Agenda Item   

AGENDA STAFF REPORT

 

                                                                                                                        ASR Control  24-001112

 

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 Assignment, Amended Loan Documents and Subordination for Mesa Vista

 

      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:

No

# 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:         12/19/2023 #19, 12/6/2022 #17, 10/18/2022 #S42F, 12/14/2021 #S39G

 

RECOMMENDED ACTION(S):

 

 

1.

Approve and authorize the OC Community Resources Director or designee to execute the Assignment of Loan Documents and Assumption Agreement among CM Mercy House CHDO LLC, Costa Mesa M6 LP and the County of Orange for the existing County loans totaling $5,350,000 for Mesa Vista, formerly Motel 6.

 

2.

Approve and authorize the OC Community Resources Director or designee to execute the Amended and Restated Loan Agreements by and between Costa Mesa M6 LP and the County of Orange for the existing County loans totaling $5,350,000.

 

3.

Approve and authorize the OC Community Resources Director or designee to execute the Amended and Restated Promissory Notes by and between Costa Mesa M6 LP and the County of Orange for the existing County loans totaling $5,350,000.

 

4.

Approve and authorize the OC Community Resources Director or designee to execute the Subordination Agreement by and between California Statewide Communities Development Authority, U.S. Bank Trust Company, Costa Mesa M6 LP and the County of Orange to subordinate the existing County loans totaling $5,350,000 to a first trust deed construction loan of up to $24,000,000.

 

 

5.

Approve subordination of the combined in $5,350,000 County loans to the first trust deed loan of approximately $8,770,000 at permanent financing, with the ability to increase 10 percent due to an increase of construction costs, as set forth in this Agenda Staff Report and authorize the OC Community Resources Director or designee to subordinate to additional senior debt up to 100 percent of the cumulative loan-to-value based on the as-built appraised market value, if necessary, based on any future changes in project financing.

 

6.

Authorize the OC Community Resources Director or designee to execute the Assignment of Loan Documents and Assumption Agreement, Amended and Restated Loan Agreements, and Amended and Restated Promissory Notes, and Subordination Agreement, subsequent subordination agreements consistent with the delegated authority above, amendments to the deeds of trust to conform to changes in the operating reserve requirements only, and such additional contracts, instructions and instruments necessary or appropriate for construction and permanent loan financing.

 

7.

Authorize the OC Community Resources Director or designee to make non-substantive ministerial changes to the Assignment of Loan Documents and Assumption Agreement, Amended and Restated Loan Agreements, and Amended and Restated Promissory Notes, and Subordination Agreement.

 

 

 

 

SUMMARY:

 

Approval of the assignment, amended and restated documents and subordination of the existing County of Orange (County) loans for Mesa Vista, formerly Motel 6, will allow the developers to complete the financing of Phase II and begin construction to continue the State’s efforts to rapidly expand housing for persons experiencing homelessness or at risk of homelessness.

 

 

BACKGROUND INFORMATION:

 

Building on the success of the first round of Homekey funds, the Homekey Program Round 2 (Homekey) is a state grant funding program administered by the California Department of Housing and Community Development (State HCD). Approximately $1.45 billion in grant funding was made available statewide as part of the Round 2 Notice of Funding Availability (NOFA) to continue the State’s efforts to rapidly expand housing for persons experiencing homelessness or at risk of homelessness and who are inherently impacted by or at increased risk due to the COVID-19 pandemic. In Round 1 of Homekey, the County was awarded two Homekey projects $25 million for the creation of 130 permanent supportive housing units.

 

On December 14, 2021, the Board of Supervisors (Board) approved the selection of Motel 6, now referred to as Mesa Vista (Development), for utilization of 30 Veterans Affairs Supportive Housing, Mainstream and/or Housing Choice Project-Based Vouchers and up to $2 million for loan financing to the developer, Community Development Partners (CDP). The Board also approved submission of the Development for Round 2 Homekey funding and was awarded $10.55 million in funding.

 

The Development is the acquisition and rehabilitation of a former 94-unit motel located in the City of Costa Mesa (City) and will be completed and financed in two phases. The first phase (Phase I) utilized a combination of Homekey Program grant funds, County and City funds, as well as a $7.9 million acquisition loan for the conversion of 40 units to Permanent Supportive Housing (PSH). Ten of the 40 units are for individuals who are at-risk of homelessness and meet the Mental Health Services Act (MHSA) eligibility criteria, and the remaining 30 units are for veterans experiencing homelessness and earning no more than 30 percent of the Area Median Income (AMI). There is also one unrestricted property manager's unit. Phase I was completed in December 2023.

 

The second phase (Phase II) will consist of converting the remaining 46 units to affordable housing units restricted to households earning no more than 50 percent of the AMI by other public lenders.

 

On October 18, 2022, the Board adopted an amended Homekey Program authorizing resolution to include CM Mercy House CHDO LLC (Mercy House) as an additional Co-Applicant to the Homekey Program Application. The Board also approved: (1) a $2.5 million increase to the 2020 NOFA in MHSA funding; (2) commitment of those funds and the previously approved $2 million in County Southern California Home Financing Authority (SCHFA) funds for loan financing to Mercy House; (3) subordination of the County loans at acquisition, construction and permanent financing, (4) future assignment of County’s loans and restrictive covenants; and (5) the Lease Rider and Ground Lease.

