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HomeMy WebLinkAboutFirst Amendment to Housing Agmt - Vineyards Apts, LLC CITY OF PALM DESERT STAFF REPORT REQUEST: APPROVE THE FIRST AMENDMENT TO THE HOUSING AGREEMENT BETWEEN THE CITY OF PALM DESERT AND THE VINEYARDS APARTMENTS, LLC SUBMITTED BY: Janet Moore, Director of Housing DATE: July 11, 2013 CONTENTS: Draft First Amendment to the Housing Agreement - Vineyards Recommendation By Minute Motion, that the City Council, 1. Approve the draft First Amendment to the Housing Agreement, substantially as to form, by and between the City of Palm Desert and the Vineyards Apartments LLC in order to allow the developer to refinance its loan on the project; and 2. Authorize the City Manager to finalize and the Mayor to execute the agreement and any ancillary documents necessary to effectuate the actions taken herewith. Executive Summary Sinatra & Cook Project, LLC is the owner and developer of the apartments known as "The Vineyards". As part of the project's approval the developer entered into a Housing Agreement to effectuate a condition for an affordable housing requirement, which provides that 20% of the 260 rental units be restricted to moderate-income households. The recommended First Amendment to Housing Agreement will enable the developer to refinance its loan on the project by clarifying the City's ability to cure a `default', allow the lender to cure a `default' before the City steps in and lastly allowing the City to keep rents necessary to cover its costs if the City steps in to cure a default. In connection with the developer's refinance of its loan, the developer also will prepay the remaining special tax obligation on the property (approximately $6.27 million), which will eliminate future risk of nonpayment or delinquent payment of the special taxes on this property. Backaround Sinatra & Cook Project, LLC is the owner and developer of the apartments known as "The Vineyards," previously approved by Resolution 06-128, adopted on September 14, 2006. As part of the projecYs approval, the developer was required to enter into a Housing Agreement to effectuate the condition for an affordable housing requirement, Staff Report Approval of First Amendment to the Housing Agreement—The Vineyards July 11, 2013 Page 2 of 3 which provides that 20% of the 260 rental units be restricted to moderate-income households, for a total of 52 affordable units. The Housing Agreement was approved by the City Council on June 14, 2007, entered into by Sinatra & Cook Project, LLC and the City, and recorded on March 27, 2008. The Sinatra & Cook Project, LLC is in the process of refinancing its loan for the project, through its affiliated entity Vineyards Apartments, LLC (together with Sinatra & Cook Project, LLC, the "Owner"), which will become the legal owner of the project upon the close of the refinance. The attached First Amendment to Housing Agreement (the "First Amendment") is required to enable the Owner to refinance its loan. As currently written, the Housing Agreement grants the City an option to lease, which may be exercised upon the occurrence of an Event of Default by the Owner under the agreement. Under this option to lease, the City may lease up to all of the apartment units in the project, for the purpose of subleasing units to moderate-income persons, as necessary to achieve the 20% affordable units. Further, under this option to lease, the City may keep any net rental paid under any such sublease during the Owner's default without any obligation to pay to the Owner such rental received above and over the amount required to cover the City's leasing costs. As is typical, the rental income provided by the project is a key component to the lender's security and underwriting for the proposed refinancing loan. The attached First Amendment would provide for the following changes to address the refinancing lender's concerns regarding certain aspects of the option-to-lease remedy described above. Specifically: • The First Amendment would clarify that, under this option-to-lease remedy, the City may lease and sublease such vacant units in the project as necessary to achieve the 52 affordable units (up to 52 units total, rather than all of the units), which reflects the intent of the parties. • Under the proposed First Amendment, the City would provide written notice to the lender (in addition to the Owner), of the occurrence of a default, in order to allow the lender to take steps, on behalf of the Owner, to cure the default and achieve the required affordable units. • Finally, the First Amendment would provide that, in the event the City exercises this option-to-lease remedy, the City may keep such rents as necessary to recover its costs incurred in connection with the City's exercise of this remedy, including without limitation reasonable leasing agent fees and marketing costs, compensation