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HomeMy WebLinkAbout1998-04-27 City Council (28)TO: City City of Palo Alto Manager’s Report HONORABLE CITY COUNCIL 3 FROM:CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT AGENDA DATE: APRIL 27, 1998 CMR:210:98 SUBJECT:AMENDMENT NUMBER TWO TO AN AGREEMENT TO PROVIDE COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUNDS FOR THE ARASTRADERO PARK APARTMENTS WATER SYSTEM REPLACEMENT PROJECT REPORT IN BRIEF Arastradero Park Apartments is a 66-unit subsidized family rental housing complex acquired in 1995 by a nonprofit affiliate of the Palo Alto Housing Corporation (PAHC). Major rehabilitation of the 25-year-old project has been completed, primarily with funds from the U. S. Department of Housing and Urban Development (HUD). However, HUD did not provide funds for replacement of the property’s domestic water supply and fire sprinkler system. In the last three years, there have been numerous instances of pipe blockages, water leaks and severely reduced water pressure which have affected the liveability of the housing units. As part of the 1996-97 CDBG Action Plan, Council allocated $286,380 in CDBG funding for the complete rehabilitation and replacement of the project’s water system. The total budget .is currently estimated at about $800,000, with the other funding primarily from the project’s replacement reserves. The current action requested of Council is to approve an amendment to the acquisition contract to provide a deferred payment loan of the $286,380 in CDBG funds so that the water system replacement project can proceed to construction. CMR:210:98 Page 1 of 5 RECOMMENDATION Staff recommends that the Council: 1)Approve, and authorize the Mayor to execute, the attached Amendment Number Two to an agreement with the Arastradero Park Apartments Corporation (APAC) and the Palo Alto Housing Corporation (PAHC), in substantially similar form (with. its attached form of promissory note), in the amount of $286;380 to provide FY 1996-97 Community Development Block Grant (CDBG) funds for replacement of the domestic water and fire sprinkler system at the Arastradero Park Apartments at 574 Arastradero Road; and 2) Direct the City Manager to administer the provisions of the agreement. BACKGROUND Arastradero Park Apartments is a 66-unit garden apartmentcomplex constructed in 1974 serving families and elderly households, with 47 units under a U. S. Department of Housing and Urban Development (HUD) Section 8 rental assistance contract. APAC (the nonp~:ofit ownership entity established and controlled by PAHC) acquired the project in April 1995 with major assistance directly from HUD and CDBG funds from the City. The City provided a CDBG grant of $12,645 for pre-acquisition costs and a CDBG loan of $303,821 for the purchase. PAHC manages the project under contract to APAC. APAC has completed major rehabilitation of the project with total hard construction costs of about $690,000. Most of the funding came from. HUD, although PAHC was also able to secure a $200,000 contribution from the seller. PAHC also expended approximately $20,000 to update units when there were tenant turnovers prior to the HUD funds becoming available. In the last months prior to the actual sale to APAC, there were a few reports from tenants of water pressure problems. In March 1995, PAHC hired an inspector specifically to investigate these reports; it also surveyed all tenants. The project’s water supply lines are galvanized steel. The inspector concluded that the problems reported by tenants were probably caused by sediment in the exterior water supply lines and not by problems in the piping within the buildings. Based on the insPector’s report, PAHC was able to convince HUD to add $44,780 to its funding budget for replacement of the exterior water lines. As the final financing was being assembled, Congress began steps to rescind the Federal funds PAHC needed for the purchase and to immediately terminate the entire Federal housing preservation program. It became clear that any further delays in closing the purchase to investigate the water system would jeopardize the HUD funding for the entire project. Therefore, despite some uncertainty about the condition of the water supply system, PAHC decided to proceed with the purchase, and escrow closed on April 27, 1995, shortly before Congress terminated the funding program. CMR:210:98 Page 2 of 5 In the first six months ofAPAC’s ownership, there were numerous instances of leaksin the interior plumbing and tenant complaints of severely reduced water pressure. PAHC’s maintenance staff believed that there were corrosion problems in the interior plumbing lines and that the condition extended throughout the entire