HomeMy WebLinkAbout2002-02-04 City Council (7)TO:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: PLANNING AND
COMMUNITY ENVIRONMENT
DATE:FEBRUARY 4, 2002 CMR: 140:02
SUBJECT:COUNCIL APPROVAL OF DISPOSITION AND DEVELOPMENT
AGREEMENT BETWEEN THE CITY OF PALO ALTO AND PALO
ALTO HOUSING CORPORATION AND OAK COURT
APARTMENTS, L.P., INCLUDING A BUDGET AMENDMENT
ORDINANCE TO FUND A DEVELOPMENT SUBSIDY LOAN
($1,960,000) AND CERTAIN PROPERTY HOLDING AND
CLEARING COSTS ($143,000)
REPORT IN BRIEF
In previous actions, the City acquired a fully paid option to the 1.23 acre housing site at 845
Ramona Street, which was designated for affordable multi-family rental housing in the
SOFA Coordinated Area Plan. Last June, Council selected the Palo Alto Housing
Corporation (PAHC) as the developer through a competitive request for proposal process.
In December, the City approved a coordinated development permit for the 53-unit Oak
Court rental housing project.. The proposed actions are necessary for PAHC to complete a
March 26, 2002 application for an allocation of the Low Income Housing Tax Credits,
which will fund approximately fifty-five percent of the project’s development budget. The
Budget Amendment Ordinance (BAO) will fund a $1,960,000 City deferred payment loan
for development costs and $143,000 for property holding and clearance expenses. These
funds are available in the City’s Housing Commercial Housing In-Lieu and Residential
Housing In-Lieu Funds. No General Fund monies are being utilized. -The Disposition and
Development Agreement will transfer site control to PAHC and commit the City loan
funds, subject to PAHC securing the tax credit award and constructing and renting-up the
housing. Other Council actions that implement the financing package are part of the staff
recommendations. These include actions related to the future sale of a single family house
at 1259 Pine Street, presently owned by PAHC, but with recorded City restrictions on its
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use and sale, and implementation of a shared ramp financing agreement with the adjoining
’commercial project. If PAHC is successful in the tax credit funding competition, then
construction will begin in late summer with occupancy by the end of 200,3.
CMR: 140:02 Page 2 of 13
RECOMMENDATION
Staff recommends that the City Council:
Adopt a Budget Amendment Ordinance (BAO) in the amount of $2,103,000 to fund a
$1,960,000 development loan to Oak Court Apartments, L.P. (from the Commercial
Housing In-Lieu Fund) and to provide up to $143,000 (from the Residential Housing In-
Lieu Fund) for property holding and clearance expenses during the City’s site option.
Q Approve the attached Disposition ~ and Development Agreement, which provides a
development subsidy loan of $1,960,000 and authorizes the assignment of the City’s
option to acquire the Oak Court site to PAHC, subject to a fully deferred land loan and
PAHC securing the necessary financing and subsidies to develop the housing.
Direct the City Attomey to prepare regulatory agreements, notes and deeds of trust
between the City of Pal. Alto and the PAHC, concerning the use of the land and the
land loan, and between the City of Pal. Alto and the Oak Court Apartments, L. P.
conceming the use of the housing units and the development loan, for Council review
and action.
Authorize the Mayor to execute the Disposition and Development Agreement and any
other documents required to transfer the site option, and ownership of the site, and direct
the City Manager to administer the provisions of the agreement.
Direct the City Attomey to prepare for Council review and action an amendment to the
Agreement of Sale concerning the house at 1259 Pine Street in order to waive certain
City rights under the 1980 Agreement to permit PAHC to sell the house and utilize the
net proceeds for Oak Court development costs.
Authorize the Director of Planning and Community Environment to approve and
execute the Shared Ramp Financing Agreement on behalf of the City of Pal. Alto and to
enforce the terms and conditions of that agreement.
BACKGROUND
Pursuant to the April 2000 development agreement between the City of PaiD Alto and PaiD
Alto Medical Foundation (PAMF), the City obtained a three-year option to acquire a 1.23-
acre site on the block bounded by Channing Avenue, Ramona Street, Homer Avenue and
Bryant Street in the South of Forest Area (SOFA) (now identified as 845 Ramona Stree0.
About 0.60 acres of the site is to be dedicated and the remaining 0.63 acres is being
purchased. Due to the long-term nature of the option, the City agreed to pay the full price
(approximately $3 million) of the 0.63 acres at the closing with PAMF. On July 19, 2000,
escrow closed on the sale of all PAMF’s former properties and SummerHill Homes
acquired legal title to the affordable housing site, subject to the City’s option and the other
provisions of the development agreement. The three-year term of the City’s option expires
CMR:140:02 Page 3 of 13
in July 2003.
On June 11, 2001, Council approved the selection of PAHC as developer of the SOFA
housing site based on the recommendation of an evaluation committee after a competitive
Request for Proposal process. In response to the City’s selection criteria, PAHC proposed
53-units of very low and low-income family-oriented rental apartments over underground
parking, financed primarily with investment equity pursuant to the competitive Low-Income
Housing Tax Credit program. The pdnc!pal factors in PAHC’s selection were its emphasis
on very low-income, family housing, sensitivity to neighborhood concerns and willingness
to preserve important site features such as the largest heritage oak tree and the historic
house at 840 Bryant Street.
The development has been named Oak Court Apartments. The project team includes
Michael Pyatok, a noted architect of affordable housing. Several meetings were held with
the community to discuss site design issues and two study sessions were held with the
Architectural Review Board/Historic Resources Board for SOFA (the Joint ARB/HRB).
Generally, the response from the neighborhood was very favorable. The concerns of
immediately adjoining property owners, businesses and residents (opposite the project on
the western side of Ramona and the medical building owners at 824 Bryant) have been
addressed in the final conditions of approval for the apartment project. On November 8,
2001, the Joint ARB/HRB reviewed and recommended approval of PAHC’s design review
application and a coordinated development permit was issued by the Director of Planning
and Community Environment on December 4, 2001. The project now has its discretionary
planning entitlements, although the final site plan must be reviewed by a subcommittee of
the Joint ARB/HRB prior to submittal of the building plans.
The apartment project and the adjoining mixed-use commercial project at 250/270 Homer
Avenue were designed, and approved, with a shared access ramp located on and under the
housing site, approximately 80 feet south of 819 Ramona Street (the former AME Zion
Church). The shared ramp will provide vehicular access to the Underground parking for
both developments. All design, engineering and construction costs attributable to the
shared ramp and access lane will be paid by the commercial project in the form of a letter of
credit that must be available by the start of the housing project construction. The purpose of
the shared ramp is to improve circulation in the area, assist the housing developer with its
garage costs and ensure that sufficient parking will be available for both the housing and the
commercial project. Current estimates of the shared ramp costs to be funded by the
commercial developer are approximately $522,000. A Shared Ramp Financing Agreement,
between the City, PAHC and the commercial developer, has been prepared by PAHC and is
currently under review. Council approved the basic terms of the Agreement as part of the
appeal hearing on the mixed-use project. Council action is requested now to clearly
delegate authority to the Director of Planning and Community Environment to approve the
agreement and execute and enforce its provisions.
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PAHC has made significant progress assembling financing and in obtaining outside grants
and subsidies to construct the Oak Court project. The construction and permanent lenders
have made preliminary commitments and subsidized loans and grants totaling $670,000
have been secured from the County Housing Trust and the Affordable Housing Program.
PAHC has also agreed to provide up to $400,000 of its developer fee as a loan to the project
to cover budget shortfalls, if any. The critical financing piece is the allocation of Low
Income Housing Tax Credits that are expected to provide almost $8 million of the project’s
$14.7 million development budget. This program is always extremely competitive and
demand far exceeds the supply. PAHC will submit an application for the first 2002 round
of competition, due on March 26, 2002. Decisions will be announced on May 22. PAHC
must legally control the site and have a binding commitment of City funds prior to the
March 26 application date. Approval of the attached Disposition and Development
Agreement (DDA) and the BAO will provide PAHC with the required documentation of
site control and City funding.
DISCUSSION
Provisions of the DDA
The Disposition and Development Agreement has several functions. It assigns PAHC the
right to acquire the housing site immediately prior to the start of construction, provided that
PAHC has assembled the entire package of construction and permanent financing including
receipt of the housing tax credit allocation. There is flexibility built into the DDA for the
City to acquire legal title to the site and then convey title to PAHC or for PAHC to acquire
title directly from SummerHill. The City’s intention is to acquire title to the site as soon as
PAHC completes the final environmental testing and receives a closure letter from the
Regional Water Quality Control Board. Staff expects that this process will be completed
within two months. Under public agency ownership, the site will be exempt from real
property taxes.
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 its 55-year
term. This loan accrues three percent simple interest. Payments on the development loan
will commence after repayment of PAHC’s deferred development fee and the loan from the
Housing Trust Fund of Santa Clara County (HTF) loan. Current projections show that
repayments on the City loan wall commence by the 17 year, with full payment by the 50t~
year of the loan’s term.
$160,000 of the City’s $1.96 million development loan is to be used only for the cost of
specific upgrades to utility infrastructure in the project area that could be required under the
conditions of approval by the City’s Utility and Public Works Departments. The ARB/HRB
conditions of approval include measures requiring the developer to study infrastructure
capacity for storm drain, sewer and water facilities that would be affected by this new
development. For example, if there is insufficient sanitary sewer capacity, then construction
of new sewer lines could be required of the developer. For some infrastructure, such as the
CMR:140:02 Page 5 of 13
storm drain system, the deficiencies are already documented, and an on-site retention
system must be constructed to avoid excess flows. For other systems, the requirements and
costs will not be known until PAHC completes the required studies. Due to this
uncertainty, the City agreed to provide this additional $160,000 in loan funds for these
specific infrastructure costs. After project completion, if unused funds remain in the
construction budget, then such funds will be used to the extent available before the City’s
$160,000. If the infrastructure upgrade costs exceed the $160,000 and there are no unused
funds within the project’s budget and contingency, then PAHC will need to fund that excess
from its own resources.
