $436 $512 $501 $501 30% TCAC / ELI H&SC City / VLI H&SC DB TCAC Rent $373 $446 $512 City Rent $365 $436 $501 Density Bonus Rent $817 $979 $1,129 Applicable Rent $365 $436 $501 59% TCAC / Low 80% H&SC City TCAC Rent $801 City Rent $1,092 Applicable Rent $801 $959 $1,105 $1,308 $1,508 $959 $1,105 80% TCAC / Low 80% H&SC City TCAC Rent $1,114 $1,335 $1,540 City Rent $1,092 $1,308 $1,508 Applicable Rent $1,092 $1,308 $1,508 Since the market study that will be submitted to TCAC has not yet been completed, KMA researched the median market rents for Palm Desert as of August 2021. According to ***.zumper.com. the market rents are higher than the highest rents proposed for the Project, as follows: 80% Market % Below Rents Rents Market 1-Bedroom Units 2-Bedroom Units 3-Bedroom Units $1,092 $1,308 $1,508 $2,300 $3,500 $5,000 52% 63% 70% The rents are net of the current Riverside County Housing Authority monthly utility allowances as follows: $71/1-bdrm units, $87/2-bdrm units, and $104/3-bdrm units (published July 1, 2021). 2108009: P D;J LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 12 As such, it is concluded that the proposed restricted rents are significantly below the current market apartment rents. The maximum rental income that can be generated by the restricted units is $2,691,594, including $13 per unit per month for laundry and miscellaneous income. It should be noted that even though the project lost one income generating unit since June 2021, the decrease in utility allowances have caused the Project to have $14,016 increase in potential gross rental income. Estimated Net Operating Income (NOI) The Project's effective gross income (EGI) is $2,557,014 based on the following assumptions: 1. The gross potential income is $2,691,594; and 2. A vacancy and collection allowance equal to 5% of gross potential income, equating to $134,580 is deducted. The Developer and KMA estimate the residential operating expenses at $1,331,550 based on the following assumptions: 1. General operating expenses are estimated at $4,517 per unit, which is reasonable for a project of this size. The TCAC minimum for operating expenses is $4,700 per family unit, which is approximately 4% higher than the proposed general operating expenses. The proposed Project is significantly larger than the typical Tax Credit project and thus has efficiencies built into the budget. TCAC allows for projects such as this to request a waiver. 2. Property taxes are estimated at $17,200 per year based on the assumption that the Project will be exempt from property taxes. 3. A budget of $24,000 per year is available for onsite tenant services. 4. An annual bond fee of $8,000 is included. 5. The replacement reserves are estimated at $250 per unit per year, which is the minimum requirement for TCAC. Therefore, the NOI is estimated to total $1,225,464, which is a $13,315 increase in the NOI since June 2021. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) Potential Funding Sources (Table 3) August 12, 2021 Page 13 The Developer plans to apply for the competitive TEBs and State Tax Credits in the September CDLAC round. The following summarizes the potential funding sources based on the current status of various funding sources: Tax -Exempt Bonds / Permanent Loan The Developer anticipates structuring the bonds as a private placement transaction with the lender and bond purchaser being Citibank. California Municipal Finance Authority (CMFA) will issue the bonds estimated at $40,000,000 in tax-exempt bonds and $16,000,000 in taxable bonds. Based on a $1,225,464 NOI, the Project is estimated to support a $19,000,000 permanent loan. The assumptions used to estimate the loan are a 1.20 debt coverage ratio, a 4.50% interest rate and a 40 year amortization term. The annual debt service payment is estimated at $1,025,004. Therefore, the $56,000,000 in tax-exempt and taxable bonds will be reduced by $37,000,000 at permanent loan conversion, if not before, as the equity investor provides their contributions to the Project. Historically, the State of California's affordable housing TEBs allocation has been undersubscribed and therefore, as long as the Project meets various State and IRS requirements, TEB were allocated to projects in a timely fashion. Recently, due to the influx of permanent supportive housing projects requesting bond allocations, the State's bond allocation has been oversubscribed. Thus, obtaining a TEB allocation is now a competitive process. The Project is eligible to receive full points (120) on the CDLAC application and estimates the tie -breaker score to be $176,434. In comparison, the three Projects expected to be awarded TEB allocations in the first 2021 CDLAC round has the following scores: Application Tie -Breaker City Project Type Score Score Arroyo Crossing Indio Large Family 120 $147,347 Oasis Senior Villas Riverside Special Needs 119 $185,328 Brentwood Crossings Bakersfield Large Family 119 $224,771 2108009: P D;J LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 14 Federal Tax Credit Equity Once the Project receives a TEB allocation from CDLAC, the 4% Federal Tax Credits are automatically awarded to the Project. The following summarizes the anticipated Tax Credit equity to be generated by the Project: Eligible Basis $70,408,277 QCT/DDA Adjustment 130% Applicable Fraction 100% Federal Tax Credit Rate 4% Annual Federal Tax Credits $3,661,230 Total Federal Tax Credits (10 Years) $36,612,304 % of Gross Tax Credit Taken 99.99% Syndication Value $0.84 Net Federal Tax Credit Equity (Rounded) $30,749,000 While the Developer's equity rate assumption at $0.84 per Federal Tax Credit is at the lower end of the range typically projected recently, it does take into account that the investor will also purchase the State Tax Credits, which are less desirable. State Tax Credit Equity The State of California offers an allocation of State Tax Credits of approximately $500,000,000 a year in two rounds to new construction projects financed with TEBs. There is approximately $218,000,000 available for allocation in the 2021 second round. The following summarizes the anticipated State Tax Credit equity to be generated by the Project. Qualified Basis $91,530,760 State Tax Credit Factor 30% Maximum State Tax Credits $27,459,228 % of State Tax Credits Requested 76% Total State Tax Credits Requested $21,000,000 % of Gross Tax Credit Taken 99.99% Syndication Value $0.82 Net State Tax Credit Equity (Rounded) $17,220,000 The Developer's equity rate assumption of $0.82 per State Tax Credit is considered reasonable for State Tax Credits. The allocation of the State Tax Credits also uses the CDLAC application and tie -breaker scores. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 15 Deferred Developer Fee TCAC requires that any developer fee over $2,500,000 plus $20,000 per unit over 100 units, be either deferred or contributed as equity to the Project, which equates to $3,304,000. As such, the Developer proposes to defer $3,304,000, or 36% of total allowable Developer Fee. The deferred fee is required to be paid to the Developer from Project cash flow within a 15 year period. Total Available Outside Funding Sources Therefore, a total of $70,273,000 has been identified in available outside funding sources, or $261,200 per unit, as shown below. Total Available Outside Funding Sources Permanent Loan Federal Tax Credit Equity State Tax Credit Equity Deferred Developer Fee Total Available Outside Funding Sources Per Unit $19,000,000 30,749,000 17,220,000 3,304,000 $70,273,000 $261,200 It should be noted that there are several other funding sources that the Developer can pursue. However, they will require going through additional competitive processes that could lengthen the timeline for the Project. However, if the Project does not receive a CDLAC allocation in the last round of 2021, that alternative funding sources be investigated. Financial Gap Calculation (Table 3) When the estimated development costs are compared to the available outstanding funding sources, KMA concludes that the proposed Project needs $6,030,000 in financial assistance to be feasible. This means that essentially, the Project needs free land plus $1,530,000 in additional financial assistance. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) The following provides the financial gap calculation: August 12, 2021 Page 16 Financial Gap 'on Total Development Costs $76,303,000 (Less) Available Outside Funding Sources (70,273,000) Financial Gap $6,030,0000 Per Unit $22,400 LMIHAF INCOME TARGETING ANALYSIS (TABLE 4) Section 34176.1 of the California Health and Safety Code has restricted how the LMIHAF monies are to be allocated to extremely -low and low income households over a five year period. Section 34176.1(a)(3)(B) requires that the Authority allocate at least 30% of the LMIHAF expended for development of rental housing affordable to and occupied by households earning 30% or less of AMI (Extremely -Low Income) and Section 34176.1(a)(3)(C) requires that no more than 20% of the LMIHAF expended for development of rental housing affordable to and occupied by households earning between 60% and 80% of AMI (Low Income). These income tests are applied over five year periods with the second period being Fiscal Year 2020/21 to 2024/25. Since the Authority was in compliance with these provision in the first income test period through 2019/20, the second testing period does not have any additional requirements. It should be noted that the requirements do not need to be met on a project -by -project basis. Penalties will be applied if the Authority fails to comply with the ELI minimum 30% requirement in any five-year period. If this occurs, the remaining LMIHAF will need to be spent on households earning 30% AMI or less until the Authority demonstrates compliance with the ELI requirement. Penalties will also be applied if the Authority exceeds the 20% cap on LI expenditures during any five year period. Specifically, if the Authority fails to meet this requirement during the five year period, in each following fiscal years the Authority will be prohibited from spending any LMIHAF funds on LI units until the Authority demonstrates compliance with the Low Income requirement. According to the City's staff, the Authority is in compliance with both the ELI and LI tests for the previous five year period. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) Extremely -Low Income Test August 12, 2021 Page 17 The total $6,030,000 of the LMIHAF assistance can be allocated to the 81 ELI units, as illustrated in Table 4. As shown in the following table, prior to this Project, the Authority has not spent any LMIHAF money on development projects in Fiscal Year 2020/21. While the Authority is reviewing other development projects at this time, no future LMIHAF money has been committed to a specific project. FY 2020/21- FY 2024/25 Income Test Period Extremely -Low Total LMIHAF Income Development Expenditures Expenditures FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 Total Expenditures to Date As a % of Total Expenditures Minimum Requirement $6,030,000 0 0 0 0 $6,030,000 100% 30% $6,030,000 0 0 0 0 $6,030,000 100% N/A Therefore, if the Authority agrees to commit $6,030,000 to the Project, as proposed, the Authority will have exceeded the minimum ELI targeting test. Low Income Test None of the proposed $6,030,000 LMIHAF assistance will be attributed to LI units. Therefore, the following summarizes the current status of the LI test: FY 2020/21- FY 2024/25 Income Test Period Total LMIHAF Low Income Development Expenditures Expenditures FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 Total Expenditures to Date As a % of Total Expenditures Maximum Requirement $0 0 0 0 0 $0 0% 20% $6,030,000 0 0 0 0 $6,030,000 100% N/A Therefore, if the Authority agrees to commit $6,030,000 to the Project, as proposed, the Authority will not have exceeded the maximum LI targeting test. 2108009: P D;J LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) LMIHAF Income Targeting Conclusions August 12, 2021 Page 18 With the entire amount of the LMIAHF assistance, $6,030,000, being attributed to 81 ELI units, the Authority is anticipated to remain in compliance of the LMIHAF Income Targeting requirements when the proposed assistance is allocated to the Project. SUMMARY OF PROPOSED DEAL TERMS The following summarizes the proposed deal terms: 1. The Successor Agency and Oversight Board agrees to sell the Site to the Developer for the fair market value, which is set at $4,500,000. 