complex. Interim repairs, costing about $300 per unit, were completed on the units with the worst problems using a vibration system to loosen blockages, but that technique often causes further leaks to appear. The problems have persisted over the last three years. Tenants continue to suffer low water pressure and PAHC reports that in 1997 a total of $9,500 was spent on repairs related to pipe blockage and failure. PAHC hired Encon, a hydraulic engineering firm, to inspect the entire project’s water system and recommend a course of action. Encon’s report stated that the water system was in poor condition and obsolete. Encon recommended that the hot and cold water piping throughout all six buildings be replaced. Because there-was no possibility of obtaining additional funds from HUD, PAHC applied in December 1995 for $286,380 in CDBG funds, based on an estimated budget of $331,160, to completely replace the water supply mains and the interior water piping. DISCUSSION For a number of reasons, the project’s scope of work and budget have been expanded since PAHC submitted the 1995 CDBG application. The $331,160 preliminary budget used in the CDBG application was based entirely on Encon’s report and cost estimates which did not include all components of the job. For example, there was no allowance for the construction of soffits to house the pipes or for the cost of repairing walls, bath enclosures, painting and other areas that will be disturbed during the installation of new water piping. The scope of work also had to be expanded in response to City. plan checking comments to include a fire sprinkler system component. The City has determined that the fire sprinkler system, which exists in three of the six buildings, must be upgraded with a separate water supply main connection and with new piping and sprinkler heads to meet current code. Approximately $120,000 of the revised budget relates to the addition of the fire sprinkler system upgrades to the scope of work. To mitigate the impact of these cost increases, the project has been divided into two phases. The first phase will include all site utilities and common area work and interior water piping work in one building. Phase One will be primarily funded with City CDBG and HUD funds. Approval was received from HUD to limit the application of Federal prevailing wages and procurement procedures to just the first phase. The second phase will include the interior work on the other five residential buildings and the interior fire sprinkler replacement work. No Federal funding will be involved in the second phase; it will be funded solely from the project’s replacement reserves. Even if the same contractors are used for both phases, there should be cost savings due to the reduction in Federal reporting and monitoring requirements. A revised budget for a two-phase project has been submitted by PAHC using current CMR:210:98 Page 3 of 5 construction cost estimates and the expanded scope of work. The current budget estimate for the entire project is $808,950 including design, permits, PAHC’s management and supervision and a 5 percent contingency. To be conservative, the budget estimates assumed that payment of Federal prevailing wages and reporting applied to both phases of the entire project. The budget is described in more detail in Attachment A. RESOURCE IMPACT Based on the recommendation of staff and the CDBG Citizen Advisory Committee, Council approved funding of $286,380 for this activity on May 6, 1996 as part of the FY 1996-97 CDBG Annual Action Plan. While the project’s scope of work has expanded considerably, as has the total budget, PAHC is not requesting any additional City funding. PAHC anticipates that sufficient funds will be available from the project’s operating and replacement reserve accounts and from the funds previously awarded by HUD. Due to reductions in the City’s FY 1998 CDBG entitlement grant amount and expected commitments to fund the Sheridan Apartments acquisition, there are no additional CDBG funds available for this project. The $286,380 in City CDBG funds will be provided in the form of a new loan, secured by the existing deed of trust on the property in favor of the City. The total amount of City funding provided for Arastradero Park’s acquisition and rehabilitation will then equal $590,201 (the current $286,380 plus the outstanding balance of $303,821 for the acquisition loan). The City’s loans accrue 3 percent simple interest per year and no payments are required unless the project produces excess cash flow as determined by HUD. Any loan repayments of secondary financing required HUD authorization and are unlikely to occur since HUD effectively controls the project’s rent revenue and operating budget. The