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HomeMy WebLinkAboutR7-Economic Development Agency e e e ECONOMIC DEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO RRQURST FOR COMMISSION/COUNCIL ACTION FROM: Ronald E. Winkler Director SUBJECT: AUTHORIZATION TO SELL RANCHO ~(Q) ~'IAN MOBILEHOME PARK DATE: April 17, 1997 Synnpsh; of Previous Commission/Couneil/Cnmmittee Aetinn(~~ Rp.("ommended Motinn(~: OPEN PUBLIC HEARING CWSE PUBLIC HEARING (Commnnity Development Commission) MOTION A: RESOLUTION OF THE COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF SAN BERNARDINO APPROVING THE TRANSFER OF THE RANCHO MERIDIAN MOBILEHOME PARK FROM THE REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO TO THE RANCHO MERIDIAN MOBILEHOME PARK CORPORATION. (Mayor and Common COllneil) MOTION B: RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO APPROVING THE TRANSFER OF THE RANCHO MERIDIAN MOBILEHOME PARK FROM THE REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO TO THE RANCHO MERIDIAN MOBILEHOME PARK CORPORATION. Administrator Contact Person(s): Ronald R Winkler Phone: 5081 Project Area(s): N/A Ward(s): N/A Supporting Data Attached: Staff Report; Resolutions FUNDING REQUIREMENTS: Amount: N/A Source: Budget Authority: N/ A Commission/Couneil Notes: ~7e - Res 97- I/O REW:Imp:mcho.cdc COMMISSION MEETING AGENDA MEETING D - .l[ Agenda Item Number IFI 'cJ/f'J1 . . . ECONOMIC DEVELOPMENT AGENCY STAFF REPORT --------------------------------.--------------------------------------------------------------------------------- The Rancho Meridian Mobilehome Park was acquired by the Economic Development Agency ("EDA") on March 19,1996, in part with the proceeds of the $4,100,000 San Bernardino Joint Powers Financing Authority Multifamily H~using Revenue Bonds (Rancho Meridian . Mobilehome Park Project), Series 1996 ("Bonds"), HOME funds, and a note to the seller of the park. Most of the following information was presented to the Agency in a staff report concerning the sale of three mobilehome parks on March 3,1997. The Rancho Meridian Mobilehome Park ("Rancho Meridian") consists of 143 spaces, is located at 2686 West Mill Street in the City of San Bernardino, California (the "City") and includes certain amenities and improvements. Rancho Meridian was acquired, in part, with the proceeds of Bonds issued in the amount of $4, I 00,000, and approximately $375,000 of HOME funds, and a seller take-back note in the amount of $682,844. TRANSFER OF RANCHO MERIDIAN: Staffis seeking consent to transfer Rancho Meridian to the Rancho Meridian Mobilehome Park Corporation, a nonprofit corporation which has obtained 501(c)(3) status as part of the mobilehome park conversion program. The mobilehome park conversion program as adopted by the Mayor and Common Council and this Commission in December 1993 contemplated the acquisition of mobile home parks in San Bernardino from private owners with title vesting in the name of the EDA for an initial period of time. It was contemplated that the EDA would hold title to the parks until the necessary filings and approvals could be obtained for the eventual ownership by a nonprofit corporation. Future mobilehome park conversions could then be accomplished with title vesting directly with the designated nonprofit corporation. It is unlikely that any of the San Bernardino mobilehome parks presently owned by private parties would be subdivided into condominium interests with the spaces then being sold to individual residents. Although a nonprofit organization with a national presence could be obtained as the owner of Rancho Meridian and other mobilehome parks, the residents would not have the degree of input into the every day activities as they would in a situation where the residents are required to be represented on the board of directors. It is common for nationally oriented nonprofit organizations to operate through a master board of directors with a separate nonprofit corporation established for each of the locally owned real property assets. In most instances the same individuals who serve as the board of directors of the national organization also serve as the board of directors of each of the local subsidiaries. REW:lmp:mcho.cdc COMMISSION MEETING AGENDA MEETING DATE: 04121/1997 Agenda Item Number: / . . . ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Rancho Meridian Mobilehome Park April 17, 1997 Page 2 -------------------------------------------------------------------------------------------------------------------------- The EDA has formed the San Bernardino Mobilehome Park Corporation, a California nonprofit corporation ("SBMHPC") which will act as the oversight nonprofit corporation to each of the individual park nonprofit corporations, including the Rancho Meridian Mobilehome Park Corporation. The individual park nonprofit corporations will hold title to the separate mobilehome parks including Rancho Meridian, upon transfer from the EDA. Nine nonprofit corporations have been formed including Rancho Meridian Mobilehome Park Corporation. An advanced ruling