HomeMy WebLinkAbout2003-07-28 City Council (14)City of Palo Alto
City Manager’s Re
TO:HONORABLE CITY COUNCIL
FROM:
DATE:
CITY MANAGER
JULY 28, 2003
DEPARTMENT: PLANNING AND
COMMUNITY ENVIRONMENT
CMR: 367:03
SUBJECT:OAK COURT AFFORDABLE HOUSING PROJECT AT 845
RAMONA STREET: COUNCIL APPROVAL OF THE AMENDED
DISPOSITION AND DEVELOPMENT AGREEMENT BETWEEN
THE CITY OF PALO ALTO AND PALO ALTO HOUSING
CORPORATION AND OAK COURT APARTMENTS, LP., TO SELL
THE CITY-OWNED PROPERTY AT 845 RAMONA STREET, TO
APPROVE A REGULATORY AGREEMENT AND TO PROVIDE A
DEVELOPMENT LOAN IN THE AMOUNT OF $1,960,000
RECOMMENDATION
Staffrecommends that the City Council:
Approve the attached Amended and Restated Disposition and Development Agreement
(Amended DDA), with its attached form of promissory notes and deeds of trust, that
authorizes the sale of the 845 Ramona Street housing site to Palo Alto Housing
Corporation, subject to two City loans, a fully deferred land loan of $5,874,000 and a
$1,960,000 loan for development costs, and a regulatory agreement.
Approve the attached Regulatory Agreement and Declaration of Restrictive Covenants
for Oak Court Apartments (Regulatory Agreement) between the City of Palo Alto, Palo
Alto Housing Corporation and the Oak Court Apartments Limited Parmership
regulating the use and occupancy of the Oak Court Apartments and the use of the land.
Authorize the Mayor to execute the Amended DDA and the Regulatory Agreement in
substantially identical form.
4.Authorize the City Manager to execute the grant deed to transfer ownership of the land
to PAHC, subject to a reservation by the City for an ingress and egress easement in
CMR:367:03 Page 1 of 9
connection with the shared ramp access way and various parking easements, and to
execute any other documents required to implement the Amended DDA, convey the
ramp easement and approve all necessary subordination agreements and direct the City
Manager to administer the provisions of the Amended DDA.
BACKGROUND
The City acquired ownership of the 1.23-acre site at 845 Ramona Street between Channing
and Homer Avenues in the South of Forest Area (SOFA) in October 2002, pursuant to the
April 2000 development agreement between the City of Palo Alto and the Palo Alto
Medical Foundation (PAMF). About 0.60 acres of the site was dedicated in satisfaction of
the Below Market Rate requirement for the redevelopment of the former PAMF lands and
the remaining 0.63 acres was purchased with City housing funds for approximately $3
million. Council approved the selection of PAHC as developer of the affordable housing
site in June 2001 after ~ competitive Request for Proposal process. In response to the City’s
selection criteria, PAHC proposed construction of the Oak Court Apartments with 53-units
of very low and low-income, family-oriented rental apartments over underground parking.
The Director of Planning and Community Environment issued a coordinated development
permit for the project in December 2001, after recommendation for approval by the joint
Architectural Review Board and Historic Resources Board (ARB/HRB). On February 4,
2002, Council approved a DDA authorizing the transfer of ownership of the site to PAHC,
subject to a fully deferred payment land loan and funding for a $1.96 million development
loan, contingent upon PAHC securing the other necessary loans and subsidies for
development.
PAHC originally planned to utilize the highly competitive, nine-percent Low-Income
Housing Tax Credit program as the primary subsidy for the project. The tax credit
investment was expected to provide almost $8 million in equity out of the project’s $15
million development budget. PAHC applied in both 2002 tax credit funding rounds, but did
not succeed due to competition from other high scoring projects located within Santa Clara
County. The nine-percent Tax Credit program has annual caps on the funding that can be
awarded to housing projects in the larger counties. In Santa Clara County, there is
consistently more demand for the tax credit than there are funds available.
However, Proposition 46, the Housing Bond Act passed last November, provided $779
million in new funding for the State’s Multifamily Housing Program (MHP) for very low-
income rental housing. PAHC decided to restructure the project’s financing using MHP, a
competitive program, combined with tax-exempt bond-financed construction and
permanent funding and the non-competitive, four-percent tax credit program. PAHC was
successful in this strategy and received an MHP funding award on June 3, 2003. All other
project financing is now either fully committed or will be by the Council agenda date. The
parcel map should be recorded and the building permit for the project issued by the end of
July. The subdivision improvement provisions related to the parcel map have been
CMR:367:03 Page 2 of 9
incorporated into the Amended DDA. Since May, PAHC has been pursuing a fast track
schedule in order to begin construction in early August, in the hope that site excavation will
be completed before the winter rains. Approval of the Amended DDA will allow PAHC to
take title to the land, commence consm~ction and begin to utilize the City development loan
for project costs.
Shared Ramp A~eement and Easement: The apartment project and the adjoining
commercial office project at 250/270 Homer Avenue were designed and approved by the
ARB/HRB and the Council, on appeal, with a shared access ramp, located on the Ramona
Street frontage of the housing site. The ramp provides common vehicular access to each
project’s underground parking. The objective for having shared access was to hnprove
circulation in the area, assist the housing developer with its garage costs and ensure that
sufficient parking would be available for both the housing, the commercial project and
public uses in the neighborhood. In 1999, it was expected that the housing and office
projects would be constructed at about the same time. Although the office project’s
building permit is currently under City review, it is now clear that the housing project will
be built first.
PAHC and the office developer have been negotiating since late 2001 regarding the
calculation and the amount of the ramp payment, the details of the ramp agreement and the
terms of the access easement. Agreement has been reached on the ramp payment amount
and various maintenance matters. The office project developer has agreed to pay $363,691,
as a fixed sum covering all of the design, engineering and construction costs attributable to
the shared ramp area. PAHC has committed to passing the shared ramp payment on to the
City, which will reduce the land loan principal. The office developer is also required to pay
the City a one-time payment equal to the fair market value of the access easement, less the
payment made for the ramp construction costs. The City will complete an appraisal of the
easement to determine its fair market value. To avoid delaying the housing project, the City
will transfer the land to PAHC while retaining the right to grant the ramp access easement
to the office developer. Meetings are ongoing between the City, PAHC and the office
developer to resolve the remaining outstanding issues, so that the shared ramp agreement
and easement can be executed and recorded by September and the intent of the Conditions
of Approval of each project can be met.
DISCUSSION
The DDA has been amended to reflect changes since February 2002 in the Oak Court
project, including the City’s subsequent assumption of ownership of the land. Significant
changes have been made in the other financing sources, which, in turn, required revisions to
the rent and occupancy structure of the project. The primary change was the substitution of
the State’s MHP program for the nine-percent tax credits as discussed in the Background
section above. The terms and provisions of the City’s land loan and sale have not been
materially modified and remain substantially as described in the February 4, 2002 staff
report to Council.
CMR:367:03 Page 3 of 9
Changes In the Ci_ty Development Loan: The City’s $1.96 million development loan will be
provided to the Oak Court partnership and will be repaid from surplus cash flow from the
project’s operations over a 55-year term. However, regular payments on this City loan are
not anticipated for at least the first fifteen to twenty years of the loan. Before any regular
payments will be made on the City development loan, any portion of PAHC’s development
fee that has been deferred to cover development budget shortages will be paid to PAHC,
and the $400,000 loan from the Housing Trust Fund of Santa Clara County (HTF) to the
Oak Court partnership will be repaid in full. However, after completion of construction, a
one-time payment to the City is required of any excess of development funding sources over
actual final costs. This payment would reduce the principal balance of the City loan and
help replenish City housing development funds.
The 2002 DDA, which did not contemplate the use of the MHP loan as a source of
financing for the project, specified that the City development loan would accrue three
percent simple interest ammally and that any unpaid interest would accumulate, increasing
the total debt owed by the project. The combination of the MHP loan (of about $4.5
million), which also accrues three percent interest, and the City loan increases the total
amount of debt owed at the end of the 15-year tax credit compliance period to a level that
would be likely to create a tax liability for the limited parmer investor unless the
accumulation of unpaid interest can be avoided. For this reasOn, PAHC requested that the
City’s loan interest rate be reduced to zero percent. However, there may be years when
there is sufficient cash. flow to pay some or all of the City’s interest, especially if some units
are rented to tenants with Section 8 assistance. To accommodate both possibilities, the City
loan terms were revised to provide that interest will be paid each year up to the maximum
three percent simple interest rate, to the extent that there is sufficient cash flow; however, to
the extent any year’s cash flow is insufficient to pay three percent interest, the unpaid
interest will effectively be forgiven and, thus, will not increase the total amount due on the
City loan. In addition, until the HTF loan has been paid in full, the interest rate on the City
development loan will be zero percent.
In the 2002 DDA, $1.8 million of the City loan funds was to be used only for construction
costs incurred after the City loan closing date and the remaining $160,000 was to be used
for reimbursement of specific infrastructure upgrades, as required by various City
departments. At the time the 2002 DDA was approved, only estimates were available for
those infrastructure improvements. PAHC obtained some relief from these infrastructure
requirements during the building permit review process, but there remains a total of over
$140,000 in such costs. In addition, the parcel map, which had not been identified as a
requirement in 2002, requires other off-site improvement and bonding costs. Furthermore,
PAHC must pay the City documentary transfer tax on the value of the land transaction.
Therefore, to assist PAHC with all these City-imposed costs and to simplify the City loan
administration, the Amended DDA provides that the full $1.96 million be made available
for reimbursement of any verified project costs, including reimbursement to PAHC of
CMR:367:03 Page 4 of 9
predevelopment costs incurred and paid since PAHC was selected as the developer in June
2001.
Rents and Occupancy of the Apartments: In order to succeed in the competition for the
State’s MHP funding, PAHC needed to make significant changes in the rents and resident
income levels from the plan that was presented to Council early last year. The MHP
program emphasizes housing for extremely low-income, family households. Due to the
high competition, only projects serving a substantial number of these households are able to
score enough points to receive a funding award. Because these families have similarly low
incomes throughout the State, the rents and qualifying income limits for a large portion of
the project’s units are required by the MHP program rules to be based on the statewide
median income (SMI), currently $60,300, rather than the Santa Clara County Median
Income (known as the Area Median Income or AMI), currently $105,500. As shown in the
table below, PAHC choose to designate 19 units (37% of the 52 rent restricted units) for
occupancy by these extremely low income families (typically what is labeled "working
poor") in order to gain sufficient points in the MHP funding competition to secure an
award. The remaining apartments will be available for very low-income and low-income
households using the higher County median income formula. The unit mix and rent
categories with current 2003 rents are shown below; actual rents may change somewhat by
the time the project is finished due to changes in the County or State median income.
Oak Court
Rents as a
Percent of
Median Income
35% of SMI
Rents
50% of AMI
Rents
60% of AMI
Rents
Manager’s Unit
in Historic
House
Apartments - Updated Unit Mix
1 Bedroom
Flats
3 at $359
4 at $902
2 at $1,100
2 Bedrooms
and Rental Structure
3 Bedrooms Total
8 at $422 8 at $488 19
(37%)
8 at $1,034 11 at $1,170 23
(44%)
2 at $1,272 6 at $1,444 -10
(19%)
0 0 1
(rent ~ee)
Total Units 9 18 25 53
Notes: SMI means State Median Income - $60,300," AM[ means the HUD median income
for Santa Clara County- $105,500; both as of February 2003
Once the project is fully operational, the use and occupancy of the apartments will be
controlled by multiple regulatory agreements from the various funding sources, with the
CMR:367:03 Page 5 of 9
most restrictive being the 55-year regulatory agreement from the MHP program, and the
City Regulatory Agreement on the land and the housing. The City’s Regulatory
Agreement, to be recorded against both the land and the apartments, is attached to this
report for Council. review and action. This agreement will be recorded concurrently with
the sale of the land to PAHC. As the other funding entities provide their financing to the
project, the City will need to subordinate its loans and Regulatory Agreement to the loans
and regulatory agreements of those entities. Staff is requesting that the City Manager be
authorized by Council to review and approve each of these subordination agreements at the
appropriate time in order to avoid any delay in the progress of construction or the closing of
the permanent funding after completion.
Sale of the Pine Street House: Included in the provisions of the 2002 DDA was an
agreement on the sale of the PAHC-owned single-family house located at 1259 Pine Street
near Rinconada Park and the use of the net proceeds for Oak Court project costs. This
property has been used for shared living with two to three small households since 1993.
The house is a modest 3 bedroom, 2-bath home on an 8,100 square foot lot. PAHC
proposed selling the house on the open market and using the net sales proceeds to help fund
the Oak Court project, as part of its RFP submittal. While low mortgage rates continue to
bolster home sales, the net proceeds today (after a sales commission, closing fees, and
payoff of the $28,000 existing bank mortgage) would be expected to be in the $700,000 to
$800,000 range. Now that there is sufficient funding to complete Oak Court without the
sale of the Pine Street house, there is no need to sell the house at this time. PAHC owns
the house subject to a 1980 recorded agreement with the City restricting its use as very low-
income rental housing. Staff believes that the Pine Street house is a valuable local housing
asset and that its sale should be discussed further with PAHC. It is possible that an
opportunity could arise in the future when the sales proceeds from the property could be
effectively utilized by PAHC and the City to help carry out a high priority affordable
housing project. In the meantime, PAHC will continue the present use as shared rental
housing. All references to the sale of the Pine Street house were deleted from the
Amended DDA.
RESOURCE IMPACT
The funds for the City’s $1.96 million loan for development costs were appropriated from
the Commercial Housing In-Lieu Fund (Comrnercial Fund) in a Budget Amendment
Ordinance (BAO) approved by Council on February 4, 2002. The $3,008,845 expended by
the City in July 2000 for the purchase price of the option on the housing site was also taken
from the Commercial Fund. Additionally, by separate BAOs, the City appropriated and
expended $475,000 from the Commercial Fund to reimburse SummerHill for land clearance
costs and $143,000 for land holding expenses. Therefore, the total expenditures from the
Commercial Fund for this project will total:
$1,960,000 Development Loan
$3,008,845 Land Purchase Actual Cost
CMR:367:03 Page 6 of 9
The financing package assembled by PAHC for development of the apartments is described
below. It includes costs funded directly by the City (figures are rounded, and some figures
are still estimates):
Sources of Funds for Development:
¯Cal HFA- Ist Mortgage (30-year, fully amortized, estimated 5.4% interest)
¯State Housing & Community Development- MHP Loan
(Deferred loan; 3% simple interest)
¯Investor equity 4% - Low Income Housing Tax Credits
¯Affordable Housing Program (Deferred loan, no payments & $5,000 grant)
¯Housing Trust of Santa Clara County (deferred loan; 2% simple interest)
¯PANe (Sponsor Equity)
¯PANe (Deferred Developer Fee)
¯City of Palo Alto - Development Loan (deferred payment)
$2,300,000.
$4,555,100
$5,621,900
$270,000
$400,000
$577,500
$18,700
$1,960,000
Sub-total PAHC’s Development Sources of Funds
Per Unit (53 units): $296,287
$15,703,200
Cit-v of Palo Alto Assistance for Land:
¯Land Loan (Value of 1.23 acre site - donated plus purchased land)
¯Demolition, House Removal (paid Feb. 2001)
¯Property Holding & Tree Relocation
Sub-total of City Land Related Assistance:
$5,874,000
$475,000
$143,000
$6,492,000
Total Project Funding
Total Funding Per Unit (53 units): $418,777
$22,195,200
There are several components and features of this project that contribute to its relatively
high costs, both in terms of the cost per unit (with and without the land value) and the total
amount of the City’s subsidies. The primary cost factors are: high land values;
underground parking with mechanical ventilation; separate buildings with special
architectural features for neighborhood compatibility; relocation and preservation of the
historic house; payment of prevailing wages as now required by State law; and compliance
with the same City development standards and code provisions that apply to market-rate
housing. A summary development budget is attached this report as Attachment C.
Without considering the land contribution, the City’s development loan of $1.96 million is
comparable to other City subsidies for recent affordable housing projects such as Alma
Place and the Sheridan Apartments. Even with the City’s direct, out-of-pocket
expenditures for land included, the total direct City subsidy cost of $105,400 per unit is still
within the range of City subsidies for previous housing projects. On the whole, staff
believes that the development costs, financing package and City funding is reasonable.
CMR:367:03 Page 7 of 9
POLICY IMPLICATIONS
The actions recommended in this report implement adopted City Housing Element policies
and previous Council actions, including City acquisition of the site for affordable housing
purposes, selection of PAHC as the developer, and approval of the DDA in February 2002.
NEXT STEPS
PAHC is continuing to refine the development budget. PAHC is responsible for any costs
in excess of the budget contingency and would loan funds from its developer to cover any
shortfall. The bidding process for subcontractor work is currently underway. Once the
subcontractor bids are finalized, then the construction budget, contingencies and the
construction loan can be set. Negotiations are also in process with the tax credit investor
regarding the terms, timing and final amount of the investor’s equity contribution. Even
though the tax credit equity is much less with this new financing structure, it is still the
largest single funding source. Staff will be reviewing the development budget and funding
sources periodically, including just prior to transferring the land and closing the City
development loan, during construction and after completion. PAHC must do a formal audit
of all uses and sources of development funds for tax credit purposes; staff will also review
that document. After completion and occupancy, should the final project funding exceed
documented costs, the excess must be paid to the City as a one-time principal payment on
the City development loan, as mentioned earlier in this report.
The 2002 DDA’s schedule of performance (Attachment C to this report) has been revised to
reflect the approval dates of the actual final financing package. It also shows key tasks and
milestones through construction, rent-up and the closing of the permanent financing as
currently projected. Ground breaking will take place in September and occupancy is
planned for February 2005.
ENVIRONMENTAL REVIEW
Approval of the Amended DDA and other financing documents for the Oak Court project
are not subject to the California Environmental Quality Act. The proposed use and
development of the Oak Court Apartments was evaluated as part of the certified
Environmental Impact Report (EIR) for the South of Forest Area (SOFA) Plan - Phase I.
An Addendum to the certified EIR was prepared to clarify and confirm conclusions on site-
specific issues that had been addressed in the EIR. The Architectural Review
Board!Historic Resources Board considered the Addendum to the EIR as part of its review
and approval of the project.
ATTACHMENTS
A. Amended and Restated Disposition and Development Agreement with attached
Regulatory Agreement, Promissory Notes, Deeds of Trust
B.Schedule of Performance
C.Summary Development Budget and Sources of Funds
CMR:367:03 Page 8 of 9
PREPARED BY:
Catherine Siegel, Housing
REVIEWED BY:
’ Director of Planning and Community Environment
CITY MANAGER APPROVAL:
Manager
cc:Palo Alto Housing Corporation
CMR:367:03 Page 9 of 9
Attachment A
AMENDED AND RESTATED DISPOSITION AND DEVELOPMENT AGREEMENT
FOR OAK COURT APARTMENTS
THIS AMENDED AND RESTATED DISPOSITION AND DEVELOPMENT
AGREEMENT FOR OAK COURT APARTMENTS ("Agreement"), dated as of July __., 2003,
is made by and among the CITY OF PALO ALTO, a chartered California municipal corporation
(the "City"), PALO ALTO HOUSING CORPORATION, a California nonprofit public benefit
corporation ("PAHC"), and OAK COURT APARTMENTS, L.P., a California limited
partnership (the "Developer").
RECITALS
This Agreement is entered into with reference to the following facts:
A. City is the fee title owner of a 1.23-acre property (the "Property", as hereafter
defined) located on the north side of Channing Avenue between Bryant and Ramona Streets in
the South of Forest Area ("SOFA") of the City; under the SOFA Coordinated Area Plan ("SOFA
CAP"), the Property is to be developed with below-market rate housing.
B. The City issued its Request for Proposals Number 132621 ("RFP") on February
15, 2001, seeking proposals for development of the Property in accordance with the SOFA CAP.
PAHC responded to the RFP with a proposal (the "Proposal"), dated March 20, 2001, for a 53-
unit project designed for low- and very low- income families with children (the "Project", as
hereafter defined), and was selected by the City on June 11, 2001 asthe developer for the
Project. The sole general partner of Developer is PAHC Sheridan Apartments, Inc., a 501c-3
corporation that is an affiliate of PAHC.
C. The principal objective hereof is to increase the affordable rental housing
inventory within the City of Palo Alto available to households who are of low or very low
income who but for this program might not be able to obtain rental housing at an affordable cost,
and to reach that objective the parties hereto will require an extraordinary level of cooperation
with each other, which level of effort the parties hereto covenant to provide.
D. To accomplish the foregoing objective, the City has acquired title to the Property
as an accommodation to PAHC and Developer and is willing to sell the Property to PAHC, and
in consideration therefor PAHC and the Developer are willing to (i) acquire title to the Property;
(ii) construct the Project on the Property; (iii) operate the Project in accordance with the terms
and conditions stated in this Agreement and the instruments to be executed hereunder; and (iv)
secure the performance of PAHC’s and the Developer’s obligations as provided in this
Agreement.
E. PAHC received commitments (i) for construction and permanent financing from
the California Housing Finance Agency ("Cal HFA") on May ! 5, 2003 funded by an allocation
of tax-exempt bond authority that was awarded on July 9, 2003, (ii) for permanent financing
from the Multi-Family Housing Program Funds of the California Department of Housing and
Commmnity Development ("MHP") on June 3, 2003, (iii) for the AHP Loan and Grant from
LA1 515678v7
Borel Bank on December 14, 2001, and (iv) for a loan from the Housing Trust Fund of Santa
Clara County (the "HTF Loan") on January 28, 2002.
F. PAHC and the Developer have applied for, and expect to obtain by July 23, 2003,
an allocation of the four percent Low Income Housing Tax Credits from the California Tax
Credit Allocation Committee and to sell such tax credits to an equity investor, which will
become the limited parmer the Developer, in order to provide additional financing for the
development of the Project.
G. " Construction of the Improvements (as hereinafter defined) constituting the Project
pursuant to this Agreement is in the best interests of the City, and the health, safety and welfare
of the residents and taxpayers of the City, and is in accord with the public purposes and
provisions of applicable state and local laws.
