HomeMy WebLinkAboutStaff Report 366-10· . City of Palo Alto
City Manager's Report
11
TO: HONORABLE CITY COUNCIL
FROM: CITY MANAGER
DATE: OCTOBER 18, 2010
REPORT TYPE: CONSENT ITEM
DEPARTMENT: PLANNING AND
COMMUNITY ENVIRONMENT
CMR: 366:10
SUBJECT: Approval of Amendment No. One to Agreement and a Regulatory
Agreement with Tree House Apartments, L.P. to Provide an
Additional Development Loan in the Amount of $2.5 million in
Residential Housing Fund for a 35-unit Affordable Rental Housing
Project at 488 Charleston Road.
EXECUTIVE SUMMARY
Council approval of the recommended actions will formalize the City of Palo Alto's commitment to
provide additional financial assistance in the amount of$2.5 million to Tree House Apartments, L.P.
for the construction and development of a 35-unit 100% affordable housing project for extremely
low and very-low income households at 488 West Charleston Road, proposed by the Palo Alto
Housing Corporation. In addition, approval of the recommended actions will enable Tree House
Apartments, L.P. to commence construction in fall 2010. The additional funds will make the City's
total contribution to the project in the amount of $5,338,577. No monies from the General Fund
will be committed, only Residential Housing Fund that is restricted to housing will be used for the
additional development loan.
RECOMMENDATION
Staff recommends that the City Council:
1. Approve the attached Amendment No. One to Agreement with Tree House Apartments, L.P.
with its attached form of promissory note and deed of trust, which authorizes a residual
receipts loan of $2.5 million for development costs; and
2. Approve the attached Regulatory Agreement and Declaration of Restrictive Covenants for Tree
House Project (Regulatory Agreement) regulating the use and occupancy of the Tree House
housing project; and
3. Authorize the City Manager or designee to execute the Loan Agreement and the Regulatory
Agreement in substantially identical form; and
CMR: 366:10 Page 1 of5
4. Authorize the City Manager or designee to execute all other documents required to implement
the Agreements, including escrow instructions and to approve all necessary subordination
agreements and direct the City Manager or designee to administer the provisions of the
." Agreements.
.BAbKGROUND
On March 8, 2010, Council adopted Resolution No. 9402 committing $2.5 million in-lieu fees from
SummerHill Homes to Tree House Apartments L.P. for the construction and development of the 35-
unit affordable housing Tree House Apartments Project at 488 W. Charleston Road. The primary
reason for committing $2.5 million to the project is to enable Tree House Apartments, L.P. to fill the
project's existing funding gap and submit a competitive application for the Low Income Housing
Tax Credit Allocation. Subsequently, Tree House Apartments, L.P. submitted a competitive
application for tax credit allocation and received an award of approximately $4.8 million in June
2010.
On March 18,2009, the City of Palo and Tree House Apartments, L.P. entered into an agreement for
the provision of$2,838,577 from the Residential Housing Fund and Community Development Block
Grant (CDBG) to Tree House Apartments, L.P. for the acquisition and development of the property
located at 488 West Charleston Road as multifamily rental housing affordable to extremely-low and
very-low income households.
On April 3, 2009, Council approved a Planned Community (PC) zone application for the
development of the 35-unit affordable housing project. The project site, located between Alma
Street and EI Camino Real on West Charleston Road, is approximately 0.7 acres and contains a
single-family home that was previously occupied by Recording for the Blind and Dyslexic. Tree
House Apartments, L.P. proposes to construct 35 new affordable housing units consisting of 33
studios and two one-bedroom units, which will be affordable to extremely-low and very-low income
households earning between 20% and 50% of the area median income.
DISCUSSION
Amendment No. One to the Agreement
The City of Palo and Tree House Apartments, L.P. entered into an agreement for the City's financial
contribution of $2,838,577 to Tree House Apartments,L.P. for the acquisition and development of
the property located at 488 West Charleston Road as multifamily rental housing affordable to
extremely-low and very-low income households. The amendment will formalize the City's
additional financial contribution in the amount of $2.5 million for construction and development
costs of the project, making the City's total contribution $5,338,577. The additional funding will be
in the form of a loan secured by appropriate legal documents against the entire property. These funds
were budgeted as part of the 2010-11 FY Council-adopted budget.
The City loan will be structured as a three percent (3%) simple interest note with payments due
annually based on the amount of surplus cash flow from the project's operations. The City will share
in the project's cash flow, based upon the proportionate percentage ofthe City's loan to the other
permanent lenders; therefore, other than rather minimal payments of interest, regular repayment of
the City loan is not anticipated, which is standard practice in local financing of this type of deeply
CMR: 366:10 Page 2 of5
affordable rental housing. In addition, tax credit program IRS rules limit the accrual of substantial
amounts of unpaid interest over time. As a result, the City loan terms specify that the 3% simple
interest will only be paid each year or at refinancing or sale, to the extent that there is sufficient cash
flow; howev~r, to the extent any year's cash flow is insufficient to pay 3% interest, the unpaid
interest will effectively be forgiven and, thus, will not increase the total amount due on the City loan.
Due to the deep affordability of the rents, it is not expected that residual receipts will pay the annual
interest in full. In return for less annual interest payments, the proposed project will be affordable to
extremely low and very low income households, and the affordability restrictions will be in place for
a minimum of 55 years after the issuance of a certificate of occupancy. The loan terms are typical to
this type of development and similar to other affordable housing properties and developments funded
with City funds. Some ofthe City's standard loan terms described here may need to be modified to
meet the requirements of other lenders or funding programs for construction or permanent sources of
funds.
In addition, the proposed amendment contains a provision reducing the amount of the deferred
developer's fee required in the original Agreement from at least $660,000 to $481. With the
additional funding from the City and other projected savings in construction costs, City of Palo Alto
and Palo Alto Housing Corporation (PAHC) staffhave determined that there is no need to defer at
least $660,000 in developer's fee. Palo Alto Housing Corporation plans to use the required deferred
developer's fee for future affordable housing projects in the City of Palo Alto.
The financing package assembled by Palo Alto Housing Corporation for development of the
apartments is described below.
Permanent Sources of Funds for DeveloI1ment
• Low Income Housing Tax Credits $ 4,762,000
• City of Palo Alto (Acquisition) $ 2,838,577
• City of Palo Alto In-Lieu Fees (Construction) $ 2,500,000
• County of Santa Clara -Stanford Affordable Housing Fund $ 960,000
• CountyCDBG $ 400,000
• County of Santa Clara -Housing Trust Fund $ 350,000
• Fee Waivers $ 308,403
• Deferred Developer Fee $ 39,093
• General Partner Equity $ 481
TOTAL PROJECT FUNDING $ 12,158,554
Total CostlFunding per Unit (35 units) 347,387
The above budget is lower than the previously estimated budget presented to the City Council on
March 8, 2010 by approximately $780,000 due to projected savings in construction costs. The total
cost/funding per unit decreased by about $22,000. As a result, Tree House Apartments, L.P. received
smaller tax credit allocation from previously estimated tax credit allocation of $5,582,432 to
$4,762,000.
Regulatory Agreement
Once the project is fully operational, the use and occupancy of the apartments will be controlled by
CMR: 366:10 Page 3 of5
multiple regulatory agreements from the various funding sources, including the City's Regulatory
Agreement. The City's Regulatory Agreement will be recorded with the Amendment and Deed of
Trust securing the City's Promissory Note as soon as possible after Council approval. As the other
funding entities provide their financing to the proj ect, the City will need to subordinate its loans and
Regulatory Agreement to the loans and regulatory agreements of those entities. Staffis requesting
that the City Manager or designee be authorized by Council to review and approve each of these
subordination agreements in consultation with the City Attorney's office, at the appropriate time, in
order to avoid any delay in the progress of construction or the closing of the permanent funding after
completion.
Rents and Occupancy of the Apartments
In order to succeed in the competition for the tax credit allocation, Palo Alto Housing Corporation
(P AHC) needs to emphasize housing for extremely low-income and very-low income households.
The project's proposed rent categories and income limits are shown below; actual rents may change
somewhat by the time the project is constructed and ready for occupancy due to changes in the
County median income.
T H ree ouse H pOt D OUSlD~ rO.1ec -Of eSCrIp110n 0 fP ropose dU °t Dl san d R t 1St t en a ruc ure
Rent As A Percent of Median Studios I-Bedroom Total Units Income
Extremely Low Income (30% of AMI) .12 units at $543 1 unit at $582 13 37%
Very Low Income (50% of AMI) 21 units at $906 0 21 60%
Manager's Unit 0 1 unit (rent free) 1 3%
Total Units 33 2 35 1000/0
Note: AMI means the Area Median Income for Santa Clara County, which equals $103,500 for a
household of four persons as published on June 17, 2010.
RESOURCE IMPACT
The funds for the City's additional $2.5 million loan are budgeted in the Residential Housing Fund in
the FY 2010-11 City Budget approved by Council on June 21,2010. On March 18,2009, the City
·provided $2,838,577 to Tree House Apartments, L.P. for the acquisition of 488 West Charleston
Road, of which $1,838,577 came from Community Development Block Grant (CDBG) Fund and
$1,000,000 from the Residential Housing Fund. The additional funds will make the City's total
contribution to the project in the amount of$5,338,577. No General Fund monies are being used for
this housing project.
The Residential Housing Fund has a current available balance of approximately $3.1 million, of
which $1,991,985 came from SummerHill's payment of in-lieu fees on twenty (20) Redwood Gate
homes sold. Additional in-lieu fees in the amount of approximately $373,000 for four (4) recently
sold units are anticipated to be paid to the City this month. City staff estimates $4,387,500 in total
revenues will be generated from SummerHill in-lieu fees based on an estimated average per unit
sales price of$l.3 million for the market rate homes and an in-lieu fee rate of7.5% applicable to all
45 units. Revenues from SummerHill in-lieu fees are Residential Housing Fund.
POLICY IMPLICATIONS
The actions recommended in this report implement the City's adopted Housing Element policies and
CMR: 366:10 Page 4 of5
programs supporting the development of very low and extremely low income housing. These 35
units will be counted towards the City's housing production goals for the 2007 to 2014 Housing
Element period. This project will also provide 13 of the 35 units to households below 35% of the
Area Median Income (AMI), considered Extremely Low Income, which will help the City address
State requirements for meeting housing needs of this population.
ENVIRONMENTAL REVIEW
On April 3, 2009, Council approved the Mitigated Negative Declaration and Environmental
Assessment for the development of the 35-unit Tree House project in accordance with the California
Environmental Quality Act (CEQA) and National Environmental Policy Act (NEPA).
