HomeMy WebLinkAboutR8- Economic Development ECO. JMIC DEVELOPMENT AGEN
OF THE CITY OF SAN BERNARDINO
REQUEST FOR COMMISSION/COUNCIL ACTION
FROM: BARBARA J.LINDSETH SUBJECT: MOBILEHOME PARK
Acting Director CONVERSION PROGRAM
DATE: April 12, 1995
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Synopsis of Previous Commission/CouncWCommittee Action(s):
On November 9, 1993,the Housing Committee received and filed the City of San Bernardino Mobilehome Park
Feasibility Study and recommended to the Community Development Commission a date and time certain for a
Mobilehome Conversion Workshop.
On November 15, 1993,the Community Development Commission established December 6, 1993 at 12:00 noon as the
date and time certain for conducting a workshop regarding the City's Mobilehome Conversion Program.
(Synopsis Continued to Next Page...)
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Recommended Motion(s):
OPEN PUBLIC HEARING
CLOSE PUBLIC HEARING
(Mayor and Common Council)
MOTION A: RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO,CALIFORNIA,REGARDING THE HOLDING OF PUBLIC HEARINGS IN
CONNECTION WITH THE ISSUANCE OF CERTAIN MULTIFAMILY HOUSING REVENUE
BONDS.
(Motions Continued to Next Page....)
"'0
Administrator BARBARA J.LINDSETH
Acting Director
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Contact Person(s): Barbara J.Lindseth/Gerry Butler/Ed Flores Phone: 5081
Project Area(s): Mt.Vernon Ward(s): Two(2),Three(3)
Supporting Data Attached: Staff Report-,Resolutions
FUNDING REQUIREMENTS: Amount: $ N/A Source: Mortgage Revenue Bonds/Home Funds
Budget Authority: Requested
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Commission/Council Notes: e- —71--2
13e6 ct511r
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BJL:GWB:lag:04-17-Ol.cdc COMMISSION MEETING AGENDA
Res MEETING DATE: 04117/1995
l E/D T --?
$�`G l�� J -- Agenda Item Number:
,� Res -7 ---4
Request for Commission/Counci.,,,,rtion 0
Mobilehome Park Conversion Program
April 11,1995
Page Number-2-
Synopsis of Previous Commission/Council/Committee Action(s)Continued:
On December 6, 1993,the Community Development Commission conducted a Luncheon Workshop on the City's
Mobilehome Conversion Program.
On December 20, 1993,the Community Development Commission authorized Phase II of the existing Consultant
Agreement with the De Anza/London Group pertaining to the development and implementation of a Mobilehome Park
Conversion Program.
On March 7, 1994,the Community Development Commission approved the implementation of the Mobilehome Park
Conversion Program for selected Category I parks and authorize the expenditure of$120,000 for processing four(4)
mobilehome parks at$30,000 for each park.
On January 9, 1995,the Community Development Commission approved the consent of assignment and release from
De Anza Conversions,Inc.,in association with the London Group as the Mobilehome Park Conversion Consultant to the
London Group and authorize execution of all necessary documents by the Acting Director. The Commission also
authorized the expenditure of an additional$30,000 in housing set-aside funds for the due diligence efforts for the
conversion of the Friendly Village Mobilehome Park,and authorized the execution by the Acting Director of necessary
modifications to existing agreements with the London Group.
On February 28, 1995,the Housing Committee recommended approval in concept of bond issues for acquisition of the
Friendly Village and Tropicana Mobilehome Parks.
On April 3, 1995,the Mayor and Common Council set a public hearing on April 17, 1995,at 11:00 a.m.,for the
issuance of certain bonds in connection with the Friendly Village Mobilehome Park,the Orangewood Mobile Estates
Mobilehome Park and the Tropicana Mobilehome Park. The Joint Powers Financing Authority set a public hearing on
April 17, 1995,at 11:00 a.m.,for the issuance of certain bonds in connection with the Friendly Village Mobilehome
Park,the Orangewood Mobile Estates Mobilehome Park and the Tropicana Mobilehome Park.
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BJL:GWB:lag:04-17-Ol.cdc COMMISSION MEETING AGENDA
MEETING DATE: 04/17/1995
Agenda Item Number:
REQUEST FOR COMMISSION\, _OUNCIL ACTION
Mobilehome Park Conversion Program
April 11,1995
Page Number-3-
Recommended Motion(s)Continued:
(Joint Powers Financing Authority)
MOTION B: RESOLUTION OF THE SAN BERNARDINO JOINT POWERS FINANCING AUTHORITY
AUTHORIZING THE ISSUANCE OF NOT TO EXCEED$3,500,000 MULTIFAMILY
HOUSING REVENUE BONDS(TROPICANA MOBILEHOME ESTATES PROJECT)SERIES
1995A,APPROVING THE FORM OF LEGAL DOCUMENTS RELATED THERETO AND
AUTHORIZING AND DIRECTING PREPARATION,EXECUTION AND DELIVERY OF
THE FINAL FORMS THEREOF
MOTION C: RESOLUTION OF THE SAN BERNARDINO JOINT POWERS FINANCING AUTHORITY
AUTHORIZING THE ISSUANCE OF NOT TO EXCEED$4,000,000 MULTIFAMILY
HOUSING REVENUE BONDS(ORANGEWOOD MOBILEHOME ESTATES PROJECT)
SERIES 1995A,APPROVING THE FORM OF LEGAL DOCUMENTS RELATED THERETO
AND AUTHORIZING AND DIRECTING PREPARATION,EXECUTION AND DELIVERY
OF THE FINAL FORMS THEREOF
MOTION D: RESOLUTION OF THE JOINT POWERS FINANCING AUTHORITY AUTHORIZING THE
ISSUANCE OF NOT TO EXCEED$2,400,000 MULTIFAMILY HOUSING REVENUE
BONDS(FRIENDLY VILLAGE PROJECT)SERIES 1995A,APPROVING THE FORM OF
LEGAL DOCUMENTS RELATED THERETO AND AUTHORIZING AND DIRECTING
PREPARATION,EXECUTION AND DELIVERY OF THE FINAL FORMS THEREOF
MOTION E: RESOLUTION OF THE SAN BERNARDINO JOINT POWERS FINANCING AUTHORITY
REGARDING THE HOLDING OF A PUBLIC HEARINGS IN CONNECTION WITH THE
ISSUANCE OF CERTAIN MULTIFAMILY HOUSING REVENUE BONDS
(Community Development Commission)
MOTION F: RESOLUTION OF THE COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF
SAN BERNARDINO,AUTHORIZING,ON BEHALF OF THE REDEVELOPMENT AGENCY
OF THE CITY OF SAN BERNARDINO,THE BORROWING OF FUNDS FROM THE SAN
BERNARDINO JOINT POWERS FINANCING AUTHORITY IN CONNECTION WITH THE
ISSUANCE OF CERTAIN MULTIFAMILY HOUSING REVENUE BONDS
(Mayor and Common Council)
MOTION G: RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO,CALIFORNIA,APPROVING THE ISSUANCE OF CERTAIN
MULTIFAMILY HOUSING REVENUE BONDS AND THE BORROWING BY THE
REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO OF THE PROCEEDS
THEREFROM PURSUANT TO A CERTAIN LOAN AGREEMENT
MOTION H: RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO,CALIFORNIA,REGARDING PLEDGE OF CERTAIN FUNDS OF THE CITY
AS SECURITY FOR CERTAIN BONDS
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BJL:GWB:lag:04-17-0l.cdc COMMISSION MEETING AGENDA
MEETING DATE: 04/17/1995
Y
Agenda Item Number: !.'
ECONG _JIC DEVELOPMENT AGeNCY
STAFF REPORT
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Mobilehome Park Conversion Program
The London Group has been coordinating the financing efforts for the acquisition and conversion
of the San Bernardino mobilehome parks with Miller& Schroeder as Underwriters and with
Agency Counsel. The financing structure contemplates that the Agency will acquire ownership of
the financed mobilehome parks from the present private owners through the issuance of tax-
exempt mortgage revenue bonds. Such a bond issue will provide the funds needed for payment of
the purchase price for such mobilehome parks and to pay certain costs of issuance. Additional
costs of acquisition will be funded by the Agency from a combination of H.O.M.E. funds and to
the extent necessary from the low- and moderate-income housing funds.
The due diligence investigations were commenced in November, 1994, with various contracts
entered into by the London Group with the individual service providers as authorized under the
agreement between the London Group and the Agency. The due diligence investigations for
Friendly Village, Tropicana and Orangewood Estates have been essentially completed, and the
conversion process is ready to proceed to the next level in preparation for the close of escrows.
The Agency has previously committed and has advanced $30,000 per mobilehome park for the
first three (3) acquisitions and conversions. The budget amount allocated for due diligence as to
these three (3) mobilehome parks has been expended.