2. The Housing Authority will provide the Project with a $6,030,000 loan from LMIHAF proceeds, with the following loan terms: a. A 3.00% simple interest rate; b. A term of 57 years (two years for the construction period and 55 years from the date of recordation of the COO for the Project). c. An annual payment of 50% of residual receipts with the payments beginning after the $3,304,000 deferred developer fee is repaid. d. The loan will be due and payable at the end of the term. e. The loan will be secured with a second trust deed, subordinated only to the construction and permanent loans and bonds. 3. The affordability restrictions associated with the Authority's contribution of LMIHAF proceeds will be as follows: a. Eighty-one (81) ELI units restricted by H&SC Sections 50053 and 50106; and b. One hundred eighty-five (185) LI units restricted by H&SC Sections 50053 and 50079.5, with the rent restrictions restricted to 80% of AMI instead of 60% of AMI. c. The affordability restrictions are to be placed on the units for no less than 55 years from COO. 2108009: P D;J LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 19 d. While the Authority's Deed of Trust will be subordinated to the construction and permanent lender and bonds, the Authority will not allow the regulatory agreement to be subordinated to the construction and permanent loans. This will insure that the Authority's affordability restrictions remain in place even if there is a foreclosure event. 4. The Project will have until December 2022 to close escrow on the land and the Authority Loan, which are conditioned by the Project receiving commitments from all of the proposed outside funding sources. KMA also recommends the following additional deal terms be included in the Affordable Housing Agreement that will be drafted at a later date: 1. The following should be included in the allowable residual receipts and operating expenses definitions: A minimum annual replacement reserve deposit of $250 per unit. ii. A maximum property management fee of approximately $25 per unit per month, or 3.20% of EGI. iii. The minimum tenant services budget should be set at $24,000 per year, increasing with CPI. iv. The total limited partner and general partner asset management fees should be limited to $30,000 per year, increasing with CPI. In contrast, the Developer's pro forma indicates these fees will total $34,400 per year without escalations. 2. The Developer should be required to receive at least three (3) third party bids for the general contractor contract, even if the Developer plans to use a related - party general contractor. 3. The deferred Developer Fee should be set at a minimum of $3,304,000. CASH FLOW ANALYSIS (TABLE 5) KMA also conducted a cash flow analysis to estimate the present value of the debt service payments to the Authority. The following describes the basic cash flow assumptions: 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) August 12, 2021 Page 20 1. Year 1 is based on the pro forma rent and expense assumptions presented in the stabilized NOI analysis (Table 2). 2. Additional revenue and expense assumptions are as follows: a. The projected residential income and miscellaneous income are estimated to increase at 2.5% per year. b. A 5% vacancy and collection allowance. c. The general operating expenses, social services and replacement reserves are increased at 3.5% per year. d. The property taxes are increased at 2.0% per year. e. Annual debt service is estimated to be $1,025,004 for 40 years. f. The priority distributions are categorized as follows: g• Limited Partner Asset Management Fee - $10,000 per year for 15 years, increasing with inflation; ii. General Partner Asset Management Fee - $20,000 per year for 55 years, increasing with inflation; Deferred Developer Fee — the $3,304,000 deferred fee will be paid back with available cash flow and will not include an interest rate. The annual residual receipts payments to the Authority are based on the $6,030,000 Housing Authority Loan with a 55 year term, 3.0% simple interest rate and annual payments in the form of 50% of residual receipts generated. The Authority Loan is estimated to generate $14,200,000 in nominal terms and $2,118,000 in present value terms, assuming a 6% discount rate. The residual receipts payments are not anticipated to commence until approximately in year 12, after the $3,174,000 deferred developer fee is paid in full. The loan is estimated to be repaid in year 50 of the 55 year loan term. 2108009:PD;1LR 17166.008.001 Jessica Gonzales, Palm Desert Housing Authority Vitalia Apartments — Financial Gap Analysis (Updated) CONCLUSIONS August 12, 2021 Page 21 Based on the KMA analysis of the Developer's proposal, the $6,030,000 proposed financial assistance request is considered to be reasonable. The City will gain 81 ELI and 185 LI units, and 100% of the LMIHAF assistance can be attributed to assisting ELI households for LMIHAF Income Targeting purposes. However, if the Project is not awarded, the $40 million TEBs or $21,000,000 in State Tax Credits, the feasibility of the Project will need to be reanalyzed. Attachments 2108009:PD;1LR 17166.008.001 TABLE 1 ESTIMATED TOTAL DEVELOPMENT COSTS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Acauisition Costs Purchase Price Closing Costs Total Acquisition Costs II. Direct Costs Offsite Improvements (Rembrandt Road) Allowance Onsite Improvements 520,106 Sf Land Swimming Pool Allowance