PREPARED BY: R~.IERA
Senior Planner
DEPARTMENT HEAD REVIEW: C\..J;;;; 1~
CURTIS WILLIAMS, Director
Planning and Community Environment
CITY MANAGER APPROVAL:
ATTACHMENT
A. Amendment No. One to the Agreement between the City of Palo Alto and Tree House
Apartments, L.P., with its attached form of promissory note and deed of trust
B. Regulatory Agreement and Declaration of Restrictive Covenants for Tree House Project
COURTESY COPIES
Palo Alto Housing Corporation
CMR: 366:10 Page 5 of5
.,'
This document is recorded
fOT the benefit of the City
of Palo Alto and is entitled
to be recorded free of charge
in accordance with Section 6103
of the Government Code.
After Recordation, mail to:
OFFICE OF THE CITY A TIORNEY
250 Hamilton Avenue
Palo Alto, CA 94301
P.O. Box 10250
Palo Alto, CA 94303
ATTACHMENT A
'~ .
AMENDMENT NO. ONE TO THE AGREEMENT NO S09131257
BETWEEN THE CITY OF PALO ALTO AND
TREE HOUSE APARTMENTS, L.P.
This Amendment No. One ("Amendment") to the Agreement No. S09131257 recorded in
the official records of Santa Clara County on November 28, 2009 as instrument no. 20186266
("Agreement") is entered into , by and between the CITY OF
PALO ALTO ("CITY"),a chartered City and municipal corporation, and Tree House
Apartments, L.P. ("THA" or Partnership), a limited partnership.
RECITALS:
WHEREAS, on March 18, 2009, the Agreement was entered into between the parties
regarding the CITY's financial contribution of $2,838,577, of which $1,838,577 is from CDBG
funds and $1,000,000 from the Residential Housing Fund, in theJorm of a loan to THA for the
acquisition of the real property located at 488 W. Charleston Road, Palo Alto, as described in
Exhibit "A" to this Amendment and in Exhibit "A" to the Agreement, for the development of
Tree House (the "Project), a 35-unit rental housing project affordable to extremely-and very-low
income households; and
WHEREAS, on April 3, 2009, the City Council adopted Ordinance No. 5034 approving a
Planned Community (PC) zone application for the development of the 35-unit affordable housing
project, consisting of 33 studios and two one-bedroom units, which will be affordable to
extremely-low and very-low income households earning between 20% and 50% of the area
median income; and
WHEREAS, on March 8, 2010, the City Council adopted Resolution No. 9402
committing $2.5 million in-lieu fees from SummerHill Homes to THA to enable THA to fill the
Project's existing funding gap and submit a competitive application for the Low Income Housing
Tax Credit Allocation for the construction and development of the Project; and
101013 dm 0120464 1
WHEREAS, THA has received sufficient binding commitments for construction
financing, including an annual federal Low Income Housing Tax Credit Allocation in the amount
of $472,754 awarded on June 9, 2010 that will fund the expenditure of funds for site construction
and development costs; and
WHEREAS, THA will commence construction and development of the 35-unit
affordable housing project in November 2010; and
WHEREAS, pursuant to the provisions of Section 12 of Article III of the Chapter of the
City Palo Alto, the Council on June 21, 2010 did adopt a budget for Fiscal Year 2010-11; and
WHEREAS, the City Council allocated $2.5 million in Residential Housing Fund for the
City of Palo Alto's additional fmancial contribution to THA for fiscal year 2010-11; and
WHEREAS, the parties wish to amend the Agreement.
NOW, THEREFORE, in consideration of the covenants, terms, conditions, and
provisions of this Amendment, the parties agree:
SECTION 1. Sections 3.5 to 3.8 are hereby added to Article 3 of the Agreement,
entitled "Loan of Funds", to read as follows:
3.5 Loan of Funds for Project Construction and Development Costs
3.5.1 CITY shall also loan to THA the sum of Two Million Five Hundred
Thousand Dollars ($2,500,000)(the "Additional Loan Amount"), to be used in
accordance with the terms, covenants, provisions and conditions of this Agreement, the
CDBG Program, and CITY'S Affordable Housing Fund Guidelines. THA shall execute
and deliver a promissory note in favor of CITY (the "Note"), as set forth in Exhibit "B"
of this Amendment, in the amount of Two Million Five Hundred Thousand Dollars
($2,500,000), to secure the performance of all terms, covenants, provisions and
conditions of this Agreement. Execution thereof shall occur prior to any disbursement of
funds under this Agreement.
3.5.2 The Note shall accrue simple interest at the rate of three percent
(3%) per annum, as described in the Note. Provided THA is not in default of this
Agreement, no principal payments shall be due and interest shall not begin to accrue until
the closing of the Project's permanent funding. If acceptable to the other entities
providing the final permanent sources of funds, the CITY Note will require annual
payments of interest and principal based on the CITY'S proportionate share of the
Project's residual receipts from net operating income as provided in the Note. The Note
shall be secured by a deed of trust ("Deed of Trust") recorded against the Property for the
benefit of CITY, as set forth in Exhibit "C" of this Amendment.
101013 dm 0120464 2
3.6 Additional Construction and Development Expenses
The maximum amount payable under this Agreement for project
construction and development expenses shall be Two Million Five Hundred Thousand
Dollars ($2,500,000). TRA shall be solely responsible for all other construction and
development expenses.
3.7 Disbursement of Funds and Escrow ,. ..
With respect to any portion of the Additional Loan Amount, THA shall
submit written requests for disbursement of expenses incurred by THA, to CITY for
review and approval, in accordance with the development budget generally described in
Amended Exhibit "D" of this Amendment. THA covenants and agrees to provide to the
CITY one or more copies of contracts, invoices, checks, negotiable instruments, receipts
and other documentation acceptable to CITY to verify the purpose and amount of each
request for disbursement. THA shall attach to each such request a certification, in
writing, that the construction work or services have been satisfactorily performed in
accordance with the construction contract(s) and that the expenses are reasonable and
necessary to complete the Project. CITY has no obligation to approve disbursements at
any time during which THA is in default under this Agreement or to approve
disbursements for disapproved or improperly documented expenses.
THA shall provide CITY with its schedule, and any subsequent revisions, of estimated
payments for construction period costs, including anticipated billings by the general
contractor. CITY and THA agree to cooperate in establishing written procedures for the
processing of requests for disbursement, including procedures concerning CITY's
inspection of the progress of the construction work and the timely processing of
disbursements. CITY agrees that THA may utilize its construction and development loan
for project development costs prior to the disbursement of other construction funds.
3.8. Title Insurance
Concurrently with the close of escrow, THA, at its own cost and expense,
shall secure an ALTA extended coverage lender's policy of title insurance, or other form
of title insurance acceptable to CITY, for an amount not less than the amount of the
. Additional Loan Amount, and insuring against any title defects that would prevent the
construction and development of the Project. The policy will name CITY as insured and
insure THA's right, title, and interest in the Property and the valid lien of the CITY Deed
of Trust in second position as of the closing date, and, promptly after the close of escrow,
an original of said policy shall be delivered to CITY.
SECTION 2. Section 4.6.1 (b) of the Agreement, entitled "Additional conditions to
closing the escrow on construction funding" is hereby amended to read as follows:
"The Partnership has submitted to the City, and the City has approved, an updated
summary development budget and estimated construction and permanent sources of funds and
101013 dm 0120464 3
schedule of performance similar in form to Exhibits D and E. The development budget may
provide for a developer's fee or a similar fee or fees (the "Developer Fee") so long as the
aggregate fees do not exceed $1,400,000, with at least $481 of such fees in the form of a deferred
developer fee.;"
SECTION 3. Section 4.4.2 shall be deleted and the following inserted in its place:
"The Note shall be due and payable in full on December 3 1,,;,2067."
SECTION 4. All references in the Agreement to the MHP Loan shall be deleted.
SECTION 5. Article 5 shall be modified to provide that the term of the Agreement shall
continue for 55 years from the date of this Amendment.
SECTION 6. The following shall be added at the end of Section 8.7: "This Section 8.7
shall not apply to the transfer of any partnership interests in the Partnership or to the transfer of
the Project to Palo Alto Housing Corporation or a wholly-controlled affiliate thereof."
SECTION 7. The following shall be added at the end of Article 8:
"CITY shall accept cures of the default( s) by Borrower's limited partner within the cure
periods, if any, provided in this Article 8 and California Civil Code Section 2924c( e). Limited
Partner shall be deemed to be diligently proceeding with the cure of defaults if it has coIIllIienced
and is diligently proceeding to remove the general partner as general partner of the Borrower
pursuant to the Partnership Agreement, subject to any delays imposed by bankruptcy, i~unction or
similar proceeding which prevents limited partner from proceeding with such removal.
This Loan is a nonrecourse obligation of the Borrower. Neither the Borrower or any of
its general or limited partners, nor any other party, shall have personal liability for repayment of
the Loan or the performance of the covenants of the Borrower under this Agreement."
SECTION 8. The notice address to THA in Article 9 shall be amended to add at the end
thereof the following notice to THA's limited partner as follows:
And a copy to:
The Banc of America Housing Fund VIII Limited Partnership,
and its successors and assigns
10227 Wincopin Circle, Suite 810
Columbia, Maryland 21044
Tel: (410) 964-0552; Fax: (410) 772-2630
Email: brothschild@enterprisecommunity.com
Attention: General Counsel
SECTION 9. The Amended Estimated Project Costs and Sources of Funds attached to
this Amendment as Amended Exhibit D shall supersede and replace Exhibit D to the Agreement.
101013 dm 0120464 4
SECTION 10. The Amended Schedule of Performance attached to this Amendment as
Amended Exhibit E shall supersede and replace Exhibit E to the Agreement. '
SECTION 11. Except as herein modified, all other provisions of the Agreement,
including any exhibits and subsequent amendments thereto, shall remain in full force and effect.
IN WITNESS WHEREOF: the parties have by their duly authorized representatives
executed this Amendment on the date first above written.
APPROVED AS TO FORM: CITY OF PALO ALTO
Assistant City Attorney City Manager
APPROVED: TREE HOUSE APARTMENTS, L.P.,
A California Limited Partnership
Director of Administrative
Services
By: P AHC California Park Corporation,
A California nonprofit public benefit
corporation
Director of Planning and
Community Environment
Its: General p~
By: ~
Name: ~fol\1'J1cLi"2-
Title: e=h'ft f),"'ree;P
Insurance Review
ATTACHMENTS:
EXHIBIT "A":
EXHIBIT "B":
EXHIBIT "C":
EXHIBIT "D"
EXHIBIT "E":
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Taxpayer Identification No.
;JJp -4;2d -"11 (PC)
(Compliance with Corp. Code & 313 is
required if the entity on whose behalf this
contract is signed is a corporation. In the
alternative, a certified corporate, resolution
attesting to the signatory authority of the
individual signing in their respective
capacities is acceptable.)
