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Resolution Approving Loan to Corporation

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					                                                                                       Item Number: _______
                                                                                  Meeting Date: April 17, 2007




                                         Staff Report

April 10, 2007


TO:            Davis Redevelopment Agency

FROM:          Donna Silva, Director, Parks & Community Services
               Jerilyn Cochran, Deputy Director, Parks & Community Services
               Danielle Foster, Housing Programs Manager

SUBJECT:        RDA Resolution Approving Additional Indebtedness of $2,000,000 to the
                CalHFA Residential Development Loan Program to be passed on to CHOC for
                construction of the Fifth Street Land Trust Project at 2990 Fifth Street
Recommendation
Staff recommends that the Davis Redevelopment Agency Board:
    1. Approve the attached resolution authorizing the Executive Director for the Agency to
        sign a loan agreement from the California Housing Finance Agency (CalHFA)
        Residential Development Loan Program (RDLP) to incur additional indebtedness of up to
        $2,000,000 to be provided as a construction loan to Community Housing Opportunities
        Corporation (CHOC) for the Fifth Street Land Trust Project, and instructs the Executive
        Director to execute loan agreements and take other actions necessary to comply with
        CalHFA’s RDLP Program requirements (see Attachment 1)

Fiscal Impact
Support for the Fifth Street Land Trust Project is being implemented and proposed in two ways:
(1) Permanent Financing and (2) Predevelopment/Construction Loans. This report focuses on the
Predevelopment/Construction Loans.

Permanent Financing: To date, the Agency has made a funding commitment to the project of
$1,214,830 in RDA Housing Set-Aside funds that is likely to remain as “silent second” loans
after the construction and sale of the homes. While this report is not about the Agency’s
permanent investment in the project, it is worth noting that the recent increase from 21 to 30
units is likely to necessitate an additional investment in homeowner loans to the project. The
matter of potential additional funding for this project will come when construction loan
documents are considered in the upcoming year. To date, none of the Agency’s funding
commitment has been expended to the project.

Predevelopment/Construction Loans: The proposed $2,000,000 in loan funds from CalHFA
would be provided to the Fifth Street Land Trust Project in the form of a construction loan.
These funds are in addition to the $658,000 that CalHFA has already committed to the Agency
for the project’s predevelopment expenses. The total amount of $2,658,000 that CalHFA has
offered to this project would be loaned to the Davis Redevelopment Agency (RDA), who in turn
Staff Report
Subject: RDA Resolution Approving Additional Indebtedness of $2,000,000 to the CalHFA Residential Development Loan
Program to be passed on to CHOC for construction of the Fifth Street Land Trust Project at 2990 Fifth Street
Page 2
would provide the funds in the form of a loan to CHOC for the Fifth Street Land Trust Project.
The loan is provided via the Redevelopment Agency because CalHFA’s RDLP requires that their
loan be made to a city/county or redevelopment agency. Last fall, the RDA Board of Directors
approved the Agency taking on the $658,000 in indebtedness for predevelopment financing to
the project. These loans would be repaid at the conclusion of construction and at the purchase of
the homes by eligible low/moderate income buyers. This type of predevelopment and
construction financing from CalHFA has not previously been provided in city projects, but is
proposed because of the favorable interest rate and for the other advantages of this type of
financing outlined below. Although it is unusual for the City or Agency to incur indebtedness for
an affordable project, this is a requirement of CalHFA’s financing for affordable ownership
housing projects. This requirement is not included in CalHFA financing programs for affordable
rental housing.

Loan Terms: RDLP funds are available to a local government entity as an unsecured loan from
CalHFA for up to 4 years at 3% simple interest per year. Repayment is backed by the general
obligation of the local government entity and is due, in full, no later than 4 years from the date a
loan agreement is executed. Under this program, the local government entity contracts to repay
CalHFA and makes the decision to extend the funds to the development through loans, grants,
land write-downs, or other financial mechanisms. Staff is proposing that the RDLP funds be
provided to CHOC in the form of a loan, to ensure no additional costs to the Davis RDA. The
Agency is not required to provide property or other resources as collateral.

