city of palo alto (ca) loan request from palo alto housing corporation for almost $6m (november,...

7/28/2019 City of Palo Alto (CA) Loan Request From Palo Alto Housing Corporation For Almost $6M (November, 2012)

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City of Palo Alto (ID # 3183)City Council Staff Report

Report Type: Action ItemsMeeting Date: 11/19/2012

Summary Title: Maybell Ave. Acquisition Loan Request

Title: Adoption of Budget Amendment Ordinance, Approval of a Loan to Palo

Alto Housing Corporation in the Amount of $3,220,220, and Direction to

Staff Regarding an Additional $2.6 Million Short Term Loan to Palo Alto

Housing Corporation for the Acquisition of 567-595 Maybell Avenue for

Purposes of Constructing a Below Market Rate Senior Housing Project

(continued from November 13, 2012)

From: City Manager

Lead Department: Planning and Community Environment

Recommendation

Staff recommends that the City Council:

1. Adopt the attached Budget Amendment Ordinance (BAO) increasing the Fiscal Year2013 Grants and Subsidies budget of the Commercial Housing In-Lieu Fund by $400,000,

transferring $720,220 from the Stanford University Medical Center (SUMC)

Infrastructure, Sustainable Neighborhoods and Communities and Affordable Housing

Fund to the Residential Housing In-Lieu Fund, and increasing the Grants and Subsidies

budget of the Residential Housing In-Lieu Fund by $720,220; and

2. Approve and authorize the City Manager or designee to execute in substantiallyidentical form the attached Acquisition and Development Agreement (ADA) (with

attached form of promissory note, deed of trust and security agreement) with Palo Alto

Housing Corporation (PAHC) to provide a loan of $3,220,220; and

3. Authorize the City Manager or designee to execute all other documents required toimplement the Agreements, including escrow instructions and to approve all necessarysubordination agreements and direct the City Manager or designee to administer the

provisions of the Agreements; and

4. Provide direction to staff whether to authorize an additional, short term (2-3 year) loanto PAHC in the amount of $2,600,000, to be funded by the SUMC Infrastructure,

Sustainable Neighborhoods and Communities and Affordable Housing Fund and, if so, to

return with that loan agreement and budget amendment as a future Consent Calendar


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item.

Executive Summary

Council approval of the recommended actions will provide a $3,220,220 million loan from the

Citys housing funds to Palo Alto Housing Corporation, Inc. (PAHC) for the acquisition of two

parcels, located at 567-595 Maybell Avenue for the purpose of developing the site into a 60-

unit affordable rental housing project for extremely-low and very-low and low income seniors

and a 15-unit market rate single family residential subdivision. Staff is also requesting direction

from Council whether to extend a separate $2.6 million short term (two to three year) loan

from the Citys Stanford University Medical Center (SUMC) Infrastructure, Sustainable

Neighborhoods and Communities and Affordable Housing Fund to complete funding for the

purchase. Review of entitlements (zoning and site design) and site specific environmental

review will occur subsequent to the land acquisition when an application is made and plans are

developed for the project.

Background

On June 22, 2012, Palo Alto Housing Corporation (PAHC), entered into a purchase and sale

agreement with Maybell Sambuceto Properties, LLC and Sambuceto Partners, A California

Limited Partnership, to acquire the properties located at 567-595 Maybell Avenue for the

purpose of developing an affordable housing project to be named the Maybell Orchard

Apartments.

Initially, PAHC approached the City seeking $6.5 million of financial assistance for the siteacquisition. As project development costs were further refined, however, the final request

amount was finalized at $5,820,220. Due to funding limitations of the City, PAHC now requests

a long-term loan amount of approximately $3.2 million and a subsequent short-term loan of

$2.6 million, with the possibility of converting the short term loan into a long-term loan if the

City receives the same amount of new housing fees before the term expires.

Discussion

PAHC Purchase Agreement for Site

The PAHC California Park Corporation and Maybell Sambuceto Properties, LLC and Sambuceto

Partners, a California Limited Partnership, executed a purchase and sale agreement detailing

the terms of the acquisition of both parcels, which include the following key provisions:

Purchase price of $15,580,000 for the 2.46-acre parcel; Close of escrow, and transfer of title to PAHC must occur by November 30, 2012;


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Seller will pay all escrow fees, county transfer taxes and the cost of a ALTA titleinsurance policy; and

Seller and Buyer split payment of the city transfer taxes.

An appraisal was prepared by Hulberg & Associates, Inc., dated June 26, 2012. The appraised

value for the property was estimated at $15,640,000.

Project Site and Description

The project site is comprised of two parcels (APN # 137-25-109 and -108) located at the corner

of Maybell and Clemo Avenues. The combined lot size is approximately 107,422 sq. ft. (2.46

acres). The larger parcel (93,654 sq. ft.) and the smaller parcel (13,768 sq. ft.) are zoned RM15

and R2, respectively, as shown in Attachment A. Both parcels are within one-quarter of a mile

from El Camino Real with access to VTA bus route 88.

PAHC plans to subdivide the property and apply for rezoning of the 2.46-acre property. The

affordable rental apartments would be on an one acre parcel and would include (59) 1-

bedroom apartments and (1) 2-bedroom apartment for an onsite manager, common areas such

as a community room with computer lab, laundry room, managers office, a resident services

office, as well as outdoor common area space. The affordable apartments would have an

average size of 600 square feet and be affordable to senior households earning 30-60% of the

Area Median Income (AMI). The project would be designed to meet or exceed the Citys green

point rating system.