Residential Shell Costs 198,749 Sf Residential Community Room / Fitness Center 4,092 Sf Comm Room FF&E - Project 269 Units General Requirements 6% of Construction Costs Contractor Fees 8% of Const Costs + GR Construction Insurance/Bonds 1% of Construction Costs Contingency Allowance 6% of Other Direct Costs Total Direct Costs 269 Units 202,841 Sf GBA 520,106 Sf Land 0% of Purchase Price 269 Units 520,106 Sf Land III. Indirect Costs Architecture, Engineering & Consulting 2% of Direct Costs Permits & Fees - Residential 269 Units Taxes, Insurance, Legal & Accounting 2% of Direct Costs Marketing Costs 269 Units Developer Fee 4 $61,224,277 Net Eligible Basis Contingency Allowance 4% of Other Indirect Costs Total Indirect Costs 2 IV. Financing Costs Interest During Construction Construction Loan - Series A Construction Loan - Series B Financing Fees Construction Loan Permanent Loan Issuance Costs TCAC Fees Capitalized Reserves Operating Reserve Total Financing Costs V. Total Development Costs 3 3 6 $40,000,000 Loan $16,000,000 Loan $56,000,000 Loan $19,000,000 Loan $56,000,000 Loan 267 Aff Units 3 Months $9 /Sf Land $16,729 /Unit $9 /Sf Land $7 /Sf Land $190 /Sf Residential $269 /Sf Commercial $186 /Unit $197,074 /Unit $261 /Sf GBA $10,932 /Unit $681 /Unit 15% of Net EB 4.00% Interest Rate 4.00% Interest Rate 0.96 Points 0.76 Points 0.41 Points $554 /Aff Unit $196,380 OE + DS/Month 269 Units $283,654 /Unit 1 Based on proposed Purchase and Sales Agreement and fair market value appraisal dated December 2020. 2 Based on Developer's estimates. Costs do not include prevailing wages. 3 Based on Developer's estimates. 4 Maximum allowed by TCAC. S Assumes 20-month development period and an average oustanding balance of 69%. 6 Assumes 20-month development period and an average oustanding balance of 60%. $4,500,000 0 $4,500,000 $640,000 3,640,000 360,000 37,668,000 1,100,000 50,000 2,604,000 3,681,000 270,000 3,000,000 $53,013,000 $1,040,000 2,941,000 800,000 183,000 9,184,000 500,000 $14,648,000 $1,850,000 640,000 540,000 145,000 230,000 148,000 589,000 $4,142,000 $76,303,000 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; PF - KMA; jlr; 8/12/2021 TABLE 2 STABILIZED NET OPERATING INCOME VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA I. Proiect Income Manager's Unit (2-Bdrm Units Unit) 30% AMI TCAC / ELI HCD 1-Bdrm Units 2-Bdrm Units 3-Bdrm Units 30% AMI TCAC / VLI HCD 1-Bdrm Units 2-Bdrm Units 3-Bdrm Units 59% AMI TCAC / 80% Low HCD 1-Bdrm Units 2-Bdrm Units 3-Bdrm Units 80% AMI TCAC / 80% Low HCD 1-Bdrm Units 2-Bdrm Units 3-Bdrm Units Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income Effective Gross Income II. Operatine Expenses General Operating Expenses Property Taxes Tenant Services Annual Bond Fee Annual City Fee Replacement Reserves Total Operating Expenses 2 2 2 2 3 Units $0 /Unit/Mo $0 20 Units $365 /Unit/Mo 87,600 15 Units $436 /Unit/Mo 78,480 16 Units $501 /Unit/Mo 96,192 19 Units $365 /Unit/Mo 83,220 6 Units $436 /Unit/Mo 31,392 5 Units $501 /Unit/Mo 30,060 65 Units $801 /Unit/Mo 624,780 34 Units $959 /Unit/Mo 391,272 34 Units $1,105 /Unit/Mo 450,840 27 Units $1,092 /Unit/Mo 353,808 12 Units $1,308 /Unit/Mo 188,352 13 Units $1,508 /Unit/Mo 235,248 $2,651,244 269 Units $13 /Unit/Mo 40,350 $2,691,594 5% of GPI (132,562) 5% of GPI (2,018) $2,557,014 269 Units $4,517 /Unit $1,215,100 17,200 269 Units $89 /Unit 24,000 8,000 269 Units $0 /Unit 0 269 Units $250 /Unit 67,250 $1,331,550 III. Net Operating Income $1,225,464 1 Rents are based on the lesser of the 2021 TCACand HCD rent limits. Assumes the current Riverside County Housing Authority monthly utility allowances as follows: $71/1-bdrm units, $87/2-bdrm units, and $104/3-bdrm units. 2 Based on Developer's estimates. Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; PF - KMA; jlr; 8/12/2021 TABLE 3 FINANCIAL GAP ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA I. Proposed Funding Sources A. Permanent Loan - Base Income 1.20 DCR $1,025,004 Debt Service $19,000,000 4.50% Int Rate 40 Amort Term B. Federal Tax Credit Equity $36,612,304 Gross TC $0.84 Equity Rate $30,749,000 N/A Tie -Breaker Score C. State Tax Credit Equity $21,000,000 Gross TC $0.82 Equity Rate $17,220,000 D. Contributed Developer Fee $9,184,000 Dev Fee 0% of Dev Fee $0 E. Deferred Developer Fee $9,184,000 Dev Fee 36% of Dev Fee $3,304,000 Total Proposed Funding Sources 269 Units $261,238 /Unit $70,273,000 II. Financial Surplus / (Gaol Calculation Total Proposed Funding Sources $70,273,000 (Less) Total Development Costs (76,303,000) Financial Surplus / (Gap) 269 Units ($22,416) /Unit ($6,030,000) III. City Assistance Funding Sources Land - Pre 2012 $0 LMIHAF - Land Purchase 4,500,000 LMIHAF Assistance 1,530,000 HOME Assistance 0 In-Ileu Fees Assistance 0 Total City Assistance 269 Units $22,416 /Unit $6,030,000 1 Based on Developer's estimates. Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; PF - KMA; jlr; 8/12/2021 TABLE 4 LMIHAF INCOME TARGETING ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Extremely- Very -Low Income / Lower Not Restricted Low Income Low Income Income by City Total Project I. Number of Units 51 30 185 0 266 II. Net Operating Income PGI - Base Income $262,272 $144,672 $2,244,300 $0 $2,651,244 Miscellaneous Income 7,736 4,551 28,063 0 40,350 Potential Gross Income $270,008 $149,223 $2,272,363 $0 $2,691,594 (Less) Vacancy Allowance - Base Inc. (13,114) (7,234) (112,215) 0 (132,562) (Less) Vacancy Allowance - Misc Inc. (387) (228) (1,403) 0 (2,018) Effective Gross Income $256,508 $141,762 $2,158,745 $0 $2,557,014 Operating Expenses General Operating Expenses $232,970 $137,041 $845,088 $0 $1,215,100 Property Taxes 3,298 1,940 11,962 0 17,200 Tenant Services 4,602 2,707 16,692 0 24,000 Annual Bond Fee 1,534 902 5,564 0 8,000 Annual City Fee 0 0 0 0 0 Replacement Reserves 12,894 7,585 46,772 0 67,250 Total Operating Expenses 255,297.18 $150,175 $926,078 $0 $1,331,550 Net Operating Income $1,211 ($8,413) $1,232,667 $0 $1,225,464 III. Financial Gap Analysis