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HomeMy WebLinkAbout1998-11-23 City Council (13)¯ City of Palo Alto C ty Manager’s Report TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER 8 DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE: SUBJECT: NOVEMBER 23, 1998 CMR:442:98 APPROVAL OF AGREEMENTS RELATED TO A LOAN IN THE AMOUNT OF $2,450,000 TO THE PALO ALTO HOUSING CORPORATION FOR THE ACQUISITION OF THE SHERIDAN APARTMENTS AT 360 SHERIDAN AVENUE RECOMMENDATION Staff recommends that the Council: 1. Approve the attached loan agreement (with attached form of promissory note, assignment of deed of trust and security agreement) with the Palo Alto Housing Corporation (PAHC) to provide a loan of $2,450,000 for the acquisition of the Sheridan Apartments at 360 Sheridan Avenue by the Sheridan Apartments Affordable Housing Limited Partnership (SAAHLP). Acknowledge that, upon execution of the loan agreement, the agreement for pre- development expenses dated February 2, 1998 between the City and PAHC for the Sheridan Apartments project is canceled and the promissory note in the amount of $145,500 executed by PAHC in connection with the pre-development agreement shall be canceled, with the sum having been incorporated into the new $2,450,000 promissory note. Approve the attached Regulatory Agreement between the City of Palo Alto and the Sheridan Apartments Affordable Housing Limited Parmership. Authorize the Mayor to execute the appropriate documents to rescind the deed restrictions contained in the grant deed from the City to Sheridan Associates recorded on June 30, 1978 as Document No. 6064087. Authorize the Mayor to execute the agreements, in substantially similar form, and direct the City Manager to administer the provisions of the agreements and to execute CMP.:442:98 Page 1 of 6 any other documents required to close the escrow for the acquisition of the Sheridan Apartments property. BACKGROUND The Sheridan Apartments is a rental project with 57 one-bedroom units that was constructed in 1979 as independent living housing for very low-income elderly and disabled persons by a for-profit development partnership. The City originally acquired the parcels and re-sold the project site with various restrictions recorded as part of the grant deed to the developer. The project was assisted by the U. S. Department of Housing and Urban .Development (HUD) with Federal mortgage insurance and a 20-year, Section 8 rental assistance contract. The Section 8 contract expires in April 1999. In January 1998, PAHC entered into an agreement to purchase the property with the objective of preventing the property’s conversion to market rental. In February 1998, Council approved a predevelopment agreement with PAHC and provided $145,500 in CDBG funds for costs of securing financing and completing due diligence studies. On May 18, 1998, Council authorized a maximum loan commitment of $2.5 million for the acquisition of the Sheridan Apartments. Funding for the City’s loan .commitment was appropriated in two separate Budget Amendment Ordinances (No. 4503 approved on May 18, 1998, for $2,354,500 and No. 4477, dated February 2, 1998, for $145,500). Since the Council’s last action in May 1998, PAHC has secured the other financing necessary to complete the acquisition including a HUD/Federal Housing Administration (FHA) insured bank loan and an allocation of low income housing tax credits. PAHC has also completed its due diligence, finalized the rehabilitation budget, selected a general contractor, formed the limited partnership that will own the project and executed an agreement for the tax credit investment with the limited partner. To comply with the tax credit program regulations, escrow must close on the acquisition by early December of 1998. .DISCUSSION Council approval of the attached loan and regulatory agreements will provide the City’s funding to PAHC so that the acquisition of the Sheridan property can be completed by the December deadline. The loan agreement includes the specifics regarding the City’s loan, conditions to closing escrow, repayment terms and the agreements regarding the affordability reserve which will be created from surplus operating revenue to fund rental assistance in the event the project’s Section 8 funding is ever terminated. The City’s $2,450,000 loan will be payable from the project’s surplus cash flow over a term of 35 years. Surplus cash flow is the net income from rental of the housing units after paying operating costs and payments on the bank’s first mortgage loan. The interest rate on the City’s loan linked to the amount of surplus cash income from the project. The interest rate is set at 9 percent as long as there is sufficient surplus operating revenue to pay at least 25 percent of the interest due at the 9 percent rate but drops to 3 percent interest otherwise. The City will be subordinating its loan to the HUD/FHA insured loan provided by Bank of America. CMR:442:98 Page 2 of 6 The loan agreement is between the City and PAHC because, in actuality, the City loan funds will go to PAHC and then PAHC will loan the same funds to the partnership. The technical structure of the City loan and its two-tiered interest rates are designed to create a mechanism to move the project’s surplus cash flow, resulting from the Section 8 rents, from the tax credit partnership in a manner that provides the partnership with tax deductible expenses, but also responds to the reduced rent revenue that would occur if the Section 8 rental assistance ended or declined. The use and occupancy of the project will be controlled by both a recorded 55-year regulatory agreement required by the tax credit program and also by a City regulatory agreement which restricts rents and occupancy. The City’s restrictions are structured to parallel those of the tax credit program as much as possible, while preserving the project’s original use as very low-income rental housing under the Section 8 program. Due to the recordation of the City regulatory agreement, the City’s 1978 recorded deed restrictions are no longer relevant or necessary and will be rescinded with recordation of a new standard form grant deed as part of this transaction. 55 of the project’s 57 units are restricted to occupancy by very low- income households with incomes, on the average, below 40 percent of the County median income as defiued by HUD. Monthly rents, on the average, must not exceed one-twelfth of 30 percent of 40 percent of the median income. The City’s rent restrictions parallel the housing tax credit program rules. One unit will be set aside for a residentmanager and one of the 57 units will not be restricted in order to avoid relocation issues because that unit is presently occupied by a tenant with an income above the tax credit program limits. The primary objectives of PAHC’s acquisition, and the City’s financial assistance, are to prevent the conversion of the units to market rentals and to ensure that the utmost efforts will be made in future years to retain the Section 8 rental assistance. The Regulatory Agreement requires the owner to seek renewals of the Section 8 contract for all.units if possible. IfHUD terminates the project-based Section 8 assistance and provides tenant-based Section 8 vouchers instead, then the owner is required to continue to rent to the Section 8-assisted tenants and to adverfize the availability of vacant units through the Santa Clara County Housing Authority. An unusual aspect of this project is that, as long as the HUD Section 8 contract remains in place, or the units remain occupied by Section 8 voucher tenants, then the project will produce surplus cash flow. This surplus cash flow, after paying operating expenses and debt service on the HUD/FHA loan, is expected to be over $150,000 annually according to the projections of PAHC’s financial consultant. This is because the HUD/FHA first mortgage loan was underwritten using the rents required by the tax credit program, which are currently $539 per month, versus the Section 8 contract rents, which are currently $752 per month. The Section 8 rents could not be used for underwriting the first mortgage because HUD is only offering 1-year renewals of Section 8 contracts and there is no guarantee that the Section 8 program will continue for the 35-year life of the HUD/FHA loan. CMt(:442:98 Page 3 of 6 Because there is no long term assurance of Section 8 assistance, a plan has been developed to utilize the excess cash flow produced by the current Section 8 rental assistance to fund a special reserve account which would be used to subsidize the rents of former Section 8 tenants should HUD terminate the program. This reserve fund will be an important protection for the tenants because the majority can only afford to pay about $250 per month in rent. Alternative possible scenarios have been analyzed to calculate the amount of funds necessary to fund rent subsidies based on a reasonable number of transition years and typical attrition rates. A $1 million reserve has been determined to be sufficient to subsidize the project for 10 years assuming that there was a natural attrition of 10 percent per year. The loan agreement specifies that all loan repayments and other payments to PAHC will be deposited into this affordability reserve until it reaches the $1 million level. Thereafter, any surplus cash flow would begin to repay the interest and principal on the City’s loan, while the reserve balance would be maintained at the $1 million level. PAHC will control the affordability reserve under the restrictions of the loan agreement, which require separation from its other assets and periodic reporting to the City. There are also provisions whereby the reserve could be used for other purposes related to the property including future rehabilitation or to assist in the purchase of the property from the parmership, subject to the prior approval of the City. RESOURCE IMPACT The amount of the City’s loan is $2,450,000, which is $50,000 less than the maximum funding authorized by the budget appropriations. The City’s loan is composed of the following sources ai the present time: Community Development Block Grant (CDBG) Residential Housing In-Lieu Funds Total City Loan $1,625,000 $825,000 $2,450,000 The total project costs for acquisition and rehabilitation are approximately $6.5 million or $114,900 per unit. The per unit costs are in line with other similar projects. The Sheridan Apartments project budget and sources of funding are shown on Attachment A. As authorized by Council on October 26, 1998, the City submitted a grant application for Federal HOME funds to the State Department of Housing and Community Development (State HCD) for the Sheridan project. State HCD will announce the HOME awards on January 21, 1999. If the City receives the HOME grant, then the $825,000 in Residential Housing In-Lieu funds will be replaced with the $825,000 in HOME funds requiring a Budget Amendment Ordinance. The grant agreement between the State and City will also require Council action. The City’s HOME grant application appears fairly strong. Staffhas attempted to structure the Sheridan project loan and regulatory agreements to provide for the HOME funding. The HOME funds could serve to augment the City’s financial resources available for the acquisition of the Palo Alto Gardens project. CMR:442:98 Page 4 of 6 POLICY IMPLICATIONS This report does not represent any change to existing City policies and implements previous Council direction supporting the preservation of the Sheridan Apartments through the acquisition sponsored by PAHC. TIMELINE Under the tax credit regulations, PAHC must acquire the property by December 15, 1998 or the tax credit allocation will be lost. The agreement with the tax credit investor also requires that PAHC proceed with the rehabilitation immediately after acquisition. The rehabilitation work will take approximately four months and is planned for completion in May. The major steps with key dates are summarized below: ¯Execute construction contract ¯Deadline to close escrow & acquire property ¯Start rehabilitation work ¯HOME funding awards will be announced End of November 1998 December 15, 1998 Mid-January 1999 January 21, 1999 [Receipt of $825,000 in HOME funds for the Sheridan (if awarded) would repay the Residential Housing In-Lieu Fund] Section 8 contract expires (expected to be renewed by HUD) April 16, 1999 Complete rehabilitation May 1999 Finalize cost audit & reporting July 1999 ENVIRONMENTAL REVIEW The provision of financial assistance for the acquisition of the project is categorically exempt under Section 15326 of the California Environmental Quality Act (CEQA). Staff has determined that the provision federal CDBG, and also HOME funds if awarded, for the project is categorically excluded under Section 58.35 (a)(5) of the National Environmental Policy Act (NEPA) regulations. ATTACHMENTS Attachment A: Sheridan Apartments Sources and Uses of Funds Budget Attachment B:Loan Agreement Between the City of Palo Alto and the Palo Alto Housing Corporation and attached Promissory Note, Assignment of Deed of Trust and Security Agreement Attachment C: Regulatory Agreement Between the City of Palo Alto and the Sheridan Apartments Affordable Housing Limited Partnership Prepared By: Catherine Siegel, Housing Coordinator CMR:442:98 -Page 5 of 6 Attachment C: Regulatory Agreement Between the City of Palo Alto and the Sheridan Apartments Affordable Housing Limited Partnership Prepared By: Catherine Siegel, Housing Coordinator DEPARTMENT HEAD REVIEW: CITY MANAGER APPROVAL: G. EDWARD GAWF w Director of Planning and Community Environment Palo Alto Housing Corporation CDBG Citizen Advisory Committee Representatives of Residents of Sheridan Apartments. CMR:442:98 Page 6 of 6 Attachment A Sheridan Apartments Sources and Uses of Funds and Development Budget Sources of Permanent Funding Bank of America (HUD~HA Insured) Loan; 35 years at 7.75% Transamerica Corporation; State and Federal Housing Tax Credit Equity PAHC: Short-term developer fee loan PAHC: Developer equity City Loan: 35 years at 9.0% or 3.0% interest based on rents $1,983,700 2,074,458 41,176 100 2,450,000 TOTAL SOURCES OF FUNDING $6,549,434 Uses of Permanent Funding Acquisition Price Rehabilitation Construction Contracts & Contingency Construction Related Costs Permanent Financing, Tax Credits Transaction Costs Soft Cost Contingency Replacement Reserve Fund Operating Reserve Fund Developer Fee $5,031,500 687,000 61,156 176,298 81,057 28,458 88,980 85,500 309,485 TOTAL USES OF FUNDS $6,549,434 AGREEMENT BETWEEN THE CITY OF PALO ALTO AND PALO ALTO HOUSING CORPORATION TO FUND THE ACQUISITION OF THE SHERIDAN APARTMENTS AT 360 SHERIDAN AVENUE ATTACHMENT B THIS AGREEMENT ("Agreement") is made and entered into on ,1998 by and.between the CITY OF PALO ALTO, a chartered City, organized and existing under the constitution and laws of the State of California ("City"), and the PALO ALTO HOUSING CORPORATION, a corporation organized and existing under the Nonprofit Corporation Law of the State of California, with offices at 725 Alma Street, Palo Alto, .California 94301 ("PAHC"). WlTNESSETH: WHEREAS, PAHC has entered into a purchase contract for the purchase of real property located at 360 Sheridan Avenue, Palo Alto, Santa Clara County, California, and more particularly described on Exhibit "A" (the "Property"), which contract PAHC has assigned to Sheridan Apartments Affordable Housing Limited Parmership, a California limited parmership of which PAHC Sheridan Apartments, Inc., an affiliate of PAHC ("PAHC Sheridan") is the general parmer (the "Parmership"); and WHEREAS, PAHC intends to cause the Parmership to purchase said Property in order to preserve its use as HUD-assisted, very low-income rental housing; and WHEREAS, the 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 City’s Comprehensive Plan and in the City’s Consolidated Plan; and WHEREAS, on May 11, 1998, the City Council adopted the 1998-1999 Community Developmem Block Grant ("CDBG") Annual Action Plan which included the acquisition of the Property as a priority project ("Project") for the use of CDBG housing development funds; and WHEREAS, on May 18, 1998, the City Council authorizated a maximum loan commitment to PAHC of up to Two Million, Five Hundred Thousand Dollars ($2,500,000) for the Project; and WHEREAS, the expenditure of funds for acquisition and rehabilitation of very low income and housing is an eligible activity under the CDBG program regulations; and WHEREAS, PAHC has applied to the City for financial assistance with the cost of acquiring the Property; and WHEREAS, the City is willing to make a loan to PAHC, provided that PAHC will in mm concurrently make a loan to the Partnership, the proceeds of which will be used, together with funds obtained by the Partnership from other sources, for the acquisition of the Property; NOW, THEREFORE, in consideration of the following covenants, agreements, terms and conditions, the parties to this Agreement agree: SECTION 1 - TERM OF AGREEMENT 1.1 Term The term of this Agreement shall commence on the date of its execution by the parties, and shall remain in full force and effect throughout the 35 year term of the Note until such time as the loan contemplated to be made hereunder has been repaid in full, unless earlier terminated as provided herein. SECTION 2 . LOAN OF FUNDS 2.1 Loan Amount 2.1.1 Subject to the terms and conditions of this Agreement, City shall advance to PAHC the sum of Two Million Three Hundred Thirty-Nine Thousand Four Hundred Two and 04/100 Dollars ($2,339,402.04), to be used in accordance with the terms, covenants, provisions and conditions of this Agreement. PAHC shall execute and deliver a promissory note in favor of City (the "Note"), as set forth in Exhibit "B", in the total amount of Two Million Four Hundred Fifty Thousand Dollars ($2,450,000); PAHC has previously executed and delivered to City a promissory note in the principal amount of $145,500 (the "Predevelopment Note") pursuant to the predevelopment, agreement dated February.2, 1998 ("Predevelopment Agreement"), and has to date requested disbursements under the Predevelopment Agreement totaling $110,597.96. The principal amount of the Note includes (a) $110,597.96 previously disbursed to PAHC under the Predevelopment Agreement, (b) $34~902.04 not yet disbursed under the Predevelopment Agreement, which will be disbursed in accordance with the terms of this Agreement, and (c) an additional $2,304,500 to be disbursed under this Agreement. The $145,500 Predevelopment Note shall be canceled by City upon the execution of the Note. The Note shall be secured by a security agreement (".Security Agreement") for the benefit of City, as set forth in Exhibit "C". City shall execute and record such subordination agreements with respect to the deed of trust in favor of Bank of America as may be required by HUD and other funding sources. 