COUNCIL DISTRICT 7
SNI AREA: Tully/Senter
It is recommended that the City Council adopt a resolution:
1. Approving business terms for a construction loan of up to $2,012,347 and a permanent loan of up to $1,667,861 to Shiraz Senior Housing, L. P., or its affiliate, for the development of the Shiraz Senior Housing Apartments, a 61-unit housing development affordable to very low–income senior households secured by a leasehold interest in a 1.55-acre site located at 1275 McLaughlin Avenue, south of Owsley Avenue.
2. Approving business terms for a permanent loan of up to $1,882,653 to ROEM Development Corporation secured by the underlying fee title of the 1.55-acre site located at 1275 McLaughlin Avenue, south of Owsley Avenue
BACKGROUND
On May 22, 2001, the City Council adopted a resolution to approve business terms for an acquisition and predevelopment loan of up to $2,504,170 and an additional fund reservation of up to $1,390,830 for construction financing to ROEM Development Corporation (ROEM) for the development of a 61-unit housing project affordable to very low-income senior households on a 1.55-acre site located at 1275 McLaughlin Avenue, south of Owsley Avenue.
On August 22, 2001, the project was awarded an allocation of tax-exempt bonds from the California Debt Limit Allocation Committee (CDLAC).
Shiraz Senior Housing, L. P. (Sponsor) has secured construction and permanent financing commitments and is seeking approval of a construction/permanent loan of up to $2,012,347 during the construction phase and up to $1,667,861 during the permanent phase.
ROEM -- which is the managing partner of Shiraz Senior Housing, L. P., will hold title to the land and lease the land to the Sponsor -- is seeking a permanent City loan of up to $1,882,653 for the underlying fee title to the project.
The Association of Bay Area Governments (ABAG) will be the issuer of the bonds. The sole purpose of this report is to establish the business terms for the Housing Department’s construction and permanent loans to the developer.
On August 22, 2001, ABAG received an allocation from CDLAC for the issuance of $4,080,000 in tax-exempt bonds for the development. The proposed bond will be structured as one tax-exempt series in an aggregate amount not to exceed $4,080,000. Bond proceeds will be available for disbursement at the start of construction and will require interest-only payments during the construction and lease-up period. Once the project achieves rent stabilization, the bonds will convert to a fully amortized 30-year permanent loan.
The total project costs are estimated to be $10,571,286, which includes construction-period interest on the City’s loan. In addition to the funds available from bond proceeds, the sponsor has applied for an allocation of 4% tax credits under the California Tax Credit Allocation Committee’s (TCAC) non-competitive funding application. The project will receive approximately $2,844,248 in equity from the proposed tax credit investor, SunAmerica.
It is anticipated that the bonds will be issued in November and funds will be available for disbursement at the start of construction. The Bonds will carry a 32-year term, will require interest-only payments during the construction period, and will then convert to a fully amortized 30-year permanent loan after the project achieves rent stabilization.
During construction, Key Bank will provide a letter of credit to the bond holder in the amount of $4,080,000. The letter of credit will be secured by a deed of trust during the construction period.
In conjunction with the closing of the bond financing, the City’s acquisition/predevelopment loan of $2,504,170 will roll into the construction/permanent loan at the new amount of $2,012,347 to Shiraz Senior Housing, L. P. and $1,882,653 to ROEM, for a total commitment of $3,895,000. Additional City funds will be disbursed at bond closing and during construction.
Staff is recommending approval of the following:
Refer to the attached Fact Sheets for complete business terms for the City’s loans.
On May 9, 2001 and May 15, 2001, the Planning Commission and the City Council, respectively, held public hearings as part of the rezoning approval process.
Preparation of this report has been coordinated with the Office of the City Attorney.
The additional funds of $1,390,830, to be provided during the construction phase of the project, are available from the Housing Department’s Fiscal Year 2001-2002 Budget.
LESLYE CORSIGLIA
Acting Director of Housing
Attachments
Shiraz Senior
Housing Apartments
Development Team
Developer: Shiraz Senior Housing, L. P.