H. A material inducement to the City to enter into this Agreement is the agreement
by P_a_t-!C and the Deve!oper to construct the Improvements within a limited period of time, and
the City would be unwilling to enter into this Agreement in the absence of an enforceable
commitment by PAHC and the Developer to construct the Improvements within a limited period
of time.
I. City, PAHC and Developer entered into a Disposition and Development
Agreement for the Project and the Property dated as of February 4, 2002 (the "2002 DDA"), and
desire to, and hereby do, amend and restate in full the terms and conditions of the 2002 DDA.
NOW, THEREFORE, the Parties agree as follows:
1.DEFINITIONS.
The following terms as used in this Agreement shall have the meanings given unless
expressly provided to the contrary:
"Agreement" means this Amended and Restated Disposition and Development
Agreement.
"AHP Loan" means a loan under the Federal Home Loan Bank of San Francisco’s
Affordable Housing Program, in the amount of $265,000 (or such other amount as may be
approved by the City), and the terms of which shall include no accrual of interest if the Property
complies with AHP program standards and such other provisions as may be approved by the City
in the City’s sole discretion. The AHP Loan shall be a construction loan that automatically
converts to a permanent loan.
"Bond Regulatory Agreement" means a regulatory agreement meeting the requirements
of Cai i-I~A.
"Cal HFA" means the California Housing Finance Agency.
"Cash Expenses" means for any period the sum of the following expenses reasonably
incurred and actually paid during that period:
2
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(i) all expenses actually and reasonably incurred by the Developer in owning,
operating, maintaining and repairing the Project, including without limitation taxes, insurance,
and maintenance expenses for the Project, reasonable and customary accounting and legal fees,
advertising expenses, supplies, California limited partnership franchise tax, license and permit
fees, and utility charges;
(ii) Ground Lease rent, which shall not exceed One Dollar ($1.00) per year;
(iii) contributions to a Replacement Reserves account of $18,550 annually or as
required by MHP;
(iv)Debt Service on the Primary Loan;
(v)Debt Service on the MHP Loan;
(vi) a property management fee -which shall not exceed $34,980 per year (which
maximum amount may increase annually at a rate not to exceed four percent (4%) per year,
commencing in the second full year that such a fee is charged), or such other amount as may
from time to time be approved by the City in the City’s sole discretion;
(vii) a partnership management fee which shall not exceed $25,000 per year (which
maximum amount may increase annually at a rate not to exceed the increase in the rate of the
Consumer Price Index for the San Francisco-Oakland-San Jose area, commencing in the second
full year that such a fee is charged), or such greater amount as may be approved by the City in
the City’s sole discretion, and which shall not be payable with respect to any year during which
either (A) PAHC and its affiliates own 50% or more of the interests in the capital of Developer,
or (B) any portion of the PAHC Developer Fee remains unpaid; and
(viii) for so long as LP Investor is a limited parmer of Developer, an asset management
fee payable to the LP Investor, or an affiliate of the LP Investor, which shall not exceed $5,000
per year (which maximum amount may increase annually at a rate not to exceed three percent
(3%) per year, commencing in the second full year that such a fee is charged), or such greater
amount as may be approved by the City in the City’ s sole discretion;
provided, however, that Cash Expenses shall not include the following items (or, to the extent
that such items have been included in Cash Expenses, the following items shall be subtracted
out; for example, if funds are withdrawn from operating Reserves and spent on operating
expenses, either those expenses would not be included in Cash Expenses or those expenses
would be offset by a deduction for the amount withdrawn from Reserves):
(i) non-cash expenses, including without limitation, depreciation,
(ii) payments made from insurance or condemnation proceeds or any costs or
expenses paid or reimbursed by others,
(iii) funds expended from Reserves,
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(iv) the initial cost of constructing the Improvements or any expansion or
replacements thereof,
(v) any penalties or interest resulting from the Developer’s failure to pay when due
any sums that the Developer is obligated to pay to third parties (e.g., penalties and interest for
late payment of real property taxes).
"Certificate of Completion" means a certificate to be provided by the City to the
Developer upon satisfactory completion of the Improvements on the Property.
"City" means the City of Palo Alto, California.
"City’s Proportionate Share of Residual Receipts" shall mean the product of the mount
of Kesidual Receipts (if any) multiplied by a fraction, the numerator of which is the orig-inal
principa! amount of the City Development Loan, and the denominator of which is the sum of the
original principal amounts of the MHP Loan, the City Development Loan, and, until such time as
the HTF Loan has been repaid in full, the HTF Loan.
"Closing" has the meaning defined in Section 2.1.2.
"Closing Date" means the date upon which PAHC acquires fee title to the Property.
"Construction Contract" has the meaning defined in Section 3.2.5.
"Debt Service’~ means the total of the payments of principal and interest due and actually
made by the Developer during a period on a specified loan, and does not include prepayments of
principal or interest.
"Default" has the meaning defined in Section 7.1.
"Developer" means Oak Court Apartments, L.P., a California limited partnership of
which PAHC Sheridan Apartments, Inc., a 501c-3 corporation that is an affiliate of and
controlled by PAHC, is the sole general partner
"Development Deed of Trust" has the meaning defined in Section 2.2.3.
"Development Loan" has the memRng defined in Section 2.2.3
"Development Note" has the meaning defmed in Section 2.2.3.
"Environmental Laws" means all federal, state, local, or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, or requirements of any government authority
regulating, relating to, or imposing liabili~ or standards of conduct concerning any Hazardous
Material, or pertaining to occupational health or industrial hygiene (and only to the extent that
the occupational health or industrial hy~ene laws, ordinances, or regulations relate to Hazardous
Materials on, under, or about the Project), occupational or environmental conditions on, under, or
about the Project, as now or may at any later time be in effect, including vdthout limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA)
"LAI 515678v7
4
[42 USCS §§ 9601 et seq.]; the Resource Conservation and Recovery Act of 1976 (RCRA) [42
USCS §§ 6901 et seq.]; the Clean Water Act, also -known as the Federal Water Pollution Contro!
Act (FWPCA) [33 USCS §§ 1251 et seq.]; the Toxic Substances Control Act (TSCA) [15 USCS
§§ 2601 et seq. ]; the Hazardous Materials Transportation Act (HMTA) [49 USCS §§ 1801 et
seq.]; the Insecticide, Fungicide, Rodenticide Act [7 USCS §§ 136 et seq.]; the Superfund
Amendments and Reauthorization Act [42 USCS §§ 6901 et seq.]; the Clean Air Act [42 USCS
§§ 7401 et seq.]; the Safe Drinking Water Act [42 USCS §§ 300f et seq.]; the Solid Waste
Disposal Act [42 USCS §§ 6901 et seq.]; the Surface Mining Control and Reclamation Act [30
USCS §§ 1201 et seq.]; the Emergency Planning and Community Right to Know Act [42 USCS
§§11001 et seq.]; the Occupational Safety and Health Act [29 USCS §§ 655 and 657]; the
California Underground Storage of Hazardous Substances Act [H & S C §§ 25280 et seq.]; the
California Hazardous Substances Account Act [H & S C §§ 25300 et seq.]; the California
Hazardous Waste Control Act [H & S C §§ 25100 et seq.]; the California Safe Drinking Water
and Toxic Enforcement Act [H & S C §§ 24249.5 et seq.]; and the Porter-Cologne Water Quality
Act [Water Code §§ 13000 et seq.], together with any amendments of or regulations promulgated
under the statutes cited above and any other federai, state, or local law, statute, ordinance, or
regulation now in effect or later enacted that pertains to occupational health or industrial
hygiene, and only to the extent that the occupational health or industrial hygiene laws,
ordinances, or regulations relate to Hazardous Materials on, under, or about the Project, or the
regulation or protection of the environment, including ambient air, soil, soil vapor, groundwater,
surface water, or land use.
"Escrow" means the escrow for the purchase and sale of the Property created under
Section 2.1.
"Escrow Holder, means First American Title Guaranty Company, or such other title or
escrow company as may be jointly selected by the City and Developer.
"Fiscal Year" means a calendar year during the term of the Regulatory Agreement;
provided, however, the first Fiscal Year shal! commence on the effective date of that agreement
and shall end on the next following December 31, and the last Fiscal Year shall be for the period
from January 1 of that year through the endofthe term of that agreement.
"General Contractor" has the meaning defined in Section 2.5.5.
"Gross Income" means all revenues or income collected by the Developer or its affiliates,
successors or assigns from the Project, including but not limited to sums paid by all subtenants,
licensees and concessionaires, but excluding payments among Developer, PAHC and their
affiliates. Gross Income shall be determined on a cash basis during any pertinent or applicable
period, but shall not include security deposits until and unless such security deposits have been
forfeited by subtenants. Gross Income also includes laundry income (except such portion
other services at the Project. Gross Income shall not, except for loss of rent insurance proceeds
which shall be included, include insurance or condemnation proceeds, or the proceeds from any
sale or refinancing of the Project or any part thereof.
"Ground Lease" has the meaning defined in Section 2.2.2.
5
LA1 51567g’~7
"Hazardous Materials" includes without limitation:
(i) Those substances included within the definitions of hazardous substance,
hazardous waste, hazardous material, toxic substance, solid waste, or pollutant or contaminant in
CERCLA, RCRA, TSCA, HMTA, or under any other Environmental Law;
(ii) Those substances listed in the United States Department of Transportation (DOT)
Table 49 [CFR § 172.101], or by the Environmental Protection City (EPA), or any successor
City, as hazardous substances [40 CFR _Part 302];
(iii) Other substances, materials, and wastes that are or become regmlated or classified
as hazardous or toxic under federal, state, or local laws or regulations; and
(iv) Any material, waste, or substance that is (1) a petroleum or refined petroleum
product, (2) asbestos, (3) polychlorinated biphenyl, (4) designated as a hazardous substance
pursuant to 33 USCS § 1321 or listed pursuant to 33 USCS § i317, (5) a flammable explosive, or
(6) a radioactive material.
"HTF Loan" means a loan from the Housing Trust Fund of Santa Clara County, in the
amount of $400,000 (or such other anount as may- be approved by the City), bearing interest at
the maximum rate of 2% per annum, having a term of thirty (30) years, and repayable solely
from Residual Receipts;
"Improvements" means the improvements to be constructed by the Developer pursuant to
this A~eement.
"Land Deed of Trust" has the meaning defmed in Section 2.2.1.
"Land Note" has the meaning defined in Section 2.2.1.
"LP Investor" means the limited partner of Developer, which shall not be an affiliate of
PAHC.
"MHP" means the Multi-Family Housing Pro~an~ as contained in the California Code of
Regulations (CCR) Title 25, Division 1, Chapter 7, Subchapter 4, Sections 7300 - 7336, as
amended from time to time, and a&ninistered by the California Department of Housing and
Community Development.
"Mt-~ Loan" means a loan to be made to Developer by MHP as lender following the
completion of the Improvements in principal amount of approximately $4,500,000 having a term
of 55 years, an interest rate not to exceed 3% simple interest, and annual payments of interest
only equal to 0.42% of the principal balance during the first 30 years of the loan term, and
~’ .....~’ .......’ "- "- - ’ ......~ ~-’ing dingol uitcrcbt accra on the outstanLIIUI~IL~I ~Lld.l LU LIIU l~bb~l Ol kLt)the LUllIZ’II a.i]2LO’t]llt
principal loan amount, or (b) MHP’s annual monitoring costs, plus (b) to the extent there are
Residual Receipts, an amount equal to MHP’s Proportionate Share of Residual Receipts. Unpaid
interest shall accrue, uncompounded, until payable, together with principal, at maturity; the MHP
Loan will be secured by a second priority lien on the Improvements and the leasehold interest
LA1 515678v7
6
under the Ground Lease, and will contain such other terms and conditions as are required by the
Lender and approved by the City.
"MHP Regulatory Agreement" means a regulatory agreement meeting the requirements
of MHP to be recorded after completion of construction against the Improvements and the
leasehold interest under the Ground Lease.
"MHP’s Proportionate Share of Residual Receipts" shall mean the product of the amount
of Residual Receipts (if any) multiplied by a fraction, the numerator of which is the original
principal amount of the MHP Loan, and the denominator of which is the sum of the original
principal amounts of the MHP Loan, the City Development Loan, and, until such time as the
HTF Loan has been repaid in full, the HTF Loan.
"Mortgagee" means a mortgagee of a mortgage, beneficiary of a deed of trust, or the
secured party under any other financing device encumbering the Property or the Project.
"Operating Reserve" means a reserve fund, established by Developer with an initial
deposit of not less than $59,400, held in a segregated, interest bearing account for the purpose of
paying operating expenses for any period in which there is insufficient rental income to cover
expenses of the Property and the Improvements.
"PAHC" means Palo Alto Housing Corporation, a California nonprofit public benefit
corporation.
"PAHC Developer Fee" has the meaning defined in Section 2.5.1 (including but not
limited to accrued interest).
"PAHC Sheridan" means PAHC Sheridan Apartments, Inc, the general partner of
Developer.
"Party" means any party to this Agreement. The "Parties" shall be all parties to this
Agreement.
"Permanent Loan Closing" shall mean the date on which the MHP Loan and the HTF
Loan are funded, and the principal balance of the Primary Loan is paid downand converted to a
permanent loan.
"Plans and Specifications" means the plans and specifications for the Project, as hereafter
approved by the City in its sole and absolute discretion.
"Primary Loan" means the construction loan or the permanent loan (or a construction
loan that automatically converts to a permanent loan) for the purpose of financing the cost of
construcung me trnprm emems; therrlmary"-" ....... ~uatl ~nm~’ -" be secured by a first priority deed of
trust, and shall include the following terms and conditions:
If a construction loan:
7
LA1 515~t78v7
the original principal amount (not including interest that may accrue
thereon) shall not exceed the sum of $11,500,000, or such ~eater amount as may be approved by
the City;
interest shall accrue thereon at an adjustable rate of interest that does not
exceed a commercially reasonable rate, and loan fees and costs shall be commercially.
reasonable;
City;
the lender shall be Cal HFA, or an institutional lender approved by the
the term of the construction loan shall be for at least twelve (12) months
(exclusive of the Lender’s fight to accelerate the maturity in the event of a default);
by the City.
such other terms and conditions as are required by the lender and approved
If a permanent loan:
the principal amount shall be $_,~00,000 (provided, however, that any
~eater or lesser amount must be approved by the City);
City;
the lender shall be Cal HFA, or an institutional lender approved by the
the original principal balance (exclusive of any interest accrued thereon),
plus the original principal balance of the MHP Loan, shall be not more than 95% of the fair
market value of the Improvements as determined by the lender making the permanent loan;
interest shall accrue thereon at a fixed rate of 5.4% per annum or less, and
subject to a loan fee of 0.5% and other costs as normally charged by Cal HFA;
the net operating income of the Property, as defined by the lender making
the permanent loan, will be equal to at least 1.05 times the scheduled debt service of the
permanent loan, unless such loan is not available without the payment of fees, or points or
without the establishment of Reserves or the delivery of guarantees or other security other than
such property, in which event such lower debt service coverage ratio, as pelrnitted by the lender
making the loan, may be used;
the term of the permanent loan shall be for thirty (30) years (exclusive of
the lender’s fight to accelerate the maturity in the event of a default);
30 years;
such additional terms and conditions as are required by the lender and
approved by the City.
8
LA1 515678v7
"Project" means the Improvements to be constructed on the Property in accordance with
the Plans and Specifications, including 53 apartment units, together with ancillary improvements,
to be operated as below-market housing as provided herein.
"Property" means the parcel of real property located at 845 Ramona Street, Palo Alto,
California, and legally described in Exhibit A, attached hereto and incorporated by reference
herein.
"Regulatory Agreement" means an agreement executed by PAHC and the Developer in
favor of the City, on terms and conditions acceptable to City, restricting the leasing of the Project
and the Units therein to persons or households of low, very low or extremely low income. The
Regulatory Agreement shall also address such matters concerning the operation and maintenance
of the Project as the City shall reasonably require..
"Reserve" means a reserve fund, held in a segregated interest-bearing trust account, as
.... be ~,,~’~ ~’,~ ~ ~ City; ~ a Mortgagee ~,~ ~ !oan ~11p~,- ~, p~,,~ty ,,~ ~ho
Development Deed of Trust (suN ect to ~e Ci~’s approval, wNch approvN shN1 not
~e~onably be ~eld); ~&or (iii) Developer’s p~ersNp ageement (suNect to Ne Ci~’s
approval, wNch approval shN1 not ~e~onably be ~eld).
"Residual Receipts" means for any period the amount of Gross Income for that period,
less Cash Expenses for that period; provided, however, that for so long as the MHP Loan is
outstanding, Residual Receipts will be equal to "Net Cash Flow," determined in accordance with
the MI-IP Regulatory A~eement.
"Schedule of Performance" means the schedule attached hereto as Exhibit B to this
Agreement, which is incorporated herein by this reference. The Schedule of Performance is
subject to the force majeure provisions of Section 8.10 hereof.
"Shared Ramp Agreement" means an agreement among the owner and/or developer of
the adjacent property located at 250-270 Homer Street ("Adjacent Owner"), PAHC and the City
pursuant to which Adj acent Owner agrees to pay the Shared Ramp Payment to PAHC as a
contribution toward the cost of constructing certain improvements that are intended to benefit
250-270 Homer and the Property.
"Shared Ramp Payment" shall mean $363,691, or such other amount provided for in the
Shared Ramp Agreement and approved by the City.
"Site Plans?’ means the preliminary site plan for the Project, as approved, subject to
conditions, by the City’s Director of Planning and Community Development on December 4,
200!.
"Subdivision Improvements Agreement" means the Agreement between Subdivider and
City of Palo Alto under Provisions of Title 21 of the Palo Alto Municipal Code entered into in
connection with the approval and recording of the final subdivision map for the Property.
"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.
9
Lil 515678v7
"TCAC Regulatory Agreement" means a regmlatory agreement meeting the requirements
of TCAC.
"Unit" means one of the apartment units in the Improvements consmacted on the
Property.
"Title Company" shall mean First American Title Guaranty Company, or such other title
insurance company as may be jointly selected by the City and Developer.
2.SALE OF THE PROPERTY
2.1.Escrow.
2.1.1. Openin~ of Escrow. The Parties shall enter into an Escrow w4th
the Escrow Holder in order to consummate the sale of the Property by City to PAHC and the
purchase of the Property from the City by PAHC; PAHC shall acquire title to the Property
subject to the Regulatory Agreement and the Land Deed of Trust. This Agreement shall serve as
escrow instructions for the Escrow upon acceptance by Escrow Holder of the instructions
contained herein. The Escrow Holder is authorized to act under this Agreement, and to carry out
its duties as the Escrow Holder hereunder.
2.1.2. Close of Escrow. "Close of Escrow" or "Closing" means the date
Escrow Holder causes the deed conveying the Property to PAHC, the Regulatory Agreement and
the Land Deed of Trust to be recorded in the Official Records of the County of Santa Clara.
Escrow shall close upon satisfaction of all conditions precedent set forth in Section 2.5, below.
Any Party shall have the right to terminate this Agreement in the event of Developer’s failure to
obtain all financing and regulatory approvals necessary for the Project prior to the dates specified
therefor in the Schedule of Performance, or if the Closing has not occurred prior to December 31,
_00~.
2.1.3. Other Documents. The Parties shall execute such reasonable and
customary documents, including supplemental escrow instructions, as required to implement the
intent of this Agreement. The City Manager, or the City Manager’s desiguee, is authorized to
execute any such documents, and to give any approvals under, or waivers of, provisions of this
Article 2 on behalf of City.
2.2.Propem, Sales Price and City Loans.
2.2.1. The purchase price for the Property shall be $5,874,000, payable in
the form of PAHC’S promissory note (the "Land Note") in form substantially identical to Exhibit
D attached, and secured by a deed of trust (the "Land Deed of Trust"), in form substantially
identical to Exhibit E attached, encumbering the Property, and other security instruments in the
form and substance required by the City. The Land Note and/or the Land Deed of Trust sha!l
include without limitation the following provisions: (i) interest on the unpaid balance of the Land
Note from the Closing until repaid shall accrue at the rate of five percent (5%) per annum,
compounded annually; (ii) mandatory principal payments equal to the Shared Ramp Payments
received by PAHC pursuant to the Shared Ramp Agreement; (iii) the unpaid balance shall be due
on sale or further encumbrance of the land; (iv) the unpaid balance shall be due and payable
LA1 515678v7
10
upon expiration or earlier termination of the initial term of the Regulatory Agreement; provided,
however, that if PAHC exercises its option to extend the Regulatory Agreement, the maturity of
the. Land Note shall be similarly extended, all accrued interest shall be added to principal, equal
monthly payments in an amount sufficient to fully amortize the Land Note over the remaining
term of the Land Note shall be due on the last day of each year thereafter, and each such payment
shall be waived (and credited against the Land Note as though it had been paid) if PAHC is not
in breach of the Regulatory Agreement and the Improvements are being operated in compliance
with the Regulatory Agreement on the date the payment becomes due; and (v) the Land Deed of
Trust shall secure both the Land Note and the obligations of PAHC under this Agreement and
under the Regulatory Agreement.
2.2.2. Concurrently with the Close of Escrow, PAHC and the Developer
shall enter into a seventy-five (75) year ground lease (the "Ground Lease") of the Property, the
form and content of which Ground Lease shal! have been approved by the City, and the
Developer shall execute the Regulatory Agreement.