The market rate units would be located on the remaining 1.46 acres, running adjacent to the

perimeter of the property, bordering Maybell and Clemo Avenues. The 15-unit subdivision

would be fee simple lots of approximately 4,000 sq. ft. with residence sizes between 2,000 -

3,200 sq. ft. In order to avoid parking impacts on Maybell and Clemo Ave., garage parking

would be provided at the rear of each unit, accessed by an alley in the interior of the lot. To

provide equity for the senior affordable housing development, PAHC anticipates selling the

subdivision to a developer once the entitlements have been obtained rather than constructing

the units themselves and then selling the completed units.

Surrounding Uses

The project site is surrounded by the following land uses:

West- Single Family residences

North - Multifamily residences (Arastradero Park owned by PAHC)

East- Multifamily residences (The Tan Plaza Continental)


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South- Briones Park

$3,220,220 Long term Loan Agreement

The proposed long term Loan Agreement details the terms of the City $3,220,220 loan, which

will be evidenced by a Note and Deed of Trust secured by the property. The Note will bearsimple interest at 3% per annum, and payments will be made from residual receipts over and

above the projects net operating income expenses and will be divided among other funding

agencies based on the Citys proportionate share of its funding to total development costs. All

City loan agreements also provide the City with remedies to recoup the loan if the developer

defaults or the project does not otherwise move forward (such as securing sufficient financing

for the development or not receiving the necessary land use entitlements by a certain date).

The sources of funds to be used for the long term loan are as follows:

Fund 233 (Residential Housing Fund) $1,000,000

Fund 234 (Commercial Housing Fund) $1,500,000

SUMC Funds $ 720,220

Total of Funds $3,220,220

Due to the deep affordability of the rents, it is not expected that cash flow will be sufficient to

pay the annual interest in full. The proposed project will be affordable to extremely low and

low income senior households, and the affordability restrictions will be in place for a minimum

of 55 years after the issuance of a certificate of occupancy.

Three key provisions of the Citys standard loan terms required modification to meet the

requirements of two of the other lenders, LISC and LIIF. These modifications create some risk to

the City because the proposed revised terms offer less protection for the Citys investment.

First, the City proposed a consent provision that would give the City the right to approve any

third party developer in order to ensure that the buyer has the capability and experience to

construct high quality housing that conforms to the Citys rules, policies and ordinances. Although this is a relatively common provision, particularly given the amount of the Cit ys

contribution and the fact that the City has a unique interest because the project will be

constructed in our community, the other lenders refused to lend to PAHC if this provision is

included in the Citys agreement. Instead, the parties agreed that PAHC would provide the City

with 45 days notice prior to selling to a developer chosen by PAHC. This notice will give the City

the opportunity to discuss concerns with PAHC, and the City and PAHC have a long history of


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working cooperatively, however, it is important to note that it provides the City with less

protection and control than the original consent language.

Second, the Citys forms included a provision that required the remainder parcel (where the

senior housing will be built) to appraise at or above the value of the Citys loan before themarket rate parcel could be sold. LISC and LIFF would not agree to any prerequisite for sale of

the market rate parcel, and PAHC objected because it did not believe it would be possible to

meet this condition. Based on PAHCs experience with recent projects, market value decreases

substantially once affordability conditions are placed on a property. Therefore, they believe it

is likely that the remainder parcel will appraise for less than the value of the Citys loan. As an

alternative to the appraisal, the City proposed requiring PAHC to provide proof of construction

financing as a way to help ensure that the senior housing project would be constructed.

However, PAHC also objected to that alternative because it can take several applications to be

awarded the tax credit financing that they intend to use to finance construction, and they

would like to sell the market rate parcel as soon as entitlements are approved. Because the

parties could not find an acceptable compromise, this provision has been deleted from the

agreement. However, not including such a provision creates a clear risk for the City that the

collateral may not equal the value of the Citys loan.

While staff believes that its standard loan provisions provide the best protections for the Citys

investment, staff also recognizes the Citys longstanding commitment to affordable housing and

history of successful partnerships with PAHC on affordable projects. It is up to the Council to

decide whether that commitment outweighs the risks in this particular agreement. If the

Council approves the agreement with these revisions, staff believes that there are a range of

conditions that may be considered in the entitlement process to help ensure that theaffordable portion of the project will be constructed.

$2,600,000 Proposed Short Term Loan

The PAHC requires a total of approximately $5.8 million in loans from the City to enhance the

likelihood of obtaining needed State tax credits for the project. The City does not currently have

sufficient funds available in the commercial and residential housing funds to lend the full

amount. However, this project would be a permissible use of the SUMC funding. In addition,

staff estimates that up to $6 million in funds will potentially be added to the C itys housing

funds through fees anticipated over the next two years, including fees from recently approved

development and depending on the outcome of pending litigation by one housing developer.

Staff is therefore requesting direction from the Council on whether to extend a second loan to

PAHC in the amount of $2,600,000. Staff proposes that this second loan would have a shorter

term of 2 years, with an option of a 1-year extension. The interest rate would be 3% per annum

with payments deferred for the term of the loan.


