finance & budget committee...

FINANCE & BUDGET

COMMITTEE RECOMMENDATION

The Finance & Budget Committee recommends adoption of the

attached resolution and approval of the findings therein,

approval of the transaction to pledge and obligate funds

in combination with a corresponding pledge of Bunker Hill

tax increment by the Community Redevelopment Agency of

the City of Los Angeles, and authorize officers of the

MTA to execute all necessary documents to effectuate and

implement the transaction.

FINANCE & BUDGET COMMITTEE JUNE 9, 1993

May 28, 1993

Los Angeles County

Metropolitan

Transportation

Authority

818 West Seventh Street

Suite 300

Los Angeles, CA 90017

213.623.H94

MEMO TO: FINANCE AND BUDGET COMMITTEE

THROUGH:

FROM:

SUBJECT:

FRANKLIN E. WHITE

ALAN F. PE~UDITH A. WILSON~

PLEDGE OF~PROPOSITION A FUNDS TO FACILITATE JOINTDEVELOPMENT AT THE GRAND CENTRAL SQUARE PROJECT

RECOMMENDATION

Staff recommends that the Board: (i) adopt the attached Resolution; (ii) approve findings therein; (iii) approve the transaction, thereby authorizing an annual directpay obligation and pledge of Proposition A sales taxes (discretionary portion) that,in combination with a corresponding pledge of Bunker Hill tax increment by theCommunity Redevelopment Agency of the City of Los Angeles ("CRA"), will createindividual, but not joint, obligations to pay a specific portion of debt service on $42.2million of bonds to be issued by CRA (the "Bonds") to fund the renovation andimprovement of the Grand Central Market and ancillary buildings located adjacentto the northeast entrance of the Pershing Square Red Line Station, (the "Project," seeExhibit 1). Furthermore, pursuant to the Resolution: (iv) authorize the Chairman,the Vice Chairman and any Designated Officer to execute all documents necessaryto effectuate and implement the transaction upon satisfactory fulfillment of allconditions precedent.

ALTERNATIVES CONSIDERED

The proposed financing, and the direct public agencies payment and reimbursementarrangement described herein, and the structure of the corresponding riskminimization features and commensurate returns, represent an economically feasiblealternative that closely corresponds to the credit enhancement structure that receivedpreliminary approval by the Los Angeles County Transportation Commission (the"Commission") in December, 1992.

The Project developer (the Yellin Company) has been unable to obtain conventionalconstruction and permanent financing due to adverse market conditions. "

The current "cap" on annual expenditures of Central Business District RedevelopmentProject tax increment restricts CRA’s ability to assume a debt service paymentobligation on all the Bonds. A direct loan by MTA was considered but notrecommended, given the priorities and constraints upon available MTA funding

Pledge of Prop A Funds for Grand Central SquareMay 28, 1993Page 2

sources. Attempts to negotiate an arrangement whereby MTA and CRA wouldundertake a "standby" reimbursement obligation backing the direct payment of annualdebt service by a private Letter of Credit Bank were unsuccessful.

The MTA’s participation as a direct pay obligor is consistent with the MTA policyregarding the use of its joint development authority to optimize the public investmentin transit programs and to augment its revenue resources. Furthermore, it representsa further means to achieve a realization of MTA’s mobility goals.

IMPACT ON BUDGET AND OBJECTIVES

The actual budget impact may vary to the extent actual performance of the Projectdiffers from the pro forma revenue and expense assumptions used in underwriting thistransaction.

MTA will make debt service payments from the discretionary portion of annualProposition A sales tax revenues in an annual amount not to exceed $2.8 million peryear. This direct pay obligation will be placed on a fourth lien basis with other non-senior obligations which are funded from this revenue source. The senior obligationsare Proposition A Senior Debt, Proposition A Cross-Border Leases and PropositionA Commercial Paper. The MTA’s direct, semiannual payment of debt service willbe immediately reimbursed by the Trustee from Project Net Operating Revenue("NOR") and funds held in reserve accounts.

For the first year (FY ’94) the Bonds are outstanding and for a portion of the secondyear (FY ’95), debt service payments will be made out of Bond proceeds from theCapitalized Interest Fund so that the MTA will not have to make an equivalent cashoutlay. Thereafter, the concurrent reimbursements of MTA’s debt service paymentswill be budgeted for the same applications established for the discretionary portionof Proposition A revenue. Accordingly, absent serious, sustained, under performanceof the Project, MTA’s direct payment obligation will have no negative impact uponits budget or objectives.

In the event NOR and reserves are not available in sufficient quantity, or at all, feeincome and/or reimbursements would be reduced or not paid. However, duringconstruction, MTA can exercise its right under an irrevocable Letter of Credit andredeem an amount of Bonds equal to its obligation. During the post-constructionperiod, MTA can exercise its rights (under a First Deed of Trust) to take title to theProject, sell this asset, and redeem the amount of the Bonds covered by its priorityobligation at that time.


At the time the Bonds are sold, the MTA will be reimbursed from Bond proceeds fora portion of prior outlays relating to consultant and legal costs (approximately$280,000). Additionally, the MTA will be compensated for the risks associated withthis transaction each year the bonds are outstanding. The construction period fee(while Home Savings Letter of Credit is in place) is 1/2 of 1% of the principalamount of Bonds covered by its obligation (approximately $100,000) also payablefrom Bond proceeds at closing. Following construction, this fee increases to 1% ofthe outstanding principal amount of Bonds covered by the MTA’s annual obligation(initially estimated at $308,000). These fees will be paid to MTA from Project NORon a first priority basis. They provide a new source of revenue, and may beallocated to any public transit purpose authorized by MTAs Joint Developmentstatutes.

BACKGROUND

This memorandum and the Project Report (Attachment C) describes the structure the Bonds and a credit facility which MTA staff proposes for the Project. Under theterms of this arrangement, MTA will:

provide a direct annual payment of debt service on a portion of thetax-exempt Bonds from Prop A funds; and

2. receive annual fees (approximately $308,000 initially) compensation; and

be the beneficiary of an irrevocable, unconditional, direct pay andfully insured bank Letter of Credit during construction. Thisinstrument will be drawn upon for the full amount of the MTA’sconstruction period obligation if a default occurs and cannot be cured;and

receive a first priority unconditional reimbursement pledge from thedeveloper, a second priority interest in the Project during construction,and a first priority security interest in the Project upon completion ofconstruction and withdrawal of the Letter of Credit.

The transaction is more fully described in the narrative and graphic material attachedto this report. This includes an MTA consultant-prepared assessment of risks andresulting compensation (Attachment A), a copy of the Preliminary Official Statementcovering the Bonds (Attachment B), a Project Report (Attachment C), a summary Questions and Answers (Attachment D) and the MTA Resolution (Attachment


Joint Development Authority and Policy

In May 1990, the Commission adopted a Joint Development policy to derive theoptimum benefit from the utilization of property owned and acquired by the LACTCconsistent with municipal and community development objectives and with LACTCtransportation goals. Furthermore, the Commission provided a mandate to"aggressively pursue joint development with developers and/or municipalities" toachieve these ends. Transit ridership can be enhanced and automobile dependencyreduced through focusing joint development activities around rail stations by activelyemploying its real property and/or financial resources.

Staff recommendations have been prepared within the legal framework of theCalifornia statutes which authorize the Commission to enter into agreements withpublic or private entities to plan, finance, construct or develop projects that areadjacent, or physically or functionally related to rail transit facilities. The purposeof these agreements is to provide "... alternative methods which are needed tofinance the cost of acquiring, constructing, and developing facilities for transitsystems..." (Public Utilities Code Section 130501).

Previous Actions

In June, 1990, CRA and the Yellin Company (the "Developer") executed agreement to achieve the redevelopment of a key portion of the Historic Core areaof the Central Business District Redevelopment Project through the preservation,renovation, modification and improvement of the Project, i.e., Grand Central Marketand the accompanying Lyon Building, Homer Laughlin Building, the adjacent MillionDollar Theater Building and a contiguous (partially completed) 500-car, eleven levelparking structure. The Project is known as Grand Central Square. These buildings(except the parking structure) are listed on the National Register of Historic Places.

The initial Project concept envisioned retail, commercial office and theater uses.However, due to the overbuilt condition in the downtown office market and theprolonged economic downturn, 121 units of mixed-income rental housing (20% verylow, 10% low, 20% moderate, 50% market rate) will replace the commercial officefloor area planned for the Homer Laughlin and Million Dollar Theater Buildings.Refer to the attached Project Report (Attachment C) for a completion description the Project.


In March 1992, the Developer informed the CRA of its inability to obtainconventional financing for Project completion. In recognition of the generalunavailability of such financing from private sources, CRA proposed to obtain aprivate construction loan commitment and issue "credit rated" taxable and tax-exemptbonds for the permanent financing of the completion of the commercial andresidential components respectively. However, the public finance (bond) market hasbeen unwilling to accept real estate as collateral. Thus a more traditional, public taxrevenue-based credit pledge is required for an acceptable rating and successfulmarketing of the Bonds.

In March 1992 the Mayor, a City Council member (Chairman Alatorre) and CRArequested the Los Angeles County Transportation Commission’s (the "Commission")financial assistance through the use of its joint development authority to facilitateCRA issuance of these Bonds. In December, 1992 the Commission gave preliminaryapproval to a direct pay form of pledge with an instruction to complete allnegotiations and documentation in order to propose final terms and conditions uponwhich the MTA can render Findings, adopt a Resolution and authorize issuance ofa binding pledge of annual Proposition A revenue (discretionary portion).

Staff negotiations and the documentation of the transaction have been conducted withthe assistance of the Commission’s financial advisor (Lazard Freres), its economicconsultant on this matter (Keyser-Marston Associates), County Counsel and outsidelegal advisors (Nossaman, Guthner, Knox and Elliott).

Relationship of Project to Metro Red Line

A major portal that serves ridership on Metro Red Line Segment No. 1 is located onthe northeast and northwest corners of 4th Street and Hill Street, and is placedapproximately 250-270 feet from the main entrance to the Market. MTA will utilizea $1.78 million ISTEA FY 1992-1993 grant, in conjunction with approximately $0.35million of Los Angeles City/CRA funds, to design and construct an enhancement tothe sidewalk and additional connections between the portal arid the Market. Thisimproved pedestrian linkage will promote additional transit ddership by heighteningpublic awareness and acceptance of rail transit.

The renovation, conversion and improvement of the Project and its pedestrian linkageto these portals will accelerate the development of the intervening, currently vacantland. The reinstallation of Angels’ Flight at the base of California Plaza by CRAwill strengthen the east-west connection to the Project. CRA will use a $785,000ISTEA FY 1992-93 grant for this purpose. The combination of rail transit andprivate development will enhance the pedestrian connection between commercial,residential, cultural and governmental facilities on Bunker Hill, the Civic Center and


the Central Business District and provide impetus to revitalization programs in theHistoric Core area. The effects of last year’s civil disturbance in Los Angeles uponthe community’s economic base further emphasizes the importance of the successfulimplementation of the Project as a catalyst to job formation and redevelopment.

These facts and the other information contained in this staff report together with formthe basis for the recommended findings set forth in the attached resolution.

Evaluation of Risk and Return

MTA staff and consultant team have negotiated a package of financial compensationand security which is believed to adequately protect the MTA’s interests, providesa reasonably secure return that is commensurate with the risks inherent in thistransaction, and will reasonably contribute to funding the acquisition, constructionand development of MTA-owned transit facilities. The opinion of MTA’s economicconsultant, based upon the terms and conditions of the proposed agreement asdescribed below, is set forth in the attached letter report dated May 19, 1993(Attachment A).

The Bonds

CRA plans to issue two series of tax-exempt bonds to provide approximately $42.2million. A complete list of CRA-retained underwriters and counsel is provided in thePreliminary Official Statement (Attachment B_). A Qualified Redevelopment Bond("QRB") will primarily fund the completion of the rehabilitation of the commercialarea. A portion of the QRB’s will be used to reimburse the Developer for previouslyexpended eligible project costs; however, these funds will be deposited into aDeveloper Equity Fund to be used to pay for the portion of the parking garage notallocated to the residential project or other expenses not eligible for funding fromeither of the tax-exempt bond issues. Additionally, a Multi-Family Housing Bond("MFHB") will fund the construction of the residential component and the portion structured parking allocated to the residential units.

The $42.2 million par value of the Bonds exceeds the December 1992 estimated bondsize of $38-$41 million. However, both of the issues will be totally tax-exempt,whereas it had previously been thought that one-third would be taxable. This willresult in a lower annual debt constant than contemplated in December, and therebyprovide adequate funds to complete the project and provide sufficient contingenciesand reserve funds to reasonably insure project success. The structure of thetransaction and this lower debt constant provides a supportable annual debt servicewhich meets MTA’s and CRA’s underwriting criteria.


The actual Bond interest rate (6.5% has been used for the risk analysis performed inunderwriting the Project), the size of the bond reserve (or a surety) to cover year’s maximum debt service, the cost-effectiveness of bond insurance and theoptimum combination of capitalized interest, NOR, investment income and reserves(for debt service and reimbursement during construction) will be finally determinedwhen the Bonds are priced and marketed in July, 1993.

The Bond proceeds will be used to permit a timely commencement of Projectconstruction activities. Nevertheless, the CRA Administrator will have the authorityto not issue the Bonds, and the MTA Chief Executive officer will have the authorityto not issue the MTA pledge if the assumptions underlying the sizing of these Bonds,including the timing and extent of the MTA’s obligations and the security for itspledge are materially different from those which induced MTA acceptance andapproval of the transaction.

Amount of MTA Pledge

During construction, the amount of the MTA annual obligation will be determinedby the principal amount of the Letter of Credit issued by an irrevocable,unconditional, direct pay construction lender (Home Savings of America) on behalfof the MTA. That is, the MTA will pay debt service on the QRB’s, which will besized based upon the construction lender’s underwriting criteria. The Letter of Creditwill cover the full amount of the QRB’s and six months debt service (i.e., interest).Also, this Letter of Credit will be fully insured by the Federal Home Loan Bank.

Based upon our proforma assumptions, the MTA’s annual obligation duringconstruction will be $1.3 million. CRA will cover approximately $1.4 million/year.The final amounts will be set by (a) the amount of the Letter of Credit; and (b) sizing and pricing of the Bonds.

Following completion of construction and the release of the Letter of Credit, MTAwill be responsible for a conservatively determined annual debt service on thesmallest amount of QRB and a portion of the MFHB principal as determined by oneof three tests: (a) the portion of the annual debt service equal to projected annual netoperating income of the Project divided by 1.25 (the "Debt Coverage Ratio"); or (b)annual debt service on bonds equal to 80% of the appraised value of the Project; or(c) the annual debt service on 73 % of the total amount of the Bonds.