The contemplated conversion structure requires the Agency to initially obtain fee title ownership
of each mobilehome park until such time as title can be transferred to a 501(C)(3) non-profit
corporation. A non-profit corporation is currently being formed and the necessary applications
are being made for the required federal and state tax-exemptions. It is estimated that such non-
profit corporation will be available within six(6)months to acquire the first three (3) mobilehome
parks from the Agency and to effect all subsequent acquisitions without utilizing the Agency as an
intermediary. The non-profit corporation concept of ultimate ownership will require that a master
non-profit corporation be formed with an initial board of directors comprised of three (3)
individuals. Subsidiary non-profit corporations will be formed for each separate mobilehome park
utilizing the tax-exemption letter to be obtained form the IRS for the master non-profit
corporation.
The three (3) individuals who serve as the board of directors for the master non-profit corporation
will also serve as the majority of the board of directors for each subsidiary non-profit corporation
that will be the eventual owner of the separate mobilehome parks. The residents of each
mobilehome park then owned by the subsidiary non-profit corporation will elect two (2) residents
to serve on the board of directors for the subsidiary non-profit corporation. This structure will
ensure(i) representation on the subsidiary non-profit corporation board of directors by the
residents, and (ii) that each mobilehome park stands on its own financially and avoids cross-
collateralization with other mobilehome parks for financing purposes. The automatic appointment
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BJL:GWBaag:04-17-Ol.cdc COMMISSION MEETING AGENDA
MEETING DATE: 04/17/1995
r
Agenda Item Number: `'
ECONOMIC DEVELOPML_ .f AGENCY STAFF REPORT Q
Mobilehome Park Conversion Program
April 11, 1995
Page Number-2-
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of three (3) individuals from the master non-profit corporation to the board of directors of the
subsidiary non-profit corporation provides a consistency of purpose and operations that will
follow through to each of the converted mobilehome parks.
The mobilehome parks that are initially acquired by the Agency and subsequently by the
subsidiary non-profit corporation will have a professional management company that is
experienced in mobilehome park management and operations. The London Group has elected not
to be the management company for any of the mobilehome parks but will continue to represent
the Agency solely as the mobilehome park conversion consultant. The contract with such
management company must comply with the applicable federal tax regulations that limit the term
of such agreements and the method and manner of compensation when used for a project that is
the subject of a tax-exempt financing. Additionally, disclosures will need to be made in the
Official Statement to accompany the sale of the tax-exempt bonds setting forth the qualifications
of the management company and the scope of services. It is necessary to provide a degree of
comfort to the bondholders that competent management will be in place and continue to be
available for the management and operations of the bond financed projects.
The financial audit of each of the three(3) mobilehome parks as conducted by Rogers, Anderson,
Malody& Scott, Agency auditors, indicates that under the current rent levels and occupancy
percentages sufficient moneys are generated to pay all operating expenses and to pay the debt
service on the contemplated tax-exempt bonds. It is proposed that the current rent amounts
remain in effect during the term that the three(3) mobilehome parks are owned by the Agency,
and that rent adjustments, if any, and the disposition of surplus funds be deferred until the
subsidiary non-profit corporation assumes ownership of each mobilehome park and the residents
have a voice on the board of directors as to any such disposition of available surplus funds. The
subsidiary non-profit corporation shall then have discretion, subject to the covenants and terms of
the applicable bond documents, to subsequently reduce rents, pay for additional capital
improvements or pay additional principal reductions on the bonds.
It is anticipated that the initial three(3) mobilehome park acquisitions will actually occur during
the month of May, 1995 upon successful completion of the financings by the issuance of the tax-
exempt bonds and the transfer of title to the Agency. Three (3) additional mobilehome park
acquisitions are currently in the early stages of the due diligence investigations. This second
group of mobilehome park conversions will contain two (2) additional conversions to non-profit
ownership and one(1) conversion to a condominium ownership for purchase of the individual
spaces by each current tenant of their respective spaces.
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BJL:GWB:1ag:04-17-01.cdc COMMISSION MEETING AGENDA
MEETING DATE: 04/17/1995
r-'
Agenda Item Number:
ECONOMIC DEVELOPML. .i AGENCY STAFF REPORT Q
Mobilehome Park Conversion Program
April 11, 1995
Page Number-3-
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Agency staff has determined that H.O.M.E. funds are available in sufficient amounts for the 1994-
95 and the 1995-96 fiscal years to fund both the acquisitions and necessary rehabilitation of the
first three(3) mobilehome parks as indicated in the due diligence reports. The rehabilitation
activities will primarily focus on infrastructure and common area improvements such as street,
utility systems, lighting, landscaping, recreational rooms and laundry facilities. Additionally,
H.O.M.E. funds may be used as loans or grants to the tenant for refurbishing of the individual
coaches and by the park owner, whether it is the Agency or the subsidiary of coaches. Such use
of the H.O.M.E. funds will not adversely impact any other Agency programs or other intended
uses of these funds.
ACTIONS TO BE TAKEN
1. Public hearings must be held pursuant to the federal tax laws prior to undertaking a
financing by a public body of tax-exempt obligations for a 501(c)(3) non-profit
corporation. Qualified 501(c)(3)bonds will be issued by the Agency to fund the original
acquisition, and such bonds will remain in place upon and after acquisition of a particular
mobilehome park by the subsidiary non-profit corporation.
2. Authorize issuance of the qualified 501(c)(3) mortgage revenue bonds to finance the
acquisition of the three(3) mobilehome parks by the Agency.
3. Accept the due diligence reports, and pursuant to Section 5 of the Agreement for
Purchase and Sale, authorize proceeding with the escrow closing subject to the remaining
conditions required to be fulfilled pursuant to Section 6, and in particular, the financing
condition.
4. Authorize the restructuring of the fee agreement with the London Group so that the
conversion fees are not paid from the bond proceeds or as a lump sum amount upon
acquisition, but rather so that said fees are paid from excess cash flow from the acquired
mobilehome parks and from the low- and moderate-income housing fund, as necessary, for
not less than a 60-month period, with interest, with amortized monthly payments of 5%
per annum on the unpaid principal balance subject to prepayment by the Agency at
anytime.
5. Authorize the use of H.O.M.E. funds in an amount equal to $107,000 for Friendly Village,
$179,000 for Tropicana and $325,000 for Orangewood Estates; said amounts will be used
solely for acquisition of the three(3) mobilehome parks and authorize the execution of the
required agreement between the City and Agency.
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BJL:GWB:1ag:04-17-01.cdc COMMISSION MEETING AGENDA
MEETING DATE: 04/17/1995
Agenda Item Number:
ECONOMIC DEVELOPML,.f AGENCY STAFF REPORT
Mobilehome Park Conversion Program
April 11, 1995
Page Number-4-
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Adoption of the Resolutions set forth on the Request for Action form will accomplish the
necessary actions and public approvals and will authorize the Agency to proceed with the next
step in the mobilehome park conversion process.
L �v
BARBARA J. LINDSETH,Acting Director
Economic Development Agency
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BJL:GWB:1ag:04-17-01.cdc COMMISSION MEETING AGENDA
MEETING DATE: 04/17/1995
Agenda Item Number:
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CITY OF SAN BERNARDINO MOBILEIIOME PARK
CONVERSION PROGRAM
DUE DILIGENCE EXECUTIVE SUMMARY
April 17, 1995
i
j
TABLE OF CONTENTS
Section
1.o FRIENDLY VILLAGE
Property Profile
w Map
Due Diligence Executive Summary
Overview-Forecasted Financial Statements
Source and Use Schedule
2.0 TROPICANA
Property Profile
Map
Due Diligence Executive Summary
Overview -Forecasted Financial Statements
Source and Use Schedule
3.0 ORANGEWOOD
Property Profile
Map
Due Diligence Executive Summary
Overview -Forecasted Financial Statements
Source and Use Schedule
APPENDIX
Appendix I Due Diligence Document List
PROPERTY PROFILES
Property Name: Friendly Village
Property Address: 2151 West Rialto Avenue
San Bernardino, CA 92410
Property Phone No: (909) 888-8342
Manager: Brenda& Carl Turner
Park Owner: Alfred A. Montanari, A. Montanari Trust/Barbara Johnson
l Park Owner Address: 1459 West Eight Street
* Upland, CA 91786
Park Owned Since: 1978
1 Park Management Company: J&H Asset Property Management
Park Management Company Address: 22875 Savi Ranch Parkway
i Yorba Linda, CA 92687
1 Park Management Company Phone No: (714) 974-0397
Number Homesites: 85
Average Rents: $305.00
Year Built: 1977
Number of Acres: 9.8
Vacant Homesites: 11
t Vacant Homes: 2
Assessor's Parcel Number: 0142-112-09
Brief description of the property:
This property seems well designed with an appropriate amenity package. The
property is located in a neighborhood where there are several other mobilehome
parks and other types of residential property. All basic services are within a five
mile radius. Area businesses include industrial and retail.