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Staff proposes to structure the funding for this short term loan effectively as an advance to the

affordable housing fund from the SUMC Infrastructure, Sustainable Neighborhoods and

Communities and Affordable Housing Fund. As various commercial and housing developments

pay their affordable housing in-lieu fees over the next two-years, funding for those fees would

be substituted for the SUMC funds, effectively replenishing the SUMC fund. The short-term

loan likely will then be converted to a long-term loan and/or combined with the first long-termloan.

An interim letter of credit will allow PAHC to make up the $2.6 million and close escrow on the

purchase by November 30. If Council chooses not to move forward with the short-term loan,

however, PAHC will need to find other funding to complete its financing needs, likely from

private sources. It is important to note that if additional City funding (for a total of $5.8 million

from the City) is not available before June of 2013, PAHC will likely have a much more difficult

time obtaining the tax credits needed to finance the construction.

Staff acknowledges that, while the loan should be paid back within 2-3 years, the City is likely to

have other demands on the SUMC funds for infrastructure needs during this period, and that

the loan for affordable housing may defer the availability of the full complement of SUMC

funding for this period. This housing project, however, is a key opportunity to fulfill City housing

goals with a project comprised of senior housing units expected to have little effect on traffic

and school capacity. If the Council provides direction for staff to move forward with the $2.6

million loan, staff will prepare the required BAO and loan documents for consideration at the

December 3, 2012 Council meeting.

City Financial Commitment per Unit Developed

The commitment of $5.8 million for 60 affordable housing units at this site provides a City

contribution equivalent to approximately $100,000 per unit. For the two most recent City-

funded new construction affordable housing projects, the Citys commitment was

approximately $150,000 per unit for the Tree House Apartments at 488 W. Charleston Rd. and

$400,000 per unit (including loans and land donation) for the 801 Alma family housing project.

Rents and Occupancy of the Apartments

In order to succeed in the competition for the States tax credit allocation, PAHC needs toemphasize housing for extremely low-income and very-low income households. The projects

proposed rent categories and income limits are shown below; actual rents may change

somewhat by the time the project is constructed and ready for occupancy due to changes in the

County median income.

Maybell Housing Project Description of Proposed Units and Rental Structure


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Rent As A Percent of Median Income 1-Bedroom Units

Extremely Low Income (30% of AMI) 20

Very Low Income (45% of AMI) 6

Very Low Income (50% of AMI) 24

Low Income (60% of AMI) 9

Managers Unit 1

Total Units 60

Notes: AMI means the Area Median Income for Santa Clara County, which equals

$105,000 for a household of four persons as published on February 1, 2012.

Development Review

Zoning and site plan review will be required subsequent to the PAHC purchase of the site andsubmittal of a development application. The process will include review by the Architectural

Review Board, the Planning and Transportation Commission, and the City Council. On

September 18, 2012, PAHC presented conceptual site and elevation plans for the proposed

project to the City Council for comment and feedback. PAHC plans to incorporate responses to

those comments when it submits an application for land use approvals. However, providing this

loan does not commit the City to any particular course of action related to decisions on the land

use entitlements and the agreement specifically states that the City retains full discretion to

approve or disapprove the site-specific land use approvals.

Resource Impacts

The City currently has approximately $4.7 million in the Residential Housing In-Lieu Fund.

Approximately $3.7 million, however, has been earmarked for other uses or cannot be spent

until ongoing litigation is resolved, leaving approximately $1.0 million available for grants and

subsidies. The Commercial Housing In-Lieu Fund balance is approximately $1.6 million, of which

$1.1 million is allocated for grants and subsidies. The Stanford University Medical Center

(SUMC) Fund provided $1,720,488 dedicated to affordable housing only. Council recently

committed $1,000,000 of this dedicated payment to the Stevenson House rehabilitation,

leaving $720,488 available.

To fund the loan, staff proposes to use the budgeted $1,000,000 from the Residential Housing

In-Lieu Fund, $1.5 million (of which $1.1 million is budgeted) from the Commercial Housing In-

Lieu Fund and $720,220 from the SUMC Fund for the Maybell site acquisition. This requires a

Budget Amendment Ordinance (BAO) to appropriate an additional $400,000 to the Grants and

Subsidies budget of the Commercial Housing In-Lieu Fund and to appropriate and transfer

$720,220 from the SUMC Fund to the Residential Housing In-Lieu Fund. The SUMC Funds will be


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transferred to the Residential Housing In-Lieu Fund to avoid making loans directly from the

SUMC Fund.

As part of the SUMC Development Agreement, SUMC agreed to pay approximately $44.3

million in public benefit funds. Of the $44.3 million, approximately $23.2 million has beenearmarked for the SUMC Infrastructure, Sustainable Neighborhoods and Communities and

Affordable Housing Fund. The City has received $20,800,333 in SUMC public benefit funds as of

June 30, 2012 of which $7.7 million was deposited in the SUMC Infrastructure, Sustainable

Neighborhoods and Communities and Affordable Housing Fund. The SUMC Parties will pay an

additional $11.7M in public benefit funds upon issuance of the first hospital foundation permit,

expected in early December 2012, of which another $7.7 million will be placed in the SUMC

Infrastructure, Sustainable Neighborhoods and Communities and Affordable Housing Fund for a

total of $15.4 million in the fund. An additional payment of $11.7M upon issuance of the first

hospital occupancy permit, is expected in 2018 in which the final $7.7 million will be deposited

into the Infrastructure, Sustainable Neighborhoods and Communities and Affordable Housing

Fund.