2.2.3. Concurrently with the Close of Escrow, the City shall lend up to
$1,960,000 to the Developer (the "Development Loan"), which loan shall be evidenced by
Deve!oper’s promissory note (the "Development Note") in form substantially identical to Exhibit
G attached, and secured by a deed of trust (the "Development Deed of Trust"), in form
substantially identical to Exhibit H attached, encumbering Developer’s leasehold interest and the
Project, and other security instruments in the form and substance required by the City. The
Development Note and/or the Development Deed of Trust shall include without limitation
provisions for (i) a one-time principal payment equal to the amount, if any, by which the funds
available for constructing the Project (including but not limited to Developer’s equity, loans, and
grants) exceed the Developer’s audited actual total development costs of the Project, to be paid
within twelve months after issuance of the f’mal certificate of occupancy or equivalent City
approval fol!owing the completion of construction of the Project; (ii) subsequent payments prior
to maturity shall be deferred until satisfaction of the PAHC Developer Fee and payment in full of
principal and accrued interest on the HTF loan; (iii) simple interest on the unpaid balance of the
Development Note from the Closing (or until later disbursed), equal to City’s Proportionate Share
of Residual Receipts (except that, to the extent that City’s Proportionate Share of Residual
Receipts for any year is greater than simple interest on the outstanding principal balance at the
rate of 3% per annum, interest will be limited to 3% per annum and such excess over 3% simple
interest will be applied to principal); (iv) the unpaid balance shall be due and payable upon
expiration or earlier termination of the term of the Regulatory Agreement, or upon sale,
assignment, sublease or further encumbrance of the Developer’s interest in the Property (other
than the Primary Loan, the MHP Loan, the AHP Loan, the HTF Loan, occupancy subleases to
qualified residents and transfers between Developer and PAHC that do not result in a merger of
the fee and leasehold estates); and (v) the Development Deed of Trust shal! secure both the
Development Note and the obligations of Developer under this Agreement and the Regulatory
Agreement. The proceeds of the Development Loan shall be disbursed in accordance with
Section 5 of this Agreement.
2.2.4. Concurrently with the funding of the MHP Loan, or at such other
time as may be reasonably required, the City shall subordinate the lien of the Development Deed
of Trust to the TCAC Regulatory Agreement, the MHP Regulatory Agreement, the Bond
11
LA1 515678v7
Regulatory A~eement, the Primary Loan, the MHP Loan, and the AHP Loan, subject in each
case to the City’s approval of the form of subordination document, which approval will not be
unreasonably withheld. It will be a condition to any subordination by City of the lien of the
Development Deed of Trust in connection with the Permanent Loan Closing that the
Improvements have been constructed in accordance with the provisions of this Agreement and
the development budget approved by City (including but not limited to the making of the
budgeted capital contribution by PAHC Sheridan and compliance with the limitations on
payment of the PAHC Development Fee, both as set forth in Section 2.5.1 below).
2.3.Condition of Title: Title Insurance.
2.3.1. At the Close of Escrow, PAHC shall receive title to the Property
subject and subordinate to the title exceptions approved by the City and PAHC, plus (a) the
Regulatory Agreement; (b) the Ground Lease; and (c) the Land Deed of Trust.
9 q 9 At tho (2.1n~ n~e F.~e.rnW, P.~_HC shal! lease the PropeW to
Developer at an armual rent that does not exceed One Dollar ($1.00) per year, pursuant to the
Ground Lease; the leasehold interest of Developer under the Ground Lease shall be subject and
subordinate to the tide exceptions approved by the Parties, plus (a) the Regulatory Agreement;
and (b) the Development Deed of Trust.
2.3.3. At the Closing, Escrow Holder shall cause to be issued to the City
and the Developer, at the Developer’s sole cost and expense, an ALTA Extended Coverage Joint
Protection Policy of Title Insurance, issued by Title Company (or another mutually-acceptable
title company), insuring the interestsof the Parties in an aggregate amount not less than
$7,834,000, insuring that title is free and clear of all liens, easements, covenants, conditions,
restrictions, and other encumbrances of record, except as permitted in Section 2.3.1, and insuring
in favor of the City the recorded priority of the Regulatory Agreement, the Land Deed of Trust
and the Development Deed of Trust, together with such endorsements as the Developer shall
reasonably request.
2.4. Escrow and Title Char~es. The Developer shall be solely responsible for
all title insurance premiums, recording fees, documentary and local transfer taxes, and escrow
fees and charges arising hereunder.
2.5. Conditions to Closing. The rights and obligations of the Parties to close
the Escrow are subject to the satisfaction (or waiver by the City) of each of the following
conditions:
2.5.1. The Developer shall have submitted to the City, and the City shall
have approved a final development budget including a detailed construction budget and a
schedule of values/cost breakdown reasonably acceptable to the City, and a construction
schedule satisfactory to the City, showing estimated dates of the initiation and completion of
each major phase of the construction of the Project. The development budget may provide for a
developer’s fee or a similar fee or fees (the "PAHC Developer Fee") so long as (i) the aggregate
fees do not exceed $1,200,000; (ii) not more than $500,000 of such fees shal! be payable prior to
the Permanent Loan Closing; (iii) PAHC Sheridan shall contribute not less than $577,500 to the
LA1 515678v7
12
capital of the Partnership not later than at the time of the Permanent Loan Closing; (iv) the entire
amount of such fees in excess of the amount contributed by PAHC Sheridan to the capital of the
Partnership shall be deferred in order to fund any shortfall in the amount of cash available to pay
all costs of development and pay off the construction loan (due to increases in development costs
or shortfalls in budgeted financing, or otherwise); and (v) any portion of the PAHC Developer
Fee deferred past the date that the permanent Primary Loan is funded may bear interest at the
rate of 3% per annum simple interest and shall be payable from Residual Receipts available prior
to payments of the Partnership Management Fee and payments due on the HTF Loan and on the
Development Note. Notwithstanding anything in this Agreement to the contrary, PAHC in its
sole discretion may contribute an equivalent amount of additional capital to the Developer in lieu
of deferring any part of the PAHC Developer Fee.
2.5.2. As more fully described in Section 5.1, Developer shall have
obtained the City’s approval of the proposed development budget and sources of construction
and !ong-term financing for the Project, which financing shall include at least the following:
2.5.2.1 Developer shall have received a reservation of low-income
housing tax credits, and shall have entered into a binding agreement to transfer such tax
credits to an equity investors in the Project, or if an agreement has not been executed,
Developer shal! demonstrate to the City’s satisfaction that such agreement shall be
finalized, providing at least $5,000,000 in equity for the development budget of the
Project, prior to the construction Primary Loan closing. The agreement with the investors
.. may not provide for an initial fee payable to the agent or representative of the investors,
but, if permitted by the MHP, may provide for an annual asset management or
comparable fee in a maximum amount approved by the City in the City’s sole discretion.
If the equity contributions of the investors are not fully paid in cash on or before the
Closing, Developer shall provide satisfactory evidence to the City that the timely
payment of any deferred contributions is adequately secured and!or that Developer has
obtained a binding and enforceable commitment for an interim loan in the amount of such
deferred contributions, on terms acceptable to the City.
2.5.2.2 Developer shall demonstrate to the City’s satisfaction tl~at
the construction Primary Loan shall close within 90-days of the Closing, and shall
contain provisions for its automatic conversion to the permanent Primary Loan following
the completion of the Improvements.
2.5.2.3 The AHP Loan (plus the funding of a $5,000 Affordable
Housing Grant) shall close concurrently with the construction Primary Loan.
2.5.2.4 Developer shall have obtained a binding and enforceable
commitment for the MHP Loan.
2.5.2.5 Developer shall have obtained a binding and enforceable
commitment for the HTF Loan.
LA1 515678v7
13
2.5.3. Developer shall have received all discretionary permits and
approvals necessary for the construction of the Project that can be obtained prior to the
commencement of construction.
2.5.4. Developer shall have provided to the City satisfactory evidence
that Developer has obtained all building and other permits, or is able to obtain such permits,
necessary to begin construction of the Project.
2.5.5. Unless this condition is waived by the City’s City Manager, the
Developer shall have provided to the City a fully-executed copy of the construction contract (the
"Construction Contract") for the Improvements, which Construction Contract shall obligate a
reputable and financially responsible general contractor (the "General Contractor"), licensed in
California and experienced in completing the type of improvements contemplated by this
Agreement to commence and complete the development of the Project in accordance with tNs
Agreement, with the funds available for development of the Project. The Construction Contract
iitlli be a Etimmitccd K’iaXiiYi’tit~i cost t~uJ_tuo.ut Jal~u.t.u.t~ t~uiibu uwuuii t~i uic liiipiu v~iiiciit~ for a
fixed price, subject to such reasonable adjustments as are customarily allowed with respect to
construction contracts. The Construction Contract shall provide for retention of at least 10
percent from each progress payment until the final payment and the final payment shall not be
paid to the contractor until the occurrence of (a), (b) or (c), below:
(a) The expiration of 65 days from the date of recording by the
Developer, as owner, of a Notice of Completion for the applicable improvements, which
the Developer agrees to record promptly within the times specified by law for the
recording of such Notice; and the settlement and discharge of all liens and charges
claimed by persons who supplied either labor or materials for the construction of such
improvements; or
(b) The posting of a bond, acceptable to the City in form and
amount, insuring the Property and any interest therein against loss arising from any
mechanics’, laborers’, materialmen’s or other like liens filed against such real property;
or
(c) Developer shall have provided such other assurances as may
be acceptable to the City, protecting the Property and any interest therein against loss
arising from any mechanics’, laborers’, materialmen’s or other like liens filed against
such real property.
The Construction Contract shall require the contractor to warrant al! work and materials for at
least one year after issuance of a certificate of occupancy for the Project.
2.5.6. Unless this condition is waived by the City’s City Manager, the
Developer shall have secured and deposited with the City a Performance Bond and a Labor and
Material Payment Bond (in the form of AIA form A311 or A312), issued by a surety acceptable
to the City in the City’s reasonable discretion, securing the faithful performance by the General
Contractor of the completion of construction of the Improvements free of all liens and claims,
within the time provided in the Schedule of Performance attached hereto. The construction bond
14
LAI 515678v7
shall be in an amount equal to one hundred percent (100%) of the Construction Contract, shall
name the City as a co-obligee, and shall be issued by a company acceptable to the City and listed
in the current United States Treasury Department circular 570 and otherwise within the
underwriting limits specified for that company in such circular.
2.5.7. PAHC shall have delivered to City the performance bond and labor
and materials bond required under the Subdivision Improvements Ageement.
2.5.8. The City shall have received satisfactory evidence that the
insurance required by Section 8.1 of this Agreement shall be in effect.
2.5.9. The Ground Lease, and, unless the Ground Lease is in suitable
form for recording in the Official Records of Santa Clara County, a memorandum of the Ground
Lease in form suitable for recording (the "Memorandum of Ground Lease"), shall have been
executed by PAHC and Developer.
2.5.10. PAHC and Developer shall have executed and delivered to the
Escrow Holder the Regulatory A~eement, PAHC shall have executed and delivered to Escrow
Holder the Land Note, the Land Deed of Trust and all other documents required by the City, and
the Developer shall have executed and delivered to the Escrow Holder the Development Note,
the Development Deed of-Trust and all other documents required by the City.
2.5.11. The Developer shall have delivered to Escrow Holder the amounts
required under this Ageement.
2.5.12. Such other conditions as the City may reasonably require.
2.6.Escrow Holder
2.6.1. At the Closing, Escrow Holder is authorized to:
2.6.1.1 Pay and charge each Party for any fees, charges and costs
payable by that Party under this Ageement. Before such payments are made, the Escrow
Holder shall notify the Parties, and receive the Parties’ approval of, the fees, charges, and
costs necessary to Close the Escrow; and
2.6.1.2 Record the deed to the Property, a memorandum of this
Agreement, the Regulatory A~eement, the Land Deed of Trust, the Ground Lease (or
Memorandum of Ground Lease) and the Development Deed of Trust, and deliver the
other documents to the parties entitled thereto.
2.6.2. If the Escrow is not in condition to close before the outside date for
closing set forth in the Schedule of Performance, then any Party w:l~o then shali have fully
performed the acts to be performed before the scheduled date may, in addition to all other legal
or equitable remedies, in writing, terminate this Agreement in the manner hereinafter set forth,
and demand the return of its money, papers or documents. Thereupon all obligations and
liabilities of the Parties under this Agreement shall cease and terminate in the manner hereinafter
set forth. If neither the City nor the Developer shall have fully performed the acts to be
LA1 515678v7
15
performed before the time for the Close of Escrow established in the Schedule of Performance,
no termination or demand for return shall be recognized until ten (10) days after Escrow Holder
shall have mailed copies of such demand to the other Party. If any objections are raised within
the ten-day period, Escrow Holder is authorized to hold all papers and documents until instructed
in writing by both the City and the Developer or upon failure thereof by a court of competent
jurisdiction. If no such demands are made, the Escrow shall be closed as soon as possible.
2.6.3. Any amendment of the escrow instructions shall be in writing and
signed by all of the Parties. At the time of any amendment, Escrow Holder shall a~ee to carry
out its duties as escrow holder under such amendment.
2.6.4. A!l communications from the Escrow Holder to the Parties shall be
directed to the addresses and in the manner established in Section 8.3 of this Agreement for
notices, demands and communications among the Parties.
2.6.5. The !iabil_ity of the Escrow Holder under this Agreement is limited
to performance of the obligations imposed upon it under this Article 2, and any amendments
hereto agreed upon by Escrow Holder,
2.7. Condition of the Property. PAHC and the Developer acknowledge that
City acquired title to the Property from Summerhill Channing LLC on October 9, 2002 solely as
an accommodation to PAHC and the Developer, and that the City has not owned the Property
except for the time that the City has held title as an accommodation to PAHC and Developer, and
that the City makes no warranties or representations about the Property of any kind. PAHC and
the Developer hereby release the City from any and all liability or responsibility for the physical
condition of the Property or any portion thereof, including w-ithout limitation any liability or
costs that might be incurred by PAHC or the Developer by reason of the presence of Hazardous
Materials on the Property. If the Property is not in a condition suitable for its intended use or
uses, then it is the sole responsibility and obligation of PAHC and the Developer to take such
action as may be necessary to place the Property in a condition suitable for development of the
Project thereon. Without limiting the generality of the foregoing, THE CITY MAKES NO
REPRESENTATION OR WAR_RANTY AS TO THE MERCHANTABILITY OR FITNESS
FOR PARTICULAR USE OF ANY OF THE PROPERTY BEING TRANSFERRED
PURSUANT TO THIS AGREEMENT.
2.8. Right of Entry. PAHC and Developer shall pay all costs, expenses,
liabilities and charges incurred by either of them or related to the entry by either of them or their
agents on the Property at any time prior to the Closing, and shall, at their sole cost, repair all
damage or injury caused by them or their agents in connection with any inspection or entry on
the Property and shall return the Property to substantially the same condition as existed prior to
such entry. PAHC and Developer shall keep the Property free and clear of all liens arising out of
activities conducted by them and thei~ agents on the Prope__rty. P_~_I-I_C and thhe Deve!oper shal!
jointly and severally indemnify, defend and hold the City harmless from and against any lien,
loss, claim, liability or expense, including attorneys’ fees and costs, arising out of or in
connection with the activities of PAHC, the Developer and their agents on or about the Property.
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LA1 515678v7
2.9. Prorations. All property taxes, rents, charges and assessments, if any,
affecting the Property, and all charges for utilities and other operating expenses of the Property,
if any, shall be prorated on a per diem basis as of the date of Closing.
2.10. Brokers. Each of the Parties represents to the others that it has not dealt
with any broker or agent in connection with this transaction for which a commission or fee is
payable by any other Party. Each Party hereby agrees to indemnify, defend and hold the others
harmless from and against any loss, cost or expense arising out of a breach of the foregoing
representation. The provisions of this Section 2.10 shall survive the Closing or the termination
of this Agreement.
3.REGULATORY AGREEMENT.
3.1. Re~oa~lator¥ A~eement. On the Closing Date, the City, PAHC and
Developer shall enter into and cause to be recorded against the Property and Developer’s
leasehold bXerest under *&e Ground Lease, a Regqalatory Agreement in fo~,zn subst~2.tial!y
identical to Exhibit F attached, which shal! include at least the following provisions:
3.1.1. Term: Initial term of approximately 55 years; commencing on the
Closing Date and expiring concurrently with the term of the MHP Re~o~alatory Agreement and the
TCAC Regulatory Agreement; at the option of PAHC, the term may be extended for an
additional 44 years.
~.1 ._. Use: The Property shall be used solely for the construction,
operation and maintenance of 53 Units of multifamity rental housing, and for no other purpose.
With the exception of the manager’s Unit, all of the Units shall be rented to, and occupied by or,
if vacant, made available for rental and occupancy exclusively, by households of very low or low
income at affordable rent for very low- or low income persons. Unless otherwise approved by the
City, at least forty-two (42) of the Units shall be made available to very-low income households.
Of the 42 very low-income Units, unless otherwise approved by the City, (a) nineteen (19) Units
shall be rented and occupied by extremely low-income households with incomes not exceeding
thirty-five percent (35%) of the State Median Income at affordable rents, and (b) the remaining
twenty-three (23) very low-income Units shall be occupied by very low-income households with
incomes not exceeding fifty percent (50%) of the Area Median Income at affordable rent. Unless
otherwise approved by the City, the ten (10) low income Units shall be occupied by low-income
households with incomes not exceeding sixty percent (60%) percent of the Area Median Income
at affordable rents. Compliance with the MHP Rega~latory Agreement mad the MHP Regulations
in the use and occupancy of the Units including, without limitation, rents, rent increases,
household income limits, income certification procedures, tenant selection procedures and the
designation of particular Units for each of the above income categories shall be deemed
compliance with this Agreement. This covenant shall run with the land for the benefit of the
and Developer and all successors in the respective interests of PAHC and Developer. This
covenant shall run in favor of the City without regard to whether the City has been, remains or is
an owner or holder of any land or interest in the area of the Property. The City shall have the
right, if such covenants are breached, to exercise all rights and remedies and to maintain any
actions or suits at law or in equity or other proper proceedings to enforce the curing of such
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LA1 515678v7
breaches to which it or any other beneficiaries of such covenants may be entitled, including,
without limitation, specific performance, damages, and injunctive relief.
3.1.3. Annual Reports: PAHC and Developer will be required to provide
annually to the City (i) an audited annual financial statement of the operations of the Property;
and (ii) a rent roll and income recertification of all residents.
3.1.4. Budgets: PAHC and Developer will be required to obtain the
City’s approval, not to be unreasonably withheld, of the annual operating budget for the
Property, so long as the City notifies PAHC and/or Developer at least 60 days prior to the
commencement of a Fiscal Year that this requirement will apply for that Fiscal Year;
3.1.5. Reserves: commencing 60 days after the City notifies PAHC
and/or Deve!oper that the City has elected to invoke this provision, PAHC and/or Developer will
be required to maintain operating and replacement Reserves satisfactory to the City, and will not
~,~,,. pe~rwA~ed to withdraw f!,~mds ~om the Rese.wes .~..’thout th~ .....City’s nnnrt~vnlrx. ...., ......nnt t~ be
unreasonably withheld;
3.1.6. Management: commencing 60 days after the City notifies PAHC
and/or Developer that the City has elected to invoke this provision, PAHC and/or Developer will
be required to obtain the approval of the City, not to be unreasonably withheld, of the operating
management of the Property, including PAHC and/or Developer;
3.1.7. Maintenance: PAHC and Developer will maintain the Property and
all Improvements thereon in good condition;
3.1.8. Costs of Operation: PAHC and Developer will be responsible for
all costs of operating and maintaining the Property and all Improvements thereon, including but
not limited to taxes, insurance and utilities;
3.1.9. Insurance: PAHC and Developer will be required to maintain
insurance coverage satisfactory to the City and nanking the City as an additional insured.
3.1.10. Rent Subsidy Pro~ams: PAHC and Developer will use reasonable
efforts to seek awards of project-based Section 8 rental assistance and to make the Units
available to participants in the Section 8 tenant-based voucher program and other rent subsidy
pro~ams.
3.1.11. Nondiscrimination: Provisions substantially the same as Sections
8.16 and 8.17 of this Agreement.
3.1.12. TCAC, MHP and Bond Regulatory Agreements: the Regulatory
Ageement shall be subordinate to a TCAC Regulatory Agreement, a MI-Iy l~eguiatory
Agreement and a Bond Regulatory Agreement on customary terms as approved by the City.
Compliance with the TCAC, MHP and/or Bond Regulatory Ageements shall be deemed
compliance with the Regulatory A~eement to the extent the TCAG, MHP and/or Bond
Regulatory Agreement is more restrictive than the Regulatory Agreement. In case of a direct
comqict be~,een the Regulatory Agreement and the TCAC, MI~ and/or Bond Regulatory
LA1 515678v7
18
Agreements, PAHC and Developer shall comply with the TCAC, MHP and/or Bond Regulatory
Agreement, as applicable; however, PAHC and Developer shall comply with requirements of the
Regulatory Agreement that are in addition to (rather than inconsistent with) requirements of the
TCAC, MHP and Bond Regulatory Agreements.
3.1.13. Non-duplication: To the extent that any of the foregoing obligations
of PAHC and Developer under the Regulatory Agreement is performed by Developer, performance
of the obligation by Developer shall also constitute performance of that obligation by PAHC. Thus,
for example, the maintenance of required Reserves by Developer shall also constitute satisfaction of
that requirement by PAHC, and income recertification of residents by Developer under the
Regulatory Agreement shall also constitute satisfaction of that requirement by PAHC.
3.1.14. Conditional Option to Purchase: The City shall have the option to
purchase the Property and all Improvements thereon, free and clear of the Ground Lease and of
all liens and encumbrances other than those theretofore approved by the City, at the end of the
initial term, for an amount equal to the sum of (i) the unpaid balance of the Land Note, plus (ii)
the unpaid balances of the Development Note and any other outstanding loans approved by City
that are secured by the leasehold interest under the Ground Lease and/or the Improvements
(collectively, the "Leasehold Loans"), plus (iii) the Equity Value of the Improvements, if any. If
the City exercises the option, the City may pay the purchase price by accepting title to the
Property "subject to" the outstanding principal balance of the Land Note and accepting title to
the Improvements "subject to" the outstanding principal balance of the Leasehold Loans;
provided, however, in the event the Equity Value of the Improvements is greater than zero, City
shall in addition pay to PAHC an amount equal to the Equity Value of the Improvements. As
used herein, the "Equity Value of the Improvements" shall mean the amount, if any, by which
the appraised value of the Improvements (which shall not include the value of the Property or the
value of the leasehold interest under the Ground Lease), as determined by an appraiser
satisfactory to City, based on the assumption that the Improvements would continue to be
operated in accordance with the Regulatory Agreement for an additional 44 years beyond the
expiration of the initial term of the Regulatory Agreement, exceeds the aggregate unpaid
principal balances of the Leasehold Loans. Notwithstanding the foregoing, if at least six (6)
months prior to expiration of the term of the Regulatory Agreement PAHC exercises its option to
extend the term of this Regulatory Agreement for an additional 44 years, the City’s purchase
option shall be void and of no further effect.