2.1.2 If close of escrow for the acquisition of the Property by the Parmership has not occurred on or before December 15, 1998, the City will have no further obligation to fund the Loan, and this Agreement will be of no further force or effect. 2.2 Disbursement of Funds The Partnership has opened an escrow for the acquisition of the Property with First American Title Guaranty Company ("Title Company"), 1737 North First Street, San Jose, 2 California 95112 under escrow number 514698 ("Escrow"). PAHC hereby irrevocably requests and directs City to deposit all loan proceeds to be advanced hereunder directly in the Escrow, and City agrees that it will deposit the loan proceeds in Escrow immediately prior to the acquisition of the Property by the Partnership, together with instructions directing the Title Company that such loan proceeds shall only be disbursed concurrently with transfer of title to the Property to the Partnership, provided that the Title Company is in a position to issue thepolicy-of title insurance described in Section 2.3 below, and the requirements set forth in Section 2.4 have all been satisfied. The funds delivered to the Escrow represent a portion of the approximately $5,031,500 purchase price of the Property; the Partnership will deposit funds from other sources for the balance of the purchase price and closing costs. 2.3 Title Insurance Concurrently with the close of Escrow, the Title Company shall issue an ALTA Extended Coverage Lenders Policy of title insurance, or other form of title insurance acceptable to City, for an amount not less than the actual purchase price of the Property, and insuring against any title defects except those expressly approved in writing by the City. The policy will insure the Parmership’s fight, title and interest in the Property and the Project and PAHC’s lien thereon (subordinate to no other liens of deeds of mast, mortgages, or other monetary encumbrances, with the exception of a lien for property taxes and assessments not yet delinquent and a deed of trust securing a loan in principal amount not to exceed $1,983,700 in favor of Bank of America), and will.include a CLTA Form 104 endorsement insuring City that the beneficial interest under the Parmership Deed of Trust has been transferred to the City by a valid assignment. 2.4 Additional Conditions to Disbursement In addition, the loan proceeds will not be disbursed until all of the following conditions have occurred: (a) the Partnership has executed and deposited in Escrow that certain promissory note in favor of PAHC, in original principal amount of $2,450,000, in form attached hereto as Exhibit "D" (the "Partnership Note"), and the deed of trust on the Property securing payment of the Parmership Note in form attached hereto as Exhibit "E" (the "Parmership Deed of Trust") in recordable form; (b)PAHC has executed the Security Agreement in favor of City; (c)PAHC has opened the Affordability Reserve Account as described in Section 4.1, and has executed and fried a fiuancing statement on form UCC-1 with theoffice of the SecretarY. of State of California, and has taken all other actions required in order to perfect the City’s security interest in the Affordability Reserve Account. (d) PAHC has executed in recordable form an Assignment of Deed.of Trust in favor of City assigning the Parmership Deed of Trust to City in form attached hereto as Exhibit "F", and has irrevocably instructed Title Company in writing to record the Assigumem of Deed of Trust immediately following the recordafion of the Deed of Trust and to deliver the originally executed Parmership Note to the City immediately following close of Escrow for the acquisition of the Property by the Partnership; and (e) Title Company has recorded the Partnership Deed of Trust and the Assignment of Deed of Trust in the Official Records of Santa Clara County, and has issued the policy of title insurance described in Section 2.3 above. SEC~ON 3 - COVENANTS AND CONDITIONS 3.1 General As express conditions of acceptance of the loan of $2,450,000 in funds from City, PAHC agrees to cause the Parmership to acquire, in fee simple, that certain real property located at 360 Sheridan Avenue, Palo Alto, County of Santa Clara, State of California (APN 132-36-081) ("Property") as more fully described in Exhibit "A", and shall rehabilitate or cause to be rehabilitated the Project on the Property, in accordance with all applicable requirements and regulations of HUD and the CDBG Program, including those HUD regulations set forth in Part 570 of Title 24 of the Code of Federal Regulations ("CFR"), as amended. 3.2 Use. occupancy and rent restrictions PAHC shall cause the Partnership to operate and maintain the Project as a rental housing complex for occupancy by very low-income and low-income households, as set forth in the Regulatory Agreement. PAHC’s compliance with this Section 3.2 is of particular importance to City and is~ together with the obligations of PAHC with respect to establishing and maintaining the Affordability Reserve Account, as described in Section 4 below, the principal reason for which City is making the Loan to PAHC. In the event of any breach of this Section 3.2 or of any other covenant or restriction set forth in this Agreement, City shall have the fight to exercise all of the fight and remedies, and to maintain any action at law or suits in equity or other real property proceedings, including, without limitation, specific performance, to enforce the covenants and restrictions and the curing of any breach or violation hereof. 3.3 Records and reports PAHC shall cause the Partnership to maintain on a current basis Complete records, including books of original entry, source documents supporting accounting transactions, service records, a general ledger, canceled checks, time sheets, and related documents and records to assure proper accounting of funds and performance of the terms of this Agreement. PAHC shall furnish any and all information and reports which may be required by City, the California Department of Housing and Community Development ("HCD"), and HUD in connection with this Agreement. PAHC shall further cause the Partnership to permit access to its books, records and accounts by the representatives and employees of City, HCD and HUD during regular business hours, for the purpose of investigation or audit to ascertain compliance with all applicable laws, regulations, rules and orders and for the purpose of evaluating and monitoring PAHC’s compliance with the provisions of this Agreement. PAHC shall cause all such records to be. retained by the Partnership and made available to City, HCD and HUD upon request for review or audit for a period of at least five (5) years following the expiration or termination of this Agreement. 3.4 Fin~cial audits PAHC shall provide City, during the term of this Agreement, with copies of audited financial statements of PAHC, including and management letter comments on the adequacy of internal or operational controls, within one hundred fifty (150) days after the close of each fiscal year of PAHC. The audit covering the fiscal year in which the Loan is provided to PAHC shall be conducted in accordance with OMB Circular A-133, as amended (implemented at 24 CFR Part 45). City reserves the right, during the term of this Agreement, to audit the records of PAHC, including the financial records supporting the aforementioned financial statements and other records and documents pertaining to the operations of PAHC. 3.5 Federal assurances - CDBG funds PAHC shall cause the Parmership comply with the additional terms and conditions of this Agreement and the federal assurances as set forth in Exhibit G. PAHC shall cause the Parmership, at its sole cost and expense, to obtain and maintain during the term of this Agreement, insurance provided by responsible companies authorized to engage in the offering of insurance services in California in such amounts and against such risks as shall be satisfactory to City’s risk manager, including, without limitation, worker’s compensation, employer’s liability, commercial general liability, comprehensive automobile liability, personal injury andproperty damage insurance, as set forth in Exhibit H, as appropriate, insuring against all liability of PAHC and the Parmership and their respective parmers, directors, officers, employees, agents, and representatives arising out of or in connection with the acquisition, and rehabilitation of the Project or PAHC’s performance or nonperformance under this Agreement. 3.7 Conflict of Interest PAHC covenants that it shall comply with, and that it shall cause the Partnership to comply with the provisions of 24 CFR 570.611, as amended, concerning conflicts of interest. Specifically, except for the use of CDBG funds to pay salaries and other related administrative or personnel costs, no person who is an employee, agent, consultant,, officer, or official of PAHC or the Parmership who exercises or has exercised any functions or responsibilities concerning the activities under this Agreement, or who is in a position to participate in a decision making process or gain inside information with regard to such activities, may obtain a personal or financial interest or benefit from such activity, or have an interest in any contract, subcontract, or agreement with respect thereto, or the proceeds thereunder, either for him or herself or for those with whom he or she has family or business ties, during his or her tenure or for one year thereafter. PAHC further covenants that it presently has no interest and shall not acquire any interest, direct or indirect, financial or.otherwise, which would conflict in any manner or degree with the performance of the services hereunder. PAHC also covenants that, in the performance of this Agreement, no subcontractor or person having such interest shall be employed by PAHC. In addition, PAHC certifies that no one who has or will have any financial interest under this Agreement is an officer or employee of City. 3.8 Assimament This Agreement in its sole and absolute discretion, shall not be assigned by PAHC without the express prior written consent of the City, which consent shall be evidenced by resolution of the City Council. Any assignment or attempted assignment shall be void and, at the sole discretion of the City, shall be deemed a material default of this Agreement by PAHC, and the outstanding balance of the Note may be declared by City to be immediately due and payable. 3.9 Corn_ orate Status PAHC covenants and agrees to maintain its status as a corporation duly organized, validly existing, and in good standing under the Nonprofit Corporation Law of the State of California at all times during the term of this Agreement. SECTION 4 - AFFORDABIL1TY RESERVE.ACCOUNT 4.1 Establishment of Affordability Reserve Account PAHC agrees that, to the extent that it receives payments of principal and/or interest from the Parmership pursuant to the terms of the Parmership Note ("Parmership Note Payments") and/or payments of incentive management fees from the Parmership ("Incentive Fee Payments"), PAHC will use such Parmership Note Payments and Incentive Fee Payments for the. following purposes only: (a) first, PAHC will deposit 100% of all Partnership Note Payments and Incentive Fee Payments in a segregated interest-bearing account established in PAHC’s name with a financial imtitution satisfactory to City (the "Affordability Reserve Account"), until such time as the total amount deposited therein, together with interest thereon, equals One Million Dollars ($1,000,000.00); and (b) thereafter, to make payments to the City in accordance with the terms of the Note. 4.2 Purpose and Maintenance of Affordability Reserve Account PAHC agrees that it will maintain in the Affordability Reserve Account all Partnership Note Payments and Incentive Fee Payments deposited therein, together with all interest earned thereon, and PAHC will not withdraw any funds from the Affordability Reserve Account except for uses as expressly permitted herein., In the event that the Section 8 contract for the Property. expires without being renewed or replaced by any other rent subsidy program, or the amounts paid by HUD are reduced from those currently paid under the Section 8 contract, PAHC will make payments to the Partnership from the Affordability Reserve Account to replace the lost Section 8 subsidy payments, up to the maximum rent levels allowed by the California Tax Credit Allocation Committee, in order to permit the former Section 8 assisted households to continue to live atthe Project. PAHC will make such payments from the Affordability Reserve Account until the first to occur of the following: (a) renewal or resumption of the Section 8 program or other rent subsidy program; or (b) the awarding of a long-term (10 or more years) fully funded rental assistance contract, or (c) the time at which there are no longer any households living at the Property that are either Section 8 households or households receiving rent subsidies from the Affordability Reserve Account. If at any.time the City concludes that the amount in the Affordability Reserve Account is greater than the amount needed to subsidize the rents payable by all tenants of the Property who were formerly Section 8 households and whose rents continue to require subsidization, City shall so notify PAHC (which notification will include the amount that the City considers appropriate to .be retained in the Affordability Reserve Account), whereupon all amounts in the Affordability Reserve Account above that amount will immediately be due and payable to the City for application first to accrued, unpaid interest under the Note, and then to reduction of principal under the Note. PCAC will not have the fight to use funds in the Affordability Reserve Account for any other purpose without the prior written consent of the City, which the City may grant or deny in its sole and absolute discretion. 