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HomeMy WebLinkAbout0014_17_DDL Affordable Housing - Exhibit P City Commitment Letter1603\27\1916918.8 October __, 2016 Lake Elsinore CCR LLC c/o C & C Development Co., LLC 14211 Yorba Street, Suite 200 Tustin, CA 92780 Attn: Todd R. Cottle Re:Loan Commitment for Rental Housing Project – Mission Trail Affordable Housing Dear Mr. Cottle: The City of Lake Elsinore (City) has approved a construction and permanent loan in an amount not to exceed $ 8,215,250 (Loan) to Lake Elsinore CCR LLC or its permitted assignee, a limited partnership in which Lake Elsinore CCR LLC or its affiliate acts as the co-general partner, Orange Housing Development Corporation or its affiliate acts as managing general partner, and with such tax credit limited partners as may invest in the Project (Developer), for the above- referenced project. Seven Million Five Hundred Thousand Dollars ($7,520,000) of the Loan will be funded from the City’s “SARDA Housing Fund,” which consists of Low and Moderate Income Housing Asset Fund monies, and $695,250 of the Loan will be funded from the City’s “Affordable Housing Fund.” Proceeds of the Loan are to be used to acquire property and construct an approximately eighty-one (81) unit apartment building (Project) located on Mission Trail in the City (Property). Disbursement of the proceeds of the Loan and consummation of the transactions contemplated hereby are conditioned upon the negotiation and execution of one or more loan agreements and related documents on terms and conditions acceptable to City. 1.TERMS OF THE LOAN. Principal terms of the Loan will include, but not be limited to, the following: a. The maximum principal amount of the Loan shall be $8,215,250. The outstanding principal balance of the Loan shall bear interest at one-half percent (0.5%) per annum simple interest. The Loan shall be due and payable in 55 years from the completion of construction of the Project. Payments of principal and interest shall be paid from residual receipts, with 50% of residual receipts to be disbursed to City and any other subordinate lenders, pro rata based on the amount of each subordinate lender’s loan, in payment thereof. Residual receipts shall Lake Elsinore CCR LLC Page 2 1603\27\1916918.8 mean the effective gross rental income from the improvements, less actual, reasonable and customary costs, fees and expenses of operation directly attributable to the improvements, including, but not limited, to the following: maintenance; alterations; taxes; landscaping; common utilities; premiums for property damage and liability insurance; any annual license or certificate of occupancy fees required for operation of the Project; security services; advertising and marketing; debt service on subordinate loan(s) not payable out of residual receipts or as otherwise approved by the City Manager; debt service on superior loans providing construction or permanent funding to the Project approved as part of the loan closing process and loans refinancing such debt with no "cash out" to the Developer; a property management fee; a general partner management fee; an asset management fee, deposits into a replacement reserve; deposits into an operating reserve; resident service costs; payment of any Deferred Developer Fee; payment of principal or interest on any indebtedness of Developer to any affiliate of Developer or partner of Developer to repay completion and operating deficit loans relating to the Project (provided that such loans and repayment are permitted by the agreements and programs governing debt and equity invested in the Project); partner loans from the partners of the Borrower (provided that such loans and repayment are permitted by the agreements and programs governing debt and equity invested in the Project); tax credit adjusters as set forth in the Developer’s partnership agreement; payments of deductibles in connection with casualty insurance claims not paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not paid from reserves; and other ordinary and reasonable operating expenses not listed above. All fees and costs (including, without limitation, general partner management fees, developer fees and deferred developer fee) are to be as outlined in the financial pro forma provided by the Developer to the City dated as of September 12, 2016. Any revisions to such fees and costs shall be reasonably approved by the City Manager as part of the loan closing process. b. The Loan shall be evidenced by one or more Promissory Note(s) and shall be secured by one or more Deed(s) of Trust in a form acceptable to City. The Deed of Trust shall be recorded against the Property in a lien position subordinate to the commercial construction lenders to the Project and any permanent financing provided by a commercial lender and approved as part of the loan closing process provided that the City receives customary subordinate lender protections. In addition, one or more City regulatory agreements restricting occupancy of no more than 49% of the Project apartment units to persons of very low and low income (as determined in accordance with California Health & Safety Code Sections 50105 and 50079.5, respectively) at an affordable rent (as determined in accordance with California Health & Safety Code Section 50053(b)) for the longest feasible time, but no less than 55 years from the date of initial occupancy, will be recorded prior to the disbursement of the City funds. Twenty one (21) units shall