In order to provide security for the City’s land contribution, the project has been structured
so that the land will be owned by PAHC, and leased for 55 years to the entity that owns the
apartments. Initially, the apartments and other site improvements will be owned by the tax
credit partnership. The partnership’s managing general partner is a nonprofit entity
controlled by PAHC. However, under federal tax law this ownership structure exists just
for the 15 years that the tax credit partnership must hold title to the apartments. At that
point, PAHC can exercise an option it will hold to acquire the apartments from the limited
partner investors. However, the apartments must still continue to be operated as low-
income rental housing according to the original 55-year tax credit regulatory agreement and
the City’s regulatory agreements, regardless of any changes in the ownership.
Splitting the ownership of the land and improvements enabled the land value of the entire
site to be secured by a note and deed of trust.recorded against the land. This also eliminated
certain legal issues under the tax credit regulations that would have been created if such a
large loan were a debt of the partnership. The land value of the 1.23 acres was estimated, to
set the note amount, based on the actual amount the City paid ($3,008,845) in July 2000 for
the option on the 0.63 acre portion that is being purchased. Using this method, the principal
amount of the land loan note is $5,874,000.
The land loan note will accrue interest at five percent compounded annually. Due to the
targeting of the project to very low-income households, there will be relatively little cash
available to pay off secondary loans, after paying operating costs and the payments on the
bank’s loan. During the first 55-years of operation, any available cash flow will go first to
payment of the other secondary loans (the PAHC developer fee loan, the HTF loan and the
City’s $1.96 million development loan). It is unlikely that the project will generate
sufficient surplus cash flow to repay the City land loan. For this reason, payments of
interest and principal on the land loan are fully deferred for 55-years.
At the end of the 55-year loan term, there are several options open to PAHC. PAHC may
extend the land regulatory agreement for an additional 44-years of housing affordability,
with the accrued principal and interest on the land loan converting to an amortized loan over
the 44-year term with the annual payments forgiven, provided the project remains in
compliance with the land regulatory agreement. If PAHC does not extend the affordability
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provisions, then the land loan is due and payable in full. ~Tdais is the reason that the initial
land loan amount is based on the approximate current market value of the land and that the
interest rate is close to market rates.
As additional security for its land contribution, the City holds an option to purchase the
entire property at the end of 55-years should PAHC not extend the affordability. The City
might choose this course of action in order to acquire the project and then transfer it to
another housing developer willing to continue to operate the project as affordable rentals.
The City’s option price is the greater of:
1) The assumption of the unpaid balance of any previously City-approved loans on
the property, or
2) The appraised value of the apartments based on the extended 44-years of
affordability.
The, concept is that second price calculation would be fiigher if PAHC had maintained the
apartments in excellent condition, a situation under PAHC’s control as the landowner and
managing general partner. However, PAHC would not receive any profit in the transaction
from inflationary increases in the land value, as the land is an asset that was contributed,
and paid for, by the City. The balance due on the land loan will be forgiven if the City
exercises its option to purchase.
The DDA also includes a schedule of performance (Attachment C to this report) that is a
list of key tasks and milestones from the submittal of the tax credit application through
construction, rent-up and the closing of the permanent financing. The performance
milestones are intended to be adjusted so that if PAHC is not successful with the initial tax
credit application, atter consultation with, and consent of, the City Manager, a second or
third application can be made without PAHC being out of compliance with the DDA.
Rents and Occupancy
Once the project is fully operational, the use and occupancy of the apartments will be
restricted by both a 55-year regulatory agreement from the tax credit program and by City
regulatory agreements on the land and the housing. These agreements will restrict rental to
very low and low-income households at rents that do not exceed 30% of gross monthly
income for specific income categories within the general income limits. These income
categories are forty, fifty and sixty percent of the County median income adjusted by
household size. Forty and fifty percent of median income are considered very low-income
and sixty percent is considered low-income. There will be units at these different rent levels
within each bedroom and unit type. The podium levels flats will be fully handicapped
adaptable per code requirements. There is one elevator from the garage to the podium. The
second floor units and the two-story townhouse units will be accessed by stairs from the
podium or the street. The units range in size from 560 square feet in the one-bedrooms .to
1,100 square feet in the three-bedroom townhouses. The unit mix and rent categories with
2001 proforma rents are shown below; actual rents may change somewhat by the time the
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project is finished due to changes in the County median income or in the tax credit program
regulations:
Oak Court Apartments - Unit Mix and Rental Structure
Rents as a
Percent of
Median Income
1 Bedroom
Flats
4 at $618
5 at $782
0 at $945
2 Bedrooms.3 Bedrooms Total
40% Rents 8 at $732 9 at $843 21
50% Rents 7 at $928 14 at $1,070 26
60% Rent 2 at $1,125 3 at $1,297 5
Manager’s Unit
in Historic 0 0 1 1
House (rent free)
Total Units 9 17 26 53
Tenants incomes will be certified as eligible upon initial occupancy and annually thereafter.
Adjustments in the rent structure can be made, as allowed by the tax credit program, so
long as the affordability requirements submitted in the tax credit application, and approved
by TCAC, are met. Due to the anticipated high demand for these units, the City and PAHC
agree to administer a preference for households of which at least one adult lives, or works,
within the City limits. This is the same preference that is used for the Below Market Rate
housing program and is used by PAHC in most of its developments.
Pine Street House
PAHC owns a single family home located at 1259 Pine Street, near Rinconada Park. The
house is a modest 3 bedroom, 2-bath home on an 8,100 square foot lot. In 1980, the house
was donated to the City and moved to this City-owned lot at an out-of-pocket cost to the
City of about $60,000. In August 1980, Council approved an agreement with PAHC
whereby the City transferred ownership of the property to PAHC, for a below market
purchase price $38,000, for use as affordable rental housing. PAHC has rented the house
since 1980 in compliance with that agreement. In 1993, PAHC refinanced the house, with
the City’s consent, and constructed certain improvements, including the second bath, to
make the home more suitable for shared living. Currently, two single parent households
share the house. PAHC will work with the current tenants, so that, if and when the sale of
the house occurs, the tenants will have adequate notice and preference options for other
PAHC housing.
As part of its submittal in the RFP competition, PAHC proposed selling the house on the
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open market and using the proceeds to help fund the Oak Court project. At that time,
PAHC estimated that up to $1 million could have been realized from the sale. Staff agreed
with PAHC that those assets could be more effectively utilized in the developm~:.:~t of the
Oak Court project. However, since early 2001, the real estate market has fallen and
PAHC’s real estate advisors consider $625,000 a more realistic estimate of net proceeds
(atter a sales commission, escrow fees, and repayment of the $28,000 balance on the
existing bank mortgage). PAHC has agreed to contribute the $625,000 from its own
corporate assets, if necessary, for use during construction of Oak Court so as to allow
flexibility to sell the house at the most fa~,orable real estate market. Should the actual net
proceeds exceed $625,000, PAHC will pay that excess, up to a maximum of $375,000, to
the City and that sum will be applied as a one-time principal payment against the City’s
$1.96 million development loan. The original 1980 Pine. Street agreement must be
amended to implement this agreement. That agreement includes a City right to purchase
the property for $1 and a required repayment to the City of the $25,000, plus a Consumer
Price Index inflation factor. These provisions must be waived to implement the DDA. The
$25,000 figure represented the City’s costs that had not been recouped by the 1980 sales
price.
Tax Credit Program Changes
The State agency (the California Tax Credit Allocation Committee (TCAC)) that allocates
the low-income housing tax credits published proposed revisions to its regulations and point
scoring for 2002 in December. The TCAC is meeting on January 30, 2002 to act on the
proposed changes. Some of the revisions appear beneficial to the Oak Court project and
should improve the potential point score of PAHC’s application. However, one proposed
change would force PAHC to either reduce the amount of tax credits utilized or sacrifice
five points. Reducing the tax credits would mean that additional subsidies would be needed
from another source or some units would have to be rented for higher amounts so that the
project could carry a larger bank loan. Giving up the five points could harm PAHC chances
in the competition for funding.
Even if TCAC does not adopt the objectionable revisions, the tax credit program
competition has been difficult and unpredictable for many years. Securing tax credits for
family rental projects is much more problematic than for the projects in other categories
such as "at-risk" preservation projects like the Sheridan Apartments, or single room
occupancy projects such as Alma Place. In Santa Clara County, the program competition
has become particularly difficult due to the cap placed by TCAC on the total credits
awarded to larger counties in the State. Because there is such a high level of low-income
housing development throughout the county, there is often far more demand for the credits
from projects located within the county than there is supply under the State cap. If PAHC is
unsuccessful with the competitive tax credit program, the project can be restructured under
an alternative program that utilizes tax-exempt bonds and the lower, but noncompetitive,
four-percent tax credits. This latter program is how the Palo Alto Gardens project was
financed. Its disadvantages are that higher rents must be charged due to lower subsidies
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from the tax credits and the high transaction costs of issuing the bonds. If this alternative
becomes necessary, the DDA would have to be renegotiated.
