80A - HOUSING AND SUBORDINATION LOANS

Home Browse Search

Approve Affordable Housing Loans for the Rehabilitation of Cornerstone Apartments September 17, 2019 Page 3 receipts to the City or Housing Authority depending on the source of affordable housing funds (HOME or Housing Successor Agency). Following the City and Housing Authority's approval to resubordinate our existing affordable housing loans, Jamboree received an allocation of 4% tax credits on March 20, 2019 and staff began working with Jamboree to: 1) consolidate the forty-three (43) existing affordable housing loans by the source of funds that had been provided by the City and Housing Authority to the Project; 2) identify which loans would be paid off at closing by Jamboree; 3) Amend and Restate the existing ten (10) HOME Loans; 4) Amend and Restate the existing thirty-three (33) Housing Successor Agency Loans; and 5) finalize two Subordination Agreements with MUFG Union Bank, N.A. (Union Bank) for the Amended and Restated HOME Loan and the Amended and Restated Housing Successor Agency Loan. Before discussing the Amended and Restated HOME and Housing Successor Agency Loans, it is necessary to discuss an opportunity that arose for the City and Housing Authority to receive additional funds during this process. Senior Loan Debt Increase from $8,700,000 to $11,100,000 The City and Housing Authority's original commitment on November 20, 2018 was to resubordinate the current affordable housing loans for Cornerstone Apartments to tax-exempt multifamily housing bonds in an amount not to exceed $8,700,000 in order to substantially rehabilitate the Project. As part of the original transaction, Jamboree then agreed to pay down $500,000 of the existing City and Housing Authority loans at the time of bond closing. On July 30, 2019, the City received a written request from Jamboree asking to increase the amount of debt the City would subordinate to from $8,700,000 to $11,100,000. The request explained that due to lower interest rates, a longer amortization period, and increased 2019 rents published by TCAC, the Project was able to support a larger permanent loan amount than initially anticipated. Generally, Jamboree was able to negotiate better deal terms with their senior lender than what they originally anticipated in their initial proposal to the City in October 2018. Specifically, Jamboree's original interest rate on the tax-exempt multifamily bonds was 5.75%. Since then, interest rates have decreased substantially, and their senior lender decreased their interest rate to around 4%, depending on the final closing interest rate. In addition, their senior lender was able to offer a loan product with a 40-year amortization instead of their initial 35-year amortization assumption. And lastly, in terms of revenue and cash flow, the 2019 TCAC rents increased significantly from the 2018 TCAC rents in their initial underwriting assumptions. As part of these updated terms, Jamboree has agreed to pay down $2,204,000 of the existing Housing Authority loans at the time of bond closing. This is $1,704,000 more than originally agreed upon by the City and Housing Authority. The remaining additional proceeds will then be used to pay down the Project's deferred developer fee. The request for a permanent loan in the amount of $11,100,000 assumes that the project ultimately closes at a 4% interest rate at the end of September 2019. Should the closing interest rate increase due to macroeconomic private • I .