LEGAL DESCRIPTION OF PROPERTY
AMENDMENT ONE TO PROMISSORY NOTE SECURED BY DEED
OF TRUST
AMENDMENT ONE TO DEED OF TRUST AND ASSIGNMENT OF
RENTS
AMENDED PROJECT COSTS AND SOURCES OF FUNDS
AMENDED SCHEDULE OF PERFORMANCE
5
CERTIFICATE OF ACKNOWLEDGMENT
(Civil Code § 1189)
STATE OF CALIFORNIA )
. . 0
COUNTY OF ~/n . .\--'" a~~,-)
On f3 f) 0\ 20 \1) ,before ~~tJ~ lv' \ i)()e--,a notary public in and for said
County, personally appeared -r--,f \ (L-.~ j _" \. who proved to me on the basis
of satisfactory evidence to be the persori~) whose na:me~' s e subscribed to the within instrument
and acknowledged to me that he/~ey executed the same in his~/their authorized
capaci~, and that by his@Ieir signatur~'on the instrument the perso~, or the entity
upon behalf of which the personM' acted, executed the instrument.
I certify under penalty of peIjury under the laws of the State of California that the foregoing
paragraph is true and correct.
WITNESS my hand and official seal.
~;cvl~ ~~C
Notary Public
101013 dm 0120464 6
:. BETH D. MINOR ( COMI.!. # 1792766
. NOTARY PUIiLlC·CALIFOIlHIA (J)
. . SANTA ClARA COUHTY -
. MY Cow. ExP.'IAR.3. 2012 ..
EXHIBIT A
LEGAL DESCRIPTION
Order Number: NCS-262686-SC
Page Number: 7
Real property in the City of Palo Alto, County of Santa Clara, State of California, described as
follows:
BEGINNING AT A POINT IN THE NORTHWESTERLY LINE OF CHARLESTON ROAD, AS SAID
ROAD EXISTED PRIOR TO WIDENING AT THE INTERSECTION THEREOF WITH THE
NORTHEASTERLY LINE OF THAT CERTAIN 0.014 ACRE PARCEL OF LAND CONVEYED BY DEED
FROM MABEL T. SISSON TO THE UNO G. ABRAHANSON, ET UX, DATED AUGUST 20, 1947 AND
RECORDED SEPTEMBER 5, 1947 IN BOOK 1502 OF OFFICIAL RECORDS, PAGE 172, SANTA
CLARA COUNTY RECORDS; THENCE FROM SAID POINT OF BEGINNING RUNNING THENCE
NORTHEASTERLY ALONG THE SAID NORTHWESTERLY LINE OF CHARLESTON ROAD 182.70
FEET TO THE MOST SOUTHERLY CORNER OF THAT CERTAIN PARCEL OF LAND DESCRIBED AS
PARCEL NO.1 IN THE DEED FROM BORACE H. SISSON, AT UX TO PHILLIP DE ROSA, EF UX
DATED JUNE 19, 1956 AND RECORDED JULY 2, 1956 IN BOOK 3539 OF OFFICIAL RECORDS,
PAGE 23, SANTA CLARA COUNTY RECORDS; THENCE LEAVING SAID LINE OF CHARLESTON
ROAD AND ItuNNING NORTH 45°17' WEST ALONG THE SOUTHWESTERLY LINE OF SAID
PARCEL NO.1 HEREINABOVE REFFERED TO A DISTANCE OF 180.17 FEET TO THE MOST
WESTERLY CORNER THEREOF IS THE NORTHWESTERLY LINE OF THE PARCEL OF LAND
DESIGNATED PARCEL NO.2 IN THE DEED FROM SAN JOGE ABSTRACT AND TITLE INSURANCE
CO., A CORPORATION, TO MABEL T. SISSION, DATED JANUARY 23, 1951 AND RECORDED
JANUARY 24, 19511 BOOK 2139 OF OFFICIAL RECORDS, PAGE 361, SANTA CLARA COUNTY
RECORDS; THENCE SOUTH 42°12'17" WEST ALONG SAID LAST MENTIONED NORTHWESTERLY
LINE A DISTANCE OF 170.01 FEET TO THE MOST WESTERLY CORNER OF THE PARCEL SO
DESIGNATED PARCEL NO.2 IN THE SAID DEED TO SISSON; SAID CORNER BEING IN THE
NORTH-WESTERLY PROLONGATION OF THE NORTHEASTERLY LINE .oF THE 0.01 ACRE PARCEL
OF LAND HEREINABOVE REFERRED TO; THENCE SOUTH 41°16'14" EAST ALONG SAID .
PROLONGED LINE AND AL.oNG THE SAID NORTHEASTERLY LINE .oF THE 0.014 ACRE PARCEL
AB.oVE REFERRED TO 181.17 FEET TO THE POINT OF BEGINNING, AND BEING A PART OF THE
RANCHO RINC.oN DE SAN FRANCISQUITO.
EXCEPTING THEREFROM ALL THAT PORTION C.oNTAINED IN THE FINAL JUDGMENT OF
C.oNDEMATION IN THE MATTER OF THE CITY OF PALO ALTO, ETC., PLAINTIFF, VA. HERBERT
O'NEAL, ET AL, DEFEDANTS, CASE NO. 120429 IN THE SUPERIOR COURT OF THE STATE OF
CALIFORNIA IN AND FOR THE COUNTY OF SANTA CLARA, A CERTIFIED COPY OF WHICH WAS
RECORDED SEPTEMBER 13, 1960, IN BOOK 4914, PAGE 503, OFOFFICIAL RECORDS,
DESCRIBED AS FOLLOWS;
BEGINNING AT A POINT .oN THE N.oRTHWESTERLY LINE OF WEST CHARLESTON R.oAD (40'
WIDE, DISTANT THEREON NORTH 42°12'07" EAST 230 .. 13' FROM THE POINT .oF
INTERSECTION THEREOF WITH THE PROLONGED N.oRTHEASTERL Y LINE OF EL CANINO REAL;
THENCE NORTH 42°12'07" EAST ALONG SAID NORTHWESTERLY LINE OF 182.70'; THENCE
N.oRTH 45°17'23" WEST 8.01'; THENCE SOUTH 42°12'07" WEST 181.53'; THENCE SOUTH
37°01'2.3" EAST 8.14' TO THE POINT .oF BEGINNING BEING A PORTION OF THE RANCHO
RINCON DE SAN FRANCISQUIT.o. And Further Excepting and together with the above described
Exception an Easement for public utilities and tree planting purposes, five feet in width, lying
adjacent to and NWly from the NWly line of the hereinabove described parce\.
APN: 132-46-072
First American Title Insurance Company
EXHIBIT "B"
AMENDMENT NO. ONE TO PROMISSORY NOTE
(COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS/
RESIDENTIAL HOUSING FUNDS)
SECURED BY
DEED OF TRUST AND ASSIGNMENT OF RENTS
This Amendment No. One to Promissory Note is entered into as of ,
2010, by and between the CITY OF PALO ALTO, a California municipal corporation (the
"CITY") and TREE HOUSE APARTMENTS, L.P., a California limited partnership (the
"BORROWER") and amends the Promissory Note. dated as of March 18, 2009 (the
"PROMISSORY NOTE").
WHEREAS, the parties entered into Agreement No. S09131257 dated as of March 18,
2009 and recorded in the official records of Santa Clara County on November 28, 2009 as
Instrument No. 20186266 ("Agreement") which provided for the CITY's financial contribution
of $2,838,577, of which $1,838,577 is from CDBG funds and $1,000,000 from the Residential
Housing Fund, in the form of a loan to the Borrower for the acquisition of the real property
located at 488 W. Charleston Road, Palo Alto, for the development of Tree House (the "Project),
a 35-unit rental housing project affordable to extremely-and very-low income households; and
WHEREAS, the City Council allocated $2.5 million in Residential Housing Fund for the
City of Palo Alto's additional financial contribution to the Borrower for fiscal year 2010-11; and
WHEREAS,the CITY and the BORROWER, now desire to revise the Promissory Note
to provide for an increase in the loan amount of Two· Million .Five Hundred Thousand and
No/IOO Dollars ($2,500,000).
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged,· the parties hereby agree as follows:
1. The first paragraph of the Promissory Note is amended and restated with the following:
"FOR VALUE RECEIVED, TREE HOUSE APARTMENTS, L.P., a California limited
partnership ("BORROWER") promises to pay to the City of Palo Alto, a California
municipal corporation ("CITY"), or order, the principal sum of Five Million Three
Hundred Thirty-Eight Thousand Five Hundred Seventy-Seven Dollars ($5,338, 577) at
the Revenue Colh~ction Office of the City of Palo Alto, First Floor, 250 Hamilton
Avenue, P.O. Box 10250, Palo Alto, CA 94303, or at such other place as CITY may
from time to time designate, with interest from the date of this PROMISSORY NOTE
SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS ("Note"), until
paid, at the rate of three percent (3%) simple interest per year on the unpaid principal
balance."
2. The Promissory Note as amended by this Amendment No. One is secured by that certain
deed of trust in favor of the City dated March 26, 2009, and recorded March 26, 2009, as
Document Number 21086267 in the Official Records of Santa Clara County, as amended
concurrently herewith.
101012 dm 0120465 1
3. All references to "MBP Loan" in the Promissory Note shall be deleted.
4. Residual receipts shall be the excess· of gross revenues over operating expenses. In
addition to Project operating expenses, the following shall be deducted from gross revenue:
deferred developer fee not to exceed $39,093, an investor asset management fee of $5,000
increasing by 3% annually, a partnership management fee of $24,244 increasing by 2% annually
and tenant services of up to $13,200 increasing by 2% annually, and funding of an operating
reserve to a maximum amount of one year's operating expenses equal to $220,000. Payments of
residual receipts shall commence on May 1,2013 and shall be due annually thereafter on May 1.
The City's proportionate share of residual receipts shall be 80%. .~ .
5. A new paragraph is added at the end of the Promissory Note as follows:
"This Loan is a nonrecourse obligation of the Borrower. Neither the Borrower or any of
its general or limited Partners,nor any other party, shall have personal liability for
repayment of the Loan or the performance of the covenants of the Borrower under the
Deed of Trust. The sole recourse of the holder with respect to the principal of, or interest
on the Note and default by Borrower on the performance of its covenants under the Deed
of Trust shall be to the property described in the Deed of Trust."
6. Except as amended by this Amendment No. One in all other respects the Promissory
Note shall remain unchanged.
Executed as of the date first written above.
APPROVED AS TO FORM:
Assistant City Attqrney
APPROVED:
Director of Administrative Services
Director of Planning
and Community Environment
Insurance Review
101012 dm 0120465 2
CITY OF PALO ALTO
City Manager
TREE HOUSE APARTMENTS, L.P.,
a California limited partnership
By: P ABC California Park Corporation,
a California nonprofit public
benefit corporation, its general partner
By: __________ _
Name: ---------------------Title: ____________________ _
This document is recorded
for the benefit of the City
of Palo Alto and is entitled
to be recorded free of charge
in accordance with Section 6103
of the Government Code.