Amenities:
There is an 1,800 square foot clubhouse with a kitchen, reading/card room, and
billiards area. There is a heated pool, a small laundry room and a playground.
Brief description of the homes:
Homes in the property are mostly doublewides with attached carports and
concrete driveways. Most homes have wood-like siding and pitched rooflines.
There are specific architectural guidelines for new homes brought into the park.
_l Despite the better quality homes, there is poor quality landscaping and a below
average pride of ownership.
Specific information contained on this page should be relied upon for decision making purposes only after
independent verification and is subject to assumptions and limitations on the first page.
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FRIENDLY VILLAGE MOBILEHOME PARK
Agreement for Purchase and Sale
In accordance with The London Group Mobilehome Park Conversion Feasibility Study
dated November 30, 1993 Friendly Village Mobilehome Park was designated as a
Category I park. Category I parks are those which were identified as being appropriate
for resident ownership and/or control via a condominium or 501(c)(3) form of ownership.
This park is most suitable to a 501(c)(3) acquisition and operating structure. On February
28, 1995, pursuant to prior Commission authorization and utilizing the standard form
agreement prepared by Agency Counsel, an Agreement for Purchase and Sale
(Agreement) was executed for the purpose of Agency acquisition of this property. After
execution of the Agreement, escrow was opened with Commonwealth Land Title
Company, Escrow Number 13821.005, and the due diligence process was commenced.
Due Diligence
A comprehensive physical plant, legal and financial due diligence was conducted on this
property. Inspections and document reviews were performed by industry professionals
who specialize in their fields. These professionals include an MAI and State of California
Certified General Real Estate Appraiser, certified public accountants currently engaged
by the Agency, City of San Bernardino Fire Department, State of California Registered
Environmental Assessor and Scientists, State of California Certified Asbestos Consultant,
City of San Bernardino General Building Inspector, Agency Counsel, State of California
Registered Civil Engineers, State of California Licensed General Engineering Contractor,
and a State of California licensed Land Surveyor. Attached as Appendix I is a list
detailing the documents and information requested of the seller for review. This list
represents an ideal for seller provided documentation, although it is rare that all items
listed can be obtained particularly on a property over ten years of age. There were no
engineering or environmental inspections or reports available. The property owners and
management company provided most of the other documents requested, and the due
diligence was completed based upon the documents as provided as well as site
inspections, review of official governmental records and reconstruction of documents as
necessary. These inspections and reviews were coordinated and the results jointly
analyzed by The London Group and the respective service providers to determine
whether any conditions exist which would warrant further investigation or cause the
property to be not acceptable for acquisition by the Agency.
+*� Due Diligence:
• ALTA Survey
i • Appraisal
5 �
• Audit Review
• Auditors Income and Expense Projections
"ry • Environmental Assessment: Phase I and Asbestos/Lead Survey
• Fire Safety Inspection
• Legal Review
• Physical Plant Engineering
• Reserve Analysis
• Structural Pest Inspection
• Title 25 Inspection
! Findings and Recommendations
The results of draft reports and other information received as a result of the due diligence
inspections and reviews indicate that other than nominal compliance issues and repairs
there are no significant problems which would preclude acquisition of the property by
i the Agency. The physical plant engineering inspection recommends several repairs and/or
reviews be done. Most are not listed as deferred maintenance but rather as items which if
done would bring those areas identified into ideal conditions immediately or at a
minimum should be funded through a reserve account for future replacement. Exceptions
to this include work on electrical panels, electrical pedestals, street lights and other minor
miscellaneous repairs at an estimated cost of$8,000. The property management company
w representative indicated there are no capital improvements or extraordinary expense items
scheduled for 1995; however, he suggested giving consideration to pool resurfacing this
summer at an estimated cost of$4,000 and slurry coating the streets/pavement in 1996 as
a prudent preventive maintenance measure. The estimated cost of this work plus re-
w
striping is approximately $8,000. The physical plant engineering also recommended the
same work on the streets. The projected operating budget should cover any on-going
t maintenance items needed and the reserve analysis report will detail appropriate reserve
requirements for any major repairs required in future years. The environmental
assessment and asbestos survey indicates the limited presence of asbestos containing
materials in the linoleum flooring in several locations in the clubhouse. It is very typical
�. of buildings which were constructed prior to 1980. One option is that these materials be
removed in accordance with California-OSHA regulations and South Coast Air Quality
Management Rule 1403. The estimated cost of abatement and replacement is
approximately $5,200. An alternative to this expenditure would be to leave the asbestos
Mi containing materials in place and conduct ongoing environmental monitoring of such
materials through a formal Operations and Maintenance Program. This is an acceptable
alternative because, according to the environmental assessment, all of the materials are
presently nonfriable with a low potential for disturbance. The annual operating cost to
implement an acceptable environmental monitoring program for any retained asbestos
could be approximately $1,200 per year. The asbestos survey reported that there is the
potential for roofing materials to contain asbestos. These were not sampled at the time of
the original survey due to their location. It has been requested that these materials be
0
sampled and results of the sampling will be available within the next two days. Termite
inspections are also being completed on the property common area buildings. All of the
items listed above have been discussed with the owner's representative and will be
repaired prior to closing or negotiated in the pricing.
Authorization to Proceed
The London Group therefore requests that the Commission exercise "the election to
proceed" with the purchase in accordance with Section 5 Paragraph 5.3 of the Agreement
* and authorize proceeding with consummation of the transaction in accordance with
Section 6, entitled "Conditions of Closing of Buyer", including, but not limited to,
Paragraph 6.9 thereof, entitled "Financing". Said paragraph provides that the escrow
closing is further conditioned upon having obtained satisfactory financing by the Agency
�1 for the actual acquisition of the property. This request for authorization to proceed is
made subject to any remaining items of compliance which shall be resolved to the
satisfaction of Agency Staff, Agency Counsel and The London Group prior to closing.
R
Overview-Forecasted Financial Statements
As previously noted, the financial records were subject to a detailed review and
analysis for the three year period immediately preceding the contemplated purchase
date of Friendly Village.Furthermore,based on all available information,Forecasted
Financial Statements were prepared by the Agency's auditors,Rogers,Anderson,Malody
& Scott,for the years ending December 31, 1995, 1996,and 1997. These forecasts are
included herein for your review.
In reviewing these forecasts a number of significant points are apparent:
• The current average rent of$ 305.00 per space shall not increase. Increases in
total annual rental income are derived only as a result of a conservative vacancy
fill rate of one space per quarter at the existing average rental rate (historically
lower than current fill rates for the Park).
• Without increasing rents, sufficient rental income is produced to pay all
operating expenses, including inflationary operating expense increases at the
rate of three percent per annum.
• Without increasing rents, sufficient rental income is produced to pay all
principal and interest debt obligations,which obligations are based on a debt
service coverage of a 1.2 to 1.0 ratio of net operating income compared to bond
indebtedness.
• Without increasing rents, there will exist positive cash flow forecasted at
'1 $273,000.00 cumulative,thru the period ending December 31, 1997.
As a final note, The London Group was able to structure the acquisition to provide
$90,000.00 in lease guarantees and $210,000.00 in capital reserves.
�r
FRIENDLY VILLAGE MOBILEHOME ESTATES
FORECASTED STATEMENT OF REVENUE AND EXPENSES BEFORE
Ir DEPRECIATION AND PROPERTY TAX
FOR THE YEARS ENDING DECEMBER 31. 1995, 1996 AND 1997
i
t
DONALD L.ROGERS.C.P.A.
DENNIS H.MALODY 11,C.P.A.
JAY H.ZERCHER,C.P.A.
WILLIAM E.REINEKING,C.P.A.
ROBERT B.MEMORY,C.P.A.
THOMAS V.HESS.C.P.A.
ROGERS, ANDERSON, MALODY & SCOTT PHILLIP H.WALLER,C.P.A.
CERTIFIED PUBLIC ACCOUNTANTS
NANCY O-RAFFERTY,C.P.A.
CYNTHIA L.SAKS,C.P.A.
BRIAN W.TOMPKINS.C.P.A.
BRENDA L ODLE.C.P.A.
LEENA SHANBHAG,C-PA.
LINDA L WOODRUFF,C.P.A.
LORI ANN KUNTZ,GP.A.
KATHLEEN L DEVALK C.P.A.
RICHARD A.LOCKWOOD.C.P.A.
CHARLES E.PALOOICHUK.C.PA
UNH N.LOU,C.P.A.
LAURIE K MARSCHER,C.P.A.