RESOURCE IMPACT
City Expenditures for Oak Court Project
The funds for the City’s $1.96 million loan for development costs will be appropriated from
the Commercial Housing In-Lieu Fund (Commercial Fund) which is specifically intended to
create new rental work-force housing such as this project. The Commercial Fund has an
available balance of $1,979,814 as of January 25, 2002. Approximately $325,000 in
housing fees will be collected later this fiscal year from commercial projects currently under
construction. The $3,008,845 expended by the City in July 2000 for the purchase price of
the option on the housing site also was taken from the Commercial Fund. Additionally, the
City expended $475,000 from the Commercial Fund to reimburse SummerHill for land
clearance costs. Therefor’e, the expected total direct costs to the City of this project ale:
$1,960,000
$3,008,845
$475,000
$143,000
Development Loan
Land Purchase Cost
Site Clearance
Property Holding and Clearance
$5,586,845 Total Direct Costs to City for Oak Court (or about $105,400 per unit)
The BAO appropriates $143,000 for property holding and clearance costs that are the City’s
responsibility under various agreements. According to the provisions of the Development
Agreement, beginning with the second year of the option, the City must reimburse
SummerHill for property holding costs of the housing site. SummerHill has informed staff
that the real property taxes (equal to about $108,000 for FY 2001-02) are the only costs for
which reimbursement will be requested from the City. The BAO will appropriate the funds
to reimburse SummerHill for the property taxes paid on the site. Funds are also being
appropriated to cover expected closing costs, primarily title insurance, when the City
exercises its site option. The City had also committed to providing the housing developer
with a clear site for construction. As part of that commitment, the City agreed to remove
and relocate to an off-site location an existing Coast live oak tree presently growing in the
center of the housing site. The potential cost of removal, transporting and replanting the
tree is estimated at up to $30,000. Staff anticipates that the oak can be relocated to the
SOFA neighborhood park site.
The $143,000 for property related costs is being appropriated from the Residential Housing
In-Lieu Fund because the current balance of the Commercial Housing In-Lieu Fund is
insufficient to cover the full $2,103,000 needed for both the development loan and the
property costs. $1,462,624 is available in the Residential Fund as of January 25, 2002.
CMR: 140:02 Page 10 of 13
The financing package assembled by PAHC, together with costs funded directly by the City,
for development of the apartments is described below. Some figures are still estimates:
¯Cal Fed Bank- 1st Mortgage (estimated)
¯Investor equity (Low Income Housing Tax Credits - estimated)
¯Affordable Housing Program (subsidized loan & grant)
¯Housing Trust of Santa Clara County (deferred loan)
¯Shared Ramp Funding ($522,000 estimated currently; grant)
¯PAHC (Sponsor Equity)
¯PAHC Equity (from sale of Pine Street)
¯PAHC - Deferred Developer Fee Loan (deferred payment)
¯City of Palo Alto - Development Loan (deferred payment)
¯City of Palo Alto - Development Loan - portion for infrastructure
$2,726,200
$7,967,500
$27O,000
$400,O00
$600,0O0
$100
$625,000
$200,000
$1,800,000
$160,000
Sub-total for PAHC’s Development Budget
Development Cost Per Unit (53-units): $278,279
$14,748,800
Other Ci~ Assistance
¯City of Palo Alto - Land Contribution Value - 1.23 acres
¯City of Palo Alto - Demolition, House Removal (paid Feb. 2001)
¯City of Palo Alto - Property Holding, Clearance (this BAO)
Sub-total:
$5,874,000
$475,000
$143,000
$6,492,000
Total Project Funding
Total Cost Per Unit (53-units): $400,770
$21,240,800
Staff was concerned about the relatively high costs of this project both in terms of the cost
per unit (with and without the land value) and the amount of the City’s subsidies. Early last
year, an analysis of PAHC’s proposed development budget was made in evaluating the
responses to the RFP. The other developer’s proposed budget was similar to PAHC’s
when compared on a cost per unit basis. In negotiating the City loan amount and terms,
staff conducted further analysis of PAHC’s current development budget and sources of
funding, especially the bank loan. Staff consulted informally with Keyser Marston
Associates (the City’s consultant for the redevelopment project) and with staff at the San
Jose Department of Housing. Additionally, extensive discussions were held with PAHC
and its financial consultant. There are several components and features of this project that
contributed to its cost. The primary cost factors are: land values, underground parking with
mechanical ventilation, separate buildings with special architectural features for
neighborhood compatibility, preservation of the historic house, and compliance with the
same City development standards that apply to market-rate housing.
In terms of the financing package, PAHC was fairly conservative in its calculations of the
size of the bank loan that the project could carry, both in estimating its operating costs and
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in underwriting the loan. If a larger mortgage could be carried, less funding would be
needed from the City. However, too high a mortgage could put the project at risk in the
long term, if rents do not meet expectations or operating expenses are higher than planned.
PAHC will be refining its budget as it prepares its construction plans and proceeds through
the bidding process and negotiations with the contractors. The final amount of the
permanent bank loan will be set when all costs are finalized and confirmed. PAHC has
committed to increasing the amount of the permanent bank loan, if possible and prudent.
Staff concludes that PAHC’s cost estimates are as accurate as possible at this stage in the
process. Staff will be reviewing the final cost budget and analysis, both prior to the start of
construction and after completion. PAHC must do a formal audit of all uses and sources of
development funds for tax credit purposes; staff will review this document. Should the
final project funding exceed documented costs after completion and occupancy, the excess
must be paid to the City as a one-time principal payment on the development loan. Without
considering the land contribution, the City’s development loan of $1.96 million is
comparable to our subsidies for other recent affordable housing projects such as Alma
Place and the Sheridan Apartments. Even with the City’s direct costs for land included, the
total direct subsidy cost of $105,400 per unit is still within the range of City subsidies for
previous housing projects. On the whole, staff is satisfied that the development costs,
financing package and City funding is reasonable.
POLICY IMPLICATIONS
The actions recommended in this report implement existing City policies and implement
previous Council actions including purchasing the site option and selecting PAHC as the
developer to construct a lower-incrme rental housing project on the site.
TIMELINE
PAHC is preparing an application to the housing tax credit program for submittal in the first
round of 2002 competition, which is due March 26, 2002. Staff will return to Council
before March 26 for approval of the amended Pine Street agreement, the regulatory
agreements and other legal documents for the City’s loans. If PAHC is successful in the
first round, construction will start in the early autumn of 2002, with occupancy by the end
of 2003. Tax credit program regulations require that construction begin within 150 days of
the date of the tax credit reservation. To meet this deadline, PAHC must prepare
construction drawings, conduct value engineering and the subcontractor bidding process
while the tax credit application is under review. If PAHC is unsuccessful in the first tax
credit round, another application can be made in the second and final 2002 round for which
applications are due on July 24, 2002. If PAHC received a second round award,
construction would start in spring of 2003, with completion in early 2004.
Since success in each funding round is, in large part, related to the level of competition
from other Santa Clara County projects, the results of the second round could be quite
different than the first one. The DDA requires PAHC to provide the City with an
CMR:140:02 Page 12 of 13
explanation if the first tax credit application is unsuccessful and to evaluate chances of
future success. The City Manager must consent to subsequent tax credit applications or to
an alternate financing plan. If PAHC concludes that the competitive tax credits are
infeasible, then the project would most likely be restructured using the noncompetitive four
percent housing tax credit program and a tax-exempt bond mortgage. This could be done in
time for a mid-July 2002 application for a tax-exempt bond allocation or for an early 2003
application. In the worst case, a change in the project’s financing structure could,result in a
year’s delay (from summer of 2002 to summer of 2003) in the start of construction due to
the probable timing of the application cycles of the different housing financing programs.
A year’s delay in construction and the change to the tax-exempt bond financing would
increase costs, necessitate higher rents and may require greater development subsidies.
ENVIRONMENTAL REVIEW
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.
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.Budget Amendment Ordinance
B.Budget Amendment Ordinances Impacting Special Revenue
Approved-To-Date in 2001-02
C. Schedule of Performance
D. Disposition and Development Agreement/, //~
1’7 .<..r? , A,I/
REVIEWED BY: ~’/ ~ ~
LES WHITE
Interim Director of Planning and Community Environment
Fund Reserves
CITY MANAGER APPROVAL:
EMILY HARRISON
Assistant City Manager
cc: Palo Alto Housing Corporation
CMR:140:02 Page 13 of 13
ORDINanCE NO.
ATTACHMENT A
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR THE FISCAL YEAR 2001-02 TO
PROVIDE AN APPROPRIATION OF $1,960,000 FROM THE
COMMERCIAL HOUSING IN-LIEU FUNDFOR A LOAN TO THE OAK
COURT AFFORDABLE HOUSING PROJECTAND $143,000 FROM THE
RESIDENTIAL HOUSING IN-LIEU FUND FOR VARIOUS EXPENSES
RELATED TO CITY’S OPTION TO ACQUIRE THE HOUSING SITE
WHEREAS, pursuant to the provisions of Section 12 of Article
III of the Charter of the City of Palo Alto, the Council on June ii,
2001 did adopt a budget for fiscal year 2001-02; and
WHEREAS, the development of very low and low-in~ome subsidized
rental housing units implements the housing objectivel~ stated in the
City of Palo Alto’s Comprehensive Plan and Consolidated Plan; and
WHEREAS, on April i0, 2000, the City entered into a
Development Agreement under which the City obtained a fully-paid
three year option to acquire the 1.23 acre site (Housing Site)
located on the north side of Channing Avenue between Bryant and
Ramona Streets for affordable rental housing; and
WHEREAS, under the provisions of the Development Agreement,
the City is required to reimburse the legal owner of the Housing
Site for certain property holding costs, primarily real property
taxes, incurred after the first year of the option; and
WHEREAS, on June ii, 2001, Council selected the Palo Alto
Housing Corporation (PAHC) as the developer of the Housing Site
after a competitive request for proposal process; and
WHEREAS, PAHC, proceeding in a diligent and expeditious
manner, has designed the housing, secured C.~ty planning
entitlements, obtained financing commitments and intends to submit
an application for an allocation to the federal Low Income Housing
Tax Credit (LIHTC) program in March of 2002; and
WHEREAS, a required component of the LIHTC application is a
commitment of all local funding, including funding from the City of
Palo Alto, and such funding commitment can be documented for the tax
credit program application by an adopted Budget Amendment Ordinance;
and
WHEREAS, the City and PAHC have agreed that a loan in the
amount of $1,960,000 for construction and development costs i_
needed to make the project feasible, and that the City funds shali
be provided as a deferred payment loan pursuant to the terms of a
Disposition and Development Agreement to be approved by Council; and
WHEREAS, an existing Coast live oak tree must be removed
and/or relocated and replanted off the Housing Site°to accommodate
construction as permitted by the conditions of approval for the
housing project, and the City has committed in the request for
proposal process to pay site clearance costs; and
WHEREAS, sufficient funds are available within the Residential
Housing In-Lieu Fund and the Commercial Housing In-Lieu~ Fund; and
WHEREAS, the appropriation of funds requested from the
Commercial and Residential Housing In-Lieu Funds is for a one-time
cost and no future year ongoing costs are anticipated; and
WHEREAS, City Council authorization is needed to amend the
2001-02 budget as hereinafter set forth.