for staff time expended on leasing activities, and reasonable attorneys' f�es and costs. Any rental income paid or collected in excess of the City's recovery of its costs would be paid to the Owner, or if the lender has provided to the City and the Owner written notice than an event of default has occurred under the lender's financing documents, to the lender. G:IHOUSINGIDEVELOPER PROJECTSIPROJECTSIVINEYARDS�SR- 1 St aIT1e1ZdT11ellt /-1 1-13.dOCX Staff Report Approval of First Amendment to the Housing Agreement—The Vineyards July 11, 2013 Page 3 of 3 Because the proposed First Amendment (i) allows the lender to take actions, in the . event of default by the Owner under the Housing Agreement, to further the 20% affordability requirement, without the City having to step in and expend staff efforts or advance monies to further that goal, (ii) preserves the ability of the City to take actions, in the event of default by the Owner under the Housing Agreement, toward achieving �the 20% affordability requirement, and (iii) provides for the recovery of the City's costs in the event the City exercises the option-to-lease remedy if the Owner defaults under the Housing Agreement, staff recommends that the City Council approve the First Amendment. The Vineyards project is located within City of Palm Desert Community Facilities District No. 2005-1 (University Park) (the "CFD"). In 2006 and 2007, the CFD issued special tax bonds in the aggregate principal amount of $67,915,000, of which $60,775,000 in principal amount remains outstanding. The special tax bonds were issued to finance public improvements to serve property within the CFD and are secured by and payable from special taxes levied annually on taxable property within the CFD. In connection with the Owner's refinance of its loan, the refinancing lender is requiring the Owner to prepay the remaining special tax obligation on the property. Prepayment of the special tax obligation through the refinance will eliminate future risk of nonpayment or delinquent payment of the special taxes on this property. The prepayment amount (including principal, interest through September 1, 2013, and 3% prepayment premium) is approximately $6.27 million, which in turn will result in prepayment by the CFD of approximately 10% of the outstanding bonds on September 1, 2013. If not prepaid, the special tax otherwise would be collected annually in installments on the property tax bill, through fiscal year 2036-37, as the last bond maturity is September 1, 2037. For the reasons described above, staff recommends that the City Council approve the attached First Amendment to Housing Agreement. Fiscal Analvsis � There is no significant fiscal impact to this request. In the event of a default, the City can recover its costs to lease up to 52 units to moderate income households up to the amount of rent collected. Department Head: Finance Deypart nt: � � �(a L�� an M. Moore, Director of Housing C���� r of Finance APPROVED DENTF.D Approval: RECEIVED OTHER MEETI G DATE - � � . • - J M. Wohlmuth, City Manager NOES: ABSENT: ABSTAIN: , . � G:\HOUSINGIDEVELOPERPROJECTS\PROJECTSIVINEYARDS�SR- 1St aT11CI1dIl����T��UO Original on File with Cit�C erk's Office RECORDING REQUESTED BY: WHEN RECORDED RETURN TO: City of Palm Desert 73-510 Fred Waring Drive Palm Desert, California 92260 Attn: Janet Moore, Director of Housing [Space Above For Recorder's Use Only] The undersigned declares that this Housing Agreement is exempt from Recording Fees pursuant to California Government Code Section 27383. FIRST AMENDMENT TO HOUSING AGREEMENT By and Between THE CITY OF PALM DESERT and VINEYARD APARTMENTS, LLC DATED AS OF JULY 11, 2013 RWG DRAFT 6/24/13 FIRST AMENDMENT TO HOUSING AGREEMENT This FIRST AMENDMENT TO HOUSING AGREEMENT (this "First Amendment") is dated as of July 11, 2013, and is by and between the CITY OF PALM DESERT, a municipal corporation organized and existing under the laws of the State of California (the "City") and VINEYARD APARTMENTS, LLC, a Delaware limited liability company (the "Owner"), as successor-in-interest to SINATRA & COOK PROJECT, LLC, a California limited liability company (the "Former Owner"). RECITALS: WHEREAS, the City and the Former Owner have previously entered into that certain Housing Agreement, dated as of June 14, 2007 (the "Original Housing Agreement"; and as amended by this First Amendment, the "Housing Agreement"), which Original Housing Agreement was recorded on March 27, 2008 as Document No. 2008-0152668 in the Office of the County Recorder, Riverside County, California. All capitalized terms not otherwise defined herein shall have the meanings assigned to them in the Original Housing Agreement. WHEREAS, as specified in Recital D. contained in the Original Housing Agreement, the provisions of the Housing Agreement run with title to each and every portion of the Apartment Site and the