The 73 % test yields an estimated obligation that is roughly equivalent to the resultsof tests (a) and (b) above. These tests are designed to minimize market, financial development risks, thereby limiting MTA’s exposure to a prudent level ofcommitment. Based upon our proforma assumptions, the MTA’s maximum annual


debt service obligation (principal and interest) will be $2.5 million beginning in year9 (interest only for the first 8 years of debt service).

During this post-construction period CRA will cover approximately $0.9 millionworth of debt service on the MFHB. CRA will fund its obligation with Bunker HillRedevelopment Project tax increment. This source of payment is appropriate for theMFHB; however, statutes preclude its use for debt service on the QRB. The finalamount of MTA’s obligation in the post-construction period will be set during thesizing and pricing of the of the Bonds in July 1993, and ~v~ll be based upon theappraisal of the Project and NOR (based upon projections prepared by Keyser-Marston Associates).

Security for the MTA/Developer Obligations

During construction, $4.4 million of cost overrun reserves and contingencies will beavailable from Bond Proceeds. Bond proceeds for the construction of housing willbe released only when all conditions precedent to commencement are fulfilled,including an analysis of the sufficiency of remaining contingency funds. If thesereserves are less than 20 percent of the cost of the remaining work, CRA will funda Supplemental Cost Reserve (from other CRA non-Bond sources) in an amount to $1.7 million. If the condition precedent are not satisfied, then MTA would be ableto draw upon the Letter of Credit and redeem the QRB’s, thereby removing itselffrom any further involvement with the Project.

The construction lender Letter of Credit may be drawn upon by MTA in the eventof any failure to cure a construction period default, after approval by the MTABoard. The MTA would use the proceeds from the Letter of Credit together withany unspent QRB proceeds to redeem the outstanding QRB’s and will have no furtherobligation and pledge. The CRA will have the right to address the MTA Board withregard to forbearance in drawing upon the Letter of Credit; however, the exercise ofthis right of request cannot impair the liquidity of the Letter of Credit or impair theMTA’s rights under the Letter of Credit.

During construction, MTA will hold a second deed of trust on the Project. Home,as issuer of the letter of Credit, will hold a first trust deed. CRA will hold a thirdtrust deed. Additional construction period security for the MTA’s obligation includescontractor purchased payment and performance bonds or letters of credit, guaranteedmaximum price construction contracts, and the right to replace the Developer asproject manager, subject to certain tests.


After the construction period, the MTA’s trust deed on the Project and securityinterests will have a first priority position. The following reserves and controls uponProject Net Operating Revenue will provide additional security:

CRA will fund $3,000,000 outside the bond issue into the CRA/DeveloperReserve that would be available, and limited in use solely, to immediatelyreimburse any MTA for debt service payments not reimbursed from ProjectNOR or other Project revenue available to the Project Trustee.

o The Developer will initially fund the CRA/Developer Reserve with up to$500,000 from its Developer Fee, if not used to fund construction costoverruns. If there are sufficient construction cost savings, the developer mayinitially fund this reserve with up to $750,000. Subsequently, any availableNet Operating Revenue will augment this reserve to a maximum of$3,000,000. When this reserve exceeds $750,000, CRA may withdraw fundsfrom its reserve so that the remainder therein and the current developerreserve equals $3,750,000. When the developer reserve reaches $3,000,000,CRA may close its reserve.

The Developer will fund and maintain a reserve foe capital repairs andreplacements and a working capital balance for payment of budgeted operatingexpense. The Developer will obtain and maintain a comprehensive packageof insurance on the Project.

At all times, the MTA will receive reimbursement for any debt service payments ona first priority basis. The Developer will execute an agreement with MTA thatrequires the Project Trustee to use Project NOR and reserves for this purpose. CRAwill receive similar reimbursement to the extent Project NOR and reserves areavailable in any year, i.e., on a second priority basis. These agreements will alsorequire payment to both agencies, upon sale or transfer of the Project, of fundssufficient to fully redeem the Bonds and all accrued, unpaid interest thereon.

Negotiations have provided that the Bond documents will not permit the right ofacceleration (i.e., demand for immediate payment in full upon failure to cure default) by the Bond Trustee or the bondholders. This minimizes the MTA’s risk tothe amount of the annual debt service obligation. Additionally, the MTA will havethe option to redeem the QRB at any time. With respect to the MTA portion of theMFHB, MTA will have the option to redeem these bonds prior to maturity upon adefault by the Developer and the subsequent faiture to cure this default or upondamage, destruction or condemnation of the Project.

¯ Exhibits 2 through 6 of this staff report depict the structure of this directpayment/reimbursement obligation, including the relationship between annual debtservice and annual Net Operating Revenue. A summary of Construction and Post-Construction risks and their mitigation is also provided.


Compensation for Risk Fee

As compensation for the risk in assuming a direct pay, non-contingent obligationunder its pledge, the Developer will pay to the MTA from Project Net OperatingRevenue: (a) a one-time fee for the construction period equal to 0.5% of the Bondamount covered by its Guaranty (approximately $100,000); and (b) a recurring annualfee, payable after the completion of construction equal to 1.0% of the outstandingbond principal amount covered by the MTA guaranty (approximately $308,000initially).

The recurring annual fee in the first three years may be deferred for up to three yearsif necessary to assure sufficient NOR to pay debt service on the Bonds. In any event,all deferred recurring fees, if any, would be paid immediately if reserve funds arereduced by the amount of such deferral.

Transit Fee

As a fee to support the MTA’s acquisition, construction and development of transitfacilities (and as additional consideration for the CRA pledge), the public agencieswill receive 2.0% of the gross proceeds from any sale or refinancing of the Projectduring the effective period of their respective obligation, or from any sale orrefinancing thereof occurring within one year after the bonds are fully redeemed.The proceeds are to be distributed on a cumulative basis as follows:

1. The first $550,000 to the MTA2. The next $200,000 to CRA3. The next $550,000 to the MTA4. The next $200,000 to CRA5. The remaining balance, if any, 73% to the MTA

and 27% to CRA. This approximates ourrespective debt service payment obligations afterthe completion of construction.

Costs

The transaction includes a requirement that the Developer pay a portion of MTAcosts incurred during the negotiation and documentation of this transaction. Thisamounts to approximately $280,000. Such payment to MTA will be funded from theinitial draw on Bond proceeds.

Cooperation Agreement

The MTA and CRA will enter into a Cooperation Agreement concerning theirinvolvement in the Project and related matters. This will include the cooperativeplanning of property between the Project and the transit portals, and an agreement

Hedge of Prop A Funds for Grand Central SquareMay 28, 1993Page 11

to reasonably investigate a mutually acceptable "buyout" by CRA of the MTA’sobligations under its pledge in the event the Central Business District RedevelopmentProject "cap" on CRA’s expenditures of tax increment is increased in the future.

The Cooperation Agreement also provides the ability, but not the obligation, forMTA to utilize CRA’s technical rehabilitation/construction inspection staff reviewsand reports during construction of the Project. This permits timely, cost-effectivemonitoring for compliance with plans, specifications, project budget and progresspayments to the contractor.

Additionally, the Cooperation Agreement provides a basis for CRA and MTA tocontinue to work cooperatively where MTA activities occur within redevelopmentproject areas to identify land use opportunities, and to establish master planningefforts to maximize the use of MTA’s transit system and the benefits derivedtherefrom by recognizing such stations as a focus for revitalization within CRA’sredevelopment project areas.

Environmental Assessment

The Project Environmental Impact Report was certified by the CRA Board ofCommissioners on February 15, 1990. A supplemental Environmental Impact Reportincluding an assessment of the improved pedestrian connection between the portalsand the Project was certified by the CRA on May 17, 1993.

Projected Employment

The renovation and improvement of the Project will provide 120 new constructionjobs. Additionally, direct, full-time employment at the completed Project willamount to 506 jobs. This represents an increase of 306 jobs relative to current on-

site employment. Furthermore, the payroll multiplier effect will add 404 indirectemployment opportunities in the local economy.

Prepared by:

F. Michael FrancisDirector of Real Estateand Joint Development

ATTACI-IIVlENTS

BLGCQGUANT.MEM05/27

are & Transit Access Improvements

AngelesPlaza

|western~,er)

Entrance toThird Street

Tunnel

AgapeCenter

Office "lower III/

I

Metro Rail Stadon~~)

EXHIBIT i

~nget’s Right

Parking LotPan

American

Third Street

Biddy RonaklMaso~ Reagan

OevelolimM Park State Bldg.

Master Plan Area:Development Blockand Immediate Environs

Development

Midblock Portal Easement &Pedestrian Improvements

~ Metro Portal

-- -.-- HillStreetlmpmvements-Enhanced Pedestrianand Transit Linkage

Fourth Street

Development Block

NORTH

GRAND

EXHIBIT 2

CENTRAL SQUARE

Flow of Funds: Construction

Project NetOperating

Revenue (NOR)

Developer Equ;tyFund

CRASupplemental

Cost Reserve (B)

NOR: #1 Priority

(fees)

NOR: #2 PriorilyI

Ilreimburseme~ I

ConstructionLender

Letter of ~Credil (C)

LACRA

Debt Service @ $1.3 M/yr (E)

(after cap i used)

Bond Proceeds (A)(D)Capitalized InterestDebt Service ReserveConstruction FundsConstruction Contingencies

Debt Service @ $1.4 M/yr

(after cap i used)

Construclion Draws

Bond Trustee

100% IDebt Service~

~ $2.7 M/~

2onsttuction Draws

Bond Purchaser

Contractor

Footnotes (A) Qualified Redevelopment Bond (B) $4.414M funded in the bond issue (C) Letter of Credit IMTA security if $20.0M (MTA Obligation) and Multifamily and up to $1.7M funded by IACRA CBD struction period default is uncurred)=Housing Bond @ $22.3M (LACP, A obliga- Tax Increment. Approximately $2.85M of Actual amount of QRB plus six (6) monthstionl = $42.3M par value. Proforma: 6.5% bond~unded reserve is available for debt debt service thereon.(tax exempt interest rote); 8 years interest service, in addition to capitalized interest,only, 25 years amortization thereafter, if not needed for construction.Pricing at bond dosing: 7/30/93.

(D) MTA will receive cost reimbursemenland construction pariod fee )risk:return) $380,000 at bond closing (7/30/93.)

(E) Therefore, a direct payment obligation.

EXHIBIT 3

GRAND CENTRAL SQUARE

Flow of Funds." Post-Construction

Project NetOperating

Revenue (NOR)

#3 Priorily

(replenishment)

#1 Priorily

(reimbursement) (B)

Project Trustee

(reimbursemenl)

MTAAnnual Debt Service

Yrs 3-8 = interesl only = $2.0M/y~ /Yrs 9-25 = amortization = $2.5M/yr ~l/

Bond Trustee (C)

#2 Prio,ity~ Annual Debl Service t~ LACRA

"Yrs 3-8 = interest only = $0.7M/’,#*Yrs 9-25 = amortization = $O.gM/yr

#4 Priority

100% AnnualDebt Service

($3.4M)

I:ootnotes (A) lnanyyeer, if NOR is insufficient br reimbursement of debt ser- (B,) MTA annual reimbursement of debt service will be accompa- (C) $42.3M par value bond issue. Proforma:6.5%ltaxexemptvice payments, Ihese Developer and [ACRAfunded reserves are nied by the receipt of annual fees = 1.0% of the outstanding princi- interest rate); 8 years interest only, 25 years amortization Ihereafter.available for reimbursement with a priority held by MTA. pal amount of bonds covered by the MTA’s annual pledge (e.g., Pricing at bond closing (7/30/93].) Actual amount of the respec-/v~ximum amount of these reserves = $3.75M. $3OO,OOO-$315,000 in Year 3.) rive pledges will be determined at that time.

S

S

S

S

S

S

S

Sl

S 5o0

$0

i EXHIBIT 4


Projected Net Operating Revenue (A)(assumes 10% Vacancy)

35%

41%38%

43%45%

34%37%

39%42%

44%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

J~ Debt Service on MTA’s Garanteed Bonds [] MTA Debt Service Coverage Revenue J

Footnotes (A) The total is equal to Net Operating Revenue. The availabilib, of MTA Debt Service Coverage Revenue reflects the priorily reimbursement position he~d by MTA.The percentage~ ~eflect the ratio of Net Operating Revenue in excess of Debt Service.

EXHIBIT 5


Post-Construction LACRA/DeveloperReserve Fund (A)

Outstanding Balance (End of Year)

$ 3,000,000.00

$ 2,500,000.00

$ 2,000,000.00

1,500,000.00

$ 1,000,000.00

$ 500,000.00

$ 0.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Year

Footllotes (A) Used in conjunction with Proiect NOR For reimbursement of MTA (first priority) and LACRA annual direct payment of debt service.

EXHIBIT 6


Risks & Mitigation Measures

Risks Mitigation

Construction Period

Operating Period

BankruptcyIncomplete drawingsUnknown Site/Building ConditionsDelaysDestructions

Insufficient Revenues

Mismanagement

Destruction

Primary:Lelter of credit equal to MTA obligation and six months debt service.

Secondary:Guaranteed maximum price contract;Payment and performance bonds for contractor and subcontractors.$4.414 million funded contingency;Up to $1.7 million Agency funded contingency with start of housing.

Limit on amount of debt through loan to value & coverage standards;MTA holds first trust deed;$3 to $3.75 million cash reserve for priority reimbursement if N.O.R. is insufficient;Requirement of fixed rate, amortizing debt;No acceleration of bonds/early call provisions.

MTA approval of annual budgets;Trustee receipt of all revenues;Subordinated management fee and return on equity;MTA/Agency have ability to replace construction and property managers.

Insurance including business interruption, earthquake, all risk, and100% replacement coverage.

Los Angeles County

Metropolitan

Transportation

Authority

818 West Seventh Street

Suite 300

Los Angeles, CA 9oo17

2~3.6z3.1194

June 3, 1993

MEMO TO: FINANCE AND BUDGET COMMITTEE

THROUGH:

FROM:

SUBJECT:

FRANKLIN E. WHITE

ALAN F. PE~UDITH A. WILSONJI/~

PLEDGE OF BUNKER HILL TAX INCREMENTFUNDS TO FACILITATE JOINT DEVELOPMENTAT THE GRAND CENTRAL SQUARE PROJECT

The May 28, 1993 staff report before your Committee recommends the authorizationof an annual direct pay obligation and a pledge of Proposition A sales taxes(discretionary portion) that, in combination with a corresponding pledge of BunkerHill Redevelopment Project tax increment by the Community Redevelopment Agencyof the City of Los Angeles ("CRA"), will pay annual debt service on CRA-issued taxexempt bonds (the "Bonds") to fund the renovation and improvement of the GrandCentral Square Project (the "Project").