After Recordation, mail to:
EXIllBIT "C"
OFFICE OF THE CITY ATTORNEY
250 Hamilton Avenue
Palo Alto, CA 94301
P.O. Box 10250
Palo Alto, CA 94303
AMENDMENT NO. ONE
. TO DEED OF TRUST AND ASSIGNMENT OF RENTS
This Amendment No. One to Deed of Trust and Assignment of Rents
("Amendment No. 1 to Deed of Trust") dated as of ,2010, is attached to
and made a part of that certain deed of trust dated March 26,· 2009, and recorded March
26, 2009, as Document Number 21086267 in the Official Records of Santa Clara County .
. (the "Deed of Trust"). The Deed of Trust secures a loan in the amount of Two Million
Eight Hundred Thirty-Eight Thousand Five Hundred Seventy-Seven Dollars ($2,838,577)
(the "Loan") made by the CITY OF PALO ALTO, a California municipal corPoration
("Beneficiary"), to TREE HOUSE APARTMENTS, L.P., a California limited partnership
("Trustor") associated with the real property described in the attached Exhibit A.
The Loan is evidenced by the following documents: (1) Agreement No.
S09131257 dated as of March 18, 2009 and recorded in the official records of Santa Clara
County on November 28, 2009 as Instrument No. 20186266 (the "Agreement"), (2) a
Promissory Note Secured by Deed Of Trust and Assignment of Rents made by Trustor to
the order of Beneficiary (the "Note"), as amended by that certain Amendment No. One to .
. the Loan Agreement and that certain Amendment No. One to Promissory Note
(collectively, the "First Amendments") dated as of the date of this Amendment No. 1 to
Deed of Trust.
Pursuant to the First Amendments, Beneficiary increased the Loan by the amount
of Two Million Five Hundred Thousand Dollars ($2,500,000) to the new amount of Five
Million Three Hundred Thirty-Eight Thousand Five Hundred Seventy-Seven Dollars
($5,338,577).
The Trustor agrees that the following covenants, terms, and conditions shall be
part of and shall modify or supplement the Deed of Trust and that in the event of any
inconsistency or conflict between the covenants, terms, and conditions of the Deed of
Trust, as amended by this Amendment No. One to Deed of Trust, the following
covenants, terms, and conditions shall control and prevail:
1. The Section entitled "For the Purpose of Security", on Page 1 of the Deed of Trust
is hereby deleted in its entirety and replaced with the following new Section:
"For the Purpose of Securing:
(1) Performance of each agreement of Trustor herein contained. (2) ,Payment
of the indebtedness evidenced by one promissory note ("Note") dated
March 18, 2009, as amended by Amendment No. One of even date
herewith, and any extension or renewal thereof, in the total principal sum
of $5,338,577 executed by Trustor in favor of Beneficiary. (3) Payment of
such further sums as the then record owner of said property hereafter
may borrow from Beneficiary, when evidenced by another note (or notes)
reciting it' or so secured. (4) Performance by Trustor of its obligations
arising under that certain, contract entitled "Acquisition and
Development Agreement between the City of Palo Alto and Tree House
Apartments, L.P. for the Real Property located at 488 West Charleston,
Palo Alto, California," dated March 18, 2009 (" Agreement") and
recorded March 26, 2009, as Instrument No. 20186266 in the Official
Records of Santa Clara County, California, as amended by that certain
Amendment No. One to Agreement of even date herewith and recorded
concurrently herewith in the Official Records of Santa Clara County."
2. Section 15 shall be amended by adding at the end thereof the following:
"This paragraph 15 shall not apply to the transfer of partnership interests in the
Trustor."
3. 'No Other Change. Except as specifically modified or amended by this
Amendment No. One to Deed of Trust, all other terms and conditions of the Deed of
Trust remain the same.
DATED: _______ ~, 2010
TRUSTOR:
TREE HOUSE APARTMENTS, L.P.,
a California limited partnership
By: By: P AHC California Park Corporation,
a California nonprofit public benefit corporation,
its general partner
By: ____________________ _
Nrune: __________________ __
Title: ____________ -'--___ _
101012 elm 0120467 2
CERTIFICATE OF ACKNOWLEDGMENT
(Civil Code § 1189)
STATE OF CALIFORNIA )
)
COUNTY OF ______ )
On before me, ' , a notary
pub,lie in and for said County, personally appeared
who 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 s'ame in
his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the
instrljment the person(s), or the entity upon behalf of which the person(s) acted,
executed the instrument.
I certify under penalty of perjury under the laws of the State of California
that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Notary Public
101012 dm 0120467 3
EXHIBIT "D"
AMENDED PROJECT COSTS AND SOURCES OF FUNDS
PROJECT COSTS
'.,
Land Acquisition Costs (incl. Appraisal and Closing Costs) . $ 2,890,000
Offsite Improvements $ 117,375
Hard Construction (incl. site work, excavation, demolition) $ 5,013,600
Construction Contingency $ 404,744
Construction Loan: Interest, Fees, Insurance $ 549,928
Architecture & Engineering: (incl. Environmental Studies; Soils, Testing) $ 921,439
Planning & Building Permits $ 281,338
City Impact Fees $ 308,403
Permanent Financing: (Title, Escrow, Legal, TCAC Fees; Market Study) $ 204,850
Marketing & Rent Up $ 50,000
Furnishings $ 40,000
Soft Costs Contingency $ 204,695
Developer Fee $ 1,065,662
Operating Reserve $ 106,520 ,
TOTAL ESTIMATED PROJECT COSTS $ 12,158,554
SOURCES OF FUNDS
Low Income Housing Tax Credits $ 4,762,000
City of Palo Alto (Acquisition) $ 2,838,577
City of Palo Alto In-Lieu Fees (Construction) $ 2,500,000
County of Santa Clara -Stanford Affordable Housing Fund $ 960,000
CountyCDBG $ 400,000
County of Santa Clara -Housing Trust Fund $ 350,000
Fee Waivers $ 308,403
Deferred Developer Fee $ 39,093
General Partner Equity $ 481
TOTAL ESTIMATED SOURCES OF FUNDS $ 12,158,554
EXHIBIT "E"
AMENDED SCHEDULE OF PERFORMANCE
As of 9/24/10
Key City Approvals:
City Council approval of Loan Agreements:
2008/09 CDBG Loan
Residential Housing Fund & 200911 0 CDBG Loan
Approval Planned Community Zoning
(Scheduled for March 16, 2009)
Property Acquisition:
Site Acquisition Closing Date
Building Permit:
First Building Pennit Issued
Construction Cost Estimating & Bidding
. Preliminary Budget Established
Final Budget established
Construction Period:
Initiate Notice to Proceed
Complete Site Excavation
Begin Building Construction
Complete Construction
Financing:
Santa Clara County Stanford Affordable Housing Fund
Santa Clara County 2009/10 CDBG funds
Santa Clara County Housing Trust Funds
Sobrato Housing Trust Funds
Approval of CTCAC 9% Tax Credit Res~rvation
Soft Loan Closing·and Close other Construction Loans
Legal Deadline. to Start Construction
Complete Rent-up and Occupancy
Final Equity Payment From Limited Partner
March 16, 2009
March 16, 2009
April 3, 2009
March 26, 2009
October 1,2010
April, 2009
October, 2010
November 1,2010
January, 2011
February, 2011
October, 2011
August 9, 2009
May 5, 2009
July, 2009
July, 2009
June 9, 2010
October, 2010
November 5, 2010
December, 2011
March, 2013
This document is recorded
for the benefit of the City
of Palo Alto and is entitled
to be recorded free of charge
in accordance with Section 6103
of the Government Code.
After Recordation, mail to:
OFFICE OF THE CITY ATTORNEY
250 Hamilton Avenue
Palo Alto, CA 94301
P.O. Box 10250
Palo Alto, CA 94303
ATTACHMENT B
REGULATORY AGREEMENT AND DECLARATION OF
RESTRICTIVE COVENANTS FOR TREE HOUSE APARTMENTS
THIS REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE
COVENANTS FOR TREE HOUSE APARTMENTS ("Regulatory Agreement") is made and
entered into as of , 2010, by and among the City OF PALO ALTO, a
chartered city organized and existing under the constitution and laws of the State of California
("City"), and TREE HOUSE APARTMENTS, L.P., a California limited partnership, with offices
at c/o PAHC California Park Corporation, 725 Alma Street, Palo Alto, California 94301 ("Tree
House LP" or "Partnership").
