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HomeMy WebLinkAboutph2tefra2005johnsondelrioterraceapt FROM: Derek Johnson, Community Development Director Prepared By: Tyler Corey, Housing Programs Manager SUBJECT: REQUEST FROM THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO REGARDING A FORTY-ONE UNIT SENIOR RENTAL HOUSING PROJECT LOCATED AT 2005 JOHNSON AVENUE KNOWN AS THE DEL RIO TERRACE APARTMENTS RECOMMENDATION 1. Conduct a public hearing under the Tax and Equity Fiscal Responsibility Act (TEFRA) of 1982 and pursuant to the requirements of the Internal Revenue Code of 1986. 2. Adopt a resolution allowing the reissuance of a Loan by the Housing Authority of the City of San Luis Obispo for the Del Rio Terrace Apartments located at 2005 Johnson Avenue. DISCUSSION Background The Housing Authority of the City of San Luis Obispo (the “Authority”) is requesting that the Council hold a public hearing regarding the reissuance of a tax-exempt Loan that financed the construction of the Del Rio Terrace Apartments located at 2005 Johnson Avenue. Although there is no financial participation (or liability, direct or indirect) by the City in approving the reissuance of this “conduit” financing, Council conduct of a public hearing and approval of the reissuance is required under federal regulations for tax-exempt financing. Project Summary 1. Del Rio Terrace Apartments is a 40 unit (plus one manager’s unit) affordable rental apartment facility for seniors located at 2005 Johnson Avenue (the “Project”). The Project is owned by Johnson DRT Associates, a California limited partnership (the “Borrower”), of which the San Luis Obispo Non-Profit Housing Corporation (a nonprofit corporation established by the Authority) is the general partner. 2. The construction of the Project was financed with the proceeds of a $4,000,000 Loan (the “Loan”) made to the Authority on October 31, 2005, by First Bank of San Luis Obispo (“FBSLO”). Through a series of bank mergers and acquisitions, the Loan is now owned by Union Bank, N.A. Meeting Date Item Number 12-10-13 PH2 - 1 Conduit Reissuance Request: Housing Authority of the City of San Luis Obispo Page 2 3. In order for the interest on the Loan to be tax-exempt, on May 6, 2003, the Council conducted a public hearing regarding the financing by the Authority of the Project under the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”), and pursuant to the requirements of the Internal Revenue Code of 1986, on that date the Council adopted Resolution No. 9450 (2003 Series) approving the Loan by FBSLO to the Authority to finance the Project (Attachment 1). 4. The expected April 30, 2005 completion of the Project was delayed due to circumstances beyond the control of the Authority. As a consequence of the delay, FBSLO agreed to make various modifications to the documents for the Loan, which modifications resulted in a “reissuance” of the Loan for federal tax purposes. Applicable federal tax law required that the Council approve the then reissuance of the Loan following the conduct of a TEFRA hearing regarding the reissuance, in order to maintain the tax-exempt status of the interest on the Loan. 5. On July 19, 2005, the Council held a TEFRA public hearing regarding the then reissuance of the Loan and adopted Resolution No. 9709 (2005 Series) approving the reissuance by the Authority of the Loan (Attachment 2). 6. Union Bank, N.A., the current owner of the Loan, has now agreed to lower the interest rate on the Loan from 7.50% to 4.50%, which modification to the terms of the Loan will result in another “reissuance” of the Loan for federal tax purposes. As with the reissuance of the Loan in 2005, this new reissuance of the Loan once again requires that the Council hold a TEFRA public hearing regarding the new reissuance and to adopt a resolution approving the new reissuance by the Authority of the Loan, in order to maintain the tax-exempt status of the interest on the Loan. No City Liability for the Financing There is no City liability in approving the reissuance of conduit financing. The Loan is payable solely from the payments by the Borrower on a Loan made to it (the “Borrower Loan”) by the Authority from the proceeds of the Loan. The rental payments by tenants in the Project are the source of revenue used by the Borrower to repay the Borrower Loan. The City has no financial, legal, or moral obligation, liability or responsibility for the Project or for the repayment of the Loan or the repayment of the Borrower Loan. The documents for the Loan clearly provide that the Loan is payable solely from payments on the Borrower Loan made by the Borrower. Outside of holding this hearing and adopting the