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05/19/2009, B3 - AFFORDABLE HOUSING FUND AWARD FOR THE WINEMAN HOTEL REHABILITATION PROJECT (849 HIGUERA).
counat ,q j acEnoa Report Im.N.b� 83 CITY OF SAN LU I S O B I S P O FROM: John Mandeville, Community Development Director �{ Prepared By: Michael Codron, Housing Programs Manager SUBJECT: AFFORDABLE HOUSING FUND AWARD FOR THE WINEMAN HOTEL REHABILITATION PROJECT (849 Higuera). RECOMMENDATION Adopt a resolution approving an award of$1 million from the Affordable Housing Fund (AHF) for the Wineman Hotel Rehabilitation Project in exchange for deed restrictions that will guarantee the affordability of 23 low-income units for a term of 34 years. REPORT-IN-BRIEF The Wineman Hotel Rehabilitation Project has been underway since mid-February, 2009, starting with the building's seismic retrofit. The Community Development Department recently approved architectural plans for the building's facade restoration and the interior remodel of the commercial and residential portions of the building interior. The building includes over 8,500 square feet of commercial floor area and 48 residential "efficiency" apartments of approximately 230 square feet each. 23 of the units are proposed for low-income affordable housing, 23 units would be rented at the market rate(which is expected to be affordable to moderate income individuals), and two units would be retained for the owner and on-site manager. The project is eligible for affordable housing incentives because of the proposed affordability. The leaseholder, Wineman Hotel LLC, has requested $1 million in grant assistance and a loan of $825,000 from the San Luis Obispo County Housing Trust Fund to complete the project. Staff is recommending approval of the proposed AHF grant subject to conditions of approval that insure the ongoing use of the Wineman Hotel for the purpose of affordable housing. DISCUSSION Brief History of the Wineman Hotel The building that would become the Wineman Hotel was originally constructed in 1871 by the Goldtree brothers. It was the first brick building located east of San Luis Obispo Creek, across from the Mission (Attachment 1, Vicinity Map). The store and warehouse building was purchased by the Wineman family in 1902, and in 1929, construction permits were issued for its remaking into a hotel. On April 28, 1930, the City issued a permit for the marquee sign,which is currently being restored, and the doors of the new hotel opened on May 26, 1930. That day, the Daily Telegram newspaper call the Wineman "the last word in modem hostelries." (33 - 1 Wineman Hotel(849 Higuera) . Page 2 Between 1959 and 1990, the lease for the hotel was held by Corene and Willam Darney, who lived at the hotel and rented many of the rooms to long-term residents. The upper floors of the building have been vacant since that time. Today the building is undergoing seismic strengthening. However, many of the original hotel features remain intact or in safe storage, including the elevator, phone switchboard, custom furniture and millwork in the rooms, and exterior adornments such as decorative ironwork and the original marquee sign. Situation Construction began on the seismic strengthening portion of the Wineman rehabilitation project in mid-February, 2009. Having recently entered into a lease agreement with the property owners, Wineman Hotel LLC began construction immediately and continues to make progress on the rehabilitation project in an effort to open the buildings' doors as soon as possible. The project involves much more than seismic strengthening, as the leaseholder is also working towards a complete historic rehabilitation of the facade and an interior renovation of the building. In order to complete the project, Wineman Hotel LLC has submitted a request for a financial award from the City's AHF. Residential Project Description On April 20, 2009, the Community Development Department approved architectural plans for the full scope of the rehabilitation project (Attachment 2, Project Plans). The Wineman Hotel will be used as a mixed-use project, with commercial uses on the ground floor and a total of 48 units on the second and third floors. Each unit will have its own kitchenette and at least a three- quarter bath. The project architects are Craig R. Smith and Peter Danciart of CRSA Architecture. The approved plans include a complete facade restoration to bring the appearance of the building back to the time that it was originally converted to a hotel: the storefronts will be restored with transom windows, decorative ironwork will be replaced on the building exterior, all of the old wood windows in the units will be repaired, an exterior fire escape will be installed, and the old Wineman Hotel marquee sign will be restored and replaced. The completed project will restore one of Downtown's most important historic buildings, allowing for residential occupancy that will contribute to economic vitality in the Downtown Core area. Project Management/Deed Restrictions The Wineman Hotel LLC has met with the Housing Authority of the City of San Luis Obispo (HASLO) to discuss management of the building. Although no agreement has been reached at this time, management of the project by HASLO would take advantage of the expertise they have developed managing the Anderson Hotel. Possible tenants for five to ten units may include clients of Transitions Mental Health Association and County of San Luis Obispo Adult Services. A total of 23 units in the building are proposed to be deed restricted for occupancy by low- income individuals, those making between 50% and 80% of median County income. The City's Affordable Housing Standards establish the current maximum monthly rent for a low-income � 3 -2- Wineman Hotel(849 Higuera) Page 3 studio of$743 per month. To qualify as low-income, an individual can have a maximum annual income of$39,650. The other 23 rental units in the project would be considered affordable to moderate income individuals, who have a maximum annual income of $59,450. Maximum monthly rent for a moderate income studio apartment is $1,032, however, the market rate for the units in the Wineman is expected to be between $800 and $900 per month. As a result, these market rate units would be considered affordable units in the City's Housing Element and would not be deed restricted. Project Costs and Funding Sources The total construction cost for the project is estimated to be $5.75 million, of which$3.1 million is allocated to the residential portion of the building, including the facade rehabilitation. The project pro-forma lists three sources of funds to cover the residential rehabilitation costs. These include a loan from the San Luis Obispo County Housing Trust Fund (HTF) in the amount of $825,000, developer equity in the amount of$1.275 million and an AHF award of$1 million from the City of San Luis Obispo. The remaining amount of the total project cost is attributed to. the commercial portion of the building, which would be funded by developer equity and a conventional loan. In addition to these funding sources, the Wineman Hotel LLC will be applying for historic rehabilitation tax credits and for property tax relief through the Mills Act program. Affordable Housing Incentives Requested Wineman Hotel LLC has contracted with Goodwin Consulting Group to prepare its application for affordable housing incentives. The original application was submitted to City staff on March 30, 2009 (Attachment 3). The proposal involved a request for affordable housing fund assistance of $2 million, with a $515,000 loan from HTF. After meeting with City staff, the applicants agreed to submit a revised pro-forma based on a lower City award of$1 million, and a larger HTF loan (Attachment 4). The revised parameters were accomplished with the following changes to pro-forma assumptions: 1. The estimated value of historic rehabilitation tax credits was incorporated. 2. A larger equity investment by Wineman Hotel LLC, from $577,300 to $1,273,500. 3. Higher revenue assumptions were made based on an affordability breakdown of 23 moderate income units and 23 low income units, as opposed to the original unit breakdown— 10 moderate income,26 low income, and 10 very-low income units. 4. The estimated rate of return for the residential portion of the project is reduced from 16.1% to 7.5%, but the rate of return for the total project remains reasonable at 10.5%,reduced from 12.6%. The revised pro-forma assumptions achieve a better balance of developer equity and City AHF assistance and are intended to still provide the Wineman Hotel LLC with the capital that it needs to complete the rehabilitation project. A better rate of return is also possible if the project submits a successful Mills Act application,which has not been completed at this time. 133 ,3 Wineman Hotel(849 Higuera) Page 4 Housing Trust Fund Component City staff have been working closely with the applicant and HTF staff on an award amount that provides a reasonable balance between developer incentive and affordability for City residents. In the recommended scenario, HTF would be providing the Wineman LLC with a loan in the amount of$825,000 at 6%for a cumulative term of 15 years. The loan has not approved by HTF, and there are still issues to resolve before any funding will occur. For instance, the master lease limits Wineman Hotel LLC's ability to use the building as loan collateral. Because of the uncertainty associated with HTF's portion of the funding picture for the overall project, a condition of approval is recommended that would make the City's award contingent on Wineman Building LLC receiving HTF approval for the loan. If the HTF loan approval was not forthcoming, the applicant would have the option of revising the project pro-forma to show how the HTF loan proceeds would be replaced so the project can be completed as proposed. Staff is assuming that lease revisions will be necessary to accomplish HTF loan approval. The following section discusses issues relating to the master lease in more detail. Conditions of Approval Relating to the Master Lease The master lease for the Wineman Hotel lists 21 property owners as the lessors (Attachment 5). The number of owners is one complication of the lease, which includes constraints that are not typical of a long-term master lease. Some of these constraints are listed below: 1. The lease allows for the property to be used to secure one loan for $2 million after completion of the seismic retrofit project, but the project pro-forma lists the HTF loan as a funding source needed to complete construction of the project. 2. The owners of the building are permitted to mortgage the property in a senior position to the Wineman Hotel LLC lease. If the property owners default on a loan secured by the property, the lease held by Wineman Hotel LLC could be wiped out. 3. There is one lease for the property that includes both the residential and commercial portions of the property. This complicates the lending process for HTF because they do not make loans for commercial projects. 4. For the Wineman Hotel LLC to be successful in obtaining a loan from the HTF, the owner's of the property will have to agree to an assignment of the lease in the event of a loan default. 5. The master lease, or a memorandum of lease, will need to be recorded against the property,requiring the owners' signatures to be acknowledged by a notary, which was not done for the original lease agreement. 63-� Wineman Hotel(849 Higuera) Page 5 6. The City's affordability agreement must be recorded against the property title, therefore, the property owners must sign the agreement or the lease must be revised to give the leaseholder the authority to encumber the property with the affordability requirement. As a result of the constraints contained in the lease, staff is recommending conditions of approval that must be met before any award from the AHF is distributed. Staff believes that Wineman Hotel LLC will be in a better position to renegotiate portions of the lease once a commitment of City funds has been made to the project. The conditions listed below will insure that no City funds are distributed until affordability agreements are recorded and it can be shown that total funding for the project is sufficient to complete construction and allow for building occupancy. 1. Prior to release of any portion of the AHF award, the owners of the property shall enter into long-term affordability agreements with the City for a term of 34 years (the length of the master lease), which shall be recorded against the title of the property. Alternatively, if the master lease is modified to give the leaseholder the right to encumber the property with affordability agreements, the Wineman Hotel LLC may enter into the required City affordability agreements to the approval of the City Manager and the City Attorney. 2. Prior to release of any portion of the AHF award, the Wineman Hotel LLC shall receive written approval from the San Luis Obispo County HTF for a loan in the amount of $825,000, per the project pro-forma. If the HTF does not approve the loan, the Wineman Hotel LLC shall submit a revised project pro-forma to the Community Development Director showing how this funding source will be replaced, along with written commitments obligating the new source of funds to the project._ 3. Prior to release of any portion of the AHF award, the Wineman Hotel LLC shall provide the Community Development Director with a complete summary of construction expenses made to date on the project and an estimate of the remaining construction costs that are necessary to complete the project and allow for building occupancy, consistent with approved project plans. If there are any gaps between the cost of completing the project and the funding available, the Wineman Hotel LLC shall submit shall submit a revised project pro-forma to the Community Development Director showing how the funding gaps will be closed, along with written commitments obligating the new source of funds to the project. Status of the Affordable Housing Fund and Award Criteria A status report on the AHF is attached (Attachment 6). The report indicates that if all proposed allocations are approved by the City Council, the fund will retain over$1.2 million to allocate to future affordable housing projects. Council Resolution No. 9263 (2001 Series) established the criteria that staff uses to guide its recommendations regarding AHF awards (Attachment 7). These standards include eligibility, need, suitability, timing, financial effectiveness and readiness. The proposed rehabilitation of the Wineman Hotel building is consistent with each of the standards for evaluation, as highlighted below. 53-5 Wineman Hotel(849 Hignera) Page 6 Eligibility: The project is eligible for AHF assistance because it will result in deed-restrictions for 23 low-income studio units for a term of 34 years. Need. There exists a substantial need for the proposed type of affordable housing in Downtown San Luis Obispo, which would provide Downtown employees with the ability to walk to work. In addition, the project helps the City achieve its Housing Construction Objectives, as listed in Table 5 of the Housing Element(Attachment 8). The proposed project is also supported by Housing Element (HE) policy that is specific to Downtown housing. For instance, the proposed project is consistent with the City's "no-net housing loss" policy for Downtown (HE Policy 3.6.5). HE Program 3.12.3 directs the City to "provide incentives to encourage additional housing in the Downtown Core, particularly in mixed-use development. Incentives may include flexible density, use, height, or parking provisions, fee reductions, and streamlined development review and permit processing." These policies are in place because of the recognized value of residential uses in the Downtown core, which provide a 24-hour presence improving both safety and economic vitality. Suitability: The project is particularly suited to the Downtown location because the project involves the restoration of a historic building that was most recently used for long-term residents. Timing: The timing of the award is critical because the funds will be used immediately to complete an on-going construction project. Financial Effectiveness: The proposed award of $1 million leverages substantial equity contributed by Wineman Hotel LLC for the purpose of rehabilitating the historic Wineman Hotel for residential and commercial use. Readiness: The project has all of its required City approvals and can be completed with the approval of the recommended Affordable Housing Fund Award. In addition to the criteria evaluated above, staff considers the following issues when recommending approval of Affordable Housing Fund awards: 1. What is the balance of the fund and how quickly can allocated AHF balances be restored for future projects? As shown in Attachment 6, the balance of the fund is currently $4.5 million, with an additional $800,000 committed to additional projects. All of the current requests for AHF assistance total $2.5 million and would add a total of 66 units to the City's affordable housing stock. If all of these projects are approved, the fund will have a remaining balance of$1.2 million. Staff expects that the balance of the AHF will be restored to current levels in four to five years, depending on when building permit activity increases. However, new projects may be funded during this time period. There are currently$500,000 of affordable housing in-lieu fees pending building permit issuance. 