Agenda Item No. 17
JOINT YUCAIPA CITY COUNCIL
AND HOUSING AUTHORITY
AGENDA REPORT
TO: Honorable Mayor and City Council
Honorable Chairman and Board Members
FROM: Ryan C. Miller, Housing and Economic Development Analyst® FOR: City Council and Housing Authority Meeting of October 24, 2022 SUBJECT: Proposed Bond Upsizing / Refinancing with Eagle Yucaipa 55, L.P. 96-unit Senior Housing Development located at the Northwest corner of 51h Street and County Line Road (APN 0318-23-524)
RECOMMENDATION:
That City Council:
1. Review and approve the proposed Bond upsizing/Refinancing proposed by Eagle Yucaipa 55, L.P; and
2. Review and approve the First Amendment to the Promissory Note and Disposition and Development Agreement; and
3. Review and approve the Confirmation of Intercreditor and Subordination Agreement; and
4. Authorize the City Manager, or his designee, to finalize and execute the necessary documents to complete and document the Bond Upsizing/ Refinancing process and loan.
That the Housing Authority:
1. Review and approve the proposed Bond upsizing/Refinancing proposed by Eagle Yucaipa 55, L.P; and
2. Review and approve the First Amendment to the Promissory Note and Disposition and Development Agreement; and
3. Review and approve the Confirmation of Intercreditor and Subordination Agreement; and -194-
4. Authorize the City Manager, or his designee, to finalize and execute the necessary documents to complete and document the Bond Upsizing/ Refinancing process and loan.
BACKROUND:
In 2017, the City and the Yucaipa Housing Authority (Authority) entered into a Disposition and Development / Affordable Housing Agreement (Agreement) with the Developer to provide financial assistance in the form of a Residual Receipts Loan in the amount of $1,997,620 to the Developer for the purposes of constructing an affordable housing senior project with 96 units on a portion of 3.48 acres located at the Northwest corner of 5tn Street and County line Road.
In addition, the Agreement allowed the Developer to obtain a "Senior Project Loan" from an Institutional Lender. To that end, the Developer obtained $10 million in Taxable Variable Rate Demand Multifamily Housing Revenue Bonds (Bonds), which are recorded in a 1 st Trust Deed position against the property.
Furthermore, the Agreement anticipated that the amount of the City's Residual Receipts Loan and the Senior Project Loan (Bonds) would not be sufficient to fully construct the Project. As such, the Agreement envisioned that the Developer would need to loan additional funds to the Project to provide sufficient financing (Developer Loan) to cover all of the Project's development costs. The Developer states that the original loan balance of the Developer Loan was $3.15 million, and the Developer Loan has a current outstanding balance of $2,079,065.83, In addition, the City Residual Receipts Loan balance will increase to account for the Regulatory Agreement Monitoring Fee to be added to the loan amount annually, along with interest for those fees. The current outstanding balance is $2,201,637.50 with the inclusion of the annual Regulatory Agreement Monitoring Fee and interest.
Construction of the project was completed, and it has been operating since 2019.
DISCUSSION:
The Developer is proposing a Bond Upsizing / Refinancing of $2.5 million, increasing the Bond from $10 million to $12.5 million. The Developer will utilize the Bond proceeds to first pay off the Developer Loan with a current balance of $2,079,065.83, followed by a one-time cash payment to the City in the amount of $42,890.13 to pay towards the Residual Receipt Loan. In addition, after closing, the City will start to receive monthly payments at approximately $7,000 per month ($81,000 per year) to pay toward the Residual Receipt Loan.
The developer refinancing proposal consists of the following:
1. Refinance/upsize the original Bond allocation (1st Trust Deed) by $2.5 million —from $10 million to $12.5 million; and
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2. Utilize the $2.5 million in additional bond proceeds to pay off the existing Developer Loan, which has a current outstanding balance of $2,079,065.83 million; and
3. Make a cash payment to the City in the amount of $42,890.13, which is equal to 15% of the Refinancing Net Proceeds. The Developer proposes to retain 85% of the Refinancing Net Proceeds, or $243,000 whereas under the current agreements, the City would be entitled to the full amount of the Refinancing Net Proceeds (approximately $285,890) but less in annual payments for the next decade or so; and
4. Upon repayment of the Developer Loan, the City will receive 15% of the Project's residual receipts going forward, which the Developer estimates at approximately $7,000 per month, or $81,000 per year, until the loan is fully repaid.