term of the City’s funding agreement coincides with the 50-year term of the existing HUD regulatory agreement on the property. Even though the portion of the project subject to Federal construction requirements has been reduced, the project will still be relatively time consuming for staff to administer. The Federal contract compliance process and prevailing wage monitoring significantly impacts staff workload, especially for larger CDBG-funded construction activities. To ensure compliance with Federal regulations, staff time will be required to oversee the contractor procurement and selection process, conduct on-site worker wage interviews, review weekly payrolls for compliance with Federal wage rates and resolve any payroll discrepancies. POLICY IMPLICATIONS This staff recommendation is consistent with existing City policy. CMR:210:98 Page 4 of 5 TIMELINE Construction work will take about six months and PAHC expects that the project will be completed by the end of 1998. Construction drawings are currently being reviewed by the City. ENVIRONMENTAL REVIEW Approval of funding for the water system replacement project is not an action subject to the California Environmental Quality Act (CEQA). Staffhas also determined that the project is exempt under Section 58.34 (a) (12) of the CDBG program’s National Environmental Policy Act (NEPA) regulations. ATTACHMENTS Attachment A: Attachment B: Water System Replacement Project Budget Amendment No. 2 to Agreement Between the City of Palo Alto, the Arastradero Park Apartments Corporation, and the Palo Alto Housing Corporation Prepared By:Catherine Siegel, Housing Coordinator Approved By: ANNE CRONIN MOORE Interim Director of Planning and Community Environment City Manager Approval: EMILY HARRISON "" Assistant City Manager CC:Palo Alto Housing Corporation Arastradero Park Apartments Corporation CDBG Citizen Advisory Committee members CMR:210:98 Page 5 of 5 Arastradero Park Apartments Budget: Water System Replacement Project Attachment Estimated Budget** Construction Design, Permits PAHC Supervision Fee (Fixed fee of 3% of estimated construction costs) Contingency (5% of estimated construction costs) Total Estimated Budget Phase I Phase II Totals $360,950 $365,750 $726,700 $24,100 $24,100 $10,800 $il,000 $21,800 $18,050 $18,300 $36,350 $413,900 $395,050 $808,950 Sources: CDBG HUD funds Project Reserves $286,380 none $286,380 $44,780 none $44,780 $82,740 $395,050 $477,790 Total Sources of Funds $413,900 $395,050 $808,950 Total Estimated Project Budget: Total To Be Paid From City CDBG: Total To Be Paid From Other Sources: 100% 35% 65% $808,950 $286,380 $522,570 **All budget estimates are rounded to the nearest ten dollars Attachment B AMENDMENT NO. TWO TO AGREEMENT BETWEEN THE C ITY OF PALO ALTO, THE ARASTRADERO PARK APARTMENTS CORPORATION, AND THE PALO ALTO HOUSING CORPORATION TO FUND THE WATER SYSTEM REPLACEMENT PROJECT AT THE ARASTRADERO PARK APARTMENTS AT 574 ARASTRADER0 ROAD, PAL0 ALTO This Amendment No. Two to Agreement is made and entered into on 1998, by and between the CITY OF PALO ALTO, ( "Ci ty" ), the ARAS~RADERO PARK APARTMENTS CORPORATION ~("APAC"), and the PALO ALTO HOUSING CORPORATION ("PAHC"). RECITALS: WHEREAS, on February 6, 1995, the parties entered into an contract entitled "AGREEMENT BETWEEN THE CITY OF PALO ALTO, THE ARASTRADERO PARK APARTMENTS CORPORATION, AND THE PALO ALTO HOUSING CORPORATION TO FUND THE ACQUISITION OF ARASTRADERO PARK APARTMENTS AT 574 A!%ASTRADERO ROAD, PALO ALTO" ("Agreement"); WHEREAS, the Agreement was amended on April 19, 1995 to provide for a loan in the principal amount of $305,000 to APAC for its acquisition of the Arastradero Park Apartments, a 66-unit, HUD- assisted rental housing development, located at 574 Arastradero Road, Palo Alto ("Property"); and WHEREAS, the rehabilitation and preservation of the City’s stock of existing, HUD-assisted Section 8 rental housing is a priority objective as stated in the Housing Element of the Comprehensive Plan and in the City’s Consolidated Plan; and WHEREAS, the expenditure of funds for rehabilitation of affordable housing occupied primarily by very low- and low-income households is an eligible activity under the Community Development Block Grant (CDBG) program regulations; and WHEREAS, PAHC, as the Project’s management agent under contract toAPAC, has completed substantial rehabilitation work on the Property with funds awarded by HUD, however, APAC has insufficient funds to complete the replacement of the deteriorated domestic water system and fire sprinkler system; and WHEREAS, on May 6, 1996, the Council adopted the FY 1996- 1997 CDBG Annual Action Plan, which included funding in the amount of $286,380 for the water system replacement project