63- � Wineman Hotel(849 Hignera) Page 7 2. How does the current proposal compare to other requests for AHF assistance? The current proposal compares favorably to other proposals that meet the Council approved criteria for AHF awards. The project is unique because the units are 230 square foot "efficiency" apartments and the project involves the rehabilitation of a historic building Downtown. As a result, cost of construction is relatively high compared to other low-income apartment projects. 3. What is the cost per unit of the proposed AHF award, and how does this compare to costs for other units of the same type and affordability? The cost of the proposed award is $43,487 per low-income, efficiency unit. In comparison, the ROEM Development proposal to build 40 low-income apartments within the Broad Street Village project would cost $25,000 per unit for two- and three-bedroom units. The ROEM proposal would take advantage of affordable housing tax credits and other funding sources so that the City's share of the overall funding picture does not need to be so high. In the case of the Wineman Hotel rehabilitation, the City must participate at a higher cost per unit because there are fewer sources of funding available for the project and because of the expense associated with historic rehabilitation projects in general. FISCAL IMPACTS The recommended financial award of$1 million would be paid out of the Affordable Housing Fund, which consists of in-lieu fees collected under the City's Inclusionary Housing Ordinance. The fund may only be used for projects or purposes that create or support affordable housing within the City of San Luis Obispo. Based on prior expenditures and pending commitments, there will be a balance of$1.2 million remaining in the AHF after this award. The project will have no impact on the General Fund. ALTERNATIVES 1. Do not authorize an AHF award for the proposed project. This action is not recommended because affordable housing incentives will allow the City to significantly improve the affordability of the project. 2. Approve an AHF award for a different amount. The City Council can approve an award for a different amount than the recommendation. This is not recommended because the current recommendation is intended to reflect a balance between the cost of the award the benefit of the project in terms of affordability. 3. Continue consideration of the proposed award. The City Council can direct staff to return with additional information regarding the project so that a final decision on the award amount can be made. 83 -7 Wineman Hotel (849 Higuera) Page 8 ATTACHMENTS 1. Vicinity Map 2. Project Plans 3. Original Affordable Housing Incentive Request(based on a$2 million AHF award) 4. Revised Project Pro-Forma(based on a$1 million AHF award) 5. Master lease for the Wineman Hotel 6. Affordable Housing Fund Status Report 7. Council Resolution No. 9263 (2001 Series) 8. Housing Element Table 5 —Quantified Objectives 9. Draft Council Resolution G:\CD-PIAN\M CODRON\Housing\Win==\W ineman(CAR).doc 83 -9 i I11 " 1 l Attachment 2 z z =¢c z CC Ww o LU LL ��Zz or #=o LU CO wCapn LU ay W HW/ e ggz • d6 m � 0 Ea 1 M ^ �p .......a �)Ll N fA zW -�� cc Z ' m a ZLL i O Q w � I4 W �X0 3 - �Ii. 3w Ow o HE] a U Q 09 7 -1 W cc f z Cr 0 3 M M M a o [A pj Lu 2 Q >JJQ _J W J Go z tu W W NN Qt=A U , ! 1 63 -t) •.,,,.�• -�"c � ,3 m,a�'odaaoampre osvoer�•rnroon _: 6 d S 8 :J �— � �, ',,• NWGNIM 3H1 7n'oMavmm®or ia�reauu pit ` F 0 3 S Bid L'9 to! 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Y z j 2 � i � LU LU cc 0 cc 5 o : luZ I � o W W W 1 2 3 II z Fig gSgEix & �S _ f! 14WW�R'hj5.1a3H sol ia gls Mimi §CW1e � ba pa s a's jig 3 4 �§� 6 's $ 6 = a as s o00000a c 00000 c ooW W Wa0000a00000® 83 -c)-I Attachment 3 GCG GOODWIN CONSULTING GROUP WINEMAN BUILDING SAN LUIS OBISPO, CALIFORNIA AFFORDABLE HOUSING FUNDING APPLICATION CITY OF SAN LUIS OBISPO SAN Luis OBISPO COUNTY HOUSING TRUST FUND MARCH 309 2009 555 UNIVERSITY AVE, SUITE 280 - SACRAMENTO, CA 95825 PHONE: (916) 561-0890 - FAH: (916) 561-0891 Attachment Wineman Building San Luis Obispo, California Affordable Housing Funding Application Table of Contents EXECUTIVESUMMARY.....................................................................................I Ability to Complete the Project.....................................................................................i Abilityto Produce a Profit.............................................................................................i Ability to Protect the Asset..........................................................................................iii 1. APPLICANT INFORMATION..............................................................................1 2. PROJECT SUMMARY AND SITE DESCRIPTION.................................................2 ProjectSummary..........................................................................:.......:.....:.:..:....:.........2 SiteDescription...........:.....:.............................................................................................2 3. DEVELOPMENT PLAN......................................................................................4 SitePlan.......................................................................................................:........:..:..:..4 DesignFeatures...................................................;...........................................................4 Residential Affordability..........................................................:.....................:..:..:..... ..6 Commercial Business Plan............................................................................................7 4. BUDGET AND FINANCIAL FEASIBILITY.............................................:.............9 DevelopmentPro Forma.............................................................:..................................9 Sourcesand Uses of Funds..........................................................................................13 Proposed Uses of Requested Funds from the City and HTF.......................................13 Security/Collateral for the HTF Loan..........................................................................14 Consistency with City Criteria for Funding Award....................................:................14 5. SCHEDULE.,.............................:.......................................................................15 6. PROPERTY MANAGEMENT............................................................................16 EntityProviding Service.......................................................::.....................................16 Experienceof Entity....................................................................................................16 OngoingManagement Plan..........................................................................:...............16 APPENDICES Appendix A: Financial Analysis Appendix B: Building Elevations,Floor Plans,and Statistics Appendix C: Master Lease Appendix D: Preliminary Title Report Appendix E: Wineman Building LLC Operating Agreement 83-a3 Attachment 3 ExECuTwE SummARY The applicant, Wineman Building LLC, welcomes the opportunity to partner with the City of San Luis Obispo (City) and the San Luis Obispo County Housing Trust Fund(HTF) to complete the rehabilitation of the Wineman building and its conversion to viable affordable housing and commercial space. This is a joint application to the City and HTF; the applicant is requesting a $2.0 million grant from the City,and a$515,000 loan from the HTF.. City and County staff, HTF staff, local affordable housing organizations, local commercial real estate brokers, local market data, and County records, as well as planning, architecture, and finance experts, have been consulted to prepare this application. It is the applicant's hope that this application, which is the culmination of extensive research and analysis, provides most, if not all,of the details needed to evaluate the project and this request for funding. Unlike a typical new affordable housing development, which may take years to entitle and construct, this building will be available for occupancy in a matter of months. It will immediately increase the supply of affordable units in San Luis Obispo, and provide them in a unique downtown setting. The community, however, is getting much more than just an injection of sorely-needed affordable housing. It is getting increased sales tax revenue, more jobs, and a project at a key intersection in the City that bolsters the revitalization efforts in the heart of downtown with the restoration and reuse of a building that is historically significant. The applicant understands that three fundamental questions will be asked as the application is being reviewed: 1. Can the applicant complete the project? 2. Will the project produce a reasonable profit and maintain an ability to repay its debt? 3. Will the asset—the building—be protected during the life of the loan? ABILITY TO COMPLETE THE PROJECT The applicant has a track record throughout the state, and particularly in the City, of completing assignments on schedule. Typically, these schedules involve a fast-track process that concentrates personnel and financial resources on a project; that same commitment is being made to the Wineman project. Conventional financing is being secured to pay for some of the improvements to the commercial component of the project, and a substantial infusion of equity into the project is being made by the applicant. ABILITY TO PRODUCE A PROFIT Many entities, both local and otherwise, engaged the building owners and entered into negotiations to lease and/or buy the building, but were unsuccessful. However, the applicant worked diligently to consummate a lease arrangement with the owners of the building. The terms of the lease may be considered relatively expensive, but the lease creates an opportunity for the applicant to deliver affordable housing and restore/reuse the building. This opportunity W"Ineman Building Funding Application i March 30,1009 B3 ��� Attachment 3 would otherwise not exist had the building owners not leased the property at all, or leased it to another entity. It should be noted that there is a finite amount of profit to be made on this project, regardless of how that profit is divided between the lessor and the lessee. The charts below loosely illustrate this point. The first chart is a rough approximation of how the profit will be divided pursuant to the lease as currently.executed. The applicant is anticipated to make a modest profit of approximately 8% on the residential component and 7% on the entire building, while the building owners will likely make more (note that the rate of return or net present value of the project to the building owners has not been calculated,but has been roughly estimated). PROFIT SPLIT BASED ON CURRENT LEASE .. w 0 a Lessor Lessee PROFIT SPLIT BASED ON RENEGOTIATED LEASE w 0 IL` Lessor Lessee If the lease terms had been more favorable to the applicant, the division of project profits might look more like something presented in the second chart above. The building owner would make less than before and the applicant would make more than before, but the total profit would not change. It is estimated that the applicant's rate of return might have approached a level that is commensurate with the risk profile for this type of project if the lease terms had been radically lVineman Building Funding Application ii March 30,2009 i 33-as Attachment 3 different — in other words, the applicant may have been able to achieve a fair return on investment. Nonetheless, the applicant is willing to make a significant equity investment in the project, especially compared to the level of equity generally seen in an affordable housing project, and is prepared to accept a return on that investment that is lower than what is generally found in a project of this nature. ABILITY TO PROTECT THE ASSET Finally, the cost of maintaining adequate insurance is included in the analysis, and an insurance policy has been procured. More importantly,both the residential and commercial portions of the project will have experienced entities providing property management services to ensure the building is properly maintained and administered. Relatively high costs for property management have been incorporated into the analysis to make certain that the best entities are selected to provide ongoing property management services. 91thetnan Building Funding Application id March 30,2009 133 -J� attachment 3 Chapter 1 APPLICANT INFORMATION Business Name and Address Wineman Building LLC 9606 Santa Monica Blvd, 3'd Floor Beverly Hills,CA 90210 Local Contact Person Name and Address Craig R Smith,AIA CRSA Architecture 890 Monterey St, Suite A San Luis Obispo,CA 93401 Local Contact Person Phone and Fax, and E-mail Address 805-544-3380 phone 805-544-8625 fax crsa@cmigrsmithaia.com Federal Employer ID# An application for an employer identification number has been submitted. Legal Structure Wyoming Limited Liability Company Organizational Documents The operating agreement of Wineman Building LLC is provided as Appendix E to this report. Wmentan Building Funding Application I March 30,2009 63 -c�7 Attachment 3 Chapter 2 PROJECT SUMMARY AND SITE DESCRIPTION PROJECT SUMMARY Development statistics, project boundaries, building elevations, a site/utility plan, as-built plans for each floor, dimensional plans for each floor and the roof as completed, and vicinity/location and topographic maps are all contained within Appendix B to this report. Please refer to Appendix B together with this chapter. Description of Project The Wineman Building is an existing three-story structure with a two-story, 80-year old hotel above a lower level commercial space. It is being modified and upgraded for reuse as a mixed- use residential and retail/commercial operation. Number of Units The top two floors will contain 47 studio apartments and a single one-bedroom apartment. The first floor will contain five ground floor retail/commercial spaces, with the mezzanine area accounting for the sixth retail/commercial space. Property Location The property is located in the downtown area of the City of San Luis Obispo, San Luis Obispo County, California, at the corner of Higuera Street and Chorro Street (center of downtown). Address: 839 (and 849)Higuera Street. Zip code: 93401. SITE DESCRIPTION Parcel Number and Parcel Map The APN is 002427-001 (see Appendix B for maps). Zoning and Land Use Clarification Zoning is C-D;land use is Commercial/Residential (mixed use allowed). Status of Local Development Reviews and Approvals Structural upgrade construction (unreinforced masonry/seismic upgrade) is in progress. Plans were submitted for minor and incidental architectural review approval (staff level review) on 03/10/09. Building department package to obtain construction permit for improvements is expected to be submitted 03/31/09. F ineman Building Funding Application 2 March 30,2009 33 -a8' Attachment 3 Evidence of Site Control The fully-executed master lease between the applicant and the building owners is attached as Appendix C to this report and outlines the provisions that provide control of the building to the applicant. Reports/Studies Completed to Date Various studies, such as soils, environmental, toxic, and termite reports, have been or will be commissioned soon,but are not yet available. Preliminary Title Report Please refer to Appendix D of this report; which features the preliminary title report. The assessed value on the County rolls for this property for fiscal year 2008-09 is approximately$2.5 million. Wineman Building Funding Application 3 March 30,2009 63 -a9 Attachment 3 Chapter 3 DEVELOPMENT PLAN SITE PLAN As described at the beginning of Chapter 2, please refer to Appendix B of this report for a complete set of plans and diagrams. DESIGN FEATURES Design Details The project is the reuse of an existing,historical,downtown,three-story, 80-year old building. It was a primary, local, and transient hotel of its day. It is being restored to its original character with upgraded structural design, electrical design, mechanical design, and historical exterior detailing for commercial street level retail use and residential use as an affordable housing project. Additionally, the commercial spaces are