NOW, THEREFORE, the Council of the City of Palo Alto does
ORDAIN as follows:
SECTION i. The sum of $1,960,000 is hereby appropriated to
non-salary expenses in the Commercial Housing In-Lieu fund to be
transferred to the Oak Court Apartments, LLP as a loan for the
affordable housing project.
SECTION 2. A note receivable of $1,960,000 is thus established
on behalf of Oak Court Apartments, LLP.
SECTION 3. This transaction will reduce the Commercial Housing
In-Lieu Fund reserve from $1,979,814 to $19,814.
SECTION 4. The sum of $143,000 is hereby appropriated to non-
salary expenses in the Residential Housing In-Lieu fund, and is
authorized for the cost of moving an oak tree from the Housing Site
and for expenses associated with the property holding costs,
primarily real property taxes on the Housing Site.
SECTION 5. This transaction will reduce the Residential
Housing In-Lieu Fund reserve from $1,462,625 to $1,319,625.
SECTION 6. As specified in Section 2.28.080 (a) of the Palo
Alto Municipal Code, a two-thirds vote of the City Council is
required to adopt this ordinance.
SECTION 7. 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. 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 has
considered the Addendum to the EIR as part of its review and
approval of the project.
SECTION 8. As provided in Section 2.04.350 of the Palo Alto
Municipal Code, this ordinance shall become effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Director of
Services
Administrative
Director of Planning
Community Environment
and
City of Palo Alto
ATTACHMENT
Budget Amendment Ordinances Impacting special Revenue Fund Reserves Approved-To-Date in
2001-02
Commercial Housing In-Lieu Fund
Estimated Commericial Homing In-Lieu Fund Reserve Balance
Loan to the Oak Court Affordable Housing Project
Total BAOs
Commerical Housing In-Lieu Fund Reserve Balance After BAO
Residential Housing In-Lieu Fund
Estimated Residential Homing In-Lieu Fund Reserve Balance
Various Expenses Related to City’s Option to Acquire Housing Site
Total BAOs
[Residential Housing In-Lieu Fund Reserve Balance After BAO
($1,960,000)
($1,960,000)
($143,000)
($143,000)
$1,979,814
$0 ($1,960,000)$0
$19,814
$1,462,625
$0 ($143,000)$0
$1,319,625
1/29/02
EXHIBIT "C"ATTACHMENT C
Schedule of Performance
Oak Court Apartments
845 Ramona Street, Palo Alto, California
Estimated: February 1, 2002
Land Acquisition:
City Council Approval of "DDA"
Execute "DDA"
Close Escrow on Land
February 2002
March 26, 2002
August 2002
Desig_0.:
City Approval
Schematic Design
Design Development
Construction Drawing Package
Building Permit Submittal
Building Permit Approval
Construction:
Select General Contractor
Budget Estimating
Final Construction Budget
Begin Grading and Excavation
Begin Building Construction
Complete Construction
Occupancy
Completed
Completed
January-February 2002
February-June 2002 "
June 2002
June-September 2002
Completed
April-July 2002
September 2002
Sept-October 2002
November 2002
December 2003
December 31, 2003
Financing:
Secure Predevelopment Funding Loan
Submit TCAC Application
Secure TCAC Reservation
Secure Construction Loan Commitment
Secure Permanent Loan Commitment
Secure Housing Trust Fund Loan Commitment
Secure Affordable Housing Funding Commitment
Secure Shared Ramp Financing Commitment
Close on Construction Loan
Close on City Development Loan
Close on Permanent Loan and Tax Credit Investment
Secure IRS Form 8609
Completed
March 26, 2002
May 22, 2002
March 26, 2002
By Land Closing
March 26, 2002
Completed
March 26, 2002
August 2002
August 2002
March 2004
March 2004
If tax credit financing application is not successful per the above schedule, performance
schedule will be adjusted according to the requirements of the Disposition and
Development Agreement. This is discussed in the CMR accompanying the Agreement.
ATTACHMENT D
DISPOSITION AND DEVELOPMENT AGREEMENT
THIS DISPOSITION AND DEVELOPMEN ; AGREEMENT ("Agreement"), dated as
of __, 2002, is made by and between 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
pa,," ~.ership (the "Developer").
RECITALS
This Agreement is entered into with reference to the following facts:
A. Pursuant to a Development Agreement (the "PAMF Agreement"), dated April 10, 2000,
by and between the City and the Palo Alto Medical Foundation for Health Care, Research and Education
("PAMF"), (i) the City obtained an option to acquire an undivided 51.2% interest (the "Purchase
Interest") in 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; and (ii) PAMF agreed to dedicate to the City the remaining undivided 48.8% interest (the
"Dedicated Interest") in the Property. PAMF subsequently conveyed the Property to SummerHill
Channing, LLC, a California limited liability company ("SummerHill"), subject to the obligations of
PAMF under the PAMF Agreement. 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 as the developer for the Project. The sole general partner of Developer is PAHC or a 501c-
3 corporation that is an affiliate of PAHC.
C. The principal objective hereof is to create an affordable housing inventory available to be
leased to households who are of low or very low income who but for this program might not be able to
obtain housing at 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 is willing to assign to PAHC and/or the
Developer the City’s rights to acquire the Property (or, if the City has acquired the Property, to sell the
Property to PAHC and/or the Developer), 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 and the Developer intend to obtain an allocation of tax credits from the California
Tax Credit Allocation Committee and to allocate such tax credits to equity investors in order to partially
finance the development of the Project.
52467-9 1
F. 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.
G. A material inducement to the City to enter into this Agreement is the agreement by
PAHC and the Developer 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.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS.
1.1. Definitions. The following terms as used in this Agreement shall have the meanings
given unless expressly provided to the contrary:
1.1.1. Agreement means this Disposition and Development Agreement.
1.1.2. 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.
1.1.3. Cash Expenses means for any period the sum of the following expenses
reasonably incurred and actually paid during that period:
(i)
(ii)
(iii)
(iv)
(v)
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, license and permit
fees, and utility charges;
required contributions to Reserves;
Debt Service on the Primary Loan;
a property management fee which shall not exceed $34,980 per
year (which maximum amount shall increase at the rate of 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;
a partnership management fee which shall not exceed $20,000
per year (which maximum amount shall increase at the rate of
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, 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
52467-9 2
(vi)
the capital of Developer, or (B) any portion of the PAHC
Developer Fee remains unpaid; and
any asset management or comparable fees permitted under
Section 2.6.2.2, up to a maximum amount 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)
(ii)
(iii)
(iv)
(v)
non-cash expenses, including without limitation, depreciation,
payments made from insurance or condemnation proceeds or any costs or
expenses paid or reimbursed by others,
funds expended from Reserves,
the initial cost of constructing the Improvements or any expansion or
replacements thereof,
any penalties or interest resulting from the Developer’s failure to pay
when due any sums that the Developer is obligated to pay to thirdparties
(e.g., penalties and interest for late payment of real property taxes).
1.1.4. Certificate of Completion means a certificate to be provided by the City to the
Developer upon satisfactory completion of the Improvements on the Property.
1.1.5.City means the City of Palo Alto, California.
1.1.6.Closing has the meaning defined in Section 2.2.2.
1.1.7.Closing Date means the date upon which PAHC acquires fee title to the Property.
1.1.8.Construction Contract has the meaning defined in Section 3.2.5.
1.1.9. 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.
1.1.10. Default has the meaning defined in Section 7.1.
1.1.11. 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
1.1.12. Development Deed of Trust has the meaning defined in Section 2.3.4.
1.1.13. Development Note has the meaning defined in Section 2.3.4.
1.1.14. Development Regulatory Agreement means an agreement executed by the
Developer in favor of the City, on terms and conditions acceptable to City, restricting the leasing of the
52467-9 3
Project and the Units therein to persons or households of low or very low income. The Development
Regulatory Agreement shall also address such matters concerning the operation and maintenance of the
Project as the City shall reasonably require.