WIT N E SSE T H:
RECITALS
WHEREAS, the City receives an annual entitlement allocation of Community
. Development Block Grant ("CDBG") funds from the Government of the United States under
Title I of the Housing and Community Development Act of 1974 and has established a
Residential Housing Fund (the "Residential Fund") for the purpose of providing loans to support
the development of affordable rental housing; and
WHEREAS, on February 6, 2007, PAHC California Park Corporation (General Partner),
a subsidiary of Palo Alto Housing Corporation (PAHC, Sponsor), entered into a purchase and
sale agreement with Peninsula Endowment, Inc. to acquire the property located at 488 West
Charleston Road (the "Property") for the purpose of developing an affordable rental housing
project. PAHC formed a limited partnership entity, Tree House Apartments, L.P., to acquire and
develop the Property with P AHC California Park Corporation being its general partner; and
101012 dm 0120468 1
WHEREAS, Tree House LP has applied to the City for funds for site acquisition to allow
the development of thirty-five (35) affordable rental housing units consisting ofthirty-thIee (33)
studios and two (2) one-bedroom units known as the Tree House (the "Project") located at 488
West Charleston Road, Palo Alto, California; and
WHEREAS, on June 9, 2008, the City Council approved the allocation in the budget for
fiscal year 2008-09 of $2,538,577 to Tree House LP for the acquisition of the Property of which
$1,538,577 is from CDBG funds and $1,000,000 from the Residential Fund and on March 2,
2009, the City Council approved additional funding in the amount of $300,000 in fiscal year
2009-10 CDBG funds; and
WHEREAS, on March 18, 2009, the Agreement was entered into between the parties
regarding the City's financial contribution of $2,838,577, of which $1,838,577 is from CDBG
funds and $1,300,000 from the Residential Fund, in the form of a loan to Tree House LP for the
acquisition of the real property located at 488 W. Charleston Road, Palo Alto for the
development of Tree House (the "Project), a 35-unit rental housing project affordable to
extremely-and very-low income households; and
WHEREAS, on April 3, 2009, the City Council adopted Ordinance No. 5034 approving a
Planned Community (PC) zone application for the development of the 35-unit affordable housing
project, consisting of 33 studios and two one-bedroom units, which will be affordable to
extremely-low and very-low income households earning between 20% and 50% of the area
median income; and
WHEREAS, on March 8, 2010, the City Council adopted Resolution No. 9402
committing $2.5 million in-lieu fees from SummerHill Homes to Tree House LP to enable Tree
House LP to fill the Project's existing funding gap and submit a competitive application for the
Low Income Housing Tax Credit Allocation for the construction and developmentofthe Project;
and
WHEREAS, Tree Hou~e LP has received sufficient binding commitments for
construction financing, including an annual federal Low Income Housing Tax Credit Allocation
in the amount of $472,754 awarded on June 9, 2010 that will fund the expenditure of funds for
site construction and development costs; and
WHEREAS, on October 4,2010, the City Council approved Amendment No. One to the
Agreement to provide additional funding in the amount of $2.5 million from the Residential
Housing Fund for construction and development costs of the Project; and
WHEREAS, there is a severe shortage of rental housing affordable for persons with
extremely-low and very-low incomes in Palo Alto and nearby areas. The Project will result in
the creation of thirty-five (35) housing units, to be made available at affordable rents to those
with extremely-low and very-low incomes as defmed by the Department of Housing and Urban
Development ("HUD"); and
101012 dm 0120468 2
WHEREAS, the expenditure of fimds for site acquisition costs for lower income housing
is an eligible activity under the CDBG Program, and site acquisition, construction and
development costs are eligible under City's Affordable Housing Fund Guidelines. The Project is
consistent with City's affordable housing goals as outlined in City's HUD Consolidated Plan and
the Housing Element of the Comprehensive Plan; and
WHEREAS, Tree House LP has received sufficient binding commitments for
construction financing, including low income housing tax .credit; .equity in the approximate
amount of $4.8 million that will fimd the expenditure of funds for site construction and
development costs; and
WHEREAS, the County of Santa Clara issued an allotment of Article 34 authority, under
MeasUre A as approved by the voters in November 1998, to the City on June 2, 2009 for 35 units
of new COD,struction rental housing as part of the Project; and
WHEREAS, in consideration of the City's making the Housing Loan, Tree House LP has
agreed to obserVe and perform all of the terms and conditions set forth in this Regulatory
Agreement, and has agreed that the Project will be subject to the terms and conditions set forth in
this Regulatory Agreement, for a period of approximately fifty-five (55) years commencing on
the date on which this Regulatory Agreement is recorded in the Official Records of Santa Clara
County and expiring concurrently with the expiration of the Housing Trust of Santa Clara
County Opportunity Fund ("Opportunity Fund") Regulatory Agreement, County of Santa Clara's
Stanford Affordable Housing Trust ("Affordable Housing Trust") Regulatory Agreement, and
the TCAC Regulatory Agreement, and in order to ensure that the Project will be used and
operated in accordance with certain restrictions concerning affordability, operation, and.
maintenance during such period, 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 and for other valuable
consideration, the parties agree as follows:
IN CONSIDERATION OF the mutual covenants and agreements specified herein, and
subject to its terms and provisions, the parties to this Agreement hereby agree as follows:
ARTICLE 1 -DEFINITIONS
The following terms as use in this Regulatory Agreement shall have the respective
meanings assigned to them in this Article 1 unless the context clearly indicates otherwise:
"Additional Term" means a term commencing upon the expiration of the Initial Term and
expiring on the forty-fourth (44th) anniversary of its commencement.
"Affordability Restrictions" means the use, occupancy and rent restrictions set forth in
Section 2.1 hereof. '
101012 drn 0120468 3
"Affordable Housing Trust Loan" means the permanent loan in the amount of $350,000
provided by the Housing Trust of Santa Clara County for the construction and development of
the Project.
"Affordable Housing Trust Regulatory Agreement· -Stanford" means a regulatory
agreement executed between Tree House LP and Santa·Clara Count)' for the provision of Santa
Clara County's Stanford Affordable Housing Fund Loan, which will be recorded against the
Project at the construction loan closing and continue for a term of 5~~-years.
"City" means the City of Palo Alto, California.
"Community Development Block Grant Program and Regulations" means the federal
Community Development Block Grant Program, of which the City is an entitlement grantee,
under Title I of the Housing and Community Development Act of 1974, as amended, and the
implementing federal regulations at 24 CFR Part 570.
"Extremely Low-Income Household" means a household with gross income that does
not exceed 35% of the Median Income and which is otherwise a qualified Tenant under the
Section 8 or HUD Program Regulations.
"Extremely Low-Income Units" means the Units that are occupied by Extremely Low
Income Households.
"HAP Contract" means a Housing Assistance Payment contract with HUD or the
Housing Authority for project-based Section 8 rental assistance.
"Housing Authority" means the Housing Authority of the County of Santa Clara,
California.
"HUD" means the United States Department of Housing and Urban Development.
"Improvements" means the buildings, structures and other improvements substantially as
shown in the Site Plans to be constructed on the Land comprising the 35-unit rental apartment
complex to be known as Tree House Apartments as approved, subject to conditions, by the
City's Director of Planning and Community Environment.
"Initial Term" means a term of approximately 55 years, commencing on the date this
Regulatory Agreement is recorded in the Official Records of Santa Clara County and expiring
concurrently with the expiration of the later to expire of Opportunity Fund Regulatory
Agreement, Affordable Housing Fund Regulatory Agreement -Stanford, and the TCAC
Regulatory Agreement.
"Land" means the real property commonly known as 488 West Charleston Road, Palo
Alto, California, and legally described in Exhibit A, attached hereto and incorporated by
reference herein.
"LP Investor" means Wincopin Circle LLLP or The Banc of America Housing Fund VIII
Limited Partnership, LLLP, and its successors and assigns.
101012 dOl 0120468 4
"Median Income" means the median income for households in Santa Clara County, State
of California, as determined from time to time by BUD in a manner consistent With the
determination of median gross income under the Section 8 program and published by BUD In
the. event that such income determinations are no longer determined and published by HUD or
State HCD, or are not updated for a period of at least 24 months from the date of the previous
publication, the City shall provide Tree House LP with other income determinations that are
reasonably similar with respect to methods .of calculation contained in that previous HUD
publication. ~ ..
"Mortgagee" means a mortgagee of a mortgage; beneficiary of a deed of trust, or the
secured party under any other financing device encumbering the Project.
"County of Santa Clara -Stanford" means the loan in the amount of $960,000 provided
by the County of Santa Clara from the Stanford Affordable Housing Fund for the construction
and development of the Project.
"Tree House LP" means Tree House Apartments, L.P. and any successor owner of the
Property during the term of this Regulatory Agreement.
"Partnership Loans" means the acquisition loan in the principal amount of $2,838,557
and the loan in the amount of $2,500,000 made to Tree House LP by the City for housing
construction and development costs.
"Partnership Note" means the promissory note in the amount of $2,838,557 and the
Amendment No. One thereto increasing the principal amount by $2,500,000 executed by Tree
House LP evidencing the Partnership Loans.
"Party" means any party to this Agreement. The "Parties" shall be all parties to this
Agreement.
"Project" or "Property" means the improvements constructed on the land for the purpose
of providing 34 rental housing· units (plus a manager's unit) which shall be offered for rent and
occupied as provided in this Regulatory Agreement.
"Regulatory Agreement" means this "Regulatory Agreement and Declaration of
Restrictive Covenants for Tree House Apartments".
"Rent" means the sum total of all monthly payments to be made by the Tenant of a Unit
for the following privileges: use and occupancy of the Unit and associated facilities, including
parking; any separately charged fees or service charges assessed by Tree House LP which are
required of all 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.
"Restricted Unit(s)" means any or all of the 34-apartment Units that are subject to the
use, occupancy and rent restrictions of this Agreement.
101012 QDl 0120468 5
"Section 8" means Section 8 of the United States Housing Act of 1937 ("Act"), as
amended.
"Section 8 Assistance" means rental assistance on behalf of households living at the
Property provided pursuant to Section 8, whether indirectly pursuant to a Section 8 Housing
Assistance Program contract, or directly pursuant to tenant-based Section 8 vouchers or
certificates.
<' ':II"
"Section 8 Assistance Program" means a program funded by HUD that provides rental
assistance on behalf of Very Low and Low-Income Households, or a successor federal or State
rental assistance program providing similar assistance.
"Section 8 Assisted Household" means a household that holds a valid voucher or
certificate under a Section 8 Assistance Program.
"Site Plans" means the final site plans for the Project and conditions of approval for
Architectural Review (application file number 08-PLN-00227), as approved by Resolution No.
5034 of the City Council on March 30,2009, as may be subsequently modified, with approval of
the City's Director of Planning and Community Development.
"State HCD" means the California Department of Housing and Community
Development.
"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).
"TCAC" means the California Tax Credit Allocation Committee, or such other body or
entity that allocates Federal Low Income Housing Tax Credits in the State of California.
"TCAC Regulatory Agreement" means the fifty-five (55) year regulatory agreement that
will be recorded by the TCAC against the Project to secure compliance by Tree House LP with
the Tax Credit Regulations. .
"Term" means the term commencing on the date of recordation of this Agreement and
expiring on the 55th year anniversary of its commencement.
"Unit or Units" means one of the 35-apartment units in the Project.
"Tenants" (individually, "Tenant") means the occupants of the Units.
"Very Low-Income Household" means a household with gross income that does not
exceed 50% of Median Income and which is otherwise a qualified Tenant under the Section 8 or
HUD Program Regulations.
"Very Low-Income Units" means the Units that are required to be occupied by Very
Low-Income Households.
101012 drn 0120468 6
ARTICLE 2 -AFFORDABILITY COVENANTS
2.1 Use, Occupancy and Rent Restrictions
The Property shall be used solely for the operation and maintenance of 35 Units of
multifamily rental housing, with 34 Units subject to the affordability covenants of this
Regulatory Agreement, and for no other purpose. At all times during .the term of this Regulatory
Agreement, unless subsequently revised in a written amendment approved by the City, at least
thirteen (13) of the Units shall be made available to Extremely Low-Income Households and
twenty one (21) of the Units shall be made available to Very-Low Income Households as
described herein. Without derogating the importance of compliance by Tree House LP with the
other provisions of this Regulatory Agreement, compliance by Tree House LP with the
provisions of this Article 2 is of particular importance to City and is one of the principal reasons
for which City was willing to make the loans to Tree House LP for acquisition and development
of Tree House Apartments
).1.1 Extremely Low-Income Units: At all times during the term of this
Regulatory Agreement:
(i) Thirteen (13) Units, shall be rented and occupied by, or if vacant, made
available for rental and occupancy by, Extremely Low-Income Households, as certified
according to Section 4.1 immediately prior to each Tenant's initial occupancy and annually
thereafter.
(ii) Subject to Section 2.4 below, the maximum monthly Rent charged to each
of the Tenants of the Extremely Low-Income Units shall not exceed the amount of Rent allowed
under the TCAC Regulations, as published annually, based on the unit type.
