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Home My WebLink About5/18/2016 - STAFF REPORTS - 5.C. 4�E P A LM Sp'P .y V N k c'``F° City Council Staff Report DATE: May 18, 2016 NEW BUSINESS SUBJECT: APPROVAL OF A SUBORDINATION AGREEMENT WITH THE CALIFORNIA HOUSING FINANCE AGENCY IN CONNECTION WITH THEIR LOAN TO PALOS VERDES VILLAS, A MULTI-FAMILY HOUSING DEVELOPMENT FROM: David H. Ready, City Manager BY: Community & Economic Development Department SUMMARY On December 15, 2015 staff received correspondence from the attorneys representing California Housing Finance Agency("CaIHFA")working with Palos Verdes Villas, a 98-unit residential apartment complex at 300 East Stevens Road, relative to the refinancing of a loan. That correspondence requested that the Successor Agency provide a new Subordination Agreement in order to enable refinancing of the CaIHFA loan. RECOMMENDATION: Adopt Resolution No. "A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA APPROVING A SUBORDINATION AGREEMENT WITH COURTYARD PARTNERS - PALM SPRINGS, L.P. AND THE CALIFORNIA HOUSING FINANCE AGENCY TO FACILIATE A LOAN MODIFICATION AND REFINANCE OF PALO VERDES VILLAS, A 98-UNIT RESIDENTIAL APARTMENT COMPLEX." STAFF ANALYSIS: On February 2, 1992, the former Community Redevelopment Agency of the City of Palm Springs(Agency)approved an Owner Participation Agreement("OPA") by Resolution No. 849 with Palos Verdes Villas, Inc. (Participant) for the construction of a 98-unit apartment complex at Camino Monte and Stevens Roads. The OPA, as amended, pledged a financial subsidy in an amount not to exceed $1,468,635.00 in exchange forthe dedication of twenty (20) units to be set aside for low income persons for a period of twenty (20) years, to be available to households at 50% of median income. The developer, Agency and CaIHFA have previously entered into Subordination Agreements on January 30, 1995, June 29, 2000, and February 1 , 2010; in those, the ITEM NO. Staff Report May 18, 2016— Page 2 of 2 Palos Verdes Villas Subordination Agreement Agency agreed to subordinate its Use Restrictions to the CaIHFA Deed of Trust and the CalHFA Regulatory Agreement. California Health and Safety Code Section 51335(e) requires that CalHFA Loan and Regulatory Agreements have priority over the Use Restrictions. Since the prior use restrictions were subordinated, the new Subordination Agreement does not leave the City in a lesser position regarding its Use Restrictions. To deny the Subordination Agreement would prohibit the Loan Modification and Refinancing from moving forward, which could result in the project going into foreclosure with CaIHFA. In the event of a foreclosure, the City's Use Restrictions would be cancelled altogether and cause the loss of the low-income affordability. Staff therefore recommends the approval of the Subordination Agreement. FISCAL IMPACT: No fiscal impact. LAURI AYLAIAN DALE E. COOK, J Director of Community & Economic Development Community Development Administrator f DAVID H. READY, Esq City Manager Attachment: Resolution Subordination Agreement 02 oeiamo,n�s, e�o,rcc Sanaapon aamsvasvaias nwye RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA APPROVING A SUBBORDINATION AGREEMENT WITH COURTYARD PARTNERS - PALM SPRINGS, L.P. AND THE CALIFORNIA HOUSING FINANCE AGENCY TO FACILIATE A LOAN MODIFICATION AND REFINANCE OF PALO VERDES VILLAS, A 98-UNIT RESIDENTIAL APARTMENT COMPLEX WHEREAS, on January 4, 2012, the City of Palm Springs approved action to retain the housing assets and functions previously performed by the City of Palm Springs Community Redevelopment Agency ("Agency') and assume all rights, powers, assets, liabilities, duties, and obligations associated with the housing activities of the Agency, as provided in California Health and Safety Code §34173 and §34176, and WHEREAS, the Agency entered an Owner Participation Agreement with Palos Verdes Villas (the "Developer") on February 19,1992 and a Regulatory Agreement and Declaration of Covenants and Restrictions on January 19,1994; and WHEREAS, the Developer, Agency, and the California Housing Finance Agency ("CaIHFA") entered Subordination Agreements on January 30,1995, June 29, 2000, and February 1 , 2010 whereby the Agency agreed