required resolution, no other participation or activity of the City with respect to the Loan will be required. City’s Conduit Financing Policy While the Council is not obligated to approve this request, it would be consistent with past City actions regarding the Project. Under the City’s debt financing and management policies, consideration of a request for conduit financing is generally a two-step process: PH2 - 2 Conduit Reissuance Request: Housing Authority of the City of San Luis Obispo Page 3 1. First asking the Council if they are interested in considering the request and establishing the ground rules for evaluating it. 2. And then returning with the results of this evaluation and recommending approval of appropriate financing documents if warranted. This two-step approach was completed in 2003 when the Council conducted the original TEFRA hearing for the Loan and adopted Resolution No. 9450 (2003 Series) approving the Loan by FBSLO to the Authority to finance the Project (Attachment 1). City’s Past Experience with Conduit Housing Bonds The City has approved seven “conduit” housing bond issues in the past as reflected in the following summary. There have been no financial difficulties with any of these bond issues. 1. 1985. 168-unit apartment development on Southwood Drive (refinanced in 1993). 2. 1998. 30-unit development (all “affordable” for seniors and persons with disabilities) on Brizzolara Street. 3. 1999. 122-unit apartment development by the De Vaul Ranch Company, of which 26 units will be affordable—24 for “very-low” and 2 for “moderate” income households. 4. 2002. 19-unit seniors apartment development at 433 Pacific Street (Pacific and Carmel). 5. 2005. 40 affordable one-bedroom units for seniors as well as one manager’s unit in an existing historic single-family residence at 2005 Johnson Avenue (“Del Rio Terrace”). 6. 2009 and 2011. 8-unit housing project at 1468 East Foothill Boulevard for the University Board of the Santa Barbara Presbytery. 7. 2012. 120-unit apartment project affordable to low and very-low income households located at 1550 Madonna Road. Next Steps After the TEFRA public hearing and adoption of the Resolution of the Council approving the reissuance of the Loan, the Authority, the Borrower and Union Bank, N.A. will enter into documents reducing the interest rate on the Bonds from 7.50% to 4.50%. There will be no further actions required by the City. FISCAL IMPACT There are no fiscal impacts to the City associated with this matter. As noted above, the City has no liability, directly or indirectly, for the financing. PH2 - 3 Conduit Reissuance Request: Housing Authority of the City of San Luis Obispo Page 4 ALTERNATIVES 1. Do not approve the reissuance of bonds by the Authority. Given the approvals that the Project has already received from the City and the lack of any liability for repayment of the Loan by the City, this option is not recommended. 2. Defer consideration of the request. Due to the savings in interest costs resulting from the reissuance of the Loan, this option is not recommended. ATTACHMENT 1. Council Resolution No. 9450 (2003 Series) 2. Council Resolution No. 9709 (2005 Series) 3. Draft Council Resolution approving the reissuance of the Loan by the Authority T:\Council Agenda Reports\2013\2013-12-10\TEFRA Hearing for Del rio (Johnson-Corey)\PH1 - TEFRA Hearing for Del Rio Terrace Apartments.docx PH2 - 4 Attachment 1 PH2 - 5 Attachment 1 PH2 - 6 RESOLUTION NO. 9709 (2005 SERIES ) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISP O APPROVING THE REISSUANCE OF A LOAN OF THE HOUSIN G AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR THE PURPOSE O F PROVIDING FINANCING FOR A RESIDENTIAL RENTAL HOUSIN G FACILITY SPONSORED BY THE SAN LUIS OBISPO NON-PROFIT HOUSIN G CORPORATION-DEL RIO TERRACE APARTMENT S WHEREAS,the Housing Authority of the City of San Luis Obispo (the "Authority") i s authorized by Chapter 1 of Part 2 of Division 24 of the Health and Safety Code of the State o f California, as amended (the "Law"), to make bonds to finance housing developments as specified in the Law ; and WHEREAS,the Authority has entered into a Loan Agreement, dated as of October 1 , 2003 (the "Loan Agreement") with the First Bank of San Luis Obispo (the "Bank"), pursuant t o which the Bank agreed to make a loan to the Authority (the "Loan") in an amount of up t o $4,000,000, and on October 31, 2003 (the "Date of Issuance") the Bank made the first advance o f $54,000 of the principal of the Loan to the Authority ; and WHEREAS,the Authority has entered into a Loan Agreement, dated as of October, 1 , 2003, with Johnson DRT Associates, a California limited partnership (the "Borrower") of