To the Board of Directors
The London Group
San Bernardino, California
We have compiled the accompanying forecasted statement of revenue-and expenses
before depreciation and property tax expense of Friendly Village Mobilehome
Estates for the years ending December 31, 1995, 1996 and 1997, in accordance with
guidelines established by the American Institute of Certified Public Accountants.
The accompanying forecasted schedule presents, to the best of management's
knowledge and belief, the revenue and expenses before depreciation and property
tax expense of Friendly Village Mobilehome Estates for the forecast period. It
is not intended to be a forecast of financial position, results of operations or
cash flows. The accompanying forecasted schedule and this report were prepared
for the City of San Bernardino for the purpose of negotiating a proposed plan to
provide for the purchase of Friendly Village Mobilehome Estates and should not
be used for any other purpose.
■ A compilation is l i mi ted to presenting in the form of a forecast information that
is the representation of management and does not include evaluation of the
support for the assumptions underlying the forecast. We have not examined the
forecasts and, accordingly, do not express an opinion or any other form of
assurance on the accompanying statements or assumptions. Furthermore, there will
usually be differences between the forecasted and actual results, because events
and circumstances frequently do not occur as expected, and those differences may
be material . We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
scoot`
March 30, 1995
MEMBERS
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
PRIVATE COMPANIES PRACTICE SECTION
OF THE DIVISION FOR CPA FIRMS VANIR TOWER 290 NORTH'D'STREET SUITE 300
PAI fcncuu cnP.v nc SAN BERNARDINO,CA 92401
FRIENDLY VILLAGE MOBILEHOME ESTA(ES
FORECASTED STATEMENT OF REVENUE AND EXPENSES
BEFORE D€PRECIATION AND PROPERTY TAX EXPENSE
FOR THE YEARS ENDING DECEMBER 31. 1995. 1996 AND 1997
1995 1996 1997 Total
Rental income S 259,308 298,722 304,532 862,562
Utilities 27,390 28.212 29.058 84.660
Total Revenues 286,698 326,934 333,590 941.222
Property management fee 9,076 10,455 10,659 30,190
Utilities 46,558 47,955 49,392 143,905
Landscape 294 303 312 909
Pool and.spa 1,097 1,130 1,164 3,391
Advertising 390 402 414 1,206
Licenses and permits 3,812 3,926 4,044 119:782
Legal and accounting 4,944 5,092 5,245 15,281
Insurance 5,560 5,727 5,899 17,186
Billing service 873 899 926 2,698
Repairs and maintenance 4,165 4,290 4,419 12,874
Equipment rental 57 59 60 176
Office 2,042 2,103 2,166 6,311
Bank charges 63 65 67 195
i Salaries 17,055 17,567 18,094 52,716
Payroll taxes 2,442 2,515 2,591 7,548
Workers' comp 1,292 1,331 1,371 3,994
Telephone 1,152 1,187 1,222 3,561
Tenant activities 500 515 530 1,545
Total Expenses 101,372 105,521 108,575 315,468
Net Revenue Over Expenses Before Debt
Service, Depreciation and Property
Tax 185,326 221,413 225,015 631,754
Debt Service 185.000 185.000 185.000 555.000
326 36,413 40,015 76,754
Lease guarantee 40.000 50.000 - 90.000
Net Expenses Over Revenue Before
Depreciation and Property Tax ( 39,674) ( 13,587) 40,015 ( 13,246)
Cash Reserve 300,000 260.326 246,739 286.754
Net Cash Reserve 260 326 246 739 286 754 2731.508
See summary of significant assumptions and accounting policies and accountants report.
fi
FRIENDLY VILLAGE MOBILEHOME ESTATES
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES
NOTE A: NATURE OF THE FORECASTS
1 This financial forecast presents, to the best of management's knowledge and
belief, the Company's expected net revenue over expenses before depreication and property
tax expense for the forecast period. Accordingly, the forecasts reflects its judgement
as of March 30, 1995, the date of this forecast, of the expected conditions and its
expected course of action. The assumptions disclosed herein are those that management
believes are significant to the forecast. There will usually be differences between the
FA forecasted and actual results, because events and circumstances frequently do not occur
as expected, and those differences may be material .
NOTE B: NATURE OF OPERATIONS DURING THE FORECAST PERIOD
The mobile home park is made up of 85 mobile home pads. At the time of this
forecast there were twelve vacancies. It is management's opinion that the vacancies will
be filled at the rate of two per quarter with 100%. occupancy anticipated in 1996.
NOTE C: REVENUE
The accompanying forecast assumes that rental revenue, at an average of $305
per pad space per month, will remain the same throughout the forecasted period. The
increase in rental income from year to year is due to the fill rate discussed in Note B
above.
Management feels that there will be a 91: collection rate of rent and
utilities for 1995 and an increase to 98% for 1996 and 1997.
NOTE 0: EXPENSES
a Yr"
The following summarizes significant assumptions for forecasted major
"7 expenses:
r� 1. Salaries are paid to the on-site managers
■ 2. Legal expense is based on management's anticipated costs associated
with delinquent renters.
3. Management fee is determined at a rate 3.5% of gross rental income.
An inflation factor of 3.0%, based on the consumer price index figure
for January 1995, has been taken into consideration on all of the
expenses stated above.
1
FRIENDLY VILLAGE MOBILEHOME ESTATES
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES
NOTE D: EXPENSES (continued)
All other expenses included in these forecasted financial statements are
based on 1994 actual expenses increased by an inflation factor of 3.05..
Lease guarantee is a broker fee based on vacant spaces filled. The broker
will receive $5,000 per space after it has been occupied for 90 days.
Property tax expense has not been reflected in these forecasts due to the
Company filing as a Code Section 501(c)(3) organization. The Company will be exempt from
paying property taxes on pads rented to low income individuals. The average cost of
property taxes based on the last three years is $14,300.
1
Source and Use Schedule
Friendly Village
Phase I-Agency Aquisition
Use Of Funds w _
Purchase Price: $1,700,000
Lease-up Guarantee: $90,000
Capital Account: $210,000
Real Property Closing Costs: $25,000
Underwriters Discount: $57,000
Bond Costs of Issuance: $80,000
Debt Service Reserve Fund: $190,000
Total $2,352,000
Source Of Funds
Bond Proceeds: ($2,245,000)
Home Funds: ($107,000)
Total: ($2,352,000)
Phase ll-Agency Sale to 501(c)(3)
Use Of Funds
Purchase Price $2,352,000 y
Initial Agency Expenses: $30,000
Total: $2,382,000
Source Of Funds
Assumption Of Bond: ($2,245,000)
Assumption of Home Funds: ($107,000)
Reimbursement of Agency(Optional): ($30,000)
Total: ($2,382,000)
Final Agency Investment: $0
PROPERTYPROFILES
Property Name: Tropicana
Property Address: 721 East 9th Street
San Bernardino, CA 92410
Property Phone No: (909) 884-1612
Manager: Charles&Lois Divine
Park Owner: J-Mar Apartment, a California General Partnership
Park Owner Address: 276 Argonne Avenue
Long Beach, CA 90803
Park Owned Since: 1985
Park Management Company: Owner Managed
Park Management Company Address: N/A
Park Management Company Phone No: N/A
Number Homesites: 146
Average Rents: $259.00
Year Built: 1973
Number of Acres: 8.6
Vacant Homesites: 7
Vacant Homes: 6
Assessor's Parcel Number: 0278-171-10,13
Brief description of the property:
This is a large older park with no common area landscaping and streets in good
repair. Adjacent land use includes two other mobilehome parks, a large vacant
field, a flood control basin and RV storage lot. All basic services are within a
five mile radius of the property. Area businesses include retail, fast food chains,
services, transportation service centers, and a large discount store.
Amenities:
There is a pool, an indoor Jacuzzi, laundry room, car wash area, two basketball
hoops and a gazebo with a picnic table.
Specific information contained on this page should be relied upon for decision making purposes only after
independent verification and is subject to assumptions and limitations on the first page.
1
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TROPICANA MOBILEHOME ESTATES
Agreement for Purchase and Sale
1
In accordance with The London Group Mobilehome Park Conversion Feasibility Study
■ dated November 30, 1993 Tropicana Mobilehome Estates was designated as a Category I
park. Category I parks are those which were identified as being appropriate for resident
ownership and/or control via a condominium or 501(c)(3) form of ownership. This park
is most suitable to a 501(c)(3) acquisition and operating structure. On October 28, 1994,
pursuant to prior Commission authorization and utilizing the standard form agreement
prepared by Agency Counsel, an Agreement for Purchase and Sale (Agreement) was
executed for the purpose of Agency acquisition of this property. After execution of the
Agreement, escrow was opened with First American Title Insurance Company, Escrow
r.
Number 72.349A, and the due diligence process was commenced.
