SUBJECT: APPROVAL OF BUSINESS TERMS FOR A
CONSTRUCTION/PERMANENT LOAN AND BRIDGE LOANS TO LENZEN HOUSING, L.P., A
CALIFORNIA LIMITED PARTNERSHIP, OR ITS DESIGNATED PARTNERSHIP, FOR THE
DEVELOPMENT OF THE LENZEN APARTMENTS -- REPLACEMENT REPORT
COUNCIL DISTRICT: 6
REASON FOR REPLACEMENT REPORT
City Council actions and
recommendations contained in this report are needed June 26th so that the loan
documents can be prepared and reviewed by all parties to the transaction in
order to keep the subject on its scheduled tax-exempt bond financing closing
date in July 2001. Last minute changes
to the amounts to permanent loan and the bridge loans kept these matters from
coming to the City Council at an earlier date.
RECOMMENDATION
It is recommended that the City Council adopt a resolution approving business terms for:
1. A construction loan of up to $4,161,000 to Lenzen Housing, L.P., a California Limited Partnership, or its designated partnership, for the development of an 88-unit housing project with 69 units affordable to low-income households and 18 units affordable to very low-income households that will be targeted to teachers and one unrestricted unit on a 1.61-acre site located at on the south side of Lenzen Avenue, 210 feet west of Stockton Avenue (“Project”).
2. A permanent loan of up to $4,674,337 to Lenzen Housing, L.P. for the Project.
3 A bridge loan of up to $3,322,000 to Lenzen Housing, L.P. during the construction and lease-up phases for construction costs of the Project.
4. A bridge loan of up to $1,100,000 to an affiliate of Lenzen Housing, L.P. during the construction and lease-up phases for construction costs for the Project.
BACKGROUND
On August 29, 2000, the City Council adopted a resolution to approve business terms for an acquisition and predevelopment loan of up to $4,161,000 for the project.
In February 2001, the sponsor submitted an application to the California Debt Limit Allocation Committee (CDLAC) for an allocation of tax-exempt bonds and was informed on May 8, 2001 that the project was awarded an allocation.
The sponsor has secured construction and permanent financing commitments and is seeking approval of a City construction/permanent loan of up to $4,161,000, bridge loans up to an aggregate amount of $4,422,000 during the construction and lease-up phases, and a loan of up to $4,674,337 during the permanent phase.
On May 8, 2001, the City of San Jose received an allocation from CDLAC for the issuance of $9,750,000 in tax-exempt bonds for the project.
The authorization
to issue the bonds and other recommendations related to the bonds will be
completed under a separate report to the City Council on June 26, 2001. The sole purpose of this report is to
establish the business terms for the Housing Department’s construction
/permanent loan and the bridge loan to the project.
Project costs
are estimated to be $17,943,000. In
addition to the funds available from bond proceeds, the sponsor has applied for
an allocation of 4% tax credits under the California Tax Credit Allocation
Committee’s (CTCAC) non-competitive funding application.
In conjunction with the closing of the bond financing, the City’s acquisition/predevelopment loan, which has a current outstanding balance of approximately $3,972,163 which will roll into a construction loan during the construction period.
Staff is
recommending approval of business terms for a construction/permanent City loan,
which will consist of a construction loan commitment of up to $4,161,000, a
permanent loan commitment of up to $4,674,337 and bridge loans of up to an aggregate amount of $4,422,000.
Two bridge loans to different entities are necessary to meet federal
regulations governing tax-exempt bonds.
Refer to the
attached Fact Sheets for complete business terms for the City
construction/permanent loan and the bridge loans.
PUBLIC OUTREACH
The sponsor held a neighborhood meeting on July 26, 2000 at the administrative offices of the San Jose Unified School District on Lenzen Avenue. Representatives from the office of Council District 6 and staff members from the City’s Planning Department were among the attendees. The sponsors presented site plans and described details of the proposed project. Neighborhood residents raised concerns regarding the hours of construction and noise generated by uses on adjacent sites. The sponsors and Planning Department staff fully addressed all concerns raised by the neighborhood residents.