 

On December 6, 2022, the Board approved an increase of $850,000 in American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds (ARPA-SLFRF) to the 2020 NOFA, and  committed the increased amount and the previously approved $4.5 million to Mercy House, for a total of up to $5.35 million. With the additional County funds, the Development closed on the acquisition/construction loan financing on December 8, 2022.

 

On December 19, 2023, the Board approved the selection of the Development for the utilization of 10 Housing Choice Project-Based Vouchers to subsidize rents on the remaining 10 Homekey-assisted units that are restricted to individuals who meet the MHSA eligibility criteria. Construction of Phase I was completed in December 2023.

 

Since December 2023, CDP and Mercy House have been working on securing financing for Phase II and received a funding commitment from the Orange County Housing Finance Trust, CalOptima Health and a tax credit/bond allocation from the California Tax Credit Allocation Committee/California Debt Limit Allocation Committee (CTCAC/CDLAC). No additional funding is being requested from the County for Phase II of the development.  The County’s funding for Phase I will stay in the project.

 

Costa Mesa M6 LP, a California limited partnership, was formed as the new ownership/borrower entity for Mesa Vista for the financing and development of Phase II, and will assume existing debt from Phase I, including the existing loans and ground lease with the County.  Costa Mesa M6 LP will acquire the property (including the completed Phase I portion of the Development and the Phase II portion) at the closing of the low-income housing tax credit financing for the Development. Phase II construction on the balance of the units and amenity spaces will commence upon this closing.

 

Below are the updated financial summary highlights of the new construction financing and the total permanent financing for the Development:

 

Construction Source of Funds

Funding Amount

Tax Exempt Loan (Bond Allocation)

$23,185,979

Taxable Loan

$56,580

Orange County Housing Finance Trust

$1,746,191

Seller Carryback Loan

$5,625,000

CalOptima Health

$1,200,000

Tax Credit Equity

$1,630,535

Total Sources of Funds

$33,444,285

 

Permanent Source of Funds

Funding Amount

Permanent Loan

$8,770,000

County of Orange (MHSA)

$2,500,000

County of Orange (SCHFA)

$2,000,000

County of Orange (ARPA-SLFRF)

$850,000

City of Costa Mesa (HOME)

$1,500,000

City of Costa Mesa (LMIHAF)

$850,000

Orange County Housing Finance Trust

$1,746,191

Seller Carryback Loan

$5,625,000

CalOptima Health

$1,200,000

Tax Credit Equity

$16,566,334

Deferred Developer Fee

$1,559,504

Subordinate Deferred Developer Fee

$800,066

Total Sources of Funds

$43,967,095

 

As the Phase II financing is secured, OC Community Resources (OCCR) is requesting Board approval of the Assignment of Loan Documents and Assumption Agreement among CM Mercy House CHDO LLC, Costa Mesa M6 LP and the County of Orange (Attachment A),  Amended and Restated County Loan Agreements (Attachments B, C and D) and Promissory Notes (Attachments E, F and G) for the combined $5.35 million loans to reflect Phase II financing, including updated residual receipts calculations to include additional soft debt, and subordination of the existing County loans to the new tax-exempt bond construction loan of up to $24 million (Attachment H). 

 

CDP and Mercy House are targeting a construction loan closing by January 31, 2025, to avoid expiration of their current loan interest rate lock and to meet the CTCAC/CDLAC readiness deadline. Board approval will ensure that CDP and Mercy House can close on construction loan financing and begin construction on Phase II of Mesa Vista.

 

The supportive housing units in this development are part of the 2,396 permanent supporting housing units identified in the Housing Funding Strategy 2022 Update to address housing needs for individuals and households experiencing homelessness. As such, these supportive housing units will contribute to the progress of this effort and provide much needed supportive housing in the near future. Additionally, these supportive housing units will follow the best practices, guiding principles and commitments of the Homeless Service System Pillars Report which was created by the Commission to End Homelessness and accepted by the Board on October 18, 2022.

 

Compliance with CEQA: This action is not a project within the meaning of CEQA Guidelines Section 15378 and therefore is 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. Any future action connected to this approval that constitutes a project will be reviewed for compliance with CEQA.

 

 

FINANCIAL IMPACT:

 

None; the combined $5,350,000 County loans have already been disbursed.

 

 

STAFFING IMPACT:

 

N/A

 

 

REVIEWING AGENCIES:

 

OC Health Care Agency
Office of Care Coordination

 

ATTACHMENT(S):

 

Attachment A – Assignment of Loan Documents and Assumption Agreement
Attachment B – Amended and Restated Loan Agreement (MHSA)
Attachment C – Amended and Restated Loan Agreement (SCHFA)
Attachment D – Amended and Restated Loan Agreement (ARPA-SLFRF)
Attachment E – Amended and Restated Promissory Note (MHSA)
Attachment F – Amended and Restated Promissory Note (SCHFA)
Attachment G – Amended and Restated Promissory Note (ARPA-SLFRF)
Attachment H – Subordination Agreement
Attachment I – California Code of Regulations Title 14 Section 15378