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HomeMy WebLinkAbout2011-02-08 City Council Item No. 10CITY OF LAI�E� LSINORE �.` DREAM EXTREME, JOINT REPORT TO CITY COUNCIL AND REDEVELOPMENT AGENCY TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL HONORABLE CHAIRWOMAN AND MEMBERS OF THE REDEVELOPMENT AGENCY FROM: ROBERT A. BRADY CITY MANAGER/EXECUTIVE DIRECTOR DATE: FEBRUARY 8, 2011 SUBJECT: JOINT PUBLIC HEARING -- SECOND AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT WITH POTTERY COURT HOUSING ASSOCIATES, L.P. BACKGROUND In March 2008, the Agency Board selected BRIDGE Housing Corporation (BRIDGE) as its affordable housing partner pursuant to the Agency's Request for Qualifications (RFQ) process to develop a comprehensive affordable housing strategy with the particular goal of fulfilling the Agency's inclusionary housing obligations. Following that selection, the Agency and identified Pottery Court as a first priority potential affordable housing site. The site is approximately 4.3 acres generally bounded by Pottery Street and Sumner Avenue between the outflow channel and Langstaff Street (the "Site "). On May 26, 2009, the Agency approved a Disposition and Development Agreement ( "DDA) with Pottery Court Housing Associates, L.P., ( "Developer "). The Developer is a single asset entity created by BRIDGE for the development of the Pottery Court project. The DDA provides for sale of the Site to the Developer for the development of 111 one, two and three bedroom units restricted for occupancy by and available at affordable rent to very low income households (the "Project "). The Project will remain affordable for a minimum of fifty -five years in accordance with applicable Redevelopment Law requirements. The Project also includes two resident manager units. The Project is comprised of 8 buildings of various sizes containing 8 to 28 units per building and various project amenities. AGENDA ITEM NO. 10 Page 1 of 27 Joint Report to City Council and Redevelopment Agency — Second Amendment to Disposition and Development Agreement; 33343 Summary Report February 8, 2011 Page 2 The DDA initially provided for Agency assistance from its Low and Moderate Income Housing Funds to the Project in the amount of $4,061,000, which included all of the acquisition costs necessary to assemble the Site and relocate the existing occupants as well as direct financial assistance for a portion of the Project costs. In addition to this initial Agency financial assistance, the Project was awarded a $1,000,000 HOPE VI Main Street Grant and $440,000 of HOME funds from the County of Riverside. The financial feasibility of the Project was dependent upon an award of Low. Income Housing Tax Credits. These credits are competitively awarded by the California Tax Credit Allocation Committee (TCAC) on an application and point system basis. As stated in the May 2009 Summary Report prepared by Keyser Marston Associates pursuant to Health & Safety Code Section 33433 the financial feasibility analysis of the Project was predicated on the assumption that the Project would receive $18.75 million in net 9% Tax Credit proceeds and that if these competitively awarded assistance funds were not received, the Project's financial gap would increase accordingly. The Developer was unsuccessful it its first two attempts at obtaining Tax Credits. Although the Project scored 100 %, it lost to other projects with greater local subsidies under the existing tie - breaker methodology. As a result, in June 2010, the Developer returned to the Agency Board to discuss additional Agency Assistance that would enhance the Project's chances of obtaining Tax Credits. On June 22, 2010 pursuant to Agency Resolution 2010 -03, the Agency elected to commit additional funds to the Project. Following this commitment of additional Agency funds, the TCAC awarded the critical Tax Credits to the Project on September 22, 2010. Estimated tax credit equity to the Project is approximately $11.51 million. In addition to the award of Tax Credits, substantial progress has been made with respect to development of the Project. The Developer has obtained the necessary project entitlements from the Planning Commission and City Council and has secured all necessary financing. The pre- existing structures on the Site have been demolished and the residents relocated to other suitable housing. DISCUSSION 1. Second Amendment to the Disposition and Development Agreement Agency staff and Pottery Court Associates have prepared the Second Amendment to the Disposition and Development Agreement (the "Second Amendment ") to document the Agency's additional commitment of Low and Moderate Income Housing Funds, modify certain deadlines set forth in the Schedule of Performance (Attachment No. 5 to the DDA), change the entity named as the Escrow Agent and Title Company, and make conforming changes to the DDA in accordance with this Amendment. (The parties have Page 2 of 27 Joint Report to City Council and Redevelopment Agency — Second Amendment to Disposition and Development Agreement; 33343 Summary Report February 8, 2011 Page 3 previously approved a First Amendment to the DDA to provide for certain revisions to the Schedule of Performance caused by the delay in obtaining Tax Credits.) No other changes to the Project or the terms and conditions of the sale of the Site or the Agency Loan are proposed. The DDA, as amended (the "Amended DDA "), provides for sale of the Site and development of the Project. One hundred eleven of the units will be restricted to very- low income families. The Agency's Regulatory Agreement includes an affordability covenant to be recorded against the Site requiring that the units remain available only to qualified very low- income families at an affordable rent for a period of 55 years. The Purchase Price of the Site is based on the Agency's actual Site acquisition costs, currently estimated at $3,275,642.57. The Agency will provide "seller financing" for the Purchase Price along with providing funds for predevelopment and project costs. Including the Purchase Price, total Agency financing is $9,737,000. The Agency Loan will be evidenced by a Promissory Note (at 3% simple interest) and secured by a Deed of Trust recorded against the Site. The Promissory Note does not provide for annual debt service payments until such time as the rental revenues exceed the Project's operating cost and payment of other debt service (commonly referred to as "residual receipts "). 