Total Development Costs $14,630,000 $8,606,000 $53,068,000 $0 $76,304,000 (Less) TE Bonds - Base Income (19,000) 130,000 (19,112,000) 0 (19,000,000) (Less) Federal Tax Credit Equity (9,363,417) (3,467,932) (21,385,583) 3,467,932 (30,749,000) (Less) State Tax Credit Equity (5,243,684) (1,942,105) (11,976,316) 0 (17,220,000) (less) Contributed Deferred Dev Fee 0 0 0 0 0 (Less) Deferred Developer Fee (2,709,898) 0 (594,102) 0 (3,304,000) Financial Gap ($2,706,000) $3,325,962 ($0) $3,467,932 $6,031,000 Extremely- Very -Low Income / Lower Not Restricted IV. SB 341 Test Low Income Low Income Income by City Total Project LMIHAF Assistance ($2,706,000) $3,325,962 ($0) $3,467,932 $4,087,895 LMIHAF Assistance FY 2019/2020 0 0 0 0 $0 Total LMIHAF Assistance FY 19/20 - FY 23/24 ($2,706,000) $3,325,962 ($0) $3,467,932 $4,087,895 Asa % of Total LMIHAF -66% 81% 0% 85% 100% SB 341 Requirements At least 30% At most 20% Must be $0 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; PF - KMA; jlr; 8/12/2021 TABLE 5 CASH FLOW ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Proiect Income Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income Effective Gross Income II. Operatine Expenses General Operating Expenses Property Taxes Tenant Services Annual Bond Fee Annual City Fee Replacement Reserves Total Operating Expenses III. Net Operating Income (Less) Debt Service IV. Available Cash Flow (Less) LP Asset Management Fee (Less) GP Asset Management Fee (Less) Deferred Developer Fee Deferred Developer Fee Balance V. Cash Flow Available for Distribution VI. City Loan Beginning Balance Simple Interest (Less) Residual Receipts Payment Ending Balance Nominal Payments (55 Years) PV of Payments (6.00% Discount Rate) V. Cash Flow to Developer 102.5% /Year 102.5% /Year 5.0% of PGI 5.0% of PGI 103.5% /Year 102.0% /Year 103.5% /Year 100.0% /Year 100.0% /Year 103.5% /Year 103.0% /Year 103.0% /Year $3,304,000 Total 3.00% Int Rate 50.00% of RR 1 2 3 4 5 6 7 8 9 $2,651,244 $2,717,525 $2,785,463 $2,855,100 $2,926,477 $2,999,639 $3,074,630 $3,151,496 $3,230,283 40,350 41,359 42,393 43,453 44,539 45,652 46,794 47,963 49,163 $2,691,594 $2,758,884 $2,827,856 $2,898,552 $2,971,016 $3,045,292 $3,121,424 $3,199,459 $3,279,446 (132,562) (135,876) (139,273) (142,755) (146,324) (149,982) (153,732) (157,575) (161,514) (2,018) (2,068) (2,120) (2,173) (2,227) (2,283) (2,340) (2,398) (2,458) $2,557,014 $2,620,940 $2,686,463 $2,753,625 $2,822,465 $2,893,027 $2,965,353 $3,039,486 $3,115,474 $1,215,100 $1,257,629 $1,301,645 $1,347,203 $1,394,355 $1,443,158 $1,493,668 $1,545,947 $1,600,055 17,200 17,544 17,895 18,253 18,618 18,990 19,370 19,757 20,153 24,000 24,840 25,709 26,609 27,541 28,504 29,502 30,535 31,603 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 0 0 0 0 0 0 0 0 0 67,250 69,604 72,040 74,561 77,171 79,872 82,667 85,561 88.555 $1,331,550 $1,377,616 $1,425,290 $1,474,626 $1,525,685 $1,578,524 $1,633,208 $1,689,799 $1,748,366 $1,225,464 $1,243,323 $1,261,173 $1,278,998 $1,296,781 $1,314,503 $1,332,145 $1,349,687 $1,367,108 (1,025,004) (_1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) $200,460 $218,319 $236,169 $253,994 $271,777 $289,499 $307,141 $324,683 $342,104 (10,000) (10,300) (10,609) (10,927) (11,255) (11,593) (11,941) (12,299) (12,668) (20,000) (20,600) (21,218) (21,855) (22,510) (23,185) (23,881) (24,597) (25,335) (170,460) (187,419) (204,342) (221,213) (238,012) (254,721) (271,319) (287,787) (304,101) $3,133,540 $2,946,120 $2,741,778 $2,520,565 $2,282,554 $2,027,833 $1,756,514 $1,468,727 $1,164,626 so so so so so so so so so $6,030,000 $6,210,900 $6,391,800 $6,572,700 $6,753,600 180,900 180,900 180,900 180,900 180,900 0 0 0 0 0 6,210,900 6,391,800 6,572,700 6,753,600 6,934,500 $14,200,000 $2,118,000 $6,934,500 $7,115,400 $7,296,300 $7,477,200 180,900 180,900 180,900 180,900 0 0 0 0 7,115,400 7,296,300 7,477,200 7,658,100 so so so so so so $o $o $o Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; CF; jlr; 8/12/2021 TABLE 5 CASH FLOW ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Proiect Income Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income Effective Gross Income II. Operatine Expenses General Operating Expenses Property Taxes Tenant Services Annual Bond Fee Annual City Fee Replacement Reserves Total Operating Expenses III. Net Operating Income (Less) Debt Service IV. Available Cash Flow (Less) LP Asset Management Fee (Less) GP Asset Management Fee (Less) Deferred Developer Fee Deferred Developer Fee Balance V. Cash Flow Available for Distribution VI. City Loan Beginning Balance Simple Interest (Less) Residual Receipts Payment Ending Balance Nominal Payments (55 Years) PV of Payments (6.00% Discount Rate) V. Cash Flow to Developer 10 11 12 13 14 15 16 17 18 19 20 $3,311,040 $3,393,816 $3,478,662 $3,565,628 $3,654,769 $3,746,138 $3,839,792 $3,935,787 $4,034,181 $4,135,036 $4,238,412 50,392 51,651 52,943 54,266 55,623 57,013 58,439 59,900 61,397 62,932 64,506 $3,361,432 $3,445,468 $3,531,605 $3,619,895 $3,710,392 $3,803,152 $3,898,231 $3,995,686 $4,095,579 $4,197,968 $4,302,917 (165,552) (169,691) (173,933) (178,281) (182,738) (187,307) (191,990) (196,789) (201,709) (206,752) (211,921) (2,520) (2,583) (2,647) (2,713) (2,781) (2,851) (2,922) (2,995) (3,070) (3,147) (3,225) $3,193,360 $3,273,194 $3,355,024 $3,438,900 $3,524,872 $3,612,994 $3,703,319 $3,795,902 $3,890,800 $3,988,070 $4,087,771 $1,656,057 $1,714,019 $1,774,009 $1,836,100 $1,900,363 $1,966,876 $2,035,716 $2,106,966 $2,180,710 $2,257,035 $2,336,031 20,556 20,967 21,386 21,814 22,250 22,695 23,149 23,612 24,084 24,566 25,057 32,710 33,854 35,039 36,266 37,535 38,849 40,208 41,616 43,072 44,580 46,140 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 0 0 0 0 0 0 0 0 0 0 0 91,655 94,863 98,183 101,619 105,176 108.857 112,667 116.611 120,692 124,916 129,288 $1,808,977 $1,871,702 $1,936,617 $2,003,798 $2,073,324 $2,145,277 $2,219,741 $2,296,805 $2,376,559 $2,459,097 $2,544,517 $1,384,384 $1,401,492 $1,418,407 $1,435,102 $1,451,548 $1,467,718 $1,483,578 $1,499,098 $1,514,241 $1,528,973 $1,543,255 (1,025,004) (1,025,004) (1,025,004) (1,025,004) (j,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025 004) (1,025,004) $359,380 $376,488 $393,403 $410,098 $426,544 (13,048) (13,439) (13,842) (14,258) (14,685) (26,095) (26,878) (27,685) (28,515) (29,371) (320,237) (336,171) (351,876) (156,343) 0 $844,390 $508,219 $156,343 $0 $0 $442,714 (15,126) (30,252) 0 $0 $458,574 0 (31,159) 0 $0 $474,094 0 (32,094) 0 $0 $489,237 0 (33,057) 0 $0 $503,969 0 (34,049) 0 $0 $518,251 0 (35,070) 0 $0 $0 $0 $0 $210,982 $382,488 $397,336 $427,415 $441,999 $456,180 $469,920 $483,181 $7,658,100 $7,839,000 $8,019,900 $8,200,800 $8,276,209 $8,265,865 $8,248,097 $8,215,290 $8,175,190 $8,128,000 $8,073,940 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 0 0 0 (105,491) (191,244) (198,668) (213,707) (221,000) (228,090) (234,960) (241,590) 7,839,000 8,019,900 8,200,800 8,276,209 8,265,865 8,248,097 8,215,290 8,175,190 8,128,000 8,073,940 8,013,249 $0 $0 $0 $105,491 $191,244 $198,668 $213,707 $221,000 $228,090 $234,960 $241,590 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; CF; jlr; 8/12/2021 TABLE 5 CASH FLOW ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Proiect Income Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income Effective Gross Income 21 22 23 24 25 26 27 28 29 30 31 $4,344,372 $4,452,981 $4,564,306 $4,678,413 $4,795,374 $4,915,258 $5,038,140 $5,164,093 $5,293,195 $5,425,525 $5,561,163 66,118 67,771 69,465 71,202 72,982 74,807 76,677 78,594 80,559 82,573 84,637 $4,410,490 $4,520,752 $4,633,771 $4,749,616 $4,868,356 $4,990,065 $5,114,816 $5,242,687 $5,373,754 $5,508,098 $5,645,800 (217,219) (222,649) (228,215) (233,921) (239,769) (245,763) (251,907) (258,205) (264,660) (271,276) (278,058) (3,306) (3,389) (3,473) (3,560) (3,649) (3,740) (3,834) (3,930) (4,028) (4,129) (4,232) $4,189,966 $4,294,715 $4,402,083 $4,512,135 $4,624,938 $4,740,562 $4,859,076 $4,980,553 $5,105,066 $5,232,693 $5,363,510 II. Operatine Expenses General Operating Expenses $2,417,792 $2,502,415 $2,590,000 $2,680,650 $2,774,472 $2,871,579 $2,972,084 $3,076,107 $3,183,771 $3,295,203 $3,410,535 Property Taxes 25,558 26,069 26,591 27,123 27,665 28,218 28,783 29,358 29,946 30,545 31,155 Tenant Services 47,755 49,426 51,156 52,947 54,800 56,718 58,703 60,758 62,884 65,085 67,363 Annual Bond Fee 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 Annual City Fee 0 0 0 0 0 0 0 0 0 0 0 Replacement Reserves 133,813 138.497 143,344 148.361 153,554 158.928 164,491 170.248 176,207 182.374 188,757 Total Operating Expenses $2,632,919 $2,724,408 $2,819,091 $2,917,080 $3,018,491 $3,123,444 $3,232,061 $3,344,471 $3,460,807 $3,581,206 $3,705,810 III. Net Operating Income $1,557,047 $1,570,307 $1,582,992 $1,595,054 $1,606,447 $1,617,118 $1,627,015 $1,636,081 $1,644,259 $1,651,487 $1,657,700 (Less) Debt Service (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) IV. Available Cash Flow $532,043 $545,303 $557,988 $570,050 $581,443 $592,114 $602,011 $611,077 $619,255 $626,483 $632,696 (Less) LP Asset Management Fee 0 0 0 0 0 0 0 0 0 0 0 (Less) GP Asset Management Fee (36,122) (37,206) (38,322) (39,472) (40,656) (41,876) (43,132) (44,426) (45,759) (47,131) (48,545) (Less) Deferred Developer Fee 0 0 0 0 0 0 0 0 0 0 0 Deferred Developer Fee Balance $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 V. Cash Flow Available for Distribution $495,920 $508,097 $519,666 $530,579 $540,787 $550,239 $558,879 $566,652 $573,497 $579,351 $584,151 VI. City Loan Beginning Balance $8,013,249 $7,946,189 $7,873,041 $7,794,108 $7,709,718 $7,620,225 $7,526,006 $7,427,466 $7,325,040 $7,219,192 $7,110,417 Simple Interest 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 (Less) Residual Receipts Payment (247,960) (254,049) (259,833) (265,289) (270,393) (275,119) (279,440) (283,326) (286,748) (289,676) (292,075) Ending Balance 7,946,189 7,873,041 7,794,108 7,709,718 7,620,225 7,526,006 7,427,466 7,325,040 7,219,192 7,110,417 6,999,241 Nominal Payments (55 Years) PV of Payments (6.00% Discount Rate) V. Cash Flow to Developer $247,960 $254,049 $259,833 $265,289 $270,393 $275,119 $279,440 $283,326 $286,748 $289,676 $292,075 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; CF; jlr; 8/12/2021 TABLE 5 CASH FLOW ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Proiect Income Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income Effective Gross Income II. Operatine Expenses General Operating Expenses Property Taxes Tenant Services Annual Bond Fee Annual City Fee Replacement Reserves Total Operating Expenses III. Net Operating Income (Less) Debt Service IV. Available Cash Flow (Less) LP Asset Management Fee (Less) GP Asset Management Fee (Less) Deferred Developer Fee Deferred Developer Fee Balance V. Cash Flow Available for Distribution VI. City Loan Beginning Balance Simple Interest (Less) Residual Receipts Payment Ending Balance Nominal Payments (55 Years) PV of Payments (6.00% Discount Rate) V. Cash Flow to Developer 32 33 34 35 36 37 38 39 40 41 42 $5,700,193 $5,842,697 $5,988,765 $6,138,484 $6,291,946 $6,449,245 $6,610,476 $6,775,738 $6,945,131 $7,118,759 $7,296,728 86,753 88,922 91,145 93,423 95,759 98,153 100,607 103,122 105,700 108,342 111,051 $5,786,945 $5,931,619 $6,079,909 $6,231,907 $6,387,705 $6,547,397 $6,711,082 $6,878,859 $7,050,831 $7,227,102 $7,407,779 (285,010) (292,135) (299,438) (306,924) (314,597) (322,462) (330,524) (338,787) (347,257) (355,938) (364,836) (4,338) (4,446) (4,557) (4,671) (4,788) (4,908) (5,030) (5,156) (5,285) (5,417) (5,553) $5,497,598 $5,635,038 $5,775,914 $5,920,312 $6,068,320 $6,220,028 $6,375,528 $6,534,916 $6,698,289 $6,865,747 $7,037,390 $3,529,904 $3,653,450 $3,781,321 $3,913,667 $4,050,646 $4,192,418 $4,339,153 $4,491,023 $4,648,209 $4,810,896 $4,979,278 31,779 32,414 33,062 33,724 34,398 35,086 35,788 36,504 37,234 37,978 38,738 69,721 72,161 74,687 77,301 80,006 82,806 85,705 88,704 91,809 95,022 98,348 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 0 0 0 0 0 0 0 0 