Due Diligence
A comprehensive physical plant, legal and financial due diligence was conducted on this
IP
property. Inspections and document reviews were performed by industry professionals
who specialize in their fields. These professionals include an MAI and State of California
Certified General Real Estate A pp raiser, certified public accountants currently engaged
by the Agency, City of San Bernardino Fire Department, State of California Registered
1 V Environmental Assessor and Scientists, State of California Certified Asbestos Consultant,
City of San Bernardino General Building Inspector, Agency Counsel, State of California
Registered Civil Engineers, State of California Licensed General Engineering Contractor,
and a State of California licensed Land Surveyor. Attached as Appendix I is a list
detailing the documents and information requested of the seller for review. This list
■ represents an ideal for seller provided documentation, although it is rare that all items
listed can be obtained particularly on a property over ten years old. There were no as-built
plans, and other engineering or environmental inspections or reports were not available.
The property owner provided some of the other basic documents requested, and the due
diligence was completed based upon the documents as provided as well as site
inspections, review of official governmental records and reconstruction of documents as
necessary. With respect to financial information, no recent formal income and expense or
other related reports have been prepared by the owners; however, through the auditor's
additional document requests and detailed reconciliation with tax statements and banking
records, enough information was made available to satisfactorily verify cash flow and
expenses on this property. These inspections and reviews were coordinated and the
results jointly analyzed by The London Group and the respective service providers to
determine whether any conditions exist which would warrant further investigation or
cause the property to be not acceptable for acquisition by the Agency.
■
Due Diligence:
• ALTA Survey
• Appraisal
• Audit Review
• Auditors Income and Expense Projections
• Environmental Assessment: Phase I and Asbestos/Lead Survey
• Fire Safety Inspection
• Legal Review
r • Physical Plant Engineering
• Reserve Analysis
• Structural Pest Inspection
' 0 Title 25 Inspection
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Findings and Recommendations
The results of draft reports and other information received as a result of the due diligence
inspections and reviews indicate that other than nominal compliance issues and repairs
there are no significant problems which should preclude acquisition of the property by
the Agency. The physical plant engineering inspection recommends that several repairs
and/or reviews be done. Most are not listed as deferred maintenance but rather as items
which if done would bring those areas identified into ideal conditions immediately or at a
minimum should be funded through a reserve account for future replacement. Exceptions
to this include replacement of broken glass windows at electrical meters and missing
electrical pedestal covers estimated to cost $500, replacement of catch basin grate
estimated to cost $200, street pavement crack repairs estimated to cost $1,000 and
installation of a fire extinguisher in the laundry room estimated to cost $100. These are
1 , all items which should be done now. A list of these items has been provided to the seller
and the seller has agreed to make all corrections prior to closing. The report also
recommends flushing of the sanitary sewer system semi-annually. Based upon prior
history of street repairs and as a prudent preventive maintenance item a street pavement
slurry seal and re-striping of parking areas, to include signing and striping of fire lanes,
should be scheduled for some time in 1996 at an estimated reserve funded cost of$8,000.
Other items listed are recommendations which would also be funded through a reserve
account. These include installation of standby emergency power for the sewage pump
station at an estimated cost of $21,000 and re-roofing the spa building at an estimated
cost of$1,140. This recommendation represents outfitting the existing equipment with an
optimum back-up system. Current conditions indicate this is not a necessity, it is
however, an item which could be funded through reserves as a future capital
improvement expenditure. The projected operating budget should cover any maintenance
items needed and the reserve analysis report will detail appropriate reserve requirements
for any major repairs required in future years. The environmental assessment and asbestos
1 survey indicates the limited presence of asbestos containing materials in the following
common area locations: vinyl floor tile and black mastic, wall paint and roof mastic in the
■
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laundry room and wall paint in the spa room. It is very typical of buildings which were
constructed prior to 1980. One option is that these materials be removed in accordance
with California-OSHA regulations and South Coast Air Quality Management Rule 1403.
■ The estimated cost of abatement and replacement is approximately $27,200. An
alternative to this expenditure would be to leave the asbestos containing materials in
place and conduct ongoing environmental monitoring of such materials through a formal
Operations and Maintenance Program. This is an acceptable alternative because,
according to the environmental assessment, all of the materials are presently nonfriable
with a low to moderate potential for disturbance. The exception to this is the laundry
room roof which is reported to be leaking and will require replacement now. The annual
operating cost to implement an acceptable environmental monitoring program for any
retained asbestos could be approximately $1,800 to $2,400. The asbestos survey reported
that there is the potential for the spa building roofing materials to contain asbestos. These
were not sampled at the time of the original survey due to their location. It has been
iw. requested that these materials be sampled and results of the sampling will be available
within the next two days. Termite inspections are also being completed on the property
common area buildings. Environmental issues and potential termite findings have been
discussed with the seller and corrections will be made or approprite adjustments in the
purchase price will be made prior to closing.
op
Authorization to Proceed
The London Group therefore requests that the Commission exercise "the election to
proceed" with the purchase in accordance with Section 5 Paragraph 5.3 of the Agreement
and authorize proceeding with consummation of the transaction in accordance with
Section 6, entitled "Conditions of Closing of Buyer", including, but not limited to,
■ Paragraph 6.9 thereof, entitled "Financing". Said paragraph provides that the escrow
closing is further conditioned upon having obtained satisfactory financing by the Agency
for the actual acquisition of the property. This request for authorization to proceed is
made subject to any remaining items of compliance and negotiation of those identified
repair issues which shall be resolved to the satisfaction of Agency Staff, Agency Counsel
and The London Group prior to closing.
■
Overview Forecasted Financial Statements
As previously noted, the financial records were subject to a detailed review and
analysis for the three year period immediately preceding the contemplated purchase
date of Tropicana Mobile Home Estates.Furthermore, based on all available
information,Forecasted Financial Statements were prepared by the Agency's auditors,
Rogers,Anderson,Malody& Scott ,for the years ending December 31, 1995, 1996,and
1997. These forecasts are included herein for your review.
In reviewing these forecasts a number of significant points are apparent:
• The current average rent of$259.00 per space shall not increase. Increases in
total annual rental income are derived only as a result of a conservative vacancy
fill rate of one space per quarter at the existing average rental rate (historically
lower than current fill rates for the Park).
• Without increasing rents, sufficient rental income is produced to pay all
operating expenses, including inflationary operating expense increases at the
rate of three percent per annum.
• Without increasing rents, sufficient rental income is produced to pay all
principal and interest debt obligations,which obligations are based on a debt
service coverage of a 1.2 to 1.0 ratio of net operating income compared to bond
indebtedness.
• Without increasing rents, there will exist positive cash flow forecasted at
$155,978.00 cumulative,thru the period ending December 31, 1997.
As a final note, The London Group was able to negotiate a seller carry back loan, in
the form of a second deed of trust in the amount of$100,000.00, fully amortized over
ten years, and payable at the simple interest rate of 6% per annum. This resulted
in significant economic savings of approximately $120,000.00 over term, by way of
obviating the need to issue a subordinate bond with associated costs of issuance and
higher annual interest rates.
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� ry
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TROPICANA MOBILE HOME ESTATES
FORECASTED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
r
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in]F DONALD L.ROGERS,C.P.A.
DENNIS H.MALODY U.C.P.A.
JAY H.ZERCHER,C.P.A.
WILLIAM E.REINEKING,C.P.A-
ROBERT B.MEMORY,C.P.A.
THOMAS V.HESS,C.P.A.
ROGERS, ANDERSON, MALODY &SCOTT PHILLIP H.WALLER.C_P-A.
CERTIFIED PUBLIC ACCOUNTANTS
NANCY O-RAFFERTY,C.P.A.
CYNTHIA L SAKS.C.P.A.
BRIAN W.TOMPKINS.C-PA
BRENDA L ODLE.C.PA
LEENA SHANBHAG,C.P.A.
UNDA L WOODRUFF.C.PA
LORI ANN KUNTZ.C.P.A.
KATHLEEN L DEVALK,C.PA
RICHARD A.LOCKWOOD.C.P.A.
CHARLES E.PALOOICHUK,CPA
UNH N.UU,C.PA
,• LAURIE K.MARSCNER.C.P.A.
To the Board of Directors
The London Group
San Bernardino, California
We have compiled the accompanying forecasted statement of revenue and expenses
' before depreciation and property tax expense of Tropicana Mobile Home Estates for
the years ending December 31, 1995, 1996 and 1991, in accordance with guidelines
established by the American Institute of Certified Public Accountants.
The accompanying forecasted schedule presents, to the best of management's
knowledge and belief, the revenue and expenses before depreciation and property
tax expense of Tropicana Mobile Home Estates for the forecast period. It is not
intended to be a forecast of financial position, results of operations, or cash
flows. The accompanying forecasted schedule and this report were prepared for
the City of San Bernardino for the purpose of negotiating a proposed plan to
provide for the purchase of Tropicana Mobile Home Estates and should not be used
for any other purpose.
