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Agenda Item
ASR
Control 24-001112 |
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MEETING
DATE: |
01/28/25 |
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legal entity taking action: |
Board
of Supervisors |
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board of supervisors district(s): |
5 |
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SUBMITTING Agency/Department: |
OC
Community Resources (Approved) |
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Department contact person(s): |
Dylan
Wright (714) 480-2788 |
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Julia
Bidwell (714) 480-2991 |
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Subject: Approve Assignment, Amended Loan
Documents and Subordination for Mesa Vista
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ceo CONCUR |
County Counsel Review |
Clerk of the Board |
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Concur |
Approved
Agreement to Form |
Discussion |
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3
Votes Board Majority |
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Budgeted: N/A |
Current Year
Cost: N/A |
Annual Cost: N/A |
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Staffing Impact: |
No |
# of Positions: |
Sole Source: N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 12/19/2023 #19, 12/6/2022 #17,
10/18/2022 #S42F, 12/14/2021 #S39G |
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RECOMMENDED
ACTION(S):
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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 |
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Tax Exempt Loan (Bond Allocation) |
$23,185,979 |
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Taxable Loan |
$56,580 |
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Orange County Housing Finance Trust |
$1,746,191 |
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Seller Carryback Loan |
$5,625,000 |
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CalOptima Health |
$1,200,000 |
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Tax Credit Equity |
$1,630,535 |
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Total
Sources of Funds |
$33,444,285 |
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Permanent
Source of Funds |
Funding
Amount |
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Permanent Loan |
$8,770,000 |
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County of Orange (MHSA) |
$2,500,000 |
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County of Orange (SCHFA) |
$2,000,000 |
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County of Orange (ARPA-SLFRF) |
$850,000 |
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City of Costa Mesa (HOME) |
$1,500,000 |
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City of Costa Mesa (LMIHAF) |
$850,000 |
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Orange County Housing Finance Trust |
$1,746,191 |
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Seller Carryback Loan |
$5,625,000 |
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CalOptima Health |
$1,200,000 |
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Tax Credit Equity |
$16,566,334 |
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Deferred Developer Fee |
$1,559,504 |
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Subordinate Deferred Developer Fee |
$800,066 |
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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