BURBANK REDEVELOPMENT AGENCY

Tuesday, June 27, 2006

 

Agenda Item - 1


 

 

 

 

 

DATE:

June 27, 2006

TO:

Mary J. Alvord, Executive Director

FROM:

Susan M. Georgino, Assistant Executive Director

Bob Torrez, Financial Services Director

Ruth Davidson-Guerra, Assistant Community Development Director for Housing and Redevelopment

By:  Jennifer Mack, Redevelopment Project Manager

SUBJECT:

REQUEST TO AMEND CERTAIN AGREEMENTS RELATED TO THE MEDIA VILLAGE SENIOR HOUSING PROJECT

 

PURPOSE:

 

The purpose of this report is for the Redevelopment Agency Board to consider a request to amend certain agreements related to the Media Village Senior Housing Project to allow the developer to refinance housing bonds on the residential component.

 

BACKGROUND:

 

On December 19, 1995, the City Council and Redevelopment Agency Board approved entitlements and a Disposition and Development Agreement with Gangi Development Company for a mixed-use project on a 2.5 acre parcel on the former Pic �N� Save site located at the southwest corner of Third Street and Magnolia Boulevard (Exhibit A).  Gangi Development Company later formed Media Village Limited, a California limited partnership, for the purpose of developing the project which was completed in December 1999

 

The project consists of a three-story, 147-unit affordable senior housing apartment complex above approximately 55,000 square feet of retail space.  In addition, the project includes 586 parking spaces in a subterranean parking structure which includes 86 spaces for the residential component (with separate access from Third Street), 200 spaces for the retail component and 300 public parking spaces to support business activity in the neighboring area. 

 

Funding for this development involved various financing mechanisms.  The retail component, as well as the residential and commercial parking components, were conventionally financed by the developer. The public parking component (300 parking spaces) was funded by the Redevelopment Agency through a one time prepayment of a 99-year lease, and the residential component was financed using tax-exempt multi-family housing revenue bonds issued by the Redevelopment Agency.

Housing Affordability

The residential component consists of 147 units which includes 144 affordable senior apartment units (120 one-bedroom and 24 two-bedroom units), plus 3 units for on-site apartment managers.  Twenty-nine (29) of the units (24 one-bedroom and 5 two-bedroom units) are restricted to very low-income households (not-to-exceed 50% of the County median) and one hundred fifteen (115) of the units (96 one-bedroom and 19 two-bedroom units) are restricted to lower income households (51% to 80% of the County median) at affordable rents. These figures are revised annually by the U.S. Department of Housing and Urban Development and adjusted for household size.  The 2006 annual income limits are as follows:

 

State Income Limits for Los Angeles County (2006)

 

 

Income Level

1 person household

2 person household

3 person household

4 person household

5 person household

6 person household

7 person household

8 person household

Extremely Low

$14,550

$16,650

$18,700

$20,800

$22,450

$24,150

$25,800

$27,450

Very Low

$24,250

$27,700

$31,200

$34,650

$37,400

$40,200

$42,950

$45,750

Lower

$38,800

$44,350

$49,900

$55,450

$59,900

$64,300

$68,750

$73,200

Median

$39,300

$45,000

$50,600

$56,200

$60,700

$65,200

$69,700

$74,200

Moderate

$47,200

$53,900

$60,700

$67,400

$72,800

$78,200

$83,600

$89,000

Area Median Income:  $56,200

 

 

 

 

 

 

 

To meet requirements set forth in Redevelopment Law, the rent levels for this project were set at 60% and 50% of the Los Angeles County area median income for low and very low income households.  The rent levels were structured so that no more than 30% of the monthly gross household income is paid for housing costs.  Pursuant to the Disposition and Development Agreement and Grant Deed with the Redevelopment Agency, and Development Agreement with Planned Development and zoning requirements of the City, the affordability requirements run with the land in perpetuity. There were no rent restrictions on rents for the three manager units.  The distribution of income-restricted units within the project is as follows:

 

Income Level             1BR units                   2BR units                               Total

Low                                  96                              19                                        115                

Very Low                         24                                5                                          29     

TOTAL                           120                             24                                        144

 

The rent levels of the units are as follows:

 

Type of Unit                                        Number of Units                                Rent Limits    

One bedroom unit (low)                                96                                            $675.00         

Two bedroom unit (low)                                19                                            $759.00

One bedroom unit (very low)                        24                                            $562.50

Two bedroom unit (very low)                          5                                            $632.50         

       TOTAL                                                  144

 

As part of the project monitoring requirements, Media Village Limited submits annual reports which are reviewed by Redevelopment Agency staff to ensure that affordability and occupancy requirements are met. The project is in compliance with these requirements. According to the developer, both the residential and retail components of the project are currently leased-up with no vacancies. 

 

Bond Financing

On August 1, 1996, the Redevelopment Agency issued a $5 million tax-exempt multi-family housing revenue bond to provide conduit financing to the developer for the residential component of the project. The developer is solely responsible for debt service payments. The debt service payments are paid from proceeds generated by the project pursuant to a loan agreement with the developer which was secured by a deed of trust. The Redevelopment Agency has no obligation to make any payments on the bonds.

 

The housing bonds were AAA rated with a 30-year maturity secured from revenues received from the residential component.  The bonds were sold at an initial interest rate of 5.50% for the first ten years.  In addition to providing a low interest rate, the tax-exempt bonds qualified the project for low income housing tax credits.

