TO:Andrew P. Powers, City Manager
FROM:Jaime Boscarino, Finance Director
DATE:February 25, 2025
SUBJECT: Hillcrest Villas Additional Loan to Many Mansions RECOMMENDATION:
1. Authorize City Manager to execute $900,000 Loan Agreement and all necessary documents with Many Mansions for Hillcrest Villas.
2. Approve additional budget appropriation in the amount of $900,000 from A/C #001-0000-311-1000 (General Fund, Fund Balance) to A/C #001-4630-644-5927 (General Fund, Housing Projects, HS9932).
3. Authorize City Manager to sign necessary documents with Many Mansions and other necessary parties, as needed.
4. Find that this action is not a project as defined under the California Environmental Quality Act.
LEVINE ACT ITEM: No
FINANCIAL IMPACT:
$900,000 Increase to the Adopted FY 2024-25 General Fund Budget. $900,000 increase to the Adopted FY 2024-25 General Fund Budget is requested in order to enter into an additional loan agreement with Many Mansions for Hillcrest Villas affordable housing project. The City has previously loaned $7,056,500 towards acquisition and other development costs of Hillcrest Villas. This would increase the total outstanding loan to $7,956,500.
BACKGROUND:
At the April 24, 2007, City Council/Redevelopment Agency meeting, City Council, acting as the Redevelopment Agency Board, approved a $3,100,000 Redevelopment Agency (RDA) loan to Many Mansions for the acquisition and other associated costs of 2686 and 2736 East Hillcrest Drive. The purpose of the acquisition of the two parcels was to construct an affordable housing project.
Hillcrest Villas Additional Loan to Many Mansions
February 25, 2025
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0 At the November 27, 2007, City Council/RDA meeting, City Council acting as the RDA Board of Directors, approved an additional $1,481,500 RDA loan to Many Mansions for the acquisition and other development costs of 2672 and 2676 East Hillcrest Drive, as well as a $1,050,000 loan for the acquisition and other associated costs of 2645 Los Feliz Drive. These parcels were adjacent to the initial two parcels purchased for the Hillcrest Villas project. After actual acquisition costs and predevelopment costs were determined, the total RDA loan amount for all 5 parcels was $5,556,500 ($4,925,000 for acquisition and $631,500 in other costs).
At the June 23, 2009, City Council meeting, City Council approved various legislative actions, entitlements, and an Owner Participation Agreement (OPA) in order to approve the construction of a 60-unit multi-family affordable housing project (Hillcrest Villas) by Many Mansions. As part of the approval process, City Council deferred the development impact fees until after final building inspection as requested by Many Mansions. As a condition of the loans previously approved, the RDA required affordability covenants to be recorded against the site limiting the use to the development of affordable housing for 55 years.
At the February 9, 2010, City Council/RDA meeting, City Council acting as the RDA Board of Directors approved an additional $500,000 short-term loan to Many Mansions to fund preconstruction costs related to the preparation of construction documents. Many Mansions was in the process of tax credits for the project and being able to start preconstruction would enable the project to score higher in the “Project Readiness” category.
At the February 22, 2011, City Council/RDA meeting, City Council acting as the RDA Board of Directors, approved an additional $1,000,000 loan to Many Mansions and converted the previous $500,000 short-term loan to a permanent financing loan. Many Mansions was not awarded tax credit financing due to that round being oversubscribed. After discussions between City staff and Many Mansions, it was determined that in order to improve project scoring competitiveness, the amount of public funding for the project would need to be increased. Therefore, additional funding from the RDA was requested and approved. This action increased the total RDA loan for the project from $5,556,500 to $7,056,500.
In addition, the OPA was amended to reflect the total loan amount for the project.
Based on the terms in the Amended OPA, no principal and interest payments are due unless Many Mansions fails to meet the terms of the Amended OPA, Revised Promissory Note, Deed of Trust, or Affordability Agreement. Typical with affordable housing loans, the repayment is in the form of residual receipts (remaining cash flow after payment of project expenses, debt service, required reserve deposits, and sponsor distributions).
Hillcrest Villas Additional Loan to Many Mansions
February 25, 2025
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0 DISCUSSION/ANALYSIS:
Hillcrest Villas opened in May 2013 as a 60-unit supportive affordable housing project. Since the opening of Hillcrest Villas, Many Mansions has served as property manager and service provider. Many Mansions operates the project with the Housing First principles. Many Mansions also provides case management services for its 30 supportive housing residents, youth programs, and community programs.
Hillcrest Villas is owned in a limited partnership with Hillcrest Drive, L.P. as the Limited Partnership; Hillcrest Drive, LLC (Many Mansions) as the General Partner; and U.S. Bank LITC Fund 2012-2 (U.S. Bank) as the Limited Partner. The project was developed and constructed with $26.1 million in financing from the following sources:
Type Funding/Source Amount
Hard Debt U.S. Bank $1,144,520
Soft Debt (Residual
Receipts)
State of California HOME
Funds
$4,400,000
State of California
CalHFA-MHSA Funds
$1,297,920
City RDA $7,056,500
Federal Home Loan
Bank of SF Affordable
Housing Program
$590,000
Equity Capital Contribution U.S.
Bank LITC Fund 2012-2
$11,290,504
Other City Fee Deferral $296,586
Total $26,076,030
The funding from U.S. Bank began as a tax-exempt, $11.3 million construction loan. After completion of the project, all other financing was obtained and the permanent loan outstanding was $1,144,520. The outstanding U.S. Bank debt requires annual debt service payments of which Many Mansions has paid each year. Per City Council/RDA approval, the City’s $7.1 million loan is currently in 3rd position behind U.S. Bank and the California Department of Housing and Community Development (HCD).