2. Summary 33433 Report Section 33433 of the California Health and Safety Code requires that if a property is acquired in whole or part with tax increment funds, the redevelopment agency must adopt a resolution approving the proposed sale or transfer of the property and make certain findings after a public hearing. Pursuant to the same Section of the California Health and Safety Code, the City Council is also required to hold a Public Hearing and adopt a resolution approving the proposed Amendment. Keyser Marston Associates prepared the attached Summary Report in accordance with California Health & Safety Code Section 33433. The Summary Report analyzes the financial structure and the Agency's costs and returns. An updated Report has also been prepared in connection with the proposed Second Amendment. The findings of the Summary Report and update support the Agency's investment in the Project and conclude that the financial support provides a reasonable return to the Developer. 3. Agency Funding As analyzed in the Summary Report, the feasibility of the Project requires the additional Agency assistance for a total loan amount of up to $9,737,000. The Agency Loan Page 3 of 27 Joint Report to City Council and Redevelopment Agency — Second Amendment to Disposition and Development Agreement; 33343 Summary Report February 8, 2011 Page 4 evidences significant leveraging of Agency Low and Moderate Income Housing Funds in light of the estimated total Project costs of $23,281,943. FISCAL IMPACT The Agency has previously allocated $4,061,000 pursuant to the Original DDA and $5,676,000 pursuant to Resolution No. 2010 -003. The Agency's Low and Moderate Income Housing Fund commitment of $9,737,000 has been fully budgeted. �idTIa.I7_AiLS "I That the City Council take the following actions: 1. Approve Resolution No. 2011 -_, Resolution of the City Council of the City of Lake Elsinore, California, Approving the Sale of Real Property By the Redevelopment Agency of the City of Lake Elsinore Pursuant To That Certain Disposition And Development Agreement By And Between the Redevelopment Agency of the City of Lake Elsinore And Pottery Court Housing Associates, L.P. As Amended Pursuant To The First Amendment And Second Amendment Thereto. That the Agency take the following actions: 1. Approve Resolution No. 2011- , Resolution of the Redevelopment Agency of the City of Lake Elsinore Approving That Certain Second Amendment to the Disposition And Development Agreement By And Between the Redevelopment Agency of the City of Lake Elsinore And Pottery Court Housing Associates, L.P. Prepared by: Barbara Leibold City Attorney /Agency Counsel/ Approved by: Robert A. Brady City Manager /Executive Director Attachments: 1. City Council Resolution No. 2011 2. Agency Resolution No. 2011- 3. Second Amendment 4. 33433 Summary Report Page 4 of 27 RESOLUTION NO. 2011- RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE, CALIFORNIA, APPROVING THE SALE OF REAL PROPERTY BY THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE PURSUANT TO THAT CERTAIN DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE AND POTTERY COURT HOUSING ASSOCIATES, L.P AS AMENDED PURSUANT TO THE FIRST AMENDMENT AND SECOND AMENDMENT THERETO. WHEREAS, the Redevelopment Agency of the City of Lake Elsinore ( "Agency ") is engaged in activities necessary to execute and implement the Amended and Restated Redevelopment Plan for the Rancho Laguna Redevelopment Project Area No. I ('Redevelopment Plan "); and WHEREAS, in order to implement the Redevelopment Plan, the Agency has agreed to sell the real property, comprising the "Site" as defined in, and pursuant to the terms and provisions of a certain Disposition and Development Agreement, ( "Agreement') and the First Amendment to the Disposition and Development Agreement ( "First Amendment'), by and between the Agency and Pottery Court Housing Associates, L.P. ( "Developer "); and WHEREAS, in order to implement the Redevelopment Plan, the Agency proposes to provide assistance pursuant to the terms and provisions of a certain Second Amendment to the Disposition and Development Agreement, ( "Second Amendment'), by and between the Agency and Developer; and WHEREAS, the Agreement, First Amendment and Second Amendment comprise the "Amended Agreement; and WHEREAS, the proposed Amended Agreement contains all the provisions, terms, conditions and obligations required by State and local law•, and WHEREAS, the Agency has prepared, and the City Council has reviewed and considered, a summary report setting forth the cost of the Amended Agreement to the Agency and including the sale of the Site to the Developer and has made said summary report available for public inspection in accordance with the California Community Redevelopment Law (Health and Safety Code Sections 33000 of seq.); and WHEREAS, pursuant to provisions of California Community Redevelopment Law, the Agency and the City Council have noticed and held a duly noticed joint public hearing on the proposed Project and on the proposed Amended Agreement; and Page 5 of 27 CITY COUNCIL RESOLUTION NO. 2011 - PAGE 2 OF 3 WHEREAS, in accordance with the California Environmental Quality Act (California Public Resources Code Section 21000 et seq.: "CEQA "), the State CEQA Guidelines (Title 14, California Code of Regulations Section 15000 et seq.: "CEQA Guidelines "), the City Council has previously found that the Project is categorically exempt from CEQA and the CEQA Guidelines pursuant to a Class 32 categorical exemption for in -fill development projects pursuant to Resolution 2009 -_; and WHEREAS, the City Council has considered all terms and conditions of the proposed Amended Agreement, and has determined that the sale of the Site pursuant to the proposed Agreement is in the best interests of the City and in accord with the public purposes and provisions of applicable State and local laws. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE DOES HEREBY RESOLVE, DETERMINE, AND ORDER AS FOLLOWS: SECTION 1. The City Council hereby finds and determines that the Agency's decision to sell the Site pursuant to the Amended Agreement will assist in effectuating the purposes of the Redevelopment Plan. SECTION 2. The City Council hereby finds that the sale of the Site and development of the Project in accordance with the Amended Agreement will assist in the elimination of blight and the production of affordable housing and that the consideration to be paid by the Developer in accordance with the terms and provisions of the Amended Agreement is not less than the fair market value of the Site. SECTION 3. The City Council hereby finds that the sale of the Site pursuant to the Amended Agreement complies with the Implementation Plan adopted for this Redevelopment Project Area pursuant to Section 33490 of the Community Redevelopment Law. PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council of the City of Lake Elsinore, California, this 8th day of February, 2011. AMY BHUTTA, MAYOR CITY OF LAKE ELSINORE ATTEST: VIRGINIA BLOOM, CITY CLERK BARBARA LEIBOLD, CITY ATTORNEY Page 6 of 27 CITY COUNCIL RESOLUTION NO. 2011 - PAGE 3 OF 3 STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF LAKE ELSINORE }SS I, VIRGINIA BLOOM, City Clerk of the City of Lake Elsinore, California, hereby certify that Resolution No. 2011- — was adopted by the City Council of the City of Lake Elsinore, California, at a regular meeting held on the 8th day of February 2011, and that the same was adopted by the following vote: AYES: NOES: ABSTAIN: VIRGINIA BLOOM CITY CLERK Page 7 of 27 RESOLUTION NO. 2011- RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE APPROVING THAT CERTAIN SECOND AMENDMENT TO THE DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE AND POTTERY COURT HOUSING ASSOCIATES, L.P. WHEREAS, the Redevelopment Agency of the City of Lake Elsinore ('Agency ") is engaged in activities necessary to execute and implement the Amended and Restated Redevelopment Plan for the Rancho Laguna Redevelopment Project Area No. I ('Redevelopment Plan "); and WHEREAS, in order to implement the Redevelopment Plan, the Agency has agreed to sell the real property, comprising the "Site" as defined in, and pursuant to the terms and provisions of a certain Disposition and Development Agreement, ( "Agreement') and the First Amendment to the Disposition and Development Agreement ( "First Amendment'), by and between the Agency and Pottery Court Housing Associates, L.P. ( "Developer"); and WHEREAS, in order to implement the Redevelopment Plan, the Agency proposes to provide assistance pursuant to the terms and provisions of a certain Second Amendment to the Disposition and Development Agreement, ( "Second Amendment'), by and between the Agency and Developer; and WHEREAS, the Agreement, First Amendment and Second Amendment comprise the "Amended Agreement'; and WHEREAS, the proposed Amended Agreement contains all the provisions, terms, conditions and obligations required by State and local law; and WHEREAS, the Agency has prepared, and the City Council has reviewed and considered, a summary report setting forth the cost of the Amended Agreement to the Agency, including the sale of the Site to the Developer, and has made said summary report available for public inspection in accordance with the California Community Redevelopment Law (Health and Safety Code Sections 33000 et seq.); and WHEREAS, pursuant to provisions of the California Community Redevelopment Law, the Agency and the City Council have noticed and held a duly noticed joint public hearing on the proposed Agreement; and WHEREAS, in accordance with the California Environmental Quality Act (California Public Resources Code Section 21000 et seq.: "CEQA "), the State CEQA Guidelines (Title 14, California Code of Regulations Section 15000 et seq.: "CEQA Guidelines "), the Project (as defined in the Agreement) has previously been determined Page 8 of 27 AGENCY RESOLUTION NO. 2011 - PAGE 2 OF 4 to be categorically exempt from CEQA and the CEQA Guidelines pursuant to a Class 32 categorical exemption for in -fill development projects; and WHEREAS, the City Council has considered all terms and conditions of the proposed Agreement, and has determined that the sale of the Site pursuant to the proposed Agreement is in the best interests of the City and in accord with the public purposes and provisions of applicable state and local laws. NOW, THEREFORE, THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINOE DOES HEREBY RESOLVE, DETERMINE AND ORDER AS FOLLOWS: SECTION 1. The Agency hereby finds and determines that sale of the Site and that implementation of the Project, in accordance with the terms and provisions of the Amended Agreement, is consistent with the Community Redevelopment Law, the Amended and Restated Redevelopment Plan for the Rancho Laguna Redevelopment Project,Area No. 1, and the Agency's Redevelopment and Housing Implementation Plan adopted pursuant to Health & Safety Code Section 33490. SECTION 2. The Agency hereby finds and determines that the sale of the Site and the development of the Project, pursuant to the Amended Agreement will assist in the elimination of blight the production of affordable housing in accordance with the Agency's obligations pursuant to Section 33413 of the Health & Safety Code. SECTION 3. The Agency hereby finds and determines that the consideration to be paid by the Developer in accordance with the terms and provisions of the Amended Agreement is not less than the fair market value of the Site. SECTION 4. The Agency hereby