A compilation is limited to presenting in the form of a forecast information that
is the representation of management and does not include evaluation of the
W support for the assumptions underlying the forecast. We have not examined the
forecasts and, accordingly, do not express an opinion or any other form of
assurance on the accompanying statements or assumptions. Furthermore, there will
' usually be differences between the forecasted and actual results, because events
and circumstances frequently do not occur as expected, and those differences may
be material. We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
�
March 29 1995 ��t/G'�►�G���yrt �'
a�d
MEMBERS
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
PRIVATE COMPANIES PRACTICE SECTION
OF THE DIVISION FOR CPA FIRMS VANIR TOWER 290 NORTH'D'STREET SUITE 300
TROPICANA MOBILE HOME ESTATES
FORECASTED STATEMENT OF REVENUE AND EXPENSES
BEFORE DEPRECIATION AND PROPERTY TAX EXPENSE
FOR THE YEARS ENDED DECEMBER 31 1995, 1996 AND 1997
�1 1 95 1996 1997 Total
w.
Rental Income 423,576 440,101 444,168 1,307,845
Utilities 5,9.468 61.884 63.741 185,093
Total Revenue 483.044 501,985 507.909 1.492,938
Insurance 9,991 10,291 10,599 30,881
Repairs 19,085 19,657 20,247 58,989
1 Utilities 48,034 49,475 50,959 148,468
Wages . 30,462 31,376 32,317 94,155
Supplies 16,952 17,460 17,984 52,396
Management fee 14,573 15,152 15,294 45019
Trash removal 26,346 27.137 27,951 81.434
Total Expenses 165,443 170.548 175,351 511.342
Net Revenue Over Expenses Before
Debt Service, Depreciation and
Property Taxes 317.601 331.437 332,558 981,596
� y Senior Debt Service 262,000 262,000 262,000 786,000
Sub-ordinate Debt Service 13,206 13,206 13.206 39.618
' Total Debt Service 275,206 275,206 275.206 825,618
Net Expenses Over Revenues Before
Depreciation and Property Taxes 42,395 56,231 57,352 155,978
r
1
See summary of significant assumptions and accounting policies and accountants report.
! TROPICANA MOBILE HOME ESTATES
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES
NOTE A: NATURE OF THE FORECASTS
This financial forecast presents, to the best of management's knowledge and
belief, the Company's expected net revenue over expenses for the forecast period.
Accordingly, the forecast reflects its judgment as of March 29, 1995, the date of this
forecast, of the expected conditions and its expected course of action. The assumptions
disclosed herein are those that management believes are significant to the forecast.
There will usually be differences between the forecasted and actual results, because
events and circumstances frequently do not occur as expected, and those differences may
be material .
NOTE B: NATURE OF OPERATIONS DURING THE FORECAST PERIOD
The mobile home park is made up of 146 mobile home pads. At the time of
this forecast there were eight vacancies. It is management's opinion that the vacancies
will be filled at the rate of one per quarter with 100% occupancy for 1997.
The Company maintains their books on the cash basis of accounting. This
method is used for these forecasted statements.
NOTE C: REVENUE
The accompanying forecast assumes that rental revenue, at an average of $259
per pad space per month, will remain the same after 1996. The rental income is less for
1995 and 1996 due to the fill rate discussed in Note B above.
Management feels that there will be a 97% collection rate of rent and
utilities for 1995 and an increase to 98% for 1996 and 1997.
NOTE D: EXPENSES
The following summarizes significant assumptions for forecasted expenses:
1. Salaries are paid to the on-site managers
2. Repairs, utilities, supplies and trash removal have been calculated
based on the average actual cost of these items for 1992, 1993 and
1994.
3. Insurance expense is based on the actual amount paid in 1994 due to a
large fluctuation in previous years.
An inflation factor of 3%, based on the consumer price index figure
for January 1995, has been taken into consideration on all of the
! expenses stated above.
.r
' TROPICANA MOBILE NOME ESTATES
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES
NOTE D: EXPENSES (continued)
4. Management fee is determined at a rate of 3.5: of gross rental income.
This fee is for off-site management.
Property tax expense has not been reflected in these forecasts due to the
Company f i 1 i ng as a Code Secti on 501(c)(3) organi zati on. The Company wi 11 be exempt f rom
paying property taxes on pads rented to low income individuals. The average cost of
property taxes based on the last three years is $29,000.
NOTE E: DEBT SERVICE
Senior debt service is made up of the bond issue amortized over 30 years at
Sub-ordinate debt service is a second trust deed amortized over 10 years at
$1,105 per month.
1
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Source and Use Schedule
Tropicana
Phase I-Agency Aquisition
Use Of Funds
Purchase Price: $3,000,000
Real Property Closing Costs: $25,000
Underwriters Discount: $78,000
Bond Costs of Issuance: $80,000
P Debt Service Reserve Fund: $266,000
Total: $3,449,000
Source Of Funds
Bond Proceeds: ($3,170,000)
R Seller Assisted Financing: ($100,000)
Home Funds: ($179,000)
Total: ($3,449,000)
Phase II- Agency Sale to 501(c)(3)
Use Of Funds
Purchase Price: $3,449,000
Initial Agency Expenses: $30,000
Total: $3,479,000
Source Of Funds
Ilk Assumption Of Bond:
p ($3,170,000)
Assumption of Seller Financing: ($100,000)
Assumption of Home Funds: ($179,000)
Reimbursement of Agency(Optional): ($30,000)
Total: ($3,479,000)
Final Agency Investment: $0
0
PROPERTY PROFILES
Property Name: Orangewood
Property Address: 2160 West Rialto Avenue
San Bernardino, CA 92410
Property Phone No: (909) 885-5703
Manager: Helen Webb
Park Owner: Beth Lewis
® Park Owner Address: 14670 Highway 108
Jamestown, CA 95327
Park Owned Since: 1989
Park Management Company: Bessire& Casenhiser
Park Management Company Address: 725 Brea Canyon Road, Suite 6
Walnut, CA 91789
Park Management Company Phone No: (909) 594-0501
Number Homesites: 155
Average Rents: $257.00
Year Built: 1958
Number of Acres: 13.04
Vacant Homesites: 17
Vacant Homes: 4
Assessor's Parcel Number: 0142-111-05,06
Brief description of the property:
This older property was formerly a senior property but is now open to families.
The streets are in good condition. Common area landscaping is average plain and
simple. The adjacent land uses include four other mobilehome parks and
undeveloped land. All basic services are within a one mile radius of the property.
Area businesses include retail, light industrial, manufacturing and transportation
services.
Amenities:
There is a 1,500 square foot clubhouse containing a meeting hall, kitchen, and
billiards area. Two smaller attached buildings house a laundry room, maintenance,
restrooms and office. There is another laundry room located on the other side of
the property for resident convenience. There is one heated pool. An RV storage
lot can accommodate an estimate 12 Rvs. There is a car wash area.
Specific information contained on this page should be relied upon for decision making purposes only after
independent verification and is subject to assumptions and limitations on the first page.
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ORANGEWOOD MOBILE ESTATES
Agreement for Purchase and Sale
In accordance with The London Group Mobilehome Park Conversion Feasibility Study
dated November 30, 1993 Orangewood Mobile Estates was designated as a Category I
park. Category I parks are those which were identified as being appropriate for resident
y ownership and/or control via a condominium or 501(c)(3) form of ownership. This park
is most suitable to a 501(c)(3) acquisition and operating structure. On November 16,
1994, pursuant to prior Commission authorization and utilizing the standard form
agreement prepared by Agency Counsel, an Agreement for Purchase and Sale
(Agreement) was executed for the purpose of Agency acquisition of this property. After
execution of the Agreement, escrow was opened with First American Title Insurance
Company, Escrow Number 72.35OA, and the due diligence process was commenced.
Due Diligence
A comprehensive physical plant, legal and financial due diligence was conducted on this
property. Inspections and document reviews were performed by industry professionals
who specialize in their fields. These professionals include an MAI and State of California
Certified General Real Estate Appraiser, certified public accountants currently engaged
by the Agency, City of San Bernardino Fire Department, State of California Registered
Environmental Assessor and Scientists, State of California Certified Asbestos Consultant,
City of San Bernardino General Building Inspector, Agency Counsel, State of California
Registered Civil Engineers, State of California Licensed General Engineering Contractor,
and a State of California licensed Land Surveyor. Attached as Appendix I is a list
a detailing the documents and information requested of the seller for review. This list
represents an ideal for seller provided documentation, although it is rare that all items
listed can be obtained particularly on a property over ten years old. There were no as-built
plans, and other engineering or environmental inspections or reports were not available.