Sources for the Acquisition of the Parcel

ACQUISITION FINANCING PRIOR TO MARKET

RATE LAND SALE

ACQUISITION SOURCES total

-

County Loan $ 2,759,780

LISC Loan $ 3,500,000

LIIF Loan $ 3,500,000

City Loan $ 3,220,220

Other funding (possible City loan) $ 2,600,000

total $ 15,580,000

PAHC estimates the overall development cost for the 60-unit Maybell project to be $21.1million as shown below.

MAYBELL ORCHARD SENIOR HOUSING DEVELOPMENT BUDGET

ACQUISITIONtotal per unit


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Financing for the development is expected from the following funding sources:

Land $ 6,480,000 $ 108,000

Other Acquisition Costs $ 292,550 $ 4,876

Total Acquisition Costs $ 6,772,550 $ 112,876

HARD COSTS

Construction/Rehabilitation $ 8,397,784 $ 139,963

Commercial Costs $ - $ -

Site Work $ 650,000 $ 10,833

General Contractor O&P $ 827,850 $ 13,798

Total Hard Costs $ 9,875,634 $ 164,594

SOFT COSTS

Architectural $ 603,671 $ 10,061

Survey & Engineering $ 325,000 $ 5,417

Construction Interest + Fees $ 798,628 $ 13,310

Financing & Syndication $ 150,439 $ 2,507

Local Permits and Fees $ 260,000 $ 4,333

Legal Fees $ 100,000 $ 1,667

Developer Fee $ 1,400,000 $ 23,333

$ - $ -

Relocation $ - $ -

Reserves $ 135,113 $ 2,252

Other Soft Costs $ 705,000 $ 11,750

Total Soft Costs $ 4,477,851 $ 74,631

TOTAL DEVELOPMENT COSTS $ 21,126,035 $ 352,101

MAYBELL ORCHARD SENIOR HOUSING FINANCING

total per unit

PERMANENT SOURCES

- -

Conventional Mortgage $ 1,228,000 $ 20,467

City Loan $ 3,220,220 $ 53,671

Tax Credit Investor Proceeds $ 11,318,034 $ 188,634


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Policy Implications

The actions recommended in this report implement the Citys adopted Housing Element

policies and programs supporting the development of very low and extremely low income

housing. Policy H-12 calls for encouraging, foster and preserve diverse housing opportunities

for very low-, low- and moderate-income households. In addition, Policy H-18 supports housing

that incorporates facilities and services to meet the health care, transit, or social service needs

of households with special needs, including seniors and persons with disabilities. These 60

units will be counted towards the Citys housing production goals for the 2007 to 2014 Housing

Element period. The proposed project is a 100% affordable housing development that will serve

individuals who are earning 30 to 60 percent of the area wide median income. A large

percentage of Palo Altos seniors are in this targeted income range. This population is

underserved in the City and many cannot afford to pay market rate rents.

State Housing Element law requires that localities provide for their fair share of the regions

housing need. The Association of Bay Area Governments (ABAG) determined that Palo Altos

projected need for the period from January 1, 2007 June 30, 2014 will be 2,860 units, of which

633 units are presently unmet need in the Very Low Income category. This project will also

provide 20 of the 60 units to households below 35% of the AMI, considered Extremely Low

Income, which will help the City address State requirements to assist in meeting housing needs

of this population.

Environmental Review

By approving this acquisition loan agreement, the City has made no commitment to approve

the project or any particular application for land use approvals on the property. The provision

of financing for acquisition of the property is consistent with the land use element of the Citys

Comprehensive plan and with the Citys affordable housing goals as outlined in the Housing

Element of the Comprehensive Plan, and the approval of this agreement is within the scope of

that program EIR and no new environmental review is required in that no specific plans for

development of the property have been submitted that would create additional environmentalimpacts. Site-specific environmental review will be completed when an application for specific

land use approvals is made and plans are developed for the project.

Attachments:

Attachment A: Budget Amendment Ordinance (DOCX) Attachment B: Loan Agreement (PDF)

County SAHF loan $ 2,759,780 $ 45,996

Other Source (possible City loan) $ 2,600,000 $ 43,333

total $ 21,126,035 $ 352,101


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Attachment C: City Council minutes of September 18, 2012 (PDF)

Prepared By: Tim Wong, Senior Planner

Department Head: Curtis Williams, Director

City Manager Approval: ____________________________________

James Keene, City Manager


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ORDINANCE NO.

ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO

AMENDING THE BUDGET FOR FISCAL YEAR 2013 TOPROVIDE ADDITIONAL APPROPRIATION OF $400,000 FROM

THE COMMERCIAL HOUSING IN-LIEU FUND AND

ADDITIONAL APPROPRIATION OF $720,220 FROM THE

STANFORD UNIVERSITY MEDICAL CENTER (SUMC)

INFRASTRUCTURE, SUSTAINABLE NEIGHBORHOODS AND

COMMUNITIES, AND AFFODABLE HOUSING FUND TO BE

LOANED TO PALO ALTO HOUSING CORPORATION FOR THE

ACQUISITION OF TWO PARCELS

The Council of the City of Palo Alto does ordain as

follows:

SECTION 1. The Council of the City of Palo Alto finds

and determines as follows:

