STAFF REPORT
Lancaster Housing Authority
HA CC 1
10/8/2024
TN
Date: October 8, 2024
To: Chairman Parris and Board Members
From: George Harris, Senior Director/Treasurer – Administrative Services Chenin Dow, Assistant Director
Subject: Commitment Letter with Ravello Holdings, Inc.
Recommendation:
Authorize the Executive Director to execute a Commitment Letter with Ravello Holdings, Inc. consistent with the terms outlined in this staff report.
G.C. Section 84308: No
Fiscal Impact
Upon execution of the agreement contemplated by the Commitment Letter, which will also come before the Authority Board for consideration, the Lancaster Housing Authority (“Authority”) will return the approximately $2.4 million previously paid by Ravello Holdings, Inc. (“Ravello”) for the purchase of Authority-owned land for phase 1 of Maison’s Sierra, and will provide financing terms for the purchase of a portion of the remainder of the land for the project.
Including the funds from phase 1, the total to be financed is $4 million in land costs. Ravello will pay these costs over time, in accordance with the terms outlined in this staff report and the attached Commitment Letter.
Background:
On May 10, 2023, the Authority entered into a Disposition and Development Agreement (“DDA”) with Ravello for “Maison’s Sierra,” a 499-unit affordable housing development on a 66-acre Authority property located on the southwest corner of Avenue H and Sierra Highway. The Authority approved a First Amendment to the DDA on April 18, 2024.
Maison’s Sierra envisions three phases of development, with 196 units in the first phase; 171 1 7
7 8
units in the second phase; and 132 units in the final phase. All units are designed as affordable single-family detached homes for a combination of families and seniors with incomes at or below 80% of the area median income.
Financing for phase 1 has closed, and Ravello paid the Authority the appraised value of approximately $2.4 million for Authority land for this phase. Construction on these units is underway. Ravello is now working to finalize financing for the next phase and has requested the financing of a portion of the Authority land costs, totaling $4 million, to bridge the gap between tax credit financing awarded and the total project cost.
The proposed deal structure would provide financing of the land costs in the form of a loan at an interest rate of 3.81%, equal to the 10-year United States Treasury yield. In order to secure the majority of the funding for the project, payment of the Authority funds would be subordinate to the senior loan. The proposed structure is a residual receipts format, with the primary loan and operational expenses funded from rents, while the Authority interest is repaid through 50% of any funds remaining after these financial obligations are satisfied. Any unpaid interest would compound annually, with a balloon payment for any outstanding interest as well as the principal due at the end of the 18-year term.
Additionally, Ravello will commit to partner with the City and the First Public Hydrogen Authority to work toward becoming a hydrogen-powered community and continue partnerships with the City, including the purchase of hydrogen.
The Authority funds will be expressly non-forgivable, with the developer prohibited from requesting a reduction or waiver of the balloon payment in the future. Should such a request be made, the entirety of the outstanding amount will become immediately due and payable. The funds would also become due and payable upon the sale of the property and/or the refinance of the senior loan.
At present, Ravello is seeking a Commitment Letter to submit with their tax credit application. Should this application be approved, the Authority and Ravello will have 180 days to prepare an agreement and bring it before the Authority board for approval.
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Attachment:
Letter of Commitment with Ravello Holdings, Inc.