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HomeMy WebLinkAbout07/19/2005, PH1 - HOUSING AUTHORITY REQUEST FOR CONDUIT FINANCING I council �"""D"` 7-19-05 a out U G ue P CITY OF SAN LUIS O B I S P O FROM: Bill Statler, Director of Finance &Information Technology SUBJECT: HOUSING AUTHORITY REQUEST FOR CONDUIT FINANCING CAO RECOMMENDATION Adopt a resolution allowing the Housing Authority to reissue tax-exempt bonds to assist in financing their-Del Rio Terrace senior apartment project. DISCUSSION Overview Due to minor changes in loan start and related maturity dates; technical requirements in federal rules for tax-exempt bonds require the City to approve the reissuance of bonds by the Housing Authority to assist in financing their Del Rio Terrace senior apartment project, which the Council previously approved in May 2003. Background On May 6, 2003, the Council approved Resolution No. 9450 allowing the Housing Authority to issue bonds up to $4 million to assist in financing their Del Rio Terrace senior apartment project at 2005 Johnson Avenue. The project includes forty affordable one-bedroom units for seniors as well as one manager's unit in an existing historic single-family residence on the site, which will be rehabilitated as part of the project. Even though there is no financial participation (or liability, direct or indirect) by the City in this project, Council approval of the borrowing was required under federal regulations for tax-exempt bond financing. As set forth in Attachment 1, the Housing Authority (via the Finn of Quint & Thimmig, their bond counsel) is requesting that the City approve "reissuance" of these bonds. Due to unforeseen difficulties, including an unusual amount of rainfall during construction.and the lack of the availability of certain subcontractors on a timely basis, construction of the project is going to take longer than,originally projected. For this reason, the lender (First Bank of San Luis Obispo) has agreed to extend certain dates under the loan agreement to allow for additional time to complete the project. With this change, there will be a minor extension in the original date to begin amortizing the loan, from May 1, 2005 to February 1, 2006; and a corresponding minor change in the loan maturity date from October 1, 2023 to February 1, 2026. Under federal rules, changing the loan dates is technically a re-issuance of the bonds by the Housing Authority, which requires Council approval. Housing Authority Request for Conduit Financing Page 2 City's Role in this Process Why are we involved? Under federal laws allowing for the issuance of tax-exempt housing bonds, an elected legislative body must approve these types of bonds (the "applicable elected representative"). For the Housing Authority, this means the City of San Luis Obispo. As discussed above, the City has already approved allowing the Housing Authority to issue these bonds, but due to minor changes in the loan dates, federal rules for tax-exempt financing require "reissyance" of these bonds by the Housing Authority; which in turn requires Council re- approval as well. The City's approval of the attached resolution does not immediately result in the reissuance of the bonds; this will be subject to subsequent approval of formal bond documents by the Housing Authority. However, the City's approval is required before this next step can take place. City Planning Approvals The project has received all of its discretionary approvals from the City: 1. The Council approved a density bonus for the project on January 7, 2003. 2. The Architectural Review Commission (ARC) approved the project on February 3, 2003. Normally, thi's would have been the final discretionary approval for this project; however, the ARC's approval was appealed to the Council. On March 18, 2003, the Council denied the appeal, completing the review process for this project. In summary, the project complies with all zoning and land use requirements. Moreover, it will help achieve General Plan housing goals by providing affordable housing for low-income seniors. City's Conduit Financing Policy While the Council is not obligated to approve this request, it would be consistent with General Plan housing policies and with past City actions. There is no City liability in allowing the Housing Authority to reissue these bonds: the City simply serves as the "conduit" for this financing. Under the City's debt financing and management policies (Attachment 2), consideration of a request for conduit financing is generally a two-step process: 1. First asking the Council if they are interested in considering the request, and establishing the ground rules for evaluating it. 2. And then returning with the results of this evaluation, and recommending approval of appropriate financing documents if warranted. This two-step approach ensures that the issues are clear for both the City and applicant, and that key policy questions are answered. Housing Authority Request for Conduit Financing Page 3 However, given the Council's prior approval of this financing in June 2003, along with the close and ongoing working relationship that the City has with the Housing Authority, and the project's benefits in meeting the City's adopted housing goals, we believe a "one-step" process will adequately address .the City's criteria for assisting with conduit financings, summarized as follows: 1. The City's bond counsel will review the terms of the financing, and render an opinion that there will be no liability to the City in issuing the bonds on behalf of the applicant (or-in this case, allowing the applicant—the Housing Authority—to issue bonds on their own behalf). 