A. Pursuant to the provisions of Section 12 of Article

III of the Charter of the City of Palo Alto, the Council on

June 18, 2012 did adopt a budget for Fiscal Year 2013; and

B. The City desires to make a long-term loan to the

Palo Alto Housing Corporation for the acquisition of twoparcels, located at 567-595 Maybell Avenue for the purpose

of developing the site into a 60-unit affordable rental

housing project for extremely-low and very-low and low

income seniors and a 15 unit market rate single family

residential subdivision; and

C. The loan totals Three Million Two Hundred Twenty

Thousand Two Hundred Twenty Dollars ($3,220,220); and

D. The 2011 Stanford University Medical Center (SUMC)

Development Agreement provided funds for use in connectionwith infrastructure, sustainable neighborhoods and

communities, and affordable housing; and

E. Available balance in the Affordable Housing portion

of the Infrastructure, Sustainable Neighborhoods and


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Communities, and Affordable Housing Fund is Seven Hundred

Twenty Thousand Four Hundred Eighty-eight dollars

($720,488); and

F. One Million Dollars ($1,000,000) has already been

appropriated by Council in the Residential Housing In-Lieu

Fund; and

G. One Million One Hundred Dollars ($1,100,000) has

been appropriated by Council in the Commercial Housing In-

Lieu Fund; and

H. An additional appropriation of Four Hundred

Thousand Dollars ($400,000) is needed for the Commercial

Housing In-Lieu Fund; and

I. An appropriation in the amount of Seven Hundred

Twenty Thousand Two Hundred Twenty Dollars ($720,220) isneeded for the SUMC Fund to be transferred to the

Residential Housing In-Lieu Fund for the loan to Palo Alto

Housing Corporation (PAHC); and

J. A summary of the funding needed is shown in the table

below

Source of funds Already

budgeted

Needs

appropriation

Total to project

ResidentialHousing In-Lieu

$1,000,000 $0 $1,000,000

Commercial

Housing In-Lieu $1,100,000 $400,000 $1,500,000

SUMC affordable

housing only $720,220 $720,220

Total loan $3,220,220

;and

K. City Council authorization is needed to amend the

Fiscal Year 2013 Operating Budget as hereinafter set forth.

SECTION 2. The sum of Four Hundred Thousand Dollars

($400,000) is hereby appropriated to Grants and Subsidies in


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the Commercial Housing In-Lieu budget and the available

balance of the Commercial Housing In-Lieu Fund is hereby

reduced to Eighty-one Thousand Six Dollars ($81,006).

SECTION 3. The sum of Seven Hundred Twenty Thousand

Two Hundred Twenty Dollars ($720,220) is hereby appropriated

to Grants and Subsidies in the Residential Housing In-LieuFund and the Affordable Housing portion of the SUMC

Infrastructure, Sustainable Neighborhoods and Communities,

and Affordable Housing balance is reduced to Two Hundred

Sixty-eight Dollars ($268)

SECTION 4. As specified in Section 2.28.080(a) of the

Palo Alto Municipal Code, a two-thirds vote of the City

Council is required to adopt this ordinance.

SECTION 5. As provided in Section 2.04.330 of the Palo

Alto Municipal Code, this ordinance shall become effectiveupon adoption.

SECTION 6. The Council of the City of Palo Alto

hereby finds that amending the budget to provide the loan to

PAHC this is not a project under the California Environmental

Quality Act. By approving the acquisition loan agreement, the

City has made no commitment to approve the project or any

particular application for land use approvals on the property.

The provision of financing for acquisition of the property is

consistent with the land use element of the Citys Comprehensive

plan and with the Citys affordable housing goals as outlined in

the Housing Element of the Comprehensive Plan, and the approval

of this agreement is within the scope of that program EIR and no

new environmental review is required in that no specific plans

for development of the property have been submitted that would

create additional environmental impacts. Site-specific

environmental review will be completed when an application for

specific land use approvals is made and plans are developed for

the project.

INTRODUCED AND PASSED:

AYES:

NOES:

ABSTENTIONS:

ABSENT:


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ATTEST: APPROVED:

__________________________ ___________________________

City Clerk Mayor

APPROVED AS TO FORM: ___________________________City Manager

__________________________ ___________________________

Senior Deputy City Attorney Director of Planning and

Community Environment

__________________________Director of Administrative

Services


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ACQUISITION AND DEVELOPMENT LOAN AGREEMENTAND OPTION TO PURCHASEby and between

THE CITY OF PALO ALTOA Chartered City and Municipal Corporation

andPALO ALTO HOUSING CORPORATION

A California Non-Profit Public Benefit Corporation

For the Real Property Located at:567-595 Maybell Avenue

(APN: 137-25-108, 137-25-109)

Dated ,2012

ATTACHMENT B


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TABLE OF CONTENTS

ARTICLE 1 DEFINITIONS AND EXHIBITS 2Section 1.1 Definitions ........................................................................................................ 2Section 1.2 E x h i b i t s ~ ............................................................................................................ 6

ARTICLE 2 LOAN PROVISIONS 6Section 2.1 LOaIl................................................................................................................... 6Section 2.2 Interest .............................................................................................................. 6Section 2.3 Use ofFunds ..................................................................................................... 7Section 2.4 Security ................................................................................. ........................... 7Section 2.5 Subordination ................................................................................................... 7Section 2.6 Disbursement Requirements - Acquisition LOaIl............................................. 9Section 2.7 Subordination to Construction FinaIlcing ...................................................... 10Section 2.8 Subordination to PennaIlent FinaIlcing .......................................................... 12Section 2.9 Repayment of the City LOaIl...........................................................................12Section 2.10 Non-Recourse ..............................................................................................15