whic h the San Luis Obispo Non-Profit Housing Corporation, a California nonprofit public benefi t corporation is the sole general partner, whereby the Authority has agreed to loan the proceeds o f the Loan to the Borrower to enable the Borrower to finance the acquisition and construction of a 41 unit residential rental housing facility for seniors to be located at 2005 Johnson Avenue in th e City of San Luis Obispo (the "Project"); and WHEREAS,the Loan is considered to be a "qualified exempt facility bond" unde r Section 142(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and Sectio n 147(f) of the Code requires that the "applicable elected representative" with respect to th e Authority approve the incurrence of the Loan by the Authority following the holding of a publi c hearing with respect thereto ; and WHEREAS,the Authority determined that the Council of the City was the "applicabl e elected representative" to approve the incurrence of the Loan by the Authority and on May 6 , 2003, the Council held a public hearing regarding the Loan and adopted a Resolution approvin g the incurrence of the Loan by the Authority for the purpose of providing financing to th e Borrower for the Project ; and WHEREAS,the City is not a part to any of the agreements or other documents relatin g to the financing of the Project, and neither the financing of the Project nor the Loan will impos e any legal, financial or moral obligation upon the City with respect to the financing of the Project ; and WHEREAS,the Loan Agreement contemplated that the Project would be full y constructed by April 30, 2005, and, due to construction delays it now appears that th e construction of the Project will not be completed until December 31, 2005 ; and R9709 Attachment 2 PH2 - 7 Resolution No . 9709 (2005 Series ) Page 2 WHEREAS,the Bank has agreed to allow modifications to be made to the Loan Agreement to extend the construction period of the Loan, and the maturity date of the Loan t o accommodate the additional time necessary to construct the Project, but such modifications will , under the Code, cause a "reissuance" of the Loan ; and WHEREAS,in order to maintain the tax-exempt status of the interest on the Loan pai d by the Authority to the Bank, prior to the modification of the Loan Agreement, the Authorit y needs the Council to approve the reissuance of the Loan following a public hearing on the matter ; and WHEREAS,notice of said public hearing has been duly given as required by the Code , and the Council has heretofore held such public hearing at which all interested persons wer e given an opportunity to be heard on all matters relative to the financing of the Project and th e Authority's reissuance of the Loan and the Authority's loan of the proceeds thereof to th e Borrower ; an d WHEREAS,it is consistent with the General Plan, in the public interest and for th e public benefit that the Council approve the reissuance of the Loan for the aforesaid purposes . NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Lui s Obispo, as follows : Section 1 .The Council of the City of San Luis Obispo hereby approves the reissuance o f the Loan by the Authority under the Code in the amount of up to four million dollar s ($4,000,000), and the use of the proceeds of the reissued Loan to make a loan to the Borrower t o enable the Borrower to finance the acquisition and construction of the Project . Section 2. This Resolution shall take effect immediately upon its adoption . On motion of Vice Mayor Ewan, seconded by Council Member Brown , and on the following roll call vote : AYES : Council Members Brown and Mulholland, Vice Mayor Ewan and Mayo r Romero NOES : Non e ABSENT : Council Member Settle The foregoing resolution was adopted this 19 th day of July 2005 . Attachment 2 PH2 - 8 Resolution No. 9709 (2005 Series ) Page 3 Mayor David F . Romero ATTEST : APPROVED AS TO FORM : Jon is . Lowell City Attorney Attachment 2 PH2 - 9 Attachment 3 RESOLUTION NO. XXXX-13 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO APPROVING THE REISSUANCE OF A MULTIFAMILY HOUSING REVENUE LOAN BY THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR THE DEL RIO TERRACE APARTMENTS LOCATED AT 2005 JOHNSON AVENUE WHEREAS, the Housing Authority of the City of San Luis Obispo (the “Authority”) is authorized by Chapter 1 of Part 2 of Division 24 of the Health and Safety Code of the State of California to issue bonds and borrow money to finance multifamily rental housing facilities located within the area of operation of the Authority; and WHEREAS, on October 31, 2003, the Authority borrowed $4,000,000 (the “Authority Loan”) from First Bank of San Luis Obispo (the “Original