1.1.15. 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 liability 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 hygiene 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 without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) [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 Control Act (FWPCA) [33’USCS 5§ 1251 et seq.]; the
Toxic Substances Control Act (TSCA) [15 USCS 5§ 2601 et seq.]; the Hazardous Materials
Transportation Act (HMTA) [49 USCS 5§ 1801 et seq.]; the Insecticide, Fungicide, Rodenticide Act [7
USCS 55 136 et seq.]; the Superfund Amendments and Reauthorization Act [42 USCS 5§ 6901 et seq.];
the Clean Air Act [42 USCS 55 7401 et seq.]; the Safe Drinking Water Act [42 USCS §5 300f et seq.];
the Solid Waste Disposal Act [42 USCS 55 6901 et seq.]; the Surface Mining Control and Reclamation
Act [30 USCS 55 1201 etseq.]; the Emergency Planning and Community Right to Know Act [42 USCS
5511001 et seq.]; the Occupational Safety and Health Act [29 USCS 5§ 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 5§ 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 5§ 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 federal, 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.
1.1.16. Escrow means the escrow created under Section 2.2.
1.1.17. 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.
1.1.18. Fiscal Year means a calendar year during the term of either the Land Regulatory
Agreement or the Development Regulatory Agreement; provided, however, the first Fiscal Year shall
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 end of the term of that
agreement.
1.1.19. General Contractor has the meaning defined in Section 3.2.4.
1.1.20. 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
52467-9 4
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 retained by the vendor)
and income from operating cable television, recreation facilities, and any 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.
1.1.21. Ground Lease has the meaning defi!~ed in Section 2.3.3.
1.1.22. 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 regulated 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 § 1317, (5) a flammable explosive, or (6) a
radioactive material.
1.1.23. HTF Loan means a loan from the Housing Trust Fund of Santa Clara County, in
the amount of $400,000 (or such other amount as may be approved by the City), bearing interest at the
maximum rate of 2% per annum, and repayable solely from Residual Receipts;
1.1.24. Improvements means the improvements to be constructed by the Developer
pursuant to this Agreement.
1.1.25. Land Deed of Trust has the meaning defined in Section 2.3.2.
1’.1.26. Land Note has the meaning defined in Section 2.3.2.
1.1.27. Land Regulatory Agreement means an agreement executed by PAHC in favor of
the City, on terms and conditions acceptable to City, restricting the leasing of any improvements on the
Property to persons or households of low or very low income. The Land Regulatory Agreement shall
also address such matters concerning the operation and maintenance of the Property as the City shall
reasonably require.
1.1.28. 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’.
52467-9 5
1.1.29. PAHC means Palo Alto Housing Corporation, a Califomia nonprofit public
benefit corporation.
1.1.30. PAHC Developer Fee has the meaning defined in Section 2.6.1 (including but not
limited to accrued interest).
1.1.31. PAMF Agreement has the meaning defined in Recital A.
1.1.32. Part3~ means any party to this Agreement. The "Parties" shall be all parties to this
Agreement.
1.1.33. Plans and Specifications means the plans and specifications for the Project, as
hereafter approved by the City in its sole and absolute discretion.
1.1.34. 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 constructing the Improvements; the Primary Loan shall be secured by a first priority deed of trust, and
shall include the following terms and conditions:
1.1.34.1.If a construction loan:
1.1.34.1.1. the original principal amount (not including interest that
may accrue thereon) shall not exceed the sum of $11,170,000, or such greater amount as may be
approved by the City;
1.1.34.1.2. interest shall accrue thereon at a rate that does not exceed a
commercially reasonable rate, and loan fees and costs shall be commercially reasonable;
1.1.34.1.3. the lender shall be Wells Fargo Bank, N.A., or another
institutional lender approved by the City;
1.1.34.1.4. the term of the construction loan shall be for at least twelve
(12) months (exclusive of the Lender’s right to accelerate the maturity in the event of a default);
1.1.34.1.5. such other terms and conditions as are required by the
lender and approved by the City."
1.1.34.2.If a permanent loan:
1.1.34.2.1. the principal amount shall not exceed $2,726,000, or such
greater amount as may be approved by the City;
1.1.34.2.2. the lender shall be California Federal Bank, or another
institutional lender approved by the City;
1.1.34.2.3. the original principal balance (exclusive of any interest
accrued thereon) shall be not more than 95% of the fair market value of the Improvements as determined
by the lender making the permanent loan;
52467-9 6
1.1.34.2.4. interest shall accrue thereon at a rate that does not exceed a
commercially reasonable rate, and loan fees and costs shall be commercially reasonable;
1.1.34.2.5. 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 permitted by the lender making the loan, may be
used;
1.1.34.2.6. the term of the permanent loan shall be for at least fifteen
(15) years (exclusive of the lender’s right to accelerate the maturity in the event of a default);
not less than 30 years;
1.1.34.2.7. the permanent loan shall be fully amortized over a period of
1.1.34.2.8. such additional terms and conditions as are required by the
lender and approved by the City.
1.1.35. ~ means the construction of the Improvements on the Property in
accordance with the Plans and Specifications, including the construction of 53 apartment units, together
with ancillary improvements, on the Property.
1.1.36. 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.
1.. 1.37. Reserve means a reserve fund, held in a segregated interest-bearing trust account,
as may be required by (i) the City; (ii) a Mortgagee of a loan superior in priority to the Development
Deed of Trust (subject to the City’s approval, which approval shall not unreasonably be withheld);
and/or (iii) Developer’s partnership agreement (subject to the City’s approval, which approval shall not
unreasonably be withheld).
1.1.38. Residual Receipts means for any period the amount of Gross Income for that
period, less Cash Expenses for that period.
1.1.39. 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.
1.1.40. Shared Ramp Agreement has the meaning defined in Section 2.6.2.6.
1.1.41. 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.
1.1.42. 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.
52467-9 7
1.1.43. TCAC Regulatory Agreement means’a,,regulatory agreement meeting the
requirements of TCAC. .~
Property.
1.1.44. Unit means one of the apartment units in the Improvements constructed on the
2.ACQUISITION OF THE PROPERTY
2.1. Implementation of PAMF Agreement. If the City does not first acquire the Property
pursuant to the PAMF Agreement, the City and PAHC shall use their best efforts to enter into an
agreement with SummerHill implementing the PAMF Agreement so that the acquisition of the Property
can be consummated as provided in this Agreement. If the City and PAHC are unable to obtain such an
agreement in time to consummate the acquisition of the Property as provided in this Agreement, the City
and PAHC shall negotiate in good faith a method for the City to acquire the ~roperty in accordance with
the PAMF Agreement and subsequently convey title to PAHC so that the City and PAHC are in
substantially the same positions they would have been in if the acquisition had been consummated as
provided in this Agreement, including without limitation providing the City with acceptable (in the sole
discretion of the City) indemnities and security against the potential claims and liabilities that the City
may avoid by remaining off the chain of title of the Property.
2.2.Escrow.
2.2.1. Opening of Escrow. The Parties shall enter into the Escrow with SummerHill and
the Escrow Holder in order to consummate the purchase of the Purchased Interest and dedication of the
Dedicated Interest substantially in accordance with the terms of the PAMF Agreement, except that at the
Close of Escrow the City shall be deemed to assign its rights to PAHC, PAHC shall be deemed to
exercise the City’s option to purchase the Purchased Interest, SummerHill shall convey the Purchased
Interest and the Dedicated Interest directly to PAHC, and PAHC shall acquire title to the Property
subject to the Land Regulatory Agreement and the Land Deed of Trust; provided, however, that if the
City acquires title to the Property prior to the Close of Escrow, SummerHill will not be a party to the
Escrow, and the City shall sell the Property to the PAHC and PAHC shall purchase the Property from
the City on the terms and conditions described in this Agreement.
If SummerHill, in addition to the Parties, executes a counterpart copy of this
Agreement, this Agreement shall serve as escrow instructions for the Escrow. If the City first acquires
title to the Property from SummerHill, this Agreement shall serve as escrow instructions for the Escrow
upon execution of this Agreement by only the Parties. The Escrow Holder is authorized to act under this
Agreement, and to carry out its duties as the Escrow Holder hereunder.
2.2.2. Close of Escrow. "Close of Escrow" or "Closing" means the date Escrow Holder
causes the deed(s) (conveying the Property to PAHC), the Land 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 2.6, below. Any Party shall have the
right to terminate this Agreement if the Closing has not occurred prior to the earliest of: (i) 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; (ii) Developer’s failure to provide to the City not less
often than monthly reports on Developer’s efforts and the status thereof (if the failure is not cured within
52467-9 8
te~; i) days after the City gives Developer notice ofnonreceipt of the rep ,, (iii) 150 days after the
dat~ that Developer receives notice ~! ¯ ;. Developer has been :~warded a preli~lJinary tax credit
reservation; (iv) the date that PAI~-I~’ Oeveloper is assessed negative points for failure to meet
deadlines in connection with its ta;~ :,.~dit application; (v) Developer’s failure to obtain a tax credit
allocation during the first tax credit application period during 2002, or if approved by the City Manager,
either of the two immediately succeeding tax credit application periods; or (vi) May 31, 2003 (or, if the
City has acquired title to the Property prior to that date, December 1, 2003).
2.2.3. Other Documents. Ttie Parties (and SummerHill if it joins in this Agreement)
shall execute such reasonable and customary documents, including necessary escrow instructions, as
required to implement the intent of this Agreement (incl,:cling, to the extent applicable, Exhibit E-1 of
the PAMF Agreement).
2.3. Purchase.
2.3.1 The Parties acknowledge and agree that the Option Consideration heretofore paid
by the City to PAMF under the PAMF Agreement is equal to the Purchase Price of the Purchased
Interest (as defined in the PAMF Agreement). Because the Option Consideration is to be applied to the
Purchase Price of the Purchased Interest, no additional amounts will be required at the Close of Escrow
on account of the Purchase Price of the Purchased Interest. In addition to the amount (acknowledged to
be greater than $2,900,000) paid as Option Consideration, the Parties further acknowledge that the City
has incurred $475,000 of demolition and removal costs in connection with the Property and certain
prior improvements located on the Property, and may incur additional costs in connection with the
removal of an existing double-trunk oak tree from the Property. Such payments by the City shall not
affect the amounts payable by PAHC or the Developer under this Agreement; PAHC’s and the
Developer’s monetary obligations to the City shall be as described in the other provisions of this
Agreement.
