Item 24.2 - Owner Participation Agreement with Poway Land Inc ®AGENDA REPORT SUMMARY • Via
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TO: Honorable Chairmen and Members of the Redevelopment Agency •
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FROM: James L. Bowersox, Executive Director
INITIATED BY: John D. Fitch, Assistant Executive Director
Warren H. Shafer, Director of Redevelopment Service
Pamela R. Colby, Redevelopment Project Administrator
DATE: September 5, 1995
SUBJECT: Authorize Executive Director to Execute a Subordination Agreement in
Connection with Permanent Financing Documents Pursuant to the Owner
Participation Agreement with Poway Land, Inc.
ABSTRACT
The Redevelopment Agency entered an Owner Participation Agreement (OPA) with Poway
Land, Inc. for the development of Haley Ranch Estates. The terms of the OPA require
Poway Land to secure permanent project financing. The Redevelopment Agency must
approve all liens attached to the project, hence Agency approval of permanent financing
is required. The Agency will be required to subordinate its affordability covenants
in order for Poway Land to secure permanent financing. Approval of the attached
resolution makes the findings required by law and authorizes the Executive Director to
execute any documents necessary for approval of permanent financing subject to approval
as to form by Agency Special Counsel .
ENVIRONMENTAL REVIEW
This item is not subject to CEQA review.
FISCAL IMPACT
There is no direct fiscal impact resulting from this action. Costs associated with
permanent financing are contemplated by the OPA and are one cost component of the
Agency's acquisition price for Haley Ranch Estates.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
A copy of this report was sent to Poway Land, Inc.
RECOMMENDATION
It is recommended that the Redevelopment Agency Board approve the attached resolution
making requisite findings regarding the subordination of affordability covenants and
authorizing the Executive Director, with the approval as to form of Agency Special
Legal Counsel , to execute documents necessary for Agency approval of permanent
financing.
ACTION Adopted Resolution No. R-95-23; approved staff recommendation subject to
principal not exeeding $4.32 million. 4-0 with Boardmember Callery absent.
La:6 d.r__.;
Marie Lofton, Deputy Secretary
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,AGENDA REPORT
CITY OF POW A Y
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TO: Honorable Chairmen and Members of the Redevelopment Agency
FROM: James L. Bowersox, Executive Director
INITIATED BY: John D. Fitch, Assistant Executive Directo~~ ~
Warren H. Shafer, Director of Redevelopment ervices~~
Pamela R. Colby, Redevelopment Project Administrator~.
DATE: September 5, 1995
SUBJECT: Authorize Executive Director to Execute a Subordination Agreement
in Connection with Permanent Financing Documents Pursuant to the
Owner Participation Agreement with Poway Land, Inc.
BACKGROUND
The Redevelopment Agency has an executed an Owner Participation Agreement (OPA) with
Poway Land, Inc. for the development of Haley Ranch Estates. The amount of the
Agency's financial assistance under the amended OPA totals $6,471,599. Under the
OPA and the Lease-Option Agreement entered into pursuant to the.OPA, the Agency has
a Master Lease for the property. The Agency has also placed affordability covenants
on all 65 dwelling units. The OPA and the Lease-Option Agreement grant the Agency
an option which requires the Agency to purchase the property within ten years from
the issuance of the Certificate of Completion (December 2004).
One of the provisions of the OPA is that Poway Land must secure Redevelopment Agency
approval for any liens placed on the property, including those associated with
project financing. In addition, the Lease-Option Agreement provides that the Agency
will subordinate the lien of the Master Lease and Option to such permanent
financing, subject to the Agency's reasonable consent and approval of all relevant
documents. The Redevelopment Agency previously approved and subordinated to a
construction loan with a principal amount of $4,320,000. The Certificate of
Completion for the project was issued by the Agency and recorded by the County
Recorder on December 23, 1994. Poway Land has since been pursuing permanent
financing options and has requested that the Agency approve a permanent loan with
American Savings Bank and subordinate the Lease and the affordability covenants to
such loan.