A recent proposal to amend California Community Redevelopment Law wasintroduced in the California Assembly by Assembly Member Isenberg (AB 1290) thatwould have the effect of limiting to the year 2019 the period during which CRA canpay indebtedness with Bunker Hill tax increment. However, the proposed Bondamortization period does not end until the year 2026. Project financing will not befeasible unless debt service can be paid over the 1993-2026 period (33 years).

If this legislation is passed, or even if it is pending at the time ~f Bond closing (July,1993), the CRA will not be able to pledge Bunker Hill tax ir~crement for the fullperiod required and the transaction will not proceed. Therefore, on June 3, 1993,the CRA Board adopted a Resolution to establish a fund at closing for the purposeof buying State and Local Government Securities or other investments in the initialamount of $2,339,500. Such yield restricted securities and tl’ieir earnings will bepledged to defease the CRA’s debt service obligation for years 2019-2026.

As described in the May 28 staff report, MTA will release the construction periodLetter of Credit when all conditions precedent to Project completion are fulfilled.This will also allow the release of a portion of the defeasance fund (approximately$1,000,000) to CRA because its annual debt service obligation is reduced from $1.4million to approximately $0.9 million at that time. At all times this defeasance fundwill be administered by a Fiscal Agent/Trustee.

Pledge of Bunker Hill Tax Increment Funds toFacilitate Grand Central Square ProjectJune 3, 1993Page 2

The proposed debt service and amortization schedules will be unchanged. In the year2019, CRA would call its remaining Bond obligation by using its investment principaland net interest earnings. The MTA obligation would continue, with a first prioritylien on both the real estate and Project Net Operating Revenue as security.

After review by both staff and the MTA’s economic consultant (Keyser MarstonAssociates), it is believed that this proposed alternative presents no additional risk toMTA.

Prepared by:

F. Michael FrancisDirector of Real Estateand Joint Development

WLGCSQDEBT.MEM06/03

Richard L. BottiCalvin E. Hollis, IIKathleen H. Head

SAN DIEGO 619/942-0380Heinz A. Schilling

SAN FRANCISCO 415/398-3050Timothy C. KellyA. Jerry KeyserKate Earle FunkRobert J. WetmoreMichael CordonDenise E. Conley

ATTACHMENT A

May 19, 1993

Lcs Angeles County818 West 7th StreetLos Angeles, CaliforniaAttn: Mr. Michael FrancDirector of Real Estate

KeyserMarstonAssociatesInc.500 South Grand Avenue, Suite 1480Los Angeles, California 90071213/622-8095 Fax 213/622-5204

Authority

opment

Nossaman, Guthner, Knox445 South FigueroaThirty-First FloorLos Angeles, california

Attn: Mr. Frederick.W. ~

Ladies and Gentleman. ~

This letter presents Key~ociates, Inc. (KMA) opinionon and assessment of ~r~k_s, ~ecurity and compensationassociated with the Los ~~y~etropolitan TransportationAuthority ("the MTA") p~g~di~ect obligation, backed by pledge of a portion of Prop~si£~on A~ax revenues, to pay annual

debt service to the city--~~or°’~~.~of tax-exempt b?nds to beissued by the Community ~Agency of the Clty of LosAngeles (CRA) to finance~bi-~t~ion of Grand Central Squarein downtown Los Angeles.~

KMA s assessment of risks,-~ity ~h-d compensation is based onthe proposed agreements ~d-~°~een the MTA, the CRA, HomeSavings of America F.S.~. and Grand Central Square

If the numerous conditl-- in these agreements aremodified in any manner .e date cf this assessment,KMA reserves the right conclusions ~nd opinionspresented herein.

Re~ ~tateP~development &Evalua6on Se~ices

Mr. Michael FrancisMr. Frederick W. KesslerMay 19, 1993Page 2

The discussion of risks, security and compensation can be dividedinto construction and post construction periods.

CONSTRUCTION RISKS, SECURITY AND COMPENSATION

A. RiSks and Security

All oonstruction projects entail a certain amount of risk,including incomplete drawings requiring numerous (and costly)change orders, unknown building or site conditions,bankruptcy/insolvency of any party involved in the transaction(contractors, owner, or lenders), construction delays, and

destruction as a result of fire, earthquake, or other naturalcauses.

While these risks associated with rehabilitation projects aresubstantial, as currently proposed the MTA’s involvement in theproject construction phase is virtually without risk. The proposedagreement requires a construction lender to provide an irrevocable,unconditional direct pay letter of credit to the MTA equal to thedollar amount of bonds that the MTA will guarantee during theconstruction period and six months debt service on these bonds.Debt service by MTA during the construction period is funded orreimbursed from bond proceeds, earnings on unspent bond proceedsand/or operating income for Grand Central Square. If for anyreason the project is not completed within the term of the letterof credit, the MTA has the ability to call on the letter of creditand use the proceeds to retire in full the portion of the out-standing bonds for which the MTA will be obligated and thus end itsobligation in the project. Therefore, the risk the MTA will incuris limited to the inability to collect on the letter of credit dueto the financial condition of the lender (which risk will bemitigated by insurance to be provided by the Federal Home Loan Bank

of San Francisco) or a defect in the letter of credit itself.

In addition, during the construction period, MTA will hold areimbursement obligation from the developer secured by a secondpriority deed of trust on the project.

While it is KMA’s opinion that with the letter of credit and deedof trust, the MTA’s risks are minimal, the proposed agreementsadditionally contain safeguards to insure the project is completedon time and on budget. They are:

Prior to issuance of any bonds, the general contractorand major contractors must provide payment andperformance bonds or letters of credit, and the generalcontractor most provide a guaranteed maximum price foreach phase of the construction work.

KeyserMarstonAssociateslnc.

Mr. Michael FrancisMr. Frederick W. KesslerMay 1!9, 1993Page 3

The developer must carry adequate insurance (includingearthquake).

The project funding will provide for a $4.414 millionconstruction contingency reserve. This reserve is fundedfrom bond proceeds and includes the following:

a)b)c)d)

$642,000 general contractor reserve.$2,272,000 overall reserve.$i,000,000 holdback of contractor’s fee.$500,000 holdback of developer fee.

Construction of the residential component can only occurif the project funding is in balance. CRA will fund asupplemental cost overrun reserve in an amount of up to$1.7 million from non-bond sources to support residentialconstruction costs if the bond-funded reserve balance isless than 20% of the cost of remaining work.

B. Compensation

For providing the loan guarantee during the construction period,the MTA will be paid a one-time fee equal to one half of onepercent of the face value of the bonds being guaranteed by the MTA.In addition, negotiating and document preparation costs incurred bythe ~A will be partially reimbursed from the bond issue. Giventhe low risk associated with the MTA’s obligation during theconstruction period, it is KMA’s opinion that the proposed fee tobe paid at issuance of the bonds represents appropriatecompensation for the MTA direct pay obligation during theconstruction period.

POST CONSTRUCTION RISKS, SECURITY AND COMPENSATION

A. Risks and Security

The post construction (or operational) phase of Grand CentralSquare contains all of the risks associated with any real estateproject. Obviously, the major risk is the inability of thecompleted project to produce sufficient revenues to meet debtservice required, i.e., bond payments. The role of the MTA hasbeen structured such that the risks are consistent with prudentunderwriting standards, developed following a complete analysis ofthe project and independent projections of operating income.

In order to minimize the risk to the MTA of this occurrence, theproposed agreement requires the following:



1. Limitation on the Amount of Financing Guaranteed by theMTA

The proposed agreement requires that the portion of thedebt service paid by the MTA (after capitalized interestin the bonds is used by the trustee) is to be thesmallest of: (a) maximum annual debt service equal to 80%of projected net operating income (gross income lessoperating expenses excluding debt service) or (b) maximumannual debt service on a principal amount of bonds equalto 80% of the appraised value of the completed project,or (c) maximum annual debt service on 73% of the totalbond proceeds. Appraised value is determined through anindependent MAI appraisal of the proposed project underboth conventional and tax-exempt financing. The firstavailable cash flow after operating expenses, Trusteefees and annual fees to the MTA and CRA is to be appliedto reimburse the MTA for its debt service on MTA-backedbonds. Only after this debt service is met can netoperating income be used to reimburse CRA debt servicepayments.

Substantial Reserves

The agreement requires that the CRA fund a $3.0 millionreserve from non-bond sources to meet the operating needsof the project. This is to be available to reimbursedebt service payments by the MTA and CRA to the extentnot reimbursed by net operating income, and to pay thecredit enhancement fees of the MTA and CRA. Thedeveloper must fund an additional reserve for the samepurpose. Initial funding of the developer reserve willbe up to $750,000 from any monies remaining from theconstruction reserve account, and from first availablecash flows from the project, after payment of allpriority obligations as set-forth in the agreements. Thedeveloper’s reserve will continue to build with firstavailable cash flows after payment of priorityobligations until it reaches $3.0 million. The CRAreserve will correspondingly reduce.

Long-term Debt

The bonds that will be issued will be fixed rate debt¯The fixed rate nature of the debt, plus its long-termamortization period (25 years after an 8 year, interestonly period) and non-acceleration and early call featureseliminate any interest rate fluctuations or refinancingrisks.



4. Priority

Upon completion of the project, the MTA will have itsposition secured by a first deed of trust on the project,superior to all other financing or developer equity.

5. Insurance

The developer must obtain adequate insurance including100% replacement cost, all risk insurance, as well asearthquake and business (rent) interruption insurance.In the event of a disaster, the insurance will beadequate to provide revenues to meet debt service, toreconstruct the project, or to retire the bonds backed bythe MTA. MTA will have a first priority lien oninsurance proceeds (and condemnation awards).

6. Miscellaneous

In addition to the above, there are numerous otherconditions designed to mitigate risk. These include:

The ability of the MTA and CRA to annually approveoperating budgets for the project.

A trustee will receive all net project revenues anddispense said proceeds with favorable prioritiesaccorded the MTA in accordance with the agreements.

Co To the extent net operating revenues are inadequateto meet debt service, the developer’s managementfees will be reduced. In addition, the developer’sreturn on and of equity is subordinated to allproject debt service.

The agreement requires that the major tenant leasesbe signed on terms at least equal to our pro formaprojections prior to issuance of bonds.

B. Analysis

KMA has performed extensive financial analysis of the projectincluding market analysis of the residential components of theproject. The analysis included a thorough review of the project’soperating history and projected operating performance. Existingmarket conditions were evaluated and rent levels determined.Existing leases were examined and terms verified. The completeanalysis is contained in KMA’s memoranda dated June 29, 1992 and

KeyserMarstonAssociatesInc.


June 130, 1992. These analyses have been reviewed and updated, andthe conditions stated therein continue to be valid.

Our analysis resulted in a projected net operating income for theproject somewhat less than that projected by the developer. Theseprojections and vacancy assumptions have been agreed upon by allparties and utilized for purposes of the proposed financing. (Asummary of our projections are included as Tables 1-8 which areattached to this letter report.)

Chart A represents a comparison of net operating income to MTA debtservice based upon our analysis. The chart indicates thatprojected net operating income exceeds debt service on the amountof bonds guaranteed by the MTA by 35% in the first operating year,rising to 45% by the last interest-only year. Upon commencement ofamortization, the debt coverage rises from 34% to 46% during theinitial six years of the amortization period.

C. Compensation

For providing the loan guarantee, the MTA will be paid an annualfee equal to 1% of the outstanding amount of bonds for which theMTA will be obligated.

OPINION

Given the wide range of protections outlined above and theprojected debt service coverage, it is KMA’s opinion that:

There is a high degree of likelihood that the MTA will befully and timely reimbursed all debt service payments it willmake on the bonds.

The MTA’s obligation as well as the fees payable to the MTAwill be reasonably and adequately secured and are notspeculative.

The fees payable to the MTA represent appropriate compensationfor the risks undertaken by the MTA.

Key.serMarstonAssociateslnc.

Mr.. Michael FrancisMr. Frederick W. KesslerMay 19, 1993Page 7~

4. Given the projected net income, there is a high degree ofl~kelihood that the annual fee Will be payable from cash flowrather than the CRA/Developer Reserve.

Sincerely,

KEYSER MARSTON ASSOCIATES, INC.

Calvin ~E. Hollis

CEH:Ip "

93363.MTA15724. 0002

KeyserMarstonAssociateslnc

Millions

CHART APROJECTED MTA DEBT COVERAGE

GRAND CENTRAL SQUARE(Assumes 10% Vacancy)

$5

$435% 38%

$2

i:i:i:i:i:!:i:

$01996 1997

42%39%37%

~

/..~

4/____~% / / ~ ~-~jj.~~

:::~:~:~:~:~:~"’~/ / ..... :

::::::::::::::: I

1998 1999 2000 2001 2002 2003 2004

Debt Service onMTA’s GuaranteedBonds

80URGE: KEYSER MARSTON AS,SOGIATES, ING.

MTA Debt ServiceCoverage Revenue

44% 46%

:i:?:i:i:i:i:i:/2008 2006

TABLE 1

GRAND CENTRAL MARKET COMPONENT

MTA GUARANTY


LOS ANGELES, CALIFORNIA

MAY 12, 1993 --ACTUAL OPERATING INCOMEm

1989 1990 1991

INCOME

GRAND CENTRAL MARKET(I)

SUPERMARKET

GRAND CENTRAL STORAGE

MISCELLANEOUS

$958,100 $954,400 $932,200

172.500 164,800 173.100

90.400 129,800 201.900

GROSS INCOME

(LESS) VACANCY & BAD DEBT

EFFECTIVE GROSS INCOME

(LESS) OPERATING EXPENSES

(LESS) MANAGEMENT EXPENSES

~.~,.NET OPERATING INCOME

$1,221,000 $1,249,000 $1,307,200

(873,800) (813,~00) (730,S00)

(34,900) (36,400) (32,500)

$312,300 $394,000 $544,100

(1) GCM RENTS REDUCED TO $1.56 MILLION STARTING IN 1995.

SOURCE: KEYSER MARSTON ASSOCIATES, INC.

FILE NAME: GCSNEW: MAY, 1~93: RLW

1995 1996 1~7 1~ 1999 2000

$1,560.000 $1.622,400 $1,687,300 $1,754,800 $1,825.000 $1,898.000 $1 ,g73,900

368,200 368,200 368,200 414,200 430,800 448.000 465,900

161,200 167,700 174.400 181,400 188,600 196,200 204,000

$2,089,400 $2,158,300 $2,229,900 $2,350,400 $2,444,400 $9,542,200 $2,643,800

(208.900) (215,800) (223.000) (235,000) (244,400) (254,200)

$1,880,500 $1,942,500 $2,006,900 $2,115,400 $2,200,000 $2,288,000 $2,379,400

(387,800) (401,500) (415.700) (430,400) (445.600) (461.400) (477.900)

(104,500) (108,700) (113,000) (117,500) (122,200) (127,100) (132.200)

$1,388,200 $1,432,300 $1.478,200 $1,567,500 $1,632,200 $1,699.500 $1,769,300

TABLE 2

MILLION DOLLAR BUILDING COMPONENT

MTA GUARANTY



MAY 12, 1993

--ACTUAL OPERATING INCOME.---

1989 1990 1991

INCOME

RETAIL

THEATRE(I)

RESTAURANT

GROSS INCOME





NET OPERATING INCOME

$530.600 $537.600

$530,600 $537.600

(186.800) (242.000)

0 (14,100)

~,soo $231 ,soo

(1) ASSUMES THEATRE IS RELEASED TO PRODUCE REVENUE AS SHOWN HEREIN.