at the Property; and WHEREAS, the City is willing to loan APAC an additional amount of $286,380, on condition that APAC confirm, in writing, its obligation to repay these additional funds that are loaned hereunder; 980420 syn 0071373 NOW, THEREFORE, in consideration of the following covenants, agreements, terms and conditions, the parties to this A£reement agree: SECTION I. Section 2.1 is hereby amended in its entirety to read as follows: "2.1 Amount and Purpose .2.1.1 The City agrees to make an acquisition loan to APAC at the office address of APAC in an aggregate principal amount at any one time outstanding up to but not exceeding three hundred and twenty-five thousand dollars ($325,000). Any funds disbursed to APAC hereunder shall be deposited into the initial escrow by APAC to.pay for five percent (5%) of the Transfer Preservation Equity (and other necessary transaction costs, including closing costs), as such term is defined in the Regulatory Agreement or by HUD rules and regulations, which is required to be deposited by APAC as buyer under the contract of purchase and sale with Seller. 2.1.2 The City agrees to make an additional loan to APAC of the principal amount of two hundred eighty-six thousand, three hundred and eighty dollars ($286~380), to be used for CDBG eligible costs for phase one of the water system replacement project ("Water Project Phase I") as shown on the attached budget ("Exhibit "H""). For the purposes of this Article 2,- Phase I shall include the construction of site utilities and common area improvements and the replacement of interior water piping in Building B of the Property only. Phase II shall include the replacement of interior water piping in Buildings A, U, D, E and F and the replacement of the existing fire sprinkler piping and sprinkler heads in Buildings D, E and F only. The City shall not provide any funding for Phase II costs. APAC shall complete Phase II work with funds available in the Property’s replacement reserve account. Expenses eligible for the City funding include, without limitation, design, engineering, permits, construction and temporary tenant relocation costs. PAHC agrees to perform construction management services for Phase I and II of the Water Project, including coordinating the work of the const~action contractors and conducting the initial review and monitoring of the contractors’ prevailing wage reports. A supervision fee for such services Shall be paid to PAHC in accordance with the provisions of Exhibit "H". In the event that the amounts payable by APAC to any and all sources for the Water Project - Phase I costs shall exceed the sum of $286,380, then APAC shall be solely responsible for paying any and all amounts in excess of $286,380, and the City shall not be obligated to loan any amount in excess of the commitment set forth herein. 2.1.3 As conditions precedent to the making of a loan by the City under this Agreement, APAC shall obtain the approval of HUD with respect to the following: 980420 syn 0071373 2 Plan of Action, as such term is defined in the Regulatory Agreement or HUD rules and regulations, respecting APAC’s obligations to acquire, re- habilitate, and~anage the Project; and Transfer of physical assets of the Project by the Seller to APAC; and New HUD Section 241(f) firm commitment to provide FHA-insured financing. APAC shall give the City’s Director of Planning and Community Environment ("Project Manager"), or any one appointed to serve in such capacity, written confirmation of such approvals within ten~(10) days of their receipt. 2.1.4 Every contract entered into in connection with the Water Project shall c~early and fully describe the nature and scope of work to be performed and the basis for approving all payments, including progress payments and retention. PAHC shall comply with all applicable federal procurement guidelines in bidding, soliciting and contracting for services to be rendered or construction work to be performed, or both, in connection with the Water Project - Phase I. All bid documents and construction contracts for the Water Project - Phase I shall include the required federal equal employment opportunity and labor standards language as may be provided by the City.Phase II of the-Water Project does not require compliance with the Federal Assurances in Exhibit including the payment of federal prevailing wages and procurement standards. Before APAC may authorize the commencement of any work, ~t shall submit to the Project Manager one (i) legible copy of each contract and subcontract. The Project Manager may refuse to reimburse APAC for any costs not approved, in advance. 