Project and inure to and pass with each and every portion thereof and apply to, and bind, any successors-in-interest of the Former Owner. WHEREAS, in connection with the subdivision undertaken by the Former Owner of Assessor's Parcel No. 694-200-020-7 into two separate parcels (one pertaining to residential _ development, and the other pertaining to commercial development), the Former Owner has conveyed to the Owner, an affiliated entity of the Former Owner, the portion of the Property (as defined in the Original Housing Agreement) described in Exhibit "A" attached hereto and incorporated herein by this reference, which includes the Apartment Site and upon which the Project was constructed. Such conveyance was accomplished pursuant to that certain Quitclaim Deed, dated June , 2013 and recorded on June [28], 2013, as Document No. 2013- in the Office of the County Recorder, Riverside County, California. WHEREAS, in connection with such conveyance, the Owner obtained financing from Walker & Dunlop, LLC, a Delaware limited liability company (the "Lender"), a Freddie Mac Program PIusOO originating multifamily lender, to refinance certain of the Former Owner's loan obligations encumbering the Property. WHEREAS, to facilitate the provision of such refinancing by the Lender to the Owner, the Lender and the Federal Home Loan Mortgage Corporation (a/k/a Freddie Mac) have requested that the City and the Owner make certain amendments, including clarifying language, to the Original Housing Agreement. WHEREAS, to facilitate the provision of the Lender's financing to the Owner for the purposes of refinancing the aforementioned loan obligations of the Former Owner, the Owner and the City are willing to amend the Original Housing Agreement as set forth in this First Amendment. -2- NOW, THEREFORE, in consideration of the foregoing premises, and for other consideration, the receipt and sufficiency of which are hereby acknowledged, the City and the Owner hereby agree as follows: ARTICLE 1 . AMENDMENTS TO ORIGINAL HOUSING AGREEMENT 1.1 Amendments to Section 1.1 of the Ori�inal Housin� A�reement. Section 1.1 of the Original Housing Agreement is hereby amended by adding the following additional defined terms: "First Amendment" shall mean that certain First Amendment to Housing Agreement, dated as of July 11, 2013, by and between the City and Vineyard Apartments, LLC, a Delaware limited liability company, as Owner. "Lender" shall mean any third party lender (including, without limitation, the Federal Home Loan Mortgage Corporation (a/k/a Freddie Mac) and any securitization trust) providing financing to the Owner secured by a deed of trust recorded on the Property. "Property" shall, prior to the date of the First Amendment, have the meaning ascribed to such term in Recital A. of the Original Housing Agreement, and on and after the date of the First Amendment, mean the real property described in Exhibit"A" of the First Amendment. 1.2 Amendment of Section 4.1.1 of the Original Housin�Agreement. Section 4.1.1 of the Original Housing Agreement is hereby amended and restated in its entirety to read as follows: "4.1.1. Failure by the Owner to duly perform, comply with and observe any of the conditions, terms, or covenants of any agreement with the City concerning the Project, or of this Housing Agreement, if such failure remains uncured thirty (30) days after provision of written notice of such failure from the City to the Owner and the Lender in the manner provided in Section 5.3 of this Housing Agreement or, with respect to a default that cannot be cured within thirty (30) days, if the Owner fails to commence such cure within such thirty (30) day period or thereafter fails to diligently and continuously proceed with such cure to completion; provided, an action or actions taken by the Lender to cure, commence such cure, or proceed with such cure of any such failure shall be deemed to constitute an action taken by the Owner to cure, commence such cure, or proceed with such cure of such failure within the meaning of the foregoing provision; provided, further, the Lender may take an action or actions to cure or commence such cure, as applicable, of such failure within sixty (60) days after the provision of written notice of such failure by the City to the Owner and the Lender, and an Event of Default shall not have occurred under this Housing Agreement if the Lender shall have (i) cured such failure within said sixty (60) days or (ii) commenced such cure within said sixty(60) days, as applicable, unless the Lender thereafter fails to diligently and continuously proceed with such cure to -3- completion (with respect to the foregoing clause (ii)). However, if a different period or notice requirement is specified under any other section of this Housing Agreement, then the specific provision shall control." 