4.DEVELOPMENT OFTHEPROPERTY
4.1. Development of the Project. The Developer shall construct the
Improvements constituting the Project in accordance with any conditions of approval required by
the City, the Plans and Specifications, the approved budgets and schedule of values, and all
terms, conditions and requirements of this Agreement, including the Schedule of Performance, it
being agreed that construction of the Project in accordance with all conditions of approval, and
all terms hereof, is of the essence of this Agreement in view of the need for such Improvements
within the City. In connection with such construction, the Developer shall comply with all
requirements of the City’s Municipal Code, and any and all applicable federal, state and local
laws, rules and regulations. Such construction shall be undertaken and completed within the
time parameters set forth in the Schedule of Performance. Without limiting the generality of the
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LA1 515678v7
foregoing, the Developer agrees to perform work and improvements required by the Subdivision
Improvements Agreement.
4.2. Cost of Construction. Except as otherwise provided in Section 4.3, the
cost of the Project shall be borne solely by the Developer.
4.3. Removal of Oak Tree by City. The City at its expense agrees to remove
the existing double-trunk oak tree from the Property within fourteen (14) days after Developer
notifies the City in writing of Developer’s planned start of site excavation.
4.4. Local. State and Federal Laws. The Developer shall carry out the
development of the Project in conformity with all applicable laws, including all applicable
federal and state occupation, safety and health standards. The Developer shall be responsible for
ensuring the compliance of its General Contractor and all subcontractors with State prevailing
wage law- as required by the MHP Reg-ulatory Agreement.
4.5. City and Other Governmental Permits and Approvals. The Developer
shall (at the Developer’s expense) secure, or cause to be secured, any and all permits which may
be required by the City or any other governmental agency having jurisdiction over such
construction or development.
4.6. No Discrimination. Throughout the Developer’s lease of the Property and
the development, ownership and operation of the Project, the Developer, for itself and its
successors and assigns, agrees that it shall not discriminate against any employee or applicant for
employment because of age, sex, marital status, race, handicap, color, religion, creed, ancestry,
or national origin in any manner connection with the ownership, leasing or construction of the
Project.
4.7.Construction Schedule
4.7.1. Subject to the provisions of Section 8.10, the Developer shall begin
and complete all construction within the times specified in the Schedule of Performance or such
reasonable extension of said dates as may be granted by this Agreement or by the City. The
Schedule of Performance is subject to revision from time to time as mutually agreed upon in
writing between the Developer and the City.
4.7.2. During the period of construction, the Developer shall submit to
the City, from time to time, upon receipt of request from the City, wri~en reports of the progress
of the construction. The reports shall be in the same form and in the same detail as normally
prepared for internal reports of the Developer or for reports from the Developer’s general
contractor to the Developer. Developer shall give the City reasonable prior notice of, and the
City shall be permitted to attend and participate in, meetings between the Developer (including
but not limited to its general contractor and its architect) and the construction lender regarding
draws under the construction loan.
4.8. Riahts of Access Durin~ Construction. For the purpose of assuring
compliance with this Agreement, representatives of the City shall have the reasonable right of
access to the Property, without charges or fees, at normal construction hours during the period of
20
LA1 515678v7
construction for the purposes of inspecting the work being performed by the Developer in
constructing the improvements. Such representatives shall comply with all safety rules and shall
not interfere with or delay the construction of the Project. The City shall hold the Developer
harmless from any injury or damages arising out of the activities of the City as referred to in this
Section.
4.9.Certificate of Completion.
4.9.1. After completion of construction and development by the
Developer of the Improvements on any Property, the City shall, promptly following written
request by the Developer therefor, furnish the Developer with a Certificate of Completion. The
Certificate of Completion shall be in a mutually-acceptable form. The City shall not
unreasonably withhold the Certificate of Completion. Such Certificate of Completion shall be,
and shall so state that it is, conclusive determination of satisfactory completion of all of the
construction required by this Agreement.
4.9.2. If the City refuses or fails to furnish a Certificate of Completion
after written request from the Developer, the City shall, within thirty (30) days after the written
request, provide the Developer with a written statement of the reasons the City refused or failed
to furnish a Certificate of Completion. The statement shall also contain the City’s opinion of the
action the Developer must take to obtain a Certificate of Completion. If the reason for such
refusal is confined to the immediate availability of specific items or material for non-material
punch list items, and if the certificate of occupancy has been issued by the City, and if the costs
of completion do not exceed $25,000.00, then the City will issue its Certificate of Completion
upon the posting by the Developer with the City of a bond or other collateral in an amount
representing the fair value of the work not yet completed.
4.9.3. Such Certificate of Completion shall not constitute evidence of
compliance with or satisfaction of any obligation of the Developer to any holder of a mortgage,
trust deed or other security instrument. Such Certificate of Completion shall not be construed as
a notice of completion as described in California Civil Code Section 3093.
5.DEVELOPMENT LOAN DISBURSEMENTS
5.1. The City and the Developer shall use reasonable efforts to coordinate with
the construction lender regarding the disbursement of funds for construction of the
Improvements, including without limitation provisions designed to assure that (i) the funds
advanced by the City will be used solely as described in Section 5.2 below, and (ii) the aggegate
amount of loan disbursements by all lenders (including without limitation the City) at the time of
any disbursement does not exceed the value of the Improvements theretofore constructed and
paid for.
5.2. The proceeds of the loan evidenced by the Development Note shall be
disbursed from time to time after Closing as requested by the Developer for (i) reimbursement of
expenses in the development budget paid to unaffiliated third parties by PAHC subsequent to its
selection by City on June 11,200I as the sponsor and developer of the Project, and (ii)
construction and other development costs of the Improvements. Developer shall submit to the
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LA1 ~15678v7
City" for City’s review not more frequently than monthly written requests for disbursements of
loan proceeds to pay for expenses incurred by Developer in accordance with the development
budget attached hereto as Exhibit C. Developer covenants and agrees to provide to the City one
or more copies of contracts, invoices, checks, negotiable instruments, receipts and other
documentation acceptable to the City to verify the purpose and amount of each request for
disbursement. Developer shall attach to each such request a certification, in writing, that the
work or services have been satisfactorily performed in accordance with the applicable contract(s)
and that the expenses are reasonable and necessary to complete the Project. The City has no
obligation to approve disbursements at any time during which Developer is in default under this
Agreement, or to approve disbursements for disapproved or improperly documented expenses.
Developer shall provide the City" with its schedule, and any subsequent revisions, of estimated
payments for construction period costs. City agrees that Developer may utilize its Deve!opment
Loan for project development costs prior to the disbursement of other construction funds,
including the proceeds of the Primary Loan.
6.1. Limitation As To Transfer of the Property and Assignment of Agreement.
PAHC and the Developer acknowledge that the identities of PAHC and the Developer are
of particular concern to the City, and it is because of PAHC’s and the Developer’s identities that
the City has entered into this Agreement with PAHC and the Developer. No voluntary or
involuntary successor in interest of PAHC .or the Developer shall acquire any rights or powers
under this Agreement in violation of the terms hereof.
Except as expressly set forth herein, neither PAHC nor the Developer shall Transfer all or
any part of its interest in the Property, the Project, this Agreement or any of its ri~ts hereunder,
directly or indirectly, voluntarily or by operation of law, without the prior written approval of the
City. As used in this section, the term "Transfer" shall, except as otherwise provided in this
Agreement, include any lease (other than occupancy subleases to qualified residents), sale,
ground lease, assi~om-nent, conveyance, or encumbrance of this Agreement, the Property, or the
improvements thereon. In considering whether it will grant approval to any Transfer by
Deve!oper, City shall utilize its reasonable discretion, including but not limited to consideration
of factors such as (0 whether the completion of the Project is jeopardized; (ii) the fmancial
strengCOa and capability of the proposed transferee to perform Developer’s obligations hereunder;
and (iii) the proposed transferee’s experience and expertise in the planning, financing,
development, ownership, and operation of similar real estate developments. It shall be deemed
reasonable for the City to refuse to consent to a Transfer based on any of the above reasons. This
prohibition on Transfers shall not be deemed to prevent the (i) granting of easements or permits
to facilitate the development of the Property, (ii) any mortgage or deed of trust permitted by this
Agreement, or (iii) any Transfer between PAHC and the Developer.
In the event that contrary to the provisions of this Agreement the Developer does purport
to Transfer any part of this Agreement or the Property in violation hereof, the purported Transfer
shall be null and void and the City shall have the cumulative options to terminate this
Agreement, and additionally to seek all remedies available at law or equity.
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LA1 515678v7
6.2.Security_ Financing: Rights of Mortgagees.
6.2.1. No Encumbrances Except Mortgages. Deeds of Trust.
Conveyances or Other Conveyance for Financin~ Development.
6.2.1.1. Notwithstanding Section 6.1 or any other provision herein
to the contrary, the TCAC Regulatory Agreement, if applicable, the MHP Regulatory
Agreement, the Bond Regulatory Agreement and deeds of trust and mortgages securing
the Primary Loan, the MHP Loan, the HTF Loan and the AHP Loan are permitted to
encumber the Property and the Improvements, but only for the purpose of securing loans
of funds to be used for fmancing the direct and indirect costs of the Project (including
reasonable and customary developer fees, loan fees and costs, and other normal and
customary project costs). Developer will not have the right to refinance the Primary
Loan, or to incur any other indebtedness that would result in a lien or encumbrance
against the Property or the Improvements, or require subordination of the Development
Deed of Trust other than as required by Section 2.2.4, x~Athout the prior ,.~i~en consent of
City.
6.2.1.2. The words "mortgage" and "deed of trust" as used herein
include all other appropriate modes of fmancing commonly used in real estate
acquisition, construction and land development.
6.2.2. Notice of Default to Mortgagees: Right to Cure. Whenever the
City shall deliver a notice or demand to the Developer with respect to any breach or Default by
the Developer hereunder, the City shall at the same time deliver a copy of such notice ordemand
to the LP Investor, and to the Mortgagees of any mortgage, deed of trust or other security interest
authorized by this Agreement who has previously made a written request to the City for special
notice hereunder. No notice of default to the Developer shall be effective against any such
Mortgagee unless given to such Mortgagee. Such Mortgagee shall (insofar as the rights of the
City are concerned) have the fight, at its option, within 30 days after receipt of the notice, to cure
or remedy may such default and to add the cost thereof to the security interest debt and the lien of
its security interest. If such default shall be a default which can only be remedied or cured by the
Mortgagee upon obtaining possession, such Mortgagee shall seek to obtain possession with
diligence and continuity through a receiver or otherwise, and shall remedy or cure such default
within a reasonable period of time as necessary to remedy or cure such default of the Developer.
6.2.3. Noninterference with Mortgagees. The provisions of this
Agreement do not limit the right of Mortgagees to foreclose or otherwise enforce any mortgage,
deed of trust, or other security instrument encumbering the Developer’s interest in the Property
and the Improvements, or the right of Mortgagees to pursue any remedies for the enforcement of
any pledge or lien encumbering the leasehold interest; provided, however, that in the event of a
~,~o1,~,,~ sale ,~nder a_ny such mo~gage, deed of trust or other !ien or e~nmlmhrnnee, or sale
pursuant to any power of sale contained in any such mortgage or deed of trust, the purchaser or
purchasers and their successors and assigns, and the Property, shall be, and shall continue to be,
subject to al! of the conditions, restrictions and covenants of thisAgreement and all documents
and instruments recorded pursuant hereto.
LA1 515678v7
6.2.4. Ri.~ht of City to Cure Mortgage Default. In the event of a default
or breach by the Developer of any mortgage, deed of trust, lease-back or other security
instrument, the City may cure the default prior to completion of any foreclosure or other
proceedings by which any other security interest is retained. The City shall be entitled to
reimbursement from the Developer of all costs and expenses incurred by the City in curing the
default, including costs and expenses for the City’s personnel. Such reimbursement obligation
shall be secured by the Development Deed of Trust. The City’s rights under this Section are in
addition to and not in lieu of its other rights and remedies under this Agreement.
7.EVENTS OF DEFAULT. REMEDIES AND TERMINATION
7.1. Defaults--Definition.
Occurrence of any or all of the following shall constitute a default ("Default") under this
Agreement:
7.1.1. The Developer’s failure to satisfy any of the conditions described
in Section 2.6 prior to the date specified in the Schedule of Performance; or
7.1.2. The Developer’s failure to commence construction of the
Improvements, or to complete construction of the Improvements in accordance with the time
parameters set forth in the Schedule of Performance, subject to Section 8.10 hereof; or
7.1.3. PAHC’s or the Developer’s sale, lease, or other Transfer, or the
occurrence of any involuntary Transfer, of the Property, or any part thereof, or interest therein, in
violation of this Agreement; or
7.1.4. The suspension of work on the Improvements, for a period of 15
consecutive days, subject to Section 8.10 hereof; or
7.1.5. The Developer’s neglect, failure or refusal to keep..in force and
effect any permit or approval with respect to development of the Project or any policy of
insurance required hereunder, and the Developer’s failure to cure such breach within 10 days
after written notice from the City of the Developer’s breach;
7.1.6. The failure by PAHC Sheridan to make the budgeted capital
contribution to Developer as described in clause (iii) of the second sentence of Section 2.5. !
above;
7.1.7. Payment to PAHC of fees other than payment of the PAHC
Development Fee as and when permitted pursuant to the second sentence of Section 2.5.1 above;
appointment of a receiver or trustee of any property of the Developer, or an assignment by the
Developer for the benefit of creditors, or adjudication that the Developer is insolvent by a court,
and the failure of the Developer to cause such petition, appointment, or assignment to be
removed or discharged within 90 days;
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LAI 515678v7
7.1.9. Subject to the provisions of Section 8.10 hereof, the Developer’s
failure to perform any requirement or obligation of Developer set forth herein or in the Schedule
of Performance not heretofore described on or prior to the date for such performance set forth
herein or in the Schedule of Performance, and the failure of the Developer to cure or perform
such obligation or requirement within 30 days after ~itten notice of such delinquency.
7.2.Remedies in the Event of Default.
7.2.1. Remedies. In the event of a Default under this Agreement, the
non-defaulting Party shall, have the right to terminate this Ageement by delivering written
notice thereof to the defaulting Party and to Escrow Holder, and the non-defaulting Party may
seek against the defaulting Party any available remedies at law or equity, including but not
limited to the right to receive compensatory damages or to pursue an action for specific
performance.
7.2.2. Liberal Construction. The rights established in this Article are to
be interpreted in light of the fact that the City acquired title to the Property as an accommodation
to PAHC and Developer, and City is selling the Property to PAHC to be concurrently ground
leased to Developer in order to facilitate the development and operation of the Project thereon,
and not for speculation in undeveloped land or for construction of different improvements.
PAHC and the Developer acknowledge that it is of the essence of this Agreement that the
Developer is obligated to complete and operate all Improvements comprising the Project.
7.3. No Personal Liability. No representative of the City shall personally be
liable to PAHC, the Developer, or any successor in interest of PAHC or the Developer, in the
event of any breach by the City, or for any amount which may become due to PAHC or the
Developer, or any successor in interest, on any obligation under the terms of this A~eement.
7.4.Le,oal Actions.
7.4.1. Institution of Legal Actions. Any legal actions brought pursuant to
this Ageement must be instituted in the County of Santa Clara, State of California.
7.4.2. Applicable Law-. The laws of the State of California shall govern
the interpretation and enforcement of this A~eement.
7.4.3. Acceptance of Service of Process. If any legal action is
cormnenced by PAHC or the Developer against the City, service of process on the City shall be
made by personal service upon the City Manager or City Clerk of the City, or in such other
manner as may be provided by law-. If any legal action is commenced by the City against PAHC
or the Developer, service of process on PAHC or the Developer shall be made by personal
service upon that Party, or in such other manner as may be provided by law, whether made
within or without the State of California.
7.5. Rights and Remedies are Cumulative. Except as otherwise expressly
stated in this A~eement, the rights and remedies of the Parties are cumulative, and the exercise
by any Party of one or more of such rights or remedies shall not preclude the exercise by it, at the
25
LA1 515678~
same time or different times, of any other fights or remedies for the same default or any other
default by any other Party.
¯7.6. Inaction Not a Waiver of Default. Except as expressly provided in this
A~eement to the contrary, any failures or delays by any Party in asserting any of its rights and
remedies as to any default shall not operate as a waiver of any default or of any such fights or
remedies, or deprive any such Party of its rights to institute and maintain any actions or
proceedings which it may deem necessary to protect, assert or enforce any such fights or
remedies.
8.GENERAL PROVISIONS
8.1.Insurance.
8.1.1. Throughout development of the Project, the Developer shall take
out and maintain, at no cost or expense to the City., with a reputable and financially responsible
insurance company reasonably acceptable to the City, comprehensive broad form general public
liability insurance, insuring the Developer and the City against claims and liabilities for bodily
injury, death, or property damage arising from the use, occupancy, condition, or operation of the
Property and the Improvements thereon, which insurance shall provide combined single limit
protection of at least $5,000,000, and include contractual liability endorsement. Such insurance
shall name the City and its officials, employees, and agents, as additional insureds.
8.1.2. Before commencement of any demolition or construction work on
the Property, or any portion thereof, the Developer shall also procure or cause to be procured,
and shall maintain in force until completion of said work (i) "all risk" builder’s risk insurance,
including coverage for vandalism and malicious mischief, in a form and amount and with a
company reasonably acceptable to the City, and (ii) workers’ compensation insurance covering
all persons employed in connection with work on the Property, or any portion thereof. Said
builder’s risk insurance shall cover improvements in place and all material and equipment at the
job site furnished under contract, but shall exclude contractors’, subcontractors’, and
construction managers’ tools and equipment and property owned by contractors’ and
subcontractors’ employees.
8.1.3. The Developer shall also furnish or cause to be furnished to the
City evidence satisfactory to the City that any contractor with whom it has contracted for the
performance of work on Property or otherwise pursuant to this Agreement carries workers’
compensation insurance as required by law.
8.1.4. With respect to each policy of insurance required above, the
Developer shall furnish a certificate of insurance countersig-ned by an authorized agent of the
insurance carrier on the insurance carrier’s form setting forth the general provisions of the
insurance coverage. The required certificate shall be furnished by the Developer prior to
commencement of any construction work at the Property.
8.1.5. All such policies required by this Section shall be nonassessable
and shall contain language to the effect that (i) the policies cannot be canceled or materially
changed except after thirty (30) days’ written notice by the insurer to the City, and (ii) the City
26
LA1 515678v7
shall not be liable for any premiums or assessments. All such insurance shall have deductibility
limits reasonably satisfactory to the City.
8.2. IndemniW. PAHC and the Developer shall indemnify, defend, protect,
and hold harmless the City and any and all City Councilmembers, agents, employees and
representatives of the City, from and against all losses, liabilities, claims, damages (including
consequential damages), penalties, frees, forfeitures, costs and expenses (including all reasonable
out-of-pocket litigation costs and reasonable attorney’s fees) and demands of any nature
whatsoever, related directly or indirectly to, or arising out of or in connection with:
(i)the Property;
(ii)any Default of the Developer hereunder,
(iii)any of the Developer’s activities on the Property (or the
activities of the Developer’s agents, employees, lessees, representatives, licensees,
guests, invitees, contractors, subcontractors, or independent contractors on the Property),
including without limitation the construction of any Improvements on the Property, or
(iv) any other fact, circumstance or event related to the
Developer’s performance hereunder, or which may otherwise arise from the Developer’s
use, possession, improvement, operation or disposition of the Property, regardless of
whether such losses and liabilities shall accrue or are discovered before or after
termination or expiration of this Agreement, except to the extent such losses or liabilities
are caused solely by the negligent or intentionally wrongful act of the City.
8.3. Notices. All notices and demands shall be given in writing by certified
mail, postage prepaid, and return receipt requested, or by personal delivery. Notices shall be
considered given upon the earlier of (a) personal delivery or (b) two (2) business days following
deposit in the United States mail, postage prepaid, certified or registered, return receipt
requested. A copy of all notices shall be sent to Escrow Holder. Notices shall be addressed as
provided below for the respective party; provided that if any party gives notice in writing of a
change of name or address, notices to such party shall thereafter be given as demanded in that
notice:
City:City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, California 94303
Attn: City Clerk
(Telephone:(650) 329-2571)
.(Fax:(650) 328-3631)
27
LA1 515678~
with a copy to:
PAHC:
Developer:
with a copy to:
and a copy to LP
Investor:
City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, California 94303
Attention: Director of Planning
(Telephone:(650) 329-2441)
(Fax:(650) 329-2154)
Palo Alto Housing Corporation
725 Alma Street
Palo Alto, California 94301
Attention: Marlene H. Prendergast, Executive Director.
(Telephone:(650) 321-9709)
(Fax:(650) 321-4341)
(e-mail:mprendergast@paloaltohousingcorp.org)
Oak Court Apartments, L.P.
725 Alma Street
Palo Alto, California 94301
Attention: General Partner
(Telephone:(650) 321-9709)
(Fax:(650) 321-4341)
(e-mail:mprendergast@paloaltohousingcorp.org)
Gubb & Barshay, LLP
50 California Street, Suite 3155
San Francisco, California 94111
Attention: Natalie Oubb, Esq.
(Telephone:(415) 781-6600)
(Fax:(415) 781-6967)
(e-mail:ngubb@gubbandbarshay.com)
Union Bank of California, N.A.
200 Pringle Avenue, Suite 200
Walnut Creek, CA 94546
Attention: James H. Francis
Escrow Holder:First American Title Guaranty Company
1737 North First Street
San Jose, California 95112
Attn: .Dian Blair, Escrow Officer
(Telephone:(408) 451-7800)
(Fax:(408) 451-7836)
28
LA1 515678v7
(Any e-mail addresses set forth above are for convenience only and notices shall not be deemed
delivered if sent by e-mail only.)