being offered between approximately 900 square feet and 2,000 square feet at ground level with primary entrances off Higuera or Chorro Streets. The flexibility of the commercial design would allow a single occupant, or up to six individual occupants. The lower level (street level) is mostly commercial with the exception of the common area entry and lobby space. This redesign is intended to historically restore the exterior character of the original design (to include restoration of the exterior wall plastering, original window construction, and original signage, colors, and trim) and have the individual apartments be within the original hotel walled spaces. The residential units will be provided with new kitchenettes, upgraded bathroom and lighting fixtures, new finishes, paint, and new plumbing and electrical wiring, for a complete and contemporary interior improvement. Compatibility with Surrounding Land Uses This project meets long-term land use planning per the existing general plan for the City. This type of mixed-use project is encouraged and highly endorsed by both City officials and local businesses. It will bring retail use to a very visible and highly regarded area with a single offering of the largest contributing number of affordable housing units in the history of San Luis Obispo. This type of project is similar to other proposed and existing mixed-use projects within the downtown core area and off the main arterial streets of the downtown area (presently there are four major mixed-use projects approved and in process for implementation). Upon completion, the finished project will exceed life safety standards for its proposed use. Other Special Design Features The update work will include energy efficient fixtures and low flush toilets. Additionally, the proposed new mechanical HVAC, lighting, and new wall insulation will be Title 24 compliant for energy code compliance. The building will be entirely fire sprinklered. The commercial/retail improvements will include accessible entrances and new accessible restrooms. This project is the "poster child" for smart growth design. It encompasses a high-density affordable residential use in a downtown core area with a sales tax contributing commercial Whieman Building Funding Application 4 March 30,2009 Attachment 3 component. Plus, it is providing a seismically updated, safer, and historically restored existing building for reuse. Other design features to note include the following: 1. Because there is a pre-existing parking agreement (from 1989, when the City built the Marsh Street parking garage) in place with the City for the commercial uses, no parking or additional parking is required as long as there is no additional increase in useable retail floor area. As for the residential component, the City is recognizing the fact that the building was a hotel/extended stay facility and parking was not required in the past. Since a hotel use now requires one parking space per room plus one parking space for a manager, that would put the building at 49 parking spaces. The current residential parking requirement is 1/2 the typical parking requirement in the Commercial Downtown Zone, so the only requirement is 0.5 parking spaces per studio unit and 0.75 for a one- bedroom unit, plus guest parking. As proposed, the new residential component of the building would require 29 spaces, which is well below the 49 spaces based on the past use. 2. Some agencies are moving toward laying linoleum or other similar surfaces on the floors of affordable units,rather than carpet,because many tenants occupying these units cannot maintain carpeting. This approach not only cuts down on maintenance costs and costs related to tenant turnover, but it also gives tenants the opportunity to personalize their units with area rugs, etc. The applicant is considering this for the 20 units tentatively committed to by local affordable housing agencies but may employ a non-carpet alternative for all of the units. The applicant feels that sheet linoleum would be a good product. It is considered a resilient flooring material, so it would be effective for sound control. It is also considered a "green" material, being made from cork, linseed oil, and other natural resins, and was a product that was commonly used in the 1930's. There have also been discussions about using the existing wood flooring because it is becoming clear that the hardwood is in good condition. Consistent with the theme of restoration and reuse, the old growth vertical grain Douglas Fir hardwood found in the building may be resurfaced and maintained. If carpeting is installed in some of the units, a few vacuum cleaners will be kept on site and made available for rent to the tenants. 3. All of the residential units are planned to be electric. They will be individually metered and billed, and the costs will be the responsibility of each individual tenant. The remaining utilities(water, sewer,garbage)will be covered with other building expenses. 4. There will be two coin-operated, stackable washer and dryer units per residential floor rather than one main laundry facility on the ground floor. They will be located near the second staircase. 5. The applicant has designated a ground level smoking area in the rear courtyard (refer to sheet C-1.0 for location). It is a 15-foot by 15-foot area. The applicant is proposing to delineate the area with interlocking pavers. There will be park benches that will be bolted to the ground and some sort of potted plants will be included. 11 ineman Building Funding Application 5 March 30,2009 X33 -3,1 Attachment 3 6. The applicant is proposing an area in the rear courtyard for a residential trash room. The commercial spaces would have direct access to the trash compactor. 7. A new, steel, exterior, exit stair in the rear courtyard will be provided to better accommodate evacuation and emergency access to the building. RESIDENTIAL AFFORDABmm A total of 48 residential units will be divided between the second and third floors of the building. The affordability of the residential component is proposed to be structured in the following manner: 1 Unit(one-bedroom)to be used by the applicant rent-free 1 Unit to be used by the residential property manager rent-free 10 Units will be made available to very low income households at restricted rents (assumed to be $580 per month, a portion of which may be subsidized); the County and Transitions have tentatively committed to lease this block of apartments 10 Units will be made available to low income households at restricted rents (assumed to be $700 per month); the Housing Authority of the city of San Luis Obispo (HASLO) has tentatively committed to lease this block of apartments 16 Units will also be made available to low income households at restricted rents (assumed to be $700 per month), but these units have not been guaranteed by any affordable housing organization; instead, local affordable housing agencies will refer clients to the project, and the applicant through its property manager will advertise the units for rent by anyone who is eligible under the income limitation 10 Units will be made available to moderate income households at market rents(assumed to be$820 per month) The blended rate for the 46 units subject to paying rent is $700 per month. Of those 46 units, 22% are earmarked for very low income households, 56% are set aside for low income households, and 22%would meet the needs of moderate income households. The rent-restricted units would remain affordable fora minimum of 30 years. HASLO is considering a master sub- lease for all of the leased units, but further due diligence and discussions need to occur before any commitment of that nature can be made. Affordable rents are based on 2008 data, but recent income information from the state indicates that there was no change to the County Area Median Income (AMI), so the City's standards will not change for 2009. The City's affordable rent levels do not currently require that a utility allowance be included, so such an allowance has not been factored into the cash flow analysis. The units are so small and tenants will only be responsible for their own electricity bills, which means the monthly expense associated with utilities should be nominal. lineman Building Funding Application 6 March 30,2009 8�-3� Attachment 3 The market for the residential units extends beyond those who may be mentally or physically challenged. There does appear to be significant demand from people who have special needs or may not be fully independent; these individuals will likely rent some of the units through the County/Transitions and HASLO programs in rooms that are guaranteed by these organizations. There will also be demand from entry-level professionals and administrative staff working in or near the downtown area, retail and restaurant workers, independent students, and others who would be attracted both to the concept of not having to share a space in a roommate-situation and to the proximity of downtown amenities. COMMERCIAL BUSINESS PLAN Retail Space Plan The gross area of the commercial space is 8,670 square feet. It is optimum to lease the entire space to a single leasehold tenant;however,due to the present economic climate, and in an effort to be more desirable to local retailers (mom and pop type),the applicant is considering a breakup of space to a smaller, more local, business use size. The spaces will be "shell' ready for the proposed tenant improvements provided by the leaseholders. This will provide ready-to-use restrooms, entrances, heating/air-conditioning, lighting, and power for each space. The overall design and layout would provide flexibility to any number of leasehold floor plans with a variety of design possibilities and merchandising layouts. There could even be a restaurant use, should that become a potential leasehold. The most significant asset to this commercial lease position is the location. The corner of Higuera and Chono is the main intersection and primary core of the downtown. It is just one block from the Mission and provides a high level of visibility to both pedestrian traffic and automobile traffic. The redesign of the commercial space faeade is the restoration of the original store front glazing. This will double the window and display area presently in place. The ceilings are elevated (approximately 14 feet) and will be restored to the original "coffered," plastered look. All entries and accesses will be handicap accessible and ADA compliant. Potential Tenants and Marketing Plan The primary intent is to make the commercial attractive to local, small-scale, businesses. The most likely tenants would be existing businesses that intend to relocate due to better exposure. The approach would be to brand this building as a destination, downtown retail shopping location that retailers would prefer over other locations (such as Court Street Center, Downtown Center, or Madonna Plaza). Local shop owners and the Downtown Association would be targeted audiences of the marketing plan. Additionally, with an offer of rent-rate incentives for early leaseholders,this would promote quick occupancy. However, regional and national chain stores with businesses that fit within this space model would also be targeted. The Chamber of Commerce would be consulted as part of their business development program reaching out to companies who may relocate to the City. National chain leasing agents and real estate divisions would also be contacted. The applicant will work closely with a local commercial broker to develop an effective advertising and leasing program to facilitate full occupancy in a short period of time. That program will likely entail a combination of direct calling, direct mailing, a development website,multiple listing service exposure,broker Whetnan Building Funding Application 7 March 30,2009 �3 -33 Attachment 3 sheets, signage, realtor networking, selected advertising, Thursday night fanners market events, and possibly a radio and television campaign. Wiseman Building Funding Application 8 March 30,2009 83-3� Attachment Chapter 4 BUDGET AND FINANCIAL FEASIBILITY DEVELOPMENT PRO FORMA The financial analysis for the building is organized into three sections. A pro forma is presented for the residential portion of the building so that the City and HTF can evaluate the merits of the affordable housing development in isolation. A pro forma is also presented for the commercial portion of the building to understand the economics associated strictly with the retail operation. Finally, a consolidated pro forma that presents the analysis for the entire building is shown because, while the City and HTF may be more concerned about the viability of the residential operation, the two separate parts of the building are in fact inextricably linked within a single. structure for which massive rehabilitation efforts are being made. The assumptions and results of the pro forma cash flow analysis are presented in Appendix A to this report. Residential Component Table 1-A of Appendix A introduces key development statistics, delineates the approximate cost for the seismic upgrades and other related reconstruction for the residential component ($3.1 million), estimates the value of the building at completion and breaks it down to relate to just the residential piece ($220 per SF, or $3.3 million), and summarizes the key provisions of the applicant-building owner master lease and how they relate to the residential component. Note that six months of lease payments are built into the total development cost estimate since the building is not anticipated to be fully occupied until August and lease payments started in March. The master lease between the applicant and building owners pertains not just to the old hotel structure. Both the Wineman building (hotel) and the adjacent retail structure at 853 Higuera are covered by the lease. Therefore, the total lease payments are prorated in the analysis to reflect only that portion (approximately 83%) that relates to 839 Higuera (hotel). Those prorated lease payments are then assigned to the residential and commercial components based roughly on square footage, so that 2/3 of the payments are allocated to the residential and 1/3 to the commercial. A copy of the master lease is attached as Appendix C. Table 1-B presents the revenue, expense, and financing assumptions for the residential component. The breakdown of the units produces an average monthly rent of$700 for the 46 units generating income. Operating and maintenance costs are expected to start low for what is essentially a brand new building, and increase over the next two years until it reaches a stabilized rate. Property management costs, property and related taxes, and building insurance comprise the additional expenses that will be incurred to run the residential operation. Total expenses are estimated to be 40% of gross revenue in the first year of operation, 45% in the second year, and 50% in the third and subsequent years. Revenues and expenses are escalated at 3% per year, with the exception that property taxes are escalated at 2%. To help the project achieve a modest rate of return, the applicant is asking the City to provide a $2.0 million grant from its Affordable Housing Fund. The applicant is also requesting a loan of $515,000 from the HTF based on the results of the pro forma. The provisions of the loan are Wineman Building Funding Application 9 March 30,2009 f33 �3� Attachment 3 assumed to include a 1% origination fee, a five-year term, and a 6% interest rate with interest- only monthly payments in the first year and monthly payments in later years based on a 15-year amortization. The applicant is requesting that a five-year extension be granted now so that enough time can elapse to take advantage of a better cash flow position at the start of the 11th year, as compared to the a year, to refinance the HTF loan with conventional sources of funding. It is assumed that the applicant would pull some cash out(approximately $540,000) of the deal when the HTF loan is refinanced to lower the equity position, and the conventional loan term would be tied to the remaining term of the master lease(24 years). Table 1-C, is the actual pro forma, which displays the annual cash flow and outstanding loan balances during the 34-year term of the master lease. The debt service coverage ratio never falls below 1.1, and the loan-to-value ratio only reaches as high as 24%, while any loans are outstanding. The projected internal rate of return on the residential component is 8.2%. Commercial Component Table 2-A of Appendix A exhibits the same type of information for the commercial portion of the building as Table 1-A does for the residential. Total development costs are estimated to be $2.7 million, this portion of the building is estimated to achieve a value when completed of$2.3 million, and 1/3 of the prorated master lease payments are assigned to the commercial