finds and determines that the implementation of the Project would not be financially feasible without the financial assistance from the Agency's Low and Moderate Income Housing Fund and that no other sources of funds are available. SECTION 5. The Agency hereby authorizes the Executive Director to execute the Second Amendment substantially in the form on file with the Agency Secretary, issue interpretations, waive provisions, enter into amendments on behalf of the Agency, and to sign all documents and instruments necessary to implement and carry out the Amended Agreement on behalf of the Agency in such form as is reasonably acceptable to the Agency Counsel. SECTION 6. The Agency Secretary shall certify to the passage and adoption of this resolution and the same shall thereupon take effect and be in force. Page 9 of 27 AGENCY RESOLUTION NO. 2011 -_ PAGE 3 OF 4 PASSED, APPROVED AND ADOPTED at a . regular meeting . of the Redevelopment Agency of the City of Lake Elsinore, California, this 8th day of February, 2011. MELISSA MELENDEZ, CHAIRWOMAN ATTEST: VIRGINIA BLOOM AGENCY SECRETARY BARBARA LEIBOLD, AGENCY GENERAL COUNSEL Page 10 of 27 AGENCY RESOLUTION NO. 2011 - PAGE 4 OF 4 STATE OF CALIFORNIA COUNTY OF RIVERSIDE CITY OF LAKE ELSINORE }SS I, VIGINIA BLOOM, Agency Secretary of the Redevelopment Agency of the City of Lake Elsinore, California, hereby certify that Resolution No. .2011- —was adopted by the Redevelopment Agency of the City of Lake Elsinore, California, at a regular meeting held on the 8th day of February 2011, and that the same was adopted by the following vote: AYES: NOES: ABSENT: ABSTAIN: VIRGINIA BLOOM ACTING AGENCY SECRETARY Page 11 of 27 SECOND AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT (POTTERY COURT) THIS SECOND AMENDMENT TO DISPOSITION AND DEVELOPMENT AGREEMENT (POTTERY COURT) (the "Second Amendment ") dated for identification purposes only as of February 8, 2011, is made and entered into by and between the REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE, a public body, corporate and politic ( "Agency ") and POTTERY COURT HOUSING ASSOCIATES, L.P., a California limited partnership ( "Developer "), with reference to the following: RECITALS The following Recitals are a substantive part of this Second Amendment: Capitalized terms used in this Second Amendment and not otherwise defined shall have the meaning set forth in Section 1.1 of the DDA. A. Agency and Developer entered into that certain Disposition and Development Agreement (Pottery Court) dated for identification purposes as of May 26, 2009 (the "Original DDA ") approved by Agency Resolution No. 2009 -09 regarding the disposition of approximately 4.3 acres of land in the City of Lake Elsinore within the boundaries of the Rancho Laguna Redevelopment Project Area No. 1 and generally bounded by Pottery Street and Sumner Avenue between the outflow channel of Lake Elsinore and Langstaff Street (the "Site "), the development of a 113 unit multi - family affordable housing project (the "Project ") and the provision financial assistance from the Agency's Low and Moderate Income Housing Fund (the "Agency Loan "). B. In order to allow adequate time for the Developer to secure Project financing, the Executive Director approved that certain First Amendment to Disposition and Development Agreement (Pottery Court) dated as of June 29, 2010 modifying certain deadlines in the Schedule of Performance as authorized by the Original DDA. The Original DDA and the First Amendment are collectively referred to herein as the "DDA ". C. On June 22, 2010, the Agency found that the implementation of the Project would not be financially feasible without additional financial assistance from the Agency Low and Moderate Income Housing Fund and by Resolution No. 2010 -03 committed up to an additional $5,676,000 to the Project. D. Agency and Developer now desire to amend the DDA to modify the terms of the Agency Loan to include the additional commitment of Low and Moderate Income Housing Funds consistent with the Agency's approvals, modify certain deadlines set forth in the Schedule of Performance, Attachment No. 5 to the DDA, change the entity named as the Escrow Agent and Title Company, and make conforming changes to the DDA in accordance with this Amendment. Second Amendment to DDA 020311 r Page 12 of 27 E. Agency finds that implementation of the Project and the DDA as amended by this Second Amendment is consistent with the Community Redevelopment Law, the Amended and Restated Redevelopment Plan for the Rancho Laguna Redevelopment Project Area No. 1, and the Agency's Redevelopment and Housing Implementation Plan adopted pursuant to Health & Safety Code Section 33490. AGREEMENT NOW, THEREFORE, Agency and the Developer hereby agree as follows: 1. Definitions. The following definitions are, as applicable (i) amended and replaced; or (ii) added, in Section 1.1 of the DDA as follows: "Agency Loan" means the loan from the Agency's Low and Moderate Income Housing Fund to the Developer in an amount not to exceed Nine Million Seven Hundred Thirty -Seven Thousand Dollars ($9,737,000). "Escrow Agent" is Old Republic National Title Insurance Company, or other qualified title company approved in writing by the Parties. "Outside Closing Date" means March 22, 2011 or such later date as may be approved by Developer and the Executive Director. "Tax Credit Award Date" means September 22, 2010. "Title Company" is Old Republic National Title Insurance Company, or other qualified title company approved in writing by the Parties. 2. Agency Loan. The first paragraph of Section 3.3.1 of the DDA is hereby amended and replaced as follows: Agency hereby agrees to loan to Developer and Developer hereby agrees to borrow the Agency Loan in an amount not to exceed Nine Million Seven Hundred Thirty -Seven Thousand Dollars ($9,737,000) from Agency pursuant to the terms and conditions of the Agency Loan Documents. The Agency Loan shall be made in accordance with and subject to the terms and conditions set forth in the Agency Promissory Note, the Agency Deed of Trust and the Regulatory Agreement. 