8.4. Construction. The Parties agree that each Party and its counsel have
reviewed and revised this Agreement and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting Party shall not apply in the interpretation of
this Agreement or any amendments or exhibits thereto.
8.5. City’s Warranties. The City warrants and represents to PAHC and the
Developer as follows:
8.5.1. The provisions hereof applicable to the City constitute the valid
and binding agreement of the City and are enforceable in accordance with their terms.
8.5.2. The City is a municipal corporation duty formed and in good
standing and has full power and authority to execute and enter into this Agreement and to
consummate the transactions contemplated hereunder. Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions covered hereby, nor compliance with the
terms and provisions hereof, shall conflict with, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, an3, agreement or instrument to which the City is a
party.
8.6. PAHC’s and Developer’s Warranties. PAHC and the Developer warrant
and represent to the City as follows:
8.6.1. PAHC is a California public benefit nonprofit corporation duly
formed and in good standing and has full power and authority to execute and enter into this
Agreement and to consummate the transactions contemplated hereunder. The Developer is a
California limited parmership duly formed and in good standing and has full power and authority
to execute and enter into this Agreement and to consummate the transactions contemplated
hereunder. This Agreement constitutes the valid and binding agreement of PAHC and the
Developer, enforceable in accordance with its terms. Neither the execution nor delivery of this
Agreement, nor the consummation of the transactions covered hereby, nor compliance with the
terms and provisions hereof, shall conflict with, or result in a breach of.. the terms, conditions or
provisions of, or constitute a default under, any agreement or instrument to which PAHC or the
Developer is a party-.
8.6.2. PAHC and the Developer have inspected the Property and are
familiar with all aspects of the Property and its condition, and accept such condition.
8.6.3. Neither PAHC nor the Developer has paid or given, nor will pay or
give, to any third person, any money or other consideration for obtaining this Agreement, other
than normal costs of conducting business and costs of professional services such as architects,
engineers and attorneys.
8.6.4. No commission or fee whatsoever is payable to any person, firm,
corporation, partnership or other entity in connection with the transactions contemplated by this
Agreement due to fl~e acts of PAHC or the Developer. Neither PAHC nor the Developer has
29
LA1 515678~
used any broker, agent, finder or other person in connection with the transaction contemplated
hereby to whom a brokerage or other commission or fee may be payable.
8.7. Interpretation. In this Agreement the neuter gender includes the feminine
and masculine, and singular number includes the plural, and the words "person" and "party"
include corporation, partnership, firm, trust, or association where ever the context so requires.
8.8. Time of the Essence. Time is of the essence of this Agreement.
8.9. Attorneys’ Fees. If any Party brings an action to enforce the terms hereof
or declare its rights hereunder, the prevailing Party in any such action shallbe entitled to its
reasonable attorneys’ fees to be paid by the losing Party as fixed by the court. If the City,
without fault, is made a party to any litigation instituted, by or against PAHC or the Developer,
then PAHC and the Deve!oper shall defend the City against and save the City harmless from all
costs and expenses including reasonable attorney’s fees incurred in connection with such
litigation.
8.10. Force Maieure. In addition to specific provisions of this Agreement,
delay in performance by any party hereunder shall not be a Default where delays or defaults are
due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of
God; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of
transportation; severe weather; or any other causes beyond the control or without the fault of the
party claiming an extension of time to perforna. An extension of time for any such cause shall
only be for the period of the enforced delay, which period shall commence to run from the time
of the commencement of the cause, if the party claiming such extension gives notice of the delay
within 10 days after the commencement of the cause. If, however, the party claiming such
extension fails to give such notice within 10 days after the commencement of the cause, the
period shall commence to run only 10 days prior to the giving of such notice. Times of
performance under this Agreement may be extended in writing executed by the City Manager of
the City or the City Manager’s designee on behalf of the City and by the Developer.
8.11. Inspection of Books and Records. The City shall have the right at all
reasonable times to inspect the books and records of PAHC and the Deve!oper pertaining to the
Project as pertinent to the purposes of this Agreement.
8.12. Plans and Data. If this Agreement is terminated for any reason, PAHC
and the Developer shall, subject to any rights provided by the Developer to its construction
lender, deliver to the City copies of any and all maps, architecture, engineering, subdivision
approvals, permits, entitlements, rights, contracts, plans, drawings, studies, designs, reports,
surveys, and data pertaining to the Project and their development (collectively, "Site Designs")
which are in the possession of PAHC or the Developer, together with a Bill of Sale therefor,
which Site Designs shall, subject to any rights thereto provided by the Developer to its
construction lender, thereupon be the sole property of the City and may be used by the City, free
of all claims or interests of PAHC, the Developer or any other person, other than the interest
therein held by Developer’s construction lender, whose interest shall be superior to that of City
in the Site Designs; and which City may use, grant, license or otherwise dispose of to any person
for development of the Project or any other purpose. The City shall reimburse the Developer for
3O
LA1 515678v7
Developer’s actual out-of-pocket costs for creation of the Site Designs, less (i) any amounts
payable to the construction lender to obtain the release of its rights in the Site Designs, and (ii) if
this Agreement is terminated based on a default by the Deve!oper, any damages suffered by the
City arising out of such default.
8.13. Developer’s Private Undertaking. The development covered by this
Agreement is a private undertaking. It is hereby acknowledged that the relationship between the
City on the one hand and PAHC and the Developer on the other is not that of a parmership, joint
venture, or any form of business organization, and that the City on the one hand and PAHC and
the Developer on the other shall not be deemed or construed for any purpose to be the agent of
the other.
8.14. Entire Awreement. Waivers and Amendments. This Agreement, together
with all attachments and exhibits hereto, constitutes the entire understanding and agreement of
the Parties. This Agreement integrates all of the terms and conditions mentioned herein or
incidental hereto, and supersedes a!l negotiations or previous agreements between the Pm~ties
with respect to the subject matter hereof (including but not limited to the 2002 DDA). No
subsequent, agreement, representation or promise made by any Party hereto, or by or to any
employee, officer, agent or representative of any Party, shall be of any effect unless it is in
writing and executed by the Party to be bound thereby. No person is authorized to make, and by
execution hereof PAHC, the Developer and the City acknowledge that no person has made, any
representation, warranty, guaranty or promise except as set forth herein; and no agreement,
statement, representation or promise made by any such person which is not contained herein
shall be valid or binding on PAHC, the Developer or the City.
8.15. Severabilitv. Each and every provision of this Agreement is, and shall be
construed to be, a separate and independent covenant and agreement. If any term or provision of
this Agreement or the application thereof shall to any extent be held to be invalid or
unenforceable, the remainder of this Agreement, or the application of such term or provision to
circumstances other than those to which it is invalid or unenforceable, shall not be affected
hereby, and each term and provision of this Agreement shall be valid and shall be enforced to the
extent permitted by law.
8.16. Obligation to Refrain from Discrimination. PAHC and the Developer
covenant and agree for itself, its successors and assigns, and for every successor in interest to the
Property or any part thereof., that there shall be no discrhnination against or segregation of any
person, or group of persons, on account of sex, marital status, age, handicap, race, color, religion,
creed, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or
enjoyment of the Property, and PAHC and the Developer (itself or any person claiming under or
through PAHC or the Developer) shall not establish or permit any such practice or practices of
discrimination or segregation with reference to the selection, location, number, use or occupancy
8.17. Form of Nondiscrimination and Nonse~egation Clauses. PAHC and the
Developer shall refrain from restricting the rental, sale or lease of the Property or any portion
thereof., on the basis of sex, age, handicap, marital status, race, color, religion, creed, ancestry or
national origin of any person. All deeds, leases and contracts relating to the sale or transfer of
31
LAI 515678v7
the Property or any interest therein, shall contain or be subject to substantially the following
nondiscrimination or nonsegregation clauses:
1. In deeds: "The grantee herein covenants by and for himself, his heirs, executors,
administrators and assigns, and all persons claiming under or through them, that there shall be no
discrimination against or segregation of, any person or group of persons on account of sex,
marita! status, race, age, handicaps color, religion, creed, national origin or ancestry in the sale,
lease, sublease, transfer, use, occupancy, tenure or enjoyment of the land herein conveyed, nor
shall the grantee himself or any person claiming under or through him, 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, subtenants, sublessees or vendees in the
land herein conveyed. The foregoing covenants shall run with the land.
2. In leases: "The lessee herein covenants by and for himself, his heirs, executors,
administrators and assigns, and all persons claiming under or through him, and this lease is made
’That there shall be no discrimination against or segregation of any person or group of
persons on account of sex, marital status, race, age, handicap, color, religion, creed, national
origin or ancestry, in the leasing, subleasing, transferring, use, or enjoyment of the land herein
leased, nor shall the lessee himself, or any person claiming under or through.him, 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 in the land herein leased.’"
3. In contracts relating to the sale or transfer of the Property or any interest therein:
"There shall be no discrimination against or segregation of any person or group of persons on
account of sex, marital status, race, age, handicap, color, religion, creed, national origin or
ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the land,
nor shall the transferee himself or any person claiming under or through him, 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, subtenants, sublessees or vendees of the
land."
8.18. Survival. The provisions hereof shall not terminate but rather shall
survive any conveyance hereunder and the delivery of all consideration.
8.19. City Consents and Approvals. Any consent or approval of the City
specifically required or permitted under this Agreement, and any extensions of the schedule for
performance by Developer hereunder, may be #ven on behalf of the City by the City Manager of
the City or the City Manager’s desig-nee. The section applies only to such matters, and does not
aut_horize the City M~_n_ager or the. City, Manager’s designee to hind the City t¢~ nn nmendmont cn
this Agreement, to waive any other fights of the City hereunder (except for waivers specifically
anticipated by this Agreement), or to give any approval or permit issued in the City’s
governmental capacity (rather than in its capacity as a Party to this Agreement).
32
LAI 515678v7
IN WITNESS WHEREOF, the Parties have entered into this Ageement as of the day and
year first above written.
PALO ALTO HOUSING CORPORATION,
a Cali~ia nonprofit public benefit corporation
("PAHC ,/’-’)
Marlene H. Prendre~d~nt
0Executive Vice President
Paul F. Garrett
Secretary
~ 1 IV~IN
a CNifo~a l~ited p~nersNp ("Developer")
By:PAHC Sheridan Apartments, Inc.,
a California nonprofit public benefit
corpor~on,
Generater ~@
Marlene H. Prendergast ~/X.
Executive V~
Paul F. Garrett
Secretary
CITY OF PALO ALTO,
a chartered California municipal corporation ("City")
ATTEST:
By:
Mayor
City Clerk
LAI 515678v7
APPROVED AS TO FORM:APPROVED:
Senior Assistant City Attorney City Manager
Director of Planning and
Community Environment
Director of Ackrninistrative Services
EXItIBITS
Exhibit A
Exhibit B
Exhibit C
Exhibit D
ExNbit E
Exhibit F
Exhibit G
Exhibit H
Legal Description -- the Property
Schedule of Performance
Development Budget and Sources of Funds
Form of Land Note
Form of Land Deed of Trust
Form of Regulatory A~eement
Form of Development Note
Form of Development Deed of Trust
LA1 515678v7
ACKNOWLEDGMENTS
STATE OF CALIFORNIA )
)
COUNTY OF "f,~/~lyd ~z.ti,~,)
On the 2-. 9 day of -3--~v cq , in the year 2003, before me, /A/~_~_!~)~) ~ ~)~
personally appe~ed Bq~a ~ ]~ ~ ~~ ~/personNly ~o~ to me or
proved to me on ~e basis of satisfactory evidence to be ~e person(~ whose n~e~) is/~
subscribed to the wi~ ~ent ~d ac~owledged to me ~at ~she/t~ executed ~e s~e
~ ~er/~ authorized capaci~(i~), ~d that by Ns~er/~ silage(s-) on the ins~ent
¯ e person~), or ~e entiW upon ~ehNf o~ wNch ~e person(~) acted, executed the ~s~ment.
Wimess my hand and official seal.
Notary Public "
STATE OF CALIFORNIA )
)
COUNTY OF 5’4ij/---,y ~ dPr )
On the 2~ day of .3J ,-ti., in the year 2003, before me..
personally appeared ~!%.’Z-/-~,0 ~-,o.~-~zr- , personally ~known to me or
proved to me on the basis of satisfactory evidence to be the person(s-) whose name,s) is/are,
subscribed to the within instrument and acknowledged to me that he/side/they executed the same
in his/ke-r~ttieir authorized capacity(-ie-s), and that by his/t~r/the4r sigllature(s-) on the instrument
the person(@, or the entity upon [behalf of] which the person(s-) acted, executed the instrument.
Wimess my hand and official seal.
Notary Public
EXHIBIT A
LEGAL DESCRIPTION
(to be prepared)
EXHIBIT B
Schedule of Performance
Oak Court Apartments
845 Ramona Street, Palo Alto, California
July 28, 2003
Land Sale Transaction:
City Council Approval of Amended "DDA"
Execute "Amended DDA" & Other City Documents
Close Escrow on Land Sale & Land Loan
Design_:
Project Design Approval
Building Permit Submittal
Building Permit Approval
Construction:
Construction Contract
Final Construction Budget
Relocate Historic Structure
Begin Grading and Excavation
Begin Building Construction
Post Bonds for Subdivision Improvements
Complete Construction
Occupancy
Financing:
Secure Construction Loan Commitment
Secure Permanent Loan Commitment
Secure MHP Loan Commitment
Secure Bond Allocation
Secure 4% TCAC Reservation
Close on City Development Loan
Finalize Shared Ramp Financing & Easement Agreements
Close on Permanent Loan & Final Tax Credit Investment
Secure IRS Form 8609 (tax credits finalized)
July 28, 2003
July - Early August 2003
Early August 2003
Completed November 200 i
July 2002
July 2003
July 2003
July 2003
September 2003
September 2003
October 2003
At Close of Escrow on Land
Sale
January 2005
February 2005
May 15, 2003
May 15, 2003
June 3, 2003
July 9, 2003
July 23, 2003
Early August 2003
Early September 2003
March 2005
September 2005
Oak Court Apartments
Development Budget and Sources of Funds
As of July 28, 2003
Summary Development Budqet:
1)Land (Purchase & Initial Year’s Land Lease)
2)Offsites / Site Improvements
3)Hard Construction
4)Costs of Historic House (Moving, Rehabilitation)
5)Hard Cost Contingency
6)Construction Loan & Related Costs
7)Other Construction Period Costs
8)Architecture, Engineering, Environmental
9)Impact Fees & Permits
10)Permanent Financing Fees, Related Costs & Misc.
11)Marketing
12)Soft Cost Contingency
13).Operating Reserves Initial Funding
14)Developer Fee
TOTAL
Permanent Sources of Funds:
Cal HFA - Permanent First Mortgage
State Housing & Community Development - MHP Loan
Housing Trust Fund of Santa Clara County
Affordable Housing Program - Borel Bank Defered Loan & Grant
City of Palo Alto Development Loan
City of Palo Alto Land Loan
General Partner Equity (PAHC Sheridan Apartments, Inc)
Limited Partner Equity - Purchase of Tax Credits (Union Bank)
Defered Developer Fee (PAHC)
TOTALPERMANENTSOURCES OFFUNDS
Exhibit C
$5,874,001
$1,377,814
$9,205,675
$675 000
$952 514
$521 875
$251,992
$881 000
$198, 189
$209 078
$35OOO
$7O. 000
$125,000
$1,200 000
$21,577,138
$2,300,000
$4,555,064
$400,000
$27O,OOO
$1,960,000
$5,874,OOO
$577,5OO
$5,621,893
$18,681
$21,577,138
Sources of Funds Only for Construction Period:$11,500,000
H:\Sheet\Oak Ct Summary Devel Budget Sources 7-20
EXHIBIT D
Form of Land Note
$5,874,000
PROMISSORY NOTE
SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS
(LAND NOTE)
,2003
Palo Alto, California
FOR VALUE RECEIVED, the undersigned, PALO ALTO HOUSING
CORPORATION, a California non-profit public benefit corporation ("Maker"), hereby promises
to pay to the CITY OF PALO ALTO, a chartered California municipal corporation ("Holder"),
or order, at 250 Hamilton Avenue, Palo Alto, California, or at such other place as may from time
to time be designated, in writing, by the Holder, the principal sum of Five Million Eight Hundred
Seventy-Four Thousand Dollars ($5,874,000) ("Loan Amount"), pursuant to the terms and
conditions set forth in this Promissory Note ("Note"). The principal amount of this Note shall
bear interest at the "Applicable Interest Rate" (as defined below).
ADDITIONAL TERMS AND CONDITIONS
1. This Note is made in connection with the agreement between Maker and the City
of Palo Alto entitled "Regulatory Agreement and Declaration of Restrictive Covenants for Oak
Court Apartments" ("Regulatory Agreement") executed in connection with the acquisition by
Maker of real property in the City of Palo Alto containing approximately 1.23 acres and
commonly known as 845 Ramona Street ("Site") for development as a 53 unit (including
manager’s unit) apartment project for low and very low income families with children
("Project"). All terms, conditions, agreements and provisions, including the covenants,
representations, and terms of default and remedies for default set forth in the Regulatory
Agreement, and the provisions thereof pursuant to which Maker has the option to extend the
initial term of the Regulatory Agreement, are incorporated herein by reference, and made a part
hereof.
2. This Note evidences the obligation of the Maker to make full payment of the Loan
Amount to the Holder, in accordance with the provisions of this Note.
3. This Note is secured by a deed of trust executed by Maker for the benefit of the
Holder and encumbering the Site (the "Deed of Trust").
4. Interest on the unpaid balance of this Note from the date on the date set forth
above until repaid shall accrue at the rate of five percent (5%) per annum, compounded annually
(the "Applicable Interest Rate").
5. The unpaid principal balance of this Note, together with accrued unpaid interest,
shall be due and payable upon expiration or earlier termination of the initial term of the
Regulatory Agreement (the "Initial Due Date"); provided, however, that if Maker exercises its
option to extend the Regulatory Agreement in the manner and on the terms set forth therein, the
LAI 522170v2
unpaid principal balance of this Note, together with accrued unpaid interest, shall be due and
payable on the new expiration date, or earlier termination, of the Regulatory Agreement. In the
event of such extension, all accrued interest through the Initial Due Date shall be added to
principal as of the Initial Due Date, and equal annual payments in amounts sufficient to fully
amortize the adjusted principal balance, plus interest at the Applicable Interest Rate, over the
remaining term of this Note shall thereafter be due on the last day of each year; provided,
however, each such annual payment shall be waived (and credited against the outstanding
obligations hereunder as though such payment had been paid) if Maker is not in breach of the
Regulatory Agreement on the date the annual payment is due.
6. Maker acknowledges that it expects to enter into one or more agreements with
Tall Trees Partners I, LLC ("TTP") and Holder pursuant to which TTP will agree to contribute
an agreed-upon amount toward the cost of certain driveway and ramp improvements intended to
benefit 250-270 Homer Street and the Project; Maker shall pay to Holder any and all payments
made by or on behalf of TTP for such purpose, howsoever denominated, within ten calendar
days after receipt by Maker and such payments will be applied to reduce the outstanding
principal balance of this Note.
7. At any time, and from time to time, the Maker may prepay to the Holder the
principal sum of this Note, or any part thereof, without penalty.
8. Maker shall not sell, agree to sell, convey, alienate, encumber or refinance the
Site, or any interest therein (excluding, however, a ground lease of the entire Site by Maker as
lessor to Oak Court Apartments, L.P. as lessee entered into prior to the commencement of
construction of the Project (the "Ground Lease"), without the written consent of Holder. If the
Site, or any part thereof or any interest therein, is sold, agreed to be sold, conveyed, alienated,
encumbered or refinanced by Maker, or by operation of law or otherwise, with the exception of
the Ground Lease to Oak Court Apartments, L.P., without the written consent of Holder, all
obligations of Maker hereunder, irrespective of the maturity dfite expressed herein, at the option
of Maker and without demand or notice, shall immediately become due and payable.
9. The Maker and any other maker, co-maker, indorser, guarantor, and any other
party to this Note (collectively, "Obligors"), and each of them: (i) waive notice of default (except
as provided in Section 13) notice of acceleration, notice of nonpayment, presentment for
payment, demand, protest, notice of demand, notice of protest, notice of nonpayment, and any
other notice required to be given under the law to the Obligors; (ii) consent(s) to any and all
delays, extensions, renewals, or other modifications of this Note or waivers of any term hereof or
release or discharge by the Holder of any of the Obligors or release, substitution, or failure to act
by the Holder, from time to time, and agree(s) that no such action, failure to act, or failure to
exercise any right or remedy on the part of the Holder shall in any manner affect or impair the
obligations of any Obligor or be construed as a waiver by the Holder of, or otherwise affect, any
of the Holder’s rights under this Note or the Agreement, under any indorsement or guaranty of
this Note; and (iii) (jointly and individually, if more than one) agree(s) to pay, on demand, any
and all costs and expenses of collection of this Note or of any indorsement or any guaranty
hereof, including attorney’s fees.
LAI 522170v2
2
No extension of time for payment of this Note or any portion thereof made by agreement
of Holder with any person now or hereafter liable for the payment of this Note shall operate to
release or discharge liability of Maker under this Note, either in whole or in part.
10. The pleading of any statute of limitations as a defense to any demand against the
Maker is expressly waived by the Maker.
11. If any default is made hereunder, the Maker promises to pay the Holder’ s
reasonable attorneys’ fees and other related costs and expenses incurred by the Holder in
connection with the enforcement of any rights of the Holder.
12. The occurrence of any of the following shall constitute an event of default under
this Note: (i) The Maker fails to pay any amount due hereunder within fifteen (15) days of its due
date; or (ii) any default by the Maker under any other provisions of this Note, or the Deed of
Trust or the Regulatory Agreement.
Upon the occurrence of any event of default, or at any time thereafter, at the option of the
Holder hereof, the entire unpaid principal and interest owing on this Note shall become
immediately due and payable. This option may be exercised at any time following any such
event, and the acceptance of one or more installments thereafter shall not constitute a waiver of
such option with respect to any subsequent event. The Holder’s failure in the exercise of any
other right or remedy hereunder or under any agreement which secures the indebtedness or is
related theretoshall not affect any right or remedy andno single or partial exercise of any such
right to remedy shall preclude any further exercise thereof.