piece of the building. The expense and financing assumptions for the commercial component are portrayed in Table 2- B. The same types of expenses seen in the residential operation are expected for the commercial, but are estimated to be somewhat lower as a percentage of the gross revenue due to the type (retail businesses vs. residents) and quantity (six vs. 46) of tenants. Total expenses are anticipated to range from just under 30% in the first year up to just over 35% in the third year and thereafter. A conventional loan of approximately $1.1 million is being sought by the applicant to defray some of the commercial costs and is assumed to be refinanced together with the HTF loan in the 11`h year of operation. The master lease prescribes that the applicant may use the building as collateral for a loan amount not to exceed $2.0 million, so the total refinancing package modeled in the pro forma is limited to this amount. A breakdown of the revenue assumptions is presented in Table 2-13.1. These lease rates are based on research provided by local commercial brokers and discussions with local building owners and reflect the recent downturn that commercial real estate in San Luis Obispo is experiencing. Commercial professionals assume that this down cycle will reverse at some point in the future; initially low lease rates are forecasted to increase faster than normal, which is reflected in the five-year pattern of lease rates estimated for the building. Higuera frontage is expected to command a premium, so rental rates for those retail spaces are higher than the rates for the spaces with frontage on side streets; still, Chorro frontage commands the highest rent of any side street. Monthly full service gross lease rates are assumed to start at $2.65 per SF for Higuera and$2.10 per SF for Chorro. Finally, Table 2-C illustrates the annual cash flow for the commercial component, again during the 34-year term of the master lease. Debt service coverage (1.1 minimum) and loan-to-value Wineman Building Funding Application 10 March 30,2009 IS -3 Attachment 3 (80% maximum) constraints are not violated. The commercial component is anticipated to produce a 6.9%internal rate of return. Residential and Commercial Combined The consolidated pro forma demonstrates the economic viability of the entire building, combining the results of the residential component with those of the commercial component. The debt service coverage ratio never dips below 1.1;the loan-to-value ratio does not come close to the maximum allowed value of 80%, with an initial value of 28% when the HTF loan is extended and a maximum of 35% when both the original residential and commercial loans are refinanced. The projected rate of return to operate the entire building is 7.2%. Analysis of Project Feasibility Neither the individual investment returns on the separate components of the project, nor the rate of return on the entire building, would be considered commensurate with the level of risk the applicant is assuming to make this project a reality. Only a land development, entitlement, and infrastructure project would command a higher rate of return to adequately compensate for the risks involved. The applicant faces construction risk, real estate market risk, financing risk, building operation risk, and other short-term and long-term risk factors that suggest an appropriate rate of return would be in the area of 15%. However, as noted above, the applicant may attain a truly unexceptional rate of return on the entire project of approximately 7%, and the residential component may only realize a modest 8% return; both of these numbers are roughly one half the amount that otherwise could be reasonably expected. Nonetheless, the project is expected to generate a profit, enough profit to hopefully justify the cooperation of the City and HTF with the level of funding requested in this application. A sensitivity test was conducted to understand the ramifications of a smaller $1.0 million grant from the City. The following charts illustrate that the project needs a grant at the $2.0 million level. Clearly, as the first chart below displays, limiting the City's grant to $1.0 million means that the applicant must invest an extra $1.0 million into the project. That incremental investment would nearly triple the upfront equity requirement for the residential component, and increase the equity requirement for the entire project by nearly 50%. These would be significant changes to the financial picture that would be difficult, if not impossible; for the applicant to endure. COMPARISON OF EQuay DOLLARS INVESTED sa.o i� $2.5 S2.0 { P � $7.5 I[ $1.e 50.5 S0.0 Residential commercial Total 17$21Y1 Grant O$1M Grant Frineman Building Funding Application 11 March 30,1009 Attachment 3 In percentage terms, as the second chart depicts, the equity investment moves from approximately 20%of the development costs for the residential component to over 50%. For the residential and commercial combined, the equity percentage swells from less than 40%to nearly 60%. The equity ratios based on a $2.0 million City grant are already very high based on any standard,but the ratios assuming a$1.0 million grant are probably untenable financially. COMPARISON OF EQUITY POSITION AS%OF TOTAL DEVELOPMENT COSTS •ro.ox $0.0% saox ao.ox 34.0%. m ox taox ZZ aax Residential Commercial Total o$2M Grant o$1 M Grant Finally,as previously mentioned, the rate of return that can be achieved with a$2.0 million grant from the City is moderate at best, running approximately one half of what it should be based on typical standards for a development project of this nature. Unfortunately, the modest 8% investment return on the residential component drops to an infeasible rate of 1% assuming the City's grant is only $1.0 million. The total project, since the commercial component remains the same, experiences a one-third reduction in the rate of return with a $1.0 million grant, going from over 7% to well under 5%. These comparisons are shown in the chart below. The three charts are useful in emphasizing how important a$2.0 million City grant is to the viability of this exciting project. COMPARISON OF INVESTMENT RETURNS 9.0% t e.ox 7.0% r sox aox i 3.0% zox t.ox aox Residential Commercial Total ❑SW Grant 1 $1M Grant Wmeman Building Funding Application 12 March 30,2009 B3 -38� Attachment 3 SOURCES AND USES OF FUNDS As noted above, Tables 1-A and 1-B of Appendix A provide details regarding the sources and uses of funds for the residential component, and Tables 2-A and 2-B provide details concerning the commercial component. The table below summarizes the sources and uses of funds. FUNDING SOURCES AND USES Residential Commercial Total Sources of Funds City Grant $2,000,000 $2,000,000 SLOCHTF Loan(Net Proceeds) $505,000 $505,000 Conventional Financing(Net Proceeds) $1,034,000 $1,034,000 Applicant Equity $577,000 $1,633,000 $2,210,000 Total Sources $3,082,000 $2,667,000 $5,749,000 Uses of Funds Seismic retrofit, fagade rehabilitation, building reconstruction, and tenant $3,049,000 $2,650,000 $5,699,000 improvements Six months of master lease payments Luntilobuilding is leased up and fully $33,000 $17,000 $50,000 d l Uses $3,082,000 $2,667,000 $5,749,000 Note that the two sources of affordable housing funding are essentially the only two for which this project would qualify. It may be possible to obtain Federal Home Loan Bank Affordable Housing Program(AHP) funding for the 10 very low income units,but the application process is competitive and time-consuming, and the total amount that could be secured would likely be very small. The tax credit program is hyper competitive, and this project would probably not qualify since the collateral is a leasehold interest. There is no redevelopment agency in the City, so neither tax increment nor 20% LME set-aside funds are available. The project would likely not be eligible for CDBG funding due to prevailing wage requirements. Section 8 funding is limited, and may actually be utilized instead by other agencies in the County to assist tenants who live in this building with rent subsidies and/or project-based vouchers. Historic preservation property tax reductions may be possible, but the application process is extensive and would reduce the revenue that the City and County would otherwise receive. PROPOSED USES OF REQUESTED FUNDS FROM THE CITY AND HTF As discussed below in the chapter describing the project timeline, funding from the City and HTF is expected to be received somewhat after the midpoint of project completion. The applicant may utilize the funds as a reimbursement against costs already incurred, as a source of cash to cover costs incurred after the funds are received, or a combination of both. if"weman Building Funding Application 13 March 30,2009 Attachment 3 SECURITY/COLLATERAL FOR THE HTF LOAN The master lease between the applicant and building owners is in the process of being recorded. The applicant is requesting that a recorded deed of trust against the leasehold interest in the building be the security for the HTF loan, and only the portion of the lease related to the residential component of the building would be collateralized for purposes of the HTF loan. The applicant is also requesting that the HTF loan be subordinate to a conventional financing loan that the applicant is pursuing to fund certain costs associated with the commercial portion of the building, provided of course that sufficient cash flow exists to meet minimum debt service coverage requirements for the HTF loan. CONSISTENCY WITH CITY CRITERIA FOR FUNDING AWARD Pursuant to Resolution 9263 of the City of San Luis Obispo, adopted December 4, 2001, the City Council has established a review process and award criteria for allocating affordable housing in- lieu fees received into its Affordable Housing Fund. The applicant suggests that this project conforms with the criteria,as follows: 1. Eligibility. The project will include a mix of studio apartments designed to meet the needs of very low, low, and moderate income households, improving the City's affordable housing inventory for a period of at least 30 years. 2. Need There is a substantial need for downtown housing in general, and housing affordable to the service and clerical employee base working downtown is of particular value. This project will also meet a portion of the demand for housing required by special needs individuals. 3. Suitability. The project would restore a fine historic treasure in the center of the downtown core and is therefore perfectly suitable in terms of land use and design. 4. Timing. The project will meet an immediate need by retrofitting a URM building and by providing new housing downtown. S. Financial Effectiveness. The project could not be developed as entirely affordable without assistance from the City. Also, it is anticipated that the City's contribution will be leveraged by a loan from the San Luis Obispo County Housing Trust Fund. 6. Readiness. The project has all of its necessary approvals and is ready to proceed. Interior work on the seismic retrofit has begun,and the City's commitment of funds from the AHF will allow the developer to pursue a complete financing package for the project. Wiseman Building Funding Application 14 March 30,2009 133 �` Attachment Chapter 5 SCHEDULE The applicant spent a considerable amount of time during 2008 working with building owner representatives to craft a master lease. Once terms of the lease were finalized,the process began to obtain signatures from the approximately 22 different entities that have an ownership interest in the building. That process was undertaken during January and February of 2009. The project schedule is included for reference on the following page. Demolition work on the building commenced immediately in March and, at this time, is essentially completed. Seismic retrofit, building reconstruction, preservation of the historic fagade, and other revitalization efforts have begun and are expected to take three months to complete. The finish work, including tenant improvements in both the residential and commercial areas, is anticipated to occur in July. The funding application to the City and HTF is being submitted at the end of March. The process to review the application,request and receive additional information as necessary,adhere to strict underwriting standards, complete the due diligence, offer a funding commitment, and transfer funds is estimated to take two months to complete. Conventional financing is also being sought by the applicant, under the same timeline as the sources of affordable housing funding. Receipt of funds is expected somewhat after the midpoint of the project,which means funds may be used to reimburse the applicant for costs already incurred, may be used to fund future costs to complete the project, or a combination of both. Discussions with affordable housing organizations and commercial brokers have already commenced, but active marketing and lease-up for both the residential and commercial components of the building are not expected to start until May. The process to fill all three floors of the building is expected to take approximately three months, with full occupancy targeted for August 2009. H meman Building Funding Application is March 30,2009 63-LI • ttachment 3 o cn 0 a { o d �f I { S 4 2 {{ ^� f I I C 1 o � a 2 CDCD N m as LU LL j y LU c t 3 U of ,c � a o (D O W fp wC 'O C C C YcaC N C lY U O p� 3 J = U � p)V C U vj C U N N O E 'O -O c 'O m Y E y c c — t7 !n LL O LL Ll Cf) B3 -9a Attachment 3 Chapter 6 PROPERTY MANAGEMENT ENTITY PROVIDING SERVICE The applicant has engaged in preliminary discussions with the Housing Authority of the City of San Luis Obispo (HASLO) to provide property management services for the residential component of the building. Based on those preliminary discussions, the project pro forma incorporates an expense ratio that falls within the estimated range provided by HASLO. Following is the contact information for HASLO: Carol Hatley,Executive Director Housing Authority of the City of San Luis Obispo 487 Leff Street PO Box 1289 San Luis Obispo, CA 93406 805-543-4478 EXPERIENCE OF ENTITY HASLO is a public corporation founded over 40 years ago to help lower income households in the County satisfy their housing needs. Throughout the years, HASLO (and its affiliate San Luis Obispo Non-Profit Housing Corporation) has directly built, assisted in the construction of, or operated thousands of housing units that provide decent, safe,and adequate shelter that otherwise may not have been available for lower income families and individuals. HASLO is the "landlord" for many housing complexes in the City, including the Anderson building of affordable housing units in downtown only a few blocks from the Wineman building. A family self-sufficiency program, which assists motivated individuals and families become economically independent, and a learning center, which provides educational facilities and programs through a computer lab,tutoring program,and children's work incentive program,are also run by HASLO. HASLO staff includes individuals with expertise in finance, facilities maintenance, and housing management, among other specialties. It is fully equipped to provide a complete array of property management services. ONGOING MANAGEMENT PLAN It is anticipated that the applicant and HASLO will reach an agreement for HASLO to provide property management services for the residential operation. The applicant and HASLO will work together to prepare a management plan to ensure that ongoing operations and maintenance run smoothly. Services such as screening tenants to ensure that the complex is drug/violence free and a safe environment for all residents, qualifying households for income eligibility so that income limits are not exceeded and household budgets are maintained, interacting with residents to answer their questions and address their needs, administering all accounting functions, handling daily and periodic maintenance activities, providing security for the residential floors, Kneman Building Funding Appiicadon 16 March 30,1009 .63,g3 Attachment 3 and any other management duties will be incorporated into a contract that the applicant and HASLO would execute. In addition, one of the new residential units is being set aside for use by a full-time, on-site property manager. The property manager's unit will be rent-free, and the property manager's salary is built into the operating expenses included in the pro forma. The property manager will report directly to HASLO. The applicant will retain a full-service commercial brokerage to manage the retail operation on the ground floor, or will coordinate with the selected leasing agent to secure a firm dedicated to providing property management services for non-residential land uses. The applicant will have a better idea who will be managing the retail space once in-depth discussions with commercial brokers commence. It may be possible for HASLO to provide property management services for the commercial component as well as the residential component, and that scenario will be explored more fully as well. Kneman Building Funding Application 17 March 30,1009 0 - -�' Attachment 4 Table s-A i+ wneman Building 839/849 Higuera-Residential Component Development Statistics and Costs Residential Units 48 Residential Building Square Feet 14,904 Development Cost Summary Seismic retrofit work Fagaderehab and preservation work $3,082,000 Tls for residential Total $3,082,000 Total Cost per Unit $64,208 Total Cost per Sq.Ft. $207 Market Value per Building Square Foot at Completion $220 Total Market Value-Residential $3,280,000 2008-09 Assessed Value-839/849 Higuera:Residential Portion $1,394,000 Develooeds Lona-Tenn Lease Total per Month 9391849 Higuera Residential(2/3) Year 1(Prior to Building Operation) $10,000 $8,328 $5,552 Year $11,000 $9,160 $6,107 Year $11,000 $9,160 $6,107 Year $18,000 $13,324 $8,883 Year 5-9 Prior Year+CPI,limited to 3% Year 10+ Prior Year+CPI.limited to 5% Development Cost Detail Rehab/Preservation Soft costs including architectural,engineering,and consulting fees $200,000 $108.513 Seismic retmfitting based on$40.00/S.F. $600,000 $300,000 Demolition 8 Haulaway $110,000 $110,000 Asbestos Abatement $85,000 $85,000 New Roofing $75,000 $75,000 HVAC $143,500 - Elecbical Rough/Finish $275,000 - Plumbing Rough/Finish $265,000 - Windows/Doors $120,000 $120,000 Drywall/Insulation $162,000 $162,000 Elevator Retmfit $50,000 $50,000 Fire Sprinklers $67,500 - Kitchen Cabinets/Appliances $75,000 - Carpets $40,000 - Fire Escapes $48,000 $48,000 Paint $70,000 $70.000 Reconstruction of historic elements and finish carpentry $225,000 $225,000 Tile work $138,000 $138,000 Supervision for six months $100,000 .