The City consulted with Keyser Marston Associates (KMA) to evaluate the Bond Upsizing/ Refinancing proposal. The following summarizes the conclusions of the KMA analysis:
1. The Developer proposed refinancing is allowed by the Agreement; and
2. The Developer can utilize the refinancing proceeds to pay for issuance costs and to pay off the remaining outstanding balance of the Developer Loan; and
3. 100% of any remaining proceeds after repayment of the Developer Loan (Refinancing Net Proceeds) should be paid to the City to first pay off any accrued interest on the City Loan and then to pay off the principal balance of the City Loan; and
4. The City should begin receiving 15% of the Project's residual receipts upon pay-off of the Developer Loan.
5. The City should make sure that annual the Regulatory Agreement Monitoring Fee is captured into the loan amount. (this is being addressed with the adjusted loan amount).
6. The City should review the annual residual receipts payments and financial statements from Developer regarding same. (the City is working with developer on this.) Cash Flow Analysis:
KMA prepared two cash flow analyses to evaluate the financial implications of the proposed refinancing and relationship to the request to amend the agreements between Eagle and the City / Housing Authority. The following summarizes the two cash flow analyses:
A. Current Scenario: This cash flow analysis assumes that the Bonds are not upsized. The debt service payments remain the same. However, per the conclusions outlined above, 100% of the Project's net cash flow would go to repay the Developer Loan prior to the City receiving any residual receipts payments for an estimated 4 more years. -196-
B. Proposed Scenario: This cash flow analysis assumes that the Bonds are upsized by $2.50 million to a new principal amount of $12.50 million. The additional $2.50 million in bond proceeds are used to pay off the outstanding balance of the Developer Loan. As such, the City will start receiving residual receipts payments upon closing of the bond upsizing.
Current
Proposed
Scenario
Scenario
First Year City Receives Residual Receipts
2026
2022
Residual Receipts Nominal Dollars
$2,955,000
$2,891,000
Residual Receipts NPV Dollars
$953,000
$1,039,000
Year City Loan is Repaid
2050
2050
*The Residual Receipts Loan payoff schedule will shift with the adjustment to account for the Agreement Monitoring Fee noted above.
Fiscal Impact: The proposed upsizing/refinancing of the bonds results in the City receiving residual receipts from the Project approximately four years sooner than if the upsizing/refinancing did not occur. Furthermore, the City is anticipated to receive more in residual receipts from the proposed upsizing/refinancing on a net present value basis as more in residual receipts will be received sooner. The City loan will be repaid in the same year (2050) under the current or proposed scenario.
The City will receive a one-time distribution payment of $42,890.13. In addition, the City will receive monthly distributions of $7,000 ($81,000 per year) to pay toward the City Loan.
Attachments: Keyser Marston Associates Memorandum Report Summary Proposed Bond Upsizing/ Refinancing
lst Amendment to Promissory Note and Disposition and Development Agreement
Confirmation of Subordination and Intercreditor Agreement Approved by: 4 Oq A_
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G�j
KEYSER. MARSTON ASSOCIATES
ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT
MEMORANDUM
ADVISORS IN:
Real Estate
To: Ryan Miller, Housing and Economic Development Analyst Affordable Housing
Economic Development
City of Yucaipa
BERKELEY
From: Tim Bretz
A. Jerry Keyser
Debbie M. Kern
David Doezema
Date: October 12, 2022
LOS ANGELES
Kathleen H. Head
James A. Rabe
Subject: Eagle Yucaipa — Proposed Refinancing
Gregory D. Soo-Hoo
Kevin E. Engstrom
Julie L. Romey
At your request, Keyser Marston Associates, Inc. (KMA) evaluated the refinancing Tim R. Bretz
proposal submitted to the City of Yucaipa (City) by Eagle Yucaipa 55, L.P. (Developer)
SANDIEGO
with regards to an existing 96-unit apartment project restricted to very -low and low Paul C. Marra
income senior citizen households (Project) located in Yucaipa.
To that end, KMA reviewed the information provided by the City and the Developer in order to provide our opinion as to the financial terms imposed on the Project. In addition, KMA prepared a financial evaluation of the proposed refinancing of the Project's existing financing. The following memorandum discusses our review of the pertinent documents as well as a financial evaluation of the Developer's refinancing proposal.
BACKGROUND
In 2017, the City and the Yucaipa Housing Authority (Authority) entered into a Disposition and Development / Affordable Housing Agreement (Agreement) with the Developer to provide financial assistance to the Developer for the purposes of constructing the Project.
In addition, the Agreement allowed the Developer to obtain a "Senior Project Loan" from an Institutional Lender. To that end, the Developer obtained $10 million in Taxable Variable Rate Demand Multifamily Housing Revenue Bonds (Bonds), which are recorded in a 15Y Trust Deed position against the property.
