To: HONORABLE MAYOR AND From: Scott P. Johnson

CITY COUNCIL

Subject: CITY OF SAN JOSE MULTI- Date: October 22, 2003

FAMILY HOUSING REVENUE

BONDS (ALMADEN FAMILY

APARTMENTS) SERIES 2003D

Council District: 7

SNI: N/A

SUPPLEMENTAL

REASON FOR SUPPLEMENTAL REPORT

To transmit preliminary Official Statement and provide updated status on financing.

DOCUMENTS RELATED TO THE FINANCING

Attached is a copy of the preliminary Official Statement for the Almaden Family Apartments Variable Rate Demand Multifamily Housing Revenue Bonds, Series 2003D (the “Bonds”) as discussed in the October 6, 2003 staff report.

If any council member has any personal knowledge that any of the material information in the Official Statement is false or misleading, the council member must raise these issues prior to approval of the distribution of the document. City staff, bond counsel, and the financial advisor will be available at the City Council meeting on October 28, 2003 to address any questions, issues and/or concerns.

Additionally, the following documents are on file in the City Clerk’s Office:

Trust Indenture

Financing Agreement

Regulatory Agreement and Declaration of Restrictive Covenants

Assignment and Intercreditor Agreement

Bond Purchase Agreement

Mortgage Note

LIHTC Agreement

Forward Bond Purchase Agreement

Subordinate Trust Indenture

Subordinate Loan Agreement

These documents are described in the staff report and are presented for City Council approval in substantially final form. There will be some changes to the documents because of the change in structure described below, but they are expected to be very minor.

UPDATED STATUS OF FINANCING

On October 20, 2003, Almaden Family Housing Partners, L.P., a California limited partnership (the “Borrower”) informed City staff that Citibank, the construction phase credit enhancement provider requires the issuance of the project building permit prior to releasing the Bond proceeds for the above-referenced project. Consequently, there is a need to escrow the Bond proceeds at the date of closing (on or about November 7, 2003). An escrow closing is not the City’s usual method of issuing housing bonds; however, without the escrow of bond proceeds, the City would have to return a very large CDLAC allocation ($31.3 million) as well as lose 225 affordable housing units.

At the time of escrow closing, Citibank will issue a letter of credit in favor of Fannie Mae, which in turn will issue a credit facility to credit-enhance the Bonds. The Bond proceeds will be held and not disbursed by the Trustee until satisfaction of the Escrow Break Conditions (discussed below). While held by the Trustee, the Bond proceeds will be invested in a guaranteed investment agreement to help offset any negative interest carry incurred by the Borrower. Other funds, including the Developer’s own funds as well as a bridge loan by Citibank, will be used for the Project during the escrow period.

The Escrow Break Conditions imposed by Citibank are as follows:

Satisfactory review and approval of building permits

Satisfactory review and approval of final executed construction contract

Satisfactory review and approval of final plans and specifications

Satisfactory construction cost review

100% payment and performance bond provided by the Borrower

Review and approval of Amended and Restated Partnership Agreement of Borrower

Evidence that at least $17 million have been invested in, or loaned to, the Project by Borrower or its affiliates.

It is anticipated that these conditions will be met in April or May of 2004. The actual date will be specified in the Bond documents.

COORDINATION

This report has been prepared by the Finance Department in coordination with the Housing Department and the City Attorney’s Office.

SCOTT P. JOHNSON

Director, Finance Department

Attachment