2. There is a clearly articulated public purpose in providing the conduit financing. 3. The applicant is capable of achieving this public purpose. The City's bond counsel.(Jones Hall) opinion providing assurance that there will be no liability to the City in allowing the Housing Authority to issue these bonds is provided in Attachment 3. . As discussed above, we believe there is a clearly articulated public purpose in providing the requested conduit financing to the Housing Authority, and that it is capable of achieving this public purpose. City's Past Experience with Conduit.Housing Bonds The City has approved five "conduit" housing bondissues in the past on behalf of the Housing Authority: 1. 1985. 168-unit apartment development on Southwood.Drive (refinanced in 1993). 2. 1998. 30-unit development (all "affordable" for seniors and persons with disabilities) on Brizzolara Street.. 3. 1999. This authorization would have allowed the Housing Authority to loan funds to the De Vaul Ranch Company to assist in financing 26 affordable units as part of a 122-unit apartment development by the De Vaul Ranch Company. However, another form of financing was used for this purpose, and as such, these bonds have not been issued (and will not be issued at any point in the future). 4. 2002. 19-unit seniors apartment development at 433 Pacific Street (Pacific and Carmel). This project was completed in 2003. 5. 2003. 41-unit senor apartment development at 2005 Johnson Avenue (Del Rio Terrace. Apartments). These have not yet been sold, and the purpose this request is to re-authorize their issuance. There have been no financial difficulties with any of the bond issued by the Housing Authority. (-3 i Housing Authority Request for Conduit Financing _ Page 4 CONCURRENCES The Community Development Department concurs with this request. FISCAL IMPACT There are no adverse fiscal impacts associated with"this financing. As noted above_, the City has no liability—directly or indirectly—for this financing. The cost of the Jones Hall opinion (time and materials, not to exceed$1,000) will be paid from the bond proceeds. ALTERNATIVES 1. Do not approve the requested financing, Given the clear relationship between the purpose of this financing and the City's adopted housing goals, this option is not recommended. 2. Defer consideration of the request.. Due to the time requirements for this financing, this option is not recommended. ATTACHMENTS 1. Request from the.Housing Authority for conduit financing 2. City's conduit financing policy (excerpt from the 2005-07 Financial Plan) 3. Opinion from the City's bond counsel on our liability for this project 4. Resolution allowing the Housing Authority to reissue tax-exempt bonds to assist.in financing their Del Rio Terrace senior apartments project H:Housing Authority Conduit Financing Request/Del Rio Terrace Apartments Reissuance/Agenda Report.7-19-05 �r Attachment 1 One Embarcadero Center,Suite 2420 Quint & San Francisco,CA 94111-3737 Telephone:415/765-1550 The o Telecopier:415/765-1555 iMM11,LP '9 bqu;nt@q>lip.co Attorneys at Law Fthbnmig®9tllp.com July 6,2005 VIA EMAIL William Statler, Director of Finance City of San Luis Obispo 990 Palm Street San Luis Obispo,California 93401 Email:bstatler@slocity.org Re: Public hearing and City Council.Approval of Reissuance of Loan by the Housing Authority of the City of San Luis Obispo for Del Rio Terrace Apartments Dear Bill: Accompanying this letter is a draft of a Resolution for consideration by the City Council of the City of San Luis Obispo at it's July 19th City Council meeting, following the conduct by the City Council of a public hearing regarding the financing for the Del Rio Terrace Apartments (the "Project'): Quint &Thimmig LLP is acting as bond counsel to the Housing Authority of the City of San Luis Obispo (the "Authority")in connection with this matter and I am writing this letter on behalf of the Authority. The 2003 Loan On October 31, 2003, the Authority and First Bank of San Luis Obispo (the "Bank") entered into a Loan Agreement, dated as of October 1, 2003 (the "Loan Agreement') whereby the Bank agreed to make a loan (the"Loan") to the Authority in the amount of up to$4,000,000. At the same time, the Authority entered