Architect: James Guthrie & Associates
Contractor: ROEM Development Corporation
Property Manager: The John Stewart Company
Project Characteristics
Project Location: 1275 McLaughlin Avenue, south of Owsley Avenue
Acreage: 1.55 acres
Council District: 7
SNI Area: Tully/Senter
Project Type: Senior Rental
Group Served: Very-low income households
Number of Units: 61 (60 very low-income, and 1 unrestricted Manager’s unit)
Bedroom Mix and
Monthly Rent:
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1 BR |
2 BR |
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|
|
|
|
VLI (50% AMI) |
60 @ $785 |
|
|
Unrestricted |
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1 Mgr. Unit |
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|
|
|
Other Amenities: Community room, manager’s office and laundry facilities
Estimated Project Cost
($1,882,653 for land and
$8,696,286 for improvements): $10,571,286
Cost per Unit: $173,300
Anticipated City Subsidy
at Permanent Loan (Includes
City loan to ROEM for land): $3,550,514
City Subsidy per Unit: $59,175
Leverage Per Subsidized Unit: 1.93 to 1
Shiraz Senior Housing, L. P.
Construction/Permanent Loan:
Estimated Sources of Funds (Construction)
Lender/Investor Repayment Type Amount Status*
Tax-Exempt Bonds Interest Payment $4,080,000 C
City of San José Loan Interest Accrued $2,012,347 P
SunAmerica Equity $1,532,477 C
Total $7,624,824
Lender/Investor Repayment Type Amount Status*
Tax-Exempt Bonds Amortizing $4,080,000 C
City of San José Loan Residual Receipts $1,667,861 P
SunAmerica Equity $2,844,248 C
Total $8,592,109
Construction/Permanent Loan During Construction Phase
Loan Amount: Up to $2,012,347
Term: 18 months
Interest Rate: 4%,
simple interest
Security: Recorded Deed of Trust
on Leasehold Interest
Repayment: City
Permanent Loan (includes Accrued Interest) and tax-credit pay-in
Loan to Value: Less than
100% at construction completion
Recourse: The
loan will be recourse
Subordination: The
City’s Deed of Trust will be subordinated to the Bond Deed of Trust and Key
Bank’s Deed of Trust
Affordability Restrictions: 55-year
Affordability Restrictions for 60 of the units will be recorded on the
leasehold interest and may be subordinated as permitted by State law.
Conditions:
1. At the time of closing of the City’s loan for this project, no default is present under any loan documents executed by the following entities: Shiraz Senior Housing, L. P. (Borrower) or any affiliate of the Borrower, ROEM Development Corporation, or any of its affiliates; the Foundation for Affordable Housing II, or any of its affiliates.
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* Status: C = Committed, P = Proposed
2. Satisfaction of all pre-funding terms and conditions as per the City’s executed Construction/Permanent loan agreement between the City and Developer, or its affiliates.
3. Project cost savings (the difference between the budgeted project cost as reported in the final Project Summary approved by the Housing Department, and the final costs incurred, as evidenced by a CTCAC basis audit and cost certification) will be distributed as follows: 100% shall be applied first to reduce any outstanding interest on the City loan, then any remaining amount to principal on the City loan.
4.
All
refundable deposits and fees shall be first applied to reduce outstanding
interest on the City loan, then any remaining amount to principal on the City
loan.
5.
Any surplus
funding from tax credit equity or permanent loan financing shall be applied
first to reduce any outstanding interest on the City loan, then any remaining
amount to principal on the City loan.
6.
Any changes
to City loan terms and conditions requested by lenders or tax credit investors
are subject to the review and approval of the Housing Department.
Construction/Permanent Loan During
Permanent Phase
Loan Amount: $1,667,861
Term: 30 years
Interest Rate and Repayment: 4% simple interest
Repayment from 40% of 70% of the
Project’s Residual Receipts (net cash flow less permitted expenses). See Condition #7 below.
Security: Recorded
Deed of Trust on Leasehold Interest
Loan to Value: Less than 100%
Recourse: Loan
shall be non-recourse
Subordination: The City’s Deed of Trust will
be subordinate to the Bond Deed of Trust
Affordability Restrictions: 55-year Affordability
Restrictions for 60 units will be recorded on the leasehold interest and may be
subordinated as permitted by State law.
