HomeMy WebLinkAbout15- Development Department i
DEVELOPMENT DEPARTMENT
OF THE CITY OF SAN BERNARDINO
REQUEST FOR COMMISSION/COUNCIL ACTION
FROM: KENNETH J. HENDERSON SUBJECT: PUBLIC HEARING -
Executive Director HUD 108 LOAN
APPLICATION -
DATE: November 24, 1993 WEST SIDE PLAZA
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Synoosis of Previous Commission/Council/Committee Action(s):
On November 15, 1993, the Mayor and Common Council established December 6, 1993 at 11:00 a.m. as the
date and time for a Public Hearing regarding the submission of a U. S. Department of Housing and Urban
Development (HUD) Section 108 Loan Application for the West Side Plaza project.
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On December 2, 1993, the Community Development Citizen's Advisory Committee (CDCAC) reviewed the
attached application and recommended approval of said application to the Mayor and Common Council.
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Recommended Motion(s):
Open Public Hearing
Close Public Hearing
(Mayor and Common Council)
MOTION: That the Mayor and Common Council approve the U. S. Department of Housing and Urban
Development (HUD) Section 108 Loan Application for the West Side Plaza project, and
authorize the Mayor and Executive Director to execute all necessary documents. Further, that
staff be authorized to submit to HUD said Section 108 Loann'Application.
Administrator KENNETH J. HE ERSON
Executive Director
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Contact Person(s): Kenneth J. Henderson/Laura J. Muna-Landa Phone: 5081
Project Area(s): Northwest Ward(s): Six (6)
Supporting Data Attached: Staff ReAort: HUD 108 Loan Application
FUNDING REQUIREMENTS: Amount: N_/ Source: CDBG LOC
Budget Authority: Requested
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Commission/Council Notes:
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j KJH:LML:nml:wstsidln.cdc COMMISSION MEETING AGENDA
MEETING DATE: 12/06/19993,
Agenda Item Number: ! 1
DEVELOPMENT DEPARTMENT
STAFF REPORT
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Public Hearing - HUD 108 Loan Application - West Side Plaza
Section 108 of the Housing and Community Development Act of 1974, as amended,
authorized a program of community development loan guarantee assistance (HUD 108 Loan).
Under this program, the Housing and Urban Development (HUD) Department provides cities
that receive entitlement grants with front-end financing for large scale community and
economic development projects that cannot be financed from annual grants. As with all
Community Development Block Grant (CDBG) program activities, the projects financed under
the Section 108 Program must either principally benefit low-and-moderate income persons, aid
in the elimination or prevention of slums and blight, or meet other community development
needs having a particular urgency.
The West Side Plaza Shopping Center principally and directly benefits low-and-moderate
i income persons through its provision of goods and services as well as the retention and
I creation of jobs and, therefore, is an eligible project for a HUD 108 loan. Further, its creation
provides a physical stabilizing structure of considerable size that assists in eliminating,
reducing or, certainly, neutralizing slum and blighting conditions within the surrounding
community. The West Side Plaza is located in a low income census tract (CT 42) and
' predominantly serves and benefits low and moderate income residents in the surrounding area
in accordance with Section 570.208 (a) (4). This activity will assist the West Side Plaza in
! retaining the existing 152 jobs and assist in meeting the additional goal of creating 90 new
jobs. To date, approximately 76% of the 152 jobs involve the employment of low and
moderate income persons. The additional projection of 92 jobs will also involve the
employment of predominantly low and moderate income persons.
The development of the West Side Plaza., a 96,177 square foot retail shopping center located
at Baseline Avenue and Medical Center Drive, represents a major concerted joint
private/public partnership on the part of the entire community. This is evidenced by the
variety and extent of private, federal, county and local financing resources committed to the
project. A summary of the total financing (sources and uses of funds) is outlined below:
Source
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Private Funds (National Bank of Long Beach) $5,700,000
Federal (UDAG Grant) $1,848,000
County Loan $2,750,000
City/Agency Funds $2.112.000
Total Sources $12,410,000
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KJH:LN1L:mn1:wstsidln.cdc COMMISSION MEETING AGENDA
MEETING DATE: 12/06/1993
Agenda Item Number: /`-��
DEVELOPMENT DEPARI MENT STAFF REPORT
Public Hearing - HUD 108 Loan Application - West Side Plaza
November 24, 1993
Page -2-
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Use
Land $1,325,000
Fixtures $ 900,000
On and Off Site Improvements $2,097,000
Construction/Development Costs $8,088,000
Total Uses $12,410,000
The National Bank of Long Beach (NBLB) has agreed to extend the construction loan on
West Side Plaza which matured on July 1, 1993. The construction loan extension by NBLB
to New Frontier Commercial Properties (developer) is for $5,200,000 at an interest rate of
prime plus 2% with a floor of 8.25% for five (5) years. There is, however, still a financing
gap of $500,000 for the construction loan. Staff is proposing that the $500,000 be funded
through a HUD Section 108 Loan. The HUD Section 108 Loan will enable New Frontier
Commercial Properties to obtain a five (5) year rather than a three (3) year term on its loan
extension with NBLB. This is necessary in order to provide a prudent positive cash flow,
with appropriate reserves, and enable New Frontier Commercial Properties to adequately
maintain the shopping center and lease up the balance of the existing space.