$54257 Subtotal $2,849,000 $1,545,770 Overhead @ 7% $199,430 $108,204 6 months of Long-Term Lease Payments $33,311 - Total $3,081,741 $1,653,974 Potential Tax Credit Cost Basis $1,653,974 20%National Register Pre-1939 Building Rehabilitation Tax Credit $330,795 Due to the applicants current income tax circumstances,the tax credit is assumed to be carred forward and applied starting in Year 11. Sources:Wrnmeman Building,LLC;Goodwin ConsulRng Group,Inc. 4///2009 Attachment 4 Table 1-B a wineman Building 839]849 Higuera-Residential Component Pro Forma Assumptions Revenues Total Units Monthly Rent Vacancy Rate Owners Unit 1 $0 0% Managers Unit 1 $0 0% Moderate Income Units 23 $820 10% Low Income Units(not guaranteed) 13 $700 5% Low Income Units(guaranteed by HASLO) 10 $700 0% Very Low Income units(guaranteed by Countyrriansitions) 0 $580 0% Total Units 48 Blended Monthly Rent per Unit(excluding$0 Units) $760 Expanses Yr.1%of Yr.2%of Yr.3+%of Monthly Rent Monthly Rem Monthly Rent Operating and Maintenance 20% 25% 30% Property Management 7% 7% 7% Taxes[Rate per$1001 1 1.002200 '2% 2% 2% Insurance z 4% 5% 5% Total Expensss 34% 39% 44% Operating Reserves(%of Operating Costs) 5.00% Replacement Reserves(%of Development Costs) 0.30% Economic Annual Escalation Rates Revenues 3.00% Expenses(not inducting Taxes) 3.00% Taxes 2.00% Financing % Cost Amount Teets SLOCHTFLoan $825,000 Loan Origination Fee(1.0%)+Loan Costs(1.0%) ($16.500) 2.00% SLOCHTF Loan(Net Proceeds] 26.2% $808,500 Interest Rate 6.00% Term 15 yrs? Grant from the City of San Luis Obispo 32.4% $1.000,000 Equity Interest from Wineman Building,LLC 41.3% $1273,500 Total 100.0% $3,082,000 Co ventiorW Loan Rehmdurg of SLOCHTF Loan $426,0004 Year of Refunding 11 Interest Rate 7.00% Tenn 20 yrs. Loan Origination Fee(1.0%)+Loan Costs(1.0%) 2.00% Equity Reimbursement in Year 11 from Cash-Out Refinancing $0 Net Equity Interest after Year 11 $1273.500 'Based on anent assessed value,adjusted by 25%for Mills Act application. Assumes the residential component accounts for 213 of the annual Insurance for 8391849 Higuera(total cost of—$25.000). 1st year is interest only. Years 2.10 are based on a 15 year amorftation,and a five-year extension is assumed. Loan balance includes the loan origination fee and roan costs. Sources:Cfty of San Luis Obispo.,San Luis Obispo County Housing Trust Fund;Goodwin Consulting Group,Inc. 4/7/2009 Attachment 4 m n O H q , O O m I N W I t I N m N N S q m O O g q P_ woo111/q"ry'�111 " a. �M -. 0, ~ N S S �S S HMS'~ MN"N 5 I ^ 0 I I 1 W O q r N N t I I q m w u`1 m IV o m f m 1• S o f to e re°3 � n QIP• ry n � � n If. �.r. n m mNn as S s �s H m W s --.0 e lm 'Rem ttl tl "M = 9 = w O ; $ W q q P q tl N r m N N m r H pm H N S N M N H N M m M f S ry N N N M `-'M "'M N N ""N M mb '1 e r Ci w-i � N N v $ o 10 m m y� e Y W 3 M P O O $ N N GO O 11 r xx N o = n w m m e w a 1 N ry I m n IHo 1 1 I m 0 Rmuryi I I I 0 0 m P f r w O ^ m m q Gp t1�r1� pr m O O m N V O W arr a r e0 r mmmm r N M M NN OR " - 5 N M b NDN N N M Na N q N n1 � s � .P• Fe. 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ImV W 0 0 NO m q Q w w W I^a Q N Q w W N b 11 ry Irl I I I I. S m N O ^ IV ^ w m m O b Q W w b w N b p pN f m !OI n q W A O N N w w o w A Q N m W m ' m ymj N N ti nlN N "r N N INrI' M N V 0 W X Y >• � m b N b II 11 O 2 w C f o 6 L ccS E E r c 3 o a E C W pm G p V m F a D S J Cc cc J a w j O q IN1 O L W o 1 m • £ q V � p g° € G a a qq p s Q q y q lox a X 0 0 ¢ • C C C m O O � V C � � � S g G C G O � L O 7 m m >? • m C C� m o cO °� Cg 6 21 E d E c m m c m U t C Ur wlYa cJm g6 m m m .2V m m J- G S g'nm gam > > v ugS E Cc a a is @ @O m ~ t mior � y B�B E ' c5D5„ Eg' 9O_ m V t-i m 'FDIC gl q .� 3 m 8 �" • nS r E n' 92 tl 3 m m X m % g m m LLE g G FC n O m 7 W U 2 OC g U O O f.1 U O O M1' q 6 W d W w S J I• U 2 H W !`j m ILG 83 M Attachment---5 LEASE THIS AGREEMENT OF LEASE is made on 2009, among the property owners listed on Exhibit "A" who jointly are called, Lessor, and THE WINEMAN BUILDING, LL.0 a limited liability company.as Lessee. Lessor leases to Lessee and Lessee leases from Lessor the following premises for the term and on the covenants and conditions set forth below_ The Iand and building known as the Wineman Hotel premises at the comer of Higuera and Chorro Streets in the City of San Luis Obispo, State of California. Lessee is familiar with the boundaries of said premises. Said property is legally described in Exhibit"B"attached and trade a part hereof by reference. TERM: The term of this Lease is thirty-four (34) years starting , 2009 and ending ,2042. RENTAL: Lessee agrees to pay Lessor the following rents for the leased property. Rent starts 2009. First 12 months $10,000 per month Second 12 months $11,000 per month Third 12 months $11,000 per month Fourth 12 months $16,000 per month The rent for the fifth and each subsequent twelve (12) month period of the lease term shall be $16,000 per month plus an increase in said amount equal to the percentage increase, if any, in the Consumer Price Index for Urban Consumers (1982-84=100) issued by the U.S. Department of Labor, Bureau of Labor Statistics, for the Los Angeles-Riverside-Orange County area, for the month of December preceding the year for which the adjustment is to be made over the index for the previous December. In no case shall the monthly rent be less than the rent for the previous year and in no case less than $16,000.00. Each annual CPI increase shall not exceed 3%per year for 2013, 2014, 2015, 2016 and 2017 and shall not exceed 5%per year for the remaining lease years 9 3 -sa Attachment 5 starting 2018. If said Index is discontinued or revised during the lease term,such other government Index or computation with which it is replaced shall be used in order to obtain the same result as would be obtained if the Index had not been discontinued or revised. The first month rent shall be paid when this lease is signed. All rent shall be paid in advance on the first day of each month in United States money to Lessor at Andrews and Galloway, 2236 South Broadway, Suite M, Santa Maria, California, 93454. Rent shall be deemed in default if not received by Lessor by the I Oa'of the month. LATE PAYMENT CHARGE: If Lessee pays any monthly rent more than ten days after it is due,Lessee shall pay a late payment penalty equal to 10%of the rent then due. USE OF PREMISES AND CONDUCT OF BUSINESS: Lessee may use the lease property for any use allowed under the applicable zoning law of the City of San Luis Obispo. Lessee shall, at its expense, procure any and all governmental licenses and permits, including, without limitation, use permits and sign permits, required for the conduct of business on the Premises and shall,at all times,comply with the requirements of each such permit. Lessor does not represent or warrant Lessee will be able to obtain any such permit. TAXES: Lessee shall pay all real estate taxes, general and special, assessments and business licenses on the leased premises and shall pay all taxes on any inventory, furniture, furnishings,equipment and other property of Lessee on the leased premises. Lessees' obligation to pay such taxes,assessments and licenses is additional rent. If during the lease term any state, county, city, district, or other agency levies or assesses a tax, fee, or excise as direct substitute in whole or in part for the real and personal property taxes, Lessee shall pay such tax,fee,or excise. Lessor will advise Lessee of all notices, levies, and assessments of taxes received in 83 S/ Attachment 5 connection with the Premises, and payment required of Lessee hereunder will be made by Lessee before the same becomes delinquent, except Lessee shall have the right at its election and expense to contest in the name of Lessor any tax levy or assessment for which Lessee is required to pay,in whole or in part, so long as the contesting thereof is not prejudicial to Lessor. If such contest or protest or hearing is held in regard to the same, any penalty, interest, or delinquency charge that may result therefrom shall likewise be the obligation of the Lessee. Lessor agrees to sign any documents necessary to allow Lessee the right of contest. UTILITIES: Lessee shall pay all water, waste disposal, electric, gas, telephone, heating, cable TV and other public utility services supplied to the leased property during the lease term. CARE AND MAINTENANCE OF DEMISED PREMISES: Lessee acknowledges it has examined the Premises and that the Premises are being made available for its use "AS IS" without any warranty of any nature whatsoever with regard to the condition of the Premises. The parties acknowledge that a portion of the Premises are an unreinforced masonry building which, under State of California law,constitutes a severe threat to life safety in the event of an earthquake of moderate to high magnitude. Lessee waives the right to make repairs at Lessors expense under the provision of Section 1941 and 1,942 of the California Civil Code and the right to require Lessor to repair the Premises in the case of partial destruction thereof under any of the provisions of Section 1932, Subdivision 2 and Section 1933,Subdivision 4 of the California Civil Code. Lessee agrees, at its sole cost and expense, to keep the Premises, and each and every part thereof, and all other apparatus and equipment of every kind and nature and all other parts thereof servicing the Premises, in good condition and repair at all times during the Term and to make promptly any and all repairs, renewals and replacements which may at any time be necessary or proper to put and keep the Premises in good condition and repair,and to keep the Premises,and all appurtenances thereto in a good,clean,safe and wholesome condition at all times during the Term. 33-5;- Attachment 5 If Lessee fails to perform any maintenance or repairs required of it hereunder and such failure is not cured within a reasonable period of time (but in any event no less than 30 days) after notice from Lessor, Lessee then in addition to all other remedies available hereunder or at law for default, Lessor may, but shall not be obligated to, enter the Premises with workers and equipment and perform such maintenance and repairs or make such payments on behalf of at the expense of Lessee,which reasonable expenses shall be reimbursed by Lessee to Lessor within thirty (30) days after Lessee's receipt of an invoice together with reasonable supporting documentation. COMPLIANCE WITH LAW: Lessee shall at its expense comply with all laws, orders, rules and regulations of the Federal, State, County, Municipal and other governmental authorities having jurisdiction of the leased property, or relating to the Lessee's use, occupation and operation of the leased premises. COMPLY WITH CITY OF SAN LUIS OBISPO SEISMIC RETROFIT: Lessee acknowledges the Wineman hotel property must be retrofitted under the City of San Luis Obispo Seismic Retrofit program. Lessee agrees to timely perform such retrofit at its sole cost and expense. The consideration for Lessee performing such retrofit is the low rent charged over the term of this lease. Lessee intends to make a major renovation of the leased premises when the retrofit work is performed. ALTERATIONS, MECHANIC'S LIENS: Lessee may make structural and other additions and alterations on the leased property without the prior written consent of Lessor provided such work will not decrease the value of the leased property. At the end of the Lease any improvements, additions or alterations to the leased property, except movable furniture and trade fixtures,shall become part of the realty and belong to Lessor. Lessee shall keep the leased property free from any liens arising out of any work performed, material furnished, or obligations incurred by Lessee. Lessee shall give Lessor written notice before starting work on the leased premises so Lessor can file and record a notice of non-responsibility. 63 -S3 Attachment-5 . . NON-LIABRM OF LESSOR FOR DAMAGES: Lessee shall indemnify Lessor and hold Lessor fife and harmless from all claims, actions, damages, liability, attorneys fees, and litigation costs by reason of injury to person, including but not limited to Lessee, or damage to property of any kind, including but not limited to property of Lessee, arising out of or relating to Lessee's use, occupation, operations and possession of the leased property or the approaches thereto,or the business conducted therein by Lessee or resulting from any act or omission of Lessee in the performance of this Lease. It is understood Lessor assumes no financial responsibility and no liability in connection with the construction of improvements on the Premises by Lessee. Lessee will hold Lessor harmless against claims for damages, or for injuries incidental to the construction or operation of said improvements. INSURANCE: Lessee shall maintain in full force and effect with insurance companies licensed to do business in the State of California and otherwise satisfactory to Lessor, one or more policies,including the following coverage: A. Liability Insurance: Commercial general liability coverage against claims for bodily injury (including personal injury), death or property damage occurring in or upon the Premises with limits of coverage of not less that combined single limit. On not less than six months prior notice, Lessor may increase the foregoing limits if it deems such increase reasonably commercially necessary to protect Lessor and Lessee. B. Property Insurance on Building and Improvements: Lessee shall obtain and keep in force during the term of this Lease a policy of property insurance in the name of the Lessor and Lessee with loss payable to Lessor, Lessee and to any Lender(s), insuring against loss or damage to the Premises. Such insurance shall be for full replacement cost, as the same shall exist a3-s� Attachment-5--_ _ from time to time,or the amount required by any Lender(s). Such policy shall insure against all risk of direct physical loss or damage including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any damaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss. Said policy shall also contain an inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to when the Premises are located. C. Builder's Risk At all times during which Lessee is doing construction work in the Premises of Alterations which cost more that One Million Dollars ($1,000,000.00), builders risk insurance with limits of coverage not less that one hundred percent(100%)of full replacement cost of the Alterations to be constructed and owner's and contractor's protective insurance and independent contractor's insurance with coverage of at least One Million ($1,000,000.00) for a single occurrence and for property damage. D. Machinery Lessee shall obtain and keep in full force and effect, as part of Lessees extended liability insurance, machinery it mance on all heating, air conditioning and ventilating equipment and systems serving the Premises. If such coverage is not available under Lessees extended coverage insurance,then a separate policy of insurance in an amount not less than the replacement value of such equipment and systems shall be maintained by Lessee. E. Business