Conditions:
1. At the time of closing of the City’s loan for this project, no default is present under any loan documents executed by the following entities: Shiraz Senior Housing, L. P. (Borrower) or any affiliate of the Borrower, ROEM Development Corporation, or any of its affiliates; the Foundation for Affordable Housing II, or any of its affiliates.
2. Satisfaction of all pre-funding terms and conditions as per the City’s executed Construction/Permanent loan agreement between the City and Developer, or its affiliates.
3. Project cost savings (the difference between the budgeted project cost as reported in the final Project Summary approved by the Housing Department, and the final costs incurred, as evidenced by a CTCAC basis audit and cost certification) will be distributed as follows: 100% shall be applied first to reduce any outstanding interest on the City loan, then any remaining amount to principal on the City loan.
4.
All
refundable deposits and fees shall be first applied to reduce outstanding
interest on the City loan, then any remaining amount to principal on the City
loan.
5.
Any surplus
funding from tax credit equity or permanent loan financing shall be applied
first to reduce any outstanding interest on the City loan, then any remaining
amount to principal on the City loan.
6.
At a
minimum, the project must continue to meet its proforma income and expense cash
flow projections and timeline, as presented in the final project proforma
approved by the Housing Department staff.
7.
The project
will be allowed a Partnership Management Fee in an amount and term that is
acceptable to the Housing Department as a permitted expense for the purposes of
calculating net cash flow.
8.
Any changes
to the City loan terms and conditions requested by lenders or tax credit
investors are subject to the review and approval of the Housing Department.
ROEM Development Corporation
Construction/Permanent Loan Terms:
Loan Amount: Up to $1,882,653
Term: 32
years
Interest Rate: 4%, simple interest
Security: Recorded
First Deed of Trust on Fee Interest
Repayment: Payment deferred during the
project’s construction phase, Interest Accrued, payment from 60% of 70% of
Project’s Residual Receipts thereafter
Loan to Value Less than 100% at construction
completion
Recourse: The
loan shall be non-recourse
Subordination: The City’s Deed of Trust on the
fee interest will not be subordinated
Affordability Restrictions: 55-year Affordability
Restrictions for 60 units were recorded on the fee title to the property at the
time of acquisition and may be subordinated as permitted by State law.
Conditions:
1. At the time of closing the City’s loan
for this project, no default is present under any loan documents executed by
the following entities: ROEM Development Corporation (Borrower) or any of its
affiliates.
2. Satisfaction of all pre-funding terms and
conditions as per the City’s executed Permanent loan agreement between the City
and Borrower or its affiliates.
Planning Issues
GP Designation: High Density Residential (25-40 DU/AC)
PD Rezoning Status: Approved May 15, 2001
PD Permit Status Pending
Building Permits: Pending
Relocation Needed: Not
applicable.
Toxic Issues: A Phase I was completed by Purcell, Rhoades & Associates on April 25, 2001. The consultant observed isolated oil and grease stains on the concrete slab, a hazardous waste locker that did not contain any chemical materials, a chemical locker that contained retail size containers of fuel and solvent cleaners; a 50-gallon drum that was labeled as hydraulic fluid; and smaller drums labeled as oil and grease. There was no indication of a valve or grate at the latter location that would suggest a buried tank. There was no indication of asbestos containing materials present within the warehouse. No further action is recommended for this portion of the site. The use of pesticides and/or herbicides at the site area was common for the region and there is no indication that the site would have any greater potential for contamination from their use than at other areas. The orchard use of the site ceased at least 40 years ago. There is a low potential for significant impact from pesticides and/or herbicides at this site and no further action is recommended. There is the possibility of asbestos containing materials being present in the existing house. Demolition contractors should be informed of the possibility of the presence of asbestos containing materials and a certified asbestos inspector should review, sample and test, as necessary to determine what level, if any, mitigation is required for proper demolition and disposal of building materials at this site. No further studies were recommended.
Estimated Project Development Timeline
October 16, 2001 Anticipated City Council Approval of Business Terms for the Construction/Permanent Loan
October 24, 2001 Anticipated Issuance of Bonds and Loan Closing
November 2001 Anticipated Start of Construction
November 2002 Anticipated Completion of Construction