SUBJECT: APPROVAL OF BUSINESS TERMS FOR A
CONSTRUCTION/ PERMANENT LOAN TO VILLAGES PARKWAY ASSOCIATES, L.P., FOR THE
DEVELOPMENT OF THE VILLAGES PARKWAY SENIOR APARTMENTS PROJECT
COUNCIL DISTRICT: 8
RECOMMENDATION
It is recommended that the City Council adopt a resolution approving business terms for a construction loan of up to $4,134,000 and a permanent loan of up to $4,383,000 to Villages Parkway Associates, L.P., or its affiliate, for the development of a 79-unit housing project affordable low- and very low-income seniors on a 1.96-acre site located at the northeast corner of The Villages Parkway and Ashley Way.
BACKGROUND
On October 3, 2000, the City Council adopted a resolution to approve business terms for an acquisition and predevelopment loan of up to $3,035,000, a conditional grant (Grant) of up to $920,000 and additional fund reservation of up to $1,099,000 for construction financing to JSM Enterprises Inc. (JSM) for the development of a 79-unit housing project affordable to low-, very low- and extremely low-income seniors on a 1.96-acre site located at the northeast corner of The Villages Parkway and Ashley Way.
In March 2001, JSM informed the Housing Department that it would be declining the City Grant of $920,000, since it was not possible to incorporate the funds into the project without negatively impacting the other project financing sources. Since the Grant funding applies to the extremely low-income units (ELI), the sponsor will convert the eight (8) ELI units to very low-income units.
On May 8, 2001, the project was awarded an allocation of tax-exempt bonds from CDLAC. Villages Parkway Associates, L.P. (Sponsor) has secured construction and permanent financing commitments and is seeking approval of a construction/permanent loan of up to $4,134,000 during the construction phase and up to $4,383,000 during the permanent phase.
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 and permanent loans to the project.
ANALYSIS
On May 8, 2001, the City of San José received an allocation from CDLAC for the issuance of $6,800,000 in tax-exempt bonds for the project. The proposed bond will be structured as one tax-exempt series in an aggregate amount not to exceed $6,800,000. Bond proceeds will be available for disbursement at the start of construction and will require interest-only payments during the construction and lease-up period. Once the project achieves rental stabilization, the bonds will convert to a fully amortized 30-year permanent loan.
Total project costs are estimated to be $14,630,000, which includes construction-period interest on the City's loan. 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. The project will receive approximately $3,608,000 in equity from the proposed tax credit investor Lend Lease.
In conjunction with the closing of the bond financing, the City’s acquisition/predevelopment loan of $3,035,000 will increase by $1,099,000, the amount of the construction fund reservation, for a total commitment of $4,134,000 that will then roll into a construction/permanent loan. Additional City funds will be disbursed at bond closing and the remainder during construction.
Staff is recommending approval of business terms for a construction/ permanent City loan to the Sponsor, which will consist of a construction loan commitment of up to $4,134,000 and a permanent loan commitment of up to $4,383,000. The City’s permanent loan amount consists of the City’s construction loan of $4,134,000 and estimated accrued construction interest of $249,000. The City’s permanent loan will accrue interest at 4.00% and will be repaid from residual receipts.
Refer to the attached Fact Sheets
for complete business terms for the City's loans.
PUBLIC OUTREACH
The sponsor hosted a neighborhood meeting on May 8, 2000 at the Cribari Center Auditorium at The Villages. Representatives from the Office of Council District 8 and staff from the Planning, Building and Code Enforcement, Public Works and Housing Departments were among the attendees. The sponsor presented site plans and described details of the proposed project. The sponsor and City staff addressed concerns raised by the neighborhood residents. Councilmember Woody was available to hear specific concerns from the residents.
On June 8, 2000, a subsequent neighborhood meeting was held at the Evergreen Community Center. The project sponsor, Councilmember Woody and City staff explained changes to the original project concept, which includes reducing the original number of units from 96 to 79 and reducing the building height from three-stories to two-stories to address neighborhood concerns.
COORDINATION
Preparation of this memorandum was coordinated with the Office of the City Attorney.
COST
IMPLICATIONS
The
additional funds of $1,099,000, to be provided during the construction phase of
the project, are available from the Housing Department’s Fiscal Year 2000-2001
budget. The additional funds of
$249,000 for the permanent loan consists of interest earned during the
construction phase of the project, so that no additional disbursement of funds
will be necessary.
LESLYE CORSIGLIA
Acting Director of Housing
Attachments
Villages Parkway
Senior Apartments
Fact Sheet
Development Team
Developer: Villages Parkway Associates
Architect: Ko Architects, Inc.
Contractor: Branagh Inc.
Property Manager: California Real Estate Management
Project Characteristics
Project Location: Northeast corner of The Villages Parkway and Ashley Way
Acreage: 1.96 acres
Council District: 8
Project Type: Senior Rental
Group Served: Very low- and low-income households
Number of Units: 79 (24 very low-income, 54 low-income; 1 unrestricted manager unit)
Bedroom
Mix and Monthly Rent: 1
BR 2 BR
VLI (50% AMI) 24 @ $782
LI (60% AMI) 54 @ $945
Unrestricted 1 Mgr Unit
Other Amenities: Elevators, furnished community room with community kitchen, TV room, lounge, exercise room, landscaped courtyard with fountain.