ACTION:
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Agenda Report
September 5, 1995
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FINDINGS
Poway Land has advised the Redevelopment Agency that it has secured a conditional
commitment from American Savings Bank for a permanent loan to partially take out the
construction lender, Imperial Savings Bank. Staff and Agency Special Legal Counsel
have been negotiating with representatives of Poway Land and American Savings to
establish mutually satisfactory loan terms and documents. Most issues have been
resolved, and the actual loan documents are being drafted as of this writing.
The principal amount of the proposed permanent loan from American Savings Bank is
$4,320,000. The term would be 10 years, with a variable interest rate starting at
7.679%, with a cap of 12.679%. The loan would be an interest paying loan only,
with the full amount of the principal due in a balloon payment at the end of the
loan term. Approval of and subordination to such amount is recommended in order to
stabilize the project and prevent further default and potential foreclosure under
the construction loan. In order to safeguard the Agency's financial investment,
Master Lease and affordability covenants and as condition of subordination to the
higher loan amount, Agency Special Legal Counsel has advised the Agency to make rent
payments, per the Lease-Option Agreement, directly to American Savings Bank.
The second requirement would be that the Agency receive a Deed of Trust on the
property securing the performance of Poway Land under the OPA, Lease-Option
Agreement and Subordination Agreement which would be junior to the American Savings
Bank Deed of Trust and would give the Agency the rights of a junior lien-holder in
the event of default. These two provisions would decrease the likelihood of loan
default, and would help the Agency to cure any loan default. Agency Special Legal
Counsel has advised that the addition of these two provisions would provide
additional security and enhance the Agency's position.
Another key point is that American Savings Bank has indicated that it will require
the Redevelopment Agency to subordinate its affordability covenants on the property.
This is not an unusual lender requirement, and has effectively become an industry
norm for lending on affordable housing projects. The potential "worst-case" effect
of this requirement is that should Poway Land default on the loan, and the Agency
opt not to cure the default, the project could potentially be sold without the
restrictions of the affordability covenants.
In order to subordinate the affordability covenants to the permanent loan, the
Agency must find that appropriate financing is not otherwise available for the
project. Poway Land has been working for some time to secure financing for the
project. With the tightening regulation of the lending industry and financing
availability, this process has not been a simple one. Competitive project financing
is not available for Haley without a subordination of the affordability covenants.
Were it to be available, the increased risk to the lender would cause financing
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Agenda Report
September 5, 1995
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costs to increase which would increase overall project costs. This would result in
an increase of the price the Agency will ultimately pay to purchase the project.
Because of the timing requirements of loan closings, staff is recommending that,
with the approval as to form by Agency Special Legal Counsel, the Executive Director
be authorized to execute any documents which may be necessary for the Agency's
approval of the permanent loan being offered by American Savings Bank. Approval of
the attached resolution would grant this authority to the Executive Director and
makes the requisite findings for the Agency to subordinate the affordability
covenants pursuant to California Redevelopment Law.
ENVIRONMENTAL REVIEW
This item is not subject to CEQA review.
FISCAL IMPACT
There is no direct fiscal impact resulting from this action. Costs associated with
permanent financing are contemplated by the OPA and will be one cost component of
the Agency's acquisition of Haley Ranch Estates.
ADDITIONAL PUBLIC NOTIFICATION AND CORRESPONDENCE
A copy of this report was sent to Poway Land, Inc.
RECOMMENDATION
It is recommended that the Redevelopment Agency Board approve the attached
resolution making requisite findings regarding the subordination of affordability
covenants and authorizing the Executive Director, with the approval as to form of
Agency Special Legal Counsel, to execute documents necessary for Agency approval of
permanent financing.
Attachment: Redevelopment Agency Resolution.
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A RESOLUTION OF THE POWAY REDEVELOPMENT AGENCY APPROVING PERMANENT .