Intemtption Lessee shall carry business interruption coverage in an amount sufficient to cover Lessee's obligation to pay rent under this lease, real property taxes, insurance, maintenance and repairs. The amount of coverage shall be adjusted annually to reflect the projected rental income,real estate taxes,insurance,repair and maintenance costs. Attachment-5 F. All insurance provided by Lessee shall name Lessor, an additional insured All property insurance provided by Lessee shall name Lessor as a co-loss payee. Each insurance carrier shall notify Lessor in writing at least twenty (20) days prior to any cancellation of its insurance. Lessee shall deliver to Lessor at the start of the lease and annually thereafter duplicate policies or other satisfactory evidence showing all of such insurance is in effect. G. If Lessee does not keep said insurance in full force and effect, Lessor may take out necessary insurance,pay the premium and the repayment thereof shall be rental hereunder on the next date when rent becomes due. ASSIGNNUM OR SUBLETTING: Lessee shall not assign this Lease or any interest therein; without the prior written consent of Lessor. Lessee may sublet the premises without the consent of Lessor. A consent to one assignment shall not be deemed a consent to any subsequent assignment, subletting, occupation or use by another person. This Lease shall not be assignable by operation of law. Lessor shall not unreasonably withhold any consent. Any approved assignee or sublessee shall agree in writing to be bound by this Lease. ADVERTISING SIGNS: All signs on the leased property shall conform with applicable governmental laws and regulations. Lessee agrees to maintain such signs in good condition at all times. FINANCING BY LESSOR: Lessor reserves the right to place liens and encumbrances against the leased property and/or any part thereof and Lessee;upon the written request of Lessor, shall execute and deliver to the title company issuing any policy of title insurance insuring the lien, estate and effect of said lien and encumbrance, such agreements of subordination as shall be required by such title company,and/or financing institution to effect said financing. In the event of any sale, assignment or hypothecation of the leased property, Lessee shall furnish within ten (10) days after request an estoppel statement for any proposed mortgagee, beneficiary, or purchaser,or to Lessor, certifying this Lease is in full force and effect and there are 83 -.5L Attachment 5 no defenses or claims,or stating those claimed by Lessee. LESSEE'S RIGHT TO BORROW USING THE LEASED PROPERTY AS COLLATERAL: When the seismic retrofit and renovation of the leased premises has been completed by Lessee as evidenced by a recorded notice of completion, then Lessee shall have the right to use the Winemnn Hotel real estate as collateral for one loan only up to$2,000,000 to recoup a portion of Lessees retrofit and other costs. The loan shall have a maturity which provides for full payment of the loan prior to the end of the lease term. The Lessors will only sign the mortgage but will not sign the note and will have no personal or individual liability for paying the loan. The loan will be repaid by the Lessee. Lessee will also have the right to use the lease as collateral for funding money for the retrofit and renovation. M. Ali Vandani shall personally guarantee payment of that loan. Lessor agrees to sign the attached Subordination, Non-disturbance and Attornment Agreement relative to such loan within thirty(30)days after being requested to sign. See attached Exhibit"B". The Agreement shall be in recordable form PERSONAL PROPERTY: Lessee shall not vacate or abandon the leased property at any time during the lease term If Lessee shall abandon,vacate or surrender said leased property, or be dispossessed by process of law, any personal property belonging to Lessee and left on the premises is deemed abandoned, at the option of Lessor, except such property as may be mortgaged to third parties. WAIVER OF DAMAGE: Lessee waives all claims against Lessor for damages to Lessee's inventory, goods,ware,merchandise, furniture,fixtures and equipment from any defect in the premises or other cause. HOLDING OVER: Any holding over after the expiration of the term of this Lease,or any oral extension thereof, with or without the consent of Lessor, shall be a tenancy from month to 53 5:T A#tachment 5 month,at the rental and on the covenants,conditions,Iimitations and agreements contained herein. INSURANCE RISKS: If Lessee or any sublessee of lessee stores uses, sells,or offers for sale any article, or conducts any activity prohibited by the standard form of fire insurance policy, Lessee shall pay any increase in fire insurance premiums attributable thereto. Lessee shall comply with all requests of all insurance companies insuring the leased premises. WASTE OR NUISANCE: Lessee shall not allow debris, garbage, toxic or hazardous or other waste to accumulate on the leased property or cause any nuisance on the leased property. DESTRUCTION OF DEMISED PREMISES: Should the leased premises be destroyed or damaged this Lease shall continue in effect and Lessee shall repair such damage or destruction. Lessee shall be entitled to the insurance proceeds to repair or restore the leased premises to the condition existing at the time of such damage. During the period of repair and restoration, the rent is abated proportionately as to the portion of the leased property rendered untenable. If the property is rendered wholly untenable by reason of such occurrence, the rent shall be abated in whole. Any insurance proceeds to cover lost rent shall be paid to Lessor. CONDEMNATION: If the leased property or any part thereof is taken by condemnation proceedings, or by a settlement under the threat thereof, the Lessor shall be entitled to and shall receive the entire award or payment therefor, and Lessee assigns to Lessor such award or payment including any damages for Lessee's leasehold interest. If all of the leased premises are taken the Lease will terminate. If only a part of the demised premises is taken, then the Lease shall continue if the balance is suitable for Lessee's use and the rental shall be equitably apportioned. The foregoing is without prejudice to Lessee's claim against the condemning authority for loss of Lessee's trade fixtures, movable personal property, moving or relocation expenses, and for recovery of money lessee spends on the seismic retrofit and renovation of the premises. f-' AftddNnent 5 INSOLVENCY: Either (a) the appointment of a receiver to take possession of all or substantially all of the assets of Lessee (provided that said receiver is not discharged within 15 days), (b) a general assignment by Lessee for the benefit of creditors, or (c) any action taken or suffered by Lessee under any insolvency or bankruptcy act,which is not dismissed in 30 days,shall constitute a breach of this Lease. REMEDE S OF LESSOR ON DEFAULT: If Lessee fails to pay rent, taxes, insurance premiums,or any other payments called for herein or fails to perform any other covenant,condition or agreement herein,and if Lessee does not cure such failure within thirty(30)days,(three(3)days for failure to pay money),after written notice thereof to Lessee then Lessee.shall be deemed to have breached this Lease. If the breach is of such nature that it cannot be cured in 30 days,Lessee shall not be deemed in default if Lessee commences to cure within the 30 day period and completes the cure within a reasonable time. In the event of such breach, Lessor shall have the immediate right to reenter and remove all persons and the property of Lessee from the leased property; such property may be removed and stored in a .public warehouse or elsewhere at the cost of and for the account of Lessee. Should Lessor elect to reenter, or should Lessor take possession pursuant to legal proceedings or pursuant to any notice provided for by law,Lessor may either terminate this Lease or Lessor may,from time to time without terminating this Lease relet said premises or any part thereof for Lessee's account for such term or terms (which may be for a term extending beyond the tern of this Lease) and at such rental or rentals and upon such terms and conditions as Lessor may deem advisable, with the right to make any necessary alterations and repairs to said premises prior to such reletting. At the option of Lessor, rents received from such reletting shall be applied; First, to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor, Second, to the payment of any costs and expenses of such reletting and any repairs to any damage caused by Lessee's; Third,to the payment of rent due and unpaid hereunder, and the residue, if any, shall be held by Lessor, and Attachment 5 applied in payment of fitture rent. If the amount agreed to be paid as rent for the demised premises for such period of reletting is less than the rent reserved in this Lease up to the end of the term thereof;Lessee shall immediately pay such deficiency to Lessor. No such reentry or taking possession of said premises by Lessor is an election on Lessor's part to terminate this Lease unless a written notice of such intention is given to Lessee or unless the termination thereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Lessor may at any time, thereafter elect to terminate this Lease for such previous breach ENTRY BY OWNER Lessor and Lessor's agents shall have the right to enter said leased property at all reasonable times for the purpose of inspection, and ascertaining compliance by Lessee with the terms and provisions of this Lease. Said right of entry shall include the right to erect and maintain scaffolding, canopies, fences and props as may be required, posting notices of non-liability for alterations, additions, or repairs and placing "For Sale" signs and within 90 days prior to the expiration of this lease,to place "For Lease"signs. OUIET ENJOYMENT: As long as Lessee pays the rents herein provided, and performs the covenants, terms and conditions to be observed and performed by Lessee, Lessee is entitled to peaceably and quietly hold and enjoy the leased property for the term of this lease, subject,to the terms and conditions of this Lease, including but not limited to Lessor's rights to enter the premises. NOTICES: Any notices, requests, demands, instructions or communications from one party to the other shall be in writing and delivered personally at the appropriate address or shall be mailed by registered or certified mail, postage prepaid and return receipt requested, and shall be addressed to Lessee at the leased premises and , and to Lessor at the following addresses 1. Johannah Bradley,350 Cameron Avenue,Santa Maria,California 93455. 2. Eleanor Truocchio,2485 Bull Canyon Road,Santa Maria,California 93454 83-6c� Affadhment.-5 3. Office of Andrews and Galloway,2236 S.Broadway,Suite M, Santa Maria,CA 93455 Such notice shall be effective upon personal receipt or 48 hours after the deposit of same in the United States Post Office mailbox in the state to which the Notice is addressed,or seventy-two (72) hours after deposit in any such post office other than in the state to which the notice is addressed, postage prepaid, addressed as set forth above. The address, for the purposes of this Section,may be changed by giving written notice of such changes in the manner herein provided for giving notice. Unless and until such written notice of change is received, the last address and addressee stated by written Notice,or provided herein if no such written Notice of change has been received,shall be deemed to continue in effect for all purposes hereunder. ATTORNEYS FEES: If there is legal action by either parry against the other relating to this Lease the prevailing party shall be entitled to reasonable attorneys fees. END OF TERM: Lessee shall, at the end of the tern hereof,or of any extension thereof, surrender the leased premises in a clean and sanitary condition and in good order, repair and condition, reasonable wear and tear and damage by Acts of God excepted. Lessee at his cost shall remove from the leased premises Lessee's merchandise, furniture, furnishings, fixtures, equipment, supplies and signs, and Lessee shall repair any damage caused to the leased property by such removal. NO WAIVER: The failure of Lessor to act on any breach of this Lease shall not be deemed a waiver of any term, covenant or condition of this lease or any subsequent breach of the same or any other terms,covenant or condition. REMEDIES CUMULATIVE: All legal remedies for each party shall be cumulative, and in addition to every other remedy at law in equity, or by statute and no one of the remedies is exclusive of any of the others or have any priority over the others. ESSENCE: Time is of the essence of this Lease. MISCELLANEOUS: As used in this instrument, the masculine, feminine, or neuter Attacfiment 5 gender, and the singular or plural number, shall each include the other whenever the context so indicates. SUPERCEDES ALL PRIOR NEGOTIATIONS: This agreement contains the entire agreement between the parties and all prior negotiations, agreements and written documents are superseded by this Lease agreement Lessee agrees it is not relying on any oral representations of Lessors or their agents or employees. HAZARDOUS MATERIALS: Lessee shall not cause or permit any hazardous material to be brought upon, kept or used on the leased premises without the prior written consent of Lessor. Lessee agrees such hazardous materials will be used, kept and stored in a manner that complies with all laws regulating such hazardous material. If Lessee breaches this Section or if hazardous material contaminates the premises, Lessee shall remove and remediate the same and Lessee shall indemnify, defend and hold Lessor free and harmless from any and all claims,judgments,damages,penalties, fines,costs, liabilities or losses of any kind which arise during or after the lease term as a result of such contamination. This indemnification of Lessor by Lessee includes, but is not limited to, costs incurred in any investigation, clean up, removal, restoration and remediation work required by any governmental agency because of hazardous material present in the soil or ground water on or under the premises and any remedial, removal or restoration work associated with underground fuel storage tanks. If any hazardous material brought or allowed on the premises causes contamination, Lessee restore the premises to their condition prior to the introduction of any hazardous materials. Lessee shall be responsible for hazardous materials or conditions which exist on the property at the time of original occupancy by lessee. As used in this addendum, the term "hazardous material' means any hazardous or toxic substance,material or waste which is or becomes regulated by any local governmental authority,the State of California,or the United States government 63-!� Attachment 5 Within 30 days after the end of the lease, Lessee shall notify Lessor in writing of any hazardous substances, insecticides, chemical or other hazardous material applied by Lessee to the leased premises during the lease term. RELATIONSHIP OF PARTIES: Noting contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent or of partnership or of joint venture or of employer and employee or of any association whatsoever between Lessor and Lessee, or of causing Lessor to be responsible in any way for the debts or obligations of such other person or entity. IT is understood and agreed that neither the method of computation of Rent nor any other provision contained in this Lease nor any act or acts of the parties hereto shall be deemed to create any relationship between Lessor and Lessee other than the relationship of Lessor and Lessee. APPLICABLE LAW: The laws of the State of California shall govern the validity, construction,performance and enforcement of this Lease. All reference herein contained to statutes shall be deemed to mean such statutes as they may be amended from time to time any to any successor statutes thereto. SEVERABILITY The unenforceability or invalidity of any one or more provisions hereof shall not render any other provisions herein contained unenforceable or invalid. LITIGATION: Except as disclosed in writing by Lessor to Lessee prior to the Effective Date, there is no litigation or administrative proceeding pending or, to the actual knowledge of Lessor, threatened,which does or will affect or involve the Property. Lessor discloses the need to retrofit the subject property under the San Luis Obispo Retrofit Program. DUE AUTHORIZATION: Lessor and Lessee represent to the other that each has the requisite right,power,legal capacity and authority to enter into and fully perform each and all of its obligations under this Agreement The individuals executing this Agreement on behalf of Lessor and Lessee have the requisite right, power, legal capacity and authority to execute and enter into 13-0 Attachment-5-_.