2.3.2 The purchase price for the assignment to PAHC of the City’s rights to acquire the
Property from SummerHill (or, if the City has obtained title to the Property, the purchase price for the
Property) shall be $5,874,000; payable in the form of PAHC’s promissory note (the "Land Note") in
mutually-acceptable form, and secured by a deed of trust (the "Land Deed of Trust"), in mutually-
acceptable form, 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 shall include without limitation
provisions for: (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) the unpaid balance shall be
due on sale or further encumbrance of the land; (iii) the unpaid balance shall be due and’ payable upon
expiration or earlier termination of the initial term of the Land Regulatory Agreement; provided,
however, that ifPAHC exercises its option to extend the Land 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 Land
Regulatory Agreement on the date the payment becomes due; and_ ;iv) the Land Deed of Trust shall
secure both the Land Note and the obligations of PAHC under thi:’, ,’\greement.
2.3.3 Concurrently with the Close of Escrow, PAHC and the Developer shall enter into
a fifty-five (55)-year ground lease (the "Ground Lease") of the Property, the form and content of which
52467-9 9
Ground Lease shall have been approved by the City, and the City and the Developer shall enter into the
Development Regulatory Agreement.
2.3.4 Concurrently with the Close of Escrow,. the City shall lend up to $1,960,000 to the
Developer, which loan shall be evidenced by Developer’s promissory note (the "Development Note") in
mutually-acceptable form, and secured by a deed of trust (the "Development Deed of Trust"), in
mutually-acceptable form, 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 payment equal
to the amount, if any, by which the proceeds of sale of the Pine Street Property exceed $625,000, as
described in Section 2.6.2.1; (ii) a one-time 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, grants and
amounts received under the Shared Ramp Agreement) exceed the Developer’s audited actual
development cost of the Project, provided, however, that this payment shall not be required to the extent
that any part of the PAHC Developer Fee remains unpaid as required under this Agreement; (iii)
subsequent payments prior to maturity shall be due to the extent of Residual Receipts after Debt Service
on the HTF Loan and satisfaction of the PAHC Developer Fee; (iv) simple interest on the unpaid
balance of the Development Note from the Closing (or until later disbursed) until repaid shall accrue at
the rate of 3% per annum; (v) the unpaid balance shall be due and payable upon expiration or earlier
termination of the term of the Development Regulatory Agreement, or upon sale, assignment, sublease
or further encumbrance of the Developer’s interest in the Property (other than the Primary 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 (vi) the Development
Deed of Trust shall secure both the Development Note and the obligations of Developer under this
Agreement. The proceeds shall be disbursed in accordance with Section 5 of this Agreement.
2.3.5. The City shall subordinate the lien of the Development Deed of Trust to the
TCAC Regulatory Agreement, the Primary Loan and the AHP Loan, subject in each case to approval of
the form of subordination document by the City, which approval will not be unreasonably withheld.
2.4. Condition of Title; Title Insurance.
2.4.1. 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 Land Regulatory
Agreement; (b) the Ground Lease; and (c) the Land Deed of Trust.
At the Close of Escrow, the Developer shall receive the leasehold interest under
the Ground Lease subject and subordinate to the title exceptions approved by the Parties, plus (a) the
TCAC Regulatory Agreement (if applicable); (b) the Land Regulatory Agreement; (c) the Development
Regulatory Agreement; (d) the deed of trust securing the Primary Loan; (e) the deed of trust securing the
AHP Loan (if applicable); and (f) the Development Deed of Trust.
2.4.2. 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 Escrow Holder (or another mutually-acceptable title company),
insuring the interests of 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 2.4.1, and insuring in favor of the City the recorded priority of the
52467-9 i0
Land Regulatory Agreement, the Land Deed of Trust, the Development Regulatory Agreement and the
Development Deed of Trust, together with such endorsements as the Developer shall reasonably request.
2.5. Escrow and Title Charges. 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.
2.6. 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:
2.6.1 The Developer shall have submitted to the City, and the City shall have approved
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 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 $200,000 of such fees shall be payable prior to the funding of
the permanent Primary Loan; (iii) up to $400,000 of such fees 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 (iv)
any portion of the PAHC Developer Fee deferred past the date that the permanent Primary Loan is
funded shall bear interest at the rate of 3% per annum simple interest and shall be payable from Residual
Receipts available after payments due on the HTF Loan but before payments due on the Development
Note. If the shortfall is greater than the $400,000 to be funded by deferring that portion of the PAHC
Developer Fee, the Parties shall meet and confer in good faith regarding appropriate action; however,
nothing herein shall be deemed to commit any Party to any particular action. 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.
2.6.2 As more fully described in Section 5.1, Developer shall have obtained the City’s
approval of the proposed construction and long-term financing for the Project, which financing shall
include at least the following:
2.6.2.1 PAHC shall have contributed to the Developer as equity for use in the
development of the Project an amount equal to the greater of: (i) $625,000; and (ii) the net proceeds
obtained by PAHC from the sale of the property ("Pine Street Property") located at 1259 Pine Street,
Palo Alto, California, up to a maximum of $1,000,000. Such funds shall have been legally segregated
from other funds of Developer and legally restricted to use in the development of the Project. Nothing
herein shall be deemed to require PAHC to sell the Pine Street Property at any particular time, so long as
(i) PAHC contributes to Developer at least $625,000, as described above, and (ii) ifPAHC subsequently
sells the Pine Street Property and realizes net proceeds in excess of $625,000, at the close of the sale
escrow PAHC or an affiliate shall contribute the amount of the excess, up to $375,000, to Developer,
and Developer shall immediately pay the amount so contributed to the City as a payment against the
Development Note. For purposes of this Section 2.6.2.1, "net proceeds" shall mean the gross price
being paid by the buyer, less (i) encumbrances approved by the City in its sole discretion; (ii) reasonable
brokers’, finders’ and similar fees and other selling costs actually paid by PAHC; and (iii) reasonable
escrow, recording and similar fees in connection with the sale actually incurred by PAHC. If any
portion of the sale price is payable in installments or is payable, in a form other than cash, that portion
shall be included at its then-present cash value, as reasonably determined by the City.
52467-9 ii
2.6.2.2 Developer shall have received a reservation of low income housing tax
credits, and shall have entered into binding agreements to transfer such tax credits to equity investors in
the Project. The agreements with the investors may not provide for an initial fee payable to the agent or
representative of the investors, but 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.
2.6.2.3 The construction Primary Loan shall close concurrently with the Closing.
2.6.2.4 The AHP Loan shall close concurrently with the Closing, or Developer
shall have obtained a binding and enforceable commitment for the AHP Loan.
the HTF Loan.
2.6.2.5 Developer shall have obtained a binding and enforceable commitment for
2.6.2.6 The owner and/or developer of the adjacent property located at 250-270
Homer Street shall have entered into an agreement (the "Shared Ramp Agreement") with Developer,
PAHC and the City agreeing to reimburse the Developer for the cost of constructing certain
Improvements that are intended to benefit both properties, and shall have adequately secured the
performance of its obligations under the Shared Ramp Agreement to the satisfaction of the City, PAHC
and the Developer.
2.6.3. 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.
2.6.4. Developer shall have provided to the City satisfactory evidence that Developer
has obtained all building and other permits necessary to begin construction of the Project.
2.6.5. 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 this Agreement, with the funds available for development
of the Project. The Construction Contract shall be a guaranteed maximum cost contract insuring
construction of the Improvements 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
52467-9 12
(b) ~lhe 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’,
matenalmen’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 all work and materials for at least one
year after issuance of a certificate of occupancy for the Project.
2.6.6 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 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.
2.6.7. The City shall have received satisfactory evidence that the insurance required by
Section 8.1 of this Agreement shall be in effect.
2.6.8. PAHC shall have executed and delivered to the Escrow Holder the Land
Regulatory Agreement, 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
Regulatory Agreement, the Development Note, the Development Deed of Trust and all other documents
required by the City.
2.6.9 The City at its expense shall have removed the existing double-trunk oak tree
from the Property, not later than thirty (30) days after Developer notifies the City of Developer’s receipt
of a tax credit reservation.
2.6.10. The Developer shall have delivered to Escrow Holder the amounts required under
this Agreement.
2.6. I 1. Such other conditions as the City may reasonably require.
2.7.Escrow Holder
2.7.1. At the Closing, Escrow Holder is authorized to:
2.7.1.1 Pay and charge each Party for any fees, charges and costs payable by that
Party under this Agreement. 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
52467-9 13
2.7.1.2 Record the deed to the Property, a memorandum of this Agreement, the
Land Regulatory Agreement, the Land Deed of Trust, the Ground Lease, the Development Regulatory
Agreement and the Development Deed of Trust, and deliver the other documents to the parties entitled
thereto.
2.7.2. 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 who then shall 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 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.
2.7.3. 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 agree to carry out its duties as escrow
holder under such amendment.
2.7.4. All 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.
2.7.5. The liability 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.
2.8. Condition of the Property. PAHC and the Developer acknowledge that PAHC will
acquire the Property directly from SummerHill (or, if the City acquires title prior to the Closing, that
City’s taking of title shall be an accommodation to PAHC and the Developer); except for any time that
the City holds title as an accommodation, the City does not and has not owned the Property, and 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 without 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 WARRANTY AS TO THE MERCHANTABILITY OR
FITNESS FOR PARTICULAR USE OF ANY OF THE PROPERTY BEING TRANSFERRED
PURSUANT TO THIS AGREEMENT.
