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Home My WebLink AboutR33- Economic Development Agency .ITGIN-AL ECONOMIC DEVELOPMENT AGENCY F O THE CITY OF SAN BERNARDINO FROM: Gary Van Osdel SUBJECT: 303 WEST THIRD STREET Executive Director DATE: December 7,2000 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Synopsis of Previous Commission/Council/Committee Action(s): On September 19, 2000, the Community Development Commission and the Mayor and Common Council each adopted resolutions authorizing conforming changes in and execution of the Economic Development Initiative Grant and Housing and Urban Development Section 108 Loan documents for the 303 LLC West Third Street Project. -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Recommended Motion(s): (Mayor and Common Council) MOTION A: That the Mayor be authorized to execute amended documents resulting from a request for amended Special Conditions in the Housing and Urban Development Contract for Loan Guarantee Assistance Under Section 108 of the Housing and Community Development Act, B-94-MC-06-0539-A (the 303 West Third Street Project). This request amends the Special Conditions to authorize: subordination of the "Obligor Note and Deed of Trust" to senior loans; the application of 108 Loan proceeds to rehabilitation work; clarification of the release dates for the Obligor letter of credit and personal guaranties;and shorten the amortization schedule from 20 to 10 years: all as more fully described in the attached staff report. (Community Development Commission) MOTION B: That the Chair and Secretary be authorized to: (i) execute an amendment to the 303LLC Owner Participation and EDI Loan Agreement to modify the in-lieu tax provisions from 20 to 15 years to match the terms of the amended Special Conditions of the Housing and Urban Development Contract for Loan Guarantee Assistance Under Section 108 of the Housing and Community Development Act, B-94-MC-06-0539-A (the 303 West Third Street Project); and (ii) extend the time during which the State may_transfer title in the 303 Third Street Building to 303 LLC_ Contact Person(s): Gary Van Osdel/John Hoeger Phone: 663-1044 Project Area(s) Central City(CC) Ward(s): One (1) Supporting Data Attached: OO Staff Report❑ Resolution(s)❑Agreement(s)/Contract(s) ❑Map(s)❑ Letter/Memo FUNDING REQUIREMENTS Amount: $ N/A Source: N/A Buget Authority: N/A SIGNATURE: 4'e� Z' ', Gary V Osdel,Executive Dir6ctor Econofnic Development Agency ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Commission/Council Notes: -------------------------------------------------------------------------------------------------------------------------------------------- GVO:JBH:lag:12-18-00 303 Third St COMMISSION MEETING AGENDA Meeting Date: 12/18/2000 Agenda Item Number: 1W_ ECONOMIC DEVELOPMENT AGENCY STAFF REPORT --------------------------------------------------------------------------------------------------------------------- 303 West Third Street BACKGROUND On Thursday, September 14, 2000, the staff of the Economic Development Agency received the text of the EDI Grant Agreement and the HUD Section 108 Loan Contract for the 303 Third Street Project from HUD staff in Washington, D.C. This text contained certain deal points that did not conform to the City's original submission. However, protecting the EDI Grant required that the grant be drawn no later than September 29, 2000, which did not permit the Redevelopment Agency staff to obtain revised documents from Washington. Accordingly, on September 19, the Mayor and Common Council and the Community Development Commission each adopted resolutions that authorized conforming changes in the loan transaction documents with 303 L.L.C. Subsequently, a property condition analysis was prepared to support a request that HUD amend the grant and loan documents. Staff then prepared and has now submitted the amendment requests. Briefly, the requested amendments are: 1) To clarify that asbestos abatement and seismic rehabilitation work are allowed uses of the 108 Funds. (This was always central in the 108 Application materials but was not clear in the final 108 Contract language). 2) To clarify that the 108 Loan will be subordinate to the construction and permanent loans. (Again, this was clear in the application material and is necessary to make the project financiable.) 3) To clarify that the personal guarantees can be released when the 108 Loan has been defeased or when the permanent loan has been in place for more that one year. (This replaces a provision that the guarantees will be released after six months of occupancy. It allows the developer to withdraw the guarantees if the 108 Loan is paid off or if the permanent loan has been in place long enough to show stability.) 4) To use debt service coverage instead of vacancy and to add payoff of the construction loan as tests for the release of the letter of credit. (This is a better measure of the projects ability to repay its financing and adds resolution of any construction issues as a condition.) 5) To shorten the principal payment schedule from 20 years to 10 years and to adjust the payments to improve early cash flow from the project. (This increases the flexibility of the developer to defease the 108 Loan and shortens the time the City's 108 Loan capacity is used for this project.) When reducing the term of the loan, the developer asked that the term of the in-lieu property tax provision in the Owner Participation Agreement be similarly reduced. Section 8 of the OPA provides that the developer will pay an in-lieu fee if the tax increment payments are reduced or disappear. For example if the building is sold to a tax exempt organization like the County, then the developer would pay an amount each year equal to the tax increment the Agency would have received if the building were owned by a private entity. -------------------------------------------------------------------------------------------------------------------------------------------- GVO:JBH:lag:12-18-00 303 Third St COMMISSION MEETING AGENDA Meeting Date: 12/18/2000 Agenda Item Number: 33 Economic Development Agency Staff Report 303 West Third Street December 7, 2000 Page Number-2- ------------------------------------------------------------------------------------------------------------------------------- CURRENT ISSUES Staff agrees that some reduction in the term of the in-lieu fee is justified. However, this term is not linked solely to the 108 Loan. The in-lieu fees also protect a basic business reason for the Agency's assistance and involvement in this project. This future tax increment is intended for the benefit of other projects that will follow in that redevelopment project area. A compromise, then, is to shorten the in-lieu property tax guarantee from 20 years to 15 years. Staff has therefore prepared amendment documents that provide for a 15-year term in the in-lieu fee provision of the OPA. In addition, changes have been prepared to match the expected amendments to the EDI Grant and 108 Loan contracts. Meanwhile, the escrow between the State and the developer is scheduled to close by December 31. This implies that there will be little or no time for further consideration if the transaction is to close on or soon after its scheduled close date. Finally, the amended Exchange Agreement with the State of California contains a December 30, 2000 date for close of escrow. In the event that the HUD processing delays close past this date it will be necessary to amend the date accordingly. In the end, HUD might not agree to amendments exactly as they have been requested. If the final language from HUD is outside the scope of the requested amendments and the existing documents, this matter will be brought back for further consideration. If it conforms, staff will proceed with amended documents. RECOMMENDATION To facilitate purchase of the building, permission is being sought from the Council and Commission to allow the above changes in the OPA,to make any final adjustments based upon the final form of the HUD amendments, and to execute the documents. Staff therefore recommends adoption of the form motions to allow execution of amended HUD EDI Grant and 108 Loan documents; to allow execution of amendment to the 303,LLC Owner Participation Agreement; and to extend the closing date in the State Exchange Agreement accordingly. ary V n Osdel Exec tive Director -------------------------------------------------------------------------------------------------------------------------------------------- GVO:JBH:lag:12-18-00 303 Third St COMMISSION MEETING AGENDA Meeting Date: 12/18//2000 Agenda Item Number: R33