Agenda Item AGENDA STAFF REPORT ASR Control 19-001358
MEETING DATE:	01/28/25
legal entity taking action:	Board of Supervisors
board of supervisors district(s):	5
SUBMITTING Agency/Department:	OC Community Resources (Approved)
Department contact person(s):	Dylan Wright (714) 480-2788
	Julia Bidwell (714) 480-2991

Subject: Approve Estoppel and Partnership Interest Transfer for Vintage Shores

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approved Agreement to Form

Discussion

3 Votes Board Majority

Budgeted: N/A

Current Year Cost: N/A

Annual Cost: N/A

Staffing Impact:

# of Positions:

Sole Source: N/A

Current Fiscal Year Revenue: N/A

Funding Source: N/A	County Audit in last 3 years: No
Levine Act Review Completed: Yes

Prior Board Action: 6/26/2001 #104, 2/6/2001 #9 & #92

RECOMMENDED ACTION(S):

Approve and authorize the OC Community Resources Director or designee to execute an Estoppel Certificate for the County of Orange’s existing HOME Regulatory Agreement for Vintage Shores Senior Apartments.

Approve the transfer in partnership interest from the current limited partner, SHS Guaranteed I, L.P., to the new limited partner, USA San Clemente Limited 448, Inc., a wholly owned subsidiary of USA Properties Fund, Inc.

SUMMARY:

Approval of the Estoppel Certificate for the County of Orange’s HOME Regulatory Agreement and transfer in partnership interest will allow USA Properties Fund, Inc. to continue operation of the Vintage Shores Senior Apartments, an existing 122-unit senior affordable housing development in the City of San Clemente.

BACKGROUND INFORMATION:

On February 6, 2001, the Board of Supervisors (Board) approved a HOME loan of $472,578 to USA Properties Funds, Inc. (USA) for the development of Vintage Shores Senior Apartments (Vintage Shores), a 122-unit affordable senior housing development in the City of San Clemente. Vintage Shores consists of one and two-bedroom units, restricted to 50% and 60% of Area Median Income (AMI). The development is 100 percent occupied. At that same meeting, the Board held a Public Hearing to consider adopting a resolution for submission of application to the California Debt Limit Allocation Committee for up to $9 million in Apartment Development Revenue Bonds and issuance of the bond. On June 26, 2001, the Board adopted a resolution approving new financing terms for Vintage Shores and issuance of the $9 million in Apartment Development Revenue Bonds. The County of Orange’s (County) HOME loan has been paid in full, but the County’s HOME Loan Regulatory Agreement (Regulatory Agreement) continues to encumber the property.

The ownership entity, San Clemente Senior Apartments, L.P. (Partnership), is a limited partnership consisting of USA San Clemente, Inc. (Administrative General Partner) and Riverside Charitable Corporation (Managing General Partner) as general partners and SHS Guaranteed I, L.P. (Simpson Housing Solutions) as a limited partner. USA San Clemente, Inc., a California corporation, is a wholly owned subsidiary of USA, the parent company.

USA was founded in 1981 and headquartered in Roseville, California. USA is a vertically integrated, full-service real estate development, investment and management company. USA has $1 billion in total assets through development and acquisition of more than 12,000 units of family and senior apartments in 90 communities throughout California and Nevada. USA has interest in a number of existing affordable housing developments throughout Orange County and most recently, has one County-assisted development under construction in the City of Orange, The Orion Apartments, consisting of 166 units of affordable and supportive housing.

In 2019, USA refinanced Vintage Shores to pay off its existing bond debt by securing a new loan with Union Bank in an amount not to exceed $17.35 million. The Bond Regulatory Agreement was terminated upon repayment and the transaction also allowed USA to pay off existing soft debt (including the City of San Clemente’s $305,000 loan), return capital to the limited partner, make a distribution to the general partners and limited partners and make minor repairs to the well-maintained property.