0 0 0 195,363 202,201 209,278 216.603 224,184 232,030 240,151 248.557 257,256 266.260 275,579 $3,834,766 $3,968,227 $4,106,348 $4,249,295 $4,397,234 $4,550,341 $4,708,797 $4,872,788 $5,042,508 $5,218,157 $5,399,943 $1,662,832 $1,666,811 $1,669,566 $1,671,017 $1,671,086 $1,669,686 $1,666,731 $1,662,129 $1,655,781 $1,647,589 $1,637,447 (1,025,004) (1,025,004) (1,025,004) (1,025,004) (j,025,004) (1,025,004) (1,025,004) (1,025,004) (1,025,004) 0 0 $637,828 0 (50,002) 0 $0 $641,807 0 (51,502) 0 $0 $644,562 0 (53,047) 0 $0 $646,013 0 (54,638) 0 $0 $646,082 0 (56,277) 0 $0 $644,682 0 (57,966) 0 $0 $641,727 0 (59,705) 0 $0 $637,125 0 (61,496) 0 $0 $630,777 $1,647,589 $1,637,447 0 0 0 (63,341) (65,241) (67,198) 0 0 0 $0 $0 $0 $587,826 $590,306 $591,515 $591,375 $589,804 $586,717 $582,023 $575,629 $567,437 $1,582,349 $1,570,249 $6,999,241 $6,886,228 $6,771,975 $6,657,118 $6,542,330 $6,428,328 $6,315,870 $6,205,758 $6,098,844 $5,996,025 $5,384,732 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 180,900 17 9, 881 161,542 (293,913) (295,153) (295,757) (295,688) (294,902) (293,358) (291,011) (287,814) (283,718) (791,174) (785,125) 6,886,228 6,771,975 6,657,118 6,542,330 6,428,328 6,315,870 6,205,758 6,098,844 5,996,025 5,384,732 4,761,149 $293,913 $295,153 $295,757 $295,688 $294,902 $293,358 $291,011 $287,814 $283,718 $791,174 $785,125 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; CF; jlr; 8/12/2021 TABLE 5 CASH FLOW ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Proiect Income Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income Effective Gross Income II. Operatine Expenses General Operating Expenses Property Taxes Tenant Services Annual Bond Fee Annual City Fee Replacement Reserves Total Operating Expenses III. Net Operating Income (Less) Debt Service IV. Available Cash Flow (Less) LP Asset Management Fee (Less) GP Asset Management Fee (Less) Deferred Developer Fee Deferred Developer Fee Balance V. Cash Flow Available for Distribution VI. City Loan Beginning Balance Simple Interest (Less) Residual Receipts Payment Ending Balance Nominal Payments (55 Years) PV of Payments (6.00% Discount Rate) V. Cash Flow to Developer 43 44 45 46 47 48 49 50 51 52 53 $7,479,147 $7,666,125 $7,857,778 $8,054,223 $8,255,578 $8,461,968 $8,673,517 $8,890,355 $9,112,614 $9,340,429 $9,573,940 113,827 116,673 119,590 122,579 125,644 128,785 132,005 135,305 138,687 142,155 145,708 $7,592,974 $7,782,798 $7,977,368 $8,176,802 $8,381,222 $8,590,753 $8,805,522 $9,025,660 $9,251,301 $9,482,584 $9,719,648 (373,957) (383,306) (392,889) (402,711) (412,779) (423,098) (433,676) (444,518) (455,631) (467,021) (478,697) (5,691) (5,834) (5,979) (6,129) (6,282) (6,439) (6,600) (6,765) (6,934) (7,108) (7,285) $7,213,325 $7,393,658 $7,578,500 $7,767,962 $7,962,161 $8,161,215 $8,365,246 $8,574,377 $8,788,736 $9,008,455 $9,233,666 $5,153,553 $5,333,927 $5,520,614 $5,713,836 $5,913,820 $6,120,804 $6,335,032 $6,556,758 $6,786,245 $7,023,763 $7,269,595 39,513 40,303 41,109 41,931 42,770 43,625 44,498 45,388 46,295 47,221 48,166 101,790 105,353 109,040 112,857 116,807 120,895 125,126 129,506 134,038 138,730 143,585 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 8,000 0 0 0 0 0 0 0 0 0 0 0 285,225 295.207 305,540 316.234 327,302 338.757 350,614 362,885 375,586 388.732 402,337 $5,588,080 $5,782,790 $5,984,303 $6,192,857 $6,408,698 $6,632,081 $6,863,270 $7,102,537 $7,350,165 $7,606,446 $7,871,683 $1,625,245 $1,610,868 $1,594,196 $1,575,105 $1,553,463 $1,529,134 $1,501,976 $1,471,840 $1,438,572 $1,402,009 $1,361,983 0 0 0 0 0 0 0 0 0 0 0 $1,625,245 $1,610,868 $1,594,196 $1,575,105 $1,553,463 $1,529,134 $1,501,976 $1,471,840 $1,438,572 $1,402,009 $1,361,983 0 0 0 0 0 0 0 0 0 0 (69,214) (71,290) (73,429) (75,632) (77,901) (80,238) (82,645) (85,124) (87,678) (90,308) 0 0 0 0 0 0 0 0 0 0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 0 (93,018) 0 $0 $1,556,031 $1,539,578 $1,520,767 $1,499,473 $1,475,562 $1,448,896 $1,419,331 $1,386,716 $1,350,894 $1,311,700 $1,268,965 $4,761,149 $4,125,968 $3,479,958 $2,823,973 $2,158,956 $1,485,943 $806,074 $120,590 142,834 123,779 104,399 84,719 64,769 44,578 24,182 3,618 (778,016) (769,789) (760,384) (749,737) (737,781) (724,448) (709,665) (124,208) 4,125,968 3,479,958 2,823,973 2,158,956 1,485,943 806,074 120,590 0 so 0 0 0 so 0 0 0 so 0 0 0 $778,016 $769,789 $760,384 $749,737 $737,781 $724,448 $709,665 $1,262,508 $1,350,894 $1,311,700 $1,268,965 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; CF; jlr; 8/12/2021 TABLE 5 CASH FLOW ANALYSIS VITALIA APARTMENT PROJECT PALM DESERT, CALIFORNIA Proiect Income Gross Potential Income - Base Rents Miscellaneous Income Gross Potential Income (Less) Vacancy & Collection - Base Rents (Less) Vacancy & Collection - Misc. Income 54 55 $9,813,288 $10,058,521 149,351 153,085 $9,962,640 $10,211,706 (490,664) (502,931) (7,468) (7,654) Effective Gross Income $9,464,508 $9,701,120 II. Operatine Expenses General Operating Expenses $7,524,031 $7,787,372 Property Taxes 49,129 50,112 Tenant Services 148,611 153,812 Annual Bond Fee 8,000 8,000 Annual City Fee 0 0 Replacement Reserves 416,419 430,994 Total Operating Expenses $8,146,190 $8,430,289 III. Net Operating Income $1,318,318 $1,270,831 (Less) Debt Service 0 0 IV. Available Cash Flow $1,318,318 $1,270,831 (Less) LP Asset Management Fee 0 0 (Less) GP Asset Management Fee (95,808) (98,682) (Less) Deferred Developer Fee 0 0 Deferred Developer Fee Balance $0 $0 V. Cash Flow Available for Distribution $1,222,510 $1,172,149 VI. City Loan Beginning Balance $0 $0 Simple Interest 0 0 (Less) Residual Receipts Payment 0 0 Ending Balance 0 0 Nominal Payments (55 Years) PV of Payments (6.00% Discount Rate) V. Cash Flow to Developer $1,222,510 $1,172,149 Prepared by: Keyser Marston Associates, Inc. Filename: Palm Desert PF - 08.10.21; CF; jlr; 8/12/2021 [This page has intentionally been left blank.] CONTRACT NO. HA40790B DRAFT Caleb Roope Pacific West Communities, Inc. 430 East State Street, Suite 100 Eagle, ID 83616 Re: Conditional