into a Loan Agreement with Johnson DRT Associates, a California limited partnership (the "Borrower") whereby the Authority agreed to loan the proceeds of the Loan to the Borrower to enable the Borrower to finance a 41 unit multifamily residential rental facility located at 2005 Johnson Avenue in the City (the `-`Project'). In order for the interest on the Loan paid to the Bank to be tax-exempt., the Internal Revenue Code of 1986, as amended (the "Code") required that an elected representative approve the incurrence of the Loan by the Authority following a noticed public hearing.. The City Council held the public hearing for the Loan on May 6, 2003 and, on that date, adopted a resolution approving the incurrence by the Authority of the loan. 19051:J8253 Attachment 1 William Statler, Director of Finance City of San Luis Obispo July 6,2005 Page 2 Construction Delays The Loan Agreement contemplated that the construction of the Project would be completed by April 30, 2005, and on May 1, 2005 a portion of the Loan would be due and payable and the remaining portion of the Loan would, from and'after May 1, 2005,bear interest at a fixed rate, principal would begin to amortize and the Loan would mature on October 1, 2023. Due to unforeseen difficulties with the Project Architect, more than the usual amount of rain occurring during construction and the lack of the availability of certain subcontractors on a timely basis, construction of the Project is now not expected to be completed until the end of the year. The Reissuance of the Loan. In light of the foregoing, the Bank has agreed to extend certain dates under the Loan Agreement so as to allow for the additional time to complete the Project. In particular, (i) the "May 1, 2005"date for the Loan to begin amortizing will now be stated in the Loan Agreement as "February 1, 2006 or such earlier date as the Bank may allow,"recognizing that the Project may be completed prior to the new deadline, and (ii)the maturity date of the Loan will be changed from October.l, 2023 to February 1, 2026. The changes to the Loan terms described above will cause a"reissuance" of the Loan under the provisions of the Code, due to the extension of the maturity date of the Loan. In order for the interest on the Loan to remain tax-exempt, the public approval process completed by the City on May 6; 2003 now needs to be repeated with respect to the "reissued" Loan. In other words, the new terms of the Loan have to be approved by an elected body, the City Council, following the holding of a public hearing on the matter. I have prepared (i) a form of notice of the required new public hearing, which was forwarded to you last Thursday; and (ii) a draft of a resolution approving the r6issuance of the Loan for adoption by the City Council;.a copy of which is included with this letter. As we have discussed, you will have the City Clerk publish the notice once in the local paper, with publication to occur as soon as possible, and place the public hearing and consideration of adoption of the resolution on the July 19th City Council agenda. Two proofs of publication of the notice should be requested by the City Clerk, one for the City's files and one to be sent to me. Once the notice has been published and the public hearing and consideration of the resolution has been placed on the City Council agenda, all that needs to be done by the City Council to complete the public approval requirements of the Code with respect to the new Loan terms is for the City Council to open the public hearing, take testimony from anyone desiring to be heard on the matter,close the public hearing, and, if a quorum is present, adopt(by at least a simple majority of those voting) the resolution. The City of San Luis Obispo has and will continue to have no legal, financial or moral obligation or responsibility with respect to the Loan or any other aspect of the financing. The Loan documents expressly provide that the Loan is payable solely from amounts paid by the owner of the housing facilities being financed or otherwise Y - Attachment 1 William Statler,Director of Finance ,City of San Luis Obispo July 6,2005 Page 3 realized upon a foreclosure of a deed of trust on the property being financed with the proceeds of the Loan. Please let me know if you have any questions regarding the foregoing. Very truly yours,/ �t� 8'• �21t IdlW Paul J.Thimmig PJT:cra Enclosures ca (via email only, together with notice of public hearing and resolution) Charles Adams George Moylan Carol Hatley POLICIES AND • BUDGET AND FISCAL POLICIES Aftechment 2-- exceed exceed 1%of the sales price of the property; required to provide the. City with a and total property taxes, special assessments disclosure Ian. and special taxes payments collected on the tax roll should generally not exceed 21/o. F. Conduit Financings 10. Benefit Apportionment Assessments and 1. The City will consider requests for conduit special taxes will be apportioned according financing on a case-by-case basis using the to a formula that is clear, understandable, following criteria: equitable and reasonably related to the benefit received by—or burden attributed a. The City's bond counsel will review the touch parcel with respect to its financed terms of the financing, and render an improvement. Any annual escalation factor opinion that there will be no liability to should generally not exceed.2%. the City in issuing the bonds on behalf of the applicant. 