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Agenda Item
ASR
Control 19-000975 |
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MEETING DATE: |
09/24/19 |
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legal entity taking action: |
Board of Supervisors and Orange County Housing
Authority |
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board of supervisors
district(s): |
4 |
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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: Sterling Court, Solara Court
and Fullerton City Lights Partnership Transfers
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ceo CONCUR |
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Clerk of the Board |
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Concur |
No Legal Objection |
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:
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Sole Source:
N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 11/14/2017
#28, 10/23/2001 #13, 10/23/2001 #14, 07/24/2001 #16 |
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RECOMMENDED ACTION(S):
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Acting as the Board of Supervisors: |
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1. |
Approve the sale and transfer of Sterling Court (also known as California Villas) from 935 S. Gilbert Street Partners, L.P. to Post Sterling Court, L.P., subordination of the County’s existing Loan Agreement to a new senior mortgage up to $4,011,000 and assignment of the County’s Regulatory Agreement to the new First Deed of Trust and authorize 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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2. |
Approve the transfer in partnership interest in the Solara Court Senior Apartments limited partnership, West Lincoln Housing Partners Limited Partnership, from SAH West Lincoln Limited, Inc., Co-General Partner, and SAH West Lincoln Investor, LLC, Limited Partner, to West Community Housing, Inc., current Managing General Partner, and WCH Affordable XLIX, LLC, new Limited Partner, and re-subordination of the County’s Regulatory Agreement to new short-term senior mortgage up to $12,562,000 and future permanent loan senior mortgage up to $14,064,708 and the California Department of Housing and Community Development Regulatory Agreement. Authorize 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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3. |
Authorize OC Community Resources Director or designee to execute additional agreements, contracts, instructions and instruments necessary or consistent with the sale and refinancing in the terms set forth in this Agenda Staff Report in a form as approved by County Counsel. |
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Acting as the Board of Supervisors as the Board of Commissioners to the Orange County Housing Authority: |
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4. |
Approve the substitution of Post FCL MM II, LLC, as new Co-General Partner, in place of Post FCL MM, LLC, for Fullerton City Lights. |
SUMMARY:
Approval of the sale, refinance and partnership transfers related to Sterling Court, Solara Court Senior Apartments and Fullerton City Lights will allow for the continued operation of low and very low-income housing in Orange County.
BACKGROUND INFORMATION:
Sterling
Court:
On October 23, 2001, the Board of Supervisors (Board) approved a loan to Foundation for Affordable Housing (FFAH) for $300,537 to finance the development of California Villas, now known as Sterling Court, located at 935 S. Gilbert Street in the City of Anaheim. A California limited partnership, 935 S. Gilbert Street Partners, L.P., was formed with Co-Developer, Meta Housing Corporation, to develop Sterling Court in 2002. Sterling Court is a 34-unit apartment building with 29 one-bedroom units and four two-bedroom units dedicated to serving low and very low-income seniors. One one-bedroom unit is reserved for an onsite property manager. All units are restricted between 35 percent to 50 percent Area Median Income (AMI) rent levels for a term of 55 years.
FFAH II Sterling Court, LLC is currently the nonprofit Managing General Partner, Meta Housing Corporation (Meta) is the Administrative General Partner and 935 South Gilbert Investors, LLC is the current Limited Partner for Sterling Court.
General Partners have exclusive control over the business of the Partnership and have all rights, powers and authority to manage and control the business affairs of the Partnership. The Limited Partner may engage in and possess any interest in other business ventures (including limited partnerships) of every kind, nature and description, independently or with others, but does not take part in the management or control of the business of the Partnership or transact any business in the name of the Partnership, nor does it have the power of authority to bind the Partnership to any agreement or document in the name of the Partnership.
The 15-year tax credit compliance period for this project has ended and, generally this is the period when certain investors ask to divest themselves from affordable housing projects resulting in sales or refinances. As such, Post Investment Group (Post) is taking this opportunity to acquire and refinance the property and is requesting the County approve the sale of Sterling Court to Post Sterling Court, L.P. Pursuant to the County’s Loan Agreement with 935 S. Gilbert Street Partners, L.P., the borrower needs to obtain County approval to sell or transfer the project or to sell or transfer any interests of the borrower’s constituent partners in the partnership. As proposed, FFAH II Sterling Court, LLC, whose sole member is Foundation for Affordable Housing II, Inc. (FFAH II), will be the nonprofit Managing General Partner, Post Sterling Court MM, LLC will replace Meta as the Administrative General Partner and Post Cuestas, LLC will replace 935 South Gilbert Investors, LLC as the Limited Partner. Both Post Sterling Court MM, LLC and Post Cuestas, LLC are Post affiliated companies. The current property management company, Western Seniors Housing, will continue to manage the property.
Post is a privately-owned real estate investment company headquartered in Los Angeles specializing in distressed, value-added, ground-up development and Low-Income Housing Tax Credit (LIHTC) multi-family investments. Post’s portfolio includes 33 LIHTC properties encompassing more than 4,000 units nationwide. 17 of those LIHTC properties consisting of 1,483 units are located in California, one of which is Fullerton City Lights, a 137-unit affordable housing development in the City of Fullerton.
