TO: HONORABLE MAYOR FROM: Jacky Morales-Ferrand
AND CITY COUNCIL Julia H. Cooper
SUBJECT: SEE BELOW DATE: March 21, 2022
Approved Date
3/23/2022
COUNCIL DISTRICT: 3
SUBJECT: ACTIONS RELATED TO APPROVALS NEEDED FOR THE SALE OF
THE PARKING LOT OF THE TOWN PARK TOWERS AFFORDABLE
HOUSING DEVELOPMENT
RECOMMENDATION
Adopt a resolution authorizing the City Manager, Director of Housing, Director of Finance, the Assistant Director of Finance, the Deputy Director of Finance, Debt and Treasury Management, the Deputy Director of Housing or their designees, to negotiate and execute an amendment to the Regulatory Agreement and Declaration of Restrictive Covenants for the affordable housing development located at 60 North 3
rd Street, Town Park Towers, together with any ancillary documents required by bond counsel for the reissuance of the tax-exempt multifamily housing revenue note designated as “City of San José Multifamily Housing Revenue Note (Town Park Towers) Series 2015C”.
OUTCOME
Approval of the recommended actions will enable the amendment of the Regulatory Agreement and Declaration of Restrictive Covenants (Revenue Note Regulatory Agreement) and the reissuance of the revenue note issued in connection with the Town Park Towers affordable housing development located at 60 North 3
rd Street (Project). This will allow the borrower, Town Park Towers L.P. (Borrower) to sell the parking lot portion of the parcel, reserving a parking easement for the Project. The Borrower has agreed the resulting net proceeds from the sale, approximately $3 million less expenses, will be allocated to the Project’s reserves.
The Project is an affordable senior housing community and serves residents with maximum annual incomes between 50% (Very Low Income) and 60% (Low Income) of the area median income (AMI).
COUNCIL AGENDA: 4/5/2022
FILE: 22-443
ITEM: 8.1
HONORABLE MAYOR AND CITY COUNCIL
March 21, 2022
Subject: Sale of Parking Lot of Town Park Towers Affordable Housing Development
BACKGROUND
The Borrower is a California limited partnership consisting of the following entities:
(1) Managing General Partner: Sequoia Living TPT LLC, a California limited liability company (formerly known as NCPHS TPT, LLC) the sole member of which is Sequoia Living Inc., a California nonprofit public benefit corporation (formerly known as Northern California Presbyterian Homes and Services Inc.). (2) Limited Partner: Merritt Community Capital Fund XVII, L.P., a California limited partnership.
Project Overview
The Project has an existing recorded Revenue Note Regulatory Agreement executed by the City of San José (City), the Fiscal Agent and the Borrower. The Revenue Note Regulatory Agreement contains certain covenants and restrictions regarding the development and its operations intended to assure compliance with the Internal Revenue Code of 1986 and Chapter 7 of Part 5 of Division 31 of the California Health and Safety Code. The Revenue Note Regulatory Agreement restricts the rental of the apartments to low- and very low-income residents for a period of at least 55 years.
Currently, the unit mix pursuant to the Revenue Note Regulatory Agreement is as follows:
The Project, originally built in 1974, consists of one 10-floor residential building. The Project is occupied by senior citizens, many of whom are recipients of project-based Section 8 rental subsidies. The Borrower acquired the Project in 2015 to recapitalize it and provide funds for its rehabilitation. The City issued the “City of San José Multifamily Housing Revenue Note (Town Park Towers) Series 2015C” (Series 2015C Revenue Note) to assist with the rehabilitation and to preserve the Project as affordable housing. The Borrower was able to qualify for new tax-exempt financing and low-income tax credits. For residents to qualify for housing, the maximum monthly incomes and applicable maximum rental rates are in the following table:
* Based on the Household size of # of bedrooms +1
Town Park Towers # of Apartments 50% AMI 60% AMI
Studio 144 56 88
1 Bedroom 72 42 30
Total Apartments 216 98 118
Bedroom Size AMI% Maximum Monthly Income* Maximum Rental Rate Studio/1 Bath 50% $4,833 $1,323
Studio/1 Bath 60% $5,525 $1,588
1 Bedroom/1 Bath 50% $5,317 $1.418
1 Bedroom/1 Bath 60% $6,630 $1,701
HONORABLE MAYOR AND CITY COUNCIL
March 21, 2022
Subject: Sale of Parking Lot of Town Park Towers Affordable Housing Development
No City Funding Invested in the Project
The City has not made and does not have an outstanding loan on the Project.
ANALYSIS
The Borrower has requested the City Council authorize the City Manager, the Director of Finance, the Director of Housing, the Assistant Director of Finance, the Deputy Director of Finance, Debt and Treasury Management, the Deputy Director of Housing or their designees to negotiate and execute an amendment to the Revenue Note Regulatory Agreement to remove the parking lot parcel from the legal description and execute any ancillary documents requested by bond counsel for the reissuance of the Series 2015C Revenue Note.
This request was made in connection with the Borrower’s plan to sell the parking lot portion of the L-shaped Town Park Towers property (see Attachment A for map) to the developer of adjacent properties.
Borrower’s Proposed Sale
The Borrower has provided the following description of the proposed sale:
History
On July 31, 2020, the Borrower executed a Purchase and Sale Agreement with Urban Catalyst (Buyer) to purchase the Project’s parking lot. The parking lot currently contains 24 parking spaces plus two Americans with Disabilities Act parking spaces for the exclusive use of the Project. The Buyer has offered $3.3 million dollars to purchase the parking lot. Any redevelopment of the parking lot after the sale would be separately approved by City Council, and that approval would be subject to the California Environmental Quality Act (CEQA).