The property management company provided most of the remaining basic documents
requested, and the due diligence was completed based upon the documents as provided as
well as site inspections, review of official governmental records and reconstruction of
documents as necessary. These inspections and reviews were coordinated and the results
jointly analyzed by The London Group and the respective service providers to determine
whether any conditions exist which would warrant further investigation or follow-up.
Due Diligence:
• ALTA Survey
• Appraisal
• Audit Review
• Auditors Income and Expense Projections
• Environmental Assessment: Phase I and Asbestos/Lead Survey
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• Fire Safety Inspection
• Legal Review
• Physical Plant Engineering
• Reserve Analysis
• Structural Pest Inspection
• Title 25 Inspection
Findings and Recommendations
The results of draft reports and other information received as a result of the due diligence
inspections and reviews indicate that other than nominal compliance issues and repairs
there are no significant problems which should preclude acquisition of the property by
the Agency. The physical plant engineering inspection recommends several repairs and/or
a reviews be done. Most are not listed as deferred maintenance but rather as items which if
done would bring those areas identified into ideal conditions immediately or at a
minimum should be funded through a reserve account for future replacement. Exceptions
to this include street pavement crack repairs estimated to cost $2,200, water pressure
testing of lines estimated to cost $300 and cleaning catch basins and flushing storm lines
estimated to cost $500. These are all items which should be done now. Based upon prior
history of street repairs and as a prudent preventive maintenance item a street pavement
slurry seal at an estimated cost of $6,800 should be scheduled for some time in 1996.
This information has been confirmed in discussions with the property management
�1 company representative. Other items listed are recommendations which would be funded
through a reserve account,these include the following: completely upgrade street lighting
estimated to cost $35,000, re-grade RV parking lot estimated to cost $3,200, pool deck
repairs estimated to cost $1,000, investigate lateral force stability of main recreation
building estimated to cost $2,000 study feasibility of water line modifications to increase
flow to homes and proposed on-site fire hydrants and upgrade fire protection system
through installation of fire hydrants estimated to cost $3,500. Due to the type of gas
system in the park it is recommended that reserves be funded so that should it become
necessary to replace the system money is available to do so. The estimated cost of a
complete replacement of the metal pipe gas system with PVC is estimated to be between
$141,180 to $187,200. The projected operating budget should cover any on-going
wi maintenance items needed and the reserve analysis report will detail appropriate reserve
requirements for the items listed above and any other major repairs required in future
years. The environmental assessment and asbestos survey indicates the limited presence
of asbestos containing materials in the following common area locations: linoleum
flooring in several locations in the common area buildings. It is very typical of buildings
which were constructed prior to 1980. One option is that these materials be removed in
accordance with California-OSHA regulations and South Coast Air Quality Management
Rule 1403. The estimated cost of abatement and replacement is approximately $5,500.
An alternative to this expenditure would be to leave the asbestos containing materials in
place and conduct ongoing environmental monitoring of such materials through a formal
Operations and Maintenance Program. This is an acceptable alternative because,
according to the environmental assessment, all of the materials are presently nonfriable
with a low potential for disturbance. The annual operating cost to implement an
acceptable environmental monitoring program for any retained asbestos could be
approximately $1,200. The asbestos survey reported that there is the potential for
common area building roofing materials to contain asbestos. These were not sampled at
the time of the original survey due to their location. It has been requested that these
materials be sampled and results of the sampling will be available within the next two
days. Termite inspections are also being completed on the property common area
w buildings. All items listed above, including reserve items, have been resolved in a price
reduction which has already been negotiated with the owner.
Authorization to Proceed
The London Group therefore requests that the Commission exercise "the election to
proceed" with the purchase in accordance with Section 5 Paragraph 5.3 of the Agreement
and authorize proceeding with consummation of the transaction in accordance with
W Section 6, entitled "Conditions of Closing of Buyer", including, but not limited to,
Paragraph 6.9 thereof, entitled "Financing". Said paragraph provides that the escrow
closing is further conditioned upon having obtained satisfactory financing by the Agency
for the actual acquisition of the property. This request for authorization to proceed is
made subject to any remaining items of compliance which shall be resolved to the
satisfaction of Agency Staff,Agency Counsel and The London Group prior to closing.
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Overview-Forecasted Financial Statements
As previously noted the financial records were subject to a detailed review and
analysis for the three year period immediately preceding the contemplated purchase
date of Orangewood Estates Mobilehome park.Furthermore,based on all available
information,Forecasted Financial Statements were prepared by the Agency's auditors,
Rogers,Anderson,Malady& Scott for the years ending December 31, 1995, 1996,and
1997.These forecasts are included herein for your review.
In reviewing these forecasts a number of significant points are apparent:
• The current average rent of$257.00 per space shall not increase. Increases in
total annual rental income are derived only as a result of a conservative vacancy
fill rate of one space per quarter at the existing average rental rate (historically
lower than current fill rates for the Park).
• Without increasing rents, sufficient rental income is produced to pay all
operating expenses, including inflationary operating expense increases at the
rate of three percent per annum.
• Without increasing rents, sufficient rental income is produced to pay all
principal and interest debt obligations,which obligations are based on a debt
service coverage of a 1.2 to 1.0 ratio of net operating income compared to bond
1 indebtedness.
• Without increasing rents,there will exist positive cash flow forecasted at
$239,888.00 cumulative, thru the period ending December 31, 1997.
As a final note,The London Group was able to negotiate a price reduction of
$170,000.00 from the original contract price of$3,260,000, thus lowering the
purchase price to $3,090,000.00.
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ORANGEWOOD ESTATES MOBILENOME PARK
FORECASTED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
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DONALD L.ROGERS C.P.A.
DENNIS H.MALODY I1,,C.P.A.
9-a Day JACK C.SCOTT,C.P.A.
JAY H.ZERCHER,C.P.A.
WILLIAM E.REINEKING,C.P.A.
ROBERT B.MEMORY,C.P.A.
ROGERS, ANDERSON, MALODY & SCOTT THOMAS V.HESS,C.P.A.
CERTIFIED PUBLIC ACCOUNTANTS
PHILLIP H.WALLER.C.P.A.
TERRY P.SHEA.C.P.A.
NANCY O'RAFFERTY,C.P.A.
CYNTHIA L.SAKS,C.P.A.
BRIAN W.TOMPKINS,C.P.A.
LINDA M.HERNANDEZ,C.P.A.
BRENDA L.ODLE,C.P.A.
LEENA SHANBHAG,C.P.A.
LINDA L.WOODRUFF,C.P.A.
LORI ANN KUNTZ,C.P.A.
KATHLEEN L.DEVALK,C.P.A.
RICHARD A.LOCKWOOD,C.P.A.
To the Board of Directors
The London Group
San Bernardino, California
We have compiled the accompanying forecasted statement of revenue and expenses
before depreciation and property tax expense of Orangewood Estates Mobilehome
Park for the years ending December 31, 1995, 1996 and 1997, in accordance with
guidelines established by the American Institute of Certified Public Accountants.
The accompanying forecasted schedule presents, to the best of management's
knowledge and belief, the revenue and expenses before depreciation and property
tax expense of Orangewood Estates Mobilehome Park for the forecast period. It
is not intended to be a forecast of financial position, results of operations,
or cash flows. The accompanying forecasted schedule and this report were
prepared for the City of San Bernardino for the purpose of negotiating a proposed
plan to provide for the purchase of Orangewood Estates Mobilehome Park and should
not be used for any other purpose.