As proposed, the RDLP funds would be loaned to Community Housing Opportunities
Corporation (CHOC) at the same loan terms being offered by CalHFA, 3% simple interest and
up to a four year term. The total loan being offered from CalHFA would be provided to CHOC
for predevelopment expenses ($658,000) and construction costs ($2,000,000) on the Fifth Street
Land Trust Project. The amount for predevelopment expenses has been approved, but the Board
needs to direct staff regarding the $2,000,000 for construction financing. CHOC would repay the
Davis Redevelopment Agency in full through the income generated by the sales of the affordable
ownership units in the project. In the unlikely event that the project is not completed or the
affordable units do not sell, the Agency would repay CalHFA using remaining proceeds from the
RDLP loan and would rely on Housing Set-Aside funds for repayment of any additional costs to
the Agency.

Council Goal(s)
The project that these CalHFA funds will be used for will assist low income households in
obtaining affordable ownership housing within the City of Davis, nearly half of the units will be
fully accessible and all will be visitable. This program advances City Council Goal #6 to provide
an array of housing options targeting affordability, and housing needs of special populations.

Background and Analysis
The Fifth Street Land Trust Project is a 30-Unit Homeownership Project to be constructed on
land received by the City through land dedication. The project developer is Community Housing
Opportunities Corporation (CHOC). The project is designated as a land trust project in which the
city retains the land on which a property is build in public trust, while the sale of homes includes
the residential structure only. The City and Agency determined the need for a land trust model in
Staff Report
Subject: RDA Resolution Approving Additional Indebtedness of $2,000,000 to the CalHFA Residential Development Loan
Program to be passed on to CHOC for construction of the Fifth Street Land Trust Project at 2990 Fifth Street
Page 3
the Davis affordable housing portfolio in 2004.

City/Agency support to date: The Agency has committed $1,214,830 in RDA Housing Set-Aside
funds to date for permanent financing in the project. The City and Agency do not usually
construct for-sale homes on land dedication sites and usually does not need to commit resources
to for-sale projects because many of the affordable for-sale homes are sold directly from the
builder to income-eligible buyers at a city-set price. In this case, because the subdivision is being
constructed without the benefit of market rate housing carrying some of the costs of
infrastructure and development costs, the city investment in each of the units will need to be
higher than in most ownership projects.

While the final project proforma has not been submitted, the initial proforma indicated that
approximately $80,000 per unit will need to be invested in permanent financing for the project.
This is roughly the same per unit investment as rental housing. This additional required
investment when the City accepts small land dedication sites, rather than requiring the on-site
construction of units, was the impetus of the current affordable housing requirements that land
dedication sites be of minimum size. Had the project that contributed this site come to the City
now, the requirements would have been for the subdivision developer to build the affordable
units on-site.

CalHFA and the RDLP program: CalHFA initiated the RLDP program in fiscal year 2005-2006
and Davis Redevelopment Agency was awarded the $658,000 in predevelopment funding that
was requested for the Fifth Street Land Trust Project. Since that initial round, CalHFA has
started offering construction financing as well, and contacted agency staff to offer the Davis
Redevelopment Agency additional financing for the Fifth Street Land Trust Project of up to
$2,000,000 for construction costs.

Construction Loan a potential gateway to other funding: Participation in CalHFA’s RDLP
program could also lead to other resources for the Fifth Street Land Trust Project from CalHFA’s
existing menu of affordable primary and subordinate loan programs for first-time homebuyers.
By using CalHFA’s predevelopment loan program, it is likely that CalHFA will extend
additional funds to CHOC for the Fifth Street Land Trust Project in the form of homebuyer
assistance. CalHFA’s investment into the project could also make the project more appealing to
the State Department of Housing and Community Development (HCD) for their CalHOME first-
time homebuyer assistance program. Additionally, having a commitment towards a portion of the
project construction costs, in addition to the Agency’s project funding commitment, will assist
CHOC in leveraging more favorable private construction financing for the gap of resources
needed.