4.3 Reporting Requirements Within thirty (30) days after the conclusion of each calendar year (and within ten (10) days after request by City at any other time, from time to time), PAHC will provide to City copies of records of all deposits and withdrawals from the Affordability Reserve Account. If requested by the City, PAHC will cause the financial institution where the Affordability Reserve Account is held, ("Institution") to provide the City with duplicate copies of monthly or other periodic statements sent to PAHC; PAHC acknowledges and agrees that Institution shall hold the funds in the Affordability Reserve Account as a bailee for the City, and agrees to cause the Institution to execute any additional documents deemed necessary by the City to perfect the security interest of the City in the funds in the.Affordability Reserve Account. Without the limiting the generality of anything contained in Section 3.3 hereof, PAHC shall permit access to its books, records and accounts to representatives and employees of the City for the purpose of evaluating and monitoring PAHC’s compliance with the provisions of this Section 4.3. SECTION 5- REPRESENTATI. ONS 5.1 Corporate Auth0ri .ty The making and performance by PAHC of this Agreement and the Note have been duly authorized by all necessary corporate action and will not violate any provision of law or of its charter or bylaws, or result in the breach of or constitute a default or require any consent under any lien, charge, or encumbrance upon any property or assets of PAHC pursuant to any indenture or other agreement to which PAHC is a party or by which PAHC or its property may be bound. The Executive Director of PAHC has been duly authorized to execute this Agreement on behalf of PAHC. 5.2 Litigation There are no suits or proceedings pending or, to the knowledge of PAHC, threatened against or affecting PAHC which, if adversely determined, would have a material adverse effect on the financial condition or business of PAHC, and there are no proceedings pending or, to the knowledge of PAHC, threatened, against PAHC which would have a material adverse effect on the performance of this Agreement by PAHC. SEC~ON 6 - HUD ~0UIREMENTS 6.1 HUD Requirements. City, for itself and its successors and assigns, covenants and agrees that all of its rights and powers.under this Agreement are subordinate and subject to the rights of Bank of America NT & SA under Senior Deed of Trust and to the rights of the Secretary of Housing and Urban Development under that certain Multifamily Housing Regulatory Agreement (the ~’HUD Regulatory Agreement") recorded concurrently herewith or’to be recorded in the future in the Official Records of Santa Clara County, California. The Senior Deed of Trust, the HUD Regulatory Agreement, and the promissory note secured by the Senior Deed of Trust) are collectively referred.to herein as the "HUD Documents"). This Agreement is subject and subordinate to the HUD Documents, the provisions of the HUD/FHA Section 223(0 program, and HUD regulations, during the term of the HUD Documents or during the period that title to the Project is held by HUD. During such period: a. The HUD Documents may be amended, extended, renewed, assigned, or superseded without the City’s consent; b. City shall not declare a default under this Agreement without prior written consent of HUD; c. The Property will be rehabilitated and operated in conformance with the provisions of the Section 223(0 program and all regulations and administrative requirements relating to such statute. In the event of any conflict between this Agreement and the provisions of any HUD regulations Or related administrative requirements, the HUD regulations and related administrative requirements shall control; d. This Agreement shall not be amended in a manneLwhich has a substantive impact on HUD’s rights under the Section 223(f) program, or assigned, without prior written approval of HUD; e. Enforcement of the provisions of this Agreement shatl not result in any claim against the Property, the loan proceeds, any reserve or deposit required by HUD, or the rents or other income from the Property other than surplus cash authorized for release by HUD; f. In the event that any restrictions on occupancy, use and rents at any time exceeds HUD’s restrictions on occupancy, or rents or otherwise affects the financial viability of the Property, HUD reserves the right to void such restrictions for as long as it deems necessary; g. Nothing in this Agreement shall be construed to interfere with or conflict with HUD requirements concerning the development or operation of the Property; and h. Notwithstanding any other terms of this Agreement, so long as the Property is subject to the Senior Deed of Trust, the HUD Regulatory Agreement, the provisions of the HUD/FHA Section 223(f) program, and/or the HUD regulations, approval by HUD of a transfer shall constitute approval by City. SECTION 7 r,, INDEMNITY PAHC agrees to protect, indemnify, defend and hold harmless City, its Council members, officers, agents and employees, from any and all demands, claims, or liability of any nature, including death or injury to any person, property damage or any other loss, caused by or arising out of PAHC’s, its officers’, agents’, subcontractors’ or employees’ negligent acts, errors or omissions, or willful misconduct, or conduct for which PAHC may be strictly liable in the performance of or failure to perform its obligations under this Agreement. SECTION 8 ~,, DEFAULTS The City shall be permitted, upon written notice, to (1) immediately terminate its commitment to loan funds hereunder, and (2) declare the principal of the loan or the Note to be immediately due and payable, whereupon the same shall become immediately due and payable, if any of the following events of default have occurred and have not been remedied: A. PAHC makes a representation in this Agreement which shall prove to have been false in any material respect; or B. PAHC shall default in the payment, when due, of any principal of the loan or the Note or any other sums payable by .PAHC under this Agreement; subject, however, to the provisiom for notice and opportunity to cure set forth in Section 13 of the Note; or C. PAHC shall default for a period of thirty (30) days in the performance of any other non-financial obligation to be performed by PAHC under this Agreement; or D. PAHC shall apply for or consent to the appointment of a receiver, trustee, or liquidator, or is unable, or admits in writing its inability to pay its debts as they fall due, or makes a general assignment for the benefit of its creditors, or is adjudicated a bankrupt or insolvent, or fries a voluntary petition in bankruptcy; or E. PAHC is subjected to the entry of an order, decree, or judgment approving the reorganization of PAHC, and such order, decree, or judgment is unstayed for a period of more than thirty (30) days, or such period as may be permitted by law. 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: If to City:City of Palo Alto 250 Hamilton Avenue Palo Alto, CA 94301 Atm: City Clerk With a copy to: If to PAHC: Director of Planning & Community Environmem City of Palo Alto 725 Hamilton Avenue Palo Alto, CA 94301 Palo Alto Housing Corporation 725 Alma Street Palo Alto, CA 94301 Atm: Executive Director SECTION 10 - MISCELLANEOUS 10.1 Neither the failure nor the delay on the part of the City to exercise any right, power, or privilege hereunder shall operate as a waiver.thereof, nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. 10 10.2 Nothing contain~l in this Agreement is intended to, or shall be construed in any manner, as creating or establishing the relationship of employer and employee between the parties. PAHC shall at all times remain an independent contractor with respect to the services to be rendered or work to be performed, or both, under this Agreement. 10.3 The covenants, agreements, terms, and conditions of this Agreement shall inure to and be binding on the successors and assigns of the parties. Any provision of this Agreement which is characterized as a covenant or a condition shall be deemed both a covenant and a condition. 10.4 Any amendment to this Agreement shall be binding upon the parties, provided such amendment is set forth in a writing signed by the party to be charged. 10.5 This Agreement shall not be construed or deemed to be an agreement for the benefit of any third party, and no third party shall have any claim or right of action hereunder for any cause whatsoever. 10.6 If any provision of this Agreement shall be determined by a court of competent juris." diction to be invalid, illegal, void, or unenforceable in any respect, the validity of all other provisions herein shall remain in full force and effect. 10.7 PAHC shall lack any authority or power to pledge the credit of the City or incur any obligation in the name of the City. 10.8 This Agreement constitutes the entire agreement of the parties concerning its subject matter, and there are no other oral or written agreements of the parties not incorporated in this Agreement. 10.9 The Agreement, the Note, and all related documents contemplated hereunder shall be deemed to be a contract made under the laws of the State of California, and for the purposes hereof shall be governed and construed by and in accordance with the laws of the State of California. 10.10 All exhibits referred to in this Agreement and any addenda, appendices, attachments, and schedules which may, from time to time, be referred to in any duly executed amendment hereto are by such .reference incorporated in this Agreement and shall be deemed to be part of this Agreement. 10.12 This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 10.13 The paragraph headings are not a part of this Agreement and shall have no effect upon the construction or interpretation of any part of this Agreement. 10.14 Each party and its counsel have reviewed this Agreemem. Accordingly, the nohnal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the construction and interpretation hereof. // //. // // // // // // // // // II I/ /I II I/ /I II // // // // // // // // // // // // // // // // // // // // II. 12 IN WITNESS WHEREOF, the parties have executed this Agreement in Palo Alto, California on the date first above written. CITY OF PALO ALTO Mayor PALO ALTO HOUSING CORPORATION, a California non-profit public benefit corporation By: DS-~id Easton, Pres~den’t--’-" ATTEST: City Clerk By: Name: Title: SIGNATURE TO BE NOTARIZED APPROVED AS TO FORM: Senior Assistam City Attorney APPROVED: Assistant City Manager Director of Administrative Services Directoi: of Planning and Community Environment Risk Manager ATrACHMENTS: Exhibit A: Exhibit B: Exhibit C: Exhibit D: Exhibit E: Exhibit F: Exhibit G: Exhibit H: Exhibit I: Description of Property Form of Note Form of Security Agreement Form of Partnership Note Form of Parmership Deed of Trust Form of Assignmem of Deed of Trust Federal AsSurances With Respect to CDBG Funds Insurance Requirements Project Budget and Sources of Funds EXHIBIT A LEGAL DESCRIPTION REAL PROPERTY in the City of Palo Alto, County of Santa Clara, State of California, described as follows: All of Tract No. 6304 which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on January 26, 1978 in Book 411 of Maps, at page 56, amended by a Certificated of Correction recorded on April 2, 1979 in instrument numbered 6329350, Santa Clara County Records. APN: 132-36-081 EXHIBIT B PROMISSORY NOTE (RESIDENTIAL HOUSING IN-LIEU FUNDS/ COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS) SECURED BY (a) ASSIGNMENT OF PROMISSORY NOTE SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS, AND (b) ASSIGNMENT OF AFFORDA.BILITY RESERVE ACCOUNT $ 2,450,000.00 Date: Palo Alto, California FOR VALUE RECEIVED, the undersigned, PALO ALTO HOUSING CORPORATION, a California non-profit public benefit corporation ("Make:), hereby promises to pay to the CITY OF PALO ALTO ("Holder"), or order, at its Office of Revenue Collections, 250 Hamilton Avenue, Palo Alto, California, or at such other place as may be designated, in writing, by the Holder, the principal sum of Two Million Four Hundred Fifty Thousand Dollars ($2,450,000.00) ("Loan Amount"), pursuant to the terms and conditions set forth in this Promissory Note ("Note"). The principal amount of this Note shall bear simple interest at .the "Applicable Interest Rate" (as defined below). ADDI~ONAL TERMS AND CONDITIONS 1. This Note is made in connection with (a) the agreement between Holder and Maker entitled "Agreement between the City of Palo Alto and Palo Alto Housing Corporation to Fund the Acquisition of Property at 360 Sheridan Avenue" ("Loan Agreement") and (b) the agreement between Holder and Sheridan Apartments Affordable Housing Limited Parmership, a California limited parmership of which PAHC Sheridan Apartments, Inc., a California corporation affiliated with and controlled by PAHC, is the. general parmer (the "Partnership") entitled "Regulatory Agreement and Declaration of Restrictive Covenants for Sheridan Apartments" ("Regulatory Agreement") executed in connection with the acquisition and rehabilitation of real property located at 360 Sheridan Avenue, Palo Alto, California ("Site") as a 57 one-bedroom unit (including manager’s unit) apartment project ("Project"). All terms, conditions, agreements and provisions, including the covenants, representations, and terms of default and remedies for default set forth in the Loan Agreement and the Regulatory Agreement, are incorporated herein by reference, and made a part hereof. - 2. This Note evidences the obligation of the Maker to make full payment of the Loan Amount to the Holder, in accordance with the provisions of this Note and the Loan Agreement. Such funds are to be used solely by the Maker to make a concurrentloan to the Parmership the proceeds of which, together with funds obtained by the Parmership from other sources, will provide funding for the acquisition of the Project by the Parmership, as more fully degcribed in the Loan Agreement. 3. This Note is secured by (a) a security interest in that certain promissory note payable to Maker made by the Partnership in original principal amount of $2,450,000 (the "Partnership Note"), which Parmership Note is secured by a deed of trust on the Project (the "Partnership Deed of Trust"), and the assignment to Holder of Maker’s interest in the Partnership Deed of Trust, and (b) a security interest in the Affordability Reserve Account that Maker is obligated to fund and maintain, as more particularly described in the Loan Agreement (the "Affordability Reserve Account"), all as set forth in the Security Agreement between Holder and Maker of even date herewith. 4. The term of this Note shall commence on the date set forth above, and, subject to the provisions of the Loan Agreement, shall expire or terminate on the date on which the Maker makes full payment of the principal sum of this Note. In no event shall full payment be made by the Maker later than thirty-five (35)years from the date hereof. 5. Maker shall pay Holder principal and accrued interest in annual installments on March 1 of each year until the entire amount of principal and interest hereunder have been paid in full. Maker shall make annual payments equal to the sum of (i) the amount required to be paid to Maker by the Parmership each March 1 under the Partnership Note; plus (ii) the amount required to be paid to Maker by the Parmer~hip as its incentive management fee for the preceding year; plus (iii) amounts released from the Affordability Reserve Account except to the extent expended by Maker for purposes approved by Holder. Notwithstanding the foregoing, Maker’s obligation to make payments of principal and interest to Holder shall be deferred until March 1 of the year following the yearduring which the total amount deposited in the Affordability Reserve Account (together with all interest, earnings thereon) first reaches One Million Dollars ($1,000,000) (the "Affordability Reserve Completion Year"). Annual payments thereafter shall then be due and payable on or before March 1 of the year following the Affordability Reserve Completion Year and each subsequent year during the term of this Note. Payments shall be credited fast to any accrued but unpaid interest, then to current interest then due and owing, and then to principal. /6. For any year in which the amount of Available Surplus Cash (as that term is used in the Parmership Note) is equal to or greater than twenty-five percent (25%) of the "9% Interest Amount" (as hereinbelow defined), the "Applicable Interest Rate" shall equal nine percent (9%) per annum; provided, however, during the period of time from the date hereof until the Affordability Reserve Account has been fully funded in accordance with the terms of the Loan Agreement, and provided that Maker is not in default of any of its obligations set forth in the sections of the Loan Agreement related to the Affordability Reserve Account, the "Applicable Interest Rate" shall equal three percent (3%) per annum. For any year in which the amount of Available Surplus Cash is less than twenty-five percent (25%) of the "9% Interest Amount", the Applicable Interest Rate shall equal three percent (3 %) per annum. As used herein, the term "9% Interest Amount" shall mean the amount of interest that would be due at the end of a year if interest were charged at the rate of 9 % per annum on the outstanding principal balance of this Note for that year. The Maker shall deliver to the Holder wi.thin 150 days of the close of each fiscal year of the Project an annual audited financial statement to confirm the amount of Surplus Cash. The Holder shall have the right to inspect and audit the Maker’s books and records concerning the calculation of Surplus Cash. 7. At any time, and from time to time, the Maker may prepay to the Holder the principal sum of this Note, or any part thereof, without penalty. 