11. Special Tax District Administration. In the b. There is a clearly articulated public case of Mello-Roos or similar special tax purpose in providing the conduit districts, the total maximum annual tax financing. should not exceed 110% of annual debt service. The rate and method of c. The applicant is capable of achieving apportionment should include a back-up tax this public purpose. in the event of significant changes from the initial development plan, and should include '2. This means that the review of requests for procedures for prepayments. conduit financing will generally be a two- step process`. 12. Foreclosure Covenants. In managing. administrative costs, the City will establish a. Fust asking the Council if they are minimum delinquency amounts per owner, interested in considering the request, and for the district as a whole; on a case-by- and establishing the ground rules for case basis before initiating foreclosure evaluating it proceedings. b. And then returning_ with the results of this evaluation, and recomniending 13. Disclosure to Bondholders. In general, .approval of appropriate financing each property owner who accounts for more documents if wan-anted. than 10% of the annual debt service or bonded indebtedness must provide ongoing This two-step approach ensures that the issues disclosure information annually as described under SEC Rule 15(c)-12. are clear for both the City and applicant, and that key policy questions are answered. 14. Disclosure to Prospective Purchasers. Full 3. The workscope necessary to address these disclosure about outstanding balances and issues will vary from request to request, and annual payments should be made by the will have to be. determined on a case-by- seller to prospective buyers at the time that case basis. Additionally, the City should the buyer bids on the property. It should not generally be fully reimbursed for our costs be deferred to after the buyer has made the in evaluating the request; however; this decision to purchase. When appropriate, should also be determined on a case-by-case applicants or property owners may be basis. B-21 —� 07/07/05 15:57 FAX 415 391 5791 JONES HALL 19 002 Attachment 3 JONES HALL A P)WCirx U01PAn new C0RP-C=ATI0W ATTOR"Y6 AT I.AW CRARLE2!A A DAM9 ' RTEPDEN R.0 AiALEGGIO - 650CALIFORNIA6 UZET' TNOIV.y9 A.DOW NCY ISianTEENTR FLOOR DAVID T.FAMA - SAW FRANCMCG.CA 04100 RCCTT R.FERGU6 Iv - A.YDREW Q RALI.,JR. CDURTNEY L JOPER TELEPHONE wn.ilnM J.XnDI (41a)a91•6780 CHRISTOPHER IL LYNCH FACSIMILE w M G.MADIHON 4416)397.6�8J- STZPHEFNEN G.MF.I.IXIAN DAVID J.DRTER DA V ID A.W ALTOS KENNETH L JONES,RETIRED JULIE A.WUNDCRLICH � , HOMEPAGE:hgdlwww.)m W.c July 7, 2005 William C. Statler Director of Finance City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Re: City Council Approval of Housing Project for San Luis Obispo Non-Profit Housing Corporation - DelRio Terrace Senior Apartment Project_____ Dear Bill: You have asked us to review the request made to the City Council on behalf of the Housing Authority of the City of San Luis Obispo (the "Authority") to adopt a resolution which approves the financing of a 41-unit residential rental housing project for seniors to be located at to be located at 2005 Johnson Avenue in the City (the "Project"). The Project will be constructed by Johnson DRT Associates, a. California limited partnership, of which the San Luis Obispo Non-Profit Housing Corporation is the sole general partner. We have reviewed the proposed Resolution and have had discussions with Mr. Paul Thimmig of the law firm of Quint & Thimmig LLP, which will act as bond counsel to the Authority in connection with this financing. Based on our review, we can advise you that (1) the approval by the City Council is required under applicable federal tax law in order for the Project to be financed on a tax-exempt basis, and (2) the adoption of the. Resolution by the City Council will not cause the City to incur any financial obligations with respect to the financing of the Project. Indeed, the City will not be a party to any of the legal documents relating to the financing. Based on the financing structure as it has been described to us and as it is described in the proposed' Resolution, we concur with the statement made by Mr. Thimmig (in his letter to you of July 6, 2005) that the City will have no legal, financial or moral obligation or responsibility withrespect to the financing of the Project. Please let me