REPORT TO THE CITY COUNCIL
October 20, 2016
FROM: JENNIFER K. CLARK, Director
Development and Resource Management Department
THROUGH: KELLI FURTADO, Assistant Director
Development and Resource Management Department
BY: CORRINA NUNEZ, Project Manager
Housing and Community Development Division
SUBJECT
Title
RESOLUTION - Approving assignment of Annadale Housing Partners’ $2,996,720 loan to DHI King’s View Associates, L.P., a California limited partnership and conversion of the loan to a fifty-five-year residual receipts loan at 0% interest
Body
RECOMMENDATION
Staff recommends the City Council adopt a resolution (Exhibit “A”) approving the assignment of the Annadale Housing Partners’ (Annadale) $2,996,720 loan to DHI King’s View Associates, L.P., a California limited partnership; and conversion of the loan to a fifty-five year residual receipts loan at 0% interest; and authorize the City Manager to execute assignment documents.
EXECUTIVE SUMMARY
On March 3, 2016, Annadale and Dawson Holdings Inc. (DHI) informed the Development and Resource Management Department that DHI was proposing to acquire and rehabilitate the Kings View Estates property; an affordable housing complex located in southwest Fresno. The complex is currently owned by Annadale. If DHI pursues its acquisition and rehabilitation of the Kings View property as proposed, staff recommends the City Council approve the assignment of the loan to DHI King’s View Associates, L.P., (Exhibit “B”) and convert the $2,996,720 balloon loan to a fifty-five year residual receipts loan at 0% interest.
BACKGROUND
On December 5, 2013, the City Council approved the restructure of the $2,996,720 loan for Annadale to eliminate accrued interest and late fees. The restructure was requested to reduce debt on the property and thereby allow for the owner to obtain tax credits to redevelop both the Kings View Manor and Kings View Estates. In accordance with the Council-approved Note terms, the restructured loan was to be paid-in-full on, or before, December 1, 2017, (Exhibit “C” - Superseded and Restated Promissory Note).
At that time, Council determined the restructure of the Note was subject to the terms of the Better Business Act (Act), but eligible for an exception since the City did not reasonably expect repayment under the terms and conditions of the Note and the Note was essentially a grant but structured as a loan to meet the Low Income Housing Tax Credit (LIHTC) requirement for debt service on the property. Thereafter, City Council invoked the exception to the Act by a super majority of votes. The exception to the Act still applies in this case.
Since execution of the $2,996,720 Superseded and Restated Note, the original development partner set to join the Annadale Housing Partners, L.P., backed out of the proposed rehabilitation project. At that time, the remaining members of Annadale decided to sell the property to a housing development agency able to acquire and rehabilitate both the Kings View Manor and Kings View Estates units and property.
At the listing of the property for sale by Annadale, AlliedArgenta (a southern California housing developer) submitted a proposal to acquire and rehabilitate the properties. Both parties had entered into a Purchase Agreement; however, AlliedArgenta did not receive approval of their proposed financing and the Annadale Housing Partners, L.P., relisted the property with ARA USA.
In April 2015, Annadale approached another interested party, DHI (a northern California housing developer). DHI is a Sausalito-based housing development company that has created approximately 2,500 multifamily and senior affordable housing units. On March 3, 2016, both parties entered into a Purchase Agreement to acquire only the Kings View Estates property for rehabilitation. The Kings View Manor portion of the property was not considered as part of the acquisition or rehabilitation deal as the complex had a history of high vacancy and low cash flow. On or about March, 2016 the City allowed a lot line adjustment to separate the two properties and bring the Note and Assignment and Assumption Agreement to the City Council for approval.
DHI proposes to apply for 4% tax credits that will provide a substantial portion of the financing necessary to complete the proposed acquisition or rehabilitation of the Kings View Estates. Other proposed financing sources include tax-exempt bonds to-be-issued, the R4CF loan, and deferred developer fees. The total project cost is estimated at $17 million or approximately $146,552 ($17M/116 units) per unit.
If staff’s recommendation is approved, the City will allow for the assignment and assumption (Exhibit “B” - Assignment and Assumption Agreement) of the $2,996,720 Annadale loan to DHI King’s View Associates, L.P. Staff’s recommendation also includes the conversion of the balloon loan to a fifty-five year residual receipts loan at 0% interest. The loan terms and position may need to be adjusted slightly to be compatible with any proposed senior lender requirements.
The Kings View Estates property has been in need of major rehabilitation and or redevelopment for years. It is in the City’s best interest to assist DHI through the assignment and assumption to provide for the complex’s one hundred and sixteen units and grounds to be rehabilitated.
DHI’s proposed improvements to the Kings View Estates are as follows:
Ø Modernize the units by installing new interior and exterior doors, windows, appliances,
countertops, flooring, light fixtures, plumbing fixtures, garage doors, and window treatments;
Ø New roofs;
Ø Painting of the interior and exterior;
Ø HVAC upgrades;
Ø Installation of new landscaping, irrigation, and fencing;
Ø Installation of ADA appliances as needed;
Ø Reduce energy consumption by incorporating energy-efficient items;
Ø Increase marketability; and
Ø Provide improved amenities by repairing deferred maintenance items and improving common areas.
A majority of the Kings View Estates units are currently occupied. Therefore, rehabilitation will be scheduled so current tenants are minimally disturbed. DHI will work to keep existing tenants during and after the property’s physical rehabilitation. Construction work will be scheduled between 9 a.m. and 5 p.m. This will allow the tenants to be back in their units by evening. Construction crews may need to return to the units for more than a single day. If this is the case, at the end of each day, the tenant will be provided a clean useable unit to minimize disruption to their lives.
The community room will be furnished for use during the day to the temporarily displaced tenants. This will give the tenants access to a bathroom, kitchen, and television and minimizes the amount of dislocation for tenants. It also allows for the rehabilitation to be phased building by building and enables the tenants from each building to remain close to their current neighbors.
Once completed, the project will assist the City of Fresno with its affordable housing goals and objectives of the Housing Element of the 2035 General Plan and 2015-2019 HUD Consolidated Plan. In addition, it is anticipated the rehabilitation project will create an estimated twenty-plus construction related jobs for the duration of the rehabilitation work.
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 not receive payment in full on, or before, December 1, 2017, as stated in the Superseded and Restated Note; instead, the City will receive residual receipts over a fifty-five-year Note term.
Attachments
Exhibit A - Resolution
Exhibit B - Assignment and Assumption Agreement
Exhibit C - Superseded and Restated Promissory Note