8. ’ Notwithstanding anything to the contrary contained in this Note, upon the completion of rehabilitation of the Project, the Maker shall cause the Parmership to prepare or cause to be prepared an independently audited cost certification in the form required by the California Tax Credit Allocation Committee ("TCAC"), and a final sources and uses of funds proforma documenting the actual Total Development Costs of the Project incurred by the Parmership. In the event the sources of funds including the Loan Amount evidenced by this Note and all other loans and grants, the limited partner’s capital contribution and the general parmer’s capital contribution that are available to pay such costs exceed the Total Development Costs of the Project, the Maker shall make a mandatory prepayment of principal in an amount equal to such excess. The Maker agrees to provide the Holder with such audited cost certification and the final proforma budget within twelve (12) months after the issuance of the final certificate of occupancy or equivalen~ City approval following completion of the rehabilitation of the Project. For the purpose of this Section 8, "Total Development Costs of the Project" includes: all hard and soft development costs; a developer fee in an amount approved by TCAC; all costs related to the tax credit syndication of the Project; audit costs; marketing costs; funding costs of any reserves required to be capitalized; all costs related to obtaining and closing the HUD/FHA-insured 10an secured by a deed of trust on the Project being funded concurrently herewith, including reasonable attorneys’ fees; and other documented costs. 9.The Maker and any other maker, co-maker, indorser, guarantor, and any other party to this Note (collectively, "Obligors"), and each of them: (i) waive notice of default (except as provided in Section 13) notice of acceleration, notice of nonpayment, presentment for payment, demand, protest, notice of demand, notice of protest, notice of nonpayment, and any other notice required to be given under the law to the Obligors; (ii) consent(s) to any and all delays, extensions, renewals, or other modifications of this Note or waivers of any term hereof or release or discharge by the Holder of any of the Obligors or release, substitution, or failure to act by the Holder, from time to time, and agree(s) that no such action, failure to act, or failure to exercise any right or remedy on the part of the Holder shall in any manner affect or impair the obligations of any Obligor or be construed as a waiver by the Holder of, or otherwise affect, any of the Holder’s rights under this Note or the Loan Agreement, under any indorsement or guaranty of this Note; and (iii) (jointly and individually, if more than one) agree(s) to pay, on demand, any and all costs and expenses of collection of this Note or of any indorsement or any guaranty hereof, including attorney’s fees. 3 No extension of time for payment of this Note or any portion thereof made by agreement of Holder with any person now or hereafter liable for the payment of this Note shall operate to release or discharge liability of Maker under this Note, either in whole or in part. 10. The pleading of any statute of limitations as a defense to any demand against the Maker is expressly waived by the Maker. 11. If any default is made hereunder, the Maker promises to pay the Holder’s reasonable attorneys’ fees and other related costs and expenses incurred by the Holder in connection with.the enforcement ofany rights of the Holder. The Holder’s right to such fees shall not be limited to its representation by staff attorneys of the Holder’s Office of the City Attorney, and such representation shall be valued at the customary and reasonable rates for private sector legal services. 12. The occurrence of any of the following shall constitute an event of default under this Note: (i) the Maker fails to pay any amount due hereunder within fifteen (15) days of its due date; or (ii) any default by the Maker under the Loan Agreement; or (iii) any default by the Parmership under the Deed of Trust or the Regulatory Agreement. Upon the occurrence of any event of default, or at any time thereafter, at the option of the Holder hereof, the entire unpaid principal and interest owing on this Note shall become immediately due and payable. This option may be exercised at any time following any such event, and the acceptance of one or more installments thereafter shall not constitute-a waiver of such option with respect to any subsequent event. The Holder’s failure in the exercise of any other right or remedy hereunder or under any agreement which secures the indebtedness or is related thereto shall not affect any right or remedy and no single or partial exercise of any such righ~t to remedy shall preclude any further exercise thereof. If the outstanding unpaid principal balance of this Note is not paid within thirty (30) days of demand therefor or, the Maker shall pay to the Holder/in addition to interest at the Applicable Interest Rate, interest equal to one percent (1%) of the unpaid principal amount, or the highest rate permitted by law, whichever is less, per calendar month, or fraction thereof. If this Note be reduced to judgment, such judgment shall bear the statutory interest rate on judgments. 13. The Holder shall not exercise any right or remedy provided for herein because of any default of the Maker unless, in the event of a monetary default, the Maker shall have failed to pay the outstanding sums within a period of thirty (30) calendar days after notice that payment was due. In the event of an uncured nonmonetary default, the Holder shall have first given written notice thereof to the Maker, and the Maker shall have failed to cure .the nonmonetary default within a period of thirty (30) days after the giving of such notice of such default; provided that if the nonmonetary default cannot be cured within thirty (30) days and the Maker proceeds diligently and uses best efforts to cure such default until it shall be fi~y cured within no more than ninety (90) days after the giving of such notice, then the Holder shall not exercise any right or 4 remedy provided for herein until such 90-day period shall expire; provided, however, the Holder shall not be required to give any such notice or allow any part of the grace period if the Maker shall have filed a petition in bankruptcy or for reorganization or a bill in equity or otherwise initiated proceedings for the appointment of a receiver of its assets, or if the Maker shall have made an assignment for the benefit of creditors, or if a receiver or trustee is appointed for the Maker and such appointment or such receivership,is not terminated within forty-five (45) days of such appointment. With respect to any right to cure or cure period provided in this Section 13, performance of a cure by any affiliated entity or partner of the Maker shall have the same effect as would like performance by the Maker. 14. Any notice, demand, or other communication required hereunder shall not be deemed sufficiently given, unless sent by certified mail, postage prepaid, return receipt requested, or by express delivery service or overnight courier service, to the principal office of the addressee, or at such other address as may be designated, in writing, from time to time: Holder:City of Palo Alto 250 Hamilton Avenue Palo Alto, California 94301 Atm: City Clerk Maker:Palo Alto Housing Corporation 725 Alma Street Palo Alto, California 94301 Arm: Executive Director The delivery shall be effective on the date shown on the delivery receipt or the date on which the delivery was refused. / 15. This Note shall be nonrecourse against the Obligors. No judgment, or execution thereof, entered in any action, legal or equitable, on this Note shall be enforced directly against the Maker or any officer, director or employee of the Maker, but shall be enforced only against the collateral described in the Security Agreement, and such other or further security as, from time to time, may be hypothecated for this Note. The foregoing limitation shall not be applicable in the event of (a) fraud by the Maker or any material misrepresentation made by the Maker to the Holder in the Loan Agreement, this Note or the Security Agreement, or (b) the sale or transfer or other conveyance of all or any part of the Parmership’s interest in the Project without the Holder’s prior written consent. Furthermore, the foregoing limitation shall not be applicable to the extent of any loss incurred by the Holder due to (a) misappropriation by the Maker or.the Parmership of any rents (including, without limitation, the application of rents to other than operating expenses and debt service), security deposits, insurance or condemnation proceedings, or (b) the diversion or other misappropriation by Maker of any funds from the Affordability Reserve Account. The Holder shall not in any way be prohibited from naming the Obligors, or any of them, or any person holding under or through them as parties to any actions, suit or other proceedings initiated by the Holder to foreclose or otherwise realize upon any other lien or security interest created under the Security Agreement, and further provided, however, that nothing in this Section 15 shall be deemed to prejudice the rights of the Holder to recover any funds or payments which were diverted or misappropriated by the Obligors, Or any of them. 16. The covenants, agreements, terms, and conditions of this Note shall inure to, and shall be binding on, the successors and assigns of the Obligors. 17. This Note supersedes and replaces, and incorporates the principal amount of, the promissory note executed by the Maker in favor of the Holder dated February 2, 1998. in the original principal amount of $145,500, which promissbry note is of no further force or effect and shall be returned to the Maker by the Holder marked "Canceled". PALO ALTO HOUSING cORPORATION, a California non-profit public benefit corporation By:,.,"( ~ David Eastor~, P~esid~nt x By: Name: Title: The undersigned, City, acting through its City Manager, acknowledges that the $14,5,500 promissory note dated February 2, 1998 referred to in Section 17 above is hereby canceled. CITY .OF PALO ALTO By: City Manager A:\C1TYNOTE.WPD November 18, 1998 6 EXHIBIT C FORM OF SECURITY AGREEMENT [to be supplied] EXHIBIT PROMISSORY NOTE SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS $ 2,450,000.00 Date: Palo Alto, California D FOR VALUE RECEIVED, the undersigned, SHERIDAN APARTMENTS AFFORDABLE HOUSING LIMITED PARTNERSHIP, a California limited parmership ("Maker") hereby promises to pay to PALO ALTO HOUSING CORPORATION, a California non-profit public benefit corporation ("Holder"), or order, at 725 Alma Street, Palo Alto, California, or at such other place as may be designated, in writing, by the Holder, the principal sum of Two Million Four Hundred Fifty Thousand Dollars ($2,450,000.00) ("Loan Amount"), pursuant to the terms and conditions set forth in this Promissory Note ("Note"). The principal amount of this Note shall bear simple interest at the "Applicable Interest Rate" (as defined below). ADDITIONAL TERMS AND CONDITIONS 1. This Note is made in connection with the agreement between Maker and the City of Palo Alto entitled "Regulatory Agreement and Declaration of Restrictive Covenants for Sheridan Apartments" ("Regulatory Agreement") executed in connection with the acquisition and rehabilitation of real property located at 360 Sheridan Avenue, Palo Alto ("Site") as a 57 one- bedroom unit (including manager’s unit) apartment project ("Project"). All terms, conditions, agreements and provisions, including the covenants, representations, and terms of default and remedies for default set forth in the Regulatory Agreement, are incorporated herein by reference, and made a part hereof. 2. This Note evidences the obligation of the Maker to make full payment of the Loan Amount to the Holder, in accordance with the provisions of this Note. Such funds are to be used solely by the Maker for the acquisition of the Project. 3. This Note is secured by a deed of trust executed by Maker for the benefit of the Holder and encumbering the Site (the "Deed of Trust"). 4. The term of this Note shall commence on the date set forth above, and, shall expire or terminate on the date on which the Maker makes full payment of the principal sum of this Note.In no event shall full payment be made by the Maker later than thirty-five (35) years from the date hereof. 5. So long as the Secretary of Housing and Urban Development ("HUD") or his/her successors or assigns, are the insurers or holders of the ftrst mortgage on the Project (FHA Project No. 121-11052-PM), payments due under this Note shall be payable only to the extent of surplus cash of the Project ("Surplus Cash"), as the term surplus cash is defined in the Regulatory Agreement dated between HUD and Maker. The restriction on payment imposed by this paragraph shall not excuse any default caused by the failure of the Maker to pay the indebtedness evidenced by this Note. 6. Maker shall pay Holder pria~cipal and accrued interest in annual installments on March 1, but only to the extent of Surplus Cash remaining after (a) any payments required on the HUD/FHA - insured loan in original principal amount of $1,983,700 made by Bank of America concurrently herewith and secured by a deed of trust senior to the Deed of Trust (the "B of A Senior Loan") or any loan obtained to replace the B of A Senior Loan with the approval of Maker and the City of Palo Alto in the future (any "Approved Replacement Loan") and (b) payment of the "Approved Parmership Payments". "Approval Parmership Payments" means, to the extent not already deducted in determining the amount of Surplus Cash, the following: (i) amounts reserved for capital replacement reserves in the amount required by HUD or TCAC, whichever is greater; (ii) repayment of the promissory note from Maker in favor of Holder in principal amount of $41,176, without interest; (iii) payment of an annual parmership management fee to PAHC Sheridan Apartments, Inc. ("PAHC Sheridan") in the amount of $15,000 per year, subject to annual 4% increases; (iv) payment of an annual asset management fee to the limited parmer of the Parmership in the amount of $2,500 per year, subject to annual 4% increases; (v) repayment to PAHC Sheridan of any amounts advanced to the Partnership by PAHC Sheridan to fund operating deficits; and (vi) payment to PAHC Sheridan of incentive management fees not to exceed $45,000 in any year. The amount of Surplus Cash of the Project remaining after any payments required on the B of A Senior Loan or any Approved Replacement Loan, and payment of the Approved Parmership Payments is referred to herein as "Available Surplus Cash". Payments shall be credited first to any accrued but unpaid interest, then to current interest then due and owing, and then to principal. 