and determination letter with regard to the tax-exempt status of each of the nonprofit corporations was issued by the IRS in Washington, D.C. on December 23, 1996. The IRS has approved the concept of an oversight nonprofit corporation and separate park nonprofit corporations. Under this structure the SBMHPC retains certain controls over specified aspects of the operations and the financial dealings of the individual park nonprofit corporations. The SBMHPC can assure the Bondholders and the IRS of continuing compliance with the Bond documents and the tax covenants for tax-exemption of the interest on the Bonds and maintaining the tax-exemption of the parks' nonprofit corporations. The by-laws and articles of incorporation of each park nonprofit corporation have been reviewed and approved by the IRS. The basis under the Internal Revenue Code for the formation of each of the park nonprofit corporations including Rancho Meridian Mobilehome Park Corporation and obtaining the 501 (c)(3) determination letter from the IRS is to assist in the relief of a "burden upon government". The "burden upon government" which has been accepted by the IRS results from a history in San Bernardino of mobilehome park rent control and the EDA sponsored program of conversion of privately owned mobilehome park rent control to some form of public ownership with resident control. The IRS required that at least one EDA employee be designated by position to be on the Board of Directors of the SBMHPC, and the IRS has agreed that designation of the Agency Administrator will comply with this requirement. Additionally, the boards of directors for each of the park nonprofit corporations including Rancho Meridian Mobilehome Park Corporation must have six residents selected in a fair and equitable manner from among all of the residents of each particular mobilehome park and one additional director who must be a non-resident who also must be a director of the SBMHPC. In this manner, the IRS will be assured that there are adequate controls to prevent any private inurement to the residents of the separate mobilehome parks. No additional restrictions will be imposed upon the board of directors of the SBMHPC other than to require the Agency Administrator to be a member of the board of directors of the SBMHPC. ---------------------------------------------------------------------------------------------------------- REW:lmp:mcho.cdc COMMISSION MEETING AGENDA MEETING DATE: 04121/1997 I Agenda Item Number: . . . ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Rancho Meridian Mobilehome Park April 17,1997 Page 3 As a part of the IRS review and approval process for the nine nonprofit corporations, including the Rancho Meridian Mobilehome Park Corporation, all of the Bond documents and the related real estate transfer documents from the date of the original acquisitions of each of the EDA owned mobilehome parks were submitted to the IRS for review. The IRS is typically concerned with situations where there is a sale of property to a nonprofit corporation and a transfer price that is determined to be excessive. This situation is viewed by the IRS as benefitting a private party which can then result in the loss of tax-exemption to both the nonprofit corporation and the tax-exempt bond financing. The transfer price of each park from the EDA to each of the park nonprofit corporations, including the Rancho Meridian Mobilehome Park Corporation will be adjusted by an amount that relates dollar-for-dollar to the costs incurred by the EDA from the date of initial acquisition of each park to the date of transfer to the park nonprofit corporation. Such adjusted transfer price assures the residents that the best value possible is transferred to the park nonprofit corporation and demonstrates to the public that the entire transaction has been without cost to the EDA. Upon the transfer of title from the EDA, Rancho Meridian Mobilehome Park Corporation will assume: (i) the bonded indebtedness secured by the mobilehome park, (ii) the seller take-back note and (iii) the obligation to reimburse the EDA from future cash flow revenues for all EDA expenditures incurred for each mobilehome park. Updated appraisal reports will be obtained from Brabant & Associates prior to transfer of each EDA mobilehome park including Rancho Meridian. The appraisal reports analyze the current resale value of each particular EDA mobilehome park on the basis of current market conditions, cash flows for the mobilehome park and the added funds invested by the EDA both in capital improvements and operating capital. The updated appraisal reports were not a factor in the IRS' review of the transfer price of the EDA mobilehome parks since the transfer price from the EDA to each park nonprofit corporation will be adjusted to take into account the funds on deposit pursuant to the Bond documents and the EDA costs incurred during the EDA ownership of the mobilehome park. RESIDENT BOARD OF DIRECTORS: The residents of Rancho Meridian have previously conducted interim elections to appoint