to subordinate its Use Restrictions to the CaIHFA Deed of Trust and the CaIHFA Regulatory Agreement; and WHEREAS, the Developer has negotiated a Loan Modification and Refinancing of the project with CaIHFA; and WHEREAS, California Health and Safety Code Section 51335 (e) requires that the CaIHFA Loan and Regulatory Agreement have priority over the Agency's Use Restrictions. NOW THEREFORE BE IT RESOLVED by the City of Palm Springs, as follows: SECTION 1. A Subordination Agreement between City of Palm Springs as Successor Agency to the Community Redevelopment Agency of the City of Palm Springs, Palos Verdes Villas, a California Corporation, and the California Housing Finance Agency, is approved. SECTION 2. The City Manager, or his designee, is hereby authorized to execution behalf of the City the Subordination Agreement and other documents necessary to the Agreement, and make minor changes as may be deemed necessary, in a form approved by City Counsel. 03 Resolution No. Page 2 of 2 ADOPTED this day of May 2016. David H. Ready, City Manager ATTEST: James Thompson, City Clerk CERTIFICATION STATE OF CALIFORNIA ) COUNTY OF RIVERSIDE ) ss. CITY OF PALM SPRINGS ) I, JAMES THOMPSON, City Clerk of the City of Palm Springs, hereby certify that Resolution No. is a full, true and correct copy, and was duly adopted at a regular meeting of the City Council of the City of Palm Springs on May _, 2016, by the following vote: AYES: NOES: ABSENT: ABSTAIN: James Thompson, City Clerk City of Palm Springs, California DaleC/CC_Reso_PaloWdsV illas.Mayl6 04 FREE RECORDING REQUESTED ) PURSUANT TO GOVERNMENT CODE ) SECTION 27383 ) Recording requested by and ) when recorded return to: ) CALIFORNIA HOUSING FINANCE ) AGENCY ) Office of General Counsel ) P.O. Box 4034 ) Sacramento, CA 95812-4034 ) (space above this line for Recorder's use) SUBORDINATION AGREEMENT NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN(S) OF SOME OTHER OR LATER SECURITY INSTRUMENT. THIS AGREEMENT dated as of 1, 2016, for informational purposes, is entered into by and among the City of Palm Springs, a municipal corporation ("Locality"), as successor agency to the City RDA (defined below), Courtyard Partners - Palm Springs, L.P., a California limited partnership ("Borrower"), and the California Housing Finance Agency, a public instrumentality and a political subdivision of the State of California ("Ca1HFA") in connection with a loan by Ca1HFA to Borrower to finance a multifamily residential rental housing project on real property located in the City of Palm Springs, County of Riverside, California and more particularly described on Exhibit A attached hereto and incorporated herein by this reference ("Project"). Unless otherwise noted, references to instruments recorded in "Official Records" refer to instruments recorded in the Office of the County Recorder of the County of Riverside. RECITALS A. WHEREAS, Borrower's predecessor, Palos Verdes Villas, a California corporation, and the Community Redevelopment Agency of the City of Palm Springs, California, a public agency, corporate and politic (the "City RDA") previously encumbered the Project with an -Owner Participation Agreement" dated February 19, 1992 (the "OPA") and a Declaration of Covenants, Conditions and Restrictions, dated January 19, 1994 and recorded in the Official Records on March 9, 1994 as Instrument No. 1994-098782, as modified by that certain Certificate of Completion recorded February 8, 1995 in the Official Records as Instrument No. 1995-040241 (as modified, the "Locality CC&Rs"). The OPA and Locality CC&Rs and any other recorded or unrecorded documents relating thereto are collectively referred to herein as the "Locality Documents"; CallFA.SUBORDINATION-B(SJ).FFB/HUDRS/City of PS 05 Palos VerdesVillas,15-022-5 5/6/2016.NDS/jad-#HFMF-1296-8191 -1- B. WHEREAS, on February 1, 2012 all California redevelopment agencies were dissolved under California law (the"RDA Dissolution"); C. WHEREAS, in anticipation of the RDA Dissolution, on January 4, 2012 the City Council of the City of Palm Springs passed Resolution No. 23071 electing to have Locality serve as the housing successor to the former City RDA pursuant to California Health and Safety Code Section 34173 