2.9. RiCht of Entry. Prior to the Closing, PAHC and the Developer and their authorized agents
shall have the same rights (of entry and testing) as the City has under Paragraph 5(b) of Exhibit E-1 of
the PAMF Agreement, subject to the City’s obligations thereunder. PAHC and the Developer shall
52467-9 14
indemnify, defend and hold the City harmless from and against any lien, loss, claim, liability or expense
arising out of or in connection with the activities of PAHC, the Developer and their agents on or about
the Property.
2.10. Prorations. The expenses described in Paragraph 6(d) of Exhibit E- 1 of the PAMF
Agreement shall be paid and prorated in accordance with said Paragraph 6(d).
2.11. Brokers. Each of the Parties represents to the others that it has not dealt with any broker
or :,. :’at in connection with this transaction for which a commission or fee is payable by any other Party.
Eacil 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
2.11 shall survive the Closing or the termination of this Agreement.
3.LAND AND DEVELOPMENT REGULATORY AGREEMENTS.
3.1 Land Regulatory Agreement. On the Closing Date, the City and PAHC shall enter into
and cause to be recorded against the Property the Land Regulatory Agreement in a mutually-acceptable
form, which shall 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 TCAC Regulatory Agreement; at the option of PAHC,
the term may be extended for an additional 44 years.
3.1.2 Use: The Property shall be used solely for the construction, operation and
maintenance ofmultifamily rental housing, and for no other purpose. All (except the manager’s Unit) of
the Units shall be rented exclusively to households of very low or lower income at affordable rent for
very low or lower income persons. Unless otherwise approved by the City, at least forty-seven (47) of
the Units shall be rented and occupied by or, if vacant, made available for rental and occupancy by very-
low income households. Except for the manager’s Unit, all other Units shall be rented and occupied by
or, if vacant, made available for rental and occupancy by low income households. This covenant shall
run with the land for the benefit of the City for the purpose of protecting the interest of the community,
and shall be binding on PAHC and all successors in interest of PAHC. 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 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 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 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 at least 60 days prior to the commencement of a Fiscal Year that this requirement will apply for
that Fiscal Year;
52467-9 15
3.1.5 Reserves: commencing 60 days after the City notifies PAHC .~l~at the City has
elected to invoke this provision, PAHC will be required to maintain operating and replacement Reserves
satisfactory to the City, and will not be permitted to withdraw funds from the Reserves without the
City’s approval, not to be unreasonably withheld;
3.1.6 Management: commencing 60 days after the Ci~)~otifies PAHC that the City has
elected to invoke this provision, PAHC will be required to obtain the approval of the City, not to be
unreasonably withheld, to the operating management of the Property, including PAHC;
3.1.7 Maintenance: the Developer will maintain the Property and all Improvements
thereon in good condition;
3.1.8 Costs of Operation: PAHC 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 will be required to maintain insurance coverage satisfactory to
the City and naming the City as an additional insured.
3.1.10 Rent Subsidy Programs: PAHC will use reasonable efforts to participate in
Section 8 and other rent subsidy programs, provided, however, that nothing herein shall require PAHC
to include more than 25% of the Units in any such program.
3.1.11 Nondiscrimination: Provisions substantially the same as Sections 8.16 and 8.17
of this Agreement.
3.1.12 TCAC Regulatory Agreement: the Land Regulatory Agreement shall be
subordinate to a TCAC Regulatory Agreement on customary terms as approved by the City.
Compliance with the TCAC Regulatory Agreement shall be deemed compliance with the Land
Regulatory Agreement to the extent the TCAC Regulatory Agreement is more restrictive than the Land
Regulatory Agreement. In case of a direct conflict between the Land Regulatory Agreement and the
TCAC Regulatory Agreement, the Developer shall comply with the TCAC Regulatory Agreement;
however, the Developer shall comply with requirements of the Land Regulatory Agreement that are in
addition to (rather than inconsistent with) requirements of the TCAC-Regulatory Agreement.
3.1.13 Non-duplication: To the extent that any of the foregoing obligations of PAHC
under the Land Regulatory Agreement is identical to an obligation of Developer under the Development
Regulatory Agreement, performance of the obligation under the Development Regulatory Agreement
shall also constitute performance of that obligation under the Land Regulatory Agreement. Thus, for
example, Reserves maintained pursuant to the Development Regulatory Agreement shall also constitute
Reserves maintained pursuant to the Land Regulatory Agreement, and income recertification of
residents under the Development Regulatory Agreement shall also_constitute income recertification of
residents under the Land Regulatory Agreement
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 (which approved encumbrances include
but are not limited to the Land Deed of Trust), at the end of the initial term, for an amount equal to the
52467-9 16
greater of: (i) the unpaid balance of the approved encumbrances on the Land; and (ii) the sum of(A) the
appraised value of the Improvements (i. e., the value of the Property less the value of the Land) at that
¯ time, assuming that the Project were subject to the terms of the Land Regulatory Agreement for an
additional 44-year period; plus (B) the unpaid balance of the Land Note. If the City exercises the option,
any portion of the purchase price in excess of the approved encumbrances shall be payable in cash at the
dosing. The City may assign its option hereunder at any time separately from its other rights under the
Land Regulatory Agreement. Notwithstanding the foregoing, if at least six (6) months prior to
expiration of the initial term PAHC exercises its option to extend the term to 99 years, the City’s
purchase option shall be void and without effect.
3.2 Development Regulatory Agreement. On the Closing Date, the City and the
Developer shall enter.into and cause to be recorded against the Developer’s leasehold interest the
Development Regulatory Agreement in mutually-acceptable form, which shall include at least the
following provisions:
3.2.1 Term: approximately 55 years; commencing on the Closing Date and expiring
concurrently with the term of the TCAC Regulatory Agreement.
3.2.2 Use: The Property shall be used solely for the construction, operation and
maintenance of the Project, and for no other purpose. All (except the manager’s Unit) of the Units shall
be rented exclusively to persons or families of very low or lower income at affordable rent for very low
or lower income persons. Unless otherwise approved by the City, at least forty-seven (47) of the Units
shall be rented and occupied by or, if vacant, made available for rental and occupancy by very-low
income households. Except for the manager’s Unit, all other Units shall be rented and occupied by or, if
vacant, made available for rental and occupancy by low income households. This covenant shall run
with the land for the benefit of the City for the purpose of protecting the interest of the community, and
shall be binding on the Developer and all successors in interest of the 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 breaches to which it or any other beneficiaries of
such covenants may be entitled, including, without limitation, specific performance, damages, and
injunctive relief.
3.2.3 Annual Reports: the Developer will be required to provide annually to the City (i)
an audited annual financial statement of the operations of the Project; and (ii) a rent roll and income
recertification of all residents.
3.2.4 Budgets: the Developer will be required to obtain the City’s approval, not to be
unreasonably withheld, of the annual operating budget for the Project, 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;
3.2.5 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, and will not be permitted to withdraw funds from the Reserves without
the City’s approval, not to be unreasonably withheld;
52467-9 17
3.2.6 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.
3.2.7 Maintenance: the Developer will maintain the Project in good condition;
3.2.8 Costs of Operation: the Developer will be responsible for all costs of operating
and maintaining the Project, including but not limited to taxes, insurance and utilities;
3.2.9 Insurance: the Developer will be required to maintain insurance coverage
satisfactory to the City and naming the City as an additional insured.
3.2.10 Rent Subsidy Programs: the Developer will use reasonable efforts to participate
in Section 8 and other rent subsidy programs, provided, however, that nothing herein shall require the
Developer to include more than 25% of the Units in any such program.
3.2.11 Nondiscrimination: Provisions substantially the same as Sections 8.16 and 8.17
of this Agreement.
3.2.12 TcAc Regulatory Agreement: the Development Regulatory Agreement shall be
subordinate to a TCAC Regulatory Agreement on customary terms as approved by the City.
Compliance with the TCAC Regulatory Agreement shall be deemed complii~nce with the Development
Regulatory Agreement to the extent the TCAC Regulatory Agreement is more restrictive than the
Development Regulatory Agreement. In case of a direct conflict between the Development Regulatory
Agreement and the TCAC Regulatory Agreement, the Developer shall comply with the TCAC
Regulatory Agreement; however, the Developer shall comply with requirements of the Development
Regulatory Agreement that are in addition to (rather than inconsistent with) requirements of the TCAC
Regulatory Agreement.
4.DEVELOPMENT OF THE PROPERTY
4.1. Development of the Proiect. 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 conditional use permits, 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.
4.2. Cost of Construction. The cost of the Project shall be borne solely by the Developer.
4.3. 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.
52467-9 18
4.4. 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.
4.5. Anti-discrimination During Construction. Throughout the Developer’s lease of the
Property and the development 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.
4.6.Construction Schedule
4.6.1. 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.
4.6.2. During the period of construction, the Developer shall submit to the City, from
time to time, upon receipt of request from the City, written 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.
4.7. Rights of Access During 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 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.
4.8.Certificate of Completion.
4.8.1. 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.
4.8.2. 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
52467-9 19
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.
4.8.3. 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 Development Loan Disbursements
5.1.1. 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 for such construction, and (ii) the aggregate 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.
5.1.2 $1,800,000 of the loan evidenced by the Development Note shall be disbursed as
required for development of the Improvements. The City may require that each disbursement be subject
to a 10% retention.