ARTICLE 3 PREDEVELOPMENT ACTIVITIES 15Section 3.1 Predevelopment Activities ............................................................................. 15Section 3.2 LaIld Use Approvals aIld CEQA Review .......................................................l6Section 3.3 Tax Credit aIld Other FinaIlcing Applications .............................................. .l 6Section 3.4 FinaIlcing PlaIl .. ...... ....... : .............................................................................. 17Section 3.5 Building Permit .............................................................................................. 18

ARTICLE 4 ONGOING OBLIGATIONS 18Section 4.1 Periodic Reports ............................................................................................. 18Section 4.2 Information .................................................................................................... 18Section 4.3 Records ..........................................................................................................18Section 4.4 Audits .............................................................................................................. 18Section 4.5 CompliaIlce with Laws; Prevailing Wages ..................................................... 19Section 4.6 Relocation ....................................................................................................... 19Section 4.7 Hazardous Materials ......................................................................................20Section 4.8 MaintenaIlce aIld Damage .............................................................................. 22Section 4.9 MechaIlics Liens, Stop Notices, aIld Notices ofCompletion ......................... 23Section 4.10 Fees and Taxes .............................................................................................23Section 4.11 Notices ......................................................................................................... 24Section 4.12 Non-Discrimination ..................................................................................... 24Section 4.13 InsuraIlce Requirenlents ............................................................................... 24Section 4.14 Transfer ........................................................................................................ 25Section 4.15 Other Indebtedness and Liens ...................................................................... 26Section 4.16 Use as Affordable Housing ........................................................................... 26

121115 sh 8262008


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TABLE OF CONTENTS(continued)

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BORROWER 26Section 5.1 Representations and Warranties .................................................................... .26Section 5.2 Survival of Representations and Warranties ..................................................28

ARTICLE 6 TERMINATION, DEFAULT AND REMEDIES 28Section 1 Tennination ofAgreement. .............................................................................28Section 6.2 Events of Default ........................ .................................................... ............... 29Section 6.3 Remedies ........................................................................................................31Section 6.4 Option to Purchase, Enter and Possess .............................................................31Section 6.5 Right of Contest ............................ ................................................................. 32Section 6.6 Remedies Cumulative ................................................................................... 33

ARTICLE 7 GENERAL PROVISIONS 33Section 7.1 Agreement Coordination ............................................................................... 33Section 7.2 Relationship ofParties .................................................................................. 33Section 7.3 No Claims ....................................................................................................... 34Section 7.4 Amendments .................................................................................................. 34Section 7.5 Entire Understanding of the Parties .............................................................. .34Section 7.6 hldemnification .............................................................................................. 34Section 7.7 N on-Liability ofCITY and CITY Officials, Employees and Agents ............ 34Section 7.8 No Third Party Beneficiaries .........................................................................35Section 7.9 Action by the CITY; Amendments ............................................................... 35Section 7.10 Waivers .........................................................................................................35Section 7.11 Notices, Demands and Communications .....................................................35Section 7.12 Applicable Law and Venue ..........................................................................36Section 7.13 Parties Bound ............................................................................................... 36Section 7.14 Attorneys' Fees ............................................................................................. 36Section 7.15 Severability ...... ...... ..................................................................................... 37Section 7 16 Force Majeure .............................................................................................. 37Section 7.17 Conflict of Interest. ....................................................................................... 37Section 7.18 Time of Essence ........................................................................................... 3 8Section 7.19 Title ofParts and Sections; Exhibits ........................................................... .38Section 7.20 Multiple Originals; Counterpart ................................................................... 3 8Section 7.21 Recording ofMemo ofAgreement. .............................................................. 38Section 7.22 Further Actions ............................................................................................ 38EXHIBIT A: Legal Description of the PropertyEXHIBIT B: NoteEXHIBIT C: Deed ofTrustEXHIBIT D: Estimated Project Costs and Sources ofFundsEXHIBIT E: Schedule ofPerfonnanceEXHIBIT F: Assignment of DocumentsEXHIBIT G: Insurance Requirements

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ACQUISITION AND DEVELOPMENT LOAN AGREEMENT AND OPTION TOPURCHASE

(Maybell Orchard Apartments, 567-595 Maybell Avenue, Palo Alto, California)

This Acquisition and Development Loan AS!:eement and Option to Purchase (the-"Agreement") is made and entered into on 20) (the "Effective Date"), by andbetween the CITY OF PALO ALTO, a chartered city and a municipal corporation (the "CITY")and PALO ALTO HOUSING CORPORATION, a California non-profit public benefitcorporation, with offices at 725 Alma Street, Palo Alto, California 94301 (the "BORROWER").RECITALS

A. On June 22, 2012, BORROWER entered into a purchase and sale agreement with MaybellSambuceto Properties, LLC, a California limited liability company, and Sambuceto Partners,a California limited partnership, to acquire the property located at 567-595 Maybell Ave.,Palo Alto, California (the "Property") for a purchase price of Fifteen Million Five HundredEighty Thousand Dollars ($15,580,000) forthe purpose of developing an affordable rentalhousing project. A legal description of the Property is attached as Exhibit A. .