and to retain the housing assets and housing functions previously performed by the City RDA pursuant to California Health and Safety Code Section 34176; D. WHEREAS, CaIHFA is making, contemporaneously with the making of this Agreement, a first mortgage loan to Borrower (the "CaIHFA Loan"). The CaIHFA Loan is evidenced by a promissory note from the Borrower to CaIHFA in the face amount of Eight Million Three Hundred Forty-Four Thousand and No/100 Dollars ($8,344,000.00) secured by a deed of trust. The deed of trust was executed by Borrower, as trustor, to Chicago Title Company, as trustee, in favor of CaIHFA, as beneficiary, and is entitled "California Housing Finance Agency Permanent Deed of Trust with Assignment of Rents, Security Agreement and Fixture Filing, CaIHFA Development No. 15-022-S (Permanent Financing) (FFB/HUD Risk Share Program)" dated 1, 2016 and to be recorded in the Official Records substantially concurrently herewith (the "CaIHFA Deed of Trust"); E. WHEREAS, in connection with the CaIHFA Loan the Project shall be regulated and encumbered by a regulatory agreement executed by Borrower and CaIHFA entitled "California Housing Finance Agency, Regulatory Agreement (Permanent Financing; FFB/HUD Risk Share Program), CaIHFA Development No. 15-022-S" dated as of 1, 2016 (the "CaIHFA Regulatory Agreement") and to be recorded substantially concurrently herewith in the Official Records. In addition, CaIHFA has or will be filing a UCC Financing Statement with the Secretary of State evidencing Borrower's granting a security interest in the Project ("UCC Statement"); F. The CaIHFA Regulatory Agreement, CaIHFA Deed of Trust, and related documents, and the UCC Statement shall hereafter be collectively referred to herein as the "CaIHFA Documents"; G. WHEREAS, it is a condition precedent to CaIHFA making the CaIHFA Loan that the CaIHFA Documents have priority over the Locality Documents; and H. WHEREAS, it is beneficial to all parties that CaIHFA make the CaIHFA Loan, and the parties are willing to subordinate the Locality Documents in order that the CaIHFA Loan be made. NOW THEREFORE, Ill consideration of the foregoing and other consideration the receipt and sufficiency of which are hereby acknowledged, and in order to induce CaIHFA to make the CaIHFA Loan, the parties hereto agree as follows: 1. Subordination of Locality Documents. a. The Locality and Borrower hereby unconditionally subordinate the Locality Documents to the CaIHFA Documents, including all extensions, modifications or additional advances made thereunder. Hereafter, the CaIHFA Documents shall unconditionally be, and remain at all Ca1HFA.SUBORDINATION-B(SJ).FFB/HUDPS/City of PS n PalosVerdesVillas,15-022-S 0 5/6/2016.NDS/jad-NHFMF-129"191 -2- times, liens and encumbrances on the Project prior and superior to the encumbrances of the Locality Documents and to all rights and privileges of the parties thereunder, and the liens and encumbrances of the Locality Documents together with all rights and privileges of the parties thereunder shall hereby be subject to and made subordinate to the liens and encumbrances of the CaIHFA Documents. In the event of a judicial or non judicial foreclosure of the CaIHFA Documents, the lien of the Locality Documents shall be extinguished. b. CalHFA agrees that it shall use its best efforts to provide Locality with a copy of all initial notices of default provided to Borrower under the CalHFA Documents, provided, CalHFA shall have no liability to Locality and/or Borrower for its failure to do so, nor shall failure to do so constitute grounds for any restraining order, injunction, or other prohibition against or delay in CaIHFA'S exercise of its remedies under the CaIHFA Documents. CalHFA shall not record a Notice of Default related to such initial notice during the period ninety (90) days after the date of such initial notice if such notice relates to a nonmonetary default or defaults under the CalHFA Documents. During the tern of such period Locality shall have the right, but not the obligation, to cure any nonmonetary default under such initial notice. Notwithstanding the foregoing, if at any time following the date of the initial notice, there shall occur or be continuing a