1.3 Amendment of Section 4.2 of the Ori�inal Housin�greement. Section 4.2 of the Original Housing Agreement is hereby amended and restated in its entirety to read as follows: "4.2 Cit '�Option to Lease. Upon the occurrence of an Event of Default pertaining to, arising out of, or in any way adversely affecting the Owner's ability to comply with Article 2 of this Housing Agreement, and to cause the Project to meet the requirements of this Housing Agreement, the Owner hereby grants to the City the option to lease any of the then vacant Moderate Income Units (up to fifty-two (52) units) as necessary to achieve compliance with the provisions of Article 2 of this Housing Agreement, for the purpose of subleasing such units in accordance with the requirements of this Housing Agreement; provided, if the Moderate Income Units designated by the Owner do not comply with the substantive requirements of Section 2.1 of this Housing Agreement, then the City may lease and sublease under the option granted by the Owner pursuant to this Section 4.2 such other vacant units as are necessary, when considered together with Moderate Income Units then subject to a valid lease, to achieve compliance with the substantive requirements of Section 2.1; provided, further, in the event the City has exercised the subsidy option granted by the Owner under Section 2.12 of this Housing Agreement, and the implementing housing agreement contemplated thereunder has been entered into by the Owner and the City (the "Subsidy Units Implementing Housing Agreement"), the option to lease granted by the Owner pursuant to this Section 4.2 shall also include the City's option to lease (upon the occurrence of an Event of Default pertaining to, arising out of, or in any way adversely affecting the Owner's ability to comply with Section 2.12 of this Housing Agreement, and to cause the Project to meet the requirements of this Housing Agreement, and for the purpose of subleasing such units in accordance with the requirements of this Housing Agreement) any of the then vacant Subsidy Option Units (up to fifty-two (52) units, or if an insufficient number of units have been designated by the Owner as Subsidy Option Units, such additional vacant units, and any of them, up to fifty-two total units (including existing designated Subsidy Option Units)) as are necessary, when considered together with existing designated Subsidy Option Units, to achieve compliance with the substantive requirements of Section 2.12, applicable provisions of Article 2 as applied to Subsidy Option Units, and the Subsidy Units Implementing Housing Agreement. The City shall be paid the first rental amounts paid or collected under any such sublease (including, if applicable to the unit subject to such sublease, any subsidy provided by the City under Section 2.3.3 or Section 2.12 of this Housing Agreement), up to the amount required to compensate the City for the City's costs actually incurred in connection with the City's exercise of its option to lease pursuant to this Section 4.2. Any rental paid or collected under any such sublease after the City's recovery of the City's costs pursuant to the faregoing sentence shall be paid to, or at the direction of, the Owner, or if the Lender has provided to -4- the City and the Owner written notice that an event of default has occurred under such Lender's financing documents, such amounts in excess of the City's recovery of the City's costs shall be paid to, or at the direction of, the Lender. For the purposes of this Section 4.2, the City's costs shall include the City's out- of-pocket costs (including, without limitation, reasonable leasing agent fees and reasonable marketing costs), compensation for time expended by City staff for such leasing activities (at the hourly rates then in effect for the respective staff members, established and utilized by the City for purposes of compliance with provisions of state law, including but not limited to Proposition 26 ("Supermajority Vote to Pass New Taxes and Fees Act"), approved by voters within the State of California on November 2, 2010), and reasonable attorneys' fees and costs." 1.4 Amendment to Section 5.3 of the Ori�inal Housin� A�reement. Section 5.3 of the Original Housing Agreement is hereby amended by deleting the notice information for the Owner and replacing such language with the following: " If to the Owner: Vineyard Apartments, LLC 9777 Wilshire Blvd., Suite 918 Beverly Hills, California 90212 Attn: Steven L. Gilfenbain Fax: (310) 276-7590 If to the Lender: Walker& Dunlop, LLC 7501 Wisconsin Avenue, Suite 1200E Bethesda, Maryland 20814 Attn: Servicing Fax: (301) 634-2151 Each of the City, the Owner, and the Lender may change its respective address or addresses for delivery of notice by delivering ten (10) calendar days' prior written notice of such change of address to the other entities." 