B. BORROWER proposes to construct approximately sixty (60) residential rental units (the"Project") on a portion of the Property, of which fifty-nine (59) units would be affordable tolow, very low, and extremely low income senior households earning between thirty percent(30%) and sixty percent (60%) of area median income as determined by the United StatesDepartment of Housing and Urban Development. BORROWER further desires to sell aportion of the Property totaling approximately 1.46 acres (the "Market-Rate Parcel") to athird party for construction ofmarket-rate housing to reduce the acquisition and developmentcosts related to the Proj ect.

C. To secure the Property for possible use as affordable housing, BORROWER wishes toborrow' from the CITY and the CITY wishes to extend to the BORROWER a loan of ThreeMillion Two Hundred Twenty Thousand Two Hundred Twenty Dollars ($3,220,220) (the"City Loan") to assist in the acquisition of the Property. The City Loan will be evidenced bya promissory note (the "Note", attached as Exhibit B) executed by the BORROWER in favorof the CITY and secured by a deed of trust recorded against the Property (the "Deed ofTrust," attached as Exhibit C). The City Loan will be further secured by an Assignment ofDocuments as defined below.

D. Through this Agreement, the City has made no commitment to approve the Project nor anyparticular application for Land Use Approvals (as defined below) on the Property, and sitespecific environmental review will be completed when such application is made and plansare developed for the Project. The provision of financing for acquisition of the Property,without commitment to any specific project, is consistent with the Land Use Element of theComprehensive Plan and with the CITY's affordable housing goals as outlined in theHousing Element of the Comprehensive Plan. A program Environmental Impact Report onthe CITY'S Comprehensive Plan was certified by the Palo Alto City Council on July 20,

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1998. The approval of this Agreement is within the scope of that program EIR, and no newenvironmental document is required, in that no specific plans for development of theProperty have been proposed that would create additional environmental impacts.E. CITY has established the Affordable Housing Fund for the purpose of providing loans to

support the development of affordable rental housing. The expenditure of funds for siteacquisition to secure a site for possible use as low income housing is an eligible activityunder the CITY's Affordable Housing Fund Guidelines. There is a severe shortage of rentalhousing affordable to senior residents with extremely low, very low, and low incomes in PaloAlto and nearby areas.F. BORROWER and CITY desire to enter into this Agreement to establish certain terms andconditions relating to the City Loan.NOW, THEREFORE, in consideration of the mutual covenants and agreements specified herein,and subject to its terms and provisions, the parties to this Agreement hereby agree as follows.

AGREEMENTThe foregoing recitals are hereby incorporated by reference and made part of this Agreement.This Agreement is entered into to assist the BORROWER in the acquisition of the Property andthe development of the Project, which consists of multifamily rental housing reserved foroccupancy by extremely low, very low, and low income households. This Agreement sets forththe respective duties and responsibilities of CITY and BORROWER regarding the acquisition ofthe Property and financing for the development of the Project, establishes a schedule ofperfomlance by BORROWER, and provides for a termination of this Agreement under certainconditions.

ARTICLE 1DEFINITIONS AND EXHIBITS

Section 1.1 Definitions.The following capitalized terms have the meanings set forth in this Section 1.1 wherever used inthis Agreement, unless otherwise provided:

(a) "Agreement" is defined in the first paragraph of this Agreement.(b) "Annual Operating Expenses" is defined in Section 2.9 below.(c) "Approved Acquisition Financing" shall mean all of the following loans:

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(1) Loan from the Local Initiatives Support Corporation ("LISC"), aNew York not-for-profit corporation with its principal offices located at 501 SeventhAvenue, 7th Floor, New York, New York 10018, in the approximate amount of FourMillion Dollars ($4,000,000) (including an interest reserve not to exceed Five HundredThousand Dollars ($500,000)), secured by a shared, first priority deed of trust on theProperty (the "LISC Loan");

(2) Loan from the Low Income Investment Fund ("LIIF"), a Californianonprofit public benefit corporation with offices located at 100 Pine Street, Suite 1800,San Francisco, California 94111, in the approximate amount of Four Million Dollars($4,000,000) (including an interest reserve not to exceed Five Hundred Thousand Dollars($500,000)), secured by a shared, first priority deed of trust on the Property (the "LIIFLoan");(3) Loan from the County of Santa Clara in the approximate amount ofTwo Million Seven Hundred Fifty Nine Thousand Seven Hundred Eighty Dollars($2,759,780) (the "County Loan").

(d) "Approved Construction Financing" shall mean the City Loan, the County Loan, andthe following additional financing:(1) Tax Credit Investor Proceeds in the approximate amount of OneMillion One Hundred Thirty Two Thousand Dollars ($1,132,000); and(2) Construction Loan in the approximate amount of Ten Million OneHundred Sixty One Thousand Dollars ($10,161,000), on terms reasonably approved bythe CITY.

(e) "Approved Financing" means the Approved Acquisit ion Financing, the ApprovedConstruction Financing, and/or the Approved Permanent Financing.(f) "Approved Permanent Financing" shall mean the City Loan, the County Loan,and the following additional financing:

(1) Tax Credit Investor Proceeds in the approximate amount ofElevenMillion Three Hundred Eighteen Thousand Dollars ($11,318,000); and(2) Conventional Mortgage in the approximate amount of One MillionTwo Hundred Twenty Eight Thousand Dollars ($1,228,000), on terms reasonable

approved by the CITY.(g) "Assignment of Documents" is defined In Section 2.4. The form of theAssignment ofDocuments is attached hereto as Exhibit F.