(iii) Of the thirteen (13) Units descr~bed in (i) above, Tree House LP shall
designate twelve (12) studio units and one (1) one-bedroom units as the required Extremely
Low-Income Units and may change the designated Extremely Low-Income Units from time to
time, as vacancies occur and Tenant incomes and household composition change, provided that
the same proportions of each unit type are maintained.
2.1.2 Very Low-Income Units: At all times 4uring the term of this Regulatory
Agreement:
(i) Twenty one (21) Units, shall be rented and occupied by, or if vacant, made
available for rental and occupancy by, Very Low-Income Households, as certified according to
Section 4.1 immediately prior to each Tenant's initial occupancy and annually thereafter.
(ii) Subject to Section 2.4 below, the maximum monthly Rent charged to each
of the Tenants of the Very Low-Income Units shall not exceed the amount of Rent allowed under
the TCAC Regulations, as published annually, based on the unit type.
(iii) Of the twenty-one Units described in (i) above, Tree House LP shall
designate twenty one (21) studio units as the required Very Low-Income Units and may change
101012 dOl 0120468 7
the designated Very Low-Income Units from time to time, as vacancies occur and Tenant
incomes and household composition change, provided that the same proportions of each unit
type are maintained.
2.1.3 Manager's Unit:
The remaining one (1) Unit is not required to comply with the rent and occupancy
restrictions of this Section 2.1 if it is occupied by a residentlllanager as a condition of
employment.
2.2 Units Occupied by Section 8 Assisted Households
Units occupied by Section 8 Assisted Households shall be considered to be qualified
Extremely-Low Income or Very-Low Income Units based on each household's annual income as
certified pursuant to regulations and procedures of the Section 8 Assistance Program.
Notwithstanding anything to the contrary contained herein, the Rent for Units occupied by
Section 8 Assisted Households shall be set pursuant to Section 8 regulations and procedures.
2.3 Noncompliance
A failure by Tree House LP to maintain the rent affordability and occupancy restrictions
required by this Regulatory Agreement will constitute a default of this Regulatory Agreement
subject to the notice and cure provisions of Section 6.10. The Project will be deemed to be in
compliance with the affordability covenants, notwithstanding a temporary noncompliance with
the provisions of 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 this Regulatory Agreement.
2.4 Lease Provisions
Tree House LP shall include in the leases or rental agreements for all Units occupied by
Extremely Low-Income or Very Low-Income Households a provision which authorizes the
lessor to immediately terminate the tenancy of any Tenant, after the lessor 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.
2.5 Applicability of TCAC Regulations and TCAC Regulatory Agreement
During the term that the TCAC Regulatory Agreement is in effect, all definitions,
procedures and calculations related to the use and occupancy of the Units and the qualification of
Tenants including, without limitation, determination of Rent, Rent increases, household income
limits, income certification procedures, tenant selection procedures and the designation of
particular Units for each of the income categories as required by the TCAC Regulatory
Agreement shall be deemed to be in compliance with this Regulatory Agreement, for purposes of
this Article 2.
101012 dm 0120468 8
In the event of a conflict between the provisions of this Article 2 and the TCAC
Regulatory Agreement, the TCAC Regulatory Agreement shall prevail. Tree House LP shall
comply with all other requirements of this Regulatory Agreement that are in addition to the
TCAC Regulatory Agreement.
ARTICLE 3 -COVENANTS AND COND1TIONS .
3.1 General
In consideration for receiving the loans from the City, Tree House LP has acquired the
property located at 448 West CharlestOli Road, and shall construct, or cause to be constructed,
the Project upon the Land as described in the Site Plans.
3.2 Nontransient Residential Use
None of the Unit shall be operated as transient housing; provided, however, the Units
shall not be considered to be used on a transient basis merely because any of the Units are rented
on a month-to-month basis or rented under a transitional housing program; provided, however
every Tenant of a Restricted Unit shall initially occupy the Unit pursuant to a lease having a term
of at least twelve months.
3.3 Insurance
Tree House LP, at its sole cost and expense, shall obtain and maintain dwing 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 as
required by law, 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 Tree House LP and its respective partners,
directors, officers, employees, agents, and representatives arising out of or in connection with the
Project, or Tree House LP'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 City for approval by the City's risk manager. Any such modification shall receive
the concurrence of the Office of City Attorney. Tree House LP shall name the City as an
additional insured on all policies of insurance required under the terms of other financing.
3.4 Taxes and Assessments
Tree House LP 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 Project; provided, however, that Tree
House LP shall have the right to contest in good faith, any such taxe§, assessments, or charges.
In the event Tree House LP exercises its right to' contest any tax, assessment, or charge against it,
Tree House LP, on the final determination of the proceeding or contest, shall immediately payor
discharge any decision or judgment rendered against it, together with all costs, charges and
interest.
101012 dm 0120468 9
3.5 Costs of Operation and Maintenance
. The Tree House LP will be responsible for all costs of operating and maintaining the
Project, including but not limited to taxes, insurance and utilities. Tree House LP shall maintain
the Project in good repair and working order, and in a manner consistent with the housing quality
standards set forth in Section 882.109 (24 CFR Part 882 of the federal Section 8 Assistance
Program regulations), and all applicable City ordinances.
3.6 Property Inspections
Th~ City, or its authorized representatives, shall have the right to make periodic on-site
inspections of the Project and the Units during working hours upon reasonable notice to Tree
HouseLP. .
3.7 Budgets
The Tree House LP shall submit a copy of the Project's annual operating budget within
30 days of its adoption or, concurrently with its submittal of the annual operating budget
prepared for TCAC, whichev.er is earlier. The Tree House LP shall be required to obtain the
City's approval, not to be unreasonably withheld, of the annual operating budget for the Project
prior to its adoption, so long as the City notifies Tree House LP at least 60 days prior to the
commencement of a Fiscal Year that this requirement will apply for that Fiscal Year;
3.8 Reserves
Commencing 60 days after the City notifies Tree House LP that the City has elected to
invoke this provision, the Tree House LP will be required to maintain operating and replacement
Reserves satisfactory to the City and will not be permitted to withdraw funds from the Reserves
without the City's approval, not to be unreasonably withheld.
3.9 Management
Commencing 60 days after the City notifies' Tree House LP that the City has elected to
invoke this provision, the Tree House LP will be required to obtain the ,approval of the City, not
to be unreasonably withheld, to the operating management of the Project.
3.10 Nondiscrimination
With the exception of Units that are subject to an HAP Contract, all of the Units shall be
available for occupancy on a continuous basis to members of the general public in accordance
with the affordability covenants of Article 2. 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, sexual 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 rree House
LP or any· person claiming under or through Tree House LP, 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
101012 dm 0120468 10
in connection with the employment of persons for the construction, operation and management
of any Unit. .
3.11 Efforts to Seek Section 8 Housing Assistance Payment Contracts for the Units
As a continuing obligation during the term of this Regulatory Agreement, Tree House LP
shall, in good faith, undertake all actions as required and necessary to seek to obtain HAP
Contracts for project-based Section 8 rental assistance as may be rp.~de available from HUD or
from the Housing Authority from time to time. Tree House Lp'shall seek the longest HAP
Contract term available· and shall seek such contract assistance for all of the thirty four (34)
Restricted Units. In the event that any such HAP Contract is obtained and then later terminated
by HUD for all, or a portion of, the Units, Tree House LP 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.
3.12 Selection Criteria for Applicants for Tenancy with Section 8 Assistance
3.12.1 Tree House LP agrees to accept Section 8 Assisted Households as Tenants
on the same basis as all other prospective tenants. Tree House LP shall not apply selection
criteria to Section 8 Assisted Households that are more burdensome than criteria applied to all
other prospective tenants, nor shall Tree House LP apply or permit the application of
management policies or lease provisions that have the effect of precluding occupancy of Units by
Section 8 Assisted Households. The Tree House LP will use reasonable efforts to make the
Units available to participants in the Section 8 tenant-based voucher program and other rent
subsidy programs as may become available.
3.12.2 To the extent allowed by HUD or the Housing Authority, Tree House LP
will give a preference in the selection of Ten ants, and in the maintenance of its waiting list for
Units, to otherwise qualified households that have one or more adult household members living,
or employed, within the city limits of the City of Palo Alto immediately prior to occupancy in the
Unit or at application for the waiting list. Tree House LP will use the definitions and procedures
applicable to the City's Below Market Rate housing program to administer this preference.
3.13 Other Regulatory Agreement
This Regulatory Agreement shall be subordinate to a TCAC Regulatory Agreement, and
an Affordable Housing Trust Regulatory Agreement -Stanford, on customary terms as approved
by the City. Compliance with the TCAC Regulatory Agreement shall be deemed compliance
with this Regulatory Agreement to the extent the TCAC Regulatory Agreement is more
restrictive than this Regulatory Agreement. In case of a direct conflict between this Regulatory
Agreement and the TCAC Regulatory Agreement, Tree House LP shall comply with the TCAC
Agreement, as applicable; however, Tree House LP shall comply with all requirements of this
Regulatory Agreement that are in addition to (rather than inconsistent with) requirements of the
TCAC Regulatory Agreement.
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ARTICLE 4 -INCOME CERTIFICATION AND REPORTING
4.1 Income Certification
Tree House LP will obtain, complete and maintain on file, immediately prior to initial
occupancy and annually thereafter, an income certification from each Tenant renting any of the
Extremely Low-Income, and Very Low-Income Units. Tree House LP shall make a good faith
effort to verify that the income provided by an applicant, or o.ccupy.!ng household, in an income
certification is accurate in accordance with Section 8 Regulations. Copies of tenant income
certifications shall be made available to the City, including its designated representatives upon
request.
4.2 Reporting and Provision of Information
Tree House LP will submit reports in a format and at a time specified by the City. The
reports will contain such information as the City may then require to document compliance with
the use and occupancy restrictions and other requirements of this Regulatory Agreement. The
City, including its designated representatives, shall have the right to examine and make copies of
all books, records or other documents of Tree House LP which pertain to the Property or any
Unit and Tree House LP shall provide any information reasonably requested. Tree House LP
shall deliver to the City copies of all reports submitted to TCAC as may be requested by the City.
4.3 Records
Tree House LP shall maintain complete, accurate and current records pertaining to the
Property and the Units, and shall permit any duly authorized representative of the City 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 during business hours upon
reasonable notice. All Tenants lists, applications and waiting lists relating to the Property shall
at all times be kept separate and identifiable from any other business of Tree House LP and shall
be maintained as required by the City,' in a reasonab~e condition for proper audit and subject to
examination by representatives ofthe City.
4.4 Financial Audits
Tree House LP shall provide City, during the term of this Regulatory Agreement, with
copies of audited financial statements of Tree House LP, 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 Tree House LP. City reserves the right, during the term of
_ this Regulatory Agreement, to audit the records, including the financial records supporting the
aforementioned financial statements, and other records and documents pertaining to the
operations of the Property.