If the outstanding unpaid principal balance of this Note is not paid within thirty (30) days
of demand therefor, the Maker shall pay to the Holder in addition to interest at the Applicable
Interest Rate, interest equal to one percent (1%) of the unpaid principal amount, or the highest
rate permitted by law, whichever is less, per calendar month, or fraction thereof. If this Note be
reduced to judgment, such judgment shall bear the statutory interest rate on judgments.
13. The Holder shall not exercise any right or remedy provided for herein because of
any default of the Maker unless, in the event of a monetary default, the Maker shall have failed
to pay the outstanding sums within a period of thirty (30) calendar days after notice that payment
was due. In the event of an uncured nonmonetary default, the Holder shall have first given
written notice thereof to the Maker, and the Maker shall have failed to cure the nonmonetary
default within a period of thirty (30) days after the giving of such notice of such default;
provided that if the nonmonetary default cannot be cured within thirty (30) days and the Maker
proceeds diligently and uses best efforts to cure such default until it shall be fully cured within
no more than ninety (90) days after the giving of such notice, then the Holder shall not exercise
any right or remedy provided for herein until such 90-day period shall expire; provided,
however, the Holder shall not be required to give any such notice or allow any part of the grace
period if the Maker shall have filed a petition in bankruptcy or for reorganization or a bill in
equity or otherwise initiated proceedings for the appointment of a receiver of its assets, or if the
Maker shall have made an assignment for the benefit of creditors, or if a receiver or trustee is
appointed for the Maker and such appointment or such receivership is not terminated within
forty-five (45) days of such appointment.
LAI 522170v2
With respect to any right to cure or cure period provided in this Section 13, performance
of a cure by any affiliated entity or partner of the Maker shall have the same effect as would like
performance by the Maker.
14. Any notice, demand, or other communication required hereunder shall not be
deemed sufficiently given, unless sent by certified mail, postage prepaid, return receipt
requested, or by express delivery service or overnight courier service, to the principal office of
the addressee, or at such other address as may be designated, in writing, from time to time:
Holder:City of Palo Alto
250 Hamilton Avenue
Palo Alto, CA 94301
Attention:
Maker:Palo Alto Housing Col~oration
725 Alma Street
Palo Alto, California 94301
Attention: Executive Director
The delivery shall be effective on the date shown on the delivery receipt or the date on which the
delivery was refu.sed.
15. This Note shall be nonrecourse against the Obligors. No judgment, or execution
thereof, entered in any action, legal or equitable, on this Note shall be enforced directly against
the Maker or any officer, director or employee of the Maker, but shall be enforced only against
the collateral described in the Deed of Trust, and such other or further security as, from time to
time, may be hypothecated for this Note. The foregoing limitation shall not be applicable in the
event of (a) fraud by the Maker or any material misrepresentation made by the Maker in the
Regulatory Ageement, this Note or the Deed of Trust, or (b) the sale or transfer or other
conveyance of all or any part of the Maker’s interest in the Project without the Holder’s prior
written consent. Furthermore, the foregoing limitation shall not be applicable to the extent of
any loss incurred by the Holder due to (a) misappropriation by the Maker of any rents (including,
without limitation, the application of rents to other than operating expenses and debt service),
security deposits, insurance or condemnation proceedings, (b) waste caused by or permitted by
the Maker to the Project, or (c) the presence or release of any hazardous or toxic substances on or
in the site encumbered by the Deed of Trust. The Holder shall not in any way be prohibited from
naming the Obligors, or any of them, or any person holding under or through them as parties to
any actions, suit or other proceedings initiated by the Holder to foreclose or otherwise realize
upon any other lien or security interest created in the Site or in any other collateral given to
secure the performance of the obligations of the Maker pursuant to this Note, and further
provided, however, that nothing in this Section 15 shall be deemed to prejudice the rights of the
Holder to recover any rents, condemnation or insurance proceeds, tenant security deposits or
other similar funds or payments attributable to the Site or the Project which were diverted or
misappropriated by the Obligors, or any of them.
LAI 522170v2
4
16. In the event of any conflict between the terms and conditions contained in this
Note and the terms of the Amended and Restated Disposition and Development Agreement
among Holder, Maker and Oak Court Apartments, L.P., the terms and conditions contained in
this Note shall control.
17. The covenants, agreements, terms, and conditions of this Note shall inure to, and
shall be binding on, the successors and assigns of the Obligors.
PALO ALTO HOUSING CORPORATION,
a California non-profit public benefit corporation
By:
Marlene H. Prendergast,
Executive Vice President
By:
Name:
Title:
LA1 522170v2
EXHIBIT E
Form of Land Deed of Trust
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
City of Palo Alto
Office of City Attorney
250 Hamilton Avenue
Palo Alto, CA 94301
SPACE ABOVE THIS LENE FOR RECORDER’S USE
DEED OF TRUST AND ASSIGNMENT OF RENTS
(OAK COURT APARTMENTS LAND LOAN)
THIS DEED OF TRUST AND ASSIGNMENT OF RENTS made on ., 2003, by
PALO ALTO HOUSING CORPORATION, a California nonprofit public benefit corporation
("Trustor"), whose address is 725 Alma Street, Palo Alto, California 94301, in favor of First
American Title Guaranty Company, a California corporation ("Trustee"), whose address is 1737
North First Street, San Jose, California 95112, for the benefit of the CITY OF PALO ALTO
("Beneficiary"), whose address is 250 Hamilton Avenue, Palo Alto, California 94301,
WITNESSETH: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND
ASSIGNS TO TRUSTEE IN TRUST, WITH POWER OF SALE, that real property and
improvements in the City of Palo Alto, County of Santa Clara, State of California, described in
Exhibit "A", attached hereto and made a part hereof by reference ("Security" or "Property"),
TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the
right, power, and authority given to and conferred upon Beneficiary, by subdivision B of the
fictitious deed of trust recorded in the office of the Recorder of the County of Santa Clara, in
Book 5336 of Official Records, at Page 341, adopted and incorporated herein by reference and
made a part hereof as if fully set forth herein, to Collect and apply such rents, issues and profits,
FOR THE PURPOSE OF SECURING (a) payment of the indebtedness evidenced by that
Promissory Note ("Note"), and any extensions or renewals thereof, in the principal amount of
$5,874,000 executed by Trustor in favor of Beneficiary, (b) performance by Trustor of its
obligations under the Amended and Restated Disposition and Development Agreement for Oak
Court Apartments among Trustor, Beneficiary and Oak Court Apartments, L.P. dated as of
,2003, and (c) the performance by Trustor of its obligations under the Land
Regulatory Agreement and Declaration of Restrictive Covenants for Oak Court Apartments
dated as of ., 2003 between Trustor and Beneficiary.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR AGREES:
LA1 522619vl Oak Court Land TD
1. Fictitious Deed of Trust. By the execution and delivery of this Deed of Trust and
the Note secured hereby, that the provisions of subdivisions A and B inclusive, of the fictitious
deed of trust recorded in the office of the Recorder of the County of Santa Clara in Book 5336 of
Official Records, at Page 341, hereby are adopted and incorporated herein and made a part
hereof as fully as though set forth herein at length; that it will observe and perform said
provisions; and that the references to property, obligations, and parties in said provisions shall be
construed to refer to the property, obligations, and parties set forth in this Deed of Trust.
2. Prohibited Transfers. Trustor shall not, voluntarily or involuntarily or by
operation of law, sell, transfer, lease, pledge, encumber, create a security interest in, or otherwise
hypothecate or alienate all or any part of the Security, with the exception of the ground lease of
the Property to Oak Court Apartments, L.P. concurrently herewith, without Beneficiary’s prior
written consent. The consent by Beneficiary to any sale, transfer, lease, pledge, encumbrance,
creation of a security interest in, or other hypothecation of the Security shall not be deemed to
constitute a novation or a consent to any further sale, transfer, lease, pledge, encumbrance,
creation of a security interest in or other hypothecation. Beneficiary may, at its option, declare
the indebtedness secured hereby immediately due and payable, without notice to Trustor or any
other person or entity (except as provided herein), upon any such sale, transfer, lease, pledge,
encumbrance, creation of a security interest in, or other hypothecation or alienation in violation
hereof. Without the written consent of Beneficiary, no sale, transfer, lease, pledge,
encumbrance, creation of a security interest in, or other hypothecation of the Security shall
relieve or release Trustor from primary liability under this Deed of Trust or the Note, as the case
may be. As used in this Section 2, the term "transfer" includes, without limitation, the following
transactions:
a.Any total or partial sale, assignment or conveyance, or creation of any
trust or power, or any transfer in any other mode or form with respect to the Security or any part
hereof or any interest herein, or any contract or agreement to do the same;
b. The cumulative transfer of more than ten percent (10%) of the Capital
stock, partnership profit and loss interest, or other form of interest in Trustor; and
assets of Trustor.
Any merger, consolidation, sale or lease of all or substantially all of the
3. Due on Sale. In the event of default by Trustor under this Deed of Trust, or if the
Property or any part thereof or any interest therein is sold, agreed to be sold, conveyed, alienated
or refinanced by Trustor, or by the operation of law or otherwise, without the written consent of
Beneficiary, all obligations secured by this instrument irrespective of the maturity dates
expressed therein, at the option of Beneficiary hereof and without demand or notice shall
immediately become due and payable.
LA1 522619vl Oak Court Land TD
4. Notices. Tmstor requests that a copy of any Notice of Default, and of any Notice
of Sale hereunder, be mailed to it at its address hereinabove set forth, and that additional copies
of any such notice be mailed to the City of Palo Alto, Office of the City Clerk, 250 Hamilton
Avenue, Palo Alto, California 94301.
PALO ALTO HOUSING CORPORATION,
a California non-profit public benefit
corporation
By:
Name: Marlene H. Prendergast,
Title: Executive Director
By:
Name:
Title:
LAI 522619vl Oak Court Land TD
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
City of Palo Alto
Office of the City Attorney
250 Hamilton Avenue
Palo Alto, CA 94301
RECORDED WITHOUT CHARGE.
GOVERNMENT CODE SECTIONS
610o, _7~83
EXHIBIT F
Form of Regulatory Agreement
SPACE ABOVE THIS LINE FOR RECORDER’S USE
REGULATORY AGREEMENT AND DECLARATION OF
RESTRICTIVE COVENANTS FOR OAK COURT APARTMENTS
THIS REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE
COVENANTS FOR OAK COURT APARTMENTS ("Regulatory Agreement") is made and
entered into as of ., 2003, 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"), PALO ALTO HOUSING CORPORATION, a California nonprofit public benefit
corporation ("PAHC"), with offices at 725 Alma Street, Palo Alto, California 94301 and OAK
COURT APARTMENTS, L.P., a California limited partnership, with offices at 725 Alma Street,
Palo Alto, California 94301 ("Oak Court LP");
WITNE S SETH:
WHEREAS, pursuant to that certain Amended and Restated Disposition and
Development Agreement for Oak Court Apartments among City, PAHC and Oak Court LP of
even date herewith (the "DDA"), City has agreed to sell to PAHC certain real property located in
the City of Palo Alto, County of Santa Clara, State of California commonly known as 845
Ramona Street and more particularly described on Exhibit A (the "Land") provided, that the Land
is used for below-market rate housing, as set forth in the DDA and this Regulatory Agreement;
WHEREAS, Oak Court LP intends to enter into a ground lease pursuant to which it will
lease the Land from PAHC, and intends to construct thereon improvements constituting the 53-
unit rental apartment complex commonly known as Oak Court Apartments (the "Project");
WHEREAS, PAHC and Oak Court LP have requested that the City provide financial
assistance for the acquisition of the Land by PAHC and for the development and construction of
the Project by Oak Court LP;
WHEREAS, the County of Santa Clara issued an allotment of Article 34 authority to the
City on December 17, 2001 for 53-units of new construction rental housing in the Oak Court
Apartments project under Measure A as approved by the voters in November 1998;
LA1 522707v3
WHEREAS, fifty-two (52) units of the Project will be occupied by Very Low-Income
and Low-Income households at affordable rents;
WHEREAS, the construction of affordable, rental housing for occupancy by Very Low-
Income and Low-Income Households is an objective of the City’s Consolidated Plan and the
Housing Element of the City’s Comprehensive Plan;
WHEREAS, Oak Court LP has received commitments (i) for construction and permanent
financing from the California Housing Finance Agency ("Cal HFA") on May 15, 2003 funded by
an allocation of tax-exempt bond authority that was awarded on July 9, 2003, (ii) for permanent
financing from the Multi-Family Housing Program Funds of the California Department of
Housing and Community Development ("MHP") on June 3, 2003, (iii) for the AHP Loan from
Borel Bank on December 14, 2001, and (iv) for a loan from the Housing Trust Fund of Santa
Clara County (the "HTF Loan") on January 28, 2002~,
WHEREAS, Oak Court LP has applied for, and expects to obtain by July 23, 2003, an
allocation of the four percent Low Income Housing Tax Credits from the California Tax Credit
Allocation Committee and to sell such tax credits to an equity investor, which will become the
limited parmer of Oak Court LP, in order to provide additional financing for the development of
the Project.
WHEREAS, pursuant to the DDA City has agreed to provide financial assistance in the
form of a loan in the amount of $5,874,000 to PAHC to finance PAHC’s acquisition of the Land
from the City (the "Land Loan"), and a loan in the amount of $1,960,000 to Oak Court LP to
assist in financing the development and construction of the Improvements (the "Development
Loan"), provided that PAHC and Oak Court LP agree that the Project will be constructed and
operated in accordance with the terms and conditions of the DDA and this Regulatory
Agreement;
WHEREAS, the source of funds for the Land Loan and the Development Loan is the
City’s Commercial Housing In-Lieu Fund, and the construction of new rental housing for low-
income households and very low-income households is the one of the primary purposes for
which in-lieu housing fees are collected by the City and deposited into that fund;
WHEREAS, in consideration of the City’s making the Land Loan and the Development
Loan, PAHC and Oak Court LP have agreed to observe and perform all of the terms and
conditions set forth in this Regulatory Agreement, and have agreed that the Land and the
Improvements will be subject to the terms and conditions set forth in this Regulatory Agreement,
for a period of approximately fifty-five (55) years commencing of 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 terms of the MHP Regulatory Agreement and the TCAC
Regulatory Agreement applicable to the Project, 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; and
WHEREAS, upon the expiration of the term of this Regulatory Agreement, City shall
have the right to purchase the Land and the Improvements;
2
LA1 522707"3
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:
ARTICLE 1 - DEFINITIONS.
The following terms as used in this Regulatory Agreement shall have the respective
meanings assigned to them in this Article 1, unless the context clearly indicates otherwise:
"Bond Regulatory Agreement" means a regulatory agreement meeting the requirements
of Cal HFA which will be recorded against the Improvements and the leasehold interest of
Developer under the Ground Lease (but not against the fee interest in the Land).
"Cal HFA" means the California Housing Finance Agency.
"City" means the City of Palo Alto, California.
"DDA" means the Amended and Restated Disposition and Development Agreement for
Oak Court Apartments of even date herewith among City, PAHC and Oak Court LP.
"Developer" means Oak Court LP, and any successor owner of the Improvements.
(whether as the lessee under the Ground Lease or as the fee owner of the Land) during the term
of this Regulatory Agreement.
"Development Loan" means the loanin the principal amount of $1,960,000 to be made to
Oak Court LP by the City prior to the start of construction of the Improvements by Oak Court
LP.
"Extremely Low-Income Household" means a household with gross income that does not
exceed 35% of State Median Income and which is otherwise a qualified Tenant under the MHP
Program Regulations.
"Extremely Low-Income Units" means the Units that are occupied by Extremely Low-
Income Households.
"Fiscal Year" means a calendar year during the term of this Regulatory Agreement;
provided, however, the first Fiscal Year shall commence on the effective date of hereof and shall
end on the next following December 31, and the last Fiscal Year shall be for the period from
January 1 of that year through the end of the term of this Regulatory Agreement.
"Ground Lease" means the ground lease of the Land between PAHC as lessor and Oak
Court LP as lessee for a term of not less than seventy-five (75) years pursuant to which Oak
Court LP is obligated to construct and thereafter operate the Improvements for the purposes and
subject to the restrictions set forth in this Regulatory Agreement.
"HAP Contract" means a Housing Assistance Payment contract with HUD or the
Housing Authority for project-based Section 8 rental assistance.
3
I..A1 522707v3
"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 53-unit rental apartment
complex to be known as Oak Court Apartments as approved, subject to conditions, by the City’s
Director of Planning and Community Environment on December 4, 2001.
"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 the MHP Regulatory Agreement and the
TCAC Regulatory Agreement.
"Land" means the parcel of real property located at 845 Ramona Street, Palo Alto,
California, and legally described in Exhibit A, attached hereto and incorporated by reference
herein.
"Land Loan" means the loan in the principal amount of $5,874,000 made to PAHC by the
City concurrently with the execution of this Regulatory Agreement to finance PAHC’s
acquisition of the Land.
"Low-Income Household" means a household with gross income that does not exceed
60% of Median Income and which is otherwise a qualified Tenant under the MHP Regulations.
"Low-Income Units" means the Units that are occupied by Low-Income Households.
"LP Investor" means Union Bank of California, N.A.
"Median Income" means the median income for households in Santa Clara County, State
of California, as determined from time to time by HUD in a manner consistent with the
determination of median gross income under the Section 8 program and published by State HCD.
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 Developer with other income determinations that are
reasonably similar with respect to methods of calculation contained in that previous HUD
publication.
"MHP" means the Multi-Family Housing Program as contained in the California Code of
Regulations (CCR) Title 25, Division 1, Chapter 7, Subchapter 4, Sections 7300 - 7336, as
amended from time to time, and administered by the California Department of Housing and
Community Development.
"IVIHP Reg~atory Agreement" means the fifty-five (55) year regulatory agreement
meeting the requirements of MHP to be recorded after completion of construction against the
Improvements and the leasehold interest of Developer under the Ground Lease (but not against
the fee interest in the Land).
4
LA1 522707v3
"Mortgagee" means a mortgagee of a mortgage, beneficiary of a deed of trust, or the
secured party under any other financing device encumbering the Property or the Project.
"Oak Court LP" means Oak Court Apartments, L.P., a California limited partnership.
"PAHC" means Palo Alto Housing Corporation, a California nonprofit public benefit
corporation.
"Party" means any party to this Agreement. The "Parties" shall be all parties to this
Agreement.
"Project" means the Improvements constructed on the Land for the purpose of providing
52 rental housing units (plus a manager’s unit) which shall be offered for rent and occupied as
provided in this Regulatory Agreement.
"Property" means the Improvements and the leasehold estate interest in the Land under
the Ground Lease.
"Regulatory Agreement" means this "Regulatory Agreement and Declaration of
Restrictive Covenants for Oak Court 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 Developer 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.
"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.
"Section 8 Assistance Program" means a program funded by HUD that provides rental
assistance on behalf of Low-Income Households, or a successor federal 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 preliminary site plan for the Project, as approved, subject to
conditions, by the City’s Director of Planning and Community Development on December 4,
2001.
5
LA1 522707v3
"State HCD" means the California Department of Housing and Community
Development.
"State Median Income" means the total median family income for California, as
determined from time to time by HUD and published by State HCD.
"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
.which will be recorded by the TCAC against the Improvements and the interest of Developer
under the Ground Lease (but not against the fee interest in the Land) to secure compliance by
Developer with the Tax Credit Regulations.
"Unit" means one of the apartment units in the Improvements constructed on the Land.
"Tenants" (individually, "Tenant") means the occupants of the Project’s 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 MHP
Program Regulations.
"Very Low-Income Units" means the Units that are required to be occupied by Very
Low-Income Households.
ARTICLE 2 - AFFORDABILITY COVENANTS
2.1 Use. Occupancy and Rent Restrictions
The Land and the Property shall be used solely for the construction, operation and
maintenance of 53-Units of mukifamily rental housing, with 52-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 writtenamendment approved by
the City, at least nineteen (19) of the Units shall be made available to Extremely Low-Income
Households, twenty-three (23) of the Units shall be made available to Very-Low Income
Households, and ten (10) of the Units shall be made available to Low-Income Households at
affordable rents as described herein. Without derogating the importance of compliance by
PAHC and Developer with the other provisions of this Regulatory Agreement, compliance by
PAHC and Developer with the provisions of this Article 2 is of particular importance to City and
is one of the principal reasons for which City is willing to make the Land Loan to PAHC and the
Development Loan to Oak Court LP.
2.1.1 Extremely Low-Income Units: At all times during the term of this
Regulatory Agreement:
LA1 522707v3
6
(i) Nineteen (19) 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 Multifamily Housing Program Regulations, as published annually, based on the unit
type.
(iii) Developer shall designatethree (3) one-bedroom units, eight (8) two-
bedroom units and eight (8) three-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.
Agreement:
2.1.2 Very Low-Income Units: At all times during the term of this Regulatory
(i) Twenty-three (23) 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 L0w-Income Units shall not exceed the amount of Rent allowed under
the Multifamily Housing Program Regulations, as published annually, based on the unit type.
(iii) Developer shall designate four (4) one-bedroom units, eight (8) two-
bedroom units and eleven (11) three-bedroom units as the required Very Low-Income Units and
may change 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.
Agreement:
2.1.3 Low-Income Units: At all times during the term of this Regulatory
(i)Ten (10) Units, shall be rented and occupied by, or if vacant, made
available for rental and occupancy by, 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 Low-Income Units shall not exceed the amount of Rent allowed under the
Multifamily Housing Program Regulations, as published annually, based on the unit type.
(iii) Developer shall designate two (2) one-bedroom units, two (2) two-
bedroom units and six (6) three-bedroom units as the required Low-Income Units and may
change the designated Low-Income Units from time to time, as vacancies occur and Tenant
7
LAI 522707v3
incomes and household composition change, provided that the same proportions of each unit
type are maintained.
2.1.4 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 resident manager as a condition of
employment. It is expected that the resident manager will occupy the Unit in the rehabilitated
historic house, but another Unit in the Project may be substituted as a manager’s unit.