7. For any year in which the amount of Available Surplus Cash is equal to or greater than twenty-five percent (25%) of the "9% Interest Amount" (as hereinbelow defined), the "Applicable Interest Rate" shall equal nine percent (9%) per annum. For any year in which the amount of Available Surplus Cash is less than twenty-five percent (25%) of the "9% Interest Amount", the Applicable Interest Rate shall equal three percent (3 %) per annum. As used herein, the term "9% Interest Amount" shall mean the amount of interest that would be due at the end of a year if interest were charged at the rate of 9 % per annum on the outstanding principal balance of this Note for that year. The Maker shall deliver to the Holder within 150 days of the close of each fiscal year of the Project an annual audited financial statement to confirm the amount of Surplus Cash. The Holder shall have the right to inspect and audit the Maker’s books and records concerning the calculation of Surplus Cash. 8. At any time, and from time to time, the Maker may prepay tO the Holder the principal sum of this. Note, or any part thereof, without penalty. Any prepayment shall be made only with (i) Surplus Cash, and only with obtaining the prior written approval of HUD, or (ii) funds which are separate and apart from the Project or thd assets or income of the Project. 2 Any prepayment made from surplus cash may be made only after the end of a semi-annual or annual fiscal period as approved by HUD. 9. Notwithstanding anything to the contrary contained in this Note, upon the completion of rehabilitation of the Project, the Maker shall prepare or cause to be prepared an independently audited cost certification in the ,form required by the California Tax Credit Allocation Committee (TCAC), and a final sources and uses of funds proforma documenting the actual Total Development Costs of the Project. In the event the sources of funds including the Loan Amount evidenced by this Note and all other loans and grants, the limited partner’s capital contribution and the general parmer’s capita! contribution that are available to pay such costs exceed the Total Development Costs of the Project, the Maker shall use any such excess to repay the Note. The Maker agrees to provide the Holder with such audited cost certification and the final proforma budget within twelve (12) months after the issuance of the final certificate of occupancy or equivalent City approval following completion of the rehabilitation of the Project. For the purpose of this Section 9, "Total Development Costs of the Project" includes: all hard and soft development costs; a developer fee in an amount approved by TCAC; all costs related to the tax credit syndication of the Project; audit costs; marketing costs; funding costs of any reserves required to be capitalized; all costs related to obtaining and closing the B of A Senior Loan; and other documented costs. 10. ~ The Maker and any other maker, co-maker, indorser, guarantor, and any other party to this Note (collectively, "Obligors,), and each of them: (i) waive notice of default (except as provided in Section 14) notice of acceleration, notice of nonpayment, presentment for payment, demand, protest, notice of demand, notice of protest, notice of nonpayment, and any other notice required to be given under the law to the Obligors; (ii) consent(s) to any and all delays, extensions, renewals, or other modifications of this Note or waivers of any term hereof or release or discharge by the Holder of any of the Obligors or release, substitution, or failure to act by the Holder, from time to time, and agree(s) that no such action, failure to act, or failure to exercise any right or remedy on the part of the Holde~r shall in any manner affect or impair the obligations of any Obligor or be construed as a waiver by the Holder of, or otherwise affect, any of the Holder’s rights under this Note or the Agreement, under any indorsement or guaranty of this Note; and (iii) (jointly and individually, if more than one) agree(s) to pay, on demand, any and all costs and expenses of collection of this Note or of any indorsement or any guaranty hereof, including attorney’s fees. No extension of time for payment of this Note or any portion thereof made by ag.reement of Holder with any person now or hereafter liable for the payment of this Note shall operate to release or discharge liability of Maker under this Note, either in whole or in part. 11. The pleading of any statute of limitations as a defense to any demand against the Maker is expressly waived by the Maker. 12, If any default is made hereunder, the Maker promises to pay the Holder’s reasonable attorneys’ fees and other related costs and expenses incurred by the Holder in connection with the enforcement of any rights of the Holder. 13. The occurrence of any of the following shall constitute an event of default under this Note: (i) The Maker fails to pay any am.ount due hereunder within fifteen (15) days of its due date; or (ii) any default by the Maker under the Deed of Trust or the Regulatory Agreement. Upon the occurrence of any event of default, or at any time thereafter, at the option of the Holder hereof, the entire unpaid principal and interest owing on this Note shall become immediately due and payable. This option may be exercised at any time following any such event, and the acceptance of one or more installments thereafter shall not constitute a waiver of such option with respect to any subsequent event. The Holder’s failure in the exercise of any other right or remedy hereunder or under any agreement which secures the indebtedness or is related thereto shall not affect any right or remedy and no single or partial exercise of any such right to remedy shall preclude any further exercise thereof. If the outstanding unpaid principal balance of this Note is not paid within thirty (30) days of demand therefor or, the Maker shall pay to the Holder in addition to interest at the Applicable Interest Rate, interest equal to one percent (1%) of the unpaid principal amount, or the highest rate permitted by law, whichever is less, per calendar month, or fraction thereof. If this Note be reduced to judgment, such judgment shall bear the statutory interest rate on judgments. 14. The Holder shall not exercise any right or remedy provided for herein because of any default of the Maker unless, in the event of a monetary default, the Maker shall have failed to pay the outstanding sums within a period of thirty (30) calendar days after notice that payment was due. In the. event of an uncured nonmonetary default, the Holder shall have first given written notice thereof to the Maker, and the Maker shall have failed to cure the nonmonetary default within a period of thirty (30) days after the giving of such notice of such default; provided that if the nonmonetary default cannot be cured within thirty (30) days and the Maker proceeds diligently and uses best efforts to cure such default until it shall be fully cured within no more than ninety (90) days after the giving of such notice, then the Holder shall not exercise any right or remedy provided for herein until such 90-day period shall expire; provided, however, the Holder shall not be required to give any such notice or allow any part of the grace period if the Maker shall have flied a petition in bankruptcy or for reorganization or a bill in equity or otherwise initiated proceedings for the appointment of a receiver of its assets, or if the Maker sh,all have made an assignment for the benefit of creditors, or if a receiver or trustee is appointed for the Maker and such appointment or such receivership is not terminated within forty-five (45) days of such appointment. 4 With respect to any right to cure or cure period provided in this Section 14, performance of a cure by any affiliated entity or parmer of the Maker shall have the same effect as would like performance by the Maker. 15. Any .notice, demand, or other communication required hereunder shall not be deemed sufficiently given, unless sent by ce, rtified mail, postage prepaid, return receipt requested, or by express delivery service or overnight courier service, to the principal office of the addressee, or at such other address as may be designated, in writing, from time to time: Holder:Palo Alto Housing Corporation 725 Alma Street Palo Alto, California 94301 Atm.: Executive Director Maker:Sheridan Apartments Affordable Housing Limited Parmership 725 Alma Street Palo Alto, California 94301 Attn.: General Parmer The delivery shall be effective on the date shown on the delivery receipt or the date on which the delivery was refused. 16. This Note shall be nonrecourse against the Obligors. No judgment, or execution thereof, entered in any action, legal or equitable, on this Note shall be enforced directly against the Maker or any officer, director or employee of the Maker, but shall be enforced only against the collateral described in the Deed of Trust, and such other Or further security as, from time to time, may be hypothecated for this Note. The foregoing limitation shall/not be applicable in the event of (a) fraud by the Maker or any material misrepresentation made by the Maker to the Holder in the Regulatory Agreement, this Note or the Deed of Trust, or (b) the sale or transfer or other conveyance of all or any part of the Maker’s interest ha the Project without the Holder’s prior written consent. Furthermore, the foregoing limitation shall not be applicable to the extent of any loss incurred by the Holder due .to (a) misappropriation by the Maker of any rents (including, without limitation, the application of rents to other than operating expenses and debt service), security deposits, insurance or condemnation proceedings, (b) waste caused by or permitted by the Maker to the Project, or (c) the presence or release of any hazardous or toxic substances on or in the site encumbered by the Deed of Trust. The Holder shall not in any way be prohibited from naming the Obligors, or any of them, or any person holding under or through them as parties to any actions, suit or other proceedings initiated by the Holder to foreclose or otherwise realize upon any other lien or security interest created in the Site or in any other collateral given to secure the performance of the obligations of the Maker pursuant to this Note, 5 and further provided, however, that nothing in this Section 16 shall be deemed to prejudice the rights of the Holder to recover any rents, condemnation or insurance proceeds, .tenant security deposits orother similar funds or payments attributable to the Site or the Project which were diverted or misappropriated by the Obligors, or any of them. 17. The covenants, agreements, terms, and conditions of this Note shall inure to, and shall be binding on, the successors and assigns of the Obligors. SHERIDAN APARTMENTS AFFORDABLE HOUSING LIMITED PARTNERSHIP, a California limited partnership By PAHC SHERIDAN APARTMENTS, INC., a California non-profit public benefit corporation, its general partner President By: Name: Title: A:WARTNOTE.WPD November 18, 1998 6 EXmBIT E FORM OF PARTNERSHIP DEED OF TRUST [to be supplied] EXHIBIT F FORM OF ASSIGNMENT OF DEED OF TRUST [to be supplied] EXItlBIT G FEDERAL ASSURANCES WITH RESPECT TO CDBG FUNDS PAHC agrees to comply with the requirements of 24 CFR Part 570 (the Housing and Urban Development regulations concerning Community Development Block Grants). PAHC also agrees to comply with all other applicable federal, state and local laws, regulations, and policies governing the funds provided under this Agreement. PAHC further agrees to utilize funds available under this Agreement to supplement rather than supplant funds otherwise available. (1) (3) (4) (5) (6) (7) (8) PAHC hereby assures and certifies that: It possesses legal authority to receive federal grant funds and to carry out the proposed program(s) assisted thereby. Its governing body has duly acquainted itself with the funds application, including all understandings and assurances contained therein, and directed and authorized the person identified as the official representative of PAHC to provide such additional information as may be required hereunder. It consents to accept the jurisdiction of the federal or California courts for the purpose of enforcement of its responsibilities imposed hereunder. The proposed program(s) has been developed so as to give maximum feasible priority to activities which will benefit low and moderate income persons. The receipt of any program income, as defined in 24 CFR 570.500(a), as amended, generated by the use of grant funds under this Agreement, will be recorded, reported and returned to City in accordance with 24 CFR 570.504, as amended. It will comply with the provisions set forth in 24 CFR 85.43 and 24 CER 85.44 regarding the suspension or termination of a grant agreement for cause or convenience. It will maintain and retain all books, documents, papers, financial, or other, records which are pertinent to the grant for a period of not less than three (3) years following the expiration of this Agreement. PAHC will allow City and the U.S. Department of Housing and Urban Development, through any authorized representatives, access to such documents, papers and records. If PAHC is a primarily religious entity, in connection with the provision of services required under this Agreement, PAHC agrees to comply with federal regulations specified in 24 CER 570.2000). PAHC further: 22 (a) (b) (c) (d) PAHC (1) (2) (3) (4) (5) (6) will not discriminate against any employee or applicant for employment on the basis of religion and will not limit employment or give preference in employment to persons on the basis of religion; will not discriminate against any person applying for such services on the basis of religion and will not limit such services or give preference to persons on the basis of religion; will provide no religious instruction or counseling, .conduct no religious worship or services, engage in no religious proselytizing, and exert no other religious influence in the provision of such services; and will ensure that the portion of PAHC’s facility used to provide the services shall contain no religious symbols or decorations, other than those permanently affixed to or are part of the structure. also hereby assures that it shall: Comply with the nondiscrimination provisions of public law 88- 352 (Title VI of the Civil Rights Act of 1964) and the fair housing provisions of public law 90- 284 (Title VIII of the Civil Rights Act of 1968) and Executive Order 11063, as amended by Executive Order 12259, with respect to sale, lease or transfer of land acquired, cleared or improved with grant assistance. Comply with the provisions of Section 109 of Title I of the Housing and Community DevelopmentAct of 1974 which prohibit discrimination. Comply with the Fair Housing Act of 1989 (42 USC 3601-20) which prohibits discriminatory housing practices based on race, color, religion, sex, national origin, disability or familial status. Comply with the Davis-Bacon Act, .as amended, Federal Labor Standards provisions with respect to all construction contracts in.excess of Two Thousand Dollars ($2,000) Comply with the requirement of the Flood Disaster Protection Act of 1973 and the National Flood Insurance Act of 1968 applicable to acquisition or construction projects. Comply with the relocation and displacement requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended. 