In Fall 2024, Many Mansions reached out to City staff about financial challenges with Hillcrest Villas. Many Mansions informed City staff that in August 2024, U.S.
Bank served a notice of default to Hillcrest Drive, L.P. on its outstanding loan balance of $944,471 and U.S. Bank would like to exit the limited partnership.
Although timely debt service payments were made, the loan is in technical default Hillcrest Villas Additional Loan to Many Mansions
February 25, 2025
8 8
0 due to inability to meet the required Debt Service Coverage Ratio (DSCR) of 1.05-
1.00 for the past two fiscal years as required by the terms of its loan with U.S.
Bank. Based on the technical default, U.S. Bank could seek foreclosure of Hillcrest Villas. Prior to reaching out to the City, the parties reached a Loan Modification Agreement that no action would be taken by U.S. Bank through January 30, 2025.
Many Mansions subsequently had several meetings with City staff over the past few months to explain the circumstances surrounding the technical default as well as discuss potential options for remedy. The primary driver for the inability for the property to meet DSCR the past couple years is due to the significant increase in property insurance costs. The property insurance premium for the property in 2020 was $18,496 whereas the 2024 premium was $277,151, an increase of $258,655.
The continual rise in property insurance costs led to an eventual Net Operating loss in 2023, triggering the failure to meet DSCR and technical default on the loan.
Many Mansions expressed to City staff that the payoff of the U.S. Bank loan would provide several benefits to the property. There would no longer be annual debt service payments required which would reduce annual expenses by approximately $84,000. Additional expenses, such as forced placed insurance coverage and appraisals, would no longer be incurred. A lender would no longer be able to foreclose on the property as the loan would be paid off. Most importantly, the City’s affordability agreement that requires the units be reserved for affordable housing would remain in place.
Prior to the January 31, 2025, extension deadline granted by U.S. Bank, City staff and Many Mansions met with U.S. Bank representatives to discuss options. U.S Bank agreed to further extend the deadline to April 30, 2025, contingent upon the entire loan being repaid. U.S. Bank would then exit the limited partnership and Many Mansions (Hillcrest Drive, L.P.) would be the sole owner. Many Mansions received a verbal agreement from Montecito Bank for a $400,000 loan contingent upon the City loaning $500,000 for a total of $900,000. Many Mansions agreed to fund the difference between the outstanding loan balance and $900,000.
City staff requested proposed loan terms of the Montecito Bank Loan. City staff was informed by Many Mansions that Montecito Bank would require its $400,000 loan to be in first position over the City’s current loans and the potential $500,000 loan being requested. Based on the City’s outstanding loan of $7.1 million, City staff does not believe allowing Montecito Bank’s $400,000 loan to take first position on the property is a prudent financial decision in the event of a potential future default. Therefore, City staff informed Many Mansions that it would recommend to City Council approval of the full $900,000 loan to bring the outstanding City loan on the property to $8.0 million.
Hillcrest Villas Additional Loan to Many Mansions
February 25, 2025
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0 The City’s outstanding $7.1 million loan is a residual receipts loan as described in the Background Section. The City first received a residual receipts payment from Many Mansions in FY 2016-17 in the amount of $11,010. The City received ongoing residual receipts payments through FY 2022-23 for total residual receipts payments since opening in the amount of $137,180. If approved by City Council, the additional $900,000 loan would also be a soft loan (residual receipts) similar to the existing loan. Based on the current and future property insurance environment, it is unlikely that the property would pay residual receipts to the City in the near future. As an affordable housing project, the ability to raise rents to meet ongoing operating expenses is limited. In addition, the loan terms would require prepayment of the outstanding loan in the event Many Mansions receives future funding towards the project.
Proposed terms of the loan to Many Mansions for Hillcrest Villas are as follows:
Project: Hillcrest Villas (2726 East Hillcrest Drive, Thousand Oaks Use of Property: Existing affordable housing development comprised of 60 units rented to households earning 60 percent of Area Median Income (AMI) or less and 30 units of which are rented to households earning 30 percent of AMI or less Loan Amount: $900,000
Term: 55 years from closing
Interest Rate: 3 percent simple interest
Repayment: Loan will be repaid out of residual receipts/excess cash flow from operation of the project. If Hillcrest Villas goes through syndication, resulting cash flow would be used for early loan payoff
Purpose of Loan: To pay off senior loan with U.S. Bank Position: To be determined, but likely behind existing outstanding debt Without the City’s financial support, U.S. Bank would likely foreclose on the property, which would jeopardize the on-going affordability requirements.
Therefore, City staff recommends City Council authorize the City Manager to execute all required loan agreements and documents for an additional $900,000 loan to Many Mansions and other necessary parties as needed for Hillcrest Villas.
The loan would be contingent upon HCD’s approval and would be solely used to prepay the outstanding U.S. Bank loan. Many Mansions would be required to fund the difference of the City’s $900,000 and the amount outstanding on the loan as of prepayment date.
COUNCIL GOAL COMPLIANCE:
Meets the following City Council goal:
C. Operate City government in a fiscally and managerially responsible and prudent manner to ensure that the City of Thousand Oaks remains one of California's most desirable places to live, work, visit, recreate, and raise a family.
FIN:350-10\jb\H:\COMMON\Council\2025\Administration\022525 Hillcrest Villas Loan Staff Report.docx