be restricted to occupancy by very low income households at an affordable rent, and nineteen (19) shall be restricted to occupancy by low income Lake Elsinore CCR LLC Page 3 1603\27\1916918.8 households at an affordable rent. In the event the land use approvals require a change to the allocation of units restricted to occupancy by low and very low income households, Developer and City agree to negotiate appropriate allocations between low and very low income households in good faith, which such revised unit restrictions shall be approved by the City Council and acceptable to other lenders and the investor to the Project. c. City shall be furnished with evidence that the Project has received all required approvals from all applicable governmental bodies and agencies. Such approvals shall include, but not be limited to, ready to issue building permit letters. d. "All risk" (special perils) property insurance, including coverage during the course of construction and, if the property is in a flood zone designated for mandatory flood insurance, coverage for the peril of flood, shall be furnished in an amount sufficient to rebuild or replace the improvements at replacement cost new. A policy shall be issued by an insurance company acceptable to City and shall name City as a loss payee. Developer shall furnish or cause to be furnished to City, and Developer shall ensure that the Project contractor furnishes or causes to be furnished to City, general liability insurance policies equivalent in coverage scope to an ISO CG 00 01 10 93 form in an amount of at least $5,000,000 per occurrence. Each policy shall name City and its respective boards, commissions, officials, employees, and agents as additional insureds on an endorsement equivalent in coverage scope to an ISO 20 10 11 85 that includes coverage for both ongoing and completed operations, provided the endorsement is commercially available from the Developer’s insurance underwriter. All insurance shall be subject to such other conditions as may be required by the City Risk Manager. e. Developer shall obtain surety regarding the payment of the loan and completion of construction as is reasonably approved by City, construction lender and investor in such amount as is reasonably required by construction lender and investor. The City shall be a named insured on such surety. f. The Loans shall be non-recourse. g. City shall be provided with one or more ALTA Policies of Lender’s Title Insurance in the amount of the Loan secured by the Property showing fee title vested in Developer and including such endorsements as reasonably requested by City. h. Developer shall provide evidence, satisfactory to City, of its compliance with all applicable and reasonable City requirements. Lake Elsinore CCR LLC Page 4 1603\27\1916918.8 i. Construction of the Project (as evidenced by the issuance of Notice to Proceed) shall commence within the time frame which satisfies the requirements of all programs providing funding for the Project. Should construction not commence by such date, City shall have the right to terminate the City Loan Agreement and/or the commitment for the Loan described herein unless delay is due to City's delays. j. City shall reasonably approve the tax credit investor and the terms of its investment in the Project. Any additional funds generated by Developer through enhanced tax credit equity rates will reduce the amount of the Loan, but only to the extent that such additional funds result in net savings to the Project and only after reduction of any deferred developer fee to an amount not less than $250,000. k. Construction must be completed and a Certificate of Occupancy issued within twenty-four (24) months from the start of construction or such other date as may be approved in writing by CDLAC, City and any other provider of funding for the project, subject to any permitted extension provided by the senior construction lender and the investor. l. Loan proceeds will be disbursed in accordance with a disbursement schedule to be finalized before Loan closing. m. The type of units constructed and their restrictions, and the amount and terms of other financing, shall not differ substantially from those approved by City as of the date hereof. n. Developer shall pay an annual monitoring fee to City of $90 per restricted unit per annum, as such amount may be increased by 3.5% per annum. Notwithstanding the foregoing, the total annual monitoring fee payable to the City for the restricted units shall not exceed $40,000 per annum. o. A portion of the Loan shall be used to repay in full any predevelopment loan made by the City to the Developer in connection with the Project. 2. CONDITIONS PRECEDENT TO DISBURSEMENT OF THE LOAN: a. The Loan commitment described herein is expressly conditioned upon Developer’s demonstration, to the satisfaction of City, of receipt of such financing as is necessary and sufficient to construct and operate the Project in a financially feasible manner, including, without limitation, binding legal agreements for (i) construction financing; (ii) Developer application for and receipt of an allocation of Tax Exempt Bonds from the California Debt Limit Allocation Committee (CDLAC) and of Low Income Tax Credits from the California Tax Credit Allocation Committee (TCAC), and purchase thereof by a qualified investor(s); Lake Elsinore CCR LLC Page 5 1603\27\1916918.8 and (iii) any additional permanent financing and/or operating subsidies in an aggregate amount sufficient to