COORDINATION
Preparation of this memorandum was coordinated with the Office of the City Attorney.
COST
IMPLICATIONS
Funds for the proposed construction/permanent loan and the bridge loans for the project are available in the Housing Department’s Fiscal Year 2000-2001 budget.
Leslye Corsiglia
Acting Director of Housing
Attachments
Lenzen Apartments
Fact Sheet
Development Team
Developer: Lenzen Housing L.P.,
a California Limited Partnership
Architect: David Baker Associates Architects
Contractor: Core Builders
Property Manager: Ventana Property Services
Project Characteristics
Project Location: southside of Lenzen, 210 feet west of Stockton Avenue
Acreage: 1.61 acres
Council District: 6
Project Type: Family Rental
Group Served: Low- and Very low-income households
Number of Units: 88 (69 low-income; 18 very low-income; 1 unrestricted manager’s unit)
Bedroom Mix and
Monthly
Rent: 0
BR 1 BR 2
BR
VLI (50% AMI) 7 @ $737 7 @ $782 4 @ $928
LI (60% of AMI) 31 @ $890 31 @ $945 7 @ $1125
Unrestricted 1
Other Amenities: Elevator, laundry facilities, furnished community room with community kitchen, outdoor patios, community room with library and craft area and computer learning center.
Estimated Total Project Cost: $17,883,000
Estimated Cost Per Unit: $203,216
Anticipated City Subsidy
at Permanent Loan: up to $4,674,337
Anticipated City Subsidy
per Unit at Permanent Loan: $53,117
Anticipated Leverage per Unit: 3.42 to 1
Land Appraised Value: $3,020,000 (Cushman & Wakefield 4/8/200)
Proposed Source of Funds (Construction)
Lender/Investor Repayment Type Amount Status[1]
Series A Bonds Interest Payment $ 8,100,000 C
Series B Bonds[2] Upon stabilized occupancy $ 1,100,000 C
City of San Jose Interest Accrued $ 4,161,000 P
City of San Jose (Bridge A) Equity Payments $ 3,322,000 P
City of San Jose (Bridge B) Equity Payments $ 1,100,000 P
Deferred Developer Fee Deferred $ 1,200,000 P
Total $17,883,000
Proposed Source of Funds (Permanent)
Series A Bonds Amortized $ 8,100,000 C
City of San Jose Residual Receipts $ 4,674,337 P
Deferred Developer Fee Residual Receipts $ 1,200,000 P
Tax Credit Equity Equity $ 4,422,000 P
Total $ 18,396,337
Construction/Permanent Loan Terms and Conditions:
Loan Amount: $4,161,000
Term: 18 months
Interest Rate: 4% simple
Security: Subordinated Recorded Deed of Trust
Repayment: City Permanent Loan, Including Accrued Construction Interest
Loan to Value: 408%, based on land appraised value
Recourse: The loan shall be recourse.
Subordination: As allowed by State law.
Affordability Restrictions: 55 year Affordability Restrictions for the 87 of the units were recorded on the property at the time of acquisition, and may be subordinated as permitted by State law.
Conditions:
1. At the time of closing of the City's loan for this project, no default is present under any loan documents executed by the following entities: Lenzen Housing, L.P., a California Limited Partnership (Borrower) or any affiliate of the Borrower; Core Development or any of its partnership affiliates.
2. Satisfaction of all pre-funding terms and conditions as per the City’s executed Construction/Permanent Loan agreement and the Bridge Loan agreement between the City and Borrower, or its designated partnership.
3. Project cost savings (the difference between the budgeted project cost as reported in the final Project Summary approved by the Housing Department, and the final costs incurred, as evidenced by a CTCAC basis audit and cost certification) will be distributed as follows: to be applied first to reduce outstanding deferred developer fee, then to the City which will be applied first to reduce outstanding interest on the City loan, then any remaining amount to principal on the City loan. All project cost overages will be paid by Borrower.
4. All refundable deposits and fees shall be applied to reduce outstanding interest on the City loan, then any remaining amount to principal on the City loan.
