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HOUSING AUTHORITY AGENDA REPORT
City of Anaheim
HOUSING AND COMMUNITY DEVELOPMENT
DEPARTMENT
DATE: JULY 15, 2025
FROM: HOUSING AND COMMUNITY DEVELOPMENT DEPARTMENT
SUBJECT: APPROVAL OF AN OPTION TO PURCHASE
AGREEMENT, MORTGAGE LOAN SALE AGREEMENT
AND FIRST AMENDMENTS FOR THE ELM STREET
COMMONS AFFORDABLE RENTAL HOUSING
DEVELOPMENT LOCATED AT 111 – 125 WEST ELM
STREET
ATTACHMENT (Y/N): YES ITEM # 01
GOVERNMENT CODE § 84308 APPLIES: YES
RECOMMENDATION:
That the Governing Board of the Anaheim Housing Authority, by Motion:
1. Approve the Option to Purchase Agreement (Elm Street Commons Affordable Housing Project), between the Anaheim Housing Authority and Elm Street Commons LP, substantially in the form attached;
2. Approve a Mortgage Loan Sale Agreement between the Anaheim Housing Authority and California Community Reinvestment Corporation (CCRC) to purchase the Elm Street Commons property, located at 111-125 West Elm Street, for $2,881,430.20 utilizing Low Moderate Income Housing Asset funds substantially in the form attached;
3. Approve the First Amendment to Authority Regulatory Agreement authorizing the Executive Director to implement Tax Credit Allocation Committee (TCAC) rent limits for the Elm Street Commons property;
4. Approve the First Amendment to City Affordable Housing Restrictions [Non- Subordinate] with the City of Anaheim to authorize the Executive Director of the Anaheim Housing Authority to implement a rent limit structure associated with the Low-Income Housing Tax Credit (LIHTC) program which is primarily based on a percentage of the Area Median Income (AMI);
5. Authorize the creation of a reserve fund in an amount not to exceed $230,000 to address emergency deferred maintenance during the interim ownership period;
6. Authorize the Executive Director or her designee to execute and administer the Option to Purchase Agreement, Mortgage Loan Sale Agreement, First Amendment to Authority Regulatory Agreement, and First Amendment to City Affordable Housing Restrictions on behalf of the Authority;
7. Authorize de minimis changes that do not substantially change the terms and conditions of the agreements, as determined by the City Attorney’s Office; and
8. Finding and determining that the proposed amendments are not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2), 15060(c)(3), 15378, and 15061(b)(3) of Title 14 of the California Code of Regulations and making certain other findings in connection therewith.
Option to Purchase Agreement, Mortgage Loan Sale Agreement, and First Amendments – Elm Street Commons July 15, 2025
BACKGROUND:
Elm Street Commons Apartments (Project) is a 52-unit, 100% affordable multi-family affordable rental project located at 111 – 125 W. Elm Street. The units are rented to families earning between 30% to 60% of the Area Median Income.
In December 2006, the Anaheim Housing Authority (Authority) entered into an Affordable Housing Agreement with Advanced Development & Investment, Inc (ADI), acting as the original developer, and approved a $3,750,000 loan (Authority Loan) to help with development of the Project. The Authority loan amount was subsequently reduced to $3,515,257 as the developer did not expend the full amount of the original loan. In 2010, ownership of Elm Street Commons LP was transferred to Wentwood, a Texas-based company, which assumed the role of developer and took over control of the Project.
The Authority loan carries a 58-year repayment term and bears 3% simple interest. As of July 15th, the outstanding Authority loan balance, including accrued interest, totals approximately $10,485,913. This loan will remain in place and is expected to be paid over time from any available residual receipts once the property is stabilized. The Authority Loan is subordinate to the first mortgage lender, California Community Reinvestment Corporation (CCRC). The current outstanding balance of the CCRC loan, which includes accrued interest, is approximately $2,881,430.20.
DISCUSSION:
On December 11, 2024, CCRC informed staff and interested parties that the Borrower and Property Owner, Elm Street Commons LP, had initiated a strategic default and ceased making payments on the first mortgage effective November 2024. Wentwood, the owner of the site, expressed its intention to sell its California property holdings and, where feasible, exit the state. Additionally, staff was notified that Westlake Housing, L.P., the property manager, would resign and cease property operations.
CCRC further indicated its intent to initiate non-judicial foreclosure proceedings. On February 25, 2025, CCRC recorded a Notice of Default against the property’s title.
Subsequently, on June 10, 2025, CCRC recorded the Notice of Trustee’s Sale, setting a public auction date for July 17, 2025. CCRC is moving forward with the foreclosure and plans to sell the property unless the outstanding loan of $2,881,430.20 is paid or a resolution is reached before the sale date.