repay the construction financing and operate the project in a manner that results in sufficient cash flow to pay for customary maintenance and operation of the project, including all required debt payments. b. Funding of the Loan is conditioned upon submission of draw requests accompanied by satisfactory evidence of incurrence of approved construction and related costs of rehabilitation of the units. c. Funding of the Loan and other construction financing shall occur by the outside closing date imposed by CDLAC for the tax-exempt bonds that will finance the senior construction loan for the Project, or this Commitment or the Loan agreement (if any) shall be automatically terminated and of no further force and effect, except if the City causes such delay, in which case this Commitment or the City Loan agreement (if any) remains in place and the Developer will reapply to CDLAC for tax-exempt bond allocation for the Project. If CDLAC approval is not obtained within eighteen months of the date of such re-application, the Loan Agreement shall automatically terminate and be of no further force and effect. d. This commitment and any loan agreement(s) to be entered into are expressly conditioned upon compliance with CEQA and all other applicable laws. e. The Loan commitment described herein is expressly conditioned upon approval of the final loan agreement(s) and all necessary attachments thereto (including, but not limited to, promissory note(s), deed(s) of trust, and regulatory agreement) by the City Manager, and the preparation, execution and delivery of such documentation in form and substance satisfactory to the City Manager and City Attorney incorporating substantially the terms and conditions outlined or referred to above plus the customary terms and conditions of a City loan of this type. f. This commitment and any loan agreement to be entered into is expressly conditioned upon the execution by Developer’s construction lender(s) of a subordination agreement and/or an intercreditor agreement, with such agreement(s) in such form as is acceptable to the City Manager and City Attorney, pursuant to which City subordinates the lien(s) of its Deed(s) of Trust and regulatory agreement(s) to the lien(s) of the deed(s) of trust securing the construction lender’s loan. g. The Loan commitment described herein is expressly conditioned upon the Developer agreeing to additional covenants relating to property maintenance and funding and expenditure from reserve accounts to be set forth in a Loan agreement executed by the Developer and City. 3.DUE ORGANIZATION: Developer warrants that it is, and at closing of the loan it or its approved assignee will be, duly organized and authorized to enter into any documents Lake Elsinore CCR LLC Page 6 1603\27\1916918.8 evidencing and securing the Loan and that evidence in the form of corporate resolutions and the like, reasonably acceptable to City, will be provided. Developer shall furnish such additional evidences, assurances, certifications, acknowledgments, instruments, documents or other items as City may request to evidence Developer’s authority to enter into any documents evidencing and securing the Loan. 4.ACCURACY OF INFORMATION: City is relying on the information in the documents furnished to it by Developer in making this Loan commitment, including, without limitation, those documents describing the Project and the proposed financing therefore. Developer represents and warrants to City that all information heretofore provided by it is accurate in all material respects and agrees and acknowledges that the commitment described herein is solely for the Project as described in those documents. 5.APPLICABLE LAW: This Commitment Letter is made pursuant to, and shall be construed and governed by the laws of California and the United States. 6.NO OTHER AGREEMENTS: This Commitment Letter supersedes and cancels all other discussions, representations and agreements, which may exist between Developer and City regarding the Loan. This Commitment Letter is not assignable by Developer except in accordance with the terms set forth herein and upon the prior written consent of City and any such attempted assignment is void. At the closing of the Loan, this Commitment Letter will merge into and be superseded by the documents evidencing and securing the Loan. 7.TIME OF ESSENCE: Time is of the essence of each and every obligation set forth in this Commitment Letter. The Acceptance below must be executed and delivered to City no later than October 31, 2016. If the execution of the Loan agreement (which shall not include funding of the Loan) does not occur by the earlier of either (a) the outside closing date imposed by the California Debt Limit Allocation Committee for the issuance of the tax-exempt bonds that will finance the senior construction loan for the Project, or (b) December 31, 2019, this Commitment Letter and the Loan commitment described herein shall be automatically terminated and of no further force and effect. Lake Elsinore CCR LLC Page 7 1603\27\1916918.8 Sincerely, City of Lake Elsinore By: Its:_____________________________ Lake Elsinore CCR LLC Page 8 1603\27\1916918.8 ACCEPTANCE: Each individual signing on behalf of Developer acknowledges that he or she has read and understood all of the terms and conditions of this Commitment Letter, and accepts all of them as written above. Lake Elsinore CCR LLC, a California limited liability company By:____________________________ Todd R. Cottle, managing member