3. Subordination of the Deeds of Trust Regulatory Agreement. The second paragraph of Section 3.3.3 of the DDA is hereby amended and replaced as follows: The Regulatory Agreement will be senior to the Construction Loan and the Conventional Loan; provided however, in the event of a senior lien foreclosure, the affordable housing restrictions set forth therein shall be adjusted to allow for the occupancy by "lower income households" as defined by Health and Safety Code Section 50079.5 or any successor statute at Affordable Rent throughout the Affordability Period. In accordance with Health & Safety Code Second Amendment to DDA 020311 2 Page 13 of 27 Section 33334.14, the Agency finds that an economically feasible alternative method of financing on substantially comparable terms and conditions, but without such subordination, is not reasonably available and that the Executive Director and Agency Counsel will obtain written commitments from the institutional lenders by way of notice, right to cure, right to acquire without acceleration and such other protections reasonably designed to protect the Agency's investment in the Event of Default. 4. Administration. The following shall be added as the second paragraph of Section 9.11 of the DDA: Consistent with the authority granted to the Executive Director as provided in this Section, the Executive Director is authorized to execute a grant of easement to the Site in such form as approved by Agency Counsel to ensure access to the adjacent property located at Sumner and Pottery related to the vacation of a portion of Riley Street as part of the assembly of the Site. Consistent with the authority granted to the Executive Director as provided in this Section, the Executive Director is further authorized to approve such amendments to the Agency Loan Documents as may be necessary and appropriate to satisfy the requirements of senior lien holders and /or the general contractor so long as such actions do not substantially change the uses or development permitted on the Site, or add to the costs of the Agency. 5. Schedule of Performance. The Schedule of Performance, Attachment No: 5 to the DDA, is hereby amended by and replaced in its entirety with the Schedule of Performance attached hereto as Exhibit A. 6. Promissory Note. The Promissory Note, Attachment No. 7 to the DDA, is hereby amended to reflect that amount of the Agency Loan as provided in this Second Amendment. 7. Deed of Trust. The Deed of Trust, Attachment No. 8 to the DDA, is hereby amended to reflect that amount of the Agency Loan as provided in this Second Amendment. 8. Effect of Amendment. Except as otherwise amended herein, the DDA shall remain in full force and effect, and the DDA, as hereby amended, is ratified and confirmed. In the event of any conflict between this Second Amendment and the DDA, this Second Amendment shall control. 9. Counterparts. This Second Amendment may be executed in counterparts, each of which shall be considered an original. [SIGNATURES ON FOLLOWING PAGE] Second Amendment to DDA 020311 3 Page 14 of 27 IN WITNESS WHEREOF, Agency and Developer have signed this Second Amendment as of the date set opposite their signatures. Dated:. ATTEST: Virginia Bloom, Agency Secretary APPROVED AS TO FORM: LEIBOLD McCLENDON & MANN, P.C. "AGENCY" REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE, a public body, corporate and politic C Robert A. Brady, Executive Director Barbara Zeid Leibold, Agency General Counsel "DEVELOPER" Dated: POTTERY COURT HOUSING ASSOCIATES, L.P., a California limited partnership By: POTTERY COURT, LLC, a California limited liability company, its general partner S -1 By: BRIDGE Housing Corporation- Southern California, a California nonprofit public benefit corporation, its managing member By: Kimberly McKay, Vice President Page 15 of 27 EXHIBIT A SCHEDULE OF PERFORMANCE 1. Execution of Agreement. DDA Complete.. authorized and executed by both Parties and delivered to Agency Clerk. 2. Developer Approval Period. Complete. Developer shall have, at its sole cost and expense, the right to conduct soils and engineering and environmental assessments. Section 4.2.2. 3. Open Escrow. The Parties shall open Not later than ten (10) days after the Escrow with the escrow company for approval of the Second Amendment. the conveyance of the Site. Section 4.3. 4. Environmental Disclosure. Agency Complete. shall deliver or make available to Developer copies of Agency's Environmental Reports for review. Section 4.2.1. 5. Delivery of Preliminary Title Report. Agency shall order Preliminary Title Agency shall cause Title to deliver to Report within fifteen (15) days of Developer for review and approval a Opening Escrow and shall cause standard Preliminary Title Report. delivery to Developer upon receipt. Section 4.4. A -1 Page 16 of 27 6. Developer Review of Preliminar Title Report. Developer shall give Notice to Agency and Escrow of its approval or disapproval of Preliminary Title Report. Section 4.4. Amendments to Title. Agency shall cause, at its election, Title to remove any disapproved items by Developer. Section 4.4. 8. Approval- Conceptual Design, Preliminary Site Design and Preliminary Drawings. Agency will approve or disapprove the preliminary design and drawings for the Site. 9. Submittal of Tentative Parcel Map. 10. Following approval of Tentative Tract Map Developer to submit rough grading plan and soils report. 11. Developer to submit Architectural Construction Drawings for I" plan check. 12. Developer to submit Architectural Construction Drawings for 2 "0 plan check. (Assumes a City plan check period of no more than 30 days). A -2 Within forty -five (45) days from receipt of Preliminary Title Report. Within ten (10) days of Notice from Developer of any disapproved items. Complete. Complete. Complete. Not later than sixty (60) days after the Tax Credit Award Date. Within sixty (60) days of completion of ISt plan check. Page 17 of 27 13. Developer to submit Architectural Construction Drawings for 3rd plan check. (Assumes a City plan check period of no more than 15 days). 