From both legal and moral viewpoints the Agency is in partnership with the West Side Plaza.
Successful approval of this funding strategy will assure adequate cash flow to debt service the
center's forecasted obligations and mitigate any downturns throughout the financing term.
HUD approval of the application will "pay down" the construction lender's note and make it
easier to acquire a favorable permanent loan later. It also will provide a prudent reserve over
a five (5) year period and the opportunity for the Agency to benefit through participation in a
positive cash flow if the center experiences a substantial upturn. The 108 loan to the
developer would be at 7% with a five (5) year term and twenty (20) year amortization period
secured by a second deed of trust subordinate to only the $5,200,000 first deed of trust.
It is appropriate for the Mayor and Common Council to open the public hearing to receive
citizen comments and then close the public hearing.
Staff recommends adoption of the form motion.
Wo
KENNETH J. IiENDERSON, Executive Director
Development Department
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I KJH:LNM:nml:wstsidln.cdc COMMISSION MEETING AGENDA
MEETING DATE: 12/06/199/3
Agenda Item Number: fT
HUD SECTION 108 GUARANTEED LOAN APPLICATION
APPLICANT/ENTITLEMENT PUBLIC ENTITY
City of San Bernardino
Development Department
201 North "E" Street -
San Bernardino, CA 92401
PROJECT ACTIVITY/LOCATION
West Side Plaza
1554-1594 Baseline Street (Baseline Street and Medical Center Drive)
San Bernardino, CA 92411
New Frontier Commercial Properties (Developer)
LOAN REQUEST
The City of San Bernardino is requesting a HUD Section 108 Guaranteed Loan in the amount
of $500,000 over the term of five (5) years. These funds will be used to assist New Frontier
Commercial Properties (Developer) with a working capital loan of $500,000 at seven percent
(7%) interest rate with a five (5) year term and a twenty (20) year amortization. Such
assistance is necessary to bring sufficient cash flow to the West Side Plaza and enable New
Frontier Commercial Properties to adequately maintain the shopping center and lease up the
balance of its existing space.
MEETING THE COMMUNITY DEVELOPMENT OBJECTIVE
The West Side Plaza is located in a low income census tract (CT 42) and predominantly
serves and benefits low and moderate income residents in the surrounding area in accordance
with Section 570.208 (a) (4). This activity will assist the West Side Plaza in retaining the
existing 152 jobs and assist in meeting the additional goal of creating 90 new jobs. To date,
approximately 76% of the 152 jobs involve the employment of low and moderate income
persons. The additional projection of 92 jobs will also involve the employment of
predominantly low and moderate income persons.
ELIGIBLE ACTIVITIES
Pursuant to Section 570.703(i), this project qualifies under Section 570.203(b) as a Special
Economic Development Activity. The City will provide a loan to New Frontier Commercial
Properties, a for-profit business, based upon our determination that the assistance is necessary
and appropriate to carry out this business retention activity. (See Background and Financial
Analysis of the Project.)
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PROGRAM INCOME
L This project is projected to generate the following program income:
Year 1 $46,517.88
Year 2 $46,517.88
Year 3 $46,517.88
Year 4 $46,517.88
Year 5 $46,517.88 + $427,172.71 = $473,69059
Total Estimated Program Income for Five (5) Years: $659,762.11
Program Income for Years 1 to 4 represents a monthly debt service of $3,876.49.
Program Income for Year 5 represents a monthly debt service of $3,876.49, plus the
remaining principal balance of $427,172.71 due at the end of Year 5.