777 SOUTH FIGUEROA STREET, SUITE 2555 , LOS ANGELES, CALIFORNIA 90017 PHONE 213.622,8095 W W W.KEYS ERMARSTON.CO M
2210003.YCP.TRB
22500.006.001
MI
Ryan Miller, City of Yucaipa
Eagle Yucaipa — Proposed Refinancing
October 12, 2022
Furthermore, the Agreement anticipated that the amount of the City Loan and the Senior Loan (Bonds) would not be sufficient to fully construct the Project. As such, the Agreement envisioned that the Developer would need to loan additional funds to the Project to provide sufficient financing (Developer Loan) to cover all of the Project's development costs. The Developer states that the original loan balance of the Developer Loan was $3.15 million, and the Developer Loan has a current outstanding balance of $2.08 million. City staff should verify the accuracy of the outstanding balance of the Developer Loan.
The Project completed construction and has been operating since 2020.
The following summarizes the conclusions of the KMA analysis:
The Developer's proposed refinancing is allowed by the Agreement.
2. The Developer can utilize the refinancing proceeds to pay for issuance costs and to pay off the remaining outstanding balance of the Developer Loan.
3. 100% of any remaining refinancing proceeds after repayment of the Developer Loan (Refinancing Net Proceeds) should be paid to the City to first pay off any accrued interest on the City Loan and then to pay off the principal balance of the City Loan.
4. The City should begin receiving 15% of the Project's residual receipts upon pay- off of the Developer Loan.
2210003.YCP.TRB
22500.006.001
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the Villas 55+ community - Yucaipa
Owner Distribution
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For the month ended November 1, 2022
Bond Increase
Total Sources Bond Increase
Add: Funded Security Deposit Funds @ Month End
Less : Bonds Cost of Issuance
Less:
Available Cash
Funds to Issuer
Developer Loan
11/1/22 2,500,000
2,500,000
135,000
2,365,000
2,365,000
11 /1/2022
Original Balance Beginning Balance Accruel less Ending Balance payments
Bond Proceeds 2,365,000.00
Less: Developer Loan 3,147,907.78 3,147,907.78 (1,068,841.95) 2,079,065.83 Total Availble for Distribution 285,934.17
DISTRIBUTION
Housing
Authority RR Loan
Tier 1 3/1/13 2/28/29 15.00%
Tier 2 When RR loan to City paid of 0.00%
Total 42,890.13
Original Balance
City Loan 1,977,619.50
Estimated monthly distributions after Bond Increase 45,000 Housing
Authority RR Loan
Tier 1 3/1/13 2/28/29 15.00%
Tier 2 When RR loan to City paid of 0.00%
Total 6,750.00
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10/12/2022 9:42 AM
FIRST AMENDMENT TO PROMISSORY NOTE AND DISPOSITION AND
DEVELOPMENT AGREEMENT
This FIRST AMENDMENT TO PROMISSORY NOTE AND DISPOSITION AND DEVELOPMENT AGREEMENT (this "Amendment") is dated as of , 2022 and is entered into by and between the CITY OF YUCAIPA ("City"), the YUCAIPA HOUSING AUTHORITY, and EAGLE YUCAIPA 55 LLC, a California limited liability company ("Developer").
RECTTALS
A. City, YHA and Developer entered into a Disposition and Development/Affordable Housing Agreement dated December 12, 2017 (the "DDA").
B. Pursuant to the DDA, Developer executed and delivered to City a Secured Promissory Note dated December 12, 2017 in the amount of $1,977,619.50 ("City Note") which is secured by a Deed of Trust with Assignment of Rents dated as of March 28, 2018 in favor of City recorded on March 28, 2018 as Document No. 2018-0108515 in the Official Records of San Bernardino County ("City Deed of Trust").
C. In connection with the issuance of $10,000,000 of bonds for financing of the development required by the DDA, City and the Yucaipa Housing Authority entered into a Subordination and Intercreditor Agreement dated as of March 1, 2018 recorded on March 28, 2018 ("Subordination Agreement") which subordinated the City Deed of Trust to the deed of trust securing a reimbursement agreement for a letter of credit supporting said bonds.
D. Developer desires to refinance and increase the amount of the bonds to $12,500,000 ("Bond Refinancing"), and use proceeds thereof to, among other things, repay a loan by an affiliate of Developer to Developer in the original amount of $3,147,907.78(which currently has a balance of $2,079,065.83 ("Developer Loan"), after which there will still be net refinancing proceeds of $285,934.17 available.