14. Obtain Building Permits. Developer will obtain building permits. 15. Evidence of Financing. Developer shall submit to Agency evidence that Developer has sufficient equity and/or firm and binding commitments for construction financing of the Site for review and approval. Within thirty (30) days of completion of 2nd plan check. Within fifteen (15) days of completion of 3rd plan check. Forty -Five (45) days prior to Closing. 16. Approval of Evidence of Financing. If neither approval nor disapproval is Agency shall provide Developer received within thirty (30) days from Notice of its approval or disapproval submittal, the Evidence of Financing is of such Evidence of Financing for the deemed approved. Site. 17. Submission - Financing Documents. Fifteen (15) days prior to Closing. Developer will deliver to Agency financing documents. 18. Approval - Financing Documents. Ten (10) days after submission by Agency will approve or disapprove Developer. financing documents. 19. Preparation and Approval, Thirty (30) days before Closing. Construction Costs and Schedule. Agency shall either approve or disapprove Developer's construction costs and schedule. A -3 Page 18 of 27 20. Agency Approval of Final Within fifteen (15) days of submission. Architectural Plans and Building Permits. 21. Developer Submittals into Escrow. Two (2) days prior to Closing. Developer shall cause Construction Lender to submit into escrow the Deed of Trust securing Construction Loan. 22. Closing. The Outside Closing Date shall be not later than one hundred eighty (180) days after the Tax Credit Award Date; provided, however, that in no event shall such Outside Closing Date be later than March 22, 2011. 23. Commencement of Construction. Within fourteen (14) days of the Developer shall commence Closing. construction of the Project. 24. On -going submission of Compliance Closing until Project completion. Reports by Developer. 25. Completion of Construction and Eighteen (18) months after Closing. Issuance of last Certificate of Occupancy. A -4 Page 19 of 27 SUMMARY REPORT PREPARED PURSUANT TO CALIFORNIA HEALTH AND SAFETY CODE SECTION 33433 ON A DISPOSITION AND DEVELOPMENT AGREEMENT BY AND BETWEEN THE REDEVELOPMENT AGENCY OF THE CITY OF LAKE ELSINORE AND POTTERY COURT HOUSING ASSOCIATES, L.P. The following Summary Report has been prepared pursuant to California Health and Safety Code Section 33433. The reports sets forth certain details of the proposed Disposition and Development Agreement (Agreement) between the Redevelopment Agency of the City of Lake Elsinore (Agency) and Pottery Court Housing Associates, L.P.(Developer). The purpose of the Agreement is to effectuate the Rancho Laguna Redevelopment Project Area No. 1 (Project Area) Redevelopment Plan. The basic disposition terms embodied in the Agreement can be summarized as follows: The Agency must assemble the parcels that comprise the approximately 4.3 -acre site generally bounded by Pottery Street and Sumner Avenue between the outflow channel of Lake Elsinore and Langstaff Street (Site). 2. The Agency must convey the assembled Site to the Developer for the construction of a proposed 113 unit income restricted apartment development (Project). 3. The Agency must provide financial assistance to the Developer to fill the financial gap created by the imposition of long -term income and affordability covenants on the Project. The following Summary Report is based upon information contained within the Agreement, and is organized into the following seven sections: Salient Points of the Agreement: This section summarizes the major responsibilities imposed on the Developer and the Agency by the Agreement. 11. Cost of the Agreement to the Agency: This section details the total cost to the Agency associated with implementing the Agreement. Ill. Estimated Value of the Interests to be Conveyed Determined at the Highest Use Permitted under the Redevelopment Plan: This section estimates the value of the interests to be conveyed determined at the highest use permitted under the requirements imposed by the Redevelopment Plan for the Project Area (Redevelopment Plan). 0905018.LE: KHH: gbd 15190.0041003; 5/14/09 Page 20 of 27 IV. Estimated Reuse Value of the Interests to be Conveyed: This section summarizes the valuation estimate for the Site based on the required scope of development, and the other conditions and covenants required by the Agreement. V. Consideration Received and Comparison with the Established Value: This section describes the compensation to be received by the Agency, and explains any difference between the compensation to be received and the established value of the Site. VI. Blight Elimination: This section describes the existing blighting conditions on the Site, and explains how the Agreement will assist in alleviating the blighting influence. VII. Conformance with the AB1290 Implementation Plan: This section describes how the Agreement achieves goals identified in the Agency's adopted A61290 Implementation Plan. This report and the Agreement are to be made available for public inspection prior to the approval of the Agreement. SALIENT POINTS OF THE AGREEMENT A. Project Description The "Scope of Development" defined in the Agreement includes the following: 113 apartment units in the following mix: a. Twenty (20) one - bedroom units; b. Forty-eight (48) two- bedroom units; C. Forty -three (43) three - bedroom units; and d. Two (2) three - bedroom units to be provided for on -site managers. 2. A community room that will accommodate recreational, social and cultural services targeted to the Project tenants. 