Benefit to the Project
According to the Borrower, the Buyer will provide the Project with a permanent easement for parking to include 24 parking spaces plus two Americans with Disabilities Act parking spaces for a total of 26 parking spaces. A draft easement agreement will be signed by the Borrower and the Buyer as a condition of the sale. The proceeds from the sale would be used to fund the Project’s Restricted Reserve Fund to pay for capital improvement projects. These additional funds would provide significant increased reserves to strengthen the long-term sustainability of the Project to provide safe affordable housing for low-income seniors for generations to come.
Consents to the Parcel Sale and Revenue Note Reissuance In order to complete the amendments to the Revenue Note documents, consent is required from each of the regulatory bodies, including the U.S. Department of Housing and Urban Development; California Tax Credit Allocation Committee; noteholder, Citibank, N.A.; and fiscal agent, U.S. Bank National Association. The Borrower has provided conditional consents
HONORABLE MAYOR AND CITY COUNCIL
March 21, 2022
Subject: Sale of Parking Lot of Town Park Towers Affordable Housing Development
from the regulatory bodies. The Borrower has also agreed that all of these consents will be provided prior to the execution of the amended Revenue Note documents.
Reissuance and Council Approvals Needed for the Sale
Under the U.S. Treasury regulations that apply to the Series 2015C Revenue Note, a change to a “substantial amount” of the collateral securing the revenue note is considered a material modification of the revenue note that triggers a reissuance of its outstanding principal amount for federal tax purposes. Bond counsel has advised the removal of the parking lot parcel from the collateral securing the revenue note should be treated as a reissuance. Reissuance is solely a federal tax concept and there is no state or federal requirement that the reissuance be approved by the City Council. A reissuance requires the preparation of a new final opinion of bond counsel, arbitrage certificate to be executed by the Borrower and the City as issuer, a certificate regarding the use of proceeds to be executed by the Borrower, and an IRS Form 8038 to be executed by the City. The approvals requested in connection with this memorandum will authorize the execution of the amended Revenue Note Regulatory Agreement and any ancillary documents requested by bond counsel, including the IRS Form 8038.
No Tax Equity and Fiscal Responsibility Act Hearing Required
A Tax Equity and Fiscal Responsibility Act public hearing was held for the initial issuance of the Series 2015C Revenue Note on May 11, 2015. A new Tax Equity and Fiscal Responsibility Act hearing or approval is not required for this action, because the proposed collateral change will not extend the average maturity of the Series 2015C Revenue Note.
CONCLUSION
Approval of the recommended actions will enable the amendment of the Revenue Note Regulatory Agreement to allow the sale of the parking lot portion of the Project benefiting the residents of the Project and the City of San José.
EVALUATION AND FOLLOW-UP
It is anticipated that the amended Revenue Note Regulatory Agreement and any ancillary documents will be executed, and the sale of the parking lot will be concluded within six months of the City Council approval.
HONORABLE MAYOR AND CITY COUNCIL
March 21, 2022
Subject: Sale of Parking Lot of Town Park Towers Affordable Housing Development
CLIMATE SMART SAN JOSE
The recommendation in this memorandum has no effect on Climate Smart San José energy, water, or mobility goals.
PUBLIC OUTREACH
As required by the U.S. Department of Housing and Urban Development, the Borrower has notified the residents of the proposed parking lot sale in writing. Additionally, the Borrower has made the Buyer’s architectural plans available to the residents of the Project.
COORDINATION
This report has been prepared by the Finance Department and the Housing Department in coordination with the City Attorney’s Office and the City Manager’s Budget Office.
COMMISSION RECOMMENDATION / INPUT
This item was not heard by the Housing and Community Development Commission, as approvals of affordable development financing do not fall under the functions, powers, and duties of the Commission delineated in Section 2.08.2840 of the San José Municipal Code.
FISCAL/POLICY ALIGNMENT
This action is consistent with Goal H-2 of the City’s Housing Element 2014-2023, adopted by the City Council on January 27, 2015, to “increase, preserve, and improve San José's affordable housing stock.”
COST SUMMARY/IMPLICATIONS
The Borrower will pay all fees, including bond counsel fees, and associated costs for this transaction. There is no investment of City funds in connection with the transaction.
HONORABLE MAYOR AND CITY COUNCIL
March 21, 2022
Subject: Sale of Parking Lot of Town Park Towers Affordable Housing Development
CEQA
Not a Project, File No. PP17-003, Agreements/Contracts (New or Amended) resulting in no physical changes to the environment.
/s/ /s/
JULIA H. COOPER JACKY MORALES-FERRAND
Director of Finance Director of Housing
The principal author of this memorandum is Shelsy Bass, Senior Development Officer. For questions, please contact Nikolai J. Sklaroff, Deputy Director, Debt and Treasury Management at (408) 535-7832 or Rachel VanderVeen, Deputy Director of the Housing Department at (408) 535-8231.
Attachment A: Location Map
ATTACHMENT A – LOCATION MAP
60 N 3rd Street San José, CA
*Property lines are approximate
Green designates the parking lot portion to be sold
Red designates the portion of the parcel to remain with the Borrower with existing Project