BACKGROUND OF THE EXISTING PROJECT
The development of the West Side Plaza, a 96,177 square foot retail shopping center located
at Baseline Street and Medical Center Drive, represents a major concerted joint private/public
partnership effort on the part of the entire community. This is evidenced by the variety and
extent of private, federal, county and local financing resources committed to the project. A
summary of the total financing (sources and uses of funds) is outlined below:
Source
Private funds (National Bank of Long Beach) $5,700,000
Federal (UDAG Grant) $1,848,000
County Loan $2,750,000
City/Agency Funds $2,112,000
Total Sources $12,410,000
Uses
Land $1,325,000
Fixtures $ 900,000
On and Off Site Improvements $2,097,000
Construction/Development Costs $8,088,000
Total Uses $12,410,000
DESCRIPTION AND FINANCIAL ANALYSIS OF THE PROPOSED PROJECT
New Frontier Commercial Properties (NFCP) obtained private financing in the amount of
$5,700,000 from National Bank of Long Beach (NBLB) in order to construct the West Side
Plaza. As of July 1, 1993, the principal balance of the loan in the amount of $5,700,000 has
matured and is due and payable in full. Due to the poor economic climate over the past two
(2) years, New Frontier Commercial Properties is not in a position to secure permanent
financing at this time. The shopping center is approximately 80% leased and the income
stream is far below original projections in light of the previously referenced economic
conditions and the incentives which have necessarily been provided to existing tenants.
The National Bank of Long Beach has made two (2) financing offers to New Frontier
Commercial Properties. The first option is a thirty-six (36) month loan for $5,700,000 at a
minimum rate of 8.75% with fees totalling $114,000. In addition, beginning on July 1, 1994,
the loan must be reduced at a rate of $19,000 per month or a total of $456,000 over the term
of the loan.
Currently, the West Side Plaza is generating $54,000 per month of income after operating
expenses, but has no reserve ($200,000 is a prudent amount). The bank offer results in the
following cash flow assuming no improvement or deterioration in the leasing picture:
YEAR 1 YEARS 2 & 3
NOI Before Debt Service $648,000 $648,000
NBLB First Trust Deed $498,750 ' $726,750 2
RDA Second Trust Deed $96,000 s $96,000
Excess (Deficit) Cash Flow $53,250 ($174,750)
According to NFCP's projections, the West Side Plaza would cover the forecast debt service
obligations in 1995 with a 1.04 debt service coverage ratio, a ten percent (10%) vacancy and
a $40,000 reserve. This is a possible option, but in our opinion, an imprudently tight one. A
more reasonable approach for the next five years (5) (not three (3)) is based on the second
option provided by NBLB delineated in the Extension and Modification Agreement
(Attachment 1). This agreement provides for a bank loan of $5,200,000 at an interest only
rate of prime plus two percent (2%) with a floor of 8.25% for five years.
' $5,700,000 @ 8.75 Interest only
_ $5,700,000 @ 8.75%Plus$19,000 Per Month Loan Pay-Off
$800,000 @ 12%Inkiest Only
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This requires two (2) actions by the City:
1. An additional City working capital loan for $500,000 funded by the City from
its HUD-108 authority at seven percent (7%) with a five (5) year term and a
twenty (20) year amortization secured by a second deed of trust subordinate
only to a $5,200,000 first deed of trust. This pays down NBLB first trust deed.
2. Recasting of the RDA second trust deed as a third trust deed for $800,000 at
prime plus two percent (2%) with no floor or ceiling fully amortized over
twelve (12) years but due in five (5) years.
This plan produces a five (5) year cash flow as described below assuming no growth or
deterioration of operating income.
YEAR 1 YEAR 2 YEAR-2 Y_SAAR 4 YEAR
NOI Before $648,000 $648,000 $648,000 $648,000 $648,000
Debt Service
NBLB First $429,000' $429,000' $429,000' $429,000' $429,000'
Trust Deed'
City Second $46,5002 $46,5002 $46,5002 $46,5002 $46,5002
Trust Deed
RDA Third $104,0003 $104,0003 $104,0003 $104,0003 $104,0003
Trust Deed3
Cash Flow $68,500 $68,500 $68,500 $68,500 $68,500
This plan provides four (4) benefits to the project:
1. It pays the construction lender down by $500,000 and, therefore, makes it easier to
acquire a favorable permanent loan.
2. It minimizes conventional lender foreclosure risk due to the 156 cash flow coverage
ratio based on existing cash flow.
3. It provides the project with the opportunity to accrue and bank a prudent reserve over
five (5) years.
' $5,200,000 @ 8.25%Interest Only for Five(5)Years
1 $500,000 @ 7%Twenty (20) Years Due in Five(5)Years
$800,000 @ 8%Twelve(12)Years Due in Five(5)Years
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4. Finally, it provides the City with termed out repayment commensurate with market
interest rates and 1.12 cash flow coverage ratio based on existing cash flow.