Since the County’s Regulatory Agreement remained on title, Union Bank initially required that the County of Orange subordinate its Regulatory Agreement to the new Union Bank Deed of Trust. However, the existing authorizations for this project did not allow for future subordination to new financing and the County’s lending policy did not allow the County to subordinate its Regulatory Agreement to conventional Deed of Trusts. As such, OC Community Resources (OCCR) staff determined the subordination request would require Board approval and the lead time to get on the Board agenda would exceed the date for when the Union Bank loan was scheduled to close.

Due to the time constraint, Union Bank worked with USA to come up with an alternative solution: to close on the new bank loan and record its Deed of Trust subordinate to the County’s Regulatory Agreement provided that promptly following the closing of the refinancing process, the County would either subordinate the Regulatory Agreement or execute an Estoppel Certificate. The failure to obtain either the subordination agreement or the Estoppel Certificate following closing would constitute an event of default under the new bank loan. However, since the closing of the refinancing process, Union Bank merged with U.S. Bank National Association (U.S. Bank) and this request was not fulfilled.

U.S. Bank, as successor to the merger with Union Bank, is now looking to satisfy the outstanding requirement from Union Bank and is requesting the County execute an Estoppel Certificate to address two matters in the Regulatory Agreement which were of concern:

To acknowledge the prohibitions on transfers contained in the Regulatory Agreement were not intended to apply to transfers resulting from a foreclosure, a deed in lieu of foreclosure or a transfer following foreclosure or deed in lieu if USA were to default on the loan. Without the acknowledgement, U.S. Bank would require the County’s approval to foreclose its Deed of Trust (or accept a deed in lieu of foreclosure) if USA were to default on its loan.

To acknowledge that U.S. Bank will not be liable for noncompliance with the Regulatory Agreement that may have occurred prior to the foreclosure or deed in lieu of foreclosure of its Deed of Trust (this is typically called a mortgagee protection clause).

Approval of the Estoppel Certificate (Attachment B) will help USA avoid defaulting on its bank loan and allow for the continued operation of Vintage Shores. The County’s affordability restrictions are protected and will remain in place for the outstanding years under the County’s Regulatory Agreement.

The Partnership is requesting County approval to transfer interests of its constituent partners in the Partnership. USA San Clemente Limited 448, Inc., wholly owned and controlled by USA, is proposing to acquire the existing limited partner’s interest in the Partnership from SHS Guaranteed I, L.P. The existing Managing General Partner and the Administrative General Partner for the Partnership will remain the same. The current and proposed organizational structures are shown in the charts below.

Organization Chart (Before):

San Clemente Senior Apartments, L.P.

USA San Clemente, Inc.

(Existing Administrative General Partner)

Riverside Charitable Corporation

(Existing Managing General Partner)

SHS Guaranteed I, L.P.

(Existing Limited Partner)

Organization Chart (After) (As Proposed):

San Clemente Senior Apartments, L.P.

USA San Clemente, Inc.

(Existing Administrative General Partner)

Riverside Charitable Corporation

(Existing Managing General Partner)

USA San Clemente Limited 448,

Inc.

(New Limited Partner)

Approval of the partnership interest transfer related to Vintage Shores will help maintain housing affordability and stability for the 122 households residing at Vintage Shores.

The County loan has been paid off and the project is being operated in compliance with all regulatory agreements. Staff recommend approval of the Estoppel Certificate, as reviewed and approved as to form by County Counsel, and the as it relates to the County’s Regulatory Agreement.

Compliance with CEQA: This action is not a project within the meaning of the California Environmental Quality Act (CEQA) Guidelines Section 15378 and is therefore not subject to CEQA, since it does not have the potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. The approval of this agenda item does not commit the County to a definite course of action in regard to a project since it is for approval of an estoppel certificate related to the refinancing of the property. This proposed activity is therefore not subject to CEQA. Any future action connected to this approval that constitutes a project will be reviewed for compliance with CEQA.

FINANCIAL IMPACT:

N/A

STAFFING IMPACT:

N/A

ATTACHMENT(S):

Attachment A - California Code of Regulations Title 14 Section 15378
Attachment B - Estoppel Certificate