REPORT TO THE CITY COUNCIL
August 22, 2019
FROM: JENNIFER CLARK, Director
Planning and Development Department
BY: THOMAS MORGAN, Manager
Housing and Community Development Division
SUBJECT
Title
Actions pertaining to SP Grand Resources, LLC’s proposed payoffs of four HOME Investment Partnerships (HOME) Program-funded loans:
1. Invoke Exception to the Better Business Act pursuant to Section 2(b), as amended by Resolution No 2013-166 (Requires 5 Votes);
2. Approve the principal payoff plus accrued interest on two Geneva Village, L.P. HOME loans in the amount of $2,444,068.91;
3. Approve the partial principal payoff of $1,100,000 and waiver of accrued interest in the amount of $1,250,458.17 on the Tanager Springs I, L.P. HOME loan;
4. Approve the partial principal payoff of $1,600,000 and waiver of accrued interest in the amount of $1,635,533.37 on the Tanager Springs II, L.P. HOME loan; and
5. Approve the Assignment and Assumption of HOME Investment Partnerships Program Declaration of Restriction Documents between Geneva Village, LP, Tanager Springs I, LP, Tanager Springs II, LP and JK - Geneva Village, LLC, JK-Tanager Springs I, LLC, and JK - Tanager Springs II, LLC
Body
RECOMMENDATIONS
Staff recommends the City Council approve HOME loan payoffs and waiver of accrued interest as proposed by SP Grand Resources, LLC for Geneva Village, Tanager Springs I, and Tanager Springs II, approve the Assignment and Assumption of HOME Program Declaration of Restriction documents and authorize for the City Manager to sign all implementing documents, approved as to form by the City Attorney’s Office.
EXECUTIVE SUMMARY
On July 3, 2019, the Housing and Community Development Division received a proposal from GRCLA - Affordable Holdings, LLC on behalf of SP Grand Resources (Exhibit “A” - Proposed Offer) to payoff the Geneva Village, L.P. HOME loans in the combined amount of $1,500,000 plus accrued interest in the amount of $944,068.91, partial principal payoff of the Tanager Springs I, L.P. HOME loan in the amount of $1,100,000 and waiver of interest in the amount of $1,250,458.17, and partial principal payoff of the Tanager Springs II, L.P. HOME loan in the amount of $1,600,000 and waiver of interest in the amount of $1,635,533.37. The request for interest waiver on the Tanager Springs I and Tanager Springs II loans is attached as Exhibit “B” - Interest Waiver.
Generally, the Better Business Act (BBA) applies to loan write-offs or write-downs in excess of $1,000,000. However, pursuant to Resolution 2013-166 which amends the BBA, the proposed write-offs and partial principal payoffs are eligible for an exception to the BBA as the City’s HOME loans were essentially grants, but structured as loans to meet the Low Income Housing Tax Credit requirements for debt service on the properties. The Council may invoke the exception by a supermajority of 5 votes.
BACKGROUND
On January 25, 2005, the City entered into a HOME Investment Partnerships (HOME) Program Agreement with Geneva Village, L.P. for the construction of the Geneva Village Apartments, a 142-unit affordable housing apartment complex located at 1550 Church Avenue in southwest Fresno. The City provided SADI, LLC (developer) with two HOME Program loans totaling $1,500,000 ($500,000 deferred 2% interest bearing loan and a $1,000,000 residual receipts loan at 4.72% interest compounded annually), for the construction of the project. On October 23, 2007, the City entered into a HOME Program Agreement with Tanager Springs II, for the construction of the Tanager Springs II Apartments, an 80-unit affordable housing complex located at 2105 S. Maple Avenue in southeast Fresno. The City provided SADI, LLC with a $2,600,000 residual receipts loan at 5.38% interest compounded annually, for construction of the project. On December 19, 2007, the City entered into a HOME Program Agreement with Tanager Springs I, for the construction of the Tanager Springs Apartments, a 74-unit affordable housing complex located at 2187 S. Maple Avenue in southeast Fresno. The City provided SADI, LLC with a $2,060,114 residual receipts loan at 5.38% interest compounded annually, for construction of the project. Since completion of the projects (Geneva Village, July 31, 2007; Tanager Springs I, July 17, 2009; and Tanager Springs II, July 17, 2009); the properties have not generated enough cash flow to make payments on the loans.