5. Any surplus funding from tax credit equity or permanent loan financing will be distributed as follows: to be applied first to reduce outstanding deferred developer fee, and then to the City which will be applied first to reduce outstanding interest on the City loan, then any remaining amount to principal on the City loan.
During Permanent Phase
Loan Amount: $4,674,337
Term: 40 years
Interest Rate and Repayment: 1%, simple from years 1 through 15; 4%, simple thereafter from 70% of Residual Receipts (net cash flow less permitted expenses).
Security: Subordinated Recorded Deed of Trust
Loan to Value: Less than 100%
Recourse: The loan shall be non-recourse.
Subordination: As allowed by State law.
Affordability Restrictions: 55-year Affordability Restrictions for 87 of the units were recorded on the property at the time of acquisition, and may be subordinated as permitted by State law.
Conditions:
4. All refundable deposits and fees shall be
applied to reduce outstanding interest on the City loan, then any remaining
amount to principal on the City loan.
5. Any surplus funding from tax credit equity
or permanent loan financing will be distributed as follows: to be applied first
to reduce outstanding deferred developer fee, then to the City which will be
applied first to reduce outstanding interest on the City loan, then any
remaining amount to principal on the City loan.
6. The Project will be allowed the following
to be identified as a permitted expense for purposes of calculating net cash
flow:
a)
Deferred
developer fee for the first fifteen years or until the full $1,200,000 is fully
paid off, shall accrue simple interest at 1%.
b)
Partnership
Management Fee in an amount and term that is acceptable to the Housing
Department.
c)
An Asset
Management Fee to limited partner in an amount and term that is acceptable to
the Housing Department.
d)
City issuer
fee for bonds equal to one-eight of one percent (0.125%) of the original
principal amount of the Bonds.
e)
Any unused
amount of up to $263,677 in the hard cost contingency line item of the project
budget, after completion of the project, shall be first used by the Borrower to
reduce the principal balance of the City Permanent Loan before payment of the
Deferred Developer Fee.
7. At
a minimum, the project must continue to meet its proforma income and expense
cash flow projections and timeline, as
presented in the final project proforma approved by Housing Department staff.
Bridge Loans Terms and Conditions:
(A) Loan Amount: $3,322,000
Term: up to 30 months
Interest Rate: City’s cost of borrowing (currently LIBOR plus .54)
Security: Assignment of Tax Credit Equity Pay-ins
Repayment: Tax Credit Equity Pay-ins
Loan to Value: 408%, based on land appraised value
Recourse: The loan shall be recourse.
Conditions:
1. At
the time of the closing of the Bridge Loans for this project, no default is
present under any loan documents executed by any of Borrower’s entities,
partnership affiliates or designated partnerships.
2. Satisfaction
of all pre-funding terms and conditions as per the City executed Bridge Loans
agreements between the Borrower, or any of its partnership affiliates or any of
its designated partnerships.
(B) Loan Amount: $1,100,000
Term: up to 30 months
Interest Rate: City’s cost of borrowing (currently LIBOR plus .54)
Security: Assignment of Tax Credit Equity Pay-ins
Repayment: Tax Credit Equity Pay-ins
Loan to Value: 408%, based on land appraised value
Recourse: The loan shall be recourse.
Conditions:
1. At
the time of the closing of the Bridge Loans for this project, no default is
present under any loan documents executed by any of Borrower’s entities,
partnership affiliates or designated partnerships.
2. Satisfaction
of all pre-funding terms and conditions as per the City executed Bridge Loans
agreements between the Borrower, or any of its partnership affiliates or any of
its designated partnerships.
Planning Issues
GP Designation: Public/Quasi-Public and General Commercial
PD Rezoning Status: Approved
PD Permit Status Approved
Building Permits: Pending
Article XXXIV Status: Authority from Measure D (1994) is available
Estimated Project Development Timeline
June 26, 2000 Anticipated City Council Approval of Construction/ Permanent Loan and Bridge Loan Business Terms
June 26, 2001 Anticipated City Council Approval of Bond Issuance and Bond Documents
August 2001 Anticipated Issuance of Bonds and Loan Closing
August 2001 Anticipated Start of Construction
December 31,2002 Anticipated Completion of Construction