 

The payment of principal and interest was secured by the revenues from the residential component and a 10-year irrevocable Letter of Credit issued by East West Bank.  In addition, there was a 10-year irrevocable standby Letter of Credit issued by the Federal Home Loan Bank of San Francisco. The housing bonds   are subject to a mandatory remarketing on August 1, 2006 with the interest rate to be adjusted to a new fixed or variable interest rate. 

 

ANALYSIS:

 

On June 2, 2006, a letter was received from Media Village Limited (developer) requesting the Redevelopment Agency to consider amending various documents related to the Media Village Senior Housing Project to enable them to refinance the $5 million tax-exempt multi-family housing revenue bonds on the residential component of the project and repay the bonds (Exhibit B).  Following are the terms of the existing housing bonds:

 

Bond Issue Date:      August 1, 1996

Bond Amount:            $5 million (plus costs of issuance)

Loan Balance:           $4,280,000

Interest Rate:             5.5% (plus 1.75% interest on letters of credit)

Term:                          30-year maturity including a 10-year recall

                                    (August 1, 2006 �Mandatory Refinance Date

                                    August 1, 2026 �Maturity Date)  

Monthly Payment:      $35,225

 

The 10-year irrevocable letter of credit issued by East West Bank on August 1, 1996 expires shortly after August 1, 2006.  The developer must decide to restructure or redeem the housing bonds before August 1, 2006.  In addition, the developer must make this determination at least forty days (40) but not more than fifty (50) days prior to August 1, 2006.  The developer has informed the Redevelopment Agency that it has decided to redeem the housing bonds through conventional financing insured by the Federal Housing Administration of the U.S. Department of Housing and Urban Development (HUD), who has provided a written commitment for the loan (Exhibit C). The lender is Quaker Capital.   Following are the terms of the new conventional loan:

 

Loan Amount:           $5,856,300

Interest Rate:             5.625% (locked)

Term:                         420 months (fully amortized)

Monthly Payment:     $34,127 (includes $2,197 for FHA insurance)

 

The new loan amount is higher than the loan balance on the housing bonds because it includes associated loan fees and the repayment of construction loans.  Although the loan amount and term would increase under the new loan, monthly payments would be reduced from $35,225 (under the housing bonds) to $34,127 per month.  This would result in a monthly savings of $1,098 on the residential component of the project.

 

As a condition of the new HUD-insured loan, the Redevelopment Agency is requested to amend certain agreements related to the Media Village Senior Housing Project which includes the subordination of the existing housing affordability requirements under various Agency and housing bond documents.  Staff has reviewed the developer�s proposal, including the terms of the HUD insured loan, and has also consulted with the City�s bond counsel and City Attorney�s Office.  Following is a summary of staff�s concerns:

 

1.                  The HUD insured loan is contingent upon the Redevelopment Agency agreeing to subordinate the affordability requirements of the project.  The risk of agreeing to this requirement is that, in the future, the project�s senior housing rents could be increased to market rates, making the units unaffordable to current and future tenants.

 

According to the City Attorney�s Office, the housing affordability restrictions would remain as a Condition of Approval under the Planned Development zoning requirements.  However, the Agency would be in a stronger position to enforce these requirements under the existing Grant Deed.

 

2.                  Bond counsel has advised staff that in the event the affordability requirements were terminated prior to the 15-year term required by federal tax law applicable to the housing bonds and as set forth in the related bond agreements, or there was a violation of other covenants in the bond documents, the tax-exempt status of the existing housing bonds could be brought into question by the Internal Revenue Service (IRS).  At worst, the IRS could invalidate the tax-exempt status of the bonds retroactively. In that situation, the IRS might require the  Redevelopment Agency to pay the additional interest that would have been paid on the bonds had they been taxable from the outset, or may seek to recover that amount from bond holders.  In addition, penalties and interest could accrue on the amount due going back to the original August 1, 1996 issuance date of the bonds.  The potential liability to the Agency could exceed $1 million, and even though bond counsel believes this is a remote possibility, there is still a potential risk to the Agency.     

 

August 1, 2006 is the first opportunity that the developer has to refinance the housing bonds.  The developer is required to notify bond holders and letter of credit providers of their intent to refund the bonds.  These noticing requirements are unclear at this time and staff has asked for bond counsel assistance in sorting out the various requirements.  In addition, as previously stated, the 1996 housing bonds are backed by two letters of credit.  Both letters of credit expire on or shortly after August 1, 2006.  These requirements are driving the developer�s  refinancing of the housing bonds via a new HUD insured loan, and the developer�s request for the Agency Board to consider approval of the bond refinancing on June 27, 2006. 

 

Because of concerns over the potential loss of affordability requirements (in perpetuity) and the possibility of the tax-exempt bonds becoming taxable and the IRS seeking compensation for this action from the Agency as the bond issuer, (which could be significant), staff is not prepared to support the developer�s proposal.  Additional research and discussion is clearly needed in order to avoid risk to the tenants and the Redevelopment Agency.

 

FISCAL IMPACT:

 

The financial impact of subordinating housing affordability restrictions and potential IRS-related costs on the housing bonds is unknown at this time, but could be significant should the bonds be deemed taxable.

 

RECOMMENDATION:

 

It is recommended that the Redevelopment Agency Board deny a request by Media Village Limited to subordinate the housing affordability restrictions in related agreements (as a condition of a new HUD insured loan) to the allow the developer to redeem the $5 million tax-exempt housing revenue bonds issued by the Redevelopment Agency on the residential component of the Media Village Senior Housing Project.   

 

EXHIBITS:      

 

Exhibit A         Site Plan       

Exhibit B         Letter from Media Village Limited

Exhibit C        Commitment Letter from HUD

 

 

Gangimediavillageprojectamendmentagencystaffrptfor6-27-06

 

 


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