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, Very Low or 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 in Section 2.1.1, 2.1.2, 2.1.3, or Section 2.5,
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 PAHC or Developer 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
Re~o~ulatory Agreement.
2.4 Lease Provisions
PAHC and Developer shall include in the leases or rental agreements for all Units
occupied by Extremely Low-Income, Very Low-Income or 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. PAHC, Developer
and the City hereby acknowledge that Section 42(h)(6)(E)(ii) of the United States Internal
Revenue Code, as amended, does not permit the eviction or termination of tenancy (other than
for good cause) of an existing Tenant of any Unit for which Developer has received an allocation
of tax credits, or any increase in the gross rent with respect to such Unit not otherwise permitted
under Section 42, for a period of three (3) years after the date the Property on which such Unit is
located is acquired by foreclosure or instrument in lieu of foreclosure.
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LA1 522707v3
2.5 Applicability of MHP Regulations and MHP Regulatory Agreement
During the term that the MHP 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 MHP Regulatory Agreement
shall be deemed to be in compliance with this Regulatory Agreement, for purposes of this Article
2.
In the event of a conflict between the provisions of this Article 2 and the MHP
Regulatory Agreement, the MHP ~Regulatory Agreement shall prevail. PAHC and Developer
shall comply with all other requirements of this Regulatory Agreement that are in addition to the
MHP Regulatory Agreement.
ARTICLE 3 - COVENANTS AND CONDITIONS
3.1 General
In consideration for receiving the Land Loan from City, PAHC will lease the Land to
Oak Court LP pursuant to the Ground Lease. In consideration for receiving the Development
Loan from City, Developer shall lease the Land pursuant to the Ground Lease and shall
construct, or cause to be constructed, the Improvements in the manner set forth in the DDA.
Wherever the term "Developer" is used in this Article 3 or in Article. 4, the term will be
¯ understood to refer to both PAHC and Developer; provided, however, to the extent that any of
the obligations of PAHC and Developer under this Regulatory Agreement is performed by
Developer, performance of the obligation by Developer shall also constitute performance of that
obligation by PAHC. Thus, by way of example only, and not in limitation of the foregoing, the
maintenance of required Reserves by Developer shall also constitute satisfaction of that
requirement by PAHC, and income recertification of residents by Developer as required
hereunder shall also constitute satisfaction of that requirement by PAHC.
3.2 Nontransient Residential Use
No part of the Project shall be operated as transient housing; provided, however, the
Project shall not be considered to be used on a transient basis merely because the Project or any
of the Units is rented on a month-to-month basis.
3.3 Insurance
Developer, at its sole cost and expense, shall obtain and maintain during the term of this
Regulatory Agreement, insurance with responsible companies authorized to engage in the
offering of insurance services in California in such amounts and against such risks as shall be
satisfactory to the City’s risk manager, including, without limitation, workers’ compensation 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 Developer and its respective partners,
directors, officers, employees, agents, and representatives arising out of or in connection with the
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LA1 522707v3
Project, or Developer’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. Developer 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
Developer shall pay all real and personal property taxes, assessments and charges and all
franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed
against it, or payable by it, at such times and in such manner as to prevent any penalty from
accruing, or any lien or charge from attaching to the Property; provided, however, that Developer
shall have the right to contest in good faith, any such taxes, assessments, or charges. In the event
Developer exercises its right to contest any tax, assessment, or charge against it, Developer, on
the final determination of the proceeding or contest, shall immediately pay or discharge any
decision or judgment rendered against it, together with all costs, charges and interest.
3.5 Costs of Operation and Maintenance
The Developer will be responsible for all costs of operating and maintaining the Project,
including but not limited to taxes, insurance and utilities. Developer shall maintain the Property
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
The City, or its authorized representatives, shall have the right to make periodic on-site
inspections of the Property and the Units during working hours upon reasonable notice to
Developer.
3.7 Budgets
The Developer 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 MHP. The Developer 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 Developer 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 Developer that the City has elected to invoke
this provision, the Developer will be required to maintain operating and replacement Reserves
satisfactory to the City (provided, however, that any reserve requirements satisfactory to both
MHP and LP Investor will be deemed satisfactory to City), and will not be permitted to withdraw
funds from the Reserves without the City’s approval, not to be unreasonably withheld.
LA1 522707v3
10
3.9 Management
Commencing 60 days after the City notifies Developer that the City has elected to invoke
this provision, the Developer will be required to obtain the approval of the City, not to be
unreasonably withheld, to the operating management of the Project, including the Developer.
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 Developer
or any person claiming under or through Developer, establish or permit any such practice or
practices of discrimination or segregation with reference to the selection, location, number, use,
or occupancy, of tenants, lessees, sublessees, subtenants, or vendees of any Unit or in connection
with the employment of persons for the construction, operation and management of any Unit.
3.11 Efforts to Seek Section 8 Housing Assistance Payment Contracts for the
Extremely Low-Income Units
As a continuing obligation during the term of this Regulatory Agreement, Developer
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 made available from HUD or
from the Housing Authority from time to time. Developer shall seek the longest HAP Contract
term available and shall seek such contract assistance for all of the nineteen (19) eligible
designated Extremely Low-Income 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, Developer.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
3.12.1 Developer agrees to accept Section 8 Assisted Households as Tenants on
the same basis as all other prospective tenants. Developer shall not apply selection criteria to
Section 8 Assisted Households that are more burdensome than criteria applied to all other
prospective tenants, nor shall Developer 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 Developer 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 MHP, Developer will give a preference in the
selection of Tenants, 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
LAI 522707v3
11
the waiting list. Developer will use the definitions and procedures applicable to the City’s Below
Market Rate housing program to administer this preference.
3.13 TCAC. MHP and Bond Re .gulatorv A~reements
This Regulatory Agreement shall be subordinate to a TCAC Regulatory Agreement, a
MHP Regulatory Agreement and a Bond Regulatory Agreement on customary terms as approved
by the City. Compliance with the TCAC, MHP and!or Bond Regulatory Agreements shall be
deemed compliance with this Regulatory Agreement to the extent the TCAC, MHP and/or Bond
Regulatory Agreement is more restrictive than this Regulatory Agreement. In case of a direct
conflict between this Regulatory Agreement and the TCAC, MHP and/or Bond Regulatory
Agreements, the Developer shall comply with the TCAC, MHP and/or Bond Regulatory
Agreement, as applicable; however, the Developer shall comply with all requirements of this
Regulatory Agreement that are in addition to (rather than inconsistent with) requirements of the
TCAC, MHP and Bond Regulatory Agreements.
ARTICLE 4 - INCOME CERTIFICATION AND REPORTING
4.1 Income Certification
Developer 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, Very Low-Income and Low-Income Units. Developer shall make a
good faith effort to verify that the income provided by an applicant, or occupying household, in
an income certification is accurate in accordance with the MHP 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
Developer 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 Developer which pertain to the Property or any Unit and
Developer shall provide any information reasonably requested. Developer shall deliver to the
City copies of all reports submitted to the State’s Department of Housing and Community
Development, the California Tax Credit Allocation Committee and the Internal Revenue Service,
as may be requested by the City.
4.3 Records
Developer 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 Developer and shall be
12
LAI 522707v3
maintained as required by the City, in a reasonable condition for proper audit and subject to
examination by representatives of the City:
4.4 Financial Audits
Developer shall provide City, during the term of this Regulatory Agreement, with copies
of audited financial statements of Developer, including any management letter comments on the
adequacy of internal or operational controls, within one hundred fifty (150) days of the close of
each fiscal year of the Property. 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
Except for (a) leases with the Tenants in the ordinary course of business, (b) transfer of
up to a ninety-nine and ninety-nine one hundredths percent (99.99%) limited partnership interest
to one or more entities controlled by LP Investor, or (c) the exercise of an option or right of first
refusal to acquire the Improvements by the general partner of Developer, or by PAHC, or by an
affiliate of either of them, PAHC shall not cause or permit any voluntary transfer, assignment or
encumbrance of its interest in the Land, or lease (other than the Ground Lease) or permit a
sublease of all or any part of the Land without first obtaining City’s written consent, and
Developer shall not cause or permit any voluntary transfer, assignment or encumbrance of its
interest in the Improvements or lease or permit a sublease of all or any part of the Improvements
without first obtaining the City’s written consent. Any transfer, assignment, encumbrance, or
lease without the City’s written consent shall be voidable and, at the City’s election, shall
constitute a breach of this Regulatory Agreement. No consent to any assignment, encumbrance
or 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 - NOTICES
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:City of Palo Alto
250 Hamilton Avenue
Palo Alto, CA 94301
Attn.: City Clerk
13
LAI 522707~
Copy to:Director of Planning & Community Environment
City of Palo Alto
250 Hamilton Avenue
Palo Alto, CA 94301
To PAHC:Palo Ako Housing Corporation
725 Alma Street
Palo Alto, California 94301
Attention: Marlene H. Prendergast, Executive Director
To Developer:Oak Court Apartments, L.P.
c/o Palo Alto Housing Corporation
725 Alma Street
Palo Alto, CA 94301
Attn: Executive Director
Copy to LP Investor:Union Bank of California, N.A.
200 Pringle Avenue, Suite 200
Walnut Creek, CA 94546
Attention: James H. Francis
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 PAHC or Developer, or PAHC’s or Developer’s agents, employees or contractors.
PAHC and Developer 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. PAHC and
Developer have retained and hereby retain the right to exercise full control of employment,
direction, compensation and discharge of all persons assisting in the performance of services
recognized hereunder. PAHC and Developer each agrees to be solely responsible for their 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 PAHC and Developer each 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
LA1 522707v3
14
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 determined
by a court of competent jurisdiction to be invalid, illegal, void, or unenforceable in any respect,
the validity of all other provisions herein shall remain in full force and effect.
6.6 This Regulatory Agreement shall be deemed a contract made under the laws of
the State of California, and for the purposes hereof shall be governed and construed by and in
accordance with the laws of the State of California. All exhibits referred to in this Regulatory
Agreement and any addenda, appendices, attachments, and schedules which may, from time to
time, be referred to in any duly executed amendment hereto are by such reference incorporated in
this Regulatory Agreement and shall be deemed to be part hereof. This Regulatory Agreement
may be executed in any number of counterparts, each of which shall be an original, but 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 Land and the
Property, including the Improvements, for the entire 55-year term hereof even if the Land Loan
and/or the Development Loan is paid in full prior to the end of said term. This Regulatory
Agreement shall bind any successor, heir or assign of PAHC or Developer, 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 in the Official
Records of Santa Clara County. PAHC and Developer each acknowledge that the City has made
the Land Loan and has agreed to make the Development Loan on the condition that the
provisions of this Regulatory Agreement shall apply to the Improvements for its entire 55-year
term, and in consideration of this provision, and would not have done so otherwise.
15
LA1 522707v3
6.9 The City, PAHC and Developer hereby declare their express intent that the
covenants and restrictions set forth in this Regulatory Agreement shall run with the land, the
interest of Developer under the Ground Lease, and shall bind all successors in interest to Land
and!or the Improvements, 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 Land and/or the
Improvements 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 Land and/or Improvements from the requirements of this
Regulatory Agreement.
6.10 If PAHC or Developer fails to perform any obligation under this Regulatory
Agreement, and fails to cure the default within 30 days after the City has notified PAHC or
Developer in writing of the default or, if the default cannot be cured within 30 days, fails to
commence to cure promptly and thereafter diligently pu.rsue 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 Property and
City; provided, however, neither PAHC nor Developer nor any of their 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, PAHC or Developer.
6.12 By executing this Regulatory Agreement, Oak Court LP agrees and intends that
Developer shall be bound hereby, and that the Property will be subject to the provisions hereof,
without regard to whether the Ground Lease, or any recorded memorandum thereof, is executed
or recorded prior to, concurrently with, or subsequent to the execution of this Regulatory
Agreement and/or recordation of this Regulatory Agreement in the Official Records of Santa
Clara County.
6.13 The City, PAHC and Developer shall cause this Regulatory Agreement, and all
amendments and supplements to it, to be, recorded in the Official Records of the County of Santa
Clara. This Regulatory Agreement shall continue in effect until the expiration of the Initial
Term; provided, however, PAHC 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 an additional forty-four (44) years, in which event this Regulatory
Agreement will continue in effect and will be binding upon PAHC and Developer until, and will
expire on, the forty-fourth (44t~) anniversary of the expiration of the Initial Term.
6.14 City Option to Purchase: PAHC hereby grants to City the option to purchase the
Land and all Improvements thereon, free and clear of the Ground Lease and of all liens and
encumbrances other than those theretofore approved by the City, at the end of the Initial Term,
for an amount equal to the sum of(i) the unpaid balance of the Land Loan, plus (ii) the unpaid
LAI 522707v3
16
balances of the Development Loan and any other outstanding loans approved by City that are
secured by the leasehold interest under the Ground Lease and/or the Improvements (collectively,
the "Leasehold Loans"), plus (iii) the Equity Value of the Improvements, if any. The City may
exercise its option by notice in writing to PAHC given at any time prior to the expiration of the
Initial Term. If the City exercises the option, the City may pay the purchase price by accepting
title to the Land "subject to" the outstanding principal balance of the Land Loan and accepting
title to the Improvements "subject to" the outstanding principal balance of the Leasehold Loans;
provided, however, in the event the Equity Value of the Improvements is greater than zero, City
shall in addition pay to PAHC an amount equal to the Equity Value of the Improvements. As
used herein, the "Equity Value of the Improvements" shall mean the amount, if any, by which
the appraised value of the Improvements (which shall not include the value of the Land or the
value of the leasehold interest under the Ground Lease), as determined by an appraiser
satisfactory to City, based on the assumption that the Improvements would continue to be
operated in accordance with Article 2 hereof for an additional 44 years beyond the expiration of
the Initial Term, exceeds the aggregate unpaid principal balances of the Leasehold Loans. Oak
Court LP acknowledges that its rights under the Ground Lease shall be subordinate to the rights
of City hereunder; however, in the event that PAHC has not directly or indirectly acquired either
the Property or the interest of LP Investor in Oak Court LP, upon request by Oak Court LP, City
will enter into a new lease with Oak Court LP (the "New Lease") on the same terms as the
Ground Lease and for a term equal to the remaining term of the Ground Lease, provided that (i)
Oak Court LP has refinanced the Leasehold Loans with a fully amortizing loan with equal
periodic installments and having a maturity date not later than one year before the expiration of
the term of the New Lease (the "New Leasehold Loan") and will be obligated to make all
payments under the New Leasehold Loan, and (ii) any default under the New Leasehold Loan
will be a default under the New Lease.
17
LA1 522707v3
IN WITNESS WHEREOF, the parties hereto have executed this Regulatory Agreement
and Declaration of Restrictive Covenants for Oak Court Apartments the day and year first above
written.
ATTEST:CITY OF PALO ALTO,
a chartered California municipal corporation
City Clerk By:
APPROVED AS TO FORM:
City Attorney
APPROVED:
Mayor
PALO ALTO HOUSING CORPORATION,
a California nonprofit public benefit corporation
("PAHC")
By:
Presidem
By:
City Manager
Director of Planning and
Community Environment
Director of Administrative Services
By:
Secretary
OAK COURT APARTMENTS, L.P.,
a California limited parmership
By:PAHC Sheridan Apartments, Inc.,
a California nonprofit public benefit
corporation,
General Partner
By:
President
Insurance Review
ATTACHMENT S:
Exhibit A:Legal Description
Exhibit B:Insurance Requirements
By:
Secretary
Taxpayer Idemification No.
LA1 522707v3
18
EXHIBIT A
LEGAL DESCRIPTION
LA1 522707v3
EXHIBIT B
INSURANCE REQUIREMENTS
1. FIRE AND EXTENDED COVERAGE Insurance, to cover not less than One Hundred
Percent (100%) of the replacement cost of all insurable improvements within or upon the
Property. Such policies shall include water damage and debris cleanup provisions.
POLICY MINIMUM LIMITS OF LIABILITY
2.WORKERS COMPENSATION Statutory
3. COMPREHENSIVE AUTOMOBILE
LIABILITY, including owned hired, and
nonowned automobiles
Bodily Injury
Property Damage
$5,000,000 ea person
$5,000,000 ea occurrence
4. COMMERCIAL GENERAL
LIABILITY, including products and
completed operations, broad form
contractual, and personal injury.
Bodily Injury
Property Damage
$5,000,000 ea person
$5,000,000 ea. occurrence
$5,000,000 aggregate
$5,000,000 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 ofPalo Alto~lanning 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 employmentor 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 admitted to do business in the State of
California. The certificate(s) of insurance evidencing such coverage shall be completed and
executed by an authorized representative of the company providing insurance, and shall be filed
with and approved by City’s risk manager.
LAI 522707v3
EXHIBIT G
Form of Development Note
$1,960,000
PROMISSORY NOTE
SECURED BY DEED OF TRUST AND ASSIGNMENT OF RENTS
(DEVELOPMENT NOTE)
,2003
Palo Alto, California
FOR VALUE RECEIVED, the undersigned, OAK COURT APARTMENTS, L.P., a
California limited partnership ("Maker"), hereby promises to pay to the CITY OF PALO ALTO,
a chartered California municipal corporation ("Holder"), or order, at 250 Hamilton Avenue, Palo
Alto, California, or at such other place as may be designated, in writing, by the Holder from time
to time, the principal sum of One Million Nine Hundred Sixty Thousand Dollars ($1,960,000),
pursuant to the terms and conditions set forth in this Promissory Note ("Note"). The principal
amount of this Note shall bear interest at the "Applicable Interest Rate" (as defined below).
ADDITIONAL TERMS AND CONDITIONS
1. This Note is made in connection with the agreement between Maker and the City
of Palo Alto entitled "Regulatory Ageement and Declaration of Restrictive Covenants for Oak
Court Apartments" ("Regulatory Ageement") executed in connection with the acquisition by
Holder of a leasehold interest in real property in the City of Palo Alto containing approximately
1.23 acres and commonly known as 845 Ramona Street ("Site") pursuant to a ground lease of the
Site between Palo Alto Housing Corporation, a California nonprofit public benefit corporation
("PAHC") as lessor and Maker as lessee (the "Ground Lease"), and the development thereon by
Maker of a 53 unit (including manager’s unit) apartment project designed for low-and very low-
income families with children ("Project"). All terms, conditions, agreements and provisions,
including the covenants, representations, and terms of default and remedies for default, set forth
in the Regulatory Agreement are incorporated herein by reference, and made a part hereof.
2. This Note evidences the obligation of the Maker to make full payment of the Loan
Amount to the Holder, in accordance with the provisions of this Note.
3. This Note is secured by a deed of trust executed by Maker for the benefit of the
Holder and encumbering the Project and Maker’s leasehold interest in the Site (the "Deed of
Trust").
4. This Note and the Deed of Trust securing this Note is, or will be, subordinate to a
construction loan in original principal amount of approximately $11,500,000 made by the
California Housing Finance Agency ("Cal HFA") and an Affordable Housing Program loan in
original principal amount of $265,000 made by Borel Bank (the "AHP Loan"). Following
completion of construction of the Project, this Note and the Deed of Trust securing this Note will
be subordinate to (a) a permanent loan by Cal HFA in principal amount of approximately
$2,600,000 (the "Primary Loan"), (b) a loan in original principal amount of approximately
$4,550,000 made pursuant to the Multi-Family Housing Progam ("MHP") as contained in the
LA1 522256v2
California Code of Regulations Title 25, Division 1, Chapter 7, Subchapter 4, Sections 7300 -
7336, as amended from time to time, and administered by the California Department of Housing
and Community Development (the "MHP Loan"), (c) a loan in original principal amount of
approximately $400,000 made by Housing Trust Fund of Santa Clam County (the "HTF Loan"),
and (d) the AHP Loan.
5. The term of this Note shall commence on the date set forth above and shall expire
or terminate on the date on which the Maker makes full payment of the principal sum of this
Note. In no event shall full payment be made by the Maker later than concurrently with the
expiration or earlier termination of the term of the Regulatory Agreement.
6. Subject to the provisions of Sections 7 and 8 below, Maker shall make payments
to Holder in annual installments on May 1, in an amount equal to City’s Proportionate Share of
Residual Receipts of the Project for the fiscal year most recently ended. Payments shall be
credited first to any accrued but unpaid interest, then to current interest then due and owing, and
then to principal.
6.1 For purposes of this Section 6, "City’s Proportionate Share" means a
fraction, the numerator of which is the original principal amount of this Note, and the
denominator of which is the sum of the original principal amounts of this Note, the MHP Loan,
and the HTF Loan.
6.2 For purposes of this Section 6, until such time as the MHP Loan has been
paid in full, "Residual Receipts" will equal "Net Cash Flow" determined in accordance with the
MHP Regulatory Agreement recorded against the Site; after the MHP Loan has been paid in full,
"Residual Receipts" shall mean the amount by which cash receipts of the Project for a period
exceeds the amount of Approved Partnership Payments for the same period.
6.3 For purposes of this Section 6, "Approved Partnership Payments" means,
for any period, the sum of the following expenses reasonably incurred and actually paid during
that period:
(i)all expenses actually and reasonably incurred by Maker in owning,
operating, maintaining and repairing the Project, .including without limitation taxes, insurance,
and maintenance expenses for the Project, reasonable and customary accounting and legal fees,
advertising expenses, supplies, California limited partnership franchise tax, license and permit
fees, and utility charges;
year;
(ii)Ground Lease rent, which shall not exceed One Dollar ($1.00) per
(iii) contributions to a replacement reserves account of $18,550
annually or such other amount as may be approved by Holder in Holder’s sole discretion;
(iv) debt service on the Primary Loan;
2
1..AI 522256v2
(v) a property management fee which shall not exceed $34,980 per
year (which maximum amount may increase annually at a rate not to exceed four percent (4%)
per year, commencing in the second full year that such a fee is charged), or such other amount as
may from time to time be approved by Holder in Holder’s sole discretion;
(vi) a partnership management fee, which shall not exceed $25,000 per
year (which maximum amount may increase annually at a rate not to exceed the increase in the
rate of the Consumer Price Index for the San Francisco-Oakland-San Jose area, commencing in
the second full year that such a fee is charged), or such greater amount as may be approved by
Holder in Holder’s sole discretion, provided, however, no partnership management fee shall be
payable with respect to any year during which either (A) PAHC and its affiliates collectively
own 50% or more of the interests in the capital of Maker, or (B) any portion of the PAHC
Developer Fee (as defined in Section 7 below) remains unpaid; and
(vii) for so long as an entity other than PAHC or an affiliate of PAHC is
a limited partner of Maker, an asset management fee payable to such limited partner, which shall
not exceed $5,000 per year (which maximum amount may increase annually at a rate not to
exceed three percent (3%) per year, commencing in the second full year that such a fee is
charged), or such greater amount as may be approved by Holder in Holder’s sole discretion.