SOURCE: KEYSER MARSTON ASSOCIATES. INC,

FILE NAME: GCSNEW: MAY, 1993: RLW

1995 lg96 1997 1998 lg~9 2000 2001

$188,900 $196,500 $204,400 $212,500 $221.000 $229,900 $239,t00

199,700 207,700 216,000 224,600 233.600 242.900 252.700

26.400 27.400 28,500 29,700 30,800 32,100 33.400

$415.000 $431.600 $448,900 $466,800 $485.400 $504,900 $525,200

(41,500) (43,200) (44.900) (46,700) (48.500) (50.500) (52,500)

$573.500 $388.400 $404,000 $420,100 $438.900 $454,400 $472,700

(70.300) (72,600) (74,900) (77,400) (79,900) (82,600) (85.300)

(20.700) (21.600) (22.400) (23,300) (24,300) (25,200) (26,300)

$282,500 $294,200 $306,700 $319,400 $332,700 $346,600 $361.100

TABLE 3

LYONS OFFICE BUILDING COMPONENT

MTA GUARANTY



MAY 12, 1993

INCOME(I)

OFFICE TENANTS (5 YEAR LEASES)

YEAR 1 LEASES

YEAR 2 LEASES

YEAR 3 LEASES

(LESS) FREE RENT

TOTAL INCOME



(LESS) OPERATING EXPENSES(2)

(LESS) MANAGEMENT EXPENSE


~ACTUAL OPERATING INCOME--

lg89 18g0 1991 1995 lgg6 1997 lg98 1999 2000 2001

$211,600 $211,600 $211,600 $238,000 $238,000 $238,000 $267,700

0 52,900 52,900 52,900 59,500 59,500 59,500

0 0 88,100 88,100 88,100 99,200 99,200

(26,400) (s,e00) (11,000) 0 0 0 0

$185,200 $257.g00 $341,600 $379,000 $385,600 $396,700 $426,400

0 0 0 (37,900) (38,600) (39,700) (42,600)

$185,200 $257,900 $341,600 $341,100 $347,000 $357,000 $383,800

(104,000) (124,200) (129,200) (134,400) (139,700) (145,300) (151.100)

(9,300) (12,900) (17,100) (17,100) (17,400) (17,800) (19,200)

$71,900 $120,800 $195,300 $189,600 $189,900 $193,900 $213,500

(1)COUPON RENT $1.56/SF; 4% ANNUAL INCREASE EVERY 3 YEARS; FREE RENT 1.5 MONTHS/YEAR; 60% LEASED FIRST YEAR, 75% LEASED 2ND YEAR.

~(2) OPERATING EXPENSES $7.281SQUARE FOOT INCREASING 4% ANNUALLY.



TABLE 4

RESIDENTIAL COMPONENT

MTA GUARANTY



MAY 12, 1993

--ACTUAL OPERATING INCOME--

1889 1990

RENTAL INCOME

HOMER LAUGHLIN BUILDING(I)

MILLION DOLLAR BUILDING(2)

TOTAL LAUNDRY INCOME

TOTAL GROSS INCOME

(LESS) TOTAL VACANCY AND COLLECTION

(LESS) TOTAL UTILITY ALLOWANCE

TOTAL GROSS EFFECTIVE INCOME

(LESS) TOTAL OPERATING EXPENSES


(LESS) SECURITY


~(.1) REFER TO TABLE 5 FOR DETAIL.

(2) REFER TO TABLE 6 FOR DETAIL.



1991 1995 lg~6 1997 1998 lgg~ 2000 2001

$327,700 $434,800 $452,000 $470,200 $489,100 $508,600 $529,000

380,200 801,700 835,000 868,300 903,100 939,200 976,800

16,300 17,000 17,700 t8,400 19,100 19,800 20,600

$724,200 $1,253,500 $1,304,700 $1,356,900 $1,411,300 $1,467,600 $1,526,400

0 (125,350) (130,500) (135,700) (141,200) (146,800) (152,600)

(29,300) (37.400) (38,900) (40.400) (42,000) (43,600) (45,300)

$694,900 $1,090,750 $1,135,300 $1,180,800 $1,228,100 $1,277,200 $1,328,500

(234.500) (333,400) (346.700) (360,600) (375,000) (390,000) (405,600)

(34,800) (54,500) (56,800) (59,100) (61,400) (S3,900) (e6,,400)

(114,400) (119,000) (123,800) (128,800) (133,900) (139,200) (144,700)

$311,200 $583,850 $608,000 $632,300 $657,800 $684,100 $711,800

TABLE 5

HOMER LAUGHLIN BUILDING


MTA GUARANTY



MAY 12, 1993 1992 RENT

ASSUMPTIONS/

UNIT

RENTAL INCOME

STUDIO: VERY LOW INCOME

STUDIO: LOW INCOME

STUDIO: MODERATE INCOME

STUDIO: MARKET RATE

1 BEDROOM: VERY LOW INCOME

1 BEDROOM: LOW INCOME

1 BEDROOM: MODERATE INCOME

1 BEDROOM: MARKET RATE

2 BEDROOM: VERY LOW INCOME

2 BEDROOM: LOW INCOME

2 BEDROOM: MODERATE INCOME

2 BEDROOM: MARKET RATE

GROSS RENTAL INCOME

LAUNDRY INCOME

GROSS INCOME

(LESS) VACANCY AND COLLECTION

(LESS) UTILITY ALLOWANCE

GROSS EFFECTIVE INCOME

’~’~’(LESS) OPERATING EXPENSES


(LESS) SECURITY


SOURCE: KEYSER MARSTON ASSOCIATES. INC.


$370

444

638

638

423

508

794

794

476

571

1,045

1,045

1995 1996 1997 1998 1999 2000 2001 2002 2003

$30,000 $31,200 $32,400 $33,700 $35,100 $36,500 $37,900 $39,400 $41,000

18,000 18,700 19,400 20,200 21,000 21,900 22,800 23,700 24,600

4.700 9,000 9.300 9.700 10.100 10.500 10,900 11,300 11,800

0 0 0 0 0 0 0 0 0

97,100 100,900 105.000 109.200 113,600 118.100 122,800 127,700 132,800

54.900 57,100 50,300 61,700 64.200 66,700 69,400 72,200 75,100

87.100 167,200 173,900 180,800 188,100 195.600 203,400 211,600 220.000

0 0 0 0 0 0 0 0 0

12,900 13,400 13,900 14.500 15.000 15,800 16,300 16,900 17,600

7,700 8.000 8.300 8.700 9.000 9,400 9,800 10,100 10,500

15.300 29,300 30.500 31.700 33.000 34.300 35,700 37,100 38,600

0 0 0 0 0 0 0 0 0

$327,700 $434,800 $452,000 $470.200 $489,100 $508,600 $529,000 $550,000 $572.000

7.400 7,700 8.000 8,300 8.600 8.900 9,300 9,700 10,100

$335.100 $442,500 $460,000 $478.500 $497.700 $517.500 $538.300 $559.700 $582,100

0 (44,250) (46,000) (47,900) (49,800) (51 ,S00) (53,800) (56,000) (58,200)

(27.800) (34,300) (35,700) (37,100) (38,600) (40.100) (41.700) (43,400) (45,100)

$307,300 $363,950 $378,300 $393,500 $409,300 $425,600 $442,800 $460,300 $478,800

(106,600) (150,900) (156,900) (163.200) (169,700) (176,500) (183,600) (190,900) (198,500)

(15,400) (18,200) (18,900) (19.700) (20,500) (21,300) (22,100) (23,000) (23.900)

(52,000) (54,100) (56,300) (58.600) (60,900) (63,300) (65,800) (68,400) (71,100)

$133,300 $140,750 $146.200 $152,000 $158,200 $164,500 $171,300 $178,000 $185.300

TABLE 6

MILLION DOLLAR BUILDING


MTA GUARANTY


LOS ANGELES. CALIFORNIA

MAY 12, 1993 1992 RENT

ASSUMPTIONS/

UNIT 1995 1996 1907 1~ lg~9 2000 ~1 ~2 ~3

RENTAL INCOME

STUDIO: VERY LOW INCOME $370 $0 $0 $0 $0 $8 $0 $0 $0 $0

STUDIO: LOW INCOME 444 0 0 0 0 0 0 0 0 0

STUDIO: MODERATE INCOME 638 21.200 44.700 46.600 48,400 50.400 52.400 54,500 56,700 58,900

STUDIO: MARKET RATE 638 50,900 107,300 111,800 116,200 120,900 125,700 130,800 136.000 141.400

1 BEDROOM: VERY LOW INCOME 423 0 0 0 0 0 0 0 0 0

1 BEDROOM: LOW INCOME 508 0 0 0 0 0 0 0 0 0

1 B ED ROOM: MODERATE INCOM E 794 5,300 11,100 11,600 12.100 12.500 13.000 13.600 14.100 14.700

1 BEDROOM: MARKET RATE 794 195,300 411.900 428,900 446.100 463.900 482,500 501,800 521.800 542,700

2 BEDROOM: VERY LOW INCOME 476 0 0 0 0 0 0 0 0 0

2 BEDROOM: LOW INCOME 571 0 0 0 0 0 0 0 0 0

2 BEDROOM: MODERATE INCOME 1.045 0 0 0 0 0 0 0 0 0

2 BEDROOM: MARKET RATE 1.045 76.400 161,200 167,800 174,500 181.500 188,800 196,300 204,200 ~ 212,400

2 BEDROOM: PENTHOUSE 1,500 10,000 21,000 21,900 22.800 23,700 24,600 25,600 26,600 27.700

2 BEDROOM: PENTHOUSE 1,575 10.500 22,100 23.000 23.900 24.900 25.900 26,900 28,000 29.100

2 BEDROOM: PENTHOUSE 1.600 10.600 22.400 23.400 24,300 25,300 26,300 27.300 28,400 29.600

GROSS RENTAL INCOME $380.200 $801,700 $835.000 $868,300 $903,100 $939.200 $976.800 $1.015,800 $1,056,500

LAUNDRY INCOME 8,900 9,300 9,700 10.100 10,500 10,900 11,300 11.800 12.300

GROSS INCOME $389,100 $811,000 $844.700 $878,400 $913,600 $950,100 $988.100 $1,027,600 $1.068,800

(LESS) VACANCY AND COLLECTION 0 (81,100) (84,500) (87,900) (91,400) (95,000) (98,800) (102,800) (106,900)

(LESS) UTILITY ALLOWANCE (1.500) (3,100) (3,200) (3,300) (3,400) (3,500) (3.600) (3,700) (3.800)

GROSS EFFECTIVE INCOME $387.600 $726,800 $757,000 $787,300 $818,800 $851.600 $885,700 $821,100 $958.100

" (LESS) OPERATING EXPENSES (127.900) (182.500) (189,800) (197,400) (205,300) (213,500) (222,000) (230,900) (240.100)

..~(LESS) MANAGEMENT EXPENSES (19.400) (36,300) (37,900) (39,400) (40.900) (42,600) (44,306) (.~6.1b0) (47,900)

(LESS) SECURITY (62,400) (64,900) (67.500) (70.200) (73.000) (75,900) (78,900) (82,100) (85.400)

NET OPERATING INCOME $177,900 $443,100 $461.800 $480,300 $490.600 $519,600 $540,500 $562,000 $584.700

SOURCE: KEYSER MARSTON ASSOCIATES. INC.

FILE NAME: GCSNEW: MAY= 1903: RLW

TABLE7

PARKING COMPONENT

MTA GUARANTY


LOS ANGELES. CALIFORNIA

MAY 12, 1993

INCOME

PARKING STRUCTURE

PARKING LOT

GROSS INCOME



PLUS: DOT EXPENSE OFFSET


--ACTUAL OPERATING INCOME--

1989 1990



1991 1995

447,000

13,000

(3.~,000)

(23,000)

184,800

285,800

1996

464,900

13,500

(349,S00)

(23,000)

192,200

297,200

1997

483,500

14.000

(3e3,S00)

(24,900)

199,g00

309,000

lg98

502,800

14,000

517,400

(378,000)

(25,00~207,000

321,400

1999

522,900

15,200

538,100

(393,100)

216,200

543,800

15,800

559,600

(~08,700)

(28,000)

224,800

2001

565,600

16,400

(428,100)

(2e,100)

233,800

TABLE 8

TOTAL PROJECT

MTA GUARANTY



MAY 12, Ig93 ~ACTUAL OPERATING INCOME--

lg89 1990 1991 1995 1996 1997 lgg8 1~.. 2000 2001


RESIDENTIAL

COMMERCIAL

PARKING

TOTAL EFFECTIVE GROSS INCOME

EXPENSES

RESIDENTIAL

COMMERCIAL

PARKING (1)

TOTAL EXPENSES


’ ’~(1) INCLUDES D.O.T. EXPENSE OFFSET.



1,221,000 1,779,600 1,844,800

$1,221,000 $1,779,600 $1,844,800

908,700 1,041,800 1,019,200

$908,700 $1,041,800 $%019,200

$312,300 $737,800 $325,600

$694,900 $1,090,750 $1,135,300 $1,180,800 $1,228,100 $1,277,200 $1,328,500

2,439,200 2,588,800 2,752,500 2,876,600 2,983,g00 3,099,400 3,235,g00

460,000 478,400 497.500 517,400 538,100 559,600 582,000

$3,594,100 $4,157,950 $4,385,300 $4,574,800 $4,750,100 $4,936,200 $5,146,400

383,700 506,900 527,300 548,500 570,300 593,100 616.700

696,600 741,500 772,300 800,100 829,100 859,400 892,000

174,200 181,200 188,500 196,000 203,800 211,900 220,400

$1,254.500 $1,429,600 $1,488,100 $1,544,600 $1,603,200 $1,664,400 $1,729,100

$2,339,600 $2,728,350 $2,897,200 $3,030,200 $3,146,900 $3,271,800 $3,417,300

ATgACHMENT B, the Preliminary Official Statement, is available for

review, in the MTA Secretary’s Office, upon request.