The plan mitigates downside risks through termed out financing. It also reserves upside
potential to the City through the 40% participation in cash flow.
A HUD-108 working capital loan to New Frontier Commercial Properties of $500,000 at
seven percent (7%) with a five (5) year term and a twenty (20) year amortization to pay down
NBLB by $500,000 will significantly improve the cash flow of the project by $243,250 in
years two (2) and three (3). The HUD 108 will make it feasible to obtain interim financing
for five (5) years and give NFCP two (2) additional years to obtain permanent financing.
This will necessitate restructuring the current City second trust deed to a third trust deed for
$800,000 at prime plus two percent (2%) with no floor or ceiling amortized over twelve (12)
years but due in five (5). This refinancing plan will provide the opportunity for the retention
of 152 existing jobs and the additional creation of 90 new jobs. Cash flow enhancement will
allow NFCP to provide marketing efforts and tenant improvements necessary to achieve their
leasing objectives and make this a viable project.
SECTION 108 LOAN GUARANTEE
CERTIFICATION REGARDING DRUG-FREE WORKPLACE REQUIREMENTS
The certification set out below is a material representation upon which reliance is place by
the U.S. Department of Housing and Urban Development in awarding the loan guarantee
assistance. If it is later determined that the public entity knowingly rendered a false
certification, or otherwise violates the requirements of the Drug-Free Workplace Act, the U.S.
Department of Housing and Urban Development, in addition to ally other remedies available
to the Federal Government, may take action authorized under the Drug-Free Workplace Act.
CERTIFICATION
A. The public entity certifies that it will provide a drug-free workplace by:
(a) Publishing a statement notifying employees that the unlawful manufacture,
distribution, dispensing, possession or use of a controlled substance is
prohibited in the public entity's workplace and specifying the actions that will
be taken against employees for violation of such prohibition;
(b) Establishing a drug-free awareness program to inform employees about -
(1) The dangers of drug abuse in the workplace;
(2) The public entity's policy of maintaining a drug-free workplace;
(3) Any available drug counseling, rehabilitation, and employee assistance
programs; and
(4) The penalties that may be imposed upon employees for drug abuse
violations occurring in the workplace;
(c) Making it a requirement that each employee to be engaged in the performance
of the activities undertaken with the loan guarantee assistance be given a copy
of the statement required by paragraph (a);
(d) Notifying the employee in the statement required by paragraph (a) that, as a
condition of employment under the loan guarantee, the employee will -
(1) Abide by the terms of the statement; and
(2) Notify the employer of any criminal drug statute conviction for a
violation occurring the workplace no later than five days after such
conviction;
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PLACE OF PERFORMANCE
FOR CERTIFICATION REGARDING DRUG-FREE WORKPLACE
Name of Public Entity: _City of San Bernardino
Program Name: Section 108 Loan Guarantee Program
Project Number: 93-1000
Date_ November 10. 1993
The public entity shall insert in the space provided below the site(s) expected to be
used for the performance of work under the assistance covered by the certification:
Place. of Performance (include street address, city, county, state, zip code for each site):
City of San Bernardino Development Department
201 North "E" Street Third Floor
San Bernardino CA 92401
SECTION 108 LOAN GUARANTEES
STATEMENT REGARDING LOBBYING
THE UNDERSIGNED STATES, TO THE BEST OF HIS OR HER KNOWLEDGE AND
BELIEF, THAT:
If any funds have been paid or will be paid to any person for influencing or attempting to
influence an officer or employee of any agency, a Member of Congress, an officer or
employee of Congress, or an employee of a Member of Congress in connection with this
commitment providing for the United States to insure or guarantee a loan, the undersigned
shall complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying", in
accordance with its instructions.
Submission of this statement is a prerequisite for making or entering into this transaction
imposed by Section 1352, Title 31, U.S. Code. any person who fails to file the required
statement shall be subject to a civil penalty of not less than $10,000 and not more than
$100,000 for each such failure.
SECTION 108 LOAN GUARANTEE
Certification of Legal Authority to Pledge Grants
The public entity hereby certifies and assures with respect to its application for a loan
guarantee pursuant to Section 108 of the Housing and Community Development Act of 1974,
as amended, that it possesses the legal authority to make the pledge of grants required under
24 CFR Subsection 570.705(b)(2).
SECTION 108 LOAN GUARANTEE
ENTITLEMENT PUBLIC ENTITY CERTIFICATIONS
In accordance with Section 108 of the Housing and Community Development Act of 1974, as
amended, (the "Act") and with 24 CFR Subsection 570.704(b) the public entity certifies that:
(i) It possesses the legal authority to submit the application for assistance under 24
CFR Part 570, Subpart M ("Subpart M") and to use the guaranteed loan funds in accordance
with the requirements of Subpart M.