Bank”) pursuant to a Loan Agreement, dated as of October 1, 2003 (the “Authority Loan Agreement”), between the Authority and the Original Bank; and WHEREAS, the Authority loaned (the “Borrower Loan”) the proceeds of the Authority Loan to Johnson DRT Associates, a California limited partnership (the “Borrower”) pursuant to a Loan Agreement, dated as of October 1, 2003 (the “Borrower Loan Agreement”), between the Authority and the Borrower; and WHEREAS, the Borrower used the proceeds of the Borrower Loan to finance the acquisition and construction of 41 units of multifamily rental housing for seniors known as Del Rio Terrace Apartments (the “Project”), located at 2005 Johnson Avenue in the City of San Luis Obispo (the “City”); and WHEREAS, the Authority Loan is considered to be “a qualified exempt facility bond” under Section 142(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and Section 147(f) of the Code requires that the “applicable elected representative” with respect to the Authority approve the incurrence by the Authority of the Authority Loan following the holding of a public hearing with respect thereto; and WHEREAS, the Authority determined that the Council of the City was the “applicable elected representative” to approve the incurrence by the Authority of the Authority Loan and on May 6, 2003, the Council held a public hearing regarding Authority Loan and adopted Resolution No. 9450 (2003 Series) approving the incurrence by the Authority of the Authority Loan for the purpose of providing financing to the Borrower for the Project; and WHEREAS, in July of 2005, the Original Bank agreed with the Authority and the Borrower to amend the Authority Loan Agreement, the Borrower Loan Agreement and related documents to modify certain terms of the Authority Loan and the Borrower Loan; and WHEREAS, the amendments resulted in a “reissuance” of the Authority Loan under PH2 - 10 Attachment 3 applicable provisions of the Code and in order to maintain the tax-exempt status of the interest on the Authority Loan the Council held a public hearing on July 19, 2005 regarding the reissuance of the Authority Loan and the ownership and operation of the Project, and on that date the Council adopted Resolution No. 9709 (2005 Series) approving the reissuance by the Authority of the Authority Loan; and WHEREAS, Union Bank, N.A. (the “Bank”), has succeeded to the interests of the Original Bank under the Authority Loan Agreement and is the current payee of the Authority Loan; and WHEREAS, the Bank has now agreed to allow modifications to be made to the Authority Loan Agreement and the Borrower Loan Agreement to lower the interest rate on the Authority Loan and on the Borrower Loan, but such modifications will, under the Code, cause another “reissuance” of the Authority Loan; and WHEREAS, in order to maintain the tax-exempt status of the interest on the Authority Loan paid by the Authority to the Bank, prior to the modification of the Authority Loan Agreement and the Borrower Loan Agreement, the Authority needs the Council to approve the new reissuance of the Authority Loan following a public hearing on the matter; and WHEREAS, notice of the required public hearing has been duly given as required by the Code, and the Council has heretofore held the public hearing at which all interested persons were given an opportunity to be heard on all matters relative to the reissuance of the Authority Loan and the ownership and operation of the Project; and WHEREAS, the City is not a party to any of the agreements or other documents relating to the Authority Loan, the Borrower Loan or the financing of the Project, and none of the financing of the Project, the Authority Loan or the Borrower Loan impose any legal, financial or moral obligation upon the City with respect to the financing of the Project; and WHEREAS, it is in the public interest and for the public benefit that the Council approve the reissuance of the Authority Loan for the aforesaid purposes. BE IT RESOLVED, by the City Council of the City of San Luis Obispo as follows: Section 1. Action. The Council of the City of San Luis Obispo hereby approves the reissuance of the Authority Loan by the Authority for purposes of the Code. This resolution shall take effect immediately upon its adoption. Upon motion of , seconded by , and on the following vote: AYES: NOES: ABSENT: PH2 - 11 Attachment 3 The foregoing resolution was passed and adopted this 10th day of December, 2013. ____________________________________ Mayor Jan Marx ATTEST: ____________________________________ Anthony J. Mejia City Clerk APPROVED AS TO FORM: _____________________________________ Christine Dietrick City Attorney PH2 - 12