5.1.3. The remaining $160,000 of the loan evidenced by the Development Note shall be
disbursed as required for construction of the Improvements, but only to the extent that those loan
proceeds are used solely for that portion of the costs of planning, designing and constructing the specific
on- and off-site improvements required by the City’s Utility Department and/or Public Works
Department in Items 31 (Storm Water Detention), 55 (Opticom Signal Fund) and 57-59 (Sewer Main
Upgrades) of the City’s conditions of approval letter, dated December 4, 2001. The City may require
that each disbursement be subject to a 10% retention.
6.LIMITATIONS ON TRANSFER
6,1 Limitation As To Transfer of the Property and Assignment of Agreement.
6.1.1 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 rights 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, assignment,
52467-9 20
conveyance, or encumbrance of this Agreement, the Property, or the improvements thereon. In
considering whether it will grant approval to any Transfer by Developer, City shall utilize its reasonable
discretion, including but not limited to consideration of factors such as (i) whether the completion of the
Project is jeopardized; (ii) the financial strength 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 mortgz~ge or deed oftr%st permitted by this
Agreement, or (iii) any Transfer between PAHC and the Developer.
In the ew, ~\t 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.
6.1.2. Notwithstanding the provisions of Section 6.1.1, the City agrees it shall not
unreasonably withhold consent to any Transfer to a limited partnership in which PAHC is the sole
general partner, or a limited liability company in which PAHC is the sole managing member; provided
however, the Developer shall remain jointly, and severally liable with such transferee for the
performance of the Developer’s obligations set forth in this Agreement.
6.2.Security Financing; Rights of Mortgagees.
6.2.1. No Encumbrances Except Mortgages, Deeds of Trust, Conveyances or Other
Conveyance for Financing Development.
6.2.1.1. Notwithstanding Section 6.1 or any other provision herein to the
contrary, the TCAC Regulatory Agreement, if applicable, and mortgages required for any reasonable
method of construction and permanent financing are permitted to encumber the Property, but only with
the prior written approval of the City (which approval shall not unreasonably be withheld), and only for
the purpose of securing loans of funds to be used for financing 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).
6.2.1.2. The words "mortgage" and "deed of trust" as used herein include all
other appropriate modes of financing commonly used in real est~r~ 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 in
completion of development of the Project, the City shall at the same time deliver a copy of such notice
or demand to the Mortgagee of any first mortgage, deed of trust or other security interest authorized by
this Agreement who has previously made a written request to tb ’3ity for special notice hereunder. No
notice of default to the Developer shall be effective against any ~ch Mortgagee unless given to such
Mortgagee. Such Mortgagee shall (insofar as the rights of the City are concemed) have the right, at its
option, within 30 days after receipt of the notice, to cure or remedy any 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
52467-9 21
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 foreclosure sale under any such mortgage, deed of
trust or other lien or encumbrance, 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 all of the conditions, restrictions and covenants of this Agreement
and all documents and instruments recorded pursuant hereto.
6.2.4. Right 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 fights and remedies under this Agreement.
EVENTS OF DEFAULT, REMEDIES AND TERMINATION
7.1.Defaults--Definition.
Agreement:
Occurrence of any or all of the following shall constitute a default ("Default") under this
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 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;
52467-9 22
7.1.6. Filing of a petition in bankruptcy by or against the Developer or 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;
7.1.7. 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 written 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 Agreement 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 will assign its rights in the Property to PAHC for 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 Agreement.
7.4.Legal Actions.
7.4.1. Institution of Legal Actions. Any legal actions brought pursuant to this
Agreement 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 Agreement.
7.4.3. Acceptance of Service of Process. If any legal action is commenced 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.
52467-9 23
7.5. Rights and Remedies are Cumulative. Except as otherwise expressly stated in this
Agreement, 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 same time or different
times, of any other rights 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 Agreement 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 rights 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 rights 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 fumish or cause to be fumished 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 countersigned 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 development of the Project.
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
52467-9 24
(30) days’ written notice by the insurer to the City, and (ii) the City shall not be liable for m.- ..~remiums
or assessments. All such insurance shall have deductibility limits reasonably satisfz~tory to the City.
8.2. Indemnity. 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 ,7~ity, from
a~d against all losses, liabilities, claims, damages (including consequential damages), penalties, fines,
forfeitures, coslr and expenses (including all reasonable out-of-pocket litigation costs and reasonable
attorney’s fees) t~J 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 o,’ :,he 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 gi~’es notice in writing of a change of name or address, notices to such party shall thereafter
be given as d~ ,,anded 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)
with a copy to:City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, California 94303
52467-9 25
Attention: Director of Planning
(Telephone:(650) 329-2441)
(Fax:(650) 329-2154)
PAHC: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)
Developer: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)
with a copy to:Gubb & Barshay, LLP
50 California Street, Suite 3155
San Francisco, California 94111
Attention: Natalie Gubb, Esq.
(Telephone:(415) 781-6600)
(Fax:(415) 781-6967)
(e-mail:ngubb@gubbandbarshay.com)
Escrow Holder:First American Title Guaranty Company
1737 North First Street
San Jose, California 95112
Attn: Gail Deaver, Escrow Officer
(Telephone: (408) 451-7800)
(Fax: (408) 451-7836)
(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 ghall not apply in the interpretation of this Agreement or any amendments or
exhibits thereto.
8.5.
follows:
City’s Warranties. The City warrants and represents to PAHC and the Developer as
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.
52467-9 26
8.5.2. The City is a municipal 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. 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 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 partnership
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
the acts of PAHC or the Developer. Neither PAHC nor the Developer has 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. Nothing in this section shall be deemed to prohibit the use and
compensation of a broker, agent, finder or other person in connection with a sale of the Pine Street
Property.
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 shall be 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 Developer 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.
52467-9 27
8.10. Force Ma]eure. 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 perform. 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 by the City and 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 Developer 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 constlaaction 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
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 Developer, 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 partnership, 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 Agreement, 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 all negotiations or previous agreements between the Parties with respect to the subject matter
hereof. 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
52467-9 28
made by any such person which is not contained herein shall be valid or binding on PAHC, the
Developer or the City.
8.15. Severabilit¥. 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 discrimination 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 of tenants, lessees, subtenants, sublessees, or vendees of
the Property or any portion thereof.
8.17. Form of Nondiscrimination and Nonsegregation 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 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, marital
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 and
accepted upon and subject to the following conditions:
’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.’"
52467-9 29
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 may be given on behalf of the City by the City Manager of the City
or the City Manager’s designee. The section applies only to such matters, and does not authorize the
City Manager or the City Manager’s designee to bind the City to an amendment of this Agreement, to
waive any other rights 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).
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52467-9 30
IN WITNESS WHEREOF, the Parties have entered into this Agreement as of the day and~
year first above written.
PALO ALTO HOUSING CORPORATION, a California
nonprofit public benefit corporation ("PAHC")
B
"-P-resident
B
OAK COURT APARTMENTS, L.P., a California limited
partnership ("Developer")
By: PAHC Sheridan Apartments, Inc., a California
nonprofit public benefit corporation, General Partner
President
CITY OF PALO ALTO, CALIFORNIA, a chartered
California municipal corporation ("City")
By:
Mayor
ATTEST:
City Clerk
52467-9 31
APPROVED AS TO FORM:APPROVED:
Senior Assistant City Attomey City Manager
Director of Planning and
Community Environment
Director of Administrative Services
52467-9 32
State of California
County of Santa Clara
}
}
}
On ~ , 200g-’, before me, "~xa.~. ~... ~t~,a Notary Public,,
personally appeared/ ..//~lza,.O_~_o_ ~,J~ _,4~’~_.d" a.~g _g2-~.~.,_,d. ~
personally known to me (or proved t~" me o~n the basis of satisfactory evidence) to be the
person(s) whose name(s) i~/are subscribed to the within instrument and acknowledged to me that
l’j~/ske/they executed the same in h, ggl~/their authorized capacity(is), and that by l’tis/Mr/their
signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
55512.1
EXHIBITS
¯Exhibit A
Exhibit B
Legal Description -- the Property
Schedule of Performance
52467-9
Exhibit A
Legal Description - the Property
[To Be Supplied]
EXHIBIT "B"
Schedule of Performance
Oak Court Apartments
845 Ramona Street, Palo Alto, California
Estimated: February 1, 2002
Land Acquisition:
City Council Approval of °’DDA"
Execute "DDA"
Close Escrow on Land
February 2002
March 26, 2002
August 2002
Design.:
City Approval
Schematic Design
Design Development
Construction Drawing Package
Building Pe ~rmit Submittal
Building Permit Approval
Completed
Completed
January-February 2002
February-June 2002
June 2002
June-September 2002
Construction:
Select General Contractor
Budget Estimating
Final Construction Budget
Begin Grading and Excavation
Begin Building Construction
Complete Construction
Occupancy
Completed
April-July 2002
September 2002
Sept-October 2002
November 2002
December 2003
December 31, 2003
Financing:
Secure Predevelopment Funding Loan
Submit TCAC Application
Secure TCAC Reservation
Secure Construction Loan Commitment
Secure Permanent Loan Commitment
Secure Housing Trust Fund Loan Commitment
Secure Affordable Housing Funding Commitment
Secure Shared Ramp Financing Commitment
Close on Construction Loan
Close on City Development Loan
Close on Permanent Loan and Tax Credit Investment
Secure IRS Form 8609
Completed
March 26, 2002
May 22, 2002
March 26, 2002
By Land Closing
March 26, 2002
Completed
March 26, 2002
August 2002
August 2002
March 2004
March 2004
If tax credit financing application is not successful per the above schedule, performance
schedule will be adjusted according to the requirements of the Disposition and
Development Agreement. This is discussed in the CMR accompanying the Agreement.