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(ii) Its governing body has duly adopted or passed as an official act a resolution,
motion or similar action authorizing the person identified as the official representative of the
public entity to submit the application and amendments thereto and all understandings and
assurances contained therein, and directing and authorizing the person identified as the official
representative of the public entity to act in connection with the application to provide such
additional information as may be required.
(iii) Before submission of its application to HUD, the public entity has:
(A) Furnished citizens with information required by Subsection
570.704(a)(2)(i);
(B) Held at least one public hearing to obtain the views of citizens on
community development and housing needs; and
(C) Prepared its application in accordance with Subsection 570.704
(a)(1)(iv) and made the application available to the public.
(iv) It is following a detailed citizen participation plan which meets the
requirements described in Subsection 570.704 (a)(2).
(v) The public entity will affirmatively further fair housing, and the guaranteed
loan funds will be administered in compliance with:
(A) Title VI of the Civil Rights Act of 1964 (Pub. L. 88-352, 42 U.S.C.
2000d et seq.); and
(B) The Fair Housing Act (42 U.S.C. 3601-20).
(vi) In the aggregate, at least 70 percent of all CDBG funds, as defined at
Subsection 570.3(e), to be expended during the one, two, or three consecutive years specified
by the public entity for its CDBG program will be for activities which benefit low and
moderate income persons, as described in criteria at Subsection 570.208(a).
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(vii) It will comply with the requirements governing displacement, relocation, real
property acquisition, and the replacement of low and moderate income housing described in
Subsection 570.606.
(viii) It will comply with the requirements of Subsection 570200(c) (2) with regard
to the use of special assessments to recover the capital costs of activities assisted with
guaranteed loan funds. _
Ox) It will comply with the other provisions of the Act and with other applicable
laws_
(x) (Where applicable, the public entity may also include the following additional
certification.) It lacks sufficient resources from funds provided under Subpart M or program
income to allow it to comply with the provisions of Subsection 570.200(c) (2), and it must
therefore assess properties owned and occupied by moderate income persons, to recover the
guaranteed loan funded portion of the capital costs without paying such assessments in their
behalf from guaranteed loan funds.
SECTION 108 LOAN GUARANTEE
Certification of Legal Authority to Pledge Grants
'Ile public entity hereby certifies and assures with respect to its application for a loan
guarantee pursuant to Section 108 of the Housing and Community Development Act of 1974,
as amended, that it possesses the legal authority to make the pledge of grants required under
24 CFR Subsection 570.705 (b)(2). -
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SECTION 108 LOAN GUARANTEE
Certification of Efforts to Obtain Other Financing
The City of San Bernardino hereby assures and certifies with respect to its
application for a loan guarantee pursuant to Section 108 of the Housing and
Community Development Act of 1974, as amended, that it has made efforts to obtain
financing for the activities described herein without the use of such guarantee, it will
maintain documentation of such efforts for the term of the loan guarantee, and it can
not complete such financing consistent with the timely execution of the project without
such guarantee.
Certification regarding Debarment, Suspension,
and Other Responsibility Matters--
Primary Covered Transactions
(1) The prospective primary participant certifies to the best of its knowledge and
belief, that it and its principals:
(a) Are not presently debarred, suspended, proposed for debarment, declared
ineligible, or voluntarily excluded from covered transactions by any Federal department or
agency;
(b) Have not within a three-year period preceding this proposal been convicted of
or had a civil judgment rendered against them for commission of fraud or a criminal offense
in connection with obtaining, attempting to obtain, or performing a public (Federal, State or
local) transaction or contract under a public transaction; violation of Federal or State antitrust
statutes or commission of embezzlement, theft, forgery, bribery, falsification or destruction of
records, making false statements, or receiving stolen property;
(c) Are not presently indicted for or otherwise criminally or civilly charged by a
governmental entity (Federal, State or local) with commission of any of the offenses
enumerated in paragraph (1)(b) of this certification; and
(d) Have not within a three year period preceding this application/proposal had one
or more public transactions (Federal, State or local) terminated for cause or default.
(2) Where the prospective primary participant is unable to certify to any of the
statements in this certification, such prospective participant shall attach an explanation to this
proposal.
A