4.5 Assignment or Transfer or Encumbrance
. Except for leases with the Tenants in "the ordinary course of business, Tree House LP
shall not cause or permit any voluntary transfer, assignment or encumbrance of its interest in the
Property or lease or permit a sublease of all or any part of the Property without first obtaining the
101012 dm 0120468 12
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 lease 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 -DEFAULT
":£"
The City shall be permitted, upon written notice, to (a) immediately terminate its
commitment to loan funds hereunder, and (b) declare the principal amount of the Partnership
Notes 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:
5.1 Tree House LP makes a representation in this Regulatory Agreement which shall
prove to have been false in any material respect when made; or
5.2 Tree House LP shall default in the payment, when due, of any principal or interest
under the Partnership Notes after the expiration of applicable cure periods or any other sums
payable by Tree House LP under this Regulatory Agreement; or
5.3 Tree House LP shall default for a period of thirty (30) days (or if such default
cannot be cured within 30 days despite Tree House LP's prompt commencement and diligent
prosecution of cure upon receiving notice, then such period shall be extended, but in no event
beyond 90 days after notice) in the performance of any non-financial obligation to be performed
by Tree House LP under this Regulatory Agreement; or
5.4 Tree House LP 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 files a voluntary petition in bankruptcy; or
5.5 Tree House LP is subjected to the entry of an order, decree, or judgment·
approving the reorganization of Tree House LP, and such order, decree, or judgment is unstayed
. for a period of more than forty-five (45) days, or such period as may be permitted by law; or
5.6 Tree House LP fails to comply with the covenants, terms and conditions of this
Regulatory Agreement, including, without limitation~ the failure of Tree House LP to abide by
the use, occupancy and rent restrictions set forth in Section 2.1 and the other provisions of.
Article 2 ofthis Regulatory Agreement, for a period of thirty (30) days (or if such default cannot
be cured within 30 days despite Tree House LP's prompt commencement and diligent
prosecution of cure :upon receiving notice, then such period shall be extended, but in no event
beyond 90 days after notice); or
5.7 Except as expressly otherwise provided in Section 4.5 and in the Partnership Notes,
Tree House LP causes or permits a sale, voluntary transfer, assignment or encumbrance of its
ownership interest in the Project, or permits a sublease of all or any part of its interest without
first obtaining City's written consent. Any such sale, transfer, assignment, encumbrance, or
lease without the City's written consent shall be voidable· and, at the City's election, shall
101012 dm 0120468 13
constitute a breach of this Regulatory Agreement. No consent to any assignment, encumbrance
or lease shall constitute consent to any subsequent assignment, encumbrance or lease, or a waiver
of any of the City's rights under this Regulatory Agreement. This Section 5.7 shall not apply to
the transfer of partnership interests in Tree House LP or to the transfer of the Project to Palo Alto
Housing Corporation or a wholly-controlled affiliate thereof.
ARTICLE 5 ~ NOTICES
.j(
All notices, consents, communications or transmittals required by this 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:
To Tree House LP:
Copy to:
101012 dm 0120468
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
Tree House Apartments, L.P.
c/o P AHC California Park Corporation.
725 Alma Street
Palo Alto, CA 94301
Attn: General Partner
The Banc of America Housing Fund VIII Limited
Partnership, LLLP
Wincopin Circle LLLP, and its successors and assigns
10227 Wincopin Circle, Suite 810
Columbia, Maryland 21044
Tel: (410) 964-0552; Fax: (410) 772-2630
Email: brothschild@enterprisecommunity.com
Attention: General Counsel"
14
ARTICLE 6 -MISCELLANEOUS PROVISIONS
6.1 Nothing contained in this Regulatory Agreement, nor any act of the City, shall be
interpreted or construed as creating the relationship of third party beneficiary, limited or general
partnership, joint venture, employer or employee, or principal and agent between the City, on the
one hand, and Tree House LP, or Tree House LP's agents, employe~l;I or contractors. Tree House
LP shall each at all times be deemed an independent contractor and shall be wholly responsible
for the manner in which it or its respective agents, or both, observe the covenants and conditions
imposed on it by the terms of this Regulatory Agreement. Tree House LP has retained 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. Tree
House LP agrees to be solely responsible for its own acts and those of their respective 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 Regulatory Agreement.
6.3 Tree House LP shall lack 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
real 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 condition shall be deemed both
a covenant and a condition. If any.provision of this Regulatory Agreement shall be detennined
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 Regula~ory 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
101012 drn 0120468 15
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 all of
which together shall constitute one and the same instrument. The paragraph headings are not a
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 shall 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 Project for the
entire term hereof. This Regulatory Agreement shall bind any successor, heir or assign of Tree
House LP, whether a change in interest occurs voluntarily or involuntarily, by operation of law
or otherwise, except as expressly released by the City by a written amendment, signed by the
City, and recorded inthe Official Records of Santa Clara County. Tree House LP acknowledges
that the City has made the Partnership Loans on the condition that the provisions of this
Regulatory Agreement shall apply to the Property for its entire term, and in consideration of this
provision, and would not have done so otherwise.
6.9 The City and Tree House LP hereby declare their express intent that the covenants
and restrictions set forth ih 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.
6.10 If Tree House LP fails to perform any obligation under this Regulatory
Agreement, and fails to cure the default within 30 days after the City has notified Tree House LP
in writing of the default or, if the default cannot be cured within 30 days, fails to commence to
cure promptly 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, including, but not limited
to an action for specific performance to enforce the covenants and restrictions herein.
6.11 The rights of City under this Regulatory Agreement may be made subject to one
or more subordination agreements between lenders with security interests in the Project and City;
provided, however, neither Tree House LP nor any of its respective affiliates is an intended
beneficiary of, or has the right to enforce, any such subordination agreement, which may be
terminated and/or the terms of which may be modified from time to time by any such lender and
City, without the consent of, or notice to, Developer.
101012 dIll 0120468 16
6.12 The parties agree that they will take such further actions, and execute such
further documents, as may be necessary or appropriate in order to carry out the purposes of this
Regulatory Agreement.
ARTICLE 7 -TERM AND CITY OPTION TO PURCHASE
7.1 Initial Term
The City and Tree House LP shall cause this Regulatory Ag~'eement, and all amendments
and supplements to it, to be, recorded in the Official Records of the County of Santa Clara. This
Regulatory Agreement shall continue in effect until the expiration of the Initial Term; provided,
however, Tree House LP (or any successor Tree House LP of the Property) shall have the right
by irrevocable written notice given to City at least six months prior to the expiration of the Initial
Term to elect to extend the term of this Regulatory Agreement for the Additional Term, in which
event this Regulatory Agreement will continue in effect and will be binding upon Tree House LP
until the expiration ofthe Additional Term.
7.2 Additional Term City Option to Purchase:
. It is the intent of the City and Tree House LP to extend the affordability covenants on the
Restricted Units beyond the Initial term for the longest time feasible, consistent with the
requirements of other sources of financing for the project. At the expiration of the Initial Term
of the is Regulatory Agreement, the Tree House LP agrees for the Additional Term, or to enter
into an agreement with the City or other public agency imposing new affordability restriction on
the Restricted Units reasonable acceptable to the City. In the event Tree House LP does not
enter into an Additional Term of affordability restrictions at the Project upon expiration of the
Initial Term ofthis Regulatory Agreement, the Tree House LP agrees to grant the City a twelve
month (12) option to purchase the Project at that time for the greater of: (i) outstanding debt, or
(ii) the fair market value ("Fair Market Value"), free and clear of all liens and encumbrances,
other than those expressly approved by the City, for the express purpose of continuing to
maintain the Project as an affordable housing resource. In the event the Tree House LP does not
enter into an Additional Term of affordability restrictions, Tree House LP shall provide the City
written notice of Tree House LP's intent not to impose new affordability restrictions, and the
City'S twelve month option to purchase shall commence upon delivery of such written notice.
The Fair Market Value shall be determined by certified MAl or other qualified real estate
appraiser mutually selected by the Parties. If possible, the appraisal shall be based upon the sales
prices of comparable properties sold in the market are during the preceding three (3) month
period. The cost of the appraisal shall be shared equally by both Parties.
In the event that the Parties cannot agree on an appraiser, each shall select a certified
MAl appraiser or other qualified real estate appraiser within fifteen (15) days thereafter to
determine the Fair Market Value. If one of the Parties does not identify its appraiser in writing
to the other within such fifteen (15) day period, the lone appraiser shall determine the Fair
Market Value, and that appraiser's valuation shall be binding. Assuming both Parties timely
designate an appraiser, the two appraisers then shall meet with fifteen (15) days to select a
neutral third appraiser (the "Referee"). The initial two appraisers shall furnish the parties with a
101012 drn 0120468 17
written detennination ofthe Fair Market Value within forty-five (45) days after their selection.
If the two appraisals differ by less than fifteen percent (15%) of the lower of the two, the average
of the tW9 appraisals shall be the Fair Market Value, and shall be final and binding on the
Parties. If the appraisals differ by fifteen percent (15%) or more of the lower of the two, the
Parties shall deliver copies of both appraisals to the Referee, the Referee shall select, within
thirty (30) days after receipt, the appraisal which he or she believes more accurately represents
the Fair Market value. The Fair Market Value set forth in the appraisal selected by the Referee
shall be the Fair Market Value, and shall be final and binding en'Parties. The cost of each
appraisal shall be paid by the Party for whom it is performed, and the cost of the Referee shall be
shared equally. .
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101012 dm, 0120468 18
IN WITNESS WHEREOF, the parties hereto have executed this Regulatory Agreement
and Declaration of Restrictive Covenants for Tree House Apartments the day and year first
above written.
ATTEST:
City Clerk
APPROVED AS TO FORM:
City Attorney
APPROVED:
By:
City Manager
Director of Planning and
Community Environment
Director of Administrative Services
Insurance Review
ATTACHMENTS:
EXHIBIT A: Legal Description
EXHIBIT B: Insurance Requirements
CITY OF PALO ALTO,
a chartered California municipal corporation
By:
Mayor
Tree House Apartments, L.P.,
a California limited partnership
By: PAHC California Park Corporation
a California nonprofit public benefit
corporation,
Its General Partner
Title: Executive Director
By:
Name: ----------------
Title: Secretary
Taxpayer Identification No. ;2 (p ~ 1-~) -:{-I G;O
EXHIBIT C: Description of Restricted Units, Income Limits and Occupancy Requirements
101012 drn 0120468 19
CERTIFICATE OF ACKNOWLEDGMENT
(Civil Code § 1189)
STATE OF CALIFORNIA )
f )
COUNTY OF::;c"'+t"~ ~'-)
,
On r~ lJG\. 2D \0 ,before ~t,<~\',"'D Jv\\f)cf-,a notary public in and
for said County, personally appeared C ~(1 ~L. bot)3?)Jf ~ who proved
to me on the basis of satisfactory evidence to be the perso~ ""?those nam¢ffi') diare
subscribed to the within instrument and acknowledged to me that h~/they executed
the same in his@ltheir a~thorized capacit~), and that by hi~heir signatur~ on
the instrument the persodkt), or the entity upon behalf of which the perso~' acted,
executed the instrument. .
