Loading...
HomeMy WebLinkAboutR07-RDA Item -- Redevelopment Agency · City of San Bernardino 300Nanh "0" s_ FounhFloor . SIIlIlaDardino, CoIifcmia 92418 (714) 384-5081 FAX (714) 888-9413 Pride ~ ~e. APRI L 5, 1990 ORANGEHOOD ESTATES - PHASE II Synopsis of Previous Commission/Council/Committee Action: 10-02-89 The Mayor and Common Council selected Dukes - Dukes and Associates to build out the remialnlng seventy-slx(76) lots of of Orangewood Estates. Recommended Motion: (COMMUNITY DEVELOPMENT COMMISSION) That the Commission approve the deal points as described In the attached proposal and to direct Agency Counsel to prepare the appropriate agreement. Respectfully Submitted, ~.~"'L~ r-- Robe t J. emple, fI!. tlng Executive Director Supporting data attached: YES FUNDING REQUIREMENTS: see attached Hard: 6th Project: NH Commission Notes: RT:1995R Agenda of: April 9. 1990 Item No. '1 - -- C I T ~ 0 F SAN B ERN A R DIN 0 COMMUNITY DEVELOPMENT DEPARTMENT INTEROFFICE MEMORANDUM 9004-1302 TO: Redevelopment Committee FROM: Kenneth J. Henderson Director of Community Development SUBJECT: Orangewood Estates - Phase II DATE: April 4, 1990 COPIES: Mayor Holcomb; City Administrator; Director of Finance; Executive Director, RDA; Community Development Specialist; City Treasurer ------------------------------------------------------------- On October 2, 1989, the Mayor and Common Council selected Dukes - Dukes and Associates to build out the remaining seventy-six (76) lots of Orangewood Estates. Dukes _ Dukes was to finance the project in its entirety at no further cost to the City or the Redevelopment Agency. Because Dukes - Dukes was not able to readily identify construction financing, the Community Development Commission, at a subsequent meeting, appropriated $1.6 million to payoff the assessment district bonds, reimburse the City General Fund for advances made to keep the bondholders whole and protect the City's credit rating and to reimburse the Commu- nity Development Department for its acquisition and weed abatement costs, The effect of this action was to stop the interest clock from running on the assesment bonds and limit, to the extent possible, future costs to the project. After months of contacts with various lenders, DUkes _ Dukes was able to elicit support from Life Savings and Loan if the Agency contributed an additional $800,000 of construction financing. This amount would be added to the $750,000 Life was prepared to lend to the project. Life would also admi- nister the combined construction loan for a 1% - 1.5% fee, After discussions among staff, the Mayor and representatives from Dukes - Dukes, it was decided to try a better, more cost-efficient approach, Staff and Gene Wood from Wood-Husing Associates met to discuss various alternatives, and at a subsequent meeting with John Dukes, developed the attached deal points which are summarized as follows: 1. Agency to sell land to Dukes - Dukes for $1.9 million ($25,000 per lot), with $300,000 profit to be split between Agency and Community Development Department. INTEROFFICE MEMORANDUM: 9004-1302 Orangewood Estates - Phase II April 4, 1990 Page 2 2. The project is to be constructed in three (3) phases (27, 38, and 49 units) with Phase I to be built in two groups, thirteen (13) and fourteen (14) units, respectively. The timing of Phases II and III will be based upon experi- ences derived from Phase I. 3. Agency to make construction loan of $1,156,115 for first 13 homes at 1.5 points over prime (floating), with DUkes -Dukes to pay 1.5 points for loan fee and disbursement administration. The cost of the three models, $275,000, will be amortized over the entire 114 unit project, or $2,412 per home. 4. At close of escrow for each home in Phase IA, Dukes _ Dukes will pay $88,112 to Agency. 5. Agency to make second construction loan for the remaining 14 homes in Phase IB. Dukes - Dukes to pay 1.5 points over prime (floating), with 1.5 points for loan fee and disbursement administration to be paid up front. 6. At close of escrow, Dukes Dukes will pay to Agency $86,925, per home or $1,216,950. 