ATTACHMENT C

LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY

PROJECT REPORTPLEDGE OF PROPOSITION A FUNDS TO FACILITATE JOINT DEVELOPMENT

AT GRAND CENTRAL SQUARE

The Project

In June 1990, the Community Redevelopment Agency of the City of Los Angeles CCRA") andthe Yellin Company (the "Developer") executed an agreement to achieve the redevelopment a key portion of the Historic Core area of the Central Business District Redevelopment Projectthrough the preservation, renovation, modification and improvement of the Grand CentralMarket and the accompanying Lyon Building, Homer Laughlin Building, the adjacent MillionDollar Theater Building and a contiguous (partially completed) 500-car eleven level parkingstructure (the "Project"). The Project is known as Grand Central Square. These buildings(except the parking structure) are listed on the National Register of Historic Places.

The Project consists of the rehabilitation of the Grand Central Market, construction of afull-service grocery store in the basement space of the Grand Central Market, completion ofconstruction of a 500-space parking structure at the intersection of Third Street and Hill Street,rehabilitation of the Homer Laughlin Building and Million Dollar Building for 121 units of rentalhousing (50% market rate, 50% affordable to very low, low and moderate income persons), andrehabilitation of office space in the Lyon Building.

In March 1992, the Developer informed CRA of its inability to obtain conventional financingfor Project completion. In recognition of the general unavailability of such financing fromprivate sources, CRA proposed to obtain a private construction loan commitment and issue"credit rated" taxable and tax-exempt bonds for the permanent financing of the completion ofthe commercial and residential components respectively. However, the public finance (bond)market has been unwilling to accept real estate as collateral. Thus a more traditional, public taxrevenue-based credit pledge is required for an acceptable rating and successful marketing of theBonds.

In March 1992, the Mayor, a City Council member and CRA requested the Los Angeles CountyTransportation Commission’s (the "Commission") to facilitate CRA’s issuance of these Bonds.In December, 1992 the Commission gave preliminary approval to a direct pay form of pledgewith an instruction to complete all negotiations and documentation in order to propose finalterms and conditions upon which the MTA can render Findings, adopt a Resolution andauthorize issuance of a binding pledge of annual Proposition A revenue (discretionary portion).

Staff negotiations and the documentation of the transaction have been conducted with theassistance of the MTA’s financial advisor (Lazard Freres), its economic consultant on this matter(Keyser--Marston Associates), County Counsel and outside legal advisors (Nossaman, Guthner,Knox and Elliott).

Public Objectives

In May, 1990 the Commission adopted Joint Development Program policies which seek toachieve the following objectives. They are based upon the statutory authority to providealternative means to finance the cost of transit system development:

Create joint development investment opportunities for the private sector and/ormunicipalities.

Focus economic growth by coordinating comprehensive planning, zoning anddevelopment around station sites with regional, municipal and community plans.

Assure that projects enhance present and future public transportation facilities.

Reduce dependency upon the private automobile for personal transportation bypromoting community development, commercial and retail activities around railstations.

Improve accessibility to and enhance the attractiveness of the stations bymaximizing the design quality of the transit-related development.

Encourage development on, over, and adjacent to rail stations for bothpassengers’ convenience and to create an economic draw that fosters activityaround rail transit stations.

Generate project revenues whenever possible to finance rail development andfacility operating costs.

Integrate the rail stations into economic and social fabric of the neighborhoodsthey serve while preserving communities individual character.

The Project carries out many objectives of the Los Angeles County Metropolitan TransportationAuthority ("MTA"), and CRA and the City of Los Angeles, which achieve individual and mutualgoals, including:

Increased public awareness and acceptance of rail transit and the receipt of amonetary return on the public investment in transit.

The revitalization of almost an entire city block on upper Broadway in theHistoric Core of the CBD Redevelopment Project; this will enhance theenvironment at the 4th/Hill Street portal of Metro Red Line Segment 1.

The adaptive re-use of unused office space into 121 apartments, of which 61 willbe available at affordable rents to persons and families of very low, low andmoderate income;

¯ The preservation and enhancement of historic buildings;

The completion of a 500-space parking structure to serve the Broadway businessdistrict, which, as the Broadway Theater and Commercial District, is listed in theNational Register of Historic Places, as well as patrons of the Project and tenantsin the proposed housing development; and

The provision of a full-service grocery store to supplement the historic uses ofGrand Central Market.

A major portal that serves ridership on Metro Red Line Segment No. 1 is located on thenortheast and northwest coruers of 4th Street and Hill Street (Pershing Square Station), and placed approximately 250-270 feet from the main entrance to the Market. MTA will utilize a$1.78 million ISTEA FY 1992-1993 grant in conjunction with approximately $0.35 million ofLos Angeles City/CRA funds to design and construct an appreciable enhancement to thesidewalk and additional connections between the portal and the Market. This improvedpedestrian linkage will promote additional transit ridership by heightening public awareness andacceptance of rail transit.

The Developer has spent approximately $34.2 million ($19.9 million from private funds; $11.1million from density rights sales; and $3.2 million from the Los Angeles Department ofTransportation as a prepaid public parking lease obligation) for property acquisition anddevelopment, and now needs approximately $42.2 million of public financing (the "Bonds") complete the Project (which includes a reserve fund for the Bonds, $6.2 million to retire theexisting debt on the Project, and cost overrun contingencies).

The Bonds

To implement the Project, and subject to the satisfaction of conditions precedent to theparticipation by Home Savings of America ("Home") and the MTA (as described below), would issue two series of tax-exempt bonds to provide approximately $42.2 million: (A)approximately $21.9 (but not to exceed $25 million) in Multi-family Housing Bonds, to pay forthe rehabilitation of the residential portions of the Project and the portion of the parking structureattributable to the residential uses; and (B) approximately $20.3 (but not to exceed $25 million)in the Qualified Redevelopment Bonds (the "QRBs"), to pay for the rehabilitation of thecommercial portions of the Project (a portion of the QRBs may also be used for housing-relatedcosts).

In addition, a portion of the QRBs will be used to reimburse the Developer for eligible projectcosts relating to the commercial portion of the project that were paid subsequent to December1987 (when CRA adopted an inducement resolution). Immediately upon payment, these fundswill be deposited directly into a "Developer Equity Fund" to be used to pay for the portion ofthe parking garage which cannot be allocated to the residential project and other required Projectexpenses which are not eligible for funding through the use of tax-exempt QRB or Housing Bondproceeds.

Bond rating agencies require as additional security for the bondholders, a bond reserve fund (ora surety) to cover one year’s maximum debt service. The bonds may be insured by a bondinsurer, if cost effective, for the benefit of bondholders and savings on interest. Furthermore,the bond proceeds, combined with the investment earnings or unused Bond proceeds and netrevenues from the Project will provide net funded capitalized interest for a total of 26 months.

CRA Action

The Grand Central Square Project (the "Project") is an adopted CRA objective and furthers theimplementation of the Central Business District Redevelopment Plan. CRA’s proposed FY ’94Budget provides for a $1.7 million Reserve Fund to supplement the $4.414 construction costcontingency within the Bonds issued by CRA for use during the construction period if necessary,and for a $3.0 million Reserve Fund for reimbursement of annual debt service payment to theextent not fully covered by Project Net Operating Revenue after the construction period (whichfunds may also be used in accordance with CRA’s agreement with the construction lender.

CRA’s FY ’93 budget provides for the $356,000 within the Historic Core Public Improvementsline item to provide the 20% match for receiving the $1.78 million ISTEA grant received byMTA in the summer, 1992. Please refer to the Public Improvements section of this Report (p.15) for a discussion of the uses of these funds.

For the purpose of obtaining the rating on the Bonds there will be a pledge of Bunker HillProject Tax Increment. MTA will make debt service payments from the discretionary portionof Proposition A sales tax revenue for this purpose. This direct pay obligation will be placedon a fourth lien basis with other non-senior obligations which are funded from this source.

Letter of Credit

During the construction period (which is expected to be between 19 and 25 months), HomeSavings of America ("Home") will provide an unconditional, irrevocable Letter of Credit for thebenefit of MTA. Home will hold a first deed of trust on the Project during construction. MTAwill hold a second debt of trust on the Project during construction. The Letter of Credit willshield MTA from virtually any exposure to risk during the construction period. The Letter ofCredit will be fully insured by the Federal Home Loan Bank.

MTA would have the right to draw upon the Letter of Credit in the event of a failure to curea default during the construction period; but with certain exceptions, only upon approval of itsBoard at a regularly scheduled meeting. CRA will have the right to address the MTA Boardwith regard to forbearance by the MTA in drawing down the Letter of Credit. However, thisright cannot be exercised to impair the liquidity of the Letter of Credit or impair any rights ofthe MTA under the Letter of Credit. As security, for its exposure, Home will hold a first deedof trust on the Project while the Letter of Credit is outstanding. MTA will hold a second deedof trust; CRA will have a third priority position.

4

The actual amount of the Letter of Credit has not yet been established, but is expected to bebetween $18 and $22 million, based on Home’s appraisal of the stabilized value of the completedProject (with the assumption of market rate financing). Home is required by federal regulationsto use its own appraisal to determine this value.

The Letter of Credit will be 70% of the stabilized appraised value of the property; the QRB willbe sized such that the total principal amount of the QRBs plus six months interest on the QRBswill equal the amount of the Letter of Credit.

Authority to Issue the Bonds

Under federal law, CRA is required to request permission from the State of California in orderto issue private activity bonds, which include the QRBs and Housing Bonds. The City Councilauthorized CRA to submit an application to CDLAC on December 9, 1992. In addition, federallaw requires CRA to hold a TEFRA public hearing on the proposed bond issue. CRA held aTEFRA public hearing on the Project on April 20, 1993. There was no public comment.

Although previous CRA authorization establishes a maximum of $25 million in the sizing of eachof the QRB and the Housing Bond, the request from CRA to City Council will limit theauthorization from CDLAC to $44 million.

The MTA and CRA Pledges

The QRJ3s will be backed entirely by an MTA direct pay, non-contingent pledge of a specificamount of the discretionary portion of Proposition A taxes. The Housing Bonds, duringconstruction, will be backed by a similar pledge of Bunker Hill Project tax increment by theCRA. Upon completion of construction, the MTA pledge will be increased to include apercentage of the Housing Bonds. As a result, the percentage backed by CRA will decrease,so that the Housing Bonds will be jointly backed by CRA and MTA.

The MTA’s semi-annual payment of debt service will be immediately reimbursed by the Trusteefrom Project Net Operating Revenue and reserves. These concurrent reimbursements will bebudgeted for the same applications established for the discretionary portion of Proposition Asales ~es. CRA use of Bunker Hill tax increment for the project is based on its finding thatthe proposed 61 units of affordable housing is of benefit to Bunker Hill. In addition, CRA willsubordinate its affordable housing requirements to the respective liens of Home and the MTA,neither of which would agree to take the property subject to CRA housing restrictions.Nevertheless, as a Federal requirement of the issuance of the tax exempt bonds, and as providedfor in the tax regulatory agreement, 20% of the units will be set aside for individuals orfamilies at the very low income level, so long as the Housing Bonds are used and remainoutstanding (or at least 15 years if the Housing Bonds are retired before maturity).

Obligations During Construction

During construction, the relative size of the MTA and CRA obligations will be determined bythe principal amount of the Home Letter of Credit; that is, the MTA will guarantee the paymentof debt service on Bonds equal to the principal amount of the Letter of Credit, less six monthsinterest on the QRBs. The principal amount of the Letter of Credit will be determined by Homeas some percentage of the current appraised value of the Project. For example, if Home decidesthat the maximum amount of the Letter of Credit will be 70% of the appraised value, and if theappraised value of the project is $30 million, the Letter of Credit will be in the approximateamount of $21.0 million. This will mean that MTA would be responsible for debt service onbonds equal to approximately $20.3 million (the additional $.07 million is interest on the QRB,i.e., six months debt service), and CRA would be responsible for debt service on bonds equalto the balance (e.g., $21.9 million). The actual numbers will be determined when Homeestablishes the maximum amount of the Letter of Credit and the pricing and sizing of the Bondsis completed.

In this example, the allocation during construction (interest only debt service payments) wouldbe approximately as follows (in $ millions):

ALLOCATION DURING CONSTRUCTION(INTEREST ONLY)

Housing Est. AnnualBonds QRBs Total Debt Service

CRA $ 21.9 $ 0 $ 21.9 $1.4 (@6.5%)

MTA $ 0 $ 20.3 $ 20.3 $1.3 (@6.5%)

Total $ 21.9 $ 20.3 $ 42.2 $2.7 (@6.5%)

The MTA obligation (annual, depending upon the size of the Letter of Credit and interest ratesat the time of issuance of the Bonds) during construction will be $1.3 million. Capitalizedinterest in the Bonds will cover the FY ’94 obligation and possibly a portion of the FY ’95obligation.

A default which results in Home foreclosing on its first deed of trust (thus wiping out CRAsubordinate lien) would maintain CRA’s obligation for the term of the Bonds. MTA will drawupon the; Letter of Credit, use the proceeds to redeem the QRBs, and terminate its obligation andpledge. CRA pledge would increase due to amortization which begins in year 9, and such CRAobligation is estimated to be between $1.7 million and $2.0 million.

The proforma interest rate of 6.5 % used to derive the range reflects current market conditionsand is the amount used in underwriting the Project.

Obligations After Construction

Following completion of construction and the release of the Letter of Credit, the two agencieswill be responsible for debt service on the Bonds based on a formula, to be applied at the bondclosing. MTA will be responsible for debt service equal to the smallest resultant of thefollowing three amounts: (i) the portion of annual debt service equal to projected annual NetOperating Revenues divided by 1.25 (the "Debt Coverage Ratio"); (ii) annual debt service such portion of the Bonds which equals 80% of the appraised value of the Project using anappraisal commissioned by CRA (subject to MTA review of its Findings), to be updated priorto closing of the Bonds of the completed Project; or (iii) annual debt service on 73 % of the totalamount of the Bonds. While there will be no change in the amount of the Bonds, the Housingbondholders will expect direct debt service payment from CRA and the MTA in a differentproportion than during construction.

Assuming the 73\27 split yields the smallest result, the allocation between the agencies wouldbe approximately as follows (in $ millions):

ALLOCATION FOLLOWING COMPLETION OF CONSTRUCTION(Amount of Debt Service During Amortization Period)

Housing Est. AnnualBonds QRBs Total Debt Service

CRA $11.4 $ 0 $11.4 .9 (@6.5%)

MTA $ 10.5 $ 20.3 $ 30.8 2.5 (@6.5%)

Total $ 21.9 $ 20.3 $ 42.2 3.4 (@6.5%)

If CRA is responsible for anything more than $11.4 million in Bonds, or interest rates are higherthan the 6.5% rate assumed above, then the maximum annual debt service to be paid by CRAwould increase from $900,00 to an amount that in no case would exceed $1.1 million. As bondsizing and pricing will not occur until July, 1993, MTA staff recommends that the MTAobligation not exceed $2.8 million during amortization. The final amount will be set by theappraisal of the Project and final projected Net Operating Revenue.