2.1.4.1 The City shall disburse the additional loan funds of $286,380 for the Water Project Phase I to APAC on a cost-reimbursement basis only upon the receipt of written proof of actual costs incurred and paid for by APAC by the Project Manager. All requests for reimbursement under this Agreement shall be made in accordance with the City’s cost- reimbursement policies and procedures. APAC shall submit with each request for reimbursement a written certification that (I) the services or work, or both, have been satisfactorily rendered or performed, (2) the costs have been paid in accordance with the applicable law, contracts and subcontracts, and (3) all funds have been expended on behalf of and exclusively for the obligations of APAC with respect to the Water Project Phase I.. The City has the right to withhold reimbursement of construction costs incurred for the Water Project - Phase I until documentation-acceptable to the City regarding the proper payment of federal prevailing wages has been submitted. 980420 syn 0071373 2.1.4.2 The payment of the supervision fee shall be made by the City upon the satisfactory completion of the Water Project Phase I. For the purposes hereof, "satisfactory completion" means the occurrence of the final inspection of the construction work by the City’s Building Division, a~ recordation of a Notice of ~Completion, and the completion of the review and monitoring activities of the construction contractors’ prevailing wage reports by PAHC." SECTION 2. Section 2.2 is hereby amended in its entirety to read as follows: "2.2 Promissory Notes 2.2.1 At the initial close of escrow, the aggregate principal amount loaned by the ~ity to APAC under this Agreement shall be evidenced by a HUD-approved Residual Receipts Note FHA Form No. 1710 (form dated 2/69)(Exhibit "C"), as may be amended from time to time ("HUD Note"), made payable to the City of Palo Alto, as payee, and executed by a duly authorized officer or representative of APAC, as maker. The additional loan to APAC authorized by this Amendment No. Two shall be evidenced by a Residual Receipts Promissory Note (Exhibit "C-I"), as may be amended from time to time ("City Note"), made payable to the City of Palo Alto, as payee, and executed by a duly authorized Officer or representative of APAC, as maker. The parties acknowledge that the HUD Note in the amount of $305,000 shall not include any of the $286,380 in additional funds loaned by the City to APAC in connection with the Water Project - Phase I. 2.2.2 The term of the HUD Note and the City Note ("Notes") shall be identical to the term of this Agreement. 2.2.3 Interest shall accrue at the rate of three percent (3%) simple interest per year, commencing on a date one (i) year after the initial close of escrow for the HUD Note and beginning on the date of execution of this Amendment No. Two for the City Note. 2.2.4 APAC shall commence payment of the loans after the end of, in the following order of preference, any semi- annual, annual, or other periodic fiscal period, in which HUD declares that funds in the Residual Receipts Fund, as that term is defined in the RegulaZory Agreement or by HUD rules and regulations, are made available for payment of the financial obligations of APAC incurred in connection with the acquisition or rehabilitation, or both, of the Project, including the Water Project Phase I. Nothing herein shall prohibit APAC from paying the loans, or any part thereof, to the City before the Notes shall become due. ~2.2.5 The aggregate principal amount disbursed to APAC under this Agreement shall become immediately due and payable without the demand of the City in the event that APAC 980420 syn 0071373 4 shall fail. to acquire the Project and close the initial escrow." SECTION 3. to read as follows: Section 2.4 is hereby added to Article 2 "2.4 Term of Construction. 2.4.1 Phase I of the Water Project shall be completed,and final documentation and request for reimbursement shall be submitted to the City, within one calendar year after the execution of this Amendment No. 2. The Project Manager may, upon APAC’s written request, extend by one (I) year the time within which the Water Project shall be completed and the documents and reimbursement requests shall be submitted." SECTION 4. Section 9 is hereby amended entirety to read as follows:.in its "SECTION 9 - NOTICES Any notice which may be or is required to be given under this Agreement shall be deemed given on the second day following the date on which the same has been mailed by first class mail, postage prepaid, addressed as follows: City Copy to: APAC PAHC City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Attn: City Clerk Director Of Planning & community Environment City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Arastradero Park Apartments Corporation 725 Alma Street Palo Alto, CA 94301 Attn: President, Board of Directors Palo Alto Housing Corporation 725 Alma Street Palo Alto, CA 94301 Attn: Executive Director" SECTION 5. All other provisions of the Agreement not expressly modified hereunder shall remain in full force and effect. 