To prevent foreclosure and protect the long-term affordability of the Elm Street Commons property, the Authority is taking proactive steps to assume temporary control of the project and stabilize its operations. The Authority has negotiated an Option to Purchase Agreement with Elm Street Commons LP to acquire their interest in the Elm Street Commons property for $100. The Authority will temporarily assume the role of borrower and property owner until the selection and approval of a new owner is finalized.
In addition, the Authority will purchase the existing first deed of trust loan held by CCRC utilizing Low Moderate Income Housing Asset funds (LMIHAF) in the amount of $2,881,430.20. By purchasing the loan, the Authority preserves the below-market Option to Purchase Agreement, Mortgage Loan Sale Agreement, and First Amendments – Elm Street Commons July 15, 2025
interest rate and favorable repayment terms of the original loan. This structure allows the Authority to take control of the property without triggering a foreclosure. The mortgage loan purchase enables the Authority to step in and immediately address any deferred maintenance issues and facilitate the transition to a qualified new borrower and property owner under the City’s oversight while protecting the affordability covenants for low- income residents.
As part of the evaluation of this transaction, staff has reviewed both the physical and financial condition of the property. Based on recent financial statements, the property has struggled to maintain financial stability, with recurring shortfalls in net cash flow and an ongoing inability to cover its debt payments. In 2022, the property experienced a negative cash flow and was unable to make its debt obligations. While 2023 showed some improvement, the property fell short of lender requirements and continues to operate with little to no cushion for rising costs or unforeseen expenses. This shortfall is partly attributed to the owner’s decision not to increase rents, the property’s obligation to use the more restrictive California Department of Housing and Community Development (HCD) rent limits, and rising operational costs. Due to these financial challenges, Elm Street Commons LP could not identify an immediate replacement buyer and ultimately chose to initiate a strategic default. This action has left the property at risk of foreclosure by CCRC.
The current rent restrictions require the use of HCD-published rents tied to a now- obsolete Redevelopment Agency structure. While this structure was once standard for Redevelopment-funded properties, affordable housing rent structures have since been modernized and now align with the rent limits established under the Low-Income Housing Tax Credit (LIHTC) program. Both rent frameworks are based on HUD- published area median incomes, but differ in methodology, with LIHTC (TCAC) rents typically allowing slightly higher limits that reflect current financing realities. These modest increases can significantly improve financial viability without compromising affordability.
To stabilize operations in the interim, the property manager implemented rent increases effective March 1, 2025, raising rents to the maximum amounts allowed under current HCD guidelines. Despite these increases, the HCD rent limits remain significantly lower than TCAC rents and are insufficient to support the property’s long-term financial viability. Because the Elm Street Regulatory Agreement does not contemplate a shift away from Redevelopment-era rent limits, staff requests authority to amend the agreement to allow the use of TCAC rents, aligning the project with current industry standards and improving long-term financial viability.
It is anticipated that the modernized rent structure will result in rent increases. To minimize impacts on existing households, staff will evaluate each tenancy and use a phased approach to rent increases, providing residents with ample notice and support if an increase is applied. In all cases, rents will remain at affordable levels based on State standards, ensuring that no tenant is paying more than 30% of their income on housing costs.
To ensure a smooth transition in operations, the Authority will hire a qualified property management company to operate the property following the borrower's exit and acquisition of the CCRC loan. This interim management will remain until a new Option to Purchase Agreement, Mortgage Loan Sale Agreement, and First Amendments – Elm Street Commons July 15, 2025
developer is selected and onboarded. In addition to the loan purchase, staff requests authorization to allocate up to $230,000 in LMIHAF to address emergency deferred maintenance issues that may arise and ensure the property remains habitable and operational during the interim period.
Affordable housing preservation is a priority to staff and aligns with the City’s Strategic Plan Goal B Enhance Livability, Strategy 2 - Develop strategies to stabilize and expand affordable, workforce, and home ownership housing options for low-income residents.
Acquiring the property will preserve long-term affordability for existing and future low- income households. Without this intervention, the property is at risk of foreclosure and resale at market rates, potentially eliminating affordability restrictions and displacing extremely low- and very low-income families the Project currently serves.
Staff recommends that the Governing Board of the Housing Authority approve and authorize the Option to Purchase Agreement and Mortgage Loan Sale Agreement. Any material changes in the terms will be brought back for review and consideration.
IMPACT ON BUDGET:
All proposed assistance to the Project is derived from Low-Moderate Income Housing Asset Funds in the Housing and Community Development Department’s FY 2025/2026 budget.
Respectfully submitted,
Grace Ruiz-Stepter
Executive Director of
Anaheim Housing Authority
Attachments:
1. Option to Purchase Agreement
2. Mortgage Loan Sale Agreement
3. First Amendment of Authority Regulatory Agreement
4. Original Authority Regulatory Agreement
5. First Amendment to City Affordable Housing Restrictions [Non-Subordinate]
6. Original City Affordable Housing Restrictions [Non-Subordinate]