default in the payment of any amount due to CalHFA under the CaIHFA Documents, CalHFA shall have the right to, and in its sole discretion may, record a Notice of Default and proceed to foreclosure based upon any such nonpayment regardless of any extended cure period with respect to nonmonetary defaults. C. CalHFA further agrees that it shall not accelerate the CalHFA Loan by reason of any foreclosure by Locality (or acquisition of the Project by Locality in lieu of any such foreclosure)under the terms of the Locality Documents; provided: (i) there shall not occur or be continuing any default in the payment of any amount owed CaIHFA or any obligations required to be performed under the CalHFA Documents; and (ii) Locality shall not unreasonably delay to proceed to conclusion of such foreclosure or acquisition. d. Locality has read, understands and approves the CaIHFA Documents and agrees to be bound thereby in the event of its foreclosure or acquisition of the Project. e. The provisions of this Section 1 shall be subject to, and to the extent of any inconsistency, superseded by,the requirements of the Federal Financing Bank (FFB)/HUD-FHA State Agency Risk Share Program, as in effect from time to time. 2. Representations. Locality hereby represents and warrants to CalHFA that at the time of execution of this agreement, the Borrower is in substantial compliance with its obligations to the Locality under the tenns of the Locality Documents, and Locality has read and understands the CalHFA Documents and agrees that in the event CalHFA determines there is a conflict of terms between the CaIHFA Documents and Locality Documents, the terms of the CalHFA Documents shall prevail. CallFA.SUBORDINATION-B(SJ).FFB/HUDRS/City of PS tt PalosVudesVillas,15-022-5 V 5/6/2016.NDS/jad-#HFMF-1296-8191 -3- 3. Attorneys' Fees & Costs. If any party shall take any action to enforce or otherwise relating to this Agreement, the prevailing party or parties shall be entitled to recover reasonable attorney's fees and costs from the other party or parties. 4. Amendments. Amendments to this Agreement shall be in writing and signed by all the parties hereto. 5. Govemine Law. This Agreement shall be construed in accordance with and be governed by the laws of California. 6. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. 7. 5everability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, it shall not invalidate or render unenforceable any other part of this Agreement. REMAINDER OF PACE INTENTIONALL Y LEFT BLANK Document continues on next page Calf TFA.SUBORDINATION-B(SJ).FFB/HUDRS/City of PS „ PalosVerdesVillas,15-022-S 0 5/6/2016.NDS/lad-#HFMF-1296-8191 -4- NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON YOUR REAL PROPERTY SECURITY TO OBTAIN A LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE LAND. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. LOCALITY: BORROWER: CITY OF PALM SPRINGS, a COURTYARD PARTNERS — PALM municipal corporation, as successor agency SPRINGS, L.P., to the Community Redevelopment Agency of a California limited partnership the City of Palm Springs By: Three Bears Partners, L.P., a California By: limited partnership Name Its: General Partner Title: By: Gemini Equities 11, Inc., a California corporation Its: General Partner CaIHFA: By: CALIFORNIA HOUSING FINANCE Name: AGENCY, a public instrumentality and Its: political subdivision of the State of California By: Name Title: ACKNOWLEDGEMENTS Ca1HFA.SUBORDINATION-B(SJ).FFB/HUDRS/City of PS !) PalosVerdesVilla5,15-022-S 5/6/2016.ND5/jad-SHFMF-129"191 -5- EXHIBIT A Legal Description CaIHFA.SUBORDINATION-B(SJ).FFB/HUDRS/City of PS .10 Palos VerdesVillas,15-022-5 5/6/2016.NDS/jad-#HFMF-1296-8191 -6- ACKNOWLEDGEMENTS 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 ) ss. County of ) 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 (Seal) Ca1HFA.SUBORDINATION-B(Sj).FFB/HUDRS/City of PS f PalosVerdesVillas,15-022-S + 5/6/2016.ND5/jad-#HFMF-1296-8191 -7- ACKNOWLEDGEMENTS 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 ) ss. County of ) 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 (Seal) Ca1HFA.SUBORDINATION-B(SJ).FFB/HUDRS/City of PS 12 PalosVerdesVillas,15-022-S 5/6/2016.NDS/jad-4HFMF-1296-8191 -8-