23 (7) (8) Comply with provisions of Executive Order 11246, as amended by Executive Orders 11375 and 12086, on equal employment opportunities and affirmative action relative to employees and applicants and nonexempt contracts and subcontracts. Comply with 42 USC 4831(b), and 24 CFR 570.608 and 24 CFR Part 35 of the I-HD regulations, prohibiting the use of lead-based paint in the construction or rehabilitation of residential structures. (9) (10) (11) (12) (13) (b) Comply with the provisions of 24 CFR Part 24 which prohibit the utilization of debarred, suspended, or ineligible contractors or subrecipients. Cbmply with the uniform administrative requirements and cost principals of 24 CFR Part 85 and 0MJ3 circulars A-87, A-110, A- 122, and A-128 and A-133 as they relate to the acceptance and use of federal funds by nonprofit organizations, and as otherwise .may be required under 24 CFR 570.502, as amended. Comply with the requirements of.24 CFR 85.36 and 0MB circular A-hO with respect to conflict of interest, and as otherwise may be required under 24 CFR 570.61.1, as amended. Comply with the provisions of the Hatch Act which prohibit the use of federal funds for lobbying activities. Comply with Section 319 of public law 101-121, which generally prohibits recipients of federal contracts, grants or loans from using appropriated funds for lobbying the executive or the legislative branches of the federal government in connection with a specific contract, grant or loan. Accordingly, PAHC hereby certifies to the best of its knowledge and belief, that: No federal appropriated funds have been paid or will be paid, by or on behalf of PAHC, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any federal contract, the making of any federal grant, the making of any federal loan, the entering into of any cooperative agreement, or the extension, continuafio.n, renewal, amendment, or modification of any federal contract, grant, loan, or cooperative agreement; and If any funds other than federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this federal contract, grant, loan or cooperative agreement, PAHC shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying" in accordance with its instructions. (14)Comply with the Age Discrimination Act of 1975, as amended, which states that no persons in the United States shall, on the basis of age, be denied the benefits of, or be subjected to discrimination under, any program or activity receiving federal financial assistance. (15) (16) (17) (a) (b) Comply with Section 504 of the Rehabilitation Act of 1973, which prohibits discrimination against people with disabilities in any federally assisted program. Comply with the Americans with Disabilities Act of 1990, as amended, and implementing regulations when published. Transfer to City any CDBG funds on hand, and any accounts receivable attributable to the use of CDBG funds, at the time of expiration of this Agreement. In addition, PAHC shall ensure that any real property under PAHC’s control that was acquired or improved in whole or in part with CbBG funds in excess of $25,000 is either: used to meet one of the national objectives in 24 CFR 570.208 until five years after expiration of this Agreement, or for such longer period of time as determined appropriate hereunder by City; or is disposed of in a manner which results in City being reimbursed in the amount of the then current fair market value of the property less any portion thereof attributable to expenditures of non-CDBG funds for acquisition of, or improvement to, the property. 25 EXHIBIT H INSURANCE REQUIREMENTS I. FIRE AND EXTENDED COVERAGE Insurance, to.cover not less than One Hundred Percent (100%) of the replacement cost of all insurable improvements within or upon the Property. Such policies shall include water damage and debris cleanup provisions. POLICY MINIMUM LIMITS,,,,,,,OF,,,LIABILITY 2. WORKERS’ COMPENSATION Statutory 3. COMPREHENSIVE AUTOMOBILE LIABILITY, including owned hired, and nonowned automobiles Bodily Injury Prop. Damage $5,000,000 ea. person $5,000,000 ea. occurrence $5,000,000 ea. occurrence COMMERCIAL Bodily Injury GENERAL LIABILITY, including Property Damage products and completed operations, broad form contractua!, and personal injury. $5,000,000 ea. person $5,000,000 ea. occurrence $5,000,000aggregate $5,000,000 ea. occurrence Each insurance policy required by this Agreement shall contain the following clauses: "This insurance shall not be canceled, limited in scope of coverage or nonreneweduntil after thirty (30) days written notice has beengiven to the: CITY OF PALO ALTO/Planning and Community Environment Department, P. O. Box 10250, Palo Alto, CA 94303." o "All rights of subrogation are hereby waived against the CITY OF PALO ALTO and the members of the City Council and elective or appointive officers or employees, when acting within the scope of their emp!oyment or appointment." ~The CITY OF PALO ALTO is added as an additional insured as respects operations of the named insured, but only as to work performed under this Agreement. "It is agreed that any insurance maintained by the CITY OF PALO ALTO will apply in excess of, and not contribute to, insurance provided by this policy." 1 All insurance coverage required shall be provided through carriers with a BEST KEY RATING GUIDE rating of A:X or higher that are admitted to do business~ in the State of California. The certificate(s) of insurance evidencing such coverage shal! be completed and executed by an authorized representative of the company providing insurance, and shal! be filed with and approved by City’s risk manager. EXHIBIT I Sheridan Apartments - Sources and Uses of Funds and Development Budget Sources of Permanent Funding Bank of America (HUD/FHA Insured) Loan; 35 years at 7.75% Transamerica Corporation; State and Federal Housing Tax Credit Equity PAHC: Short-term developer fee loan PAHC: Developer equity City Loan: 35 years at 9.0% or 3.0% interest based on rents TOTAL SOURCES OF FUNDING .Uses of Permanent Funding Acquisition Price Rehabilitation Construction Contracts & Contingency Construction Related Costs Permanent Financing, Tax Credits Transaction Costs Soft Cost Contingency Replacement Reserve Fund Operating Reserve Fund Developer Fee TOTAL USES OF FUNDS $1,983,700 2,074,458 41,176 100 2,450,000 $6,549,434 $5,031,500 687,000 61,156 176,298 81,057 28,458 88,980 85,500 309,485 $6,549,434 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of Palo Alto Department of Planning & Community Environment 250 Hamilton Avenue Palo Alto, CA 94301 RECORDED ~WITHOUT CHARGE. GOVERNMENT CODE SECTIONS 6~03, 27383 ATTACHMENT C SPACE ABOVE THIS LINE FOR RECORDER’S USE REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS FOR SHERIDAN APARTMENTS THIS REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS ("Regulatory Agreement") is made and entered into , 1998, by and between the City of Palo Alto, a chartered city organized and existing under the constitution and laws of the State of California ("City") and Sheridan Apartments Affordable Housing Limited Partnership, a California Limited Partnership, with offices at 725 Alma Street, Palo Alto, California 94301 ("SAAHLP"). W I T N E S S E T H: WHEREAS, the City is entering into an agreement with the Palo Alto Housing Corporation (~PAHC") entitled ~Agreement between the City of Palo Alto and Palo Alto Housing Corporation to Fund the Acquisition of the Sheridan Apartments at 360 Sheridan Avenue, Palo Alto" (~Loan Agreement"), under which the City will loan funds ("City Loan") to PAHC, with which funds PAHC will make a concurrent loan (~PAHC Loan") to SAAHLP and, together with funds obtained from other sources, SAAHLP will acquire the fifty-seven (57) unit Sheridan Apartments located at 360 Sheridan Avenue, Palo Alto, ("Project"); WHEREAS, the preservation through acquisition of affordable, federally assisted rental housing occupied by Very Low- Income and Low-Income Households is an objective of the City’s Consolidated Plan and the Housing Element of the City’s Comprehensive Plan; WHEREAS, the sources of the City Loan are federal Community Development Block Grant (CDBG) funds and the city’s Residential Housing In-lieu account of the Housing Reserve Fund, and the acquisition and preservation of existing rental housing for Very Low-Income and Low-Income Households is an eligible use .of those funds; WHEREAS, the City, which qualifies as a State Recipient under the State of California’s federal HOME Program and the HOME 1 sh~rreg2.wpd: 981117 Regulations promulgated thereunder, has applied for a grant of HOME funds to assist ii Units in the Project, and the HOME funds, if awarded, will be used to reimburse the Residential Housing In-Lieu account of the City’s Housing Reserve Fund; WHEREAS, in consideration ofthe making of the City Loan ~and the-PAHC Loan, SAAHLP agrees tO observe and perform all of the terms and conditions set forth below, and in order to ensure that the Project will be used and operated in accordance with certain restrictions concerning affordability, operation, and maintenance, the parties wish to enter into this Regulatory Agreement; NOW THEREFORE, in consideration of the mutual promises and covenants and terms, conditions and provisions set forth in this Regulatory Agreement, the parties agree as follows: ARTICLE 1 -DEF~NIT~0NS The following terms as used in this Regulatory Agreement shall have the respective meanings assigned to them in this Article I, unless the context clearly indicates otherwise: ~City" means the City of Palo Alto, a chartered city organized.and existing under the constitution and laws of the State of California. ~City Loan" means the principal sum of funds loaned by the City to PAHC under the Loan Agreement. ~"City Note" means the promissory note in the original principal amount of the City Loan. ~CDBG" means the federal Community Development. Block Grant" Program of which the City is an entitlement jurisdiction. "Deed o£ Trust" means the deed of trust gra~ting PAHC a lien on the Property which shall be assigned to City to secure PAHC’s obligations under the Loan Agreement and SAAHLP’s performance under the Regulatory Agreement. ~HAP Contract" means the Section 8 Housing Assistance Payment contract number CA39-0027-006, between HUD and Sheridan Associates, the seller of the Property, which expires on Apri! 16, -1999, and any amendments, extensions or renewals that may be approved by HUD~ ~HOME Assisted Units" means any ii Units in ~he Property that qualify as affordable housing under the rent and occupancy restrictions of this Regulatory Agreement and the HOME Regulations. ~HOME Program" means the HOME Investment Partnerships Program established under the HOME Investment Partnerships Act, 42 U.S.C. Section 3535(d) and 12701-12839. ~HOME Regulations" means the regulations promulgated by sh~rr~g2.w!od: 981117 ~HUD for the HOME Program at 24 CFR Part 92, and published as a Final Rule in the Federal Register on September 16, 1996, and as may be subsequently amended during the term of this Regulatory Agreement. ~Housing Authority" means the Housing Authority of the County of Santa Clara, California.. ~HUD" means the United States Department of Housing and Urban Development. ~Lender" means the Bank of America which is the lender of the loan insured by HUD/FHA under Section 223(f) in the original principal amount of $1,983,700. "Loan Agreement" means the ~Agreement between the City of Palo Alto and Palo Alto Housing Corporation to Fund the Acquisition of the Sheridan Apartments at.360 Sheridan Avenue, Palo Alto". "Low’Income Household" means a household with gr~ss income that does not exceed 60% of Median Income and which is otherwise a qualified Tenant under the Tax Credit Regulations. "Median Income" means the median income for households in Santa Cl&ra.County, State of California, as ~published from time to time by HUD in a manner consistent with the determination of median gross income under the Section 8 program. In the event that such income determinations are no longer published by HUD, or are not updated for a period of at least 18 months from the date of the previous~ publication, the City shall provide Owner with other income determinations that are reasonably similar with respect to methods of calculation contained in that previous HUD publication. ~Owner" means SAAHLP or its successors, heirs and assigns in which title to the Property is vested~during the term of this Regulatory Ag~eement. ~PAHC" means the Palo Alto Housing Corporation, a corporation duly organized and existing under the Nonprofit Corporation Law of the State of California, the sponsor of the Project and an affiliate of PAHC Sheridan Apartments, Inc. the general partner of SAAHLP. ~PAHC Loan" means the loan made concurrently by PAHC to SAAHLP with the proceeds of the City Loan which SAAHLP shall use to acquire the Project. "Project" means the acquisition and rehabilitation of the Property for the purpose of providing 56 rental housing units (plus a manager’s unit) of which 55 rental housing units shall be rented as provided in this Regulatory Agreement. "Property" means the real property, the legal description of which is set forth in Exhibit ~A". 3 "RegulatoryAgreement’’ means this ~RegulatoryAgreement and Declaration Of Restrictive Covenants For Sheridan Apartments". "Rent" means the sum total of all monthly payments to be made by the Tenants of a Unit for the following privileges: use and occupancyof the Unit and associated facilities, including parking; any separately charged fees or service charges assessed by Owner which are required of al! Tenants, other than security deposits; and the cost of an adequate level of service for utilities paid by the Tenant., as determined by the applicable utility allowance for the Units as set by the Housing Authority under the Section 8 program regulations. "SAAHLP" means Sheridan Apartments Affordable Housing Limited Partnership, a California Limited Partnership. ~Section 8" means Section 8 of the United States Housing Act of 1937 ("Act"), as amended. ~State HCD" means the California Department of Housing and Community Development which administers the HOME program for the State of California. ~Tax Credit Regulations" means the laws, statutes, rules, regulations, notices and memoranda issued pursuant to the United States low-income housing credit (Section 42 of the Internal Revenue Code) and the California low-income housing tax credit (Sections 17058, 12206 and 23610.5 of the California Revenue and Taxation Code). ~Tax Credit Regulatory Agreement" means the fifty-five (55) year regulatory agreement which will be recorded against the Property to secure compliance by SAAHLP with the Tax Credit Regulations. "Tenants" (individually, "Tenant") means the occupants Of the Project’s Units. "Units" (individually, ~Unit") means the fifty-six (56) units in the Property made available for rental to the general public. The one (I) apartment reserved for a resident manager is not a Unit under this Regulatory Agreement. "Very-Low Income Household" means a household with gross income that is less than 40% of Median Income and which is otherwise a qualified Tenant under the Tax Credit Regulations. "Very-Low Income Units" means the Units which are required to be occupied by Very,Low Income Households. sherteg2.wpd: 9~1117. ARTICLE 2 -~AFFORDABILITY COVENANTS 2.1 R@nD an~ Occzpancy r~quirements (a) Fifty-five (55) of the fifty-six (56) Units shall be rented and occupied by, or, if vacant, made available for rental and occupancy by, households whose incomes as certified according to Section 4.1, immediately prior to each Tenant’s initial occupancy, average on the whole, 40% of the Median Income, or less. ~ in no event shall any of the~fifty-five (55) affordable Units be rented to a household whose certified income at initial occupancy exceeds 60% of the Median Income. The remaining one (i) unit of the fifty-six (56) Units .is not subject to rent or occupancy restrictions. (b) Subject to. Section 2.4 below, the maximum monthly Rent charged to each of the Tenants of the fifty-five (55) affordable Units shall not exceed the amount of Rent Owner is permitted to charge under the Tax Credit Regulatory Agreement recorded against the Property, which will require that the average monthly Rent for all fifty-five (55) affordable Units will not exceed one-twelfth (1/12) of 30% of 40% of the Median Income based upon an assumed household size for a one bedroom unit of 1.5 persons. 2.2 Rend and occupancy requirements for HQME......~ssist~d (a) Eleven (ii) of the fifty-five (55) affordable units shall comply with the rent and occupancy requirements of Section 92.252 of the HOME Regulations, with the exception that all eleven (ii) HOME units shall meet the requirements for very low-income occupancy and rents stated in Section 92.252(b). (b) If, at any annual, anniversary of the determination of the Income Certification, a Tehant of a HOME Assisted Unit ceases .to qualify as-a Low-Income Household under the HOME Regulations, then Owner shall require that Tenant to pay rent determined in accordance with Section 92.252(I) (2) of the HOME Regulations which allows the Rent to be calculated under the Tax Credit Regulations. (c) The eleven (i!) HOME Assisted Units shall be floating units pursuant to Section 92.252(j) of the HOME Regulations} Owner may designate any of the fifty-five (55) Units as the eleven (ii) HOME Assisted Units and may change, that designation, as vacancies occur and tenant incomes and household composition changes. 2.3 NOncOmpliance A failureby Owner to maintain the rent affordability and occupancy restrictions required by this Regulatory Agreement and the HOME Regulations wil! constitute a default of this Regulatory Agreement subject to the notice and cure provisions of Section 6.10. The Property will comply with the affordabiiity covenants, notwithstanding a temporary noncompliancewith the provisions of 5 sherreg2..wpd: 981117 ~ this Article, if the noncompliance arises as a result of an increase in the income of any Tenant, and if the next vacancy is filled in accordance with Section 2.1 and 2.2. 