1.5 Amendment to Section 5.7 of the Ori�inal Housin�Agreement. Section 5.7 of the Original Housing Agreement is hereby amended and restated in its entirety to read as follows: "5.7 Non-Liability of City Officials, Employees and A�ents. No member, official, employee or agent of the City shall be personally liable to the Owner, any successor-in-interest to the Owner, or to the Lender in the event of any default or breach by the City or for any amount which may become due to the Owner or successor, or to the Lender, or on any obligation under the terms of this Housing Agreement." -5- 1.6 Amendment to Section 5.10 of the Ori�inal Housin�greement. Section 5.10 of the Original Housing Agreement is hereby amended and restated in its entirety to read as follows: "5.10 Hold Harmless. The Owner shall defend the City and the Agency (as defined in Section 5.17.3 below and including the successors to the Agency under, and on account of statutory dissolution of the Agency pursuant to, Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the California Health and Safety Code (as amended, the "Dissolution Act"), including the Successor Agency to the Palm Desert Redevelopment Agency and the Palm Desert Housing Authority) (with counsel reasonably satisfactory to the City or Agency, as the case may be) against any claims or litigation of any nature whatsoever brought by third parties and directly or indirectly arising from the Owner's ownership or operation of the Project, or the Owner's performance of its obligations under this Housing Agreement, or the Lender's exercise of any right, remedy or claim conferred, given or granted to the Lender under this Housing Agreement, and in the event of settlement, compromise or judgment hold the City and the Agency (including its successors under and pursuant to the Dissolution Act) free and harmless therefrom." 1.7 Addition of Section 5.21 to the Ori�inal Housing A�reement. A new Section 5.21 is hereby added to the Original Housing Agreement, which reads as follows: "5.21 Lender as Third Partv Beneficiary. To the extent that this Housing Agreement confers upon or gives or grants to the Lender any right, remedy or claim under this Housing Agreement, the Lender is hereby expressly recognized as being a third party beneficiary under this Housing Agreement and may enforce any such right, remedy or claim conferred, given or granted hereunder." ARTICLE 2 MISCELLANEOUS 2.1 Effect of Amendment. The City and the Owner hereby agree that except as set forth herein, all provisions of the Original Housing Agreement shall continue in full force and effect. From and after the date of this First Amendment, all references to the "Housing Agreement" shall mean the Original Housing Agreement, as amended by this First Amendment. 2.2 Successors. This First Amendment shall inure to the benefit of the parties hereto and their respective successors and assigns. 2.3 Severabilitv. Any provision in this First Amendment that is inoperative, unenforceable, or invalid in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such in operation, unenforceability, or invalidity without affecting the remaining provisions hereof or affecting the operation, enforceability, or validity of such provision in any other jurisdiction. 2.4 Counterparts. This First Amendment may be simultaneously executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. -6- 2.5 Applicable Law. This First Amendment shall be interpreted under and pursuant to the laws of the State of California. [The remainder of this page is intentionally left blank.] -7- WHEREFORE, each of the undersigned has executed this First Amendment as of the date first above written. OWNER: VINEYARD APARTMENTS, LLC, a Delaware limited liability company By: Vineyard Management, LLC, a Delaware limited liability company Its: Sole Member By: Sinatra & Cook Project, LLC, a California limited liability company Its: Sole Member By: Rancho Mirage Trust, dated April 10, 1998, as Amended and Restated on July 24, 2009 Its: Manager By: Name: Steven L. Gilfenbain Title: Trustee CITY: CITY OF PALM DESERT, a municipal corporation By: Name: Jan Harnik Its: Mayor -8- EXHIBIT "A" LEGAL DESCRIPTION OF THE PROPERTY That certain real property located in the County of Riverside, State of California, more particularly described as follows: PARCEL 2 OF PARCEL MAP NO. 36395, IN BOOK 235 PAGE 47, IN THE CITY OF PALM DESERT, COUNTY OF RIVERSIDE, STATE OF CALIFORNIA, RECORDED APRIL 25, 2013 AS INSTRUMENT NO. 2013-0195587, OF OFFICIAL RECORDS APN: 694-200-020-7 (a portion o� A-1 STATE OF CALIFORNIA }ss. COUNTY OF } On , 2013, before me, , a notary public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJLTRY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature Signature of Notary Public (seal) STATE OF CALIFORNIA }ss. COUNTY OF RIVERSIDE } On , 2013, before me, , a notary public, personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature Signature of Notary Public (seal)