80A - HOUSING AND SUBORDINATION LOANS

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Approve Affordable Housing Loans for the Rehabilitation of Cornerstone Apartments September 17, 2019 Page 5 • Remaining principal and accrued interest due upon the 55th anniversary of the issuance of Certificate of Occupancy and/or final building permits or earlier upon sale, refinancing or default. On that date, the City/Housing Authority agrees to review the performance of the property and consider in good faith any reasonable request by Jamboree to modify the terms or extend the term of the City/Housing Authority Promissory Notes. Additionally, the City/Authority will receive 50% of the net proceeds received from any sale or refinancing of the Project, after payment of outstanding debt and payment in full of any deferred developer fee and establishment of any reserves and transaction costs; • Cost savings from the Project, if any, will be applied first to pay down the Loans, subject to compliance with the TCAC regulations. Regarding the two Subordination Agreements with Union Bank, the City's / Housing Authority's total loan for the Project is less than the $11.1 million loan from Union Bank. In order for Union Bank to provide their senior loan, they are requiring the City and Housing Authority to execute one Subordination Agreement each for the City and Housing Authority's two Loan Agreements that allow Union Bank to complete their underwriting and commit their private market financing. As such, the two Subordination Agreements will allow Union Bank to commit their private market financing for the rehabilitation of the Project. The Subordination Agreement for the City's Amended and Restated HOME Loan Agreement is attached as Exhibit 5 and the Subordination Agreement for the Housing Authority's Amended and Restated Housing Successor Agency Loan Agreement is attached as Exhibit 6. If the two Loan Agreements are not approved by City Council and the Housing Authority, then Jamboree will have to return their allocation of 4% tax exempt bonds and the Project will not move forward. 5% Simple Interest Instead of 3% Simple Interest Jamboree requested that the City's interest rate be increased from 3% simple interest to 5% simple interest. The issue is that because the new Limited Partnership in the resyndication is assuming an existing loan (not a new loan like a typical new construction project), for tax purposes it can be looked at as if the new Limited Partnership is assuming the loan at much more favorable loan terms than they could have obtained otherwise. If this is the case, it can be treated as income to the Partnership. The Partnership never wants to have income in these types of transactions because the Limited Partner would have to pay taxes on this income and as such this would impact/reduce the amount of tax credit equity that they would put in the deal. The test of whether or not the terms of the assumed loan are "favorable" and would trigger a need to pay income on the loan is done by looking at the proposed rate for the assumed loan and comparing it to the Applicable Federal Rate (AFR), which is the minimum market rate that the Internal Revenue Service allows for a private loan. A comparison is then conducted between how