FINANCING AND MAKING CERTAIN FINDINGS IN REGARD TO THE SUBORDINATION OF
THE COVENANTS AND RESTRICTIONS RELATED TO THE OWNER PARTICIPATION AGREEMENT
BY AND BETWEEN THE POWAY REDEVELOPMENT AGENCY AND POWAY LAND, INC. AND
AUTHORIZING THE EXECUTIVE DIRECTOR TO EXECUTE ANY REQUIRED DOCUMENTATION
WHEREAS, the Poway Redevelopment Agency (the "Agency") entered into that
certain Owner Participation Agreement with poway Land, Inc. ("Poway Land"), dated
June 22, 1989 ("the OPA") which was subsequently amended on April 30, 1991,
which, among other things, requires Poway Land to construct a mobile home park
for low and moderate income households (the "Improvements") on the property which
is the subject of the OPA (the "Site") and which provides for the Agency's
financial assistance to Poway Land for such construction; and
WHEREAS, in accordance with the terms of the OPA, the Agency and Poway Land
entered into that certain Lease-Option Agreement dated January 25, 1991 (the
"Lease-Opt i on Agreement") whereby the Agency acqui red a master I ease (the
"Lease") on the Site and whereby the Agency has been granted an option which
requires the Agency to purchase the Site within ten years of the issuance of the
Certificate of Completion eVidencing Poway Land's satisfactory construction of
the Improvements (the "Option"); and
WHEREAS, pursuant to the terms of the OPA that certain Declaration of
Condit ions, Covenants and Restri ct ions dated January 25, 1991 was recorded
against the Site with the San Diego County Recorder as Document No. 1991-0087385
(the "CC&R's") thereby restricting the use of the Site to the provision of
housing affordable to persons of low and moderate income; and
WHEREAS, under the terms of the OPA, prior to the expiration of the term
of the Option, the Agency's prior written approval is required before any liens
are imposed against the Site for the purpose of securing loans of funds to be
used for financing or refinancing the acquisition of or the construction of the
Improvements on the Site; and
WHEREAS, under the Lease-Opt i on Agreement, the Agency has agreed to
subordinate the Lease and the Option to a construction loan and refinancing,
subject to the Agency's reasonable consent and approval of all relevant
documents; and
WHEREAS, the Agency has previously approved and subordinated to a
construction loan in the principal amount of Four Million Three Hundred Twenty
Thousand Dollars ($4,320,000); and
WHEREAS, Poway Land has requested that the Agency approve a loan to Poway
Land from American Savings Bank in the principal amount of Four Million Three
Hundred Twenty Thousand Dollars ($4,320,000) (the "Loan") in order to partially
take out the construction lender; and
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WHEREAS, as a condition of the provision of the Loan, American Savings Bank
is requiring the subordination of the Lease, the OPA and the CC&R's; and
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Resolution No. R-95-
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WHEREAS, Section 33334.14 of the Community Redevelopment Law provides, in .
part, that affordability covenants of an Agency may be subordinated" . . . where
the agency makes a finding that an economically feasible alternative method of
financing, refinancing, or assisting the units or parcels on substantially
comparable terms and conditions, but without subordination, is not reasonably
available, and where the agency obtains written commitments reasonably designed
to protect the agency's investment in the event of default. . ."; and
WHEREAS, based upon material present to the Agency, there is not an
economically feasible alternative method of financing available on substantially
comparable terms; and
WHEREAS, in consideration of and as a condition precedent to both the
Agency subordinating the lease and the subordination of the CC&R's to the Loan,
the Agency will be granted the rights of a junior lien holder on the Site and the
Agency shall make the payments due under the lease directly to American Savings
Bank in partial satisfaction of Poway Land's obligation thus providing the Agency
with reasonable protection in the event of default.
NOW, THEREFORE, the Poway Redevelopment Agency does hereby resolve, order
and determine as follows:
Section 1. The Agency finds and determines that an economically feasible
alternative method of financing, refinancing, or assisting the units or parcels
on substantially comparable terms and conditions, but without subordination, is
not reasonably available.
Section 2. The Agency approves the Loan and authorizes and directs the
Executive Director to execute, subject to approval by Agency Special Legal
Counsel, such agreements or other instruments as may be necessary or convenient
to effectuate the subordination of the CC&R's and the Lease.
PASSED, APPROVED AND ADOPTED by the Redevelopment Agency at a regular
meeting thereof on this 5th day of September 1995.
Don Higginson, Chairman
ATTEST:
Marjorie K. Wahlsten, Secretary
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