know if we can be of any further help in this matter. urs, Charle . Adams - Attachment 4 RESOLUTION NO. (2005 SERIES) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING THE REISSUANCE OF A LOAN OF THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR THE PURPOSE OF PROVIDING FINANCING FOR A RESIDENTIAL RENTAL HOUSING FACILITY SPONSORED BY THE SAN LUIS OBISPO NON-PROFIT HOUSING CORPORATION—DEL RIO TERRACE APARTMENTS WHEREAS, the Housing Authority of the City of San Luis Obispo (the "Authority") is authorized by Chapter 1 of Part 2 of Division 24 of the Health and Safety Code of the State of California, as amended (the "Law"), to make bonds to finance housing developments as specified in the Law;and WHEREAS, the Authority has entered into a Loan Agreement, dated as of October 1, 2003 (the "Loan Agreement") with the First.Bank of San Luis Obispo (the "Bank"), pursuant to which the Bank agreed to make a loan to the Authority (the "Loan") in an amount of up to $4,000,000, and on October 31, 2003 (the "Date of Issuance") the Bank made the first advance of $54,000 of the principal of the Loan to the Authority; and W IEREAS, the Authority has entered into a Loan Agreement, dated as of October; 1, 2003, with Johnson DRT Associates, a California limited partnership(the `Borrower") of which the San Luis Obispo Non-Profit Housing Corporation, a California nonprofit public benefit corporation is the sole general partner, whereby the Authority has agreed to loan the proceeds of the Loan to the Borrower to enable the Borrower to finance the acquisition and construction of a 41 unit residential rental housing facility for seniors to be located at 2005 Johnson Avenue in the City of San Luis Obispo(the"Project"); and WHEREAS, the Loan is considered to be a "qualified exempt facility bond" under Section 142(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and Section 147(f) of the Code requires that the "applicable elected representative" with respect to the Authority approve the incurrence of the Loan by the Authority following the holding of a public hearing with respect thereto; and WHEREAS, the Authority determined that the Council of the City was the "applicable elected representative" to approve the incurrence of the Loan by the Authority and on May 6, 2003, the Council held a public hearing regarding the Loan and adopted a Resolution approving the incurrence of the Loan by the Authority for the purpose of providing financing to the Borrower for the Project; and WHEREAS, the City is not a part to any of the agreements or other documents relating to the financing of the Project, and neither the financing of the Project nor the Loan will impose any legal, financial or moral obligation upon the City with respect to the financing of the Project; and WHEREAS, the Loan Agreement contemplated that the Project would be fully constructed by April 30, 2005, and, due to construction delays it now appears that the construction of the Project will not be completed until December 31, 2005;and WHEREAS, the Bank has agreed to allow modifications to be made to the Loan Agreement to extend the construction period of the Loan, and the maturity date of the Loan to accommodate the additional time necessary to construct the Project, but such modifications will, under the Code, cause a"reissuance"of the Loan; and Resolution No. (2005 Series) " Attachment 4 Page 5 WHEREAS, in order to maintain the tax-exempt status of the interest on the Loan paid by the Authority to the Bank, prior to the modification of the Loan Agreement, the Authority needs the Council to approve the reissuance of the Loan following a public hearing on the matter; and WHEREAS; notice of said public hearing has been duly given as required by the Code, and the Council has heretofore held such public hearing at which all interested persons were given an opportunity to be heard on all matters relative to the financing of the Project and the Authority's reissuance of the Loan and the Authority's loan of the proceeds thereof to the Borrower; and WHEREAS, it is consistent with the General Plan, in the public interest and for the public benefit that theCouncil approve the reissuance of the Loan for the aforesaid purposes. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo, as follows: Section 1. The Council of the City of San Luis Obispo hereby approves the reissuance of the Loan by the Authority under the Code in the amount of up to four million dollars ($4,000,000), and the use of the proceeds of the reissued Loan to make a loan to the Borrower to enable the Borrower to finance the acquisition and construction of the Project. Section 2. This Resolution shall take effect immediately upon its adoption. On motion of seconded by , and on the following vote: AYES: NOES:. ABSENT: the foregoing Resolution was passed and adopted on July 19,2005. Mayor Dave Romero ATTEST: Audrey Hooper;City Clerk APPROVED AS TO FORM: v Jonathan-f. Lowell, City Attorney