(viii) Notwithstanding the foregoing, "Approved Partnership Payments"
shall not include the following items (or, to the extent that such items have been included in
Approved Partnership Payments, the following items shall be subtracted out; for example, if
funds are withdrawn from operating reserves and spent on operating expenses, either those
expenses would not be included in Approved Partnership Payments or those expenses would be
offset by a deduction for the amount withdrawn from reserves): (a) non-cash expenses, including
without limitation, depreciation; (b) payments made from insurance or condemnation proceeds or
any costs or expenses paid or reimbursed by others; (c) funds expended from reserves; (d) the
initial cost of constructing the Project or any expansion or replacements thereof; and (e) any
penalties or interest resulting from Maker’s failure to pay when due any sums that Maker is
obligated to pay to third parties (e.g., penalties and interest for late payment of real property
taxes).
7. Notwithstanding the provisions of Section 6 above, Maker will have no obligation
to make any payments hereunder until such time as PAHC has received ag~egate development
fee payments totalIing $622,500 (the "PAHC Developer Fee"), and principal and accrued interest
on the HTF Loan have been paid in full; provided, however, until PAHC has received the~entire
PAHC Developer Fee and the HTF Loan has been paid in full, in lieu of making payment to
Holder Maker shall on or before each March 1 pay an amount equal to City’ s Proportionate
Share of Residual Receipts for the prior year as follows: (a) first to the payment to PAHC of the
deferred portion of the PAHC Development Fee, if any, without interest, until the PAHC
Development Fee has been paidin full; and (b) then to the repayment of the HTF Loan until
paid in full, and for no other purpose. By not later than March 10 of each year Maker shall
provide to Holder evidence reasonably satisfactory to Holder that Maker has made such
payments.
3
LAI 522256v2
8. For any fiscal year of the Project in which City’s Proportionate Share of Residual
Receipts is equal to or greater than the "3% Interest Amount" (as hereinbelow defined), the
"Applicable Interest Rate" shall equal three percent (3%) per annum. For any fiscal year of the
Project in which City’s Proportionate Share of Residual Receipts is less than the 3% Interest
Amount, the Applicable Interest Rate shall equal that fraction, the numerator of which is City’s
Proportionate Share of Residual Receipts for that fiscal year, and the denominator of which is the
unpaid principal balanee of this Note. As used herein, the term "3% Interest Amount" shall
mean the amount of interest that would be due at the end of a fiscal year if interest were charged
at the rate of 3% per annum on the outstanding principal balance of this Note for that fiscal year.
Notwithstanding the foregoing, until such time as principal and accrued interest under the HTF
Loan have been paid in full, and provided that payments have been made by Maker in
accordance with Section 7 above, the Applicable Interest Rate hereundershall be zero percent
(0%) per annum.
9. Maker shall deliver to the Holder within 150 days of the close of each fiscal year
of the Project an annual audited financial statement to confirm the amount of Residual Receipts.
The Holder shall have the right to inspect and audit the Maker’s books and records concerning
the calculation of Residual Receipts. In the event any audited financial statement provided by
Maker, or any inspection or audit of Maker’s books and records, discloses an underpayment of
principal and/or interest hereunder, the amount underpaid will be due and payable within fifteen
(15) days after demand therefor by the Holder; in the event of any overpayment, the amount
overpaid will be applied to the next payment due hereunder.
10. At any time, and from time to time, the Maker may prepay to the Holder the
principal sum of this Note, or any part thereof, without penalty.
11. Notwithstanding anything to the contrary contained in this Note, upon the
completion of construction of the Project, the Maker shall prepare or cause to be prepared an
independently audited cost certification in the form required by TCAC, and a final sources and
uses of funds proforma documenting the actual Total Development Costs of the Project. In the
event the sources of funds, !ncluding the Loan Amount evidenced by this Note and all other
loans and grants, the limited partner’s capital contribution, and the general partner’s capital
contribution that are available to pay such costs exceed the Total Development Costs of the
Project, the Maker shall make a mandatory prepayment of principal in an amount equal to such
excess. The Maker agrees to provide the Holder with such audited cost certification and the final
proforma budget, and to make such mandatory prepayment of principal, within twelve (12)
months after the issuance of the final certificate of occupancy or equivalent City approval
following completion of construction of the Project. For the purpose of this Section 11, "Total
Development Costs of the Project" includes: all hard and soft development costs; a developer fee
in an amount approved by TCAC; all costs related to the tax credit syndication of the Project;
audit costs; marketing costs; funding costs of any reserves required to be capitalized; all costs
related to obtaining and closing all construction and permanent financing, and other documented
costs.
LAI 522256v2
4
12. Maker shall not sell, agree to sell, convey, alienate, lease, sublease, encumber or
refinance the Project or its leasehold interest in the Site, or any interest therein (excluding,
however (a) encumbrances securing Maker’s obligations under the Primary Loan, the MHP
Loan, the HTF Loan and the AHP Loan, (b) occupancy leases to qualified residents of the
Project, and (c) transfers between Maker and PAHC that do not result in a merger of the
leasehold interest under the Ground Lease with the fee interest in the Site (collectively, the
"Permitted Transfers")) without the written consent of Holder. If the Site, or any part thereof or
any interest therein, is sold, agreed to be sold, conveyed, alienated, leased, subleased,
encumbered or refinanced by Maker, or by operation of law or otherwise, with the exception of
the Permitted Transfers, without the written consent of Holder, all obligations of Maker
hereunder, irrespective of the maturity date expressed herein, at the option of Maker and without
demand or notice, shall immediately become due and payable.
13. The Maker and any other maker, co-maker, indorser, guarantor, and any other
party to this Note (collectively, "Obligors"), and each of them: (i) waive notice of default (except
as provided in Section 16) notice of acceleration, notice of nonpayment, presentment for
payment, demand, protest, notice of demand, notice of protest, notice of nonpayment, and any
other notice required to be given under the law to the Obligors; (ii) consent(s) to any and all
delays, extensions, renewals, or other modifications of this Note or waivers of any term hereof or
release or discharge by the Holder of any of the Obligors or release, substitution, or failure to act
by the Holder, from time to time, and agree(s) that no such action, failure to act, or failure to
exercise any right or remedy on the part of the Holder shall in any manner affect or impair the
obligations of any Obligor or be construed as a waiver by the Holder of, or otherwise affect, any
of the Holder’ s rights under this Note or the Agreement, under any indorsement or guaranty of
this Note; and (iii) (jointly and individually, if more than one) agree(s) to pay, on demand, any
and all costs and expenses of collection of this Note or of any indorsement or any guaranty
hereof, including attorney’s fees.
No extension of time for payment of this Note or any portion thereof made by agreement
of Holder with any person now or hereafter liable for the payment of this Note shall operate to
release or discharge liability of Maker under this Note, either in whole or in part.
14. The pleading of any statute of limitations as a defense to any demand against the
Maker is expressly waived by the Maker.
15. If any default is made hereunder, the Maker promises to pay the Holder’s
reasonable attorneys’ fees and other related costs and expenses incurred by the Holder in
connection with the enforcement of any rights of the Holder.
16. The occurrence of any of the following shall constitute an event of default under
this Note: (i) The Maker fails to pay any amount due hereunder within fifteen (15) days of its due
date; or (ii) any default by the Maker under any other provision of this Note, or under the Deed
of Trust or the Regulatory Agreement.
Upon the occurrence of any event of default, or at any time thereafter, at the option of the
Holder hereof, the entire unpaid principal and interest owing on ~his Note shall become
5
LAI 522256v2
immediately due and payable. This option may be exercised at any time following any such
event, and the acceptance of one or more installments thereafter shall not constitute a waiver of
such option with respect to any subsequent event. The Holder’s failure in the exercise of any
other right or remedy hereunder or under any agreement which secures the indebtedness or is
related thereto shall not affect any right or remedy and no single or partial exercise of any such
right to remedy shall preclude any further exercise thereof.
If the outstanding unpaid principal balance of this Note is not paid within thirty (30) days
of demand therefor, the Maker shall pay to the Holder in addition to interest at the Applicable
Interest Rate, interest equal to one percent (1%) of the unpaid principal amount, or the highest
rate permitted by law, whichever is less, per calendar month, or fraction thereof. If this Note be
reduced to judgment, such judgment shall bear the statutory interest rate on judgments.
17. The Holder shall not exercise any right or remedy provided for herein because of
any default of the Maker unless, in the event of a monetary default, the Maker shall have failed
to pay the outstanding sums within a period of thirty (30) calendar days after notice that payment
was due. In the event of an uncured nonmonetary default, the Holder shall have first given
written notice thereof to the Maker, and the Maker shall have failed to cure the nonmonetary
default within a period of thirty (30) days after the giving of such notice of such default;
provided that if the nOnmonetary default cannot be cured within thirty (30) days and the Maker
proceeds diligently and uses best efforts to cure such default until it shall be fully cured within
no more than ninety (90) days after the giving of such notice, then the Holder shall not exercise
any right or remedy provided for herein until such 90-day period shall expire; provided,
however, the Holder shall not be required to give any such notice or allow any part of the grace
period if the Maker shall have filed a petition in bankruptcy or for reorganization or a bill in
equity or otherwise initiated proceedings for the appointment of a receiver of its assets, or if the
Maker shall have made an assignment for the benefit of creditors, or if a receiver or trustee is
appointed for the Maker and such appointment or such receivership is not terminated within
forty-five (45) days of such appointment.
With respect to any right to cure or cure period provided in this Section 17, performance
of a cure by any affiliated entity or partner of the Maker shall have the same effect as would like
performance by the Maker.
18. Any notice, demand, or other communication required hereunder shall not be
deemed sufficiently given, unless sent by certified mail, postage prepaid, return receipt
requested, or by express delivery service or overnight courier service, to the principal office of
the addressee, or at such other address as may be designated, in writing, from time to time:
Holder:City of Palo Alto
250 Hamilton Avenue
Palo Alto, California 94301
Attention:
LAI 522256v2
6
Maker:
Oak Court Apartments, L.P.
725 Alma Street
Palo Alto, California 94301
Attention: General Partner
with a copy to:Union Bank of California, N.A.
200 Pringle Avenue, Suite 200
Walnut Creek, CA 94546
Attention: James H. Francis
The delivery shall be effective on the date shown on the delivery receipt or the date on which the
delivery was refused.
19. This Note shall be nonrecourse against the Obligors. No judgment, or execution
thereof, entered in any action, legal or equitable, on this Note shall be enforced directly against
the Maker or any officer, director or employee of the Maker, but shall be enforced only against
the collateral described in the Deed of Trust, and such other or further security as, from time to
time, may be hypothecated for this Note. The foregoing limitation shall not be applicable in the
event of (a) fraud by the Maker or any material misrepresentation made by the Maker in the
Regulatory Ageement, this Note or the Deed of Trust, or (b) the sale or transfer or other
conveyance of all or any part of the Maker’s interest in the Project without the Holder’s prior
written consent. Furthermore, the foregoing limitation shall not be applicable to the extent of
any loss incurred by the Holder due to (a) misappropriation by the Maker of any rents (including,
without limitation, the application of rents to other than operating expenses and debt service),
security deposits, insurance or condemnation proceedings, (b) waste caused by or permitted by
the Maker to the Project, or (c) the presence or release of any hazardous or toxic substances on or
in the site encumbered by the Deed of Trust. The Holder shall not in any way be prohibited from
naming the Obligors, or any of them, or any person holding under or through them as parties to
any actions, suit or other proceedings initiated by the Holder to foreclose or otherwise realize
upon any other lien or security interest created in the Site or in any other collateral given to
secure the performance of the obligations of the Maker pursuant to this Note, and further
provided, however, that nothing in this Section 19 shall be deemed to prejudice the rights of the
Holder to recover any rents, condemnation or insurance proceeds, tenant security deposits or
other similar funds or payments attributable to the Site or the Project which were diverted or
misappropriated by the Obligors, or any of them.
20. In the event of any conflict between the terms and conditions contained in this
Note and the terms of the Amended and Restated Disposition and Development Agreement
among Holder, Maker and PAHC, the terms and conditions contained in this Note shall control.
21. The covenants, agreements, terms, and conditions of this Note shall inure to, and
shall be binding on, the successors and assigns of the Obligors.
OAK COURT APARTMENTS, L.P.,
a California limited partnership
7
l~&l 522256v2
By:PAHC SHERIDAN APARTMENTS, INC.,
a California non-profit public benefit corporation
By:
Marlene H. Prendergast,
Executive Vice President
By:
Name:
Title:
8
LA1 522256v2
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
City of Palo Alto
Office of City Attorney
250 Hamilton Avenue
Palo Alto, CA 94301
EXHIBIT H
Form of Development Deed of Trust
SPACE ABOVE THIS LINE FOR RECORDER’S USE
DEED OF TRUST AND ASSIGNMENT OF RENTS
(OAK COURT APARTMENTS DEVELOPMENT LOAN)
THIS DEED OF TRUST AND ASSIGNMENT OF RENTS made on
2003, by OAK COURT APARTMENTS, L.P., a California limited partnership ("Trustor"),
whose address is 725 Alma Street, Palo Alto, California 94301, in favor of First American Title
Guaranty Company, a California corporation ("Trustee"), whose address is 1737 North First
Street, San Jose, California 95112, for the benefit of the CITY OF PALO ALTO ("Beneficiary"),
whose address is 250 Hamilton Avenue, Palo Alto, California 94301,
WITNESSETH: That Trustor IRREVOCABLY GRANTS, TRANSFERS AND
ASSIGNS TO TRUSTEE IN TRUST, WITH POWER OF SALE, that real property and
improvements in the City of Palo Alto, County of Santa Clara, State of California, described in
Exhibit "A", attached hereto and made a part hereof by reference ("Security" or "Property"),
TOGETHER WITH the rents, issues and profits thereof, SUBJECT, HOWEVER, to the
right, power, and authority given to and conferred upon Beneficiary, by subdivision B of the
fictitious deed of trust recorded in the office of the Recorder of the County of Santa Clara, in
Book 5336 of Official Records, at Page 341, adopted and incorporated herein by reference and
made a part hereof as if fully set forth herein, to collect and apply such rents, issues and profits,
FOR THE PURPOSE OF SECURING (a) payment of the indebtedness evidenced by that
Promissory Note ("Note"), and any extensions or renewals thereof, in the principal amount of
$1,960,000 executed by Trustor in favor of Beneficiary, (b) performance by Trustor of its
obligations under the Amended and Restated Disposition and Development Agreement among
Trustor, Beneficiary and Palo Alto Housing Corporation ("PAHC") dated as of ,2003
(the "Oak Court DDA"), and (c) the performance by Trustor of its obligations under the
Development Regulatory Agreement and Declaration of Restrictive Covenants for Oak Court
Apartments dated as of ,2003 between Trustor and Beneficiary.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR AGREES:
LA1 522622vl Oak Court Development TD
1. Fictitious Deed of Trust.. By the execution and delivery of this Deed of Trust and
the Note secured hereby, that the provisions of subdivisions A and B inclusive, of the fictitious
deed of trust recorded in the office of the Recorder of the County of Santa Clara in Book 5336 of
Official Records, at Page 341, hereby are adopted and incorporated herein and made a part
hereof as fully as though set forth herein at length; that it will observe and perform said
provisions; and that the references to property, obligations, and parties in said provisions shall be
construed to refer to the property, obligations, and parties set forth in this Deed of Trust.
2. Prohibited Transfers. Trustor shall not, voluntarily or involuntarily or by
operation of law, sell, transfer, lease, pledge, encumber, create a security interest in, or otherwise
hypothecate or alienate all or any part of the Security, with the exception of (a) encumbrances
securing Trustor’s obligations under the Primary Loan, the MHP Loan, the HTF Loan and the
AHP Loan (as those terms are defined in the Note), (b) occupancy leases to qualified residents of
the apartment project developed at the Property in accordance with the Oak Court DDA, and (c)
transfers between Trustor and PAHC that do not result in a merger of the leasehold interest under
the ground lease described in Exhibit A with the fee interest in the land subject to the ground
lease, without Beneficiary’s prior written consent. The consent by Beneficiary to any sale,
transfer, lease, pledge, encumbrance, creation of a security interest in, or other hypothecation of
the Security shall not be deemed to constitute a novation or a consent to any further sale,
transfer, lease, pledge, encumbrance, creation of a security interest in or other hypothecation.
Beneficiary may, at its option, declare the indebtedness secured hereby immediately due and
payable, without notice to Trustor or any other person or entity (except as provided herein), upon
any such sale, transfer, lease, pledge, encumbrance, creation of a security interest in, or other
hypothecation or alienation in violation hereof. Without the written consent of Beneficiary, no
sale, transfer, lease, pledge, encumbrance, creation of a security interest in, or other
hypothecation of the Security shall relieve or release Trustor from primary liability under this
Deed of Trust or the Note, as the case may be. As used in this Section 2, the term "transfer"
includes, without limitation, the following transactions:
a.Any total or partial sale, assignment or conveyance, or creation of any
trust or power, or any transfer in any other mode or form with respect to the Security or any part
hereof or any interest herein, or any contract or agreement to do the same;
b. The cumulative transfer of more than ten percent (10%) of the capital
stock, partnership profit and loss interest, or other form of interest in Trustor; and
assets of Trustor.
Any merger, consolidation, sale or lease of all or substantially all of the
3. Due on Sale. In the event of default by Trustor under this Deed of Trust, or if the
Property or any part thereof or any interest therein is sold, agreed to be sold, conveyed, alienated
or refinanced by Trustor, or by the operation of law or otherwise, without the written consent of
Beneficiary, all obligations secured by this instrument irrespective of the maturity dates
expressed therein, at the option of Beneficiary hereof and without demand or notice shall
immediately become due and payable.
2
LAI 522622vl Oak Court Development TD
4. Notices. Tmstor requests that a copy of any Notice of Default, and of any Notice
of Sale hereunder, be mailed to it at its address hereinabove set forth, and that additional copies
of any such notice be mailed to the City of Palo Alto, Office of the City Clerk, 250 Hamilton
Avenue, Palo Alto, California 94301, and to Union Bank of California, N.A., 200 Pringle
Avenue, Suite 200, Walnut Creek, CA 94546, Attention: James H. Francis.
OAK COURT APARTMENTS, L.P.,
a California limited partnership
By:PAHC SHERIDAN APARTMENTS, INC.,
a California nonprofit public benefit
corporation,
General Partner
By:
President
By:
Secretary
LA1 522622vi Oak Court Development TD
ATTACHMENT "B"
Schedule of Performance
Oak Court Apartments
845 Ramona Street, Palo Alto, California
July 28, 2003
Land Sale Transaction:
City Council Approval of Amended "DDA"July 28, 2003
Execute "Amended DDA" & Other City Documents July - Early August 2003
Close Escrow on Land Sale & Land Loan Early August 2003
Desian:
Project Design Approval
Building Permit Submittal
Building Permit Approval
Completed November 2001
July 2002
July 2003
Construction:
Construction Contract
Final Construction Budget
Relocate Historic Structure
Begin Grading and Excavation.
Begin Building Construction
Post Bonds for Subdivision Improvements
Complete Construction
Occupancy
July 2003
July 2003
September 2003
September 2003
October 2003
At Close of Escrow on Land
Sale
January 2005
February 2005
Financing:
Secure Construction Loan Commitment
Secure Permanent Loan Commitment
Secure MHP Loan Commitment
Secure Bond Allocation
Secure 4% TCAC Reservation
Close on City Development Loan
Finalize Shared Ramp Financing & Easement Agreements
¯ Close on Permanent Loan & Final Tax Credit Investment
Secure IRS Form 8609 (tax credits finalized)
May 15, 2003
May 15, 2003
June 3, 2003
July 9, 2003
July 23, 2003
Early August 2003
Early September 2003
March 2005
September 2005
Oak Court Apartments
Summary Development Budget
As of July 2003
Attachment C
Summary Development Bud,qet:
1)Land (Value & Sale Price to PAHC)
2)Offsites / Site Improvements
3)Hard Construction
4)Costs of Historic House (Moving, Rehabilitation)
5)Hard Cost Contingency
6)Construction Loan & Related Costs
7)Other Construction Period Costs
8)Architecture, Engineering, Environmental
9)Impact Fees & Permits
10)Permanent Financing Fees, Related Costs & Misc.
11)Marketing
12)Soft Cost Contingency
13)Operating Reserves Initial Funding
14)Developer Fee
15)Other Costs Paid by City:
(Demolition, Land Holding Costs, Tree Relocation)
TOTAL
Permanent Sources of Funds:
Cal HFA - Permanent First Mortgage
State Housing & Community Development - MHP Loan
Housing Trust Fund of Santa Clara County
Affordable Housing Program - Borel Bank Defered Loan & Grant
City of Palo Alto Development Loan
City of Palo Alto Land Loan
City of Palo Alto: Cost Paid Directly, Not Part of City Loans
General Partner Equity (PAHC Sheridan Apartments, Inc)
Limited Partner Equity - Purchase of Tax Credits (Union Bank)
Defered Developer Fee (PAHC)
TOTAL PERMANENT SOURCES OF FUNDS
$5,874,000
$1,377,814
$9,2O5,675
$675 000
$952 514
$521 875
$251 992
$881 000
$198 189
$209 078
$35 000
$70 000
$125 000
$1,200 000
$618,000
$22,195,137
$2,300,000
$4,555,064
$4OO 000
$27O 000
$1,960 000
$5,874 000
$618000
$577 5OO
$5,621 893
$18 68O
$22,195,137
H:\Sheet\Oak Ct CMR Summary Devel Budget & Sources 7-22