Agreement Regarding Vitalia Dear Mr. Roope: The Palm Desert Housing Authority (the "Housing Authority"), has approved a request from your firm, Pacific West Communities, Inc. ("Pacific West"), to finance a loan for the purchase of a +/- 11.94-acre portion of APN 694-310-006 (the "Property"), located on the south side along Gerald Ford Drive at the intersection of Rembrandt Parkway directly east of the Riverside County Sheriff Station for the fair market price (as established by a third party appraiser), in the total amount of Six Million Thirty Thousand Dollars ($6,030,000.00) (the "Housing Authority Loan") for the development of a 269-unit multi -family apartment community located on that certain real property located in the City of Palm Desert, California (the "City") and known as Vitalia Apartments (the "Project"). As of August , 2021 the Authority has conditionally approved of the proposed Loan commitment of the Housing Authority Loan to Six Million Thirty Thousand Dollars ($6,030,000), 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 Project and issuance of a certificate of occupancy to provide affordable housing to persons and households of low and very -low income in accordance with the affordability restrictions contained in the Loan Agreement (as defined below) and in accordance with the Tax Exempt Bonds and Low -Income Housing 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 not subordinate its interests in the regulatory agreement referenced in Section 3 below, and the City will not subordinate its interest in any regulatory agreement that is required to be recorded against the Property by virtue of a density bonus granted pursuant to Ordinance No. of the City, 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 whose administrative general partner is controlled by Pacific West Communities, Inc., an Idaho corporation, or its affiliates. 3. Housing Authority Loan Documents. The proposed structuring of the Housing Authority Loan will be evidenced by, among other things, a loan and development 12812-0001\2546583v5.doc Caleb Roope, President Pacific West Communities, Inc. agreement (the "Loan Agreement"), and a promissory note, deed of trust and regulatory agreement, (collectively, the "Loan Documents"), each in form and substance acceptable to the Housing Authority and its counsel, and executed by the Project Owner and the Housing Authority as applicable. 4. 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 Loan Agreement and shall bear simple interest at three percent (3%) per annum. The Housing Authority Loan shall be repaid from fifty -percent (50%) of the Project's residual receipts remaining after payment of fees (including deferred developer fees, investor fees, partnership fees, and management fees), debt service and operating expenses. 5. Affordability Restrictions. (i) A total of 81 Units are to be restricted by Health and Safety Code Sections 50106 and 50053 as Extremely -Low Income Units: a. 39 one -bedroom units b. 21 two -bedroom units c. 21 three -bedroom units (ii) A total of 186 Units are to be restricted by Health and Safety Code Sections 50079.5 and 50053 (assuming the rent is calculated at 80% of the Riverside County Area Median Income instead of 60% AMI) as Low Income units: a. 92 one -bedroom units b. 46 two -bedroom units c. 47 three -bedroom units (iii) Three 2-bedroom units will be unrestricted and used as onsite manager units. 6. Construction and Permanent Lender Loan Documents. The loan documentation pertaining to the proposed construction and permanent loans to finance the Project, and all related 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. 7. Award of Tax -Exempt Bonds from CDLAC. Prior to Loan closing and funding, the Project shall have all of their funding sources committed. This includes but is not limited to have been awarded the allocation of tax-exempt bonds pursuant to an application therefor by Pacific West Communities, Inc. to the California Debt Limit Allocation Committee (CDLAC), California Tax Credit Allocation Committee for State Tax Credits and any other funding source. -2- 12812-0001\2546583v5.doc Caleb Roope, President Pacific West Communities, Inc. 8. No Third Party Beneficiaries. This letter is solely for the benefit of the Housing Authority and Pacific West Communities, Inc., and shall not inure to the benefit of, or be relied upon by, any other person or entity other than the Project Owner. 9. 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 PACIFIC WEST COMMUNITIES, INC.: By: Caleb Roope, President Date: , 2021 -3- 12812-0001\2546583v5.doc [This page has intentionally been left blank.] cowwnk1I1IE2 cow (/) ME21 (if; ME b`dCIEIC bvl cowwnHIJJE2 cow ME21 ME Vitalia Apartments Gerald Ford Drive, west of Portola Drive Palm Desert, California VACANT LAND aaaa- BUILDING 12 BUILDING 13 RECREATION AREA - SEE ENLARGEMENT, SHEET L.2 SHERIFF STATION BUILDING 11 BUILDING 10 i t — ,— — —.OF - s CLUB FITNESS CHILDCARE V / A L / A WAY VACANT LAND BUILDING 6 BUILDING 7 BUILDING 1 f "'^ En - BUILDIHG BUILDING 3 VTAA PALM DESERT, CA Vitalia Palm Desert Gross Area Calculations - 269 keys, including 3 manager's units -Total SF of all residential buildings: 243,376 SF - Total SF of common area building: 9,639 SF -Total SF of entire project: 253,015 SF DATE: -1 - 1 JOB NO.: 2020-383 AN PACIFIC COMPANIES 430 EAST STATE ST., SUITE 100, EAGLE, ID 83616 (208) 461-0022 AO ARCHITECTS 144 NORTH ORANGE ST., ORANGE, CA 92866 (714) 639-9860 Architecture. Design. Relationships. "IP • a* Vitalia Palm Desert The Pacific Companies Corner of Gerald Ford Dr. Vitalia Way Architecture. looking SW AO Design. Reltionships. a 11 gag NAILIS " -.- dr • rr• P7.; • - 1114.1r. .1"1111Acir .:141 . „ , & -..- -- c:.-- k.Z..-11-Z, Vitalia Palm Desert is.N. The Pacific Companies Pocket park on Gerald Ford Drive Architecture. Buildings 2 & 3 - looking NW 4Design. Relationships. 41. Vitalia Palm Desert The Pacific Companies Buildings 6 & 7 looking SW Architecture. Design. Relationships.