REPORT TO THE CITY COUNCIL
March 23, 2017
FROM: JENNIFER K. CLARK, Director
Development and Resource Management Department
THROUGH: KELLI FURTADO, Assistant Director
Development and Resource Management Department
BY: THOMAS MORGAN, Housing Manager
Housing and Community Development Division
CORRINA NUNEZ, Project Manager
Housing and Community Development Division
SUBJECT
Title
RESOLUTION - Amending Resolution No. 2016-208 and revising the interest rate on DHI King’s View Associates, L.P.’s Note as follows: zero percent annually years one through five and increasing to the annual long term Applicable Federal Rate, as published on the date of close of escrow, at the commencement of year six.
Body
RECOMMENDATION
At the request of DHI, staff recommends the City Council approve an amended resolution revising the interest rate on DHI King’s View Associates, L.P.’s (DHI) Note as follows: zero percent annually year one through year five and increasing to the annual long term Applicable Federal Rate (AFR), as published on the date of close of escrow, at the commencement of year six.
EXECUTIVE SUMMARY
On March 13, 2017, DHI informed the Housing and Community Development Division that due to an unanticipated requirement, the interest on the Kings View Estate Rehabilitation assigned note interest rate to be revised on DHI King’s View Associates, L.P.’s (DHI) Note as follows: zero percent annually year one through year five and increasing to the annual long term Applicable Federal Rate (AFR), as published on the date of the close of escrow, at the commencement of year six. DHI has expressed that this increase is necessary in order to close escrow as planned during the month of March, 2017.
BACKGROUND
On October 20, 2016, the Council approved an Assignment and Assumption (Exhibit “A”) of the note at zero percent interest to DHI for the substantial rehabilitation of the King’s View Estates, a 116 multifamily complex in southwest Fresno. The accompanying Resolution (Exhibit “B”) also approved by Council, required DHI to obtain the balance of funds needed to complete financing of the project by September 30, 2017. Since approval of the Assignment and Assumption, and Resolution, DHI has obtained the balance of financing and is prepared to close escrow on March 29, 2017.
However, DHI’s tax attorney has advised DHI of an unanticipated requirement stating that if the note interest rate is less than the current annual long term AFR at the time of close of escrow, the Internal Revenue Service will reduce the project’s eligible basis by the discounted value of the note, which will be in excess of $1,000,000. Therefore, this requirement has necessitated the proposed change in the interest rate approved as part of the original project by Council on October 20, 2016. Please note that the request for approval is limited to the interest rate only.
ENVIRONMENTAL FINDINGS
This is not a project for CEQA purposes.
LOCAL PREFERENCE
Local preference was not considered because the loan assignment does not include a bid on award of a construction or services contract.
FISCAL IMPACT
The City will receive residual receipts over the fifty-five-year Note term.
Attachments:
Exhibit A - Assignment and Assumption Agreement
Exhibit B - Resolution/Superseded and Restated Promissory Note
Exhibit C - Proposed Resolution Amendment