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(h) "BORROWER" is defined in the first paragraph of this Agreement.(i) "CEQA" means the California Environmental Quality Act, Public ResourcesCode Section 21000 et seq.G) "CITY" is defined in the first paragraph of this Agreement.(k) "City Council" means the City Council of the CITY.(1) "City Loan" is defined in paragraph C of the Recitals. The City Loan is morepru1icularly described in Section 2.1 below.(m) "City Manager" means the City Manager of the CITY or the City Manager'sdesignee.(n) "Construction Bond" is defined in Section 2.7 below.(0) "Construction Closing" means the date upon which all financing necessary for theconstruction of the Project on the Property closes, and any deeds of trust related to suchfinancing are recorded against the Property.(P) "Construction Contractor" is defined in Section 2.7 below.(q) "Deed of Trust" is defined in Recital C. The form of the Deed of Trust is attachedhereto as Exhibit C.(r) "Default" has the meaning set forth in Section 6.2 below.(s) "Default Rate" has the meaning set forth in Section 2.2 below.(t) "Effective Date" is defined in the first paragraph of this Agreement.(u) "Financing Plan" has the meaning set forth in Section 3.4 below.(v) "Force Majeure" is defined in Section 7.16 below.(w) "General Contractor" is defined in Section 2.7 below.

(x) "Gross Revenue" is defined in Section 2.9 below.(y) "Hazardous Materials" has the meaning set forth in Section 4.9 below.(z) "Hazardous Materials Claim" has the meaning set forth in Section 4.9 below.(aa) "Hazardous Materials Law" has the meaning set forth in Section 4.9 below.(bb) "Land Use Approvals" is defined in Section 3.2 below.

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(cc) "Loan Documents" means this Agreement, the Note, the Deed of Trust, theAssignment of Documents, the Memo of Agreement, the Regulatory Agreement, and any otherdocunlent or agreement evidencing the City Loan.(dd) "Market-Rate Parcel" is defined in Recital B.(ee) "Memo of Agreement" means the Memorandum of Acquisition and DevelopmentLoan Agreement and Option to Purchase to be recorded against the Property upon acquisition byBORROWER.(ff) "Note" is defined in Recital C. The form of the Note is attached hereto asExhibit B.(gg) "Notice ofExercise I has the meaning set forth in Section 6.4 below.(bb) "Option to Purchase" is defined in Sections 2.4 and 6.4 below.(ii) "Permanent Closing" means the date upon which all financing necessary for theoperation of the Project on the Property c-loses, and any deeds of trust related to such financingare recorded against the Property.(jj) "Predevelopment Activities" means the activities to be performed byBORROWER during the Term, as further described in Article 3 below.(kk) "Project" is defined in Recital B.(11) "Project Budget" is the pro forma acquisition and construction budget for theProject, including sources and uses of funds, as approved by the CITY, and attached as Exhibit

D.(mm) "Project Documents" are defined in Section 2.4(b) below.(nn) "Property" is defined in Recital A, and is more particularly described in theattached Exhibit A.(00) "Regulatory Agreenlent" means covenants entered into between the CITY and theBORROWER, to be recorded prior to Construction Closing, which requires that the Project, if

approved by the CITY, be maintained and operated as housing affordable to extremely low, verylow, and low-income households.(Pp) "Residual Receipts" are defined in Section 2.9 below.(qq) "Schedule of Performance" is defined in Section 3.1 below, and IS moreparticularly described in Exhibit E.

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(rr) "Senior Lenders" are defined in Section 2.5 below.(ss) "Senior Loan" is defined in Section 2.5 below.(tt) "TCAC" means the California Tax Credit Allocation Committee.(uu) "Term" is defined in Section 2.9 below.(vv) "Termination Notice" is defined in Section 6.1 below.(ww) "Transfer" has the meaning set forth in Section 4.14 below.Section 1.2 Exhibits.The following exhibits are attached to this Agreement and incorporated into thisAgreement by this reference:

EXHIBIT A: Legal Description of the PropertyEXHIBIT B: NoteEXHIBIT C: Deed ofTrustEXHIBIT D: Estimated Project Costs and Sources ofFundsEXHIBIT E: Schedule ofPerformanceEXHIBIT F: Assignment of DocumentsEXHIBIT G: Insurance Requirements

ARTICLE 2LOAN PROVISIONS

Section 2.1 Loan.Subject to satisfaction of the conditions set forth in Section 2.6, the CITY shall loan tothe BORROWER the City Loan in the principal amount ofThree Million Two Hundred TwentyThousand Two Hundred Twenty Dollars ($3,220,220) for the purposes set forth in Section 2.3 ofthis Agreement. The obligation to repay the Loan shall be evidenced by the Note in the formattached hereto as Exhibit B. -Section 2.2 Interest.(a) Subject to the provisions of Section 2.2(b) below, the outstanding principalbalance of the City Loan will bear simple interest at the rate of three percent (3%) per annumcommencing with the date of the Permanent Closing.(b) In the event of a Default, interest on the City Loan will begin to accrue, as of thedate of Default and continue until such time as the City Loan funds are repaid in full or the

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Default is cured, at the default rate of the lesser of eight percent (8%) per annum, compoundeqannually (the "Default Rate") and the highest rate permitted by law.Section 2.3 Use ofFunds.BORROWER shall use the City Loan to fund the acquisition and development of theProperty. BORROWER shall not use the City Loan for any other purpose without the priorwritten consent of the CITY.