Transfer of Title To Improvements During Construction

In order for the Project to qualify for QRB financing, the Developer will convey to CRA, at thetime the financing closes, fee title to the improvements (other than the parking structure) whichwill be rehabilitated with the QRB proceeds. This will not impair MTA’s rights under the Letterof Credit. Upon the completion of the construction, the fee title will be reconveyed to theDeveloper upon the completion of construction.

7

The Developer will retain fee tire to the parking structure and the land underlying theimprovements that was conveyed to CRA. The Developer will operate Grand Central Marketand rehabilitate the improvements during the construction period under a lease from CRA. CRAinterests in the improvements and the lease will be encumbered by the deeds of trust of Homeand MTA, (first and second priority respectively).

Project Feasibility

After the Developer pays operating expenses (based on a budget approved by CRA and MTA),all remaining Net Operating Revenue will be paid monthly into a Bank of America trust accountgoverned by a trust agreement among the parties. These funds will be distributed on a prioritybasis as follows: to pay trustee and Bank fees; then annual fees to MTA and theCRA as described herein; then reimburse the MTA first, and then CRA second, for their debtservice payments to the bond holders; and then to replenish and maintain certain reserveaccounts before any developer equity distributions are made.

Based on the Developer’s proforma and review by real estate professionals, staff has concludedthat on the basis of the anticipated expenses and revenues of the Project, that sufficient NetOperating Revenues will exist to pay all operating costs and fees and to reimburse the MTA andCRA in full for all debt service payments. Prior to the Bond closing, staff will confirm allfinancial assumptions, including projections of rents and the financial condition of major tenants,to verify that Net Operating Revenues will be sufficient to pay these costs. CRA Administratorwill have the authority to not issue the bonds and the MTA Chief Executive Officer will havethe authority to not issue the MTA pledge if the financial assumptions pr~3r to the bond closingare materially different than the assumptions which were used by staff to solicit approval of theirrespective Boards.

Security

At bond closing, the parties will enter in the Trust Agreement. The Developer must depositmonthly NOR with a Project Trustee who will distribute administrative fees first to Home andthe Bond/Project Trustee); then annual fees (priority to MTA); then debt service reimbursements(priority to MTA); then other priority distributions as set forth in the Trust Agreement.

Home will hold a first deed of trust on the property during construction while the Letter ofCredit is outstanding. MTA will hold a second deed of trust until construction is completed andthe Home Letter of Credit is released. At that time, MTA’s deed of trust will become the firstdeed of trust. If an event of default is uncured during construction, MTA can exercise its rightto draw down the Letter of Credit, take title to the Project, sell the asset and redeem the amountof outstanding bonds equal to its obligation, and terminate its pledge. If an uncured defaultoccurs after construction is completed (i.e., during operations) MTA can exercise its rightsunder the first deed of trust, sell the Project (land and improvements) and redeem its portion the Bonds plus interest payable. CRA, which will hold a third deed of trust during construction,will move into second position upon completion of construction and the release of the Letter ofCredit.

At all times, the bond holders will be secured by the respective pledges of MTA and CRA tomake direct debt service payments, and will not have recourse to the Project. Home will havethe ability to foreclose on the Project during construction if an uncured default occurs andeliminate CRA’s affordable housing restrictions. CRA, however, as provided forin the Home Agreement, can compensate Home to complete the housing and maintain the federallow income housing requirements (e.g., restrict 20% of the units to very low incomeoccupancy).

Negotiations have provided that the Bond documents will not permit the right of acceleration(i.e., demand for immediate payment in full upon default) by the Bond Trustee or thebondholders. This minimizes the MTA’s risk to the amount of the annual guaranty.Additionally, the MTA will have the option for redemption of the QRB at any time. Withrespect to the MTA portion of the Housing Bond, the MTA will have the option to redeem thisbond prior to maturity, without penalty or premiums, upon a default by the Developer and thesubsequent failure to cure this default or upon damage, destruction or condemnation of theProject.

Conditions Precedent to the Release of the Housing Funds

Bond funds will be released for the non-housing portion of the Project immediately upon theclosing of the Bonds and satisfaction of all conditions precedent; but Bond funds will be releasedfor the construction of the residential portion of the project only when MTA, and Home aresatisfied, that a number of conditions have been met, including: (1) assurance that the size the Housing Bonds is sufficient to complete the Project; (2) the Developer is not in default its obligations under the various agreements; (3) all residential plans have been approved; (4)CRA, MTA and Home have approved a final budget and have received a guaranteed-maximumconstruction contract and lien and completion bonds for the work; (5) the cost overrun reservehas been replenished, if necessary to meet the 20% reserve requirement; and (6) the Letter Credit remains in effect.

During construction, the Bonds provide a cost overrun reserve in t~ae initial amount ofapproximately $4.4 million (consisting of bond-funded contingency line items in the Projectbudget, bond-funded contingency amount in the construction contracts, a holdback of a portionof the general contractor’s fee and a portion of the Developer’s fee). Once construction of theresidential portion of the project commences, an analysis of the remaining contingency funds willbe made. If these reserves are less than 20% of the remaining work, CRA will use theSupplemental Reserve Fund, (up to $1.7 million, funded outside the Bonds), to ensure that thetotal cost overrun reserve is maintained at not less than 20% of the remaining costs of theProject. These funds will be used for cost overruns, applied tow~ds obligations to Home orreturned to CRA upon completion of construction.

9

CRA Reserve Fund and Developer Reserve Fund

Upon completion of construction and release of the Home Letter of Credit, when the relativeproportions of debt service guaranteed respectively by CRA and MTA are adjusted as describedabove, CRA will deposit $3 million of funds outside the Bonds into a reserveaccount (known as CRA Reserve Fund), to be matched by up to $500,000 of deferred Developerfees not used to pay construction cost overruns, to create the Developer Reserve Fund.

These Reserves will be held for the benefit of MTA and CRA for the payment of annual feesand reimbursement of debt service payments (MTA has first priority) that are not paid reimbursed from Net Operating Revenue from the Project. If there are sufficient constructioncost savings, the Developer may initially fund a $750,000 Reserve for this purpose. Thedeferred Developer fees must build up to $750,000 before CRA’s $3 million Reserve begins tobe returned to CRA. Any disbursement from CRA Reserve Fund would occur only after theDeveloper’s Reserve Fund is depleted, and would be considered a loan to the Developer, to berepaid to CRA from Net Operating Revenue of the Project after other priority obligations aresatisfied.

Fees

MTA will be compensated for its risk, while CRA will receive fees related to its on-goingadministration of the financing. As compensation, the MTA and CRA will be entitled to thefollowing fees: a one-time fee, payable at the closing, equal to 0.5% of the respective bondamounts covered during construction (assuming the allocation described above, MTA $101,500,CRA $109,500); and an annual fee, equal to 1.0% of the outstanding principal amount of Bonds,their respective obligations after completion of construction (assuming the 73/27 split and $42.2 million total Bond amount, MTA $308,000 and CRA $114,000 initially).

The recurring annual fee in the first three years may be deferred for up to three years ifnecessary to assure sufficient NOR to pay debt service on the Bonds. In any event, all deferredrecurring fees, if any, would be paid immediately if reserve funds are reduced by the amountof such deferral.

In addition, CRA and MTA will share in 2.0% of the gross proceeds of a sale or a refinancingof the Project, on the basis of a formula by which MTA receives the first $550,000, CRA thenext $200,000, MTA the next $550,000, CRA the next $200,000), and then the balanceallocated by 73% to MTA and 27% to CRA. The MTA share is deemed revenue for transitdevelopment and is separate and distinct from its annual fee (i.e., compensation for risk).

CRA Alternatives When A Default Occurs During Construction

If a default occurs during construction and MTA draws down on the Home Letter of Credit andterminates its pledge by redeeming its share of Bonds, CRA will have a number of alternativesavailable, depending on when the default occurs. At that time, CRA will have the opportunity

10

to determine which alternative makes the most economic sense, based on the facts andcircumstances at the time as indicated:

If the default occurs before the conditions precedent to the release of the Housing Bondsare met:

CRA may decide to foreclose on its third deed of trust and become the owner ofthe Project, and either (a) pay offHome in the amount drawn down on the Letterof Credit, in which case CRA could choose not to complete the Project; or (b)assume the obligations of the Developer and obtain a construction andmini-permanent loan from Home in the amount of the Letter of Credit (maximumterm of two years following completion), and use the Horsing Bonds and otherCRA funds previously committed to the Project to complete construction; or

If CRA elects not to foreclose on its deed of trust, Home will foreclose on itsfirst deed of trust and become the owner of the Project, in which case CRA willpay to Home the difference between the amount that was drawn on the Letter ofCredit and 70% of an independent appraisal commissioned by Home at that time,and then redeem the Housing Bonds. Home would then have theright to complete the Project or not, in its sole discretion. Again, MTA’sobligation has ended by virtue of its redemption of outstanding QRBs using theproceeds from the Home Letter of Credit.

The following example illustrates the calculation of the payment to be made byCRA: if $14 million had been drawn on the Letter of Credit, and the appraisalmade on the project at that stage of construction was $20 million, then CRAcould allow Home to take over the Project without making any additionalpayment to Home (because 70% of $20 million equals $14 million which theamount drawn on the Letter of Credit). If, however, the "as is" appraisal were$15 million, then CRA would pay Home $3.5 million because 70% of $15million equals $10.5 million which is $3.5 million less than the amount drawn onthe Letter of Credit. The "as is" appraisal will include such factors as the costto complete the Project and projected income at the time of the default.

If the default occurs after the Housinlg Bonds have been used:

CRA may decide to foreclose on its third deed of trust and become the owner ofthe Project, in which case, CRA would be obligated to pay debt service to theHousing Bondholders and assume the obligations of the Developer and obtain aconstruction and mini-perman6nt loan from Home in the amount of the Letter ofCredit (maximum term of two years following completion, and use the HousingBonds and other CRA funds ’previously committed to the Project to completeconstruction; or

11

If CRA elects not to foreclose on its deed of trust, Home will foreclose on itsfirst deed of trust and become the owner of the Project, and will use the HousingBond proceeds (and/or other funds provided by CRA) to complete construction,in which case CRA will pay to Home a rent adjustment payment to reflect thereduction in value of the Project as the result of the continuing restriction of 20%of the units to very low income (estimated to be approximately $1.5 million)based on an appraisal and on the actual number of rent restricted units. Again,MTA’s obligation has terminated and all outstanding QRBs have been redeemedby MTA using the proceeds from the Home Letter of Credit.

Costs

The transaction includes a requirement that the Developer pay all MTA costs incurred duringthe negotiation, documentation and consummation of this transaction. This amounts toapproximately $280,000. Such payment will be funded from the initial draw on Bond proceeds.

Cooperation Agreement

The MTA and CRA will enter into a Cooperation Agreement concerning their involvement inthe Project and related matters. This will include the cooperative planning of property betweenthe Project and the transit portals, and an agreement to reasonably investigate a mutuallyacceptable "buyout" by CRA of the MTA’s obligations under its guaranty in the event theCentral Business District Redevelopment Project "cap" on CRA expenditures of tax incrementis increased in the future.

The Cooperation Agreement also provides the ability, but not the obligation, for MTA to utilizeCRA’s technical rehabilitation/construction inspection staff reviews and reports duringconstruction of the Project. This permits timely, cost-effective monitoring for compliance withplans, specifications, project budget and progress payments to the contractor.

Additionally, the Cooperation Agreement provides a basis for CRA and MTA to workcooperatively where MTA activities occur within redevelopment project areas to identify landuse opportunities, and to establish master planning efforts to maximize the use of MTA’s transitsystem and the benefits derived therefrom by recognizing such stations as a focus forrevitalization within CRA’s redevelopment project areas.

Projected Employment

The renovation and improvement of the Project will provide 120 new construction jobs.Additionally, direct, full-time employment at the completed Project will amount to 506 jobs.This represents an increase of 306 jobs relative to current on-site employment. Furthermore,the pay:roll multiplier effect will add 404 indirect employment opportunities in the localeconomy.

12

Appraisal Information

The Bonds are not secured by the real estate, but are secured by the pledges of CRA and MTA.The value of the Project at achievement of stabilized income and occupancy without bondfinancing is $32 million, as established in an independent appraisal commissioned by CRA.MTA has reviewed its Findings. The additional value of the tax-exempt bond financing resultsin an appraised value of approximately $37.5 million. The size of the Bonds has been increasedfrom $33.3 million for the hard and soft Project-related costs (including capitalized interest fordebt service, construction-period fees and a reimbursement of certain negotiating anddocumentation costs) to provide for the following:

Bond Reserve AccountCRA Loan Repayment by DeveloperProject ReserveHard Cost ReserveInterest Reserve

$ 3.4 million2.2 million2.3 million0.6 million0.4 million

Total $ 8.9 million

Thus, the establishment of project reserves, a bond reserve, and repayment of CRA loanincreased the amount of the Bonds to be issued to $42.2 million. Note: The Bond ReserveAccount may be replaced by the purchase of a surety. This will reduce the size of the Bondsbut increase the tax-exempt interest rate. The trade off will be analyzed and priced to theadvantage of MTA and CRA.

Revised Schematic Design Drawings

The Developer will submit Revised Schematic Design Drawings for the housing component ofthe Project, the rehabilitation and adaptive re-use of the upper floors of the Homer LaughlinBuilding linked to the upper floors of the Million Dollar Building for conversion to 121 rentalapartments.

Currently, the upper floors of the six story Homer Laughlin Building are vacant. The groundfloor contains retail uses and the Grand Central Market. Ten floors of the twelve story MillionDollar Building are vacant. The ground floor contains the Million Dollar Theater, a pharmacyand MTA police substation, and the second floor is partially occupied with commercial tenants.Previously, CRA Board approved Schematic Plans for the rehabilitation of the Homer Laughlinand Million Dollar Buildings for commercial uses. The Cooperation Agreement provides theability, but not the obligation for MTA to utilize CRA technical staff and resources to measurecontractor compliance with approved plans and specifications.

13

For the housing component of the Project, the Developer proposes the following: exteriorrehabilitation of the upper floors of the Million Dollar and Laughlin Buildings according to theSecretary of Interior’s Standards for Rehabilitation and Guidelines for Rehabilitating HistoricBuildings to the extent economically feasible; interior rehabilitation and adaptive re-use of theupper floors of the Homer Laughlin and Million Dollar Buildings for conversion to provideapproximately 121 rental apartments with unit sizes ranging from 400 to 1600 gross square feetwith onsite project amenities; provision of code required parking spaces for the residents; andinterior pedestrian access from the Parking Structure to the Housing Component.