I certify under penalty of perjury under the laws of the State of California that the
foregoing paragraph is true and correct.
la' , " BETH D. MiNoR ( -.COMM. # f19276~ VI NOTARY PiJaUC·CAUFOIlNIA rn ~ SANTA CLARA COUNTY :
, MY Cou:" E~.MAR. 3; 20!2 I
WITNESS my hand and official seal.
'---:tSazt~ (}~
Notary Public
101012 dIll 0120468 20
EXHIBIT A
LEGAL DESCRIPTION
Order Number: NCS-262686-SC
Page Number: 7
Real property in the City of Palo Alto, County of Santa Clara, State of California, described as
follows:
BEGINNING AT A POINT IN THE NORTHWESTERLY LINE OF CHARLESTON ROAD, AS SAID
ROAD EXISTED PRIOR TO WIDENING AT THE INTERSECTION THEREOF WITH THE
NORTHEASTERLY LINE OF THAT CERTAIN 0.014 ACRE PARCEL OF LAND CONVEYED BY DEED
FROM MABEL T. SISSON TO THE UNO G. ABRAHANSON, ET UX, DATED AUGUST 20,1947 AND
RECORDED SEPTEMBER 5, 1947 IN BOOK 1502 OF OFFICIAL RECORDS, PAGE 172, SANTA
CLARA COUNTY RECORDS; THENCE FROM SAID POINT OF BEGINNING RUNNING THENCE
NORTHEASTERLY ALONG THE SAID NORTHWESTERLY LINE OF CHARLESTON ROAD 182.70
FEET TO THE MOST SOUTHERLY CORNER OF THAT CERTAIN PARCEL OF LAND DESCRIBED AS
PARCEL NO.1 IN THE DEED FROM BORACE H. SISSON, AT UX TO PHILLIP DE ROSA, EF UX
DATED JUNE 19, 1956 AND RECORDED JULY 2, 1956 IN BOOK 3539 OF OFFICIAL RECORDS,
PAGE 23, SANTA CLARA COUNTY RECORDS; THENCE LEAVING SAID LINE OF CHARLESTON
ROAD AND RUNNING NORTH 45°17' WEST ALONG THE SOUTHWESTERLY LINE OF SAID
PARCEL NO.1 HEREINABOVE REFFERED TO A DISTANCE OF 180.17 FEET TO THE MOST
WESTERLY CORNER THEREOF IS THE NORTHWESTERLY LINE OF THE PARCEL OF LAND
DESIGNATED PARCEL NO.2 IN THE DEED FROM SAN JOGE ABSTRACT AND TITLE INSURANCE
CO., A CORPORATION, TO MABEL T. SISSION, DATED JANUARY 23, 1951 AND RECORDED
JANUARY 24, 19511 BOOK 2139 OF OFFICIAL RECORDS, PAGE 361, SANTA CLARA COUNTY
RECORDS; THENCE SOUTH 42°12'17" WEST ALONG SAID LAST MENTIONED NORTHWESTERLY
LINE A DISTANCE OF 170.01 FEET TO THE MOST WESTERLY CORNER OF THE PARCEL SO
DESIGNATED PARCEL NO.2 IN THE SAID DEED TO SISSON; SAID CORNER BEING IN THE
NORTH-WESTERLY PROLONGATION OF THE NORTHEASTERLY LINE OF THE 0.01 ACRE PARCEL
OF LAND HEREINABOVE REFERRED TO; THENCE SOUTH 41°16'14" EAST ALONG SAID
PROLONGED LINE AND ALONG THE SAID NORTHEASTERLY LINE OF THE 0.014 ACRE PARCEL
ABOVE REFERRED TO 181.17 FEET TO THE POINT OF BEGINNING, AND BEING A PART OF THE
RANCHO RINCON DE SAN FRANCISQUITO.
EXCEPTING THEREFROM ALL THAT PORTION CONTAINED IN THE FINAL JUDGMENT.oF
CONDEMATION IN THE MAnER OF THE CITY OF PALO ALTO, ETC., PLAINTIFF, VA. HERBERT
O'NEAL, ET AL, DEFEDANTS, CASE NO. 120429 IN THE SUPERIOR COURT OF THE STATE OF
CALIFORNIA IN AND FOR THE COUNTY OF SANTA CLARA, A CERTIFIED COPY OF WHICH WAS·
RECORDED SEPTEMBER 13, 1960, IN BOOK 4914, PAGE 503, OF OFFICIAL RECORDS,
DESCRIBED AS FOLLOWS;
BEGINNING AT A POINT ON THE NORTHWESTERLY LINE OF WEST CHARLESTON ROAD (40'
WIDE, DISTANT THEREON NORTH 42°12'07" EAST 230.13' FROM THE POINT OF
INTERSECTION THEREOF WITH THE PROLONGED NORTHEASTERLY LINE OF EL CANINO REAL;
THENCE NORTH 42°12'07" EAST ALONG SAID NORTHWESTERLY LINE OF 182.70'; THENCE
NORTH 45°17'23" WEST 8.01'; THENCE SOUTH 42°12'07" WEST 181.53'; THENCE SOUTH
37°01'23" EAST 8.14' TO THE POINT OF BEGINNING BEING A PORTION OF THE RANCHO
RINCON DE SAN FRANCISQUITO. And Further Excepting and together with the above described
Exception an Easement for public utilities and tree planting purposes, five feet in width, lying
adjacent to and NWly from the NWly line of the hereinabove described parcel.
APN: 132-46-072
First American Title Insurance Company
EXHIBITB
INSURANCE REQUIREMENTS
1. BUILDER'S RISK insurance, to cover the Project's construction, with coverage limits in the
total amount of all construction contracts covering the Project in connection with this Agreement.
Such coverage shall remain in effect until the completion of the Project.
2. 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, at
all times following completion of the Project. Such policies shall include water damage and debris
cleanup provisions.
POLICY MINIMUM LIMITS OF LIABILITY
3. WORKERS COMPENSATION Statutory
4. COMPREHENSIVE AUTOMOBILE Bodily Injury
LIABILITY; including owned hired, and
nonowned automobiles Property Damage
5. COMMERCIAL GEN;ERAL Bodily Injury
LIABILITY, including products and
completed operations, broad form
cOI1-tractual, and personal injury. Property Damage
$2,000,000 ea person
$2,000,000 ea occurrence
$2,000,000 ea person
$2,000,000 ea. occUrrence
$2,000,000 aggregate
$2,000,000 ea occurrence
Each insurance policy required by this 'Agreement shall contain the following clauses: 1.
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 AltolPlanning and Community
Environment Department, P.O. Box 10250, Palo Alto, CA 94303.
2. 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.
3. 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.
4. 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:VII or higher that are ~dmitted or approved 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 providi,ng insurance, and shall be filed with
and approved by City's risk manager.
EXHIBITC
Description of Restricted Units, Income Limits and OccupancyR~quirements
Tree House Apartments -Unit Mix & Occupancy
Initial Rents & Income Limits for 2010
Number of Units, Monthly Rents
and Income Limits at Move-In2
Rent Occupancy SRO 1 Bedroom Total Units Formula l Restrictions
30%of Extremely 12 at $543 1 at 582 13 AMI low income
$24,840 for 2 $21,750 for 1
50% of Very low 21 at $906
AMI Income -----------21 $32,250 for 1
None Resident 1 1
Manager -----------
Total Units 33 2 35
Table 1 -Notes:
1) AMI means the Area Median Income for Santa Clara County, which equals
$103,500, as published in June 17,2010. Initial rents and income limits are as published
by State HCD for 2010
2) SRO units will be limitedJo one-person occupancy. The income limits shown
assume a one;..person household in SRO unit and up to two-person household in a one
bedroom unit.
RESOLUTION OF THE .
BOARDS OF DIRECTORS OF THE .
PALO ALTO HOUSING CORPORATION
AND "ITS AFFILIATED ENTITIES
WHEREAS, the PaID Alt.O H.O~ing CDrpDrati.On and its affiliated entities (P AHC) have frDm
time .to time executed contracts, c.Onsulting agreements, funding' agre-ements~ regulat.Ory
agreements, promiss.Ory n.Otes, deeds .Of trust, and .Other dDcuments and instruments (City
D.Ocuments) t.O effectuate its missiDn .Of affDrdable h.Ousing development in PalD Alt.O; and
WHEREAS, P AHC intends tD execute City D.Ocuments fDr FISCAL YEARS 2009-2011 and
wishes t.O dD S.O in acc.Ordance with P AHC p.Olicy c.Ontained in its·:.Bylaws; and
WHEREAS, P AHC Bylaws all.Owa single .Officer (president, any Vice President, Secretary Dr
Treasurer) t.O execute f.Ormal c.Ontracts .Of the c.Orp.OratiDn, pr.OmissDry n.Otes, deed of trust,
m.Ortgages and .Other evidences .Of indebtedness .Of the c.Orp.Orati.On and .Other c.Orp.Orate
instruments .Or d.Ocuments; and
WHEREAS, P ARc wishes t.O utilize this policy f.Or City DDcuments as well.
NOW, THEREFORE, theB.Oards of Direct Drs of Palo Alto. H.Ousing C.OrpDrati.On, PAHC
Management and Services C.OrporatiDn, P AHC Pr.Operties C.Orp.Orati.On, and P ARC H.Ousing
Services LLC res.Olve as f.Oll.Ows: .
Any .One cDrp.Orate .Officer, including the. Executive Vice PresidentlExecutive Direct.Or in
accordance with P AHCBylaws, may, with.Out further res.Oluti.On, and notwithstanding the
requirements established by Calif.Ornia C.Orp.Orations C.Ode Secti.On 5214, execute any City
D.Ocuments necessary and appr.Opriate t.O effectuate the cD~.Orate missi.On an4 the purposes .Of the
D.Ocuments:
Dated: -2--< .5-::; po9 ~~
B.Onnie Packer, President'
Pal.O Alto H.Ousing CDrp.Orati.On
And Its Affiliated Entities
Certified to. be a true c.Opy .Of the Res.Oluti.On ad.Opted by the B.Oard .Of Directors .On '~I 0-0 Q
~~~. ~~'L.!.::' &~fM2~. r-IC.~====-_ ..
C.Orrie Engels.On, Se~etary
Pal.O Alt.O H.Ousing C.Orp.OratiDn
And Its Affiliated Entities .'