A compilation is limited to presenting in the form of a forecast information that
is the representation of management and does not include evaluation of the
support for the assumptions underlying the forecast. We have not examined the
forecasts and, accordingly, do not express an opinion or any other form of
assurance on the accompanying statements or assumptions. Furthermore, there will
usually be differences between the forecasted and actual results, because events
and circumstances frequently do not occur as expected, and those differences may
be material . We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
March 29, 1995
s
MEMBERS
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
PRIVATE COMPANIES PRACTICE SECTION
OF THE DIVISION FOR CPA FIRMS
VANIR TOWER • 290 NORTH"D'STREET • SUITE 300
CALIFORNIA SOCIETY OF _ T SAN BERNARDINO, CA 92401
ORANGEWOOD ESTATES MOBILEHOME PARK
i FORECASTED STATEMENT OF REVENUE AND EXPENSES
BEFORE DEPRECIATION AND PROPERTY TAX EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997 Total
REVENUES:
Rent $ 423,393 $ 439,850 $ 451,942 $ 1,315,185
Laundry 3,506 3,506 3,506 10,518
Recreational vehicle storage 1,340 1,340 1,340 4,020
Utilities 136,623 140,722 144,995 422,340
Miscellaneous 1,986 1,986 1,986 51958
Street lights - pass thru 1,001 1,057 1,085 3,143
Paving - pass thru 2,778 2,778 - 5.556
Total Revenue 570,627 591,239 604.854 1.766,720
Property management fee 15,194 15,770 16,193 47,157
Onsite management expense 46,749 48,151 49,596 144,496
Utilities 140,793 145,017 149,368 435,178
Grounds and landscaping 3,094 3,187 3,283 9,564
Buildings - general 2,430 2,503 2,578 7,511
Rental unit 243 250 258 751
Pool/Jacuzzi 1,019 1,050 1,082 3,151
Parking, walks, streets & patios 742 764 787 2,293
.. Vehicle repair & maintenance 515 530 546 1,591
Advertising & promotion 942 970 999 2,911
Business licenses/permits 1,991 2,051 2,113 6,155
Legal expenses 4,944 5,092 5,245 15,281
Accounting & data processing 2,674 2,754 2,837 8,265
Rental control - fees 1,928 1,986 2,046 5,960
Donations 39 40 41 120
Pest control 623 642 661 1,926
Others 106 109 112 327
Property & general liability
insurance 6,857 7,063 7.275 21.195
Total Expenses 230.883 237.929 245,020 713.832
Total Revenue Over Expenses Before
Debt Service, Depreciation and
Property Taxes 339.744 353,310 359,834 1.052.888
Debt Service 271.000 271,000 271,000 813,000
.. Total Revenue Over Expenses
Before Depreciation and
Property Taxes 68,744 82 310 88,834 239,888
See summary of significant assumptions and accounting policies and accountants report.
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ORANGEWOOD ESTATES MOBILEHOME PARK
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES
NOTE A: NATURE OF THE FORECASTS
This financial forecast presents, to the best of management's knowledge and
belief, the Company's expected net revenue over expenses for the forecast period.
Accordingly, the forecast reflects its judgment as of March 29, 1995, the date of this
forecast, of the expected conditions and its expected course of action. The assumptions
disclosed herein are those that management believes are significant to the forecast.
There will usually be differences between the forecasted and actual results, because
events and circumstances frequently do not occur as expected, and those differences may
be material .
NOTE B: NATURE OF OPERATIONS DURING THE FORECAST PERIOD
The mobile home park is made up of 155 mobile home pads. At the time of
this forecast there were fifteen vacancies. It is management's opinion that the
vacancies will be filled at the rate of one per quarter with 100% occupancy anticipated
in 1998.
The Company maintains their books on the cash basis of accounting. This
method is used for these forecasted statements.
NOTE C: REVENUE
The accompanying forecast assumes that rental revenue, at an average of $257
per pad space per month, will remain the same throughout the forecasted period. The
increase in rental income from year to year is due to the fill rate discussed in Note B
above.
Management feels that there will be a 97% collection rate of rent and
utilities for 1995 and an increase to 98% for 1996 and 1997.
NOTE D: EXPENSES
The following summarizes significant assumptions for forecasted major
expenses:
1. Salaries are paid to the on-site managers
2. Legal expense is based on management's anticipated costs associated
with delinquent renters.
3. Insurance expense is based on the actual amount paid in 1992, 1993 and
1994.
An inflation factor of 3%, based on the consumer price index figure
for January 1995, has been taken into consideration on all of the
expenses stated above.
ORANGEWOOD ESTATES MOBILEHOME PARK
SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS AND ACCOUNTING POLICIES
NOTE D: EXPENSES (continued)
4. Management fee is determined at a rate of 5% of gross rental income
for the first $25,000 and 3.54. on the excess. This fee is for off-
site management.
All other expenses included in these forecasted financial statements are
based on 1992, 1993 and 1994 actual expenses increased by an inflation factor of 3%.
Property tax expense has not been reflected in these forecasts due to the
Company filing as a Code Section 501(c)(3) organization. The Company will be exempt from
paying property taxes on pads rented to low income individuals. The average cost of
property taxes based on the last three years is $13,100.
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Source and Use Schedule
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Orangewood
Phase I-Agency Aquisition
Use Of Funds _
Purchase Price: $3,090,000
Real Property Closing Costs: $25,000
Underwriters Discount: $64,000
Bond Costs of Issuance: $80,000
Debt Service Reserve Fund: $271,000
Total: $3,530,000
Source Of Funds
Bond Proceeds: ($3,205,000)
Home Funds: ($325,000)
Total: ($3,530,000)
Phase II-Agency Sale to 501(c)(3)
Use Of Funds
Purchase Price: $3,530,000
Initial Agency Expenses: $30,000
Total: $3,560,000
Source Of Funds
Assumption Of Bond: ($3,205,000)
Assumption of Home Funds: ($325,000)
Reimbursement of Agency(Optional): ($30,000)
Total: ($3,560,000)
Final Agency Investment: $0
' Appendix 1
Due Diligence Document List
DUE DILIGENCE DOCUMENTS
AND INFORMATION
1. PHYSICAL
a) As-built plans or other available park drawings for the site and utility systems.
b) As-built plans or other available park drawings and specifications for all improvements.
Indicate improvements location, use, size and construction materials.
c) Schedule showing date of original construction for all improvements.
d) List of any major capital improvements completed since original construction; include
date of completion and cost.
e) Copies of all available engineering and inspection reports, including but not limited to
jthe following:
Flood
Soils and seismic
Health department reports
Environmental reports
Termite report
HCD inspection report
Electrical, sewer, water and gas- if there is a park owned gas distribution system, a
" copy of the latest leak survey and cathodic protection certification.
Any other engineering and inspection reports in Seller's possession.
f) Inventory of all personal property including park owned coaches, equipment, tools,
vehicles, etc. Forms for recording personal property inventory will be provided.
g) Copies of certificates of title of all Seller-owned-mobilehomes.
h) Any agreements regarding utility services.
.� 2. GOVERNMENTAL APPROVALS
a) Copies of all applicable permits and licenses including but not limited to the following:
operating, Dealer's, Occupational Use, Health, Air Quality/Environmental, Certificate
of Occupancy for the actual number of spaces. City of San Bernardino Business
Registration Certificate
b) All franchise agreements, if applicable.
c) Any available documents or correspondence relating to regulatory actions or
proceedings including without limitation those relating to condemnation, tax,
'"" assessment, zoning and subdivision, violations of local or state laws.
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3. TITLE AND SURVEY
a) ALTA survey made on the ground, certified to Buyer, showing all roads,
encroachments, boundaries, permanent improvements, easements and matters of
record.
b) Last Title policy issued, including a legal description and a plot plan.
c) Preliminary title report issued within the last thirty days to Buyer from a title company
designated by Buyer, with readable copies of all underlying documents.
4. AGREEMENTS
a) Copy of all forms residency agreements and leases in use with executed copies
available on site for review. A summary of lease use.
b) Copy of all rules and regulations in use.
c) Copies of any other written agreement(s)with residents or binding notices.
d) Copies of all written service contracts and a summary of all oral service contracts.
e) Loan documents and other loan information, if applicable to the transaction. This
includes loans on the property, inventory or any park owned homes.
f) Copies of all contracts of sale for mobilehomes.
5. FINANCIAL
a) Audited monthly operating statements for the prior three calendar years and the current
year-to-date, including detail on all capital expenditures.
b) Copies of corresponding general ledgers for the prior year and the current year-to-
date.
c) Copies of the past two years sewer, water, trash, gas electric, cable television and
landscaping bills.
d) Copies of certificates of insurance and bills for the past three years.
e) Copies of all maintenance and repair bills over $500 for the prior two years and the
current year-to-date.
f) Summary of the current employee payroll including all benefits provided; salary, details.
Indicate for each employee regular hours worked and job classification.
g) A copy of the past three months; income receipts journal with corresponding deposit
slips and bank statements.
h) Accounts payable journal for the past year and the current year-to-date.
i) Copies of the last two years' tax returns.
j) Copies of the prior two years' balance sheets.
k) Copies of the past two years' real estate and personal property tax bills, the current
assessment and tax rate. Details on special assessments or other special charges levied
on the property or currently under proposal.
1) Current rent roll, certified by seller, including resident name, lot number, move-in date,
lease term, lease type/escalator, current scheduled base rent and all other charges
detailed including utilities and pass-throughs and a list of all security deposits and the
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date paid. If actual rents differ from scheduled
indicate the actual rents, detail any credits being given.
m) Indicate what advertising and marketing programs are in place and their associated
costs.
n) A current delinquency or accounts receivable report.
o) A summary of the rental history for the prior four years (amount and date of rent
increases).
6. LEGAL
a) Summary of any litigation, including evictions in progress, affecting the property or
Seller's ability to sell.
b) Copy of Seller's partnership agreement and any other Corporate resolution necessary
to show that the sale pursuant to Agreement of Purchase and Sale in authorized.
c:/seazJduediliglsV3/29/95
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