The architect for the non-housing component, parking structure, and exterior of all the buildings(including the buildings being used for housing) is Levin & Associates. Design DevelopmentDrawings for these components have been previously approved by CRA, and included thefollowing Art Program: the exterior rehabilitation of the facades of the historic buildings, GrandCentral Market including the Lyon and Homer Laughlin Building above the market, and MillionDollar Building, according to the Secretary of Interior’s Standards for Rehabilitation andGuidelines for Rehabilitating Historic Buildings; the artwork by Tim Hawkenson, a clock towerlocated on the Parking Structure integral to the comer facades facing Third and Hill Streets;$40,000 contribution to CRA’s Downtown Cultural Trust Fund, the developer’s offsite artobligation and requirement. The recommended actions would not require the Developer tosatisfy additional public art requirements adopted by CRA following the approval of the DesignDevelopment Drawings. Additionally, 100% Construction Drawings for the parking structure,and Lyon Building, part of the non-housing component, have been approved by CRA.

The architect for the housing component is Denny Lord and Associates. The Developerproposes to rehabilitate and adaptively re-use the upper floors of the Homer Laughlin andMillion Dollar Buildings to provide approximately 121 rental apartments with unit sizes rangingfrom 400 to 1600 square feet. Floors 2 through 6 of the Homer Laughlin Building shall bephysically joined to the Million Dollar Building to create one residential complex, allowingaccess to the following: clubroom/multi-purpose room, fitness center, sauna, laundry facilities,outdoor roof garden and recreational area, and secured pedestrian access to and from the parkingstructure. Residential unit amenities shall include microwaves, dishwashers, wall-to-wallcarpeting, and high quality materials and finishes in the kitchen and bathrooms.

The Million Dollar Building provides for the proposed interior rehabilitation and adaptive re-usefor conversion to 66 units designed around a double loaded corridor. The Homer LaughlinBuilding provides for the proposed interior rehabilitation and adaptive re-use for conversion to55 units configured around a single loaded corridor adjacent to an existing light well.

The Revised Schematic Design Drawings were reviewed and approved by CRA’s CentralBusiness District Design Advisory Committee at the March 4, 1993 meeting. In keeping withthe required schedule for bond issuance and to expedite the building permit process, CRA’s CBDDesign Advisory Committee reviewed and approved the Design Development Plans at the May4, 1993 meeting. This submittal represents further design refinements to the previouslyapproved Revised Schematic Design and is considered 50% Construction Plan completion whichallows the Developer to commence expediting the building permit approval process.

14

California Environmental Quality Act (CEOA) Review

CRA Board of Commissioners on February 15, 1990 certified the Final EIR and approved theGrand Central Square project which consisted of the rehabilitation and expansion of the GrandCentral Market, rehabilitation and re-use of the Homer Laughlin, Lyon and Million DollarTheater Buildings for office and retail uses, and construction of a nine-story parking structure.The developer has proposed changes to two phases of the project concerning the rehabilitationand reuse of the Homer Laughlin and Million Dollar Theater Buildings. The current proposaldiffers from the original in that the current plans contemplate the removal of the interior officespaces and other finished interior surfaces of the Homer Laughlin Building that were identifiedas having architectural/historical value and a change in use for both buildings fromapproximately 108,000 gross square feet of office space to approximately 121 residentialapartment units. Another element not contemplated as part of the original project is the creationof an enhanced pedestrian linkage between the 4th/Hill Street portal of the Metro Red Line andthe Grand Central Square Development.

CRA staff prepared a Supplement to the EIR to evaluate the environmental effects of theproposed changes in the use of the Homer Laughlin and Million Dollar Theater Buildings andof the enhanced pedestrian linkage between the Metro Red Line portal. The Final Supplementincludes all written comments and testimony at the public hearing and responses to the commentswhere appropriate. The analysis in the Supplement concluded that removal of the originalinterior configuration and historic fabric of the Homer Laughlin Building represents anunavoidable significant effect on historic resources. CRA can find that the economic and socialbenefits of the residential use of the buildings outweigh this effect and adopt a Statement ofOverriding Considerations.

On May 17, 1993, CRA certified the Supplemental EIR and has adopted the appropriateFindings and mitigation measures.

Public Improvements

The program objectives for the grant of federal Intermodal Surface Transit Efficiency Act("ISTEA°’) funds received by the MTA in the summer of 1992 are for the purposes ofenhancement activities related to transportation, specifically rail. MTA applied for and received$1,781,404 from the FY ’92 ISTEA Call for Projects, as the primary recipient, with the requiredlocal 20% funding match, $356,000, provided by CRA. The ISTEA funds provide a fundingmechanism for the furtherance of mutual joint development objectives between the MTA andCRA as follows: 1) provides for a functionally integrated enhanced pedestrian linkage betweenthe Metro Red Line portal and the Project; 2) insures planning objectives that allows for theintegration of the portal and the Project within the evolving Bunker Hill/CBD Historic Coreeast-west linkage which relates to existing and proposed land uses and pedestrian circulationnetwork. In this regard, CRA will use a $785,000 ISTEA FY 1992-93 grant for the reinstallationof Angels’ Flight at the base of California Plaza. Furthermore, the following public benefits are

15

gained: assists in the attainment of AQMD air quality standards; provides for a greater returnon the public investment in rail transit and the Grand Central Square Devt.lopment; and bolstersthe marketability of the housing and non-housing components of the Project.

As contemplated by the Cooperation Agreement between the MTA and CRA, current projectactivities which will be funded by the MTA’s expenditure of ISTEA funds with CRA matchingfunds are:

Hill Street Improvements:

(1) Through an RFP process, Takada & Associates has been retained to developdesign and construction drawings for the functional and enhanced sidewaikpedestrian environment that links the Metro Rail Portal, located at the northeastcorner of 4th and Hill Streets, to the Grand Central Market along Hill Street.The sidewalk enhancements shall include, without limitation, readily observabledirectional signage for the Grand Central Market within the station portal, overallimproved graphics and signage, CRA edgeband paving detail, additional streetand sidewalk lighting and appropriate landscaping, all designed to establish andenhance the physical and functional relationship between the Project and theMetro Rail station. The design phase of the contract is for a minimum of fourweeks, with the construction schedule to be coordinated with the Grand CentralSquare construction schedule. An environmental assessment of this sidewalkenhancement is included in CRA-certified Supplemental EIR.

(2) Through the RFP process, MTA will retain a consultant team to:

ao Develop a Master Plan and market feasibility analysis for development ofthe balance of the block south of Grand Central Square (the DevelopmentBlock) including a proposed implementation ptan with short term and longterm strategies; and

bo Conduct a feasibility analysis for Transit Access Improvements for theenhancement of the pedestrian environment for the Development Block,which links the Metro Rail portal to the Grand Central Square within thecontext of the emerging east-west pedestrian system which links the MetroRail portal and Development Block with Angel’s Flight and Bunker Hill,and Biddy Mason Park and the Ronald Reagan State Building, whichincludes, but is not limited to, the evaluation of the existing alley as partof pedestrian access from the Metro Rail portal to the Grand CentralSquare project.

16

This work will be accomplished by a consultant team to be selected through the issuance of anRFP. Any capital improvements and construction work that may occur as a result of theconsultants work will be coordinated with the 19-month construction schedule of the GrandCentral Square development. The consultant(s) contract shall be administered by the MTA withCRA input. Additionally, consensus planning with private property owners is included in theconsultant(s) contract.

BLGCSPROJ.RPT05/28

17

ATTACHMENT D

GRAND CENTRAL SQUAREMTA CREDIT ASSISTANCE BUSINESS TERMS

QUESTIONS & ANSWI~RSMay 21, 1993

What is the legislative basis for joint development?

Specific sections of the California Public Utilities Codc authorize MTA to enter intoagreements with public or private entities to plan, develop, construct or finance projectsthat present benefits to rail transit and are adjacent, or physically or functionally related,to rail transit facilities. The purpose of these agreements is to provide alternativemethods to finance the cost of acquiring, constructing and developing facilities for transitsystems.

In rendering approval, the MTA Board must find (backed by evidence) that the/vlTA canbe expected to receive a reasonably secure financial return that is commensurate with itsrisks in the transaction and will contribute to funding rail transit facilities.

What is the MTA policy regarding joint development?

In May 1990, the LACTC adopted a joint development policy to "extract the optimumbenefit from theutilization of property owned and acquired by the LACTC consistentwith municipal and community development objectives and with LACTC transportationgoals." Furthermore, the Commission provided a mandate to "aggressively pursue jointdevelopment with developers and/or municipalities" to achieve these ends. Transitridership will be enhanced and automobile dependency reduced by focusing jointdevelopment activities around rail stations and which actively employ Commission realproperty and/or ~nancial resources.

Does MTA credit assistance of the financing of Grand Central Square meet theselegislative and policy criteria?

Yes! Please refer to the staff report prepared for MTA consideration and action in lune,1993 for the history of public involvement with this project. The consultant - preparedanalysis of risk and return in support of the LACTC’s December, 1992 interim approvalis attached to the December 1992 staff recommendations.

The June 1993 staff report recommending approval of this transaction and execution ofthe appropriate documents by the CEO will be accompanied by updated evidence whichsupports the required MTA Board Findings.

What type of financing is being used for the project?

The project will be financed with a combination of fLxed rate, tax-exempt QualifiedRedevelopment and Multi-Family Housing Bonds. A portion of the Bonds will beguaranteed by MTA and a portion by CRA. The advantage of this Bond financing isthreefold:

The interest rate is fixed - the project is not subject to variations in interestexpense.

The interest rate is substantially lower than fLxed rate conventional financing.

Long-te~iii amortization is provided. No need to refinance the loan.

Why are loan guarantees required?

Securing financing for a mixed-use rehabilitation project based solely on the asset valueof real estate is nearly impossible to obtain today due to overly stringent underwritingcriteria used by conventional lenders. The guarantees by MTA and CRA provide themechanism for securing long-term, fixed rate financing as well as reducing interest costs,thereby helping the long-term viability.

What limitations are being placed on the amount MTA guarantees?

The amount of financing is limited to the projected rehabilitation costs, costs of issuance,the amount required to pay off existing debt and debt service reserves. The financingwill not permit the Developer to refinance (pull out) his cash investment in the project.Of the total financing, MTA is guaranteeing debt service on the smallest of a) 73% ofthe Bonds, or b) the debt supported by 80% of net operating income, or c) debt equalto 80% of appraised value.

What safeguards are built into the process to ensure adequacy of funds to completethe project?

Before commencing with the commercial and residential components of the project, theDeveloper must have a guaranteed maximum price construction contract acceptable to/vlTA and CRA. In addition, the financing provides for substantial contingency reservesfor cost overruns and the financing is based on a 25 month construction period, 6 monthslonger than is projected.

What are the risks to MTA if there are insufficient funds to complete the project?

Prior to completion, the construction lender will provide MTA with a Letter of Creditin the amount of the Bonds guaranteed by MTA and MTA’s net debt service paymentsduring construction. If, for any reason, the project is not completed within the allowabletime, MTA can draw down the Letter of Credit to retire the Bonds, thereby eliminatingall future liability.

What happens if the project goes into foreclosure before completion?

If the project is foreclosed upon by the construction lender prior to completion due tosubstantial cost overruns, natural disasters, or any other reason, MTA will draw downthe Letter of Credit and retire the Bonds, thereby eliminating MTA’s guarantee.

What happens if the net operating income is below projections?

The Bond financing includes a $3.0 million reserve to meet anticipated short-termoperating difficulties. An additional reserve of up to $250,000 also may be funded uponcompletion. As additional security, MTA has a first priority call on net operatingincome to reimburse the debt service MTA will pay on the Bonds. The CRA willreceive net operating income to meet its annual obligations only after MTA has receiveda payment from net operating income equal to its annual obligation. If net operatingincome is insufficient to meet debt service of the MTA portion of the Bonds, MTA willbe reimbursed from the reserves. If the reserves are depleted, the Developer is obligatedto make up the difference. If the Developer does not, the MTA, who holds a first trustdeed on the project, can foreclosure.

How do we know the project will produce adequate income to meet debt service onBonds guaranteed by MTA?

A number of safeguards have been built into the project. They include:

Conservative pro forma projections verified by three independent firms.

$3 million operating reserve to be funded by the Developer and/or CRA.

MTA has a first priority on all cash flow. Net operating income would have todecline by over 20% from projected income before the net operating incomewould be insufficient to fully cover the MTA annual obligations.

Can the Developer reduce or eliminate his cash investment in the project?

The Developer is not permitted to reduce his current investment in the project from theBond proceeds. Furthermore, although the project is expected to be profitable, theDeveloper will not receive any of the net operating income until both MTA and CRAhave been reimbursed for their debt service payments. Furthermore, so long as MTA’sguaranteed is in place, no refinancing or secondary financing is allowed.

What happens if the project goes into foreclosure after completion?

The MTA will have a first deed of trust and CRA a second deed of trust on the project.If CRA forecloses, it will have to continue to fully reimburse the MTA in order to retainits security in the project. If MTA forecloses, it will own the project free and clear of

any mortgage debt, and all cash flow from the project will belong to the MTA. Pendingany foreclosure, MTA, together with CRA, has the ability to replace the Developer andmanage the project.

What security does MTA have to guarantee repayment?

During the construction period, MTA will have a Letter of Credit from the constructionlender equal to the percentage of Bonds guaranteed by MTA and the net debt servicepayments made by MTA during the construction period. After the construction iscompleted, security for repayment to MTA is a first trust deed on the property. Theamount of the Developer obligation secured by MTA first trust deed is estimated at 73 %of maximum annual debt service on the Bonds.

How does the proposed financing impact the MTA’s financial position generally?

The MTA’s ability to issue between $20 and $25 million of junior lien bonds will beforegone for each year the guarmltee is outstanding. MTA will give a pledge ofProposition A revenues to back its annual payment obligation on the Bonds. It will bea fourth priority pledge.

What compensation is MTA to receive as a result of this transaction?

Recovery at closing of $270,000 of upfront costs.

A fee during construction equal to .5% of the Bond amount guaranteed by MTA.(Estimated fee of $100,000).

An annual fee equal to 1% of the outstanding Bonds guaranteed by MTA.(Estimated annual fee of $300,000).

A proportionate, priority amount of 2 % of gross proceeds from each refinancingor sale.

What incentive does the Developer have to eliminate MTA’s guarantees in the futureover time?

The Developer cannot place subordinate financing on the project, therefore, there is noway to recover the Developer’s cash investment in the project without selling orrefinancing the project, at which time at the option of the MTA, the Bonds may becalled.