E. Developer has requested that: (i) the City amend the DDA and City Note to provide that in lieu of City receiving all net refinance proceeds for application to the City Note, City receive the lesser sum of $42,890.13 from the $285,934.17; and (ii) the City execute and deliver a recordable Confirmation of Subordination and Intercreditor Agreement in the form attached hereto as Exhibit "A" ("Confirmation") confirming that the City Deed of Trust remains subordinate to the deed of trust securing the reimbursement agreement for the letter of credit supporting such increased bond amount.
THEREFORE, in consideration of the foregoing recitals, the mutual terms set forth below, and other consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment of DDA and City Note. City and YHA agree that notwithstanding anything to the contrary in the DDA or City Note, City shall accept the sum of $43,000 from the net refinancing proceeds for application to the City Note upon the closing of the Bond Refinancing [IS THERE AN ESCROW? WHAT IS ESCROW COMPANY NAME AND ADDRESS, AND ESCROW OFFICER NAME, PHONE AND EMAIL ADDRESS; WHAT IS ESCROW NUMBER?] and shall execute and deliver to [escrow] a counterpart of the
Confirmation, duly acknowledged, with escrow instructions conditioning the further delivery and recording of the Confirmation upon such payment by escrow to City, the closing of the refinancing by , 2022 and the repayment of the Developer Loan [WHAT WILL BE PROVIDED TO SHOW AFFILIATE LOAN SHALL HAVE BEEN PAID?].
IN WITNESS WHEREOF, this Amendment has been executed by the undersigned as of the date first written above.
CITY:
DEVELOPER:
CITY OF YUCAIPA
By:
Print Name:
Title:
Attest:
City Clerk
Approved as to Form:
David Snow, City Attorney
YUCAIPA HOUSING AUTHORITY
By:
Print Name:
Title:
EAGLE YUCAIPA 55 LLC,
a Delaware limited liability company
By: Eagle Real Estate Investment Group LLC,
a Delaware limited liability company,
its Manager
By: Eagle Real Estate Investment
Manager LLC,
a Delaware limited liability
company, its Manager
By:
Randall J. Friend, Manager
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When Recorded Mail To:
Preferred Bank
9350 Flair Avenue, Suite 425
El Monte, California 91731
Attention: Note Department
(Space Above For Recorder's Use)
CONFIRMATION OF SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS CONFIRMATION OF SUBORDINATION AND INTERCREDITOR
AGREEMENT is entered into as of October 1, 2022 by EAGLE YUCAIPA 55 LP, a California limited partnership ("Borrower"); PREFERRED BANK, a California banking corporation ("Bank"); YUCAIPA HOUSING AUTHORITY, a public body, corporate and politic ("Authority"); and CITY OF YUCAIPA, a California municipal corporation ("City").
RECITALS
A. On March 28, 2018 Borrower issued $10,000,000 of its Taxable Variable Rate Demand Multifamily Housing Revenue Bonds (The Eagle Yucaipa Project) 2018 Series A (as increased as described in Recital B below, the "Bonds"). The Bank issued its Irrevocable Letter of Credit dated March 28, 2018 to the trustee for the holders of the Bonds for the account of Borrower to support payments with respect to the portion of the Bonds then issued (as amended, the "Letter of Credit"). The Letter of Credit was issued and maintained by the Bank pursuant to the Reimbursement Agreement dated as of March 1, 2018 between the Issuer and the Bank (the "Original Reimbursement Agreement"). Borrower's obligations are secured by the Construction Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing dated as of March 1, 2018 executed by Borrower for the benefit of Bank, which was recorded on March 28, 2018 as Instrument No. 2018-0108513 in the real property records of San Bernardino County (as modified, the "Deed of Trust").
B. Concurrently with Borrower's issuance of the Bonds, City made a loan to Borrower in the amount of $1,977,619.50. Borrower's obligations with respect to such loan are secured by the Deed of Trust with Assignment of Rents dated as of March 28, 2018 executed by Borrower for the benefit of City, which was recorded on March 28, 2018 as Instrument No. 2018-0108515 in the real property records of San Bernardino County (the "Subordinate Deed of Trust").
C. Concurrently with entering into this Confirmation, (1) Borrower is issuing $2,500,000 of additional Bonds (such that the amount of the Bonds will equal $12,500,000), (2) Bank is increasing the amount of the Letter of Credit to $12,660,274, (3) Borrower and Bank are amending, restating and replacing the Original Reimbursement Agreement by entering into the Amended and Restated Reimbursement Agreement (the "Amended and Restated Reimbursement Agreement"), and (4) Borrower and Bank are modifying the Deed of Trust.