__ this Agreement and to execute all other documents and take all other actions as may reasonably be necessary to perform each and all of the party's obligations under this Agreement. TAXES, ASSESSMENTS AND INSURANCES: All taxes and assessments and insurance applicable to the Property shall be prorated, including without limitation, all property taxes and assessments and any transient occupancy taxes. COUNTERPARTS: This Agreement may be executed in any number of counterparts. Each such counterpart hereof shall be deemed to be an original instrument but all such counterpart together shall constitute but one agreement. SUCCESSORS AND ASSIGNS: The agreements,covenants and conditions in this Lease are and shall be deemed covenants running with the land and the reversion and shall be binding upon and shall inure to the benefit of Lessor and Lessee and their respective successors and assigns and all subsequent Lessor and Lessee respectively hereunder. All references in this Lease to Lessor or Lessee shall be deemed to refer to and include their successors and assigns without specific mention of such successors or assign. RIGHT OF FIRST REFUSAL. if all of the Lessor parties desire to sell the leased premises they will first offer the premises to Lessee. The word "sell" shall not include a transfer between or among Lessors or a transfer by a Lessor to their spouse,children,sibling or a transfer to a living mist or a transfer by gift or inheritance. Lessor's offer to sell to Lessee shall be in writing and shall set forth the purchase price the method of payment, the amount of any earnest money deposit, the escrow holder the close of escrow date, the name of any proposed third party purchaser, and other sale terms and conditions desired by Lessor,including without limitation the right to make a tax free exchange. Lessee shall have thirty (30) days after the date of receipt of the offer to accept it by delivering to Lessor a written acceptance on or before 5:OOp.m. on the last day of the thirty day 133-( Attachment 5 period. If Lessee fails to timely accept the offer,the offer is deemed rejected and Lessor shall have the right to sell and convey the premises or any part thereof to a third party on the same terms stated in the offer. If Lessor does not sell and convey the premises or any part thereof within 365 days thereafter on the terms set forth in the offer or if Lessor modifies the offer,then Lessor shall again comply with the provisions of this section and re-offer the property to Lessee. Any acceptance by Lessee shall be an unequivocal and unconditional acceptance, except Lessee may require Lessor convey good, clear, and marketable title to the property, subject to any loans against the property created under this Lease. If Lessee accepts the offer, Lessee shall close the escrow within the time set forth in the offer and if no period of time is stated to close the transaction,then the purchase shall be completed within ninety (90) days following acceptance of the offer. If Lessee fails to consummate the purchase of the premises within the closing period because of its act of omission, any earnest money paid of Lessee pursuant to the acceptance shall be paid to Lessor as their liquidated damages, and the agreement to purchase the premises together with the right of first refusal contained herein shall terminate. After such termination, Lessor shall be free to sell or to enter into an agreement to sell the premises or any part thereof to any third party on any price and terms Lessor may choose without further obligation under this right of first refusal. IN WITNESS WHEREOF,Lessor and Lessee signed this lease on the date set forth above. LESSORS Eleanor Truocchio Paimira McBride Nancy Jane Wirneman Nancy Lee Williams,as Trustee of aka:Nancy Hanson Trust A of the Gerald and Nancy Williams Family Trust dated 7-26-99 Ernest C. Wineman,surviving trustee of Rosemary Dalton the Ernest C.and Peggie L. Wineman aka: Rosemary Banks Family Trust dated 1-03-03 03 -6s" Attachment 5 Exhibit"A" 1. Eleanor Truocchio 2. Palmira McBride 3. Nancy Jane Wineman, aka: Nancy Hanson 4. Robert Williams, aka Robert E. Williams S. Nancy Lee Williams, trustee of Trust A of the Gerald and Nancy Williams Family Trust dated July 26, 1999 6. Ernest C. Wmeman, surviving trustee of the Ernest C. and Peggie L. Wineman Family Trust dated January 3, 2003 7. Andre Ferini 8. Rosemary Dalton, aka: Rosemary Banks 9. Catherine Ena Olson 10. Carolyn Ruth McBride 11. Marian W. Hanson 12. Patricia D. Johnson 13. Ernestine M. Campodonico aka, Emestine Mae Caompdonico, aka Anna Mae Williams 14. Jeanette Lenger, trustee of the Lenger Family Trust dated April 21, 2000, aka Jeanette Ferini 15. Sherryll A. Minetti, aka, Sherryll Minetti 16. Lovisc T. Hughan 17. Johannah M. Bradley 18. Carol Brooks, aka Carol L. Wineman 19. Claire Wineman 20. Patrick Wineman 21. Alice Ann Freemen 13 3-6(e Fiscal Status of Affordable Housing Fund Attachment 6 Revenues, Expenditures and Changes in Fund Balance Revenues I xpenditures Fund Balance Fiscal Year In-Lieu Fees Interest Total I (Note 2) Beginning Ending 2000-01 (Note 1) 193,700 8,200 201,900 201,900 2001-02 464,900 20,000 484,900 201,900 686,800 2002-03 747,800 28,300 776,100 (215,000) 686,800 1,247,900 2003-04 60,500 8,500 69,000 (30,000) 1,247,900 1,286,900 2004-05 323,300 32,500 355,800 (30,000) 1,286,900 1,612,700 2005-06 1,863,700 68,500 1,932,200 1,612,700 3,544,900 2006-07 627,200 160,500 787,700 (530,000) 3,544,900 3,802,600 2007-08 682,400 155,600 838,000 . (630,000) 3,802,600 4,010,600 2008-09 371,500 183,700 555,200 34,400 4,010,600 4,531,400 Cumulative Total $5,335,000 $665,800 $6,000,800 ($1,469,400)1- $4,531,400 Commitments Housing Authority, Humbert Project109,900 Laurel Creek BEGIN funds 10 units 700,000 Total Commitments 10 units $809,900 Net Available for New Programs at February 28,2009 $3,721,500 Requests/ProposedCurrent Habitat for Humanity 2 units $332,500 Wineman Hotel LLC 23 units $1,000,000 Villages at Broad (ROEM Development) 40 units $1,000,000 Judson Terrace Homes $45,000 AIDS Support Network 1 unit $82,780 SLO County Housing Trust Fund $30,000 Total Proposed Allocations 66 units $2,490,280 NefAVailable for New Programs if All Current Requests Approved $1,231,220 NOTES 1. 2000-01 is the first year that in-lieu fees were received. 2. Expenditure Summary To-Date PurposeYear 2002-03 Judson Terrace Lodge 32 units 215,000 2003-04 Operating Support: SLO County Housing Trust Fund 30,000 2004-05 Operating Support: SLO County Housing Trust Fund 30,000 2006-07 People's Self-Help Housing:Villas at South Higuera 38 units 500,000 2006-07 Operating Support: SLO County Housing Trust Fund 60,000 (Two-Year Commitment)** 2007-08 Housing Authority, Humbert Project 21 units 600,000 2008-09 First time home buyers'program 1 unit 34,400 Total Expenditure 92 units 1,469,400 Originally allocated for North Chorro project ** $30,000 of these funds were disbursed in 2007-08. Arkhment 7 a RESOLUTION NO. 9263 (2001 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO ESTABLISHING AWARD CRITERIA AND A REVIEW PROCESS FOR ALLOCATING AFFORDABLE HOUSING FUNDS. WHEREAS,the City Council adopted Ordinance 1348 (1999 Series)establishing an Affordable Housing Fund for the collection and distribution of in-lieu housing fees to promote affordable housing in San Luis Obispo;and WHEREAS,as'a result of the in-lieu fee payments to the City under the Inclusionary Housing Ordinance,the City has a balance of approximately$400,000 in the Affordable Housing Fund,and this fund is available to support affordable housing in San Luis Obispo at the sole discretion of the City Council; and WHEREAS,the City received requests by Judson Terrace Lgdge and Sojourn Services,Inc.for the use of$215,000 and$25,000,respectively,of Affordable Housing Funds;and to evaluate these and future funding requests in a fair and timely manner, Council wishes to establish award criteria and a review process for the Affordable Housing Fund;and WHEREAS,the City Council held a meeting on December 4,2001 to consider possible award criteria that balance the need to provide a fair,open and timely funding award process with the desire to maintain funding flexibility to address local housing needs and opportunities; NOW,THEREFORE,BE IT RESOLVED by the Council of the City of San Luis Obispo that based on its deliberations,public comments,the staff report,and on State law, the following: SECTION 1. Affordable Housing Fund Award Criteria. The City Council establishes the following criteria for evaluating requests for use of the Affordable Housing Fund: 1. Eligibility. Use of the Affordable Housing Fund(AHF)for the requested purpose will increase or improve the City's affordable housing inventory and promote General Plan policies regarding housing. 2. Need. There exists a substantial or overarching need for the type of housing to be assisted. 3. Suitability. The project to be assisted is appropriate for its location,both in terms of land use and design. 4. Timing. The project would be better serve the City's needs if it were built immediately as opposed to later. R 9263 3 Attachment 7 Resolution No.9263 (1.41 Series) a Page 2 5.Financial Effectiveness. But for the requested assistance,the project would not be economically feasible;or AHF funding"leverages"significant additional funding from other sources. 6. Readiness. The project has all necessary City approvals and is ready to proceed SECTION 2. Use of Award Criteria. The Council will apply the above criteria when evaluating funding requests. Requests that most closely meet the criteria will be given the most favorable consideration in allocating Affordable Housing Funds. Under no circumstances is Council obligated to award Affordable Housing Funds. The decision whether to allocate funds and how much is at the sole discretion of the City Council whose decision is final. SECTION 3. Review Process. The Community Development Director shall be responsible for processing requests for use of Affordable Housing Funds. Such requests shall usually be considered concurrent with review of the City's Community Development Block Grant Program.The Director is authorized to bring urgent funding requests to the Council at any time,irrespective of the above review cycle. SECTION 4. Funding Agreements. Recipients of Affordable Housing Funds shall be required to execute an agreement with the City describing the purpose and terns of funding. The project or program to be funded shall meet the City's Affordable Housing Standards,including the requirement for an affordability term of at least thirty(30)years, and City equity participation in the project where feasible and appropriate. The City Administrative Officer is authorized to execute such agreements for the City. Upon motion of Council Member Schwartz,seconded by Vice Mayor Marx,and on the following roll call vote: AYES: Council Members Ewan,Mulholland,Schwartz,Vice Mayor Marx, and Mayor Settle NOES: None ABSENT: None The foregoing resolution was adopted this 4°day of December 2001 Mayor Allen Settle A Lee Price,City Clerk B3 -54 .2'Attachment 8 .0 r r � 00 b .+� "��' pQ Q ~ � �•y i', U O 00 00 O R N 00 O M W •0 W (� F N M R � •D (� � LTr O 0� toll NMrn G7 .O+ Nten vbi vMi O N r 0 3 O b b N ev 1 0 L^ Q r b N MI W y +'' as CU �.y &. �.I Q M V 00 M �r`1 O y '.� .� •� ry W p 0 C N M vl N o0 00 �y ; O N rn N 90 Oo o p GC W k' p m O 0 FSI � a 4`: 3 3 M v r O n 7 b Y O bA N 00 Z ° N v r, r 00 p Q 0 0 d O O b b Qnl ' 0.'i "O O O V p tu Y O N M. M. CrA V A M > N 0J VJ a .-. .-. .� U ��' U3 O N y •7 ,� r O 0. 'd L' 4Oa d ip ar M ra y O >. 0 o U o N F w m o `i ?? od V ° ° b � b by Z o v O aU m p A C c0 t3 V] U ° y p, a0i = O y b '� O O O d C • 0 Ch to O� .O I 0 . .. 03 a3i b O q3q �n 7 V y0F Z B3-9c ATTACHMENT City Council Resolution No. (2009 Series) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING AN AFFORDABLE HOUSING FUND AWARD OF $1 MILLION FOR THE WINEMAN HOTEL REHABILITATION PROJECT (849 Higuera) WHEREAS, the City Council of the City of San Luis Obispo met in the Council Chamber of City Hall, 990 Palm Street, San Luis Obispo, California, on May 19, 2009 for the purpose of considering a request by Wineman Hotel LLC for a grant from the City's Affordable Housing Fund; and WHEREAS, the Wineman Hotel Rehabilitation Project includes the seismic retrofit and historic rehabilitation of the Wineman Hotel building, a building on the City's Master List of Historic Resources, which was most recently used for long-term occupancy; and WHEREAS, the project will result in the rehabilitation of 23 units that will be deed- restricted for low-income individuals, and 23 units that are expected to be affordable to moderate income households without deed restrictions; and the provision of this affordable housing is consistent with the City's Housing Construction Objectives (Housing Element Table 5) and WHEREAS, a construction permit has been issued for the seismic retrofit portion of the project and the Community Development Department has approved architectural plans for the facade restoration and interior remodel for the building; and WHEREAS, the City Council has duly considered all evidence, including the testimony of the applicant, interested parties, and the evaluation and recommendations by staff presented at said meeting. BE IT RESOLVED, by the City Council of the City of San Luis Obispo as follows: SECTION 1. Findings. The City Council does hereby make the following findings in support of the proposed Affordable Housing Fund award: 1. Eligibility: The project is eligible for Affordable Housing Fund assistance because it will result in deed-restrictions for 23 low-income studio units for a term of 34 years. 2. Need. There exists a substantial need for the proposed type of affordable housing in Downtown San Luis Obispo, which would provide Downtown employees with the ability to walk to work. In addition, the project helps the City achieve its Housing Construction Objectives, as listed in Table 5 of the Housing Element. 3. Suitability: The project is particularly suited to the Downtown location because the project involves the restoration of a historic building that was most recently used for long-term residents. 4. Timing: The timing of the award is critical because the funds will be used immediately to complete an on-going construction project. -9 3 -7� City Council Resolution No. (-.,d9 Series) _ Attachment 9 Page 2 5. Financial Effectiveness: The proposed award of$1 million leverages substantial equity contributed by Wineman Hotel LLC for the purpose of rehabilitating the historic Wineman Hotel for residential and commercial use. 6. Readiness: The project has all of its required City approvals and can be completed with the approval of the recommended Affordable Housing Fund Award. Section 2. Affordable Housing Fund Award. The City Council does hereby approve an Affordable Housing Fund grant in the amount of$1 million, subject to the following conditions of approval: 1. Prior to release of any portion of the Affordable Housing Fund award, the owners of the property shall enter into City long-term affordability agreements for 23 low-income units for a term of 34 years (the length of the master lease), which shall be recorded against the title of the property. Alternatively, if the master lease is modified to give the leaseholder the right to encumber the property with affordability agreements, the Wineman Hotel LLC may enter into the required City affordability agreements to the approval of the City Manager and the City Attorney. 2. Prior to release of any portion of the Affordable Housing Fund award, the Wineman Hotel LLC shall receive written approval from the San Luis Obispo Housing Trust Fund for a loan in the amount of$825,000, per the project pro-forma. If the Housing Trust Fund does not approve the loan, the Wineman Hotel LLC shall submit a revised project pro-forma to the Community Development Director showing how this funding source will be replaced, along with written commitments obligating the new source of funds to the project. 3. Prior to release of any portion of the Affordable Housing Fund award, the Wineman Hotel LLC shall provide the Community Development Director with a complete summary of construction expenses made to date on the project and an estimate of the remaining construction costs that are necessary to complete the project and allow for building occupancy, consistent with approved project plans. If there are any gaps between the cost of completing the project and the funding available, the Wineman Hotel LLC shall submit shall submit a revised project pro-forma to the Community Development Director showing how the funding gaps will be closed, along with written commitments obligating the new source of funds to the project. 