7. Phases II and III will be structured similar to Phase I, taking into account experiences of Phase I. 8. Under (10%) Phases loan disbursements, there will be a ten percent retention in lieu of a completion bond throughout I, II and III. The deal as described above secures RDA's interest with a mortagage against each lot, limits the Agency's and Dukes _ Dukes' financial exposure, provides the developer a normal rate of return and adheres to commercial norms for risk, rate of return and security. I recommend the Committee recommend approval to the Community Development Commission of the deal points as described herein and in the attached proposal. If approved by the Committee and Commission, staff recommends Agency Counsel be directed to prepare the appropriate agreement. ~ KENNETH J. Director Development KHjtc L I: Ii n , , I. U Prepared by: Wood-Busing & Associates 1180 Bast Rintb St. Ste A-6 San Bernardino, CA 92410 (714)882-2485 or 881-5596 FAX (714)381-0095 . PROPOSED AGREEMENT SAN BERNARDINO REDEVELOPMENT AGENCY and DUKES-DUKES AND ASSOCIATES, INC. ... I i. SEC'l'IOJJ I. - BACJtGROmm. . . . . . . . . . . . . . . . .1 , . !he 4 objectives governing the pro- posed agreement. n SEC'fIOJJ II. - RDA LAJn) SALE FOR $1. 9 MILLIOJJ . . . . . . .2 RDA purchased land for $1.6 .illion. Proposed sale for $1.9 .illion or $25,000 per 114 lots. SEC'fIOJJ III. - PHASE I 'flMEIJJG . . . . . . . . . . . . . . .2 , ' I Phase I divided into Group A with 10 homes and 3 .odels and Group B with 14 hOlDes. I U SEC'fIOJJ IV. - TEMPORARY COIIS'l'ROC'fIOII LOAIl - PHASE I . . . .3 Details of 'fCL finance & repayment at 1.5 points over prime plus 1.5 points for loan fees. SEC'fIOJJ V. SOHKARY OF PHASE I . . . . . . . . .5 Where RDA would stand with comple- tion of the first 27 homes in Phase 1. SECTIOJJ VI. - PHASES II AIID III . . . . . . . . . . . . . .6 " Structure of financing for the 38 unit Phase II and 49 unit Phase III. SEC'fIOJJ VII. - OTHER RECOMKEIIDATIOJJS . . . . . . . . . . . .7 Other items which Dukes-Dukes should perform to secure RDA's position. ~ l:I J --.... . ----d.atM PROPOSED AGREEMENT SAN BERNARDXNO REDEVELOPMENT AGENCY and DUKES-DUKES AND ASSOCXATES.. XNC. SEC'l'IOlf I. -BACKGROUlfD At the request of San Bernardino Mayor W.R. Holcomb, and Rede- velopment Director Robert Temple, Wood-Husing & Associates has worked with the Redevelopment Agency ("RDA"), the Community Development Department and Dukes-Dukes and Associates, Inc. ("Dukes-Dukes") in the attempt to find how best to structure the financing of a 114 unit affordable housing development in the Northwest Redevelopment Area. Four objectives governed our approach to this matter: 1. Insure that the project be built. The Mayor and Common Council have indicated a desire to see low and moderate housing built in the City of San Bernardino and thus have an interest in the successful completion of this project. 2. Design financial relationships as consistent as pos- sible with commercial norms for risk, rate of return and security. The Mayor and Common Council desire that the scarce funds available to RDA be used as efficiently as possible, while recognizing that low and moderate projects may require some market encouragement to be buil t . 3. Yield the developer a normal rate of return. If low and moderate income housing projects are to be built, the private sector must find it profitable to do so. 4. Structure an arrangement to which all parties agree, In any agreement, both sides must believe they mutually benefit. Dukes-Dukes has indicated they believe the deal points outlined below are rea- sonable. They are presented here for consideration by the City and RDA. lion.! --I.., . -- i::l~ 1 'l'n I --., I. =t..~ SEcrION II.-IDA LAID SALE FOR '1.9 MILLION The Dukes-Dukes project envisions 114 homes built in three phases. The first encompasses the construction of 27 homes on land currently owned by the RDA. The second would be 38 homes on land owned by Dukes-Dukes. The third would be 49 units again on land owned by the RDA, ~ I l. n Ilec~ndation 11: file IDA sell Dukes-Dukes the land, upon which Phases I and III will be built, for '1.9 .illion. The RDA paid $1.6 million for the land upon which these Phases I and III are to be built. The $300,000 profit on this land would represent a return to the city of about 12' per annum over the 18 months estimated for completion of the project. Dukes-Dukes for its part would obtain valuable land at a reasonable price. I: I llecOllllllendation '2: Dukes-Dukes pay IDA $25,000 in land cost upon the sale of each of the 27 units built in Phase I and 49 units built in Phase III. Li The RDA would hold a mortgage against each lot with Phases I and III of the project. Each parcel would be released upon the close of escrow and payment to the City of $25,000 (76 lots at $25,000 each is $1.9 million). This arrangement benefits the RDA in that it places an incentive before DUkes-Dukes to sell the homes as rapidly as possible. Dukes-Dukes is helped in that the firm does not have to borrow funds for the land cost. That benefit is in part the reason why the homes can be sold to low/moderate income families at prices below market rates for equivalent properties. ~ SECTION III.