2.4 Le~se provisions (a) Owner shall include in the leases or rental agreements for all Units a provision which authorizes Owner to immediately terminate the tenancy of any Tenant, after Owner determines that one or more members of such Tenant’s household has misrepresented any fact material to the Tenant’s qualification for occupancy. Each lease or rental agreement shall provide that the Tenant is subject to the requirement for the execution of an annual income certification in accordance with Section 4.1 below, and that, if the Tenant’s income increases above the applicable income limits, such Tenant’s Rent may be increased. Owner and the City hereby acknowledge that Section 42(h) (6) (e) (ii) of the United States Internal Revenue Code, as amended, does not permit the eviction or termination of tenancy (other than for good cause) of an existing Tenant of any Low-Income Unit or any increase in the gross rent with respect to such Unit not otherwise permitted under Section 42 for a period of three (3) years after the date the Property on which such Unit is located is acquired by foreclosure or instrument in lieu of foreclosure. (b) All leases and rental agreements for the Units will conform to the tenant protection requirements of Sections 92.253(a) and (b) of the HOME Regulations. 2.5 Term..and t~rmination of....affordability restrictions (a) This Regulatory Agreement shall be in effect for fifty-five (55) years from the date of recordation of this Regulatory Agreement. (b) In the event of a foreclosure of the Property, or a transfer in lieu of foreclosure, the affordability restrictions of this Regulatory Agreement will terminate and be of no further force and effect. The affordability restrictions of this Regulatory Agreement will be revived and made applicable to the person taking title upon foreclosure of the Property or pursuant to a transfer in lieu of foreclosure if, at any time during its fifty-five (55) year term, the Owner of record before the foreclosure, or the transferor of a transfer in lieu of foreclosure, or any entity that includes the former Owner, or its general partner and affiliates, or those with whom the former Owner has or had family or business ties, obtains an ownership interest in the Property. 2.6 Applicability of HOME affordability requirement8 and conflicts with Tax Credit Regulations All definitions, procedures and calculations related to the occupancy, determination of rent and qualification of Tenants and Median Income shall be determined according to the Tax Credit Regulations. In the event of a conflict between the provisions of sh~rreg2.wpd: 981117 this Regulatory Agreement, the HOME Regulations and the Tax Credit Regulations, the Tax Credit Regulations shall prevail. In the event that City does not receive the award of HOME funds for the Project, the HOME Program affordability covenants of this Article 2 shall be of no force or effect. ARTICLE 3 -OPERATION AND MAINTENANCE OF THE PROJECT 3.1~ Nontransient r~sid~ntial use No part of the Project shall be operated as transient housing; provided, however, the Project shall not be treated as used on a transient basis merely because the Project or any of the Units is rented on a month-to-month basis. 3.2 Insurance Owner, at its sole cost and expense, shall obtain and maintain during the term of this Regulatory Agreement, insurance with responsible companies authorized to engage in the offering of insurance services in California in such amounts and against such risks as shall be satisfactory to the City’s risk manager, including, without limitation, workers’ compensation, employer’s liability, commercial general liability, comprehensive automobile liability, personal injury and property damage insurance, as appropriate, as set forth in Exhibit ~B", as appropriate, insuring against all liability of Owner and its respective partners, directors, officers, employees, agents, and representatives arising out of or in connection with the Project, or Owner’s performance or non-performance under this Regulatory Agreement. Modifications of any insurance requirements set forth in Exhibit ~B" shall be submitted, in writing~ to the Project Manager for approval by the City’s risk manager. Any such modification shall receive the concurrence of the Office of City Attorney. Owner shall name the City as an additional insured on all policies of insurance required under the terms of other financing. / 3.3 Taxes and ~sses$m~nt$ Owner shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes~assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property; provided, however, that Owner shall have the right to contest in good faith, any such taxes, assessments, or charges. In the event Owner exercises its right to contest any tax, assessment, or charge against it, Owner, on the final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against, it, together with all costs, charges and interest. 3.4 Maintenance Owner shall maintain the Project in good repair and working order, and in a manner consistent- with the property shcrr~?..wpd: 981117 standards set forth in section 92.251 of the HOME Regulations, the housing quality standards set forth in Section 882.109 (24 CFR Part 882), and all applicable City ordinances. 3.5 Property inspections The City, HUD, Stat~ HCD, or their authorized representatives, shall have the right to make periodic on-site inspections of the Property and the Units during working hours. 3.6 N0ndiscrimination (a) All of the Units.shall be available for occupancy on a continuous basis to members of the general public who are income- eligible, except for the occupancy requirements of Section 2.1 and the preference for holders of Section 8 vouchers or certificates required-by Section 3.9. There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, age, familial status, sex, sexua! orientation, marital status, national origin, ancestry, handicap, source of income or any other arbitrary discrimination based on personal characteristics, in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of. any Unit, nor shall Owner or any person claiming under or through Owner, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy, of tenants, lessees, sublessees, subtenants, or vendees of any Unit or in connection with the employment of persons for the construction, operation and management of any Unit. (b) Notwithstanding thenondiscrimination provisions of Section 3.6 (a), and subject to State and Federal laws, Owner may limit occupancy of the Project to elderly or disabled households as defined by HUD consistent with the occupancy of the Project since its construction in 1979./ 3.7 Affirma~iv~ m~rk@~ing ~nd t@nan~ selection criteri~ In accordance with the HOME Regulations, Owner shall establish and follow affirmative marketing procedures in its marketing of the Units and in its public, information-materials and efforts. Owner shall, at a minimum, follow the City’s affirmative marketing procedures and requirements for the HOME program. Owner shall prepare and follow written tenant selection policies and criteria. 3.8 Renewal or termination .of HUD S~¢tion 8. Housing Assistance Program....Con%rac% As a continuing obligation during the term of this Regulatory Agreement, Owner shall, in good faith, undertake all actions as required and necessary to obtain renewal of the Project’s HAP Contract which expires in April, 1999, as long as such renewals, or contracts for project-based rental assistance under a successor program, are available from HUD or from the Housing Authority. Owner shall seek the longest contract renewal sherreg2.wpd: 981117 term available and shall seek HAP Contract assistance for all eligible Units. Owner shall seek to maximize the Project’s gross rental income by seeking.increases in.the HAP contract rents, if possible. In the event that the HAP Contract is terminated by HUD for all, or a portion of, the Units, Owner shall continue to rent to all Tenants residing in the affected Units under the terms of any replacement or successor rental assistance program provided by HUD or the Housing Authority to the Tenants. 3.9 Priority for occupancy of units by.hol~@rs of ~nan~- based S~ction 8 vouchers or certificates For all Units which are not subject to a HAP Contract, upon receipt from a Tenant of a notice to vacate a Unit, Owner shall provide written notice to the Housing Authority of the vacancy. Owner shall give priority for occupancy to elderly and disabled households that hold a Section 8 Voucher or Certificate during a 30-day period beginning with the date the notice is received by the Housing Authority. Owner shall cooperate with the Housing Authority in permitting inspections of the Units and in allowing a reasonable amount of time for Section 8 Tenants to execute rental agreements and to occupy the Units. If no qualified Section 8 assisted household is available to occupy a~vacated Unit, then Owner shall offer the Unit to an eligible non-assisted household. 3.10 Selection criteria for applicants for tenancy Owner will accept as Tenants, on the same basis as all other prospective tenants, persons who are recipients of federal certificates for rent subsidies pursuant to the existing housing program under Section 8 of the Act, or its successor. Owner shall not apply selection) criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective tenants, nor shall Owner apply or permit t~e application of management policies or lease provisions with respect to the Project which have the effect of precluding occupancy of Units by such prospective tenants. ARTICLE 4 INCOME,,,,,CERTIFICATION AND REPORTING 4.1 .Income c@rtification Owner will obtain, complete and maintain on file, immediately prior to initial occupancy and annually thereafter, an income certifications from each Tenant renting any of the Units. Owner shall make a good faith effort to.verify that the income provided by an applicant, or occupying household, in an income certification is accurate in accordance with the applicable HOME Regulations and Tax Credit Regulations. Copies of tenant income certifications shall be made-available to the City, including its designated representatives, HUD or State HCD upon request. sherreg2.wpd: 981117 4.2 R@por~ing ~n~ provisiQn of information Owner will submit reports in a format and at a time specified by the City. The reports will contain such information as the City, HUD or State HCD may then require to document compliance with the use and occupancy restrictions and other requirements of this Regulatory Ag~eement. The City, including its designated representatives, HUD or State HCD shall havethe right to examine and make copies of all books, records or other documents of Owner which pertain to the Project or any Unit and Owner shall. provide any information reasonably requested in accordance with Section 92.508 (c) and (d) of the HOME Regulations. Owner shall deliver to the City copies of al! reports submitted to the California Tax Credit Allocation Committee and the Internal Revenue Service, as may be requested by the City. 4.3 Records Owner shall maintain complete, accurate and current records pertaining to the Property and the Units, as required by Sections 92.508(a) (3), 92.508(c), and 92.508(d) of the HOME Regulations, and shall permit any duly authorized representative of the City, HUD or State HCD to inspect records, including records pertaining to incomes and household sizes of Tenants’ households, and the rents and other charges for occupancy of the Units. All Tenants lists, applications and waiting lists relating to the Project shal! at all times be kept separate and identifiable from any other business of Owner and shall be maintained as required by the City, in a reasonable condition for proper audit and subject to examinat±on during business hours by representatives of the City, HUD or State HCD. 4.4 Financial Audits Owner shall provide city, during the term of this Regulatory Agreement,/with copies of audited financial statements of Owner, including any management letter comments on the adequacy of internal or operational controls, within one hundred fifty (150) days of the close of each fiscal year of the Project. The audit covering the fiscal year in which the PAHC Loan is provided to the Project shall be conducted in accordance with OMB Circular A-133, as amended (implemented at 24 CFR Part 45. City reserves the right, during the term of this Regulatory Agreement, to audit the records, including the financia! records supporting the aforementioned financial statements, and other records and documents pertaining to the operations of the Project. 4.5 Assignment by Owner Except for (a) leases with the Tenants in the ordinary course.of business, (b) transfer of a ninety-nine percent (99%) limited partnership interest to the Transamerica Occidental Life Insurance Company, or (c) the exercise of an option to acquire the Project by PAHC Sheridan Apartments, Inc. or Palo Alto Housing Corporation, Owner shall not cause or permit any voluntary sherreg2..wpd: 9~1117 10 transfer, assignment or encumbrance of its interest in the Property, or lease or permit a sublease on all or any part of the Property without first obtaining the City’s written consent. Any transfer, assignment, encumbrance, or lease without the City’s written consent shall be voidable and, at the City’s election, shall constitute a breach of this Regulatory Agreement. No consent to any assignment, encumbrance or ~ease shall constitute a consent to any subsequent assignment, encumbrance or lease, or a waiver of any of the City’s rights under this Regulatory Agreement. ARTICLE 5 SUBORDINATION It is agreed and understood that the terms and conditions of this Regulatory Agreement are subject and subordinate to the provisions of the HOME Regulations and the CDBG program regulations, and all applicable HUD administrative requirements, including, but not limited to, the uniform administrative requirements set forth under Section ~92.505(b) of the HOME Regulations. Owner shall also perform all. of its activities under ~this Regulatory Agreement in compliance with all federal laws and regulations described in Subpar% H of the HOME Regulations-and in Exhibit ~C" Federal Assurances. In the event of any conflict between the provisions of this document and the provisions of any applicable laws, HUD regulations or related administrative requirements, then the laws, HUD regulations or related administrative requirements shalI control. ARTICLE 6 - NOTICES All notices, consents, communications or transmittals required by ihis Regulatory Agreement shall be made, in writing, and shall be communicated by the United States mail, certified, return receipt requested or by express delivery with a delivery receipt, and shall be deemed given as of the date shown on the delivery receipt as the date of delivery or the date on which delivery was refused, and shall be addressed to the following addresses, or such other address as either party may designate, from time to time, by written notice sent to the other party in like manner: To City: Copy to: 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 shcrrcg2.wpd: 981117 11 To SAAHLP or owner: Sheridan Apartments Affordable Housing Limited Partnership 725 Alma Street Palo Alto, CA 94301 Attn.: General Partner ARTICLE 7 MISCELLANEOUS PROVISIONS 6.1 Nothing contained in this Regulatory Agreement, nor any act of the City, shall beinterpreted or construed as creating the relationship of third party beneficiary, limited or general partnership, joint venture, emp!oyer or employee, or principal and agent between the City and~Owner or Owner’s agents, employees or contractors. Owner shall at all times be deemed an independent contractor and shall be wholly responsible for the manner in which it or its agents, or both, observe the covenants and conditions imposed on it by the terms of this Regulatory Agreement. Owner has and hereby retains the right to exercise full control of employment, direction, compensation and discharge of all persons assisting in the performance of services recognized hereunder. Owner agrees to be solely responsible for its own acts and those of its officers, partners, employees, agents, contractors, subcontractors and representatives. 6.2 Neither the failure nor the delay on the part of the City to exercise any right, power, or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege.hereunder preclude any other or further exercise thereof or the exercise of-any other right, power, or privilege. Any of the requirements of this Regulatory Agreement may be expressly waived by the City in writing, but no waiver by the City of any requirement of this Regulatory Agreement shall, or shall be deemed to, extend to or affect any other provision of this Re/~ulatory Agreement. 