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D. In connection with Borrower and Bank entering into the Deed of Trust and Borrower and City entering into the Subordinate Deed of Trust, Borrower, Bank, Authority and City also entered into the Subordination and Intercreditor Agreement dated as of March 1, 2018, which was recorded on March 28, 2018 as Instrument No. 2018-0108516 in the real property records of San Bernardino County (the "Subordination Agreement").
E. The parties wish to enter into this Confirmation to consent to and confirm the transactions referred to in Recital C above.
AGREEMENT
1. Defined Terms. Capitalized terms used without definition in this Confirmation have the meanings given them in the Subordination Agreement,
2. Consent.
(a) City and Authority consent to: (i) Borrower's issuance of additional Bonds in the amount of $2,500,000; (ii) Bank's amending the Letter of Credit to increase its amount to $12,660,274; (iii) Bank and Authority's entering into the Amended and Restated Reimbursement Agreement; (iv) the "Guarantors" executing and delivering the "Guaranty" (as both terms are defined in the Amended and Restated Reimbursement Agreement); (v) Borrower and Bank entering into a Modification of Deed of Trust concurrently with this Confirmation; and (vi) all of the other transactions and arrangements referred to in and contemplated by the Amended and Restated Reimbursement Agreement.
(b) Authority and City confirm to Bank that Authority and City have received and reviewed complete, final copies of the Amended and Restated Reimbursement Agreement and all of the documents and matters contemplated by it.
Confirmation of Subordination.
(a) Authority and City confirm the Subordination Agreement to Bank and agree that the subordination provided for in Section 1 of the Subordination Agreement remains in full force and effect.
(b) Bank confirms the Subordination Agreement to Authority and City and agrees that the subordination provided for in Section 4 of the Subordination Agreement remains in full force and effect.
4. Remaking Representations and Warranties. Borrower, Bank, Authority and City remake to each other as of the date of this Confirmation the representations and warranties set out in Section 9 of the Subordination Agreement.
5. Counterparts. This Confirmation may be executed in any number of original counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one instrument. The original signature page of any counterpart may be detached from such counterpart and attached to any other counterpart identical to such counterpart (except having W:\Working\ I6908\ 19\W0500382. DOCX
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additional signature pages executed by other parties to this Agreement) without impairing the legal effect of any such signature(s).
6. Entire Agreement. This Confirmation constitutes the entire agreement and understanding between and among the parties in respect of the subject matter of this Confirmation and supersede all prior agreements and understandings with respect to such subject matter, whether oral or written.
7. Severability. If any part of this Confirmation is declared invalid for any reason, such shall not affect the validity of the rest of the Confirmation. The other parts of this Confirmation shall remain in effect as if this Confirmation had been executed without the invalid part. The parties declare that they intend and desire that the remaining parts of this Confirmation continue to be effective without any part or parts that have been declared invalid. [Signature pages on the following pages.]
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BANK: PREFERRED BANK,
a California banking corporation
Nancy J. Pepper
Senior Vice President
S-1
Signature Page to Confirmation of Subordination and lntercreditor Agreement W:\Working\ 16908\ 19\W0500262.DOCX
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BORROWER: EAGLE YUCAIPA 55 LP,
a California limited partnership
By: AHA INLAND MGP, LLC, a California limited
liability company, its Managing General Partner
By: Affordable Housing Access, Inc., a
California nonprofit public benefit
corporation, its Sole Member and Manager
William W. Hirsch,
Chief Executive Officer
By: EAGLE YUCAIPA 55 LLC, a Delaware limited
liability company, its Co -General Partner
By: Eagle Real Estate Investment Group LLC, a
Delaware limited liability company, its
Manager
By: Eagle Real Estate Investment Manager
LLC, a Delaware limited liability
company, its Manager
In
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Signature Page to Confirmation of Subordination and Intercreditor Agreement W:\Working\16908\19\WO500262.DOCX
Randall J. Friend, Manager
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AUTHORITY: YUCAIPA HOUSING AUTHORITY, a public body, corporate and politic
Raymond A. Casey, Executive Director
ATTEST:
Jennifer Crawford, Authority Secretary
CITY: CITY OF YUCAIPA, a municipal corporation
IIn
Raymond A. Casey, City Manager
ATTEST:
Jennifer Crawford, City Clerk
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Signature Page to Confirmation of Subordination and Intercreditor Agreement W:\Working\ 16908\19\W0500262.DQCX
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document.
State of California )
County of Los Angeles )
On , before me, , a Notary Public,
personally appeared , who proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature
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