-PHASE I rIMING In order to ease the pressures on both the RDA and DUkes-Dukes, Wood-Husing recommends that the phasing of the project be amended. waa.! -_c.. I. ~JvtM: 2 1fc.~~ ---.... . .-- ~ Rec~endation 13: 'l'he 27 units in Phase I of the project be built in two groups. Group A to be com- posed of 13 units including 3 .odels. Group B to be cOllposed of 14 units. ,.. This phasing would accomplish several objectives: 1. There would not be a large influx of homes on the market at anyone time. 2. Dukes-Dukes could employ local sub-contractors as the size of the effort at anyone time would be within their capability. 3. The total amount of RDA funding outstanding to Dukes-Dukes at anyone time would be lessened, reducing the risk to both parties. I L P 4. The three models would be available for use through- out all three phases of the project and only sold at the end of it. The timing of Phases II and III would be left as is, subject to the experiences of RDA and Dukes-Dukes during Phase I. SECTION IV.-TBKPORARY CONSTRUCTION LOAN - PHASE I Ii Ii Dukes-Dukes estimates that the non-land hard and soft costs of building the 13 units in Group A would be $1,156,115. They estimate that for Group B those costs would be $1,216,950. Recommendation '4: RDA make a Temporary Construction Loan ("TCL") to Dukes-Dukes for U,156,115 at 1.5 points over prime (floating). Fur- ther that the firm pay 1.5 points up front for a loan fee and disbursement administration. RDA to have a secured interest in each of the 13 homes t Interest should be billed monthly and paid from the construction loan disburse- ment based upon the outstanding balance. All disbursements should be made by the RDA in accordance with an agreed upon disbursement schedule. Further, in lieu of a completion bond, RDA should hold back 10% of the TCL loan until completion of construction. This TCL loan rate and loan fee are compatible with commercial lending rates. At today's prime rate of interest, the TCL would yield 11.5% and the loan fee would be $17,500 paid in advance. .!I.e.. ---.... . .---d.~ WDD! ---., I. ~ These terms are advantageous to RDA as they put the agency in the same position as a commercial lender . Dukes-Dukes is assisted as it is able to acquire this funding, at these rates, without putting a large amount of cash into the project. The 10% hold-back provision is an incentive to Dukes-Dukes to complete construction while at the same time allowing the firm to avoid the costs of a completion bond. Wood-Husing recommends that this initial TCL loan be repaid in two ways: I I ~~ Rec~endation '5: i'he '275,000 including interest, borrowed for the 3 .odels, to be repaid across the entire 114 hOlle project, with U,412 to be paid frOll escrow as each hOlle closes (114 homes at '2,412 yields '275,000). i'he ~els will be the last 3 hODeS sold. As the 3 models will be held off the market and used to sell the other 111 homes, this process aids Dukes-Dukes' cash flow by allowing each of the 114 homes to bear a piece of their cost. I, It is of benefit to RDA as it gives Dukes-Dukes an incentive to complete and sell the entire 114 unit project in a timely manner. A significant portion of the developer's profit will be tied up in these 3 models, which will be nearly free and clear when they are finally sold. Recommendation '6: The '881,115 including interest, borrowed for the 10 other Group A units to be repaid as each home is sold, with '88,112 to be paid from escrow as each closes (10 hOlIes at '88,112 yields '881,120). r' 11 u These payments would amortize the balance of the original TCL loan. The TCL payment on the last home will be adjusted depending on the interest balance still owing at that time. Recommendation '7: RDA .ake a second TeL loan to Dukes-Dukes of '1,216,950 to build the 14 homes in Group B of Phase I. Again, the loan would be at 1. 5 points over prille, with 1,5 points or '18,254 for loan fee and disbursement administration paid up front. RDA will again have a secured interest in each home. This loan would be amortized across the 14 units, with '86,925 paid from escrow as each home closes (14 hOlies at '86,925 yields '1,216,950). IIDD) ---..,. I. ~__ 4 WI:IIlI --', . - "1It:M !he tiaing of disburseaents and interest cbarges, plus provisions for lOt comple- tion bold-back, and interest adjusQent on the last bOlle, will be the .ue as witb Group A. By the time the Group B loan is made, escrow should have closed on most of the homes in Group A. Thus, the total amount of money which RDA would have at risk at anyone time would be minimized. The marketing of the 14 Group B homes will benefit from the fact that the 10 Group A homes should have already been absorbed by the market. I I n With the Group B TeL loan, RDA will continue to benefit from receiving commercial rates on its money. Dukes-Dukes will continue to have access to commercial rates with a minimum of capital tied up in the project. SBC~IO. V.