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Home My WebLink About0473.093i , I ~. . , , -.;.- • ".'. 'it' +, September 2. 1993 HONORABLE CITY COUNCIL palo Alto, Cal .... fornia "_of . SUMMARY OF REFINANCING OF 33 UNIT OAK MANOR TOWNHOMES, §3 ° LeS ROBLES Members of the CQuncil: Report in Brief This is a status report on the current refinancing of the Palo AltJ Housing Corporation's Oak Manor Townhome project at 630 Los Robles Avenue. This report is for information only and no Council acti~n is required. Background The Housing Corporation acquired 630 I~s Robles Avenue on January ~~. 1991 for $3,775,000. The af'praised value~ at the time, was $3.9 million, -:assuming that the defects ident.ified in the inspection reports were c0:l::':;-_~_c:_ted _ P}!.ES h.e lol .that--t.r~ propert~ suffered frow Su1;:f,i3t'intJ . .:::l ~<··,f€'!":!:':c:.;~ -';'L,~ . ..i..rl'ce!'l3.nc.:: and was in nl;!_e_q. _of rn;:l_~:""._' ";'Oi.~~~, .our. ac: the L-ehabIlitation proceeded ~A.rtL· found that. additional work waoS necessary. 'l'h~ acquisition was financed as follows: Assumed First Loan Balance After Closing: (PARe assumed the adjustable first mortgage already on the property) $2,035,507 New Loan From City Housing Reserve In Second Position: $2,100~OOD $4,135,507 The Housing Corporation n:.:-eived about $400,000 cash proceeds from the City's loan, ..... hich they subsequently used to fund a portion of the rehabilitatl0n work. According to::) FA.Be, the rehabilitation work completed since acquisition totals almost $600,000. Major re:rair items include~ new roof, repail; of dry rot damage ~o balconies. seismic retrofj 1"". c ?.c:h~sto:: :::-emo .... al, n€:"w' furr..aces, replacement ot flooring in baths and kitcher:!3 and new exterior paint. :JiscussiQn PAHe has obtained a loan commitment from the California Housing Finance Ag~ncy (CHFA) to refinance the project with a new, thirty year, fixed rate first and a ten year second loan a.t bela ..... market rates and terms. The existing first mortgage is an adju~table loan amortized ovel:' thirty years, but due in fifteen (due i~. full in 2003); it wi 11 be paid off by the refinarv::ing, CHFA is requiring that the City subordinate its existing loan to the new CHF2\ loans. After the refinancing, the property 'Will carry ti.le follcwing debt: 1. c..'1{FA~ Fi::-st Deed of 'Trust at 8.15%-. Fixed, 30 yearSI Fully Amortized: $2 r 400,OOO 2. CHFA: Second Deed of Trust at 3%. Fixed, 10 y~ars. Fully Amortized: (*Final loan amount depends on amount of negative arbitrage that PARC must pay to dat.e of closing) 3. City of Palo Alto: Third at 3%, Fixed. 20 years {Principal and interest forgiven eacc year that low ir.come use requirem~nt.s al."e met) Principal Balanc::~ .... as. n.~ "'9-/~J .. Increase In CUrrent Debt Due To Refinancing, about: 100,000* $4,441,349 $500,000 While the debt on the property will incre,lse Significantly, the income and expense pro forma sul:.mit.ted by PARC shows that the property will be operat iag on i:i sound financial basis. Their pro forma shows a positive cash f:'o""'l before depreciatic.n allowance. of about $32,000 in the fifth year. The project's financial security i.s due r-'rirn.arily to .. ·.hese factors: • A 15 year contract for 23 units 0: project baSed Section e rental assistance, • Completion of major rehabilitation and deferred maintenance, • Establish.'nent of reserve funds fc.'!" capital and operating costs, 9/2/93 Page 2 • Fixed rate .. ful1_y ;"llmortized fir!ar!cir:.g ";.!ithc-..:.t: c.;;.llc-cn payments; and. • The annual forgiveness feature of the City's loan which will g:-adually improve the property's loan to vaLle retio. On July 7, 1993, p~qC ~xecuted a 15 year contract with the County Housing Authority for 23 units cf project based Section 8 rental assistance. The tenants already occupied the units~ and PA.I·{C had been subsidizing them for some time. The Se.:tion 8 contra,-:t ensures that at least 23 units will be occupi~d by very low in~ome households, with the Housing Authority providing the_cash s'..lbsidy between ..... hat the tenants can afford and market rents. CUrrently, there are two other tena~ts wilh ~heir own Section 8 certificates and eight market rent tenants. The project's occupancy mare thru~ meets the require~ent in the City'S note ~hat sa percent of the units be occupied by tenants with moderate or lower in~omes, CHFA also required that PAHC establish capital and operating case reserves in the amount of $50,000 and $3B .. Or:~, l.-':'spectively. These reserves; tog-eth",i:-.iLh---tr:~ ---~_Y.:1plet.i.uil of major rehabilit.s.t.i;,:..L. -d:nd deferred maintenar.ce, So far towards ensurir:s that there will not be large, unexpe-:::ted expens~s for rEpairs. I.Joan t9 Value and SF'curity of c.ta~ __ ~ Loan CHFA did not require a n~loo' ""~-;:=-~:oc.i ; ..... cCd:u---,-_ ... i0-n ·.ith their loan approyal~-The property was-purchased by PARC in an open market transaction in January 1991. An appraisal done for PARe prier to purchase assigned the property a value of abo'lt $3.9 million, if certain repaira were completed. Since no after rehabilitation appraisal has been done, the current market value of the project can only be roughly estimated~ Some of the work completed, such as the seismic and dry rot repair, probably did not increase the value of the property on the open market. Gther items may have improved the val,le _ However, the real estate market has been generally stagnant over the last. several years, so that overall, staff beli~vcs that the property's value does not E:xceed the late 1990 appraisal of $3.9 million. This means that the reffnancing puts the City's loan in a somewhat riskier position, in that the City is moving from second to third position and is behind an additional $500,DOO in debt on a property where the total loan to v~lue ratio probably exceeds 100 percent. In addition, the total financing exceeds the market value to a greater degree than it did after the original purchase. To further aecure the City'S interests, staff negotiated a signed loan gUdr-antee under which the Palo Alto Housing Corpor"ltion guil.rantees any payments due on the City's 9/2/93 Page 3 loan. Unless advised otherwise by the Ccuficil r the City Manager will execute th~ subordination ?3~eement" Respectfully submitted, &.!A.ttj£«-,4 trl CATHERrNE SIEGEL Senior Planner ~.~~~ Assistant City Manager cc: Palo ~~to Housing Corporation CMR:473~93 '/ ' . 'te: d £ -k~,.j '". J/-;?{t:,: " c ,j/!.-C:«'t'"y' KENNETH R" SCHREIBER Director of Planning and Community Environment 9/2/93 Page 4 ;-""