980420 s~n 0071373 IN WITNESS WHEREOF, the parties have executed this Amendment No. Two to Agreement in Palo Alto, California on the date first above written. CITY OF PALO ALTO ~Mayor ARASTRADERO PARK APARTMENTS CORPORATI ON Title:-- ~-~ ; ~.~’/~ ATTEST: City Clerk PALO ALTO HOUSING CORPORATION Title: APPROVED AS TO FORM:SIGNATURES TO BE NOTARIZED Senior Asst. City Attorney APPROVED: City Manager Acting Director of Administrative Services Interim Director of Planning and Community Environment Risk Manager Exhibit "C- I": Exhibit "G": Exhibit "H": ATTACHMENTS: Residual Receipts Promissory Note Modification Agreement Water System Replacement Project Budget and Sources of Funds 9~0420 syn 0071373 6 CERTIFICATE OF ACKNOWLEDGMENT (Civi! Code § 1189) STATE OF COUNTY OF ))) On V~o~\’~X~\%%~ , before me,-~.~!~\~ q~s~o~%, a notary publih in and for said County, personall~ appeared ~\%~ ~ ~%’V~,5~%-~ , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ~ ~,~ COMM..#1024186 ~ ~.~2 NOTARYPUBUC’CAUFORNIA 980420 syn 0071373 7 CERTIFICATE OF ACKNOWLEDGMENT (Civil Code § 1189) STATE OF COETNTY OF On ~~,~-\~ \%%~, before me,’~okO~.~\~ ~%~~ a notary public ~n and for said County, personally appeared ~\~_~b ~%~’~ , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. 980420 syn 0071373 8 RESIDUAL RECEIPTS PROMISSORY NOTE SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS ~ AS MODIFIED (COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS) Exhibit C-1 $286,380 Date: Palo Alto, California FOR VALUE RECEIVED, the Arastradero Park Apartments Corporation, a corporation duly organized and existing under the Nonprofit Corporation Law of the State of California ("BORROWER"), promises to pay to the City of Palo Alto, a California municipal corporation ("CITY"), or order, the principal sum of TWO HUNDRED EIGHTY-SIX THOUS ~AND THREE HUNDRED EIGHTY DOLLARS ($286,380) at the Revenue Collections office of the City of Palo Alto, First Floor, 250 Hamilton Avenue, P. O. Box 10250, Palo Alto, CA 94303, or at such other place as CITY may from time to time designate, with interest from the date of this RESIDUAL RECEIPTS PROMISSORY NOTE SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS ("City Note"), until paid, at the simple rate of three percent (3%) per year on the unpaid principal balance. This City Note is secured by a deed of trust entitled "DEED OF TRUST AND ASSIGNMENT OF RENTS"("Deed of Trust"), and the modification to Deed of Trust ("Modification Agreement"). on BORROWER’s equitable interest in real property located at 574 Arastradero Road, Palo Alto, California, Assessor’s Parcel Number 137-25-110 ("Property"). This City Note is made in connection with~an agreement entitled "AGREEMENT BETWEEN THE CITY OF PALO ALTO AND THE ARASTRADERO PARK ~PARTMENTS CORPORATION, AND THE PALO ALTO HOUSING CORPORATION TO FUND THE ACQUISITION OF ARASTRADERO PARK APARTMENTS AT 574 ARASTRADERO ROAD, PALO ALTO" ("Agreement") and Amendment No.. One and Amendment No. Two to the Agreement ("Agreement, as amended"). Under the Amended Agreement, BORROWER agreed to acquire, rehabilitate and operate the Property as affordable rental housing for Low-Income and Very Low-Income Households in the City of Palo ~ito. All amounts advanced under this City Note, at the option of CITY, shall become immediately due and payable upon the occurrence of an Event of Default, as such term is defined in the Agreement, as amended. Principal and interest on this City Note shall be due and payable by BORROWER on the maturity date of the note and mortgage insured by the Secretary of Housing and Urban Development ("HUD"), (FHA No. 121-12024-NP) financing the Property provided that if the aforesaid insured note is prepaid in full, the holder of this City Note, at its option and without notice, may declare the whole principal sum or any balance thereof, together with interest thereon, immediately due and payable. 