-SUMMARY OF PHASE I A summary of the cash flow to RDA from Dukes-Dukes at the close of escrows on Group A and B homes following Phase I is a follows: , , PAJllEJl'rS .::::.....".-.:.:...,.: . :.::..::.:.:::GROUP A Land . .25,000 Models ...':::. .:., .:. ..,:....<:>.-....-:'.:::2,412 Construet:lon. .- ......,., ... . ...... . ..... .:. ...:' ':.'::OOUP': B..... :....' '25,000 ...... '...2.12. ~~.~;:..:.:;,;::)'.'i:.' , . '. ":';:,:,,: IIOMBS .... ::....:2.:: TO~AL PAID .'. ''-:600,:000 ...::.,:,::::::,:,:,..$7,888 . .,,-- ---- -- --..... ':"':881,120 . ....\1,,%16,950. I U PAID'PER ': . ..... ..........--........................--.... ..--..........----..,.................... .."..."................."............. .".........."".................. :~ .:.:.~:::.;:;:;..:~~:.~~:::.:::::.:.:.~.':::'~:';:.::~~::::,:::::::-;:. So.es '. ..:..' . '1'O~ALPAID By the end of Phase I, 27 affordable homes will have been built, 24 sold, and the fOllowing cash flows will have been realized: 1. Altogether RDA will have made loans of $2,373,065 to Dukes-Dukes and received $2,755,958 in loan and land payments. 2. RDA would receive $115,524 for land, model home and construction loans at the close of each Group A escrow and $114,337 for these times at the close of each Group B escrow. -. .I --'... ..- c:latM 5 l'a~J ---.,. a ~ 3. RDA will have received '600,000 in land payments from 24 sales. "- 4. RDA will have made the model home portion of the Group A TCL loan of '275,000 including interest, and been repaid $57,666 on 24 sales. 5. The balance of the Group A TCL loan of $661,115, including interest, will have been made and repaid over 10 Sales. 6. The Group B TCL loan of $1,216,950, including inter- est, will have been made and repaid over 14 sales. I I n BE~IO. VI. -PHASES II AJID III , ' At the end of Phase I, the RDA and Dukes-Dukes will need to agree on the timing of construction in Phases II and III, The decision should take into account the speed with which the 24 homes sold in Phase I were absorbed by the market place, R.c~nc!ation '7: RDA aake Dukes-Dukes ~CL loans in Phases II-III fOllowing the same pattern of 1.5 points over prime, with a 1.5 point loan and disbursement administration fee paid up front. In each case the ~CL loans should be amortized across the number of units to be built, with payments cOiling at the close of each escrow. L Further, at the close of each of the 90 phase II-III and 1I0del home escrows, RDA should receive '2,412 to complete amorti- zation of the 1I0del hOlle ~CL loan. And, at the close of each of the 40 Phase III and 3 IIOdel home escrows, it should receive '25,000 for land. The timing of disbursements and interest charges, plus provisions for 101 comple- tion hold-back and interest adjustment on the last home, will be the same as with Group A of Phase I. Following this pattern, RDA will insure that it has minimized its risk and maximized its yields while seeing that 114 affordable homes are made available to the public. Dukes-Dukes will have had the opportuni ty, with minimum investment risk, to successfully complete this extensive project. VaaJ --., . a_ rl.e:. - WaaJ --., I. :1~ SBCTIOR VII.-O'lHBR UCOMKDDA'l'IORS II Wood-Husing makes the following other recommendations to secure RDA's relationship with Dukes-Dukes: Recommendation '8: Dukes-Dukes provide IDA with evidence of title, or satisfactory sub-ordination from the owner, on the 38 lots which are the subject of Phase II of the project. ReCOlllDendation '9: Dukes-Dukes provide IDA with evidence of permanent loan financing from the Cali- fornia Rousing Finance Agency or other such source. Ii ~ Ii r , Recommendation '10: Dukes-Dukes provide IDA with liability, comprehensive and fire insurance per IDA legal counsel specifications. Recommendation '11: DukeS-Dukes provide individual guarantees if 'l'CL loans are to be ..de to a corpo- rate entity. Recommendation '12: Dukes-Dukes agree to pay title, legal and related costs. ReCOlllDendation '13: Dukes-Dukes rework all construction costs to match the agreed upon phasing. I, t. Wa.nJ --1.111 . a-'t'd.n.