BLGCSQQ&A2.OUT

ATTACHMENT E

RESOLUTION OF THE LOS ANGELES COUNTYMETROPOLITAN TRANSPORTATION AUTHORITY

AUTHORIZING PARTICIPATION IN THE ISSUANCEAND SALE OF THE COMMUNITY REDEVELOPMENT AGENCY

OF THE CITY OF LOS ANGELES, CALIFORNIA GRAND CENTRAL SQUAREPROJECT, MULTIFAMILY HOUSING BONDS, 1993 SERIES A

AND THE COMMUNITY REDEVELOPMENT AGENCY OF THECITY OF LOS ANGELES, CALIFORNIA GRAND CENTRAL SQUAREPROJECT QUALIFIED REDEVELOPMENT BONDS, 1993 SERIES A

AND APPROVING OTHER RELATED MATTERS

WHEREAS, THE LOS ANGELES COUNTY METROPOLITANTRANSPORTATION AUTHORITY (the "Authority") as successor to theLos Angeles County Transportation Commission (the"Commission"), is authorized, under Chapter 5 of Division 12 ofthe California Public Utilities Code (the "Act"), to financeand refinance the acquisition, construction or rehabilitationof facilities to be used as part of a Countywide transitsystem; and

WHEREAS, pursuant to the provisions of Section 130350of the California Public Utilities Code, the Commission wasauthorized to adopt a retail transactions and use tax ordinanceapplicable in the incorporated and unincorporated territory ofthe County of Los Angeles (the "County") subject to theapproval by the voters of the County; and

WHEREAS, the Commission, by Ordinance No. 16 adoptedAugust 20, 1980 ("Ordinance No. 16"), imposed a 1/2% retailtransactions and use tax upon retail sales of tangible personalproperty in the County, a portion of the proceeds of the tax tobe used for public transit purposes (the "Proposition A Tax"),and such tax was approved by the electors of the County onNovember 4, 1980; and

WHEREAS, a portion of the revenues received by theAuthority from the imposition of the transactions and use taxare, by statute, directed to be used for public transitpurposes, which purposes are authorized by statute to becarried out through various methods including jointdevelopment; and

WHEREAS, under Public Utilities Code sections 130000et seq. the Authority is empowered to improve the transitsystems in Southern California and to "make contracts and enterinto-stipulations of any nature whatsoever . to do all actsnecessary and convenient for the full exercise of [such]powers." (Pub. Util. Code § 130220.); and under PublicUtilities Code sections 130500 et seq., the Authority is

LA2/1998:JAS-05/28/93

authorized "to . . jointly develop any property, rightor interest in the" manner that is necessary or desirable tocarry out [the Authority’s] objects and purposes" (Pub. Util.Code § 130521), which include finding "alternate methods . to finance the cost of acquiring, constructing and developin~facilities for transit systems .." (Pub. Util. Code§ 130501.); and

WHEREAS, in addition, the Authority is empowered to". . . jointly develop . air rights, land rights,development rights, entrances ~nd exits, and any and all other

facilities for, incidental to, necessary for or convenient forrapid transit service, including, but not limited to,facilities and structures physically or functionally related torapid transit services ." (Pub. Util. Code § 30631(a)); such facilities and structures include " . . .any property ofthe city, public agency, public utility, person, firm,corporation, association, organization or other entity, publicor private . ." (Pub. Util. Code § 30634(a).);

WHEREAS, in addition, the Authority’s jointdevelopment statutes authorize the Authority to enter into"agreements with any person, firm, corporation or otherentity, public or private, to develop or to engage in theplanning, financing, or construction of . developmentprojects adjacent, or physically or functiona~l~ related, to[Authority] facilities." (Pub. Util. Code § 30634(b).);

WHEREAS, in May, 1990 the Commission adopted JointDevelopment Program Policies which state in part that theCommission "will aggressively pursue joint developmentopportunities with developers and/or municipalities to achievethe following policies . . .:

Encourage economic development consistent withregional and local land use objectives.

Encourage development on, over, and adjacent torail stations for both passengers’ convenienceand to create an economic draw that fostersactivity around rail transit stations.

Generate project revenues whenever possible tofinance rail development and facility operatingcosts.

Integrate the rail stations into the economic andsocial fabric of the neighborhoods they servewhile preserving communities’ individualcharacter.

tA2/Ig98:JAS-05/28/93

Reduce dependency upon the private automobile forpersonal transportation by promoting communitydevelopment, commercial and retail activitiesaround rail stations.

Improve accessibility to and enhance theattractiveness of the stations by maximizing thedesign quality of the transit related development.

Create joint development investment opportunitiesfor the private sector and/or municipalities.

Focus economic growth by coordinatingcomprehensive planning, zoning and developmentaround station sites with municipalities andcommunities.

Assure that projects enhance present and futurepublic transportation facilities."; and

WHEREAS, the Community Redevelopment Agency of theCity of Los Angeles, California (the "Agency") has proposed issue its Grand Central Square project, Multifamily HousingBonds, 1993 Series A (the "Multifamily Bonds") and its GrandCentral Square Project Qualified Redevelopment Bonds, 1993Series A (the "Redevelopment Bonds"); and

WHEREAS, in order to assist the Agency in the issuanceof the Multifamily Bonds and the Redevelopment Bonds, theAgency has requested that the Authority pledge certain amountsof the Proposition A Tax to secure payment of the RedevelopmentBonds and a portion of the Multifamily Bonds; and

WHEREAS, there have been presented to the Authorityforms of the following documents (collectively, the "AuthorityDocuments"):

(i) A Multifamily Housing Bonds PledgeAgreement, by and between the Authority and Bank ofAmerica National Trust and Savings Association (the

"Trustee");

(2) Agreement,Trustee;

Qualified Redevelopment Bonds Pledgeby and between the Authority and the

(3) A Letter of Representations, from theAuthority to the Underwriters of the Multifamily Bondsand the Redevelopment Bonds;

~2/1998:JAS-05/28/93

(4) A Construction and Intercreditor Agreement,among the Authority, the Agency, Grand Central SquareLimited Partnership, a California limited partnership(the "Developer") and Home Savings of American FSB, Federal Savings Bank (the "Bank");

(5) A Trust Agreement among the Authority, theAgency, the Developer, the Trustee and the Bank;

(6) A Reimbursement AgreementAuthority and the Developer;

between the

(7) A Cooperation Agreement between the Agencyand the Authority;

(8) An Operating Agreement among the Authority,the Agency, the Bank and the Developer; and

(9) A Supplemental Trust Agreement between theAuthority and First Interstate Bank of California, aState banking corporation (the "Revenue Bond Trustee").

The Multifamily Bonds and the Redevelopment Bonds shall bereferred to herein collectively as the "Bonds," and theMultifamily Housing Bonds Pledge Agreement and the QualifiedRedevelopment Bonds Pledge Agreement shall be referred toherein collectively as the "Pledge Agreements"; and

WHEREAS, the Authority has been advised by its counselthat such documents are in appropriate form, and the Authorityhas determined that it is in the best interests of the publictransportation needs of the County to assist in the issuanceand sale of the Multifamily Bonds and Redevelopment Bonds; and

WHEREAS, terms used in this Resolution and nototherwise defined herein shall have the meanings assigned tothem in the Trust Agreement.

NOW, THEREFORE, BE IT RESOLVED BY THE LOS ANGELESCOUNTY METROPOLITAN TRANSPORTATION AUTHORITY, AS FOLLOWS:

I. Findinqs. The Authority hereby finds anddetermines, based upon the information set forth in theaccompanying staff report, that:

a. The main entrance to the Grand CentralMark~t is located approximately 250 feet from Pershing SquareMetro Rail portal at the northeast corner of 4th and HillStreets.

LA2/1998:~AS-05/28/93

b. The entrances to the Grand Central Squareproject on both Hill and Broadway are physically andfunctionally linked to the portal via the public sidewalks.

c. The intended development of improvements andupgrades to the sidewalks and future easement areas between theportal and the Hill Street entrance to the Grand Central Squareproject will enhance this physical and functional relationship.

d. Based on the financial and economic analysisperformed by the Authority’s consultant, Keyser MarstonAssociates, the Authority’s credit facility for the GrandCentral Square project will produce significant net revenuesfor the Authority of up to $310,000 per year which will beavailable to help finance acquisition, development andconstruction of the Authority’s transit facilities and theAuthority’s operations.

e. Based on the financial and economic analysisperformed by the Authority’s consultant, Keyser MarstonAssociates, the Authority’s obligations respecting the Bondsand the Authority’s financial benefits will be reasonablysecured.

f. Based on the financial and economic analysisperformed by the Authority’s consultant, Keyser MarstonAssociates, the Authority’s financial benefit is adequate andappropriate relative to the associated risks and willreasonably contribute to funding the Authority’s transitfacilities.

g. The Authority’s joint participation in theGrand Central Square project will carry out many objectives ofthe Authority’s joint development program, including:

Economic development of a strategic propertylinking Bunker Hill with the downtown historiccore;

Increasing ridership on the Authority’s transitsystem and reducing dependency on privateautomobile travel by drawing consumers to thegrocery store and other retail areas at theproject;

Increasing ridership on the Authority’s transitsystem, reducing dependency on private automobiletravel and assisting in attainment of AQMD airquality standards by focusing housing, retail useand economic development around the portal;

LA2/]998:JAS-05/28/93

Through enhancement of pedestrian connectionsbetween the portal and the project, betterintegrating the rail station into a keydevelopment block which defines the character ofthe surrounding neighborhood;

Establishing important precedent for cooperativeplanning and development with the Agency aroundstation sites within Agency redevelopment areas;

Preserving and enhancing historic buildings infulfillment of land use objectives in thehistoric core; and

Generating an annual, steady source of revenuesfor the Authority to finance rail transit systemdevelopment and operations.

h. Based upon the foregoing findings and theaccompanying staff report, the Authority’s participation in theGrand Central Square project will be of benefit to publictransit in the County and will carry out the Authority’s publictransit purpose.

2. Approval of Issuance and Terms of Bonds andPledqe Aqreements. The Authority hereby acknowledges andconsents to the issuance of the Bonds by the Agency on thegeneral terms summarized in the accompanying staff report andthe pledge of a portion of Proposition A Tax to secure aportion of the Bonds as provided for in the Pledge Agreements(the "Pledged Revenues"); provided that the total aggregateprincipal amount of Bonds shall not exceed $44,000,000 plus theamount of any original issue discount at which the Bonds may besold; no Bonds shall bear interest at a rate in excess of 7.5%per annum; and the total aggregate amount of the Authority’sobligation under the Pledge Agreements in any fiscal periodshall not exceed $2,300,000 during the first eight years(interest only), shall not exceed $2,800,000 during the next years (amortization) and shall be determined according to thecriteria set forth in the accompanying staff report. FranklinE. White, Chief Executive Officer ("CEO") of the Authority,Leslie V. Porter, Deputy Executive Director of the Authority,and any written designee of the CEO, or any of them (each "Designated Officer"), acting in accordance with this Section2, is hereby authorized to determine, from time to time, theactual aggregate principal amount of Bonds to which the PledgedRevenues may be pledged under the Pledge Agreements, the actualinterest rate on the Bonds, and the actual aggregate amount ofthe Authority’s obligations in any fiscal year under the PledgeAgreements; and to consent to such other terms of the Bonds and

LA211998:JAS-05128193

the Pledge Agreements as may be in the best interest of theAuthority. Subject to the foregoing limitations, suchdirection shall be conclusive as to the principal amounts,interest and obligations hereby authorized.

3. Pledqe of Pledqed Revenues. The Authority herebyauthorizes and makes an irrevocable pledge of the PledgedRevenues to secure the Authority’s payment obligation on theBonds, all in the amount and in accordance with the termsdescribed in these Resolutions, the accompanying staff reportand the Pledge Agreements.

4. Approval of Transaction. The Authority herebyauthorizes and approves the Authority’s participation in theGrand Central Square project ~inancing on the terms andconditions generally set forth in the accompanying staff report.

5. Approval of Documents; Authorization forExecution. The form, terms and provisions of the AuthorityDocuments set forth in this Resolution are in all respectsapproved, and the Chairman, the Vice Chairman and anyDesignated Officer, or any one or more thereof, are herebyauthorized, empowered and directed (a) to negotiate, execute,acknowledge and deliver, and consent to or accept, as the casemay be, the Authority Documents and all other documents andinstruments referred to therein or contemplated thereby orwhich may be necessary or desirable to effect the transactionsupon the general terms summarized in the accompanying staffreport, including but not limited to all deeds of trust,assignments, financing statements and other securityinstruments in favor of the MTA (collectively the ~"TransactionDocuments"); and (b) to make such changes in the form of Authority Documents and the Transaction Documents now beforethis meeting and hereby approved as shall be approved by theDesignated Officer executing, consenting to or accepting thesame and recommended for approval by County Counsel andNossaman, Guthner, Knox & Elliott, special counsel to theAuthority. The execution, consent to or acceptance thereof, asapplicable, shall constitute conclusive evidence of theAuthority’s approval of any and all changes or revisionstherein from the form of the Authority Documents andTransaction Documents now before this meeting; and from andafter the execution and delivery of, consent to or acceptanceof, as applicable, the Authority Documents and the TransactionDocuments, the officers, agents and employees of the Authorityare hereby authorized, empowered and directed to do all suchacts_and things and to execute all such documents as may benecessary to carry out and comply with the provisions of theAuthority Documents and Transaction Documents and to assist inthe issuance of the Pledge Agreements, including the executionof such closing certificates as may be required.

LA2/1998: .1AS-05/28/93

6. Additional Authorization. The Chairman, ViceChairman and the Designated Officers and all officers, agentsand employees of the Authority, for and on behalf of theAuthority, be and they hereby are authorized and directed to doany and all ~things necessary to effect the execution anddelivery of the Authority Documents and consent to andacceptance of the Transaction Documents, to carry out the termsthereof and to exercise and enforce the remedies provided tothe Authority thereunder and at law. The Chairman, the ViceChairman, the Designated Officers and all other officers,agents and employees of the Authority are further authorizedand directed, for and on behalf of the Authority, to execute,consent to and accept, as applicable, all papers, documents,certificates and other instruments that may be required inorder to carry out the authority conferred by and purposes setforth in this Resolution and the Authority Documents.

7. Severability. The provisions of this Resolutionare hereby declared to be severable, and, if any section,phrase or provision shall for any reason be declared to beinvalid, such declaration shall not affect the validity of theremainder of the sections, phrases and provisions hereof.

8. Effective Date.effective upon adoption.

This Resolution shall be

PRESENTED, PASSED AND ADOPTED by the LOS ANGELESCOUNTY METROPOLITAN TRANSPORTATION AUTHORITY this __ dayof ~, 1993, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

LOS ANGELES COUNTY METROPOLITANTRANSPORTATION AUTHORITY

By:Chief Executive Officer

LA2/1998:JAS-05/28/93

ATTEST:


Executive Secretary

I hereby certify that, at its meeting of1993, the foregoing Resolution was adopted by the LOS ANGELE~

COUNTY METROPOLITAN TRANSPORTATION AUTHORITY.


By:Executive Secretary

APPROVED AS TO FORM:

AUTHORITY CO-COUNSELSDeWitt W. Clinton,County Counsel

By:Assistant County Counsel

Suzanne GiffordAuthority Co-Counsel

LA2/]998:JAS-05/28/93