1 980420 syn 0071406 BORROWER, any endorser of this City Note, and any others who may become liable for all or a part of the obligations evidenced by this City Note may prepay all or any portion of the principal sum of this City Note, without penalty. Any and all payments made hereunder shall be credited, first, on the interest then due and, the remainder, on the principal balance, and interest on the principal balance so credited shall thereupon cease. Prepayments to principal and interest on this City Note may be made only from (i) the Residual Receipts Fund, as that term is defined in the Regulatory Agreement between the Borrower and HUD executed in connection with the FHA insured loan, and only after obtaining the prior written approval of HUD, or (2) from funds which are separate and apart from the Property. Prepayment(s) made from Residual Receipts may be made only after the end of a semi-annual~or annual fiscal period as approved by HUD. BORROWER, any endorser of this City Note, and any others who may become liable for all or any part of the obligations evidenced by this City Note or this City Note, as amended, hereby individually waive demand, presentment for payment, demand, protest, notice of protest, demand, and of dishonor and non-payment, and consent to any number of extensions or renewals of time hereof. .Any such extensions or renewals may be made without notice to any of the obligated parties and without affecting their liability. The pleading of any statute of limitations as a defense to any demand against BORROWER is expressly waived by BORROWER. If BORROWER consists of more than one person or individual, each person or individual shall be jointly and severally liable under this. City Note. BORROWER shall not further encumber, mortgage or subject the Property, or the real property on. which it is located, or any interest therein, to a deed of trust, mortgage, indenture, or other document of legal encumbrance (individually, "Encumbrance" and jointly, "Encumbrances") without the prior written consent of CITY. Unless CITY expressly agrees otherwise, in writing, any Encumbrance affecting the Property shall provide that, in the event of any default or breach by BORROWER under any Encumbrance entitling any party thereunder to accelerate the indebtedness secured thereby and foreclose upon the Property, CITY shall have the right, but not the obligation, to (I) cure the default prior to the completion of any foreclosure and reinstate the Encumbrance, or (2) pay the total unpaid indebtedness secured by such Encumbrance, in which event, such Encumbrance shall be released, canceled, or otherwise reconveyed. Any,amounts expended by CITY under thecontingencies set forth in parts (i) or (2) of the preceding paragraph shall be reimbursed by BORROWER upon demand of CITY therefor, and, in any event, such amounts shall bear interest at the maximum rate permitted by Article XV, Section 1(2) of the .California Constitution, as amended, from the date such amounts were advanced by CITY until paid in full by BORROWER. All such amounts, including interest and any penalty authorized under the Agreement, as amended, this City 980420 syn 0071406 2 Note, or Uhe Deed of Trust, shall be added to the principal of this City Note. The approval by BORROWER of any Encumbrance, and the placing of a security interest therefor on the Property, or any portion thereof, not containing the provisions of the preceding paragraph and this paragraph shall constitute a default of this City Note. If any default is made hereunder, BORROWER further promises to pay reasonable attorneys’ fees and costs and expenses incurred by CITY in connection with any such default or any other action or other proceeding brought to enforce any of the provisions of this City Note. CITY’s right to such fees shall not be limited to or by its representation by staff attorneys of CITY’s Office of the City Attorney, and such representation shall be valued at the customary and reasonable rates for private sector legal services. The relationship of CITY and BORROWER evidenced by this City Note shall be deemed to be one of creditor and debtor and not of partnership or joint venture. This City Note may not be modified or amended except by an instrument, in ~writing, which expresses such intention of the parties sought to be bound thereby, and such writing shall be firmly attached to this City Note and made a part thereof. Any failure of CITY or other holder to exercise any rights under this City Note shall not constitute a waiver of such rights or of any other rights under this City Note. This City Note shall be governed by and construed in accordance with the laws of the State of California. To the extent assignment of this City Note is .permitted by CITY, the terms of this City Note shall apply to, inure to the benefit of, and bind all of the parties thereto, their heirs, ~successors and assigns. All terms in this City Note which are capitalized shall bear the meanings set forth in the Agreement, as amended. EXECUTED BY BORROWER by its duly authorized representative in Palo Alto, County of Santa Clara, State of California, on the date first above written. ARASTRADERO PARK APARTMENTS CORPORATION 980420 syn 0071406 RECORDING REQUESTED BY & WHEN RECORDED MAIL TO: Exhibit G City of Palo Alto