residents to an interim resident's association with which EDA consultants have been meeting on a regular basis. On March 6, 1997, the election results were finalized for the Board-elect that will assume all duties of the nonprofit corporation Board of Directors. Ongoing discussions and meetings have been held with the resident group regarding the transition of the EDA owned mobilehome park to the park nonprofit corporation. However, the transfer of Rancho Meridian ------------------------------------------------------------------------------------------------------------------ REW:lmp:rncho.cdc COMMISSION MEETING AGENDA MEETING DATE: 04121/1997 1 Agenda Item Number: . . e ECONOMIC DEVELOPMENT AGENCY STAFF REPORT Rancho Meridian Mobilehome Park April 17, 1997 Page 4 -------------------------------------------------------------------------------------------------------------------------- will not occur until the resident association has been substituted as the official board of directors of the nonprofit corporation. EDA staff will want assurances that the members of the Board of Directors are aware of their responsibility to'maintain the covenants and restrictions under the Bond documents and to maintain the tax-exemption of the various nonprofit corporations pursuant to the limitations as may be imposed by the IRS by reason of the 501(c)(3) determination letters. COMMUNITY REDEVELOPMENT LAW CONSIDERATIONS: The Community Redevelopment Law (Health & Safety Code Section 33000, et seq.), requires California redevelopment agencies to sell real property only after having conducted a public hearing pursuant to Health & Safety Code Section 33431. Notices of the public hearing have been duly published. It is necessary for the Commission to conduct the required public hearing, and on the basis of public input, the Commission will then consider the approval of the transfer of Rancho Meridian to the Rancho Meridian Mobilehome Park Corporation. After EDA staff has received the approval from the Commission to execute the final purchase and sale agreement between the EDA and the nonprofit corporation, the EDA will be in a position to have Rancho Meridian transferred to the nonprofit corporation. SALE PRICE DETERMINATION OF RANCHO MERIDIAN: Rancho Meridian was acquired with a portion of the proceeds of Bonds issued in the principal amount of $4, I 00,000. The proceeds of said Bonds and other deposits from the HOME funds were used to additionally fund the Debt Service Reserve Fund equal to $340,456.26, fund the Capital Reserve Replacement Fund equal to $48,681.00, and fund $24,015.11 into the Interest Account. The HOME funds in the amount of $375,000 were used upon acquisition to pay the additional costs of issuance and other expenses associated with the acquisition and the due diligence investigations. The seller also carried part of the purchase price in the form of a note in the principal amount of $682,844. It was not financially possible for the Mobilehome Conversion Consultant fee to be paid in total from the proceeds of the Bonds or from the HOME funds, and this unpaid principal balance will be transferred as a debt obligation to be assumed by the Rancho Meridian Mobilehome Park Corporation. An additional promissory note and subordinate indebtedness will be included within the transfer price to allow the EDA to recapture the entire principal amount, plus interest, of the prior expenses paid by the EDA relative to the ownership of Rancho Meridian. ------------------------------------------------------------------------------------------------------------------ REW:lmp:mcho.cdc COMMISSION MEETING AGENDA MEETING DATE: 04121/1997 Agenda Item Number: <] . . . ECONONUC DEVELOPMENT AGENCY STAFF REPORT Rancho Meridian Mobilehome Park April 17, 1997 Page 5 -------------------------------------------------------------------------------------------------------------------------- The original appraisal value of Rancho Meridian was determined to be $4,500,000. An updated appraisal will be completed prior to transfer. The estimated resale price has been calculated at $5,150,000. The final transfer price will be based upon the following formula: (i) Bond debt assumed, plus (ii) seller take-back fmancing, plus (iii) EDA unreimbursed expenses, plus (iv) the unpaid Mobilehome Park Conversion Consultant fee. RECOMMENDATION: Staff recommends adoption of the attached Resolutions to authorize the sale of the Rancho Meridian Mobilehome Park from the EDA ownership to the Rancho Meridian Mobilehome Park Corporation for a resale price estimated at $5,150,000, based upon final determination and assumption by the respective nonprofit corporations of the existing bonded indebtedness, reimbursements to the EDA and assumption of the other obligations as set forth in this EDA staff report. RONALD . WINKLER, Director Development Department --------------------------------------------------------------------------------.-.------------------------------- REW:lmp:mcho.cdc COMMISSION MEETING AGENDA MEETING DATE: 04/21/1997 Agenda Item Number: '1