Item 449/2024
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Ursula Luna-Reynosa
Dept:
City Manager Dept: Economic Development and
Housing
Date: 11/12/2024
Subject: Approval of amendments to Garden Grove Loans for the Wesley Village Affordable Housing Project. (Joint Action Item with the Housing Authority)
OBJECTIVE
To request the City Council and Housing Authority consider and take action jointly on the attached four agreements affecting the Wesley Village affordable housing project, including:
(1) Amendment No. 2 to HOME Funds Commitment and Agreement, (2) Amendment No. 1 to City DA Fee Deferral Loan Note, (3) Amendment No. 1 to HOME Loan Note, and (4) Amendment No. 1 to Additional Authority Loan Note (together, “Amendments”). The Amendments aim to facilitate the Project's long-term financial feasibility and ensure continued compliance with the Limon Judgment in a joint consideration and action with the Housing Authority.
BACKGROUND
The Limon Judgement resulted from two rulings by California courts related to lawsuits filed by Marina Limon and other plaintiffs when they were displaced by the Former Redevelopment Agency from the Travel Country RV Park for future development of a hotel.
A court approved Interlocutory Judgment set out the following obligations of the Successor Agency: (a) provide additional relocation assistance and financial support to former residents of the Travel Country RV Park; (b) develop 38 very low- and low-income housing units, either newly built or substantially rehabilitated, as replacement housing (known as “Limon Replacement Housing”); and (c) give priority to the plaintiffs and former Travel Country RV Park residents for these housing units, encouraging them to apply for tenancy in the new affordable housing options.
The Wesley Village Project (“Project”) is a 47-unit mixed use affordable housing project with 31 family and 16 senior apartments along with a new preschool and ancillary commercial/retail space, developed on land owned by the United Methodist Church and ground leased to Garden Grove Housing Partners LP, a California limited partnership (“Developer”), an affiliate of Jamboree Housing Corporation (“JHC”). In 2015, the City, Housing Authority, and Developer entered into the HOME Funds Commitment and Item 449/2024
Agreement (“HOME Agreement”) by which the City and Housing Authority (together, “Garden Grove”) provided financial assistance to Developer for the Project with three loans:
(1) HOME Loan of $2,010,561, (2) Additional Authority Loan of $1,600,000, and (3) City DA Fee Deferral Loan of $90,052 (collectively, “Garden Grove Loans”). A Regulatory Agreement was executed and recorded against the Project that ensures compliance with the long-term affordability, property management, maintenance, and other requirements during the 55- year Affordability Period.
Construction of the Project was completed and the City issued a final certificate of occupancy in June 2017. During Developer’s transition to permanent financing, a capital structure issue arose. The Developer obtained additional funding of $1.4M (“WV Fund Gap Loan”) from WV Fund LLC, which entity is comprised of JHC and ELOM LLC; although initially intended to be unsecured, this new loan was secured by a deed of trust recorded on March 28, 2018.
DISCUSSION
Under the HOME Agreement, the Developer’s new loan required Garden Grove’s consent.
JHC, on behalf of Developer, requested Garden Grove’s consent to the WV Fund Gap Loan and asked for certain modifications to the HOME Agreement in a letter dated April 23, 2018.
In the following months, document review and negotiations began between Garden Grove and Developer representatives, with counsel representation from Stradling Yocca Carlson & Rauth for Garden Grove and Rutan & Tucker for the Developer.
The key changes introduced in the Amendments include:
Garden Grove consent to Developer obtaining the WV Fund Gap Loan as a subordinate loan, junior to the existing Garden Grove Loans. Increase in the Tax Credit Equity to $7,356,085 (from original amount of $6,250,000) and the Deferred Developer Fee to $1,400,000 (from original amount of $501,730).
Modification of the Residual Receipts allocations, temporarily reducing the Housing Authority's share to 40% until the WV Fund Gap Loan is repaid, then reverting to 50%.
Temporary reduction in the Housing Authority's percentage of Transfer Net Proceeds and Refinancing Net Proceeds to 50% (from 75%) until the WV Fund Gap Loan is repaid.
Adjustment to the Social Services Fee, removing it from Operating Expenses and adding it to the Residual Receipts after the Deferred Developer Fee. Increase in the principal amount due under the City DA Fee Deferral Loan Note to $211,719 (from $90,052), reflecting the repayment of excess funds and City-incurred costs.
Preserving the financial viability and continued successful operation of the Wesley Village Project, in particular the 47 apartments that fulfilled Garden Grove’s separate legal obligations under the Limon Judgment, by providing required replacement housing.
Item 449/2024
FINANCIAL IMPACT
There is no net financial impact to the City or Housing Authority over the period of the Garden Grove Loans. However, cash flow will be impacted by reducing the Housing Authority's share of the Residual Receipts allocations and Transfer Net Proceeds and Refinancing Net Proceeds to 50% while the WV Fund Gap Loan remains outstanding.
By approving the WV Fund Gap Loan, the City enables the Project to address its capital structure issues, secure financial stability of the Developer, and preserve affordable housing for the 55-year Affordability Period. The adjustments to the Residual Receipts, Transfer Net Proceeds, and Refinancing Net Proceeds will ensure timely repayment of all loans, including the WV Fund Gap Loan, with full repayment of the Garden Grove loans remaining due upon maturity of the Notes in 2073. The modifications to the Social Services Fee enable continued provision of these services while maintaining the Project’s financial feasibility.
RECOMMENDATION
It is recommended that the City Council:
Approve Amendment No. 2 to HOME Funds Commitment and Agreement Approve Amendment No. 1 to City DA Fee Deferral Loan Note
It is recommended that the Housing Authority:
Approve Amendment No. 2 to HOME Funds Commitment and Agreement Approve Amendment No. 1 to HOME Loan Note
Approve Amendment No. 1 to Additional Authority Loan Note
By: Monica Covarrubias
Sr. Project Manager
ATTACHMENT(S)
1. Amendment No. 2 to HOME Funds Commitment and Agreement
2. Amendment No. 1 to City DA Fee Deferral Loan Note
3. Amendment No. 1 to HOME Loan Note
4. Amendment No. 1 to Additional Authority Loan Note