Local Government Involvement: Only local government entities are eligible to apply under the
RDLP for predevelopment financing and they must have a direct involvement with the
development. The City and Redevelopment Agency have direct involvement with this project
because the City has provided the land dedication site for the project and the Agency has
committed funds through the affordable housing program. The Agency has already committed
$1,214,830 to this project in the form of a short term bridge loan, and could be requested to
Staff Report
Subject: RDA Resolution Approving Additional Indebtedness of $2,000,000 to the CalHFA Residential Development Loan
Program to be passed on to CHOC for construction of the Fifth Street Land Trust Project at 2990 Fifth Street
Page 4
provide additional funding. The use of RDLP financing will help to assure timely construction of
the project.

How this program will be implemented: It is estimated that the Agency’s commitment will not
be requested until construction start next year. The proposed construction loan from CalHFA
would greatly assist the project and would reduce some of the project’s anticipated construction
loan interest costs. However, the project would still need to use this commitment to leverage the
project’s additional construction financing, likely through a private lender. The project manager
estimates housing construction costs of approximately $8,400,000 for the project.

The loan from CalHFA would be made directly to the Davis Redevelopment Agency. In turn, the
Agency would loan the funds to Community Housing Opportunities Corporation (CHOC) for the
land trust project. The Agency’s loan documents with CHOC would have up to a four year term
and would require repayment of the loan once the affordable units were sold.

It should be noted that the Agency would be obligated to repay the funding to CalHFA within
four years, even if the project was significantly delayed or if the homes failed to sell to low-
income buyers. If repayment from CHOC did not occur within the necessary timeframe due to
these possibilities, the Agency would use remaining proceeds from the RDLP loan, as well as its
RDA Housing Set-Aside funds to repay CalHFA until CHOC would be able to pay back the
Agency. Related to the City’s provision of the land for this project, Council has already taken
action requiring the project to be under construction no later than July 1, 2008. Given this, the
homes will likely sell in Summer 2009, making the four year term of repayment by 2011
obtainable for this project and the Agency.

Davis Redevelopment Agency Proposed Development Project and Partner:
Staff is requesting approval to incur an additional $2,000,000 in indebtedness with this loan
through CalHFA’s RDLP in order to provide these construction funds as a loan to CHOC to
assist with construction costs of the Fifth Street Land Trust Project at 2990 Fifth Street. Once the
units are sold, the $2,000,000, in addition to the $658,000 in predevelopment loan, will be repaid
by CHOC and the Agency will repay CalHFA. Because of the demand for affordable ownership
housing, it is likely that all of the units will sell 1.5-2 years prior to the maturity date of the
CalHFA loan to the city.

Summary
Staff recommends that the Agency accept the $2,000,000 construction loan from CalHFA for the
land trust project. While any loan is risky, the CalHFA loan will be repaid through the sale of
affordable ownership units through a project that is required to start construction by next year.
The funding will be used to assist in the project construction and to leverage other conventional
construction financing.

Staff recommends the loans because:
    • The loans are an effective way to reduce some of the costs of the project related to
        interest payments on construction financing.
Staff Report
Subject: RDA Resolution Approving Additional Indebtedness of $2,000,000 to the CalHFA Residential Development Loan
Program to be passed on to CHOC for construction of the Fifth Street Land Trust Project at 2990 Fifth Street
Page 5
    •    The involvement of CalHFA may lead to preferred financing for the low and moderate
         income homebuyers from this agency.
    •    The low interest loans will help reduce the permanent financing requested of the
         City/Agency.
    •    The construction funds from CalHFA will assist CHOC in leveraging the rest of their
         construction financing for the project.

CalHFA requires the loan agreement for this program be signed by May 1st. CalHFA’s funding
commitment for the predevelopment and construction expenses of the Fifth Street Land Trust
Project would be available once the loan agreement is signed. Funding would be dispersed on a
draw request basis, based on costs incurred by the project. CHOC will request reimbursement
approval through draw requests to Agency Staff, who will gain the necessary funding
dispersement from CalHFA. Providing the money through individual dispersement provides
increased oversight in the use of the funds and decreases the total amount of interest accrued by
the project. Staff recommends that the Board approve the attached resolution.