3. Two hundred and fifty -two (252) parking spaces. B. Developer Responsibilities The Agreement requires the Developer to accept the following responsibilities 0905018.LE: KHH: gbd 15190.004/003;5 /14109 Page 21 of 27 The following activities must be completed before the Agency will convey the Site to the Developer: a. The Developer must obtain a guaranteed maximum cost construction contract for the Project from a reputable and financially responsible contractor that is capable of being bonded and licensed in California. The Agency has approval rights over the bidding procedures used by the Developer to select a contractor(s). b. The Developer must furnish the Agency with a contractor's performance bond equal to 100% of the Project costs, and a payment bond guaranteeing the contractors' lien -free completion of the Project. The Developer's parent corporation will also provide a corporate guarantee or a letter of credit. C. The Developer must obtain all entitlements and building permits necessary to develop the Project. d. The Developer must obtain the following insurance coverages: Workers compensation insurance as required by the State Labor Code; ii. Commercial general liability insurance equal to $1 million per occurrence and $2 million in aggregate; and All risk property insurance, earthquake insurance and flood insurance to cover the full replacement value of the Project. e. The Developer must accept the Site in an "as is" condition: The Developer will have approved the environmental, geological and soils conditions of the Site prior to execution of the Agreement. ii. The Agency has made no representations or warranties of any kind regarding the Site's condition or the costs that will have to be incurred to complete the scope of development required by the Agreement. 2. The Developer must obtain funding from the following sources: a. The Developer must submit an application to the California Tax Credit Allocation Committee for the competitively awarded Low Income Housing Tax Credits distributed by the federal government (9% Tax Credits). b. The Developer has applied to Riverside County (County) for $440,000 in HOME Program funds allocated by the United States Housing and Urban Development Department (HUD). 0905018.LE: KHH: gbd 15190.004/003;5 /14/09 Page 22 of 27 G. The Developer has been approved to receive`a $1 million Hope VI Main Street grant that was awarded to the City of Lake Elsinore (City) by HUD. During construction, the Developer must defer 100% of the $1.4 million "Developer Fee" included in the Project's budget. After construction is completed, the Developer may draw down $1.2 million of the Fee; the remaining $200,000 must continue to be deferred and repaid from the Project's available cash flow. 3. The Developer must remove the existing improvements on the Site, and construct a 113 - unit apartment development. The Project must comply with both the Scope of Development and Schedule of Performance requirement imposed by the Agreement. 4. The Agreement requires the Developer to impose the following income and affordability restrictions over a 55 -year term: a. Two units may be rented to on -site managers. The remaining 111 units must be rented to "Very-Low Income" households that meet the requirements imposed by the California Health and Safety Code Section 50105 definition. b. The rents charged at the Project must set at the most stringent of the following: The affordable housing cost definition imposed by California Health and Safety Code Section 50053. ii. The rent restrictions agreed to in the 9% Tax Credit Regulatory Agreement. iii. The Low HOME rent applied by the HUD HOME Program. 5. Each year, the Developer must submit to the Agency a certification of compliance with the income and affordable housing cost covenants imposed by the Agreement. The monitoring document must comply with the requirements imposed by California Health and Safety Code Section 33418. 6. The Developer must operate and maintain the Project in conformance with the standards imposed in the Agreement over the entire 55 -year covenant period. Specifically, the Developer must comply with the following requirements: a. The Developer must submit a Management Plan and a Marketing Plan to the Agency for approval. b. The Developer must submit a standard lease to the Agency for approval before the initial lease -up of the Project. 0905018.LE: KHH: 9bd 15190.004/003;5 /14/09 Page 23 of 27 C. The Project must be served by two on -site managers. d. The Developer must fund the following reserve accounts: The Developer must contribute $300 per unit per year to a capital reserve account. ii. As a part of the construction cost budget, the Developer must fund an operating reserve account equal to three months of operating expenses for the Project. e. Throughout the 55 -year covenant period, the Developer must maintain the Project in accordance with the requirements imposed by the Grant Deed and the Regulatory Agreement. 7. The Developer must repay any Agency assistance to the Project, plus 3% simple interest, using the "Residual Receipts" generated by the Project over a 55 -year loan term (Agency Note). Residual Receipts are defined as cash flow remaining after payment of the following obligations: a. Customary operating expenses; b. Debt service on the first trust deed mortgage used to finance the Project; C. Deposits to the capital reserve account; d. The approved "Asset Management Fee'; e. The approved "Investment Limited Partner Asset Management Fee'; f. Repayment of the Deferred Developer Fee; and g. As applicable: Loans made to the Project by the General Partner; Loans made to eliminate operating deficits; and iii. A completion loan. 8. The Developer must commit 75% of the Project's Residual Receipts to the repayment of the Agency Note, the City assistance and the County assistance. The funding allocation for the debt service payments will be agreed upon among the three parties. 0905018.LE: KHH: 9bd 15190.004/003;5 /14109 Page 24 of 27 C. Agency Responsibilities The Agreement imposes the following responsibilities on the Agency: The Agency must assemble the Site, and then convey it to the Developer in accordance with the terms set forth in the Agreement. The Site assemblage costs that must be incurred by the Agency are: a. Property acquisition costs; b. Tenant relocation costs; C. Demolition costs; and d. Commissions, closing and administrative costs. 