The HOME funds to the projects were initially set up as loans so that the developer could acquire debt on the property and thereby be eligible to apply for and receive an allocation of Low Income Housing Tax Credit equity, which was the main source of financing for all three projects. The estimated $5 million payoff proceeds will be receipted in as HOME Program Income for use on affordable housing programs currently being implemented by the Housing and Community Development Division.
In approximately 2010, the projects’ developer, Advanced Development and Investment, Inc. (ADI), a partner company in SADI (joint venture between ADI and Gary Squire), was placed under receivership and during that time, it was alleged that some of their Los Angeles city projects were ill-constructed causing multiple law suits to be filed against ADI. During the time the company was placed under receivership, one of the project investors, PNC, acted as the holding company. Now that the law suits have been settled and closed (Exhibit “C” - Case Dismissal), SP Grand Resources, LLC has been purchasing those previously development SADI properties.
SP Grand Resources, LLC, and its Affiliates, is the proposed buyer of the Geneva Village Apartments, Tanager Springs I Apartments, and the Tanager Springs II Apartments. SP Grand Resources, LLC owns 20 Low Income Housing Tax Credit equity-funded apartments most of which are located in Los Angeles. The payoff proposal to the City for Council consideration is as follows:
Project Proposed Payoff Loan Balance Accrued Interest payoff
Geneva Village $ 500,000 $ 500,000 $ 27,705.48
Geneva Village $1,000,000 $1,000,000 $916,363.43
Tanager I $1,100,000 $2,060,114 $0
Tanager II $1,600,000 $2,600,000 $0
$4,200,000 $944,068.91
At the recording of the above-mentioned agreements, the City also recorded a 55-year Declaration of Restrictions on the properties so the units would remain affordable beyond the 15-year affordability tax credit requirement. As part of the proposed payoff, SP Grand Resources, LLC is requesting that it assume the 55-year Declaration of Restrictions covenant for all three properties, which according to the HOME Program cannot be released even in the event of loan payoff. The buyer has entered into the attached Assignment and Assumption of the Declaration of Restrictions (Exhibit “D” - Assignment and Assumption Agreement) that will be recorded on the properties.
Upon City Council approval of the loan payoff terms, SP Grand Resources, LLC will upgrade the properties with energy efficient lighting and plumbing fixtures, installation of energy efficient appliances, and completion of other capital improvement needs on all three properties. SP Grand Resources, LLC, has entered into the attached Guaranty for Capital Improvements (Exhibit “E”) for the properties. The amount of capital improvements on the properties is estimated at $1,653,177 which is guaranteed to be completed over the next six years.
ENVIRONMENTAL FINDINGS
This is not a project for the purposes of the California Environmental Quality Act or the National Environmental Policy Act.
LOCAL PREFERENCE
Local preference is not applicable as this is not a solicitation for a contract or funds.
FISCAL IMPACT
Upon payoff of $5,144,068.91, the amount will be receipted into Fund: 22084, Org.: 402162, Account: 39012 (principal) or 36104 (interest) and then reported into HUD’s Integrated Disbursement and Information System as HOME Program Income.
Attachments:
Exhibit A - GRCLA - Affordable Holdings, LLC Proposal
Exhibit B - GRCLA - Affordable Holdings, LLC Principal Reduction and Interest Waiver
Exhibit C - Case Order Case Dismissal
Exhibit D - Assignment and Assumption Agreement for the Declaration of Restrictions
Exhibit E - Guaranty for Capital Improvements