4. Any change in the number of housing units in the Wineman Hotel building, such as would be caused by combining existing units, shall require the prior approval of the Community Development Director. In determining whether or not to approve such a request, the Director must find that the project does not have a detrimental impact on the overall affordability of units in the Wineman Hotel. City Council Resolution No. (Y,,,j9 Series) Attachment 9 Page 3 Upon motion of seconded by , and on the following vote: AYES: NOES: ABSENT: The foregoing resolution was adopted this 19`}'day of May,2009. Mayor David F. Romero ATTEST: Audrey Hooper City Clerk APPROVED AS TO FORM: Jo P.Lowell City Attorney 83 - 3 SAN LU IS • 0311 S'N0 • CULIN '1' Y 1 �./ �i t Ill 11kHUSING �*T-RUST 'r±oesruc ro& .sat"May 13, 2009 RED FILE N 6�01INL- Z`COUNCIL D DIR MEETING AGENDA L'8A0CNtft-A- O-FINDIR DAT ITEM #-f3, ff-ACA8-&!31 -D-FIRE CHIEF ff-ATTORNEY ;'PW DIR ErCLERK/ORIG POLICE CHF Mayor David Romero and EPT HEADS ?'REC DIR Members of the City Council I ZIHTRILDDIR City of San Luis Obispo = �- _-- 990 Palm Street San Luis Obispo, CA 93401 Dear Mayor Romero and Members of the City Council: I am writing on behalf of the San Luis Obispo County Housing Trust Fund to support the staff recommendation to approve a $1 million award from the Affordable Housing Fund for the Wineman Hotel Rehabilitation Project at the May 19, 2009 City Council meeting. We are excited about the Wineman Project for a number of reasons. First, it will significantly increase the City's affordable housing stock. In addition to providing 23 deed restricted low- income units, it will provide an additional 23 units that will be affordable to low and moderate income households without restrictions. The project's location is ideal for downtown employees and others who will be able to walk or bike to work and services. In addition, by renovating the building's fagade, the project will add to the historic fabric of downtown. The Housing Trust Fund is currently considering a loan of$825,000 or more for the project. The staff report accurately describes the issues related to our approval of this loan. We hope to complete our underwriting process within a month. As you can imagine, this project is quite complicated. It is like a giant jigsaw puzzle. We know what the final picture looks like, but we don't know whether we have all the pieces. The financing is critical to the project's success. So is renegotiating the lease and possibly other agreements. The sponsor is seeking the required financing—the City grant, an HTF loan and a commercial loan. Once he receives all three commitments, he will need to renegotiate the lease to meet the requirements of the lenders. Your approval will help the project move forward without putting any funds at risk. Sincerely, Gerald L. Rioux Executive Director Cc: John Mandeville Michael Codron Ali Vandani 4111 Broad Street, Suite A-4, San Luis Obispo, CA 93401 ♦ (805) 543-5970 0 www.slochtf.ora , council mCMORAnaum city of sin Luis QBIspo�communtty aevelopment.depaatment J DATE: May 15, 2009 _ RED FILE H111112 TO: City Council AAEETING DA ErtOU"CIL 2 C3'CDD DIR DAT ITEM # a3 �� Awr�A'«22-FIRECHIEF VIA: Ken Hampian, CAO L7C TERWpp G �F�®-LDIR ICE CHF 11 DEPT MEADS e 1 08C DIA FROM: John Mandeville, Community Development Director p- -� E—IJTi6 DIR BY: Michael Codron,Housing Programs Manager �NL�Irint�.. ieou�a:tL SUBJECT: Clarification on the Wineman Hotel Funding Request The purpose of this memo is to clarify three items associated with the Wineman Hotel funding request,item B3 on the Council's May 19''agenda. Although the staff recommendation for a$1 million award has not changed,the applicant has asked staff to address the following items regarding their application. 1) On April 8,2009,the applicant formally revised their original funding request via e-mail and that information was mistakenly left out of the Council Agenda Report. The attached pro- forma represents the applicants current request,which is a$2 million City grant and a Housing Trust Fund (HTF) loan of$745 thousand (Attachment 1). In the Council Agenda Report for this item, all discussions of the$1 million grant and HTF loan of$825 thousand refer to the staffs funding recommendation, which has not changed. 2) Page 3 of the Council Agenda Report includes a list of pro-forma assumptions associated with the revised fimding request. Under No. 4,the revised rates of return listed are for a 55 year lease,not the 34-year lease that is in place. The assumed rate of return for the project under the scenario recommended by staff is 5.9%for the residential portion of the project, and 9.5% for the total project(combined residential and commercial components). The summary table reflecting this information is attached(Attachment 2). 3) The last sentence on Page 3 of the Council Agenda Report should be deleted because the revised project pro-forma does assume approval of a Mills Act Contract and a corresponding 25%reduction in the amount of property taxes that would be paid over the term of the lease. CADm mmts and Settmgs\khampim\Local Settmgs\Temporary Intend Fdes\0LKC4\memo(5-19).doc I "'°"° °°"''" "'council memoizanoum city o(san tins asispo. community.aEyELopmEnt , pautmsnt DATE: May 14, 2009 TO: City Council VIA: Ken Hampian, CAO FROM: John Mandeville, Community Development Direct9m BY: Michael Codron,Housing Programs Manager SUBJECT: Clarification on the Wineman Hotel Funding Request The purpose of this memo is to clarify three items associated with the Wineman Hotel funding request, item B3 on the Council's May 19`h agenda. 1) On April 8, 2009,the applicant formally revised their original funding request via e-mail and that information was mistakenly left out of the Council Agenda Report. The attached pro- forma represents the applicants current request,which is a$2 million City grant and a Housing Trust Fund(HTF) loan of$745 thousand (Attachment 1). In the Council Agenda Report for this item, all discussions of the$1 million grant and HTF loan of$825 thousand refer to the staff s funding recommendation. 2) Page 3 of the Council Agenda Report includes a list of pro-forma assumptions associated with the revised funding request. Under No. 4, the revised rates of return listed are for a 55-year lease, not the 34-year lease that is in place. The assumed rate of return for the project under the scenario recommended by staff is 5.9% for the residential portion of the project, and 9.5% for the total project (combined residential and commercial components). The summary table reflecting this information is attached(Attachment 2). 3) The last sentence on Page 3 of the Council Agenda Report should be deleted because the revised project pro-forma does assume approval of a Mills Act Contract and a corresponding 25%reduction in the amount of property taxes that would be paid over the term of the lease. G:\CD-PLAN\MCODRON\Housing\W inenw\memo(5-19).doc Table l-A _ Attachment 1 Wineman Building 8391849 Higuera-Residential Component Development Statistics and Costs Residential Units 48 Residential Building Square Feet 14,904 Development Cost Summary Seismic retrofit work Fagade rehab and preservation work $3,082,000 Tis for residential Total $3,082,000 Total Cost per Unit $64,208 Total Cost per Sq.Ft $207 Market Value per Building Square Foot at Completion $220 Total Market Value-Residential $3.280.000 200M9 Assessed Value-839/849 Higuera:Residential Portion $1,394,000 Developer's Lona Tenn Lease Total per Month 8391849 Higuem Residential(213) Year 1(Prior to Building Operation) $10,000 $8,328 $5,552 Year _ $11,000 $9,160 $6,107 Year $11,000 $9,160 $6,107 Year $16,000 $13,324 $8,883 Year 5-9 Prior Year+CPI,limited to 3% Year 10+ Prior Year+CPI,limited to 5% Development Cost Detail Rehab/Preservation Soft costs including architectural,engineering,and consulting fees $200,000 $108,513 Seismic retrofitting based on$40.00/S.F. $600,000 $300,000 Demolition&Haulaway $110,000 $110,000 Asbestos Abatement $85,000 $85,000 New.Roofing $75,000 $75,000 HVAC $143,500 - Electrical Rough/Finish $275,000 - Plumbing Rough/Finish $265,000 - Windows/Doors $120,000 $120,000 Drywall/Insulation $162,000 $162,000 Elevator Retrofit $50,000 $50,000 Fire Sprinklers $67,500 Kitchen Cabinets/Appliances $75.000 - Carpets $40,000 - Fire Escapes $48,000 $48,000 Paint $70,000 $70,000 Re-construction of historic elements and finish carpentry $225,000 $225.000 Tile work $138,000 $138,000 Supervision for sic months $100,000 $54,257 Subtotal $2,649,000 .$1,545,770 Overhead @ 7% $199,430 $108,204 6 months of Long-Tenn Lease Payments $33,311 - Total $3,081,741 $1,653,974 Potential Tax Credit Cost Basis ' $1,653,974 20%National Register Pre-1939 Building Rehabilitation Tax Credit $330,795 'Due to the applicant's anent income tax circumstances,the tax credit Is assumed to be carried forward and applied starting in Year 11. Sources Wlneman Building,LLC;Goodwin Consulffng Group,Inc. - 4/72009 Attachment 1 Table 1-B Wineman Building 839/849 Higuera-Residential Component Pro Forma Assumptions Revenues Total Units Monthly Rem Vacancy Rata Owners Unit 1 $0 0% Managers Unit 1 $0 0% Moderate Income Units 10 $620 10% Low Income Units(not guaranteed) 16 $700 5% Low Income Units(guaranteed by HASLO) 10 $700 0% Very Low Income Units(guaranteed by County/Transibons) 10 $580 0% Total Units 48 Blended Monthly Rent per Unit(excluding$0 Units) $700 Expenses Yr.1%Of Yr.2%of Yr.3+%of Monthly Rem Monthly Rem Monthly Rent Operating and Maintenance 20% 25% 30% Property Management 7% 7% 7% Taxes[Rate per$1001 1.002200 3% 3% 3% Insurance z 5% 5% 5% Total Expenses 35% 40% - 45% Operating Reserves(%of Operating Costs) 5.00% Replacemerd Reserves(%of Development Costs) 0.30% Economic Annual Escalation Rates .Revenues 3.00% Expenses(not including Taxes) 3.00% Taxes 2.00% Firrancina %of Cost Amount Terms SLOCHTF Loan $745,000 Loan Origination Fee(1.0%)+Loan Costs(1.0%) ($14,900) 2.00% SLOCHTF Loan/Net Proceeds) 23.7% $730,100 Interest Rate 6.00% Tenn 15 yrs? Grant from the City of San Luis Obispo 64.9% $2,000,000 Equity/Merest f w WMemon Buildup.LLC 11.4% $351,900 Total 100.0% $3,082,000 Conventional Loan Rebinding of SLOCHTF Loan $385,0004 Year of Refunding 11 Interest Rate 7.00% Tenn 20 yrs. Loan Origination Fee(1.0%)+Loan Costs(1.0%) 2.00% Equity Reimbursement in Year 11 from Cash-Out ReNnancing $0 Net Equity Interest after Year 11 $351,900 'Based on current assessed value,adjusted by 25%for Mills Act application. z Assumes the residential component accounts for 213 of the annual insurance for 8391849 Higuere(total cost of-$25,000). 3 tat year is interest only. Years 2.10 are based on a 15 year amortization,and a five-year extension is assumed. 4 Loan balance includes the loan origination fee and loan costs. Sources.,City of San Luis Obispo.,San Luis Obispo Counly Housing Trust Fund Goodwin Consubfng Group,Inc. 41712009 Attachment 1 N n m m 41g .. 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N ✓N M ✓N "N' N �' M N p M N N N Y � 4N1 x M N M II II z b Z E M U G H m m m K Q � O Oc'c m m 9 u LL O W H J G cc m E € p C C m W m u m e C IL. 0 m y S 4 6 y c N � e m � 5 0 0 o m V ^ m LL 4 Z m m ° $ g $ gl o o o i o m Uo 4 m E d - E $ 'c 'Q a V .$ g m m m m m g ¢ggE o Mcg E '2 n�g g n mpe O_ d V E g m f7 m o m LL rS G m m O w a n` r y nb 'E x n m '� g G m m m m Y po m o m g u c m m m m Q B d C W O m 1 W 0 0 2 G J V S O V S V O O K m 6 W 0 m M W f S f U 2 uS F W C 3 m d m Attachment 1 m 1;p ie 6 R 0 1 =W 1 1 1 1 c m g a I I I W N p M NN n N N CD m i �i .euNi m r� w � a .^• n' N utli o e'e W Nd n I V CoO 14 11 1 I n mn =, m m uY' nn 0 m 1 q� N _� N w yj O N nppO IO O b N N N m^ q N N n q ^ V N N N N N N N M N ggN m m m S uoi n o w t p w o �q N $p m n a m o u et I n m n I I I I w n!4 g m N O 5eri m r: n MImn �mS ai a �mN of g W d m W d A N d 1 " N 3 X 1 I 1 I N O w m N W 7 A C w O IQN m m w 1rvp � "M On �3 W {^� � e 0 N W �J W ip'O N N 1 Q I I I I O m N N O 19 N m H a NX O 0 1") w O Ww N a• d m mpp pj W r w O O m m Om m N rN N_.rN r N N H �N N ej N rN N M N Q- a� ry wI g m a $ a m N N e N N W W. p Vi p m 'n p � m_ ey m m t7 ^ o 0 O O N d p p f d N M b N N N = N t7 M !1 w N M N N N e7 N r N M r N N N N r N M Of N C ♦ n p py N W O 6 N p V I N N e'! 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I m v o a g x NIp m m e ms ' O w w OI N N b m p N O d V O N N W N N N b N N N H N N CI N M H N F N M N N N N m e7 b iA In w 6�p 1 ^w � 1 I 1 1 e'1 m w F O e� m N H N eel Ol m N d N e7 - W m w !l - O N q O w m W N N p yp W W imWp an F O m C! 6 N � d V O � N N N MI m N ' N Cl N ' H ^ b N Iqa r Cm9 A w r! f0 b N ^ M N I7 N N Li _ N m 11 11 b 2 N � � U X C H � m m C o � O � c C m > q U W J p n !a 2 O p m u m J m d u m m 0 ro o e m` 2 em $ E a em lzt. o z e o z S E c m w 8 y o S o m m e n $ W m m o a a > `oji Ir m s' r E E !p o n e a a a o m 'e s 0 0 0 w M w '0 M M M K S U O m U U ° O R d w O m a w 12 $ m n y c Attachment 1 m SIM in ti N n n w I l w I I I I I I I I I f w I n I I I � � m m < . �< . m � m m m g O p O ym UN ��N NNS' N M n�n a � n w I i m I I I I I I I I 1 S � N I N I I I N qm e N tl O0 N ♦0 N Imm r Sm 1 1 N N ~ N N p N N M N N N n o n « to m oI t o I I I I I I I I I 8 c l e I II I P P p N O 0 N m 0 W O m m w 0 M O yy M � Iv m m N m Ol M w Sf « m e m^Wo I m N x I I I I I 1 X n w t l l wry tl tl m a mw p CR Ck o Ful. ry IR o N M N n n n It N Yi mm n p p d a of a d m ri n ai wi a ri ri m. N ^ N m N e CI N O 'N ry r M r N N N a m m t o % I I I I nq $ O S 3F m m m 1 1 1 O e p P b m e t7 �_ N mr 0 P O 0 N N A gg n.m O m A m YI CI ri C n Ol It m m N in N moi:p m n N I OX m « a wl ♦ p n m w e e m pp N n t7 n m w m m N N (+1 m m N 10 m m O N 10 m e M O w N YI pi Yl Yl C N N N m N N N N ry � M l7 n 1PY m N A 0 m N m N A CI N O w N N W N M N "' M N N N O! « n o m N e n ry n a eo a d � me o .m- p N n (tpO O uni m e m i I m m 11 1 I g m m Yui a N N I 11 T tp O_ N N N n N N p m 0 m O O N N N M 1I1= m^ m< 0 Rom" M = ry 'm 0 O tl OI n tl m 10 Im w m r m m m <n I "w X I I 11 m �n p p e m �p ry 1 1 I m 1p t0 O @ 0 N ' ^ O'm 0 m O PI N m {") n r: N N m p n m O N w m tl N N 0 N m w m N O m J t N Omi N r A ON m O N ^ w ^ N m ry e p m N n I m I I I I S VM A m 8 m n m I I I Cpl n tl n N P n m �1p! p� Q' m n n O Oml W p 0 Y � Cryl ^ OI r m II It z m 2 C " � V % C F C m m OC a • E � 8 m U E N L L H W N 0 3 o p U c E 3 g o e E E mo V S m Ego. ¢ C V m LL O O S 0 0 Y Y O IL C N c m S pp c Q m � 8 ¢ p > c • C m c c C m @ z L s c ` 9 m m o n $ m ¢ m .e E 8 a m .E 8 e • P �C _`m m 8 U > > % O C J m Q .O (J m O m ].. C m • C m O O • m C C > > T T L_ �a9 m m m LL po nc • as m m Ea2 'oe 'g b �, b d 'I-` m • 0 m e % g '� m ,$p o P^o m j m m • o m u SS c o i0 0 m • m m m V S z F 3 m 6 q Wineman Building Attachment 2 Summary Tables Estimated Rate of Return SCENARIO $1M Grant $211111 Grant 22%Market Rate H 50%Market Rate/1 22%Market Rate/1 50%Market Rate H $745,000 HTF Loan $825,000 HTF Loan $745,000 HTF Loan $825,000 HTF Loan Lease Term Lease Term Lease Tenn Lease Term Project Component 34 Yrs 55 Yrs 34 Yrs 55 Yrs 34 Yrs 55 Yrs 34 Yrs 55 Yrs 839/849 Higuera-Residential Component 5.1% 6.8% 5.9% 7.5% 15.8% 16.1% 20.3% 20.5% 8391849 Higuera-Commercial Component 8.7% 9.8% 8.7% 9.8% 8.7% 9.8% 8.7% 9.8% 839/849 Higuera-Combined 7.2% 8.5% 7.6% 8.8% 10.2% 11.0% 10.7% 11.5% 853 Higuera 18.2% 18.4% 18.2% 18.4% 18.2% 18.4% 18.2% 18.4% 839/849 Higuera and 853 Higuera Combined 9.2% 10.2% 9.5% 10.5% 12.0% 12.6% 12.5% 13.0% Estimated Equity Requirement SCENARIO $1M Grant $2M Grant 22%Market Rate/1 50%Mar955Yrs 22%Market Rate/1 50%Market Rate H $745,000 HTF Loan $825,000 $745,000 HTF Loan $825,000 HTF Loan Lease Term LeasLease Term Lease Term Project Component 34 Yrs 55 Yrs 34 Yrs 34 Yrs 55 Yrs 34 Yrs 55 Yrs 8391849 Higuera-Residential Component $1.4 M $1.4 M $1.3 M $1.3 M $0.4 M $0.4 M $0.3 M $0.3 M 839/849 Higuera-Commercial Component $1.4 M $1.4 M $1.4 M $1.4 M $1.4 M $1.4 M $1.4 M $1.4 M 8391849 Higuera-Combined $2.8 M $2.8 M $2.7 M $2.7 M $1.8 M $1.8 M $1.7 M $1.7 M 853 Higuera $0.4 M $0.4 M $0.4 M $0.4 M $0.4 M $0.4 M $0.4 M $0.4 M 839/849 Higuera and 853 Higuera Combined $3.2 M $3.2 M $3.2 M $3.2 M $2.2 M $2.2 M $2.2 M $2.2 M Total Equity as a%of Total Cost 47% 47% 46% 46% 32% 32% 31% 31% /1 22%Market Rate scenario includes 56%low Income and 22%very low income units;50%Market Rate scenario Includes 50%low income units. Source.,Goodwin Consulting Group,Inc. 4/7/2009 V r. �j 1 r, r ' rri F {fp • 1 ; � l�l`r' v�•9ti' ! Vit. ti � T 14�S�f�i q 17 l r l 4• .rs 0 ' r --_- o , kms.?yl ' f G 0 � � o 0 4 ja 00 ` '- p° a�o � 9 n _0 .z. n (I i P � MIG COAST euu.DERS- Estimate Details Report Page 7 GARN REMODAL 4/7/2009 6.11 PM Estimate Totals Labor 8,660 8.860 Material. 69.554 69,554 Subcontract 300,503 3dum Equlprnent 3,070 3,070 Other 300 300 382,287 382,287 382,287 ConBngendes 7,846 2.000 % C Contractors Fee 45,874 12.000 % T Tote/ 435,907 M CQ cc Qb Ll � 1 -WP 4'`0 oc' i -ee l A 4 w1 r l AM- APL r Err N O t _ O 1AMMU ��-' rte,_-1'-'•�-"-- . it ra at �i ji, h - i ski n y VIJ` LL IL k5 'f'tE N rsl y O •-•r— � d L J - - , alM L - W WLa a e W - 9/ , - til 1 z f� Z z t r— fW wo w w w ¢ Z¢ � Z a�� �O LLO :Si; r.. 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