2. The Agency must contribute up to $286,000 in direct financial assistance to the Project. 3. The Site assemblage costs and direct Agency financial assistance are estimated to total $4,061,000 II. COST OF THE AGREEMENT TO THE AGENCY The costs incurred by the Agency to implement the Agreement are estimated as follows: Site Assemblage Costs $3,198,000 Tenant Relocation Costs 459,000 Demolition Costs 40,000 Commissions, Closing & Administrative Costs 78,000 Direct Financial Assistance 286,000 Total Agency Cost $4,061,000 The $4.06 million in Agency costs are proposed to be paid using Property Tax Increment Housing Set -Aside funds. The $4.06 million in Agency costs represent the initial principal balance of the Agency Note. The Agency Note will be repaid solely from the Residual Receipts generated by the Project over time. The Agency can anticipate receiving some Residual Receipts debt service payments over the 55 -year covenant period, with the outstanding principal and interest balance being due after the covenant period terminates. Recognizing that the repayment schedule will be based solely on the Project's actual performance, it is not possible to accurately predict the amount of interest that will accrue on the $4.06 million Agency Note. In turn, the repayment amount and timing are too speculative to project as part of this analysis. 0905018.LE: KHH: 9bd 15190.0041003;5 /14/09 Page 25 of 27 III. ESTIMATED VALUE OF THE INTERESTS TO BE CONVEYED DETERMINED AT THE HIGHEST USE PERMITTED UNDER THE REDEVELOPMENT PLAN California Health and Safety Code Section 33433 requires the Agency to identify the value of the interests being conveyed at the highest use permitted under the Redevelopment Plan. The valuation must be based on the assumption that the property is vacant, and that near -term development is required. The valuation does not take into consideration any extraordinary use, quality and/or income restrictions being imposed on the development by the Agency. The Agency obtained highest and best use appraisals for the parcels included in the Site assemblage for the proposed Project. The appraisals set the value of the vacant parcels at $12.56 per square foot of land area. When that per square foot value is applied to the entire 4.3 -acre Site, the resulting value is $2.34 million. This represents the fair market value of the Site at the highest use permitted under the Redevelopment Plan. IV. ESTIMATED REUSE VALUE OF THE INTERESTS TO BE CONVEYED Keyser Marston Associates, Inc. (KMA), the Agency's financial consultant, prepared a reuse valuation analysis of the Project based on the financial terms and conditions imposed by the Agreement. The KMA analysis concluded that the fair reuse value of the Site is negative $331,000. This means that the Site would have to be donated at no cost to the Project in a developable state, and that $331,000 in direct financial assistance would have to be provided, to make the Project financially feasible. It is important to note that the reuse value conclusion is predicated on the assumption that the Project will receive $18.75 million in net 9% Tax Credit proceeds and $440,000 in HOME funds awarded by the County. If these competitively awarded assistance funds are not received, the Project's financial gap will increase on a dollar- for - dollar basis. V. CONSIDERATION RECEIVED AND COMPARISON WITH THE ESTABLISHED VALUE The Agreement imposes extraordinary controls on the Project. Specifically, the Developer must accept a 55 -year covenant that imposes income and affordability restrictions on 111 units in the Project. The impacts created by these requirements reduce the Site's value from $2.34 million at the highest use permitted under the Redevelopment Plan, to the established fair reuse value of negative $331,000. The Agreement treats 100% of the costs incurred by the Agency as a loan that accrues 3% simple interest annually. The Developer must make annual debt service payments on this obligation using the Residual Receipts generated by the Project. At the end of the covenant 7 0905018.LE: KHH: 9bd 15190.004/003;5 /14/09 Page 26 of 27 period, the Developer must repay any outstanding principal and interest balance. Given that the repayment proceeds received by the Agency will be greater than the established fair reuse value of negative $331,000, it can be concluded that the Agency is receiving fair consideration for the interests being conveyed to the Developer. VI. BLIGHT ELIMINATION The Project includes the development of 113 residential units, of which 111 units are subject to long -term income and affordability restrictions. In accordance with California Redevelopment Law, as portrayed in the California Health and Safety Code Section 33433, the conveyance of property that results in the provision of housing for low or moderate income persons satisfies the blight elimination criteria imposed by Section 33433. Thus, the Project fulfills the blight elimination requirement. VII. CONFORMANCE WITH THE AB1290 IMPLEMENTATION PLAN The proposed Project fulfills the following goals that were identified in the Redevelopment and Housing Implementation Plan 2005 -2009: To prioritize Housing Fund expenditures to projects that assist the Agency in meeting its inclusionary housing requirements under Section 33413(b); and To provide affordable housing opportunities to all economic segments of the community. In March 2009, the Agency adopted an Amended and Restated Redevelopment and Housing Implementation Plan 2005 -2009. The Amended Plan specifically identifies the Project in the "Programs and Expenditures" section of the report. Thus, the Project furthers the goals established by both the original AB1290 Implementation Plan for 2005 -2009, and under the Amended Plan that was adopted in March 2009. 090501 8.LE: KHH: 9bd 15190.004/003;5/14/09 Page 27 of 27