DATE: October 9, 2024
TO: Honorable Mayor and City Councilmembers and Chairperson and Members of the Community Development Commission
FROM: Housing and Neighborhood Services Department
TITLE: RESOLUTION APPROVING THE ASSIGNMENT, ASSUMPTION, AND AMENDMENT OF EXISTING CITY AND COMMUNITY DEVELOPMENT COMMISSION LOAN AND AUTHORIZING THE CITY MANAGER TO EXECUTE ALL RELATED LOAN DOCUMENTS
RECOMMENDATION
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Staff recommends that the City Council and Community Development Commission (CDC), in its capacity as the successor housing entity within the meaning of Health and Safety Code Section 34176, adopt a resolution [1] Approving the assignment, assumption, and amendment of existing City and CDC loan totaling approximately $4,166,412 in principal and accrued interest; and [2] Authorizing the City Manager to execute all related loan documents by and between the City of Oceanside, the CDC, and Shadow Way Venture, LP for the acquisition and rehabilitation of Shadow Way affordable apartments at 4779 Yuma Avenue.
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BACKGROUND AND ANALYSIS
In September 2008, a below-market interest, residual receipts loan in a total amount of $5.6 million was provided by the City and the CDC to Shadow Way Apartments, LP, the current owner of the property in question, to acquire, rehabilitate, and convert the 144 residential units at Shadow Way Apartments, located at 4779 Yuma Avenue, for affordable housing (See Attachment 3, Map). At that time, total project costs were $28,122,839, funded by $14,000,000 of Tax-Exempt permanent financing, $7,489,266 of four-percent (4%) Low-income Housing Tax Credits, a $1,033,573 Developer Fee deferment, and the $5,600,000 City/CDC loan.
The complex, constructed in 1987, consists solely of two-bedroom units. Ninety percent of the units (129 units) are restricted for occupancy and at an affordable rent to residents at 60 percent or below the Area Median Income (AMI), while ten percent (15 units) are for residents at 50 percent or below the AMI. Under the regulatory agreement executed with the loan and governing the property, affordability restrictions are in place through 2063 (a period of 55 years).
In March 2024, Shadow Way Apartments, LP entered into a Purchase and Sale Agreement with Shadow Way Venture LP (an entity formed by MRK Partners, Inc., known as MRK) to acquire and rehabilitate the existing 144-unit Shadow Way Apartments (the Project).
MRK, which formed as the Administrative General Partner, along with Kingdom AD, LLC as the Managing General Partner, will serve as the general partners of Shadow Way Venture LP (Project Sponsor). In August 2024, the Project Sponsor applied for the use of $30.7 million of the 2024 State Ceiling on Qualified Private Activity Bonds (“Bonds”), with non-competitive four-percent (4%) tax credits, to finance the acquisition and rehabilitation of the Project. With the Tax Credit and Bond funds used for the Project, affordability will be extended an additional 55 years from completion of the Project rehabilitation.
In response to the 2024 Notice of Funding Availability (NOFA) issued by the City in February 2024, the Project Sponsor requested that the existing City/CDC loans and regulatory agreement be modified, assigned and assumed by the newly formed partnership and an additional $1,000,000 in assistance be provided in order to leverage the financing and increase competitiveness in its application for Bonds and Tax Credits. However, the 2024 NOFA prioritized new construction activities and, therefore, the Project was not considered for an additional award. The outstanding balance of the existing loan is approximately $4,166,412, in principal and accrued interest, anticipated through October 22, 2024, at the time of closing of escrow for the purchase of the Project.
The acquisition and rehabilitation would improve the property and extend the term of the affordable rents through 2080, currently scheduled to expire in 2063. Work to benefit the Project and existing tenants include immediate work to the exterior, asphalt, and sidewalk repairs as well as some in unit replacements. More significant rehabilitation is planned to occur with the re-syndication of the tax credits such as exterior repairs to roofs, windows, balconies, and common area upgrades, addition of more ADA units, interior updates, and energy efficiency upgrades for appliances and potentially solar energy.
Established in 2015, MRK’s portfolio of projects are located throughout California, Florida, Michigan, and the Washington D.C. metro area, consisting of 23 affordable housing properties and with nearly 4,000 units in their portfolio. MRK’s California portfolio totals 1,102 units. Kingdom Development, a California nonprofit public benefit corporation, has a residential housing portfolio that includes 11 properties, totaling 1,377 units. Sufficient information has been provided through the 2024 NOFA evidencing the Project Sponsor’s qualifications and experience in developing and operating similar facilities and its financial commitments and resources in assuming the obligations of the existing loan and regulatory agreement.
Staff recommends that the City Council and CDC approve the request to modify and allow the assumption of the existing loan and the restrictions to ensure the affordability of the apartments is preserved and execute all instruments, upon the advice and approval of the City Attorney, required to effectuate the transaction and implement the Project, subject to the following terms and conditions:
1. To ensure that the Property is operated in accordance with City standards and is competitive for tax credit financing that will allow for rehabilitation and improvement of the Property, modify the terms of the loan consistent with (1) an interest rate at the Applicable Federal Rate applicable to long-term loans with annual compounding interest as calculated in accordance with Internal Revenue Code Section 1274(d); (2) extension of the term of the Loan Documents and maturity date of the Loan to fifty-five years from the date the financing for the Property is re-syndicated with tax credits; (3) the Project Sponsor’s acquisition financing from the National Equity Fund (and its successors and assigns) and its Administrative General, shall be repaid prior to residual receipt payments on the City Loan.
2. Successor/Assignee will be required to operate the Project consistent with the Successor Housing Entity and City’s regulatory agreement, financing and the covenants imposed by these agreements and all other project requirements and agreements by the Project’s multifamily housing revenue bond and tax credit financing.
3. The assignment and assumption of the Successor Entity and City assistance is based upon the assumptions presented within the sources and uses of funds, development budget, development proforma and other information filed with the City for the project as submitted and reviewed by the City's Housing and Neighborhood Services Department.
FISCAL IMPACT
There is no impact to the General Fund or to the City’s available fund balances for the development of affordable housing. The requested action is an assignment and assumption of an existing loan, with modified terms to include an increase in the interest rate to the Applicable Federal Rate (AFR) with payments made from residual receipts, to effectuate the Tax Credit financing program, for a term of 55 years.
The original loan in the amount of $5.6 million was appropriated to the Project (Shadow Way Apartment Rehab Project) from the following sources:
|
Amount ($) |
Description |
Account No. |
|
$ 3,821,141 |
Low- and Moderate-Income Housing Fund Balance |
281.3010 |
|
$ 1,321,154 |
Condo Conversion Fees |
284.3010 |
|
$ 457,705 |
Inclusionary Housing In-lieu Fund |
278.3010 |
COMMISSION OR COMMITTEE REPORT
On September 24, 2024, the Housing Commission voted 7-0-0 to recommend the City Council and Community Development Commission approve the assignment and assumption of the existing City and CDC loan totaling approximately $4,166,412 in principal and accrued interest for the acquisition and rehabilitation of Shadow Way affordable apartments at 4779 Yuma Avenue.
CITY ATTORNEY’S ANALYSIS
The referenced documents have been reviewed by the City Attorney and approved as to form.
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Prepared by: Leilani Hines, Housing & Neighborhood Services Director
Submitted by: Jonathan Borrego, City Manager
ATTACHMENTS:
1. Staff Report
2. Resolution
3. Location Map
4. San Diego 2024 Area Median Income