Attachments:
   1. Resolution approving $2,000,000 in additional indebtedness to the CalHFA Residential
      Development Loan Program
                                                                                 Attachment 1

                        RESOLUTION NO.________, Series 2007


RESOLUTION OF THE DAVIS REDEVELOPMENT AGENCY AUTHORIZING THE
 ADDITIONAL INDEBTEDNESS OF $2,000,000 TO THE CALIFORNIA HOUSING
 FINANCE AGENCY (CALHFA) AND EXECUTION OF THE NECESSARY LOAN
AGREEMENT AND DOCUMENTATION TO INCUR AN INDEBETEDNESS UNDER
   THE CALHFA RESIDENTIAL DEVELOPMENT LOAN PROGRAM (RDLP)

WHEREAS:

  A. The Davis Redevelopment Agency, a [political subdivision of the State of California,
     hereinafter referred to as “Davis RDA”], has received an allocation of Residential
     Development Loan Program predevelopment funds through the California Housing
     Financing Agency (hereinafter referred to as “CalHFA”) with the 3% interest rate and
     four year term provided by the program, for an amount $658,000 for the Fifth Street Land
     Trust Project at 2990 Fifth Street; and

  B. CalHFA has established the Residential Development Loan Program (hereinafter referred
     to as “RDLP”) with the program objective to provide affordable homeownership through
     program partnerships with local government entities, consistent with their affordable
     housing priorities; and

  C. CalHFA has offered the Davis Redevelopment Agency an additional $2,000,000 in
     construction financing with a 3% interest rate and four year term to assist in construction
     of the Fifth Street Land Trust Project at 2990 Fifth Street; and

  D. The Davis RDA intends to use the proceeds from the RDLP program loan to provide a
     loan with the same terms to Community Housing Opportunities Corporation (CHOC) for
     the express purpose of paying for the predevelopment and a portion of the construction
     costs associated with the affordable ownership housing land trust project that CHOC is
     developing on the in-fill parcel and land dedication site located at 2990 Fifth Street; and

  E. The City of Davis and Davis RDA have contributed land and committed funding to the
     Fifth Street Land Trust Project and have a strong commitment to providing affordable
     housing opportunities throughout Davis in a cost-effective manner; and

  F. These predevelopment funds being provided by the Davis RDA will financially assist
     CHOC in completing the necessary predevelopment work and construction of the Fifth
     Street Land Trust Project, will assist in leveraging other project financing, and will be
     repaid with permanent financing for the project through the sale of the project’s
     affordable ownership units; and
   G. Since the Fifth Street Land Trust Project has been awarded RDLP loan funds from
      CalHFA, the likelihood for this project to also receive homebuyer assistance through
      CalHFA increases.


IT IS NOW THEREFORE RESOLVED THAT:

   1. The Davis RDA hereby agrees to incur $2,000,000 in indebtedness to the CalHFA RDLP
      Program for the purpose of providing construction financing to the infill ownership
      affordable housing project located at 2990 Fifth Street, the Fifth Street Land Trust
      Project. This indebtedness is in addition to the $658,000 already authorized by the Davis
      RDA to gain RDLP funding for the predevelopment expenses of the Fifth Street Land
      Trust Project.

   2. The Davis RDA hereby agrees that this indebtedness will have loan terms that include a
      maximum 4-year term and 3% interest rate. The Davis RDA further agrees to use any
      RDLP funds awarded to the Agency for eligible activities in the manner that the funds
      were awarded, as approved by CalHFA, and in accordance with the resultant loan
      agreement. The Davis RDA also agrees and authorizes the appropriate Agency
      representative(s) to execute any and all other instruments required by CalHFA for
      participation in the RDLP Program.

   3. The Davis RDA authorizes its Executive Director or his designee to execute in the name
      of the Davis Redevelopment Agency, the Standard Loan Agreement, and all other
      documents required by CalHFA for participation in the RDLP Program, and any
      amendments thereto.

APPROVED AND ADOPTED THIS 17th day of April 2007, by the following vote:

AYES:
NOES:
ABSENT:

                                           _____________________________
                                           Sue Greenwald, Board Chair

The undersigned there before named does hereby attest and certify that the foregoing is a true
and full copy of a resolution of the Governing Board adopted at a duly convened meeting on the
date above-mentioned, which has not been altered, amended or repealed.

ATTEST:


_____________________________
Margaret Roberts, Agency Clerk

				
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