Office of City Attorney 250 Hamilton Avenue Palo Alto, CA. 94301 Recorded without charge: Govt. Code Sections 6103, 27383 SPACE ABOVE THIS LINE FOR RECORDER’S USE APN 137-25-110 574 Arastradero Road Palo Alto, CA MODIFICATION AGREEMENT Deed of Trust and Assignment of Rents This Modification Agreement is made as of , 1998, by and among Arastradero Park Apartments Corporation, a California nonprofit public benefit corporation (the "Trustor") and the City of Palo Alto, a municipal corporation (the "Beneficiary"), in connection with the following facts: A. Trustor owns all that real property located in the City’of Palo Alto, County of Santa Clara, California, described in the Deed of Trust described below. B. Trustor is obligated to Beneficiary under the following documents, among others: (I) "AGREEMENT BETWEEN THE CITY OF PALO ALTO, THE ARASTRADERO PARK APARTMENTS CORPORATION, AND THE PALO ALTO HOUSING CORPORATION TO FUND THE ACQUISITION OF ARASTRADERO PARK APARTMENTS AT 574 ARASTRADERO ROAD, PALO ALTO" ("Agreement") (2) A Residual Receipts Note, dated April i, 1995, in the original principal amount of $305,000.00, payable to Beneficiary, and a Residual Receipts Promissory Note, dated 1998, in the original principal amount of $286,380.00, payable to Beneficiary; and. (3) Deed of Trust and Assignment of Rents, dated April i, 1995, and recorded on April 27, 1995, as document number 12873487 in the Official Records of Santa Clara County (the "Deed of Trust"); and (4) This Modification Agreement to Deed of Trust and Assignment of Rents. 980420 syn 0071373 1 C. Trustor and Beneficiary agree to modify the Deed of Trust as hereinafter described. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: i. Trustor and Beneficiary hereby amend the Deed of Trust by replacing the second to last paragraph on page 1 with the following: FOR THE PURPOSE OF SECURING: I. Performance of each agreement of Trustor set forth in the "Agreement Between the City of Palo Alto, the Arastradero Park Apartments Corporation, and the Palo Alto Housing Corporation to Fund the Acquisition of Arastradero Park Apartments at 574 Arastradero Road, Palo Alto," as amended ("Agreement"), incorporated herein by reference. 2. Payment of the indebtedness evidenced by the Residual Receipt Note ("HUD Note") and the Residual Receipts Promissory Note ("City Note"), dated April i, 1995 and , 1998, respectively, (collectively, the "Notes") and any extensions or renewals thereof, in the aggregate principal amount of $591,380 executed by Trustor in favor of Beneficiary or order. 2. Confirmation of Security Interest Except asamended hereinabove~ the Deed of Trust shall remain unchanged and in full force and effect. Nothing in this Modification Agreement shall affect or be construed to affect the lien created by the Deed of Trust or the priority of such lien. 3. Attorney’s Fees; Enforcement.. If any attorney is engaged by either party to enforce or defend any provision of this Agreement, the prevailing party shall be entitled to costs and reasonable attorney’s fees. 4. Miscellaneous. This Modification Agreement shall be governed by and interpreted in accordance with the laws of the State of California. Any provision of this Modification Agreement, which is determined by a~ court to be invalid or unenforceable, shall be deemed severed from this Modification Agreement, and the remaining provisions shall remain in full force and effect as if the invalid or unenforceable provision had not been a part hereof. The headings used in this Modification Agreement are for convenience only and shall be disregarded in interpreting the~ substantive provisions of this Modification Agreement. IN Modification ////////////// WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first 9~0420 syn 0071373 2 above written. ARASTRADERO PARK APARTMENTS CORPORATION, Trustor By: Its: CITY OF PALO ALTO, a Municipal Corporation By: Its: ATTACH NOTARY 980420 syn 0071373 3 EXHIBIT H Arastradero Park Apartments Water System Replacement Project: Budget and Sources of Funds Estimated Construction Design, Permits PAHC Supervision Fee (Fixed fee of 3% of estimated construction costs) Contingency (5% of estimated construction costs) Total Estimated Budget Sources: CDBG HUD funds Project Reserves PhaseI Phase II Totals $360,950 $365,750 $726,700 $24,100 $24,100 $10,800 $11,000 $21,800 $18,050 -$18,300 $36,350 $413,900 $395,050 $808,950 $286,380 none $286,380 $44,780 none $44,780 $82,740 $395,050 $477,790 Total Sources Of Funds Total Estimated Project Budget: Total To Be Paid From City CDBG: Total To Be Paid From Other Sources: $413,900 $395,050 $808,950 100%$808,950 35%$286,380 65%$522,570 **All budget estimates are rounded to the nearest ten dollars 980420 s3m 0071373