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HA - Approval of a Loan Purchase Contract Related to the Loan for 4043 Irving Place.
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Contact Person/Dept: Tevis Barnes, Todd Tipton/CDD
Phone Number: (310) 253-5700
Fiscal Impact: Yes [X] No [] General Fund: Yes [] No [X]
Public Hearing: [] Action Item: [] Attachments: Yes [] No [X]
Commission Action Required: Yes [] No [X] Date:
Commission Name:
Public Notification: (E-Mail) Meetings and Agendas - Housing Authority (03/25/16)
Department Approval: Sol Blumenfeld, Director of Community Development (03/24/16)
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RECOMMENDATION
Staff recommends the Culver City Housing Authority Board (Housing Authority Board) approve a Loan Purchase Contract related to the Residual Receipts Loan for 4043 Irving Place (Project).
BACKGROUND/ DISCUSSION
In 2011, the Agreement was entered into between the former Culver City Redevelopment Agency (former CCRA) and 4043 Irving Place Investors, LLC (Developer). Under the terms of the Agreement, the former CCRA provided a loan to the Developer in the principal amount of $3,366,000 at an interest rate of 1.5% (Loan). Repayments of principal and interest would begin when the Project reached certain income thresholds or, in the case those threshold triggers were not reached, beginning several decades in the future. When the loan was granted, it was considered unlikely the Project would reach the income thresholds prior to the future date where payments of principal and interest would otherwise be required.
In return for the Loan, the Developer agreed to incorporate 12 affordable housing units (Affordable Units) in the residential mixed use development project. The Affordable Units are secured by a 55-year covenant recorded against the property. The loan addressed the feasibility gap in financing due to the income restricted rents for the nine moderate income and three low income units in the project. The project, which was completed in 2013, is fully occupied.
In January 2015, the Developer inquired about repaying the loan at this time. As a result of the Developer’s request, the Housing Authority’s financial consultant Keyser Marston Associates (KMA) analyzed the provisions of the Loan and calculated the “Net Present Value” (NPV) of the loan to determine what the value of the payments to be received in the future are in today’s dollars and determined that the NPV is $770,000.
Net Present Value (NPR)
Net Present Value (NPR) is a financial calculation used to determine the worth of a future payment if the payment were made today. In basic terms, the farther out in the future the payment is to be made and the higher expected interest rates are estimated, the lower the NPV will be. For example, if the City made a loan with a payment of $100 due ten years from now and with an assumed interest rate of 5% over that 10 year period, the NPV of that $100 TODAY would be approximately $61. The reason for the “discount” is that the City could put that $61 in the bank and earn interest on that money over the ten year period.
Negotiations between the Developer and staff ensued and have resulted in the following proposed terms for the early repayment:
§ Repayment on or about April 27, 2016 (rather than many decades in the future)
§ Repayment amount of $770,000, which is the Loan’s Net Present Value;
§ $2,596,000 in an additional payment if the property is sold or refinanced within next five years;
§ Affordable unit monitoring fee simplified (i.e., $5,000 per year, increasing by 3% annually);
§ Limitations related to non-restricted (market rate) units removed; and
§ No limitation on transfers or encumbrances (i.e., Developer would be free to make transfers and encumber property with additional loans or liens without Housing Authority consent, but such new encumbrances would be subordinate to the Housing Authority’s deed of trust).
FISCAL ANALYSIS
KMA has determined that the NPV of the loan is $770,000. Because the funds would be received much earlier than planned, the Housing Authority could invest the funds or determine to utilize the funds to satisfy affordable housing objectives, including providing operating capital for Housing Authority programs.
ATTACHMENTS
Draft Loan Purchase Contract.
RECOMMENDED MOTION(S)
That the Housing Authority Board:
1. Approve a Lan Purchase Contract related to the Residual Receipts Loan for 4043 Irving Place; and,
2. Authorize the Authority General Counsel and Authority Special Counsel to review/prepare the necessary documents; and,
3. Authorize the Executive Director to execute such documents on behalf of the Housing Authority.