Estimated Total Project Cost $14,630,000
Estimated Cost Per Unit: $185,190
Anticipated City Subsidy
at Permanent Loan: $4,383,000
Anticipated City Subsidy per Unit
at Permanent Loan: $56,192
Anticipated Leverage per Unit
for Permanent Loan: 2.34 to 1
Proposed Source of Funds (Construction) Estimated as of June 8, 2001
Lender/Investor Repayment Type Amount Status*
Tax-Exempt Bonds Interest Payment $ 6,639,000 C
City of San Jose Loan Interest Accrued $ 4,134,000 P
Lend Lease Equity $ 3,608,000 C
Total $14,381,000
Tax-Exempt Bonds Amortizing $ 6,639,000 C
City of San Jose Loan Residual Receipts $ 4,383,000 P
Lend Lease Equity $ 3,608,000 C
Projected Lease-Up Income Income $ 210,000 ** P
Total $14,840,000
Villages Parkway Associates, L.P. Construction/Permanent Loan:
Loan Amount: $4,134,000
Term: 18 months
Interest Rate: 4%, simple interest
Security: Subordinated Recorded Deed of Trust
Repayment: City Permanent Loan (includes Accrued Interest)
Loan to Value: 207% based on land appraised value.
Less than 100% at construction completion.
Recourse: The loan shall be recourse.
Subordination: The City's Deed of Trust will be subordinate to the Bond Deed of Trust.
Affordability Restrictions: 55-year Affordability Restrictions for 78 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: Villages Parkway Associates, L.P. (Borrower) or any affiliate of the Borrower; JSM Enterprises Inc, or any of its affiliates; Foundation for Social Resources, or any of its affiliates.
2. Satisfaction of all pre-funding terms and conditions as per the City’s executed Construction/Permanent loan agreement between the City and Developer, or its affiliates.
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: 100% shall be applied first to reduce any outstanding deferred developer fee, then interest on the City loan, then any remaining amount to principal on the City loan.
4. All refundable deposits and fees shall be first applied to reduce the deferred developer fee, then 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 shall be applied first to reduce the deferred developer fee, then any outstanding interest on the City loan, then any remaining amount to principal on the City loan.
6. Any changes to City loan terms and conditions requested by lenders or tax credit investors are subject to the review and approval of the Housing Department.
Construction/Permanent Loan
During Permanent Phase
Loan Amount: $4,383,000
Term: 30 years
Interest Rate and Repayment: 4%, simple interest
Repayment Residual Receipts (net cash flow less permitted expenses). See Condition #7 below.
Security: Subordinated Recorded Deed of Trust
Loan to Value: Less than 100%
Recourse: The loan shall be non-recourse.
Subordination: The City's Deed of Trust will be subordinate to the Bond Deed of Trust
Affordability Restrictions: 55-year Affordability Restrictions for 78 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: Villages Parkway Associates, L.P. (Borrower) or any affiliate of the Borrower; JSM Enterprises Inc. or any of its affiliates; Foundation for Social Resources, or any of its affiliates.
2. Satisfaction of all pre-funding terms and conditions as per the City’s executed Construction/Permanent loan agreement between the Borrower or its affiliates.
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: 100% shall be applied first to reduce any outstanding deferred developer fee, then interest on the City’s loan, then any remaining amount to principal on the City’s loan.
4.
All
refundable deposits and fees shall be first applied to reduce the deferred
developer fee, then 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 shall be applied
first to reduce any deferred developer fee, then outstanding interest on the
City loan, then any remaining amount to principal on the City loan.
6.
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.
7.
The Project
will be allowed the following to be identified as permitted expenses for
purposes of calculating net cash flow:
a) Partnership
Management Fee in an amount and term that is acceptable to the Housing
Department.
b) A
City issuer fee for the bonds equal to one-eighth of a point (.125%) of the
original principal amount of the Bonds for the term of the bonds.
8. Any changes to City loan terms and conditions requested by lenders or tax credit investors are subject to the review and approval of the Housing Department.
GP Designation: Neighborhood/Community Commercial
PD Rezoning Status: Approved August 3, 2000
PD Permit Status Pending
Building Permits: Pending
Article XXXIV Status: Authority from Measure D (1994) is available
Toxics Issues: A Phase I Environmental Site Assessment was completed on October 12, 1999 by Environmental Service by Papineau. The report concluded that there was no visible or other evidence of soil contamination discovered, and no evidence that unauthorized release of hazardous materials or petroleum hydrocarbons had occurred on the property. A Phase II investigation of soil or ground water was not recommended based upon the research and findings of the Phase I assessment.
Estimated
Project Development Timeline
June 26, 2001 Anticipated City Council Approval of Business Terms
June 26, 2001 Anticipated City Council Approval of Bond Issuance and Bond Documents
July 2001 Anticipated Issuance of Bonds and Loan Closing
August 2001 Anticipated Start of Construction
August 2002 Anticipated Completion of Construction
* Status: C = Committed, P = Proposed
** Lease-up income will be first applied to
reduce any outstanding deferred developer fee, then to reduce
outstanding interest, then principal on the City loan.