6.3 Owner lacks any authority or power to pledge the credit of CITY or incur any obligation in the name of CITY. This Regulatory Agreement shall not be construed or deemed to be an agreement for the benefit of any third party, except as expressly provided herein, and no third party shall have any claim or right of action hereunder for any cause whatsoever. 6.4 Any amendment to this Regulatory Agreement shall be binding upon the parties, provided such amendment is set forth in a writing signed by the parties, and duly recorded in the rea! property records of the County of Santa Clara, California. The city manager is authorized to execute any amendments to this Regulatory Agreement, and confer any consents or approvals that may be provided by the City. 6.5 The covenants, agreements, .terms, and conditions of this Regulatory Agreement shall inure to and be binding on the successors and assigns of the parties. Any provision of this Regulatory Agreement which is characterized as a covenant or a sherreg2.wpd: 981117 12 condition shall be deemed both a covenant and a condition. If any provision of this Regulatory Agreement shall -be determined by a court of competent jurisdiction to be invalid, illegal, void, or~ unenforceable in any respect, the validity of all other provisions herein shall remain in full force and effect. 6.6 This Regulatory Agreement shall be deemed a contract made under the laws of the State of California, and for the purposes hereof shall be governed and construed by and in accordance with the laws of the State of California. All exhibits referred to in this Regulatory Agreement and any addenda, appendices, attachments, and schedules which may, from time to time, be referred to in any duly executed amendment hereto are by such reference incorporated in this Regulatory Agreement and shall be deemed to ~be part hereof. This Regulatory Agreement may be executed in any number of counterparts, each of which shall be an original, but al! of which together shall constitute one and the same instrument. The paragraph headings are not. i part of this Regulatory Agreement and shall have no effect upon the construction or interpretation of any part of this Regulatory Agreement. 6.7 In the event that suit is brought by either party, the parties agree that¯ trial of such action sha~l be vested exclusively in the state court of .California in the City of San Jose, county of santa Clara, or in the United States District Court for the Northern District of California in the City of San Jose. The prevailing party in any action brought to enforce the terms of this Regulatory Agreement or arising out of this Regulatory Agreement may recover its reasonable costs and attorneys’ fees expended in connection with such an action from the other party. 6.8 The provisions of this Regulatory Agreement shall apply to the Property for the entire Term even if the PAHC Loan and City Loan are paid in full prior to the end of the Term. This Regulatory Agreement shall bind any successor, heir or assign of Owner, whether a change in interest occurs voluntarily or involuntarily, by~ operation of law or otherwise, except as expressly released by the City. The City makes the City Loan and PAHC makes the PAHC Loan on the condition, and in consideration of this provision, and would not do so otherwise. 6.9 The City and Owner hereby declare their express intent that the covenants and restrictions set forth in this Regulatory Agreement shall run with the land, and shall bind all successors in interest to the Property, provided, however, that on the expiration of the Term of this Regulatory Agreement, the covenants and restrictions shall expire. Each and every contract, deed or other instrument hereafter executed covering or conveying the Property or any portion thereof shall be held conclusively to have been executed, delivered and accepted subject to such covenants and restrictions, regardless of whether such covenants or restrictions are set forth in such contract, deed~ or other instrument, unless the City expressly releases such conveyed portion of the Property from the requirements of this Regulatory Agreement. sherreg2.wpd: 981117 13 6.10 If owner fails to perform any obligation under this Regulatory Agreement, and fails to cure the default within 30 days after the City has notified Owner in writing of the default or, if the default cannot be cured within 30 days, failed to commence to cure within 30 days and thereafter diligently pursue such cure, the City shall have the right to enforce this Regulatory Agreement by any remedy provided by law or equity. 6.11 The City and Owner shall cause this Regulatory Agreement, and all amendments and supplements to it, to be, recorded in the Official Records. of the County of Santa Clara. IN WITNESS WHEREOF, the parties hereto have executed this Regulatory Agreement the day and year first above written. ATTEST:CITY OF PALO ALTO City Cler~ APPROVED AS TO FORM: Mayor SHERIDAN APARTMENTS AFFORDABLE HOUSING LIMITED PARTNERSHIP Senior Asst. City Attorney By:PAHC Sheridan Apartments, Inc. I.ts General Partner APPROVED: City Manager Director of Administrative Services : David Title: President / By: Name: Title: Director of Planning and Community Environment Taxpayer Identification No. #77-0450422 Insurance Review SIGNATURES TO BE NOTARIZED ATTACHMENTS: Exhibit ~A": Exhibit ~B,: Exhibit ~C": Legal Description of the Property Insurance Requirements Federal Assurances sherreg?..wpd: 981118 14 CERTIFICATE OF ACKNOWLEDGMENT (Civil Code § 1189) STATE OF ) ss. COUNTY OF ) On , 1998, before me, a Notary Public in and for said County ~and State, personally appeared , 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. Signature of Notary Public sherreg2.wlx:h 981117 15 CERTIFICATE OF ACKNOWLEDGMENT (Civil Code S 1189) STATE OF ) ) ss. COUNTY OF ) ~ On , 1998, before me, , a Notary Public in and for said County and State, personally appeared , 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. Signature of Notary Public sherreg2.wpd: 981117 16 EXHIBIT A LEGAL DESCRIPTION REAL PROPERTY in the City of Palo Alto, County of Santa Clara, State of California, described as follows: All of Tract No. 6304 which Map was filed for record in the office of the Recorder of the County of Santa Clara, State of California on January 26, 1978 in Book 411 of Maps, at page 56, amended by a Certificated of Correction recorded on April 2, 1979 in instrument numbered 6329350, Santa Clara County Records. APN: 132-36-081 / / EXHIBIT B INSURANCE REQUIREMENTS I. FIRE AND EXTENDED COVERAGE Insurance, to cover not less than One Hundred Percent (100%) of the~replacement cost of all insurable improvements within or upon the Property. Such policies shall include water damage and debris cleanup provisions. POLI,CY MINIMUM LIMITS,,OF LIABILITY 2. WORKERS’ COMPENSATION 3. COMPREHENSIVE AUTOMOBILE LIABILITY, including owned hired, and nonowned automobiles Statutory Bodily Injury Prop. Damage $5,000,000 ea. person $5,000,000 ea. occurrence $5,000,000 ea. occurrence COMMERCIAL Bodily Injury GENERAL LIABILITY, including Property Damage products and completed operations, broad form contractual, and personal injury. $5,000,000 ea. person $5,000,000 eao occurrence $5,000,000 aggregate- $5,000,000 ea. occurren6e Each insurance policy requiredby this Agreement shall contain the following clauses: "This insurance shall not be canceled, limited in scope of coverage or nonrenewed until after thirty (30) days written notice has been given to the: CITY OF PALO ALTO/Planning and Community Environment Department, P. O. Box 10250, Palo Alto, CA 94303." o o "All rights of subrogation are hereby waived against the CITY OF PALO ALTO and the members of the City Council and elective or appointive officers or employees, when acting within the scope of their employment or appointment." ~The CITY OF PALO ALTO is added as an additi6nal insured as respects operations of the named insured, but only as to work performed under this Agreement. "It is agreed that any insurance maintained by the CITY OF PALO ALTO will apply in excess of, and not contribute to, insurance provided by this policy." All insurance coverage required shall be provided through carriers with a BEST KEY RATING GUIDE rating of A:X or higher that are admitted to do business in the State of California. The certificate(s) of .insurance evidencing such coverage shall be completed and executed by an authorized representative of the company providing insurance, and shall be filed with and approved by City’s risk manager. ~ 2 EXHIBIT C FEDERAL ASSURANCES WITH RESPECT TO CDBG FUNDS PAHC agrees to comply with the requirements of 24 CFR Part 570 (the Housing and Urban Development regulations concerning Community Developmem Block Grants). PAHC also agrees to comply with all other applicable federal, state and local laws, regulations, and policies governing the funds provided under this .Agreemem. PAHC further agrees to utilize funds available under this Agreement to supplement rather than supplant funds otherwise available. (1) (2) (3) (4) (5) (6) (7) (8) PAHC hereby assures and certifies that: It possesses legal authority to receive federal grant funds and to carry out the proposed program(s) assisted thereby. Its governing body has duly acquainted itself with the funds application, including all understandings and assurances contained therein, and directed and authorized the person identified as the official representative of PAHC to provide such additional information as may be required hereunder. It consents to accept the jurisdiction of the federal or California courts for the purpose of enforcement of its responsibilities imposed hereunder. The proposed program(s) has been developed so as to give maximum feasible priority to actix, ities which will benefit low and moderate income persons. The receipt of any program income, as defined in 24 CFR 570.500(a), as amended, /generated by the use of grant funds under this Agreement, will be recorded, reported and returned to City in accordance with 24 CFR 570.504, as amended. It will comply with the provisions set forth in 24 CFR 85.43 and 24 CER 85.44 regarding the suspension or termination of a grant agreement for cause or convenience. It will maintain and retain all books, documents, papers, financial, or other records which are pertinent to the grant for a period of not less than three (3) years following the expiration of this Agreement. PAHC will allow City and the U.S. Department of Housing and Urban Development, through any authorized representatives, access to such documents, papers and records. If PAHC is a primarily religious entity, in connection with the provision of services required under this Agreement, PAHC agrees to comply with federal regulations specified in 24 CER 570.2000). PAHC further: (a) (b) will not discriminate against any employee or applicant for employment on the basis of religion and will not limit employment or give preference in employment to persons on the basis of religion; will not discriminate against any person applying for such services on the basis Of religion and will not limit such services or give preference to persons on the basis of religion; (c) (d) will provide no religious instruction or counseling, conduct no religious worship or services, engage in no religious proselytizing, and exert no other religious influence in the provision of such services; and will ensure that the portion of PAHC’s facility used to provide the services shall contain no religious symbols or decorations, other than those permanently affixed to or are pan of the structure. B.PAHC also hereby assures that it shall:. (i)Comply with the nondiscrimination provisions of public law 88- 352 (Title VI of the Civil Rights Act of 1964) and the fair housing provisions of public law 90- 284 (Title VKI of the Civil Rights Act of 1968) and Executive Order 11063, as amended by Executive Order 12259, with respect to sale, lease or tr~msfer of land acquired, cleared or improved with grant assistance. (2)Comply with the provisions of Section 109 of Title I of the Housing and Community Development Act of 1974 which prohibit discrimination. (3)Complywith the Fair Housing Act of 1989 (42 USC 3601-20) which prohibits discriminatory housing practices based on race, color, religion, sex, national origin, disability or familial status. (4)Comply with the Davis-Bacon Act, as amended, Federal Labor Standards p.rovisions with respect to all construction contracts in excess of Two Thousand Dollars ($2,000) (5) (6) Comply with the requirement of the Flood Disaster Protection Act of 1973 and the National Flood Insurance Act of 1968 applicable to acquisition or construction projects. Comply with the relocation and displacement requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended. (7) (8) Comply with provisions of Executive Order 11246, as amended by Executive Orders 11375 and 12086, on equal employment opportunities and affirmative action relative to employees and applicants and nonexempt contracts and subcontracts. Comply with 42 USC 4831(b), and 24 CFR 570.608 and 24 CFR Part 35 of the HID regulations, prohibiting the use of lead-based paint in the construction or rehabilitation of residential structures. (9) (10) (11) (12) (13) Comply with the provisions of 24 CFR Part 24 which prohibit the utilization of debarred, suspended, or ineligible contractors or subrecipients. Comply with the uniform administrative requirements and cost principals of 24 CFR Part 85 and 0MB circulars A-87, A-110, A- 122, and A-128 and A-133 as they relate to the acceptance and use of federal funds by nonprofit organizations, and as otherwise may be required under 24 CFR 570.502, as amended. Comply with the requirements of 24 CFR 85.36 and 0MB circular A-hO with respect to conflict of interest, and as otherwise may be required under 24 CFR 570.611, as amended: Comply with the provisions of the Hatch Act which prohibit the use of federal funds for lobbying activities. Comply with Section 319 of public law 101-121, which generally prohibits recipients of federal contracts, grants or loans from using appropriated funds for lobbying the executive or the legislative branches of the federal government in connection with a specific contract, grant or loan. Accordingly, PAHC hereby certifies to the best of its knowledge and belief, that: /No federal appropriated funds have been paid or will be paid, by or on behalf of PAHC, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any federal contract, the making of any federal grant, the making of any federal loan, the entering into of any cooperative agreement, or the extension, continuation, renewal, amendment, or modification of any federal contract, grant, loan, or cooperative agreement; and If any funds other than federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this federal contract, grant, loan or cooperative agreement, PAHC shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying" in accordance with its instructions. - (14)Comply with the Age Discrimination Act of 1975, as amended, which states that no persons in the United States shall, on the basis of age, be denied the benefits of, or be subjected to discrimination under, any program or activity receiving federal financial assistance. (15)Comply with Section 504 of the Rehabilitation Act of 1973, which prohibits discrimination against people with disabilities in any federally assisted program. (16)Comply with the Americans with Disabilities Act of 1990, as amended, and implementing regulations when published. (17)Transfer to City any CDBG funds on hand, and any accounts receivable attributable to the use of CDBG funds, at the time of expiration of this Agreement. In addition, PAHC shall ensure that any real property under PAHC’s control that was acquired or improved in whole or in part with CbBG funds in excess of $25,000 is either: (a)used to meet one of the national objectives in 24 CFR 570.208 until five years after expiration of this Agreement, or for such longer period of time as determined appropriate hereunder by City;. or is disposed of in a .manner which results in City being reimbursed in the amount of the then current fair market value of the property less any portion thereof attributable to expenditures of non-CDBG funds for acquisition of, or improvement to, the property.