FFAH, the sole member of the current and continuing Managing General Partner, is a 26 year-old tax-exempt 501(c)(3) public benefit nonprofit corporation with expertise and experience in the construction, acquisition and operation of low-income and senior housing. FFAH has assisted in developing over 180 properties with an aggregate value of approximately $1 billion. FFAH owns 178 properties nationwide consisting of 19,028 affordable housing units.
Approval of the sale and transfer of Sterling Court to Post, an experienced and responsible affordable housing investor and operator, and subordination of the existing County loan to new senior mortgage will preserve and allow for continued operation and maintenance of the 34-units of affordable housing at Sterling Court for the outstanding years under the County’s original Regulatory Agreement.
The County loan is current and the partnership is not in default with any of its lenders. The project is being operated in compliance with all regulatory agreements. Staff recommends approval of the sale and transfer of Sterling Court from 935 S. Gilbert Street Partners, L.P. to Post Sterling Court, L.P.
Solara Court Senior Apartments:
On January 23, 2001, the Board approved a loan to West Lincoln Housing Partners Limited Partnership (WLHP), for $802,485 to finance the development of Solara Court Senior Apartments (Solara Court) located at 3335 and 3351 W. Lincoln Avenue in the City of Anaheim. Solara Court is a 132-unit affordable housing development consisting of 108 one-bedroom units and 22 two-bedroom units dedicated to serving low and very low-income seniors. One one-bedroom unit is reserved for an onsite property manager. All units are restricted between 35 percent to 40 percent AMI rent levels for a term of 55 years. Additionally, the Board also approved the subordination of the County loan to a future permanent First Deed of Trust.
The original financing structure changed since the prior Board action after the developer, WLHP, received an award of tax exempt bonds rather than a competitive 9 percent tax credit allocation and WLHP returned to the Board requesting subordination of the County loan to an additional lender. The new financing structure placed the County in fourth position. On October 23, 2001, the Board approved the subordination of the County loan and regulatory agreement to a First Deed of Trust, a State of California Multifamily Housing Program loan and a Federal Home Loan Bank Affordable Housing Program grant.
Western Community Housing, Inc. is currently the nonprofit Managing General Partner, SAH West Lincoln Limited, Inc. is the current Co-General Partner and SAH West Lincoln Investor, LLC is the current Limited Partner.
The 15-year tax credit compliance period for this project has ended and WLHP is taking the opportunity to refinance the property through the use of a new bridge to syndication loan and, subsequently, a new LIHTC allocation and permanent loan to facilitate the anticipated acquisition and rehabilitation of Solara Court in the future. The bridge loan will allow WLHP to pay off all existing third-party debt in full, including the existing County loan, at the anticipated closing in September 2019.
WLHP is proposing to redeem the interest of the current Co-General Partner, SAH West Lincoln Limited, Inc. and the current Limited Partner, SAH West Lincoln Investor, LLC, and transfer the partnership interests to the current Managing General Partner and a new Limited Partner. Pursuant to the County’s Loan Agreement with WLHP, the borrower needs to obtain County approval to sell or transfer the project or to sell or transfer any interests of the borrower’s constituent partners in the partnership.
As proposed, WLHP will be paying off the County loan, requesting re-subordination of the existing Regulatory Agreement to a new First Deed of Trust in an amount up to $12,562,000, a future permanent loan senior mortgage First Deed of Trust up to $14,064,708 and the California Department of Housing and Community Development (State HCD) Regulatory Agreement. West Community Housing, Inc., the current nonprofit Managing General Partner, will be the sole General Partner and WCH Affordable XLIX, LLC, a Western Community Housing affiliate will be new Limited Partner of WLHP.
A bridge to syndication loan is a short-term financing that can help a developer or investor acquire or refinance LIHTC eligible properties. This funding is a bridge that positions properties for recapitalization using 4 percent LIHTCs and long-term financing that helps support the preservation of affordable housing after the initial 15-year tax credit compliance period. At the end of the term of the bridge loan, a new limited partnership can acquire and subsequently rehabilitate the property through new LIHTC proceeds and a new permanent loan. A permanent loan reduces the debt service on a property by paying off a portion or all of the construction or bridge loan and can finance the acquisition and rehabilitation. Any modernizations or improvements to extend the life and quality of the property can be funded by securing the permanent loan. Western Community Housing, Inc. anticipates approximately $5 million of improvements will be made to Solara Court during the acquisition and rehabilitation phase.
Approval of the subordination will allow for the partnership interest transfer, future resyndication and continued operation of Solara Court as an affordable housing development for low and very low-income seniors. The units will remain affordable for the outstanding years under the County’s original Regulatory Agreement.
The County loan will be paid off by this financing and the partnership is not in default with any of its lenders. The project is being operated in compliance with all regulatory agreements. Staff recommends approval of the partnership interest transfers within West Lincoln Housing Partners Limited Partnership and the re-subordination of the existing County Regulatory Agreement to the new senior mortgage and State HCD.
Fullerton City Lights:
On April 12, 1994, the Board approved a loan commitment to Urban Communities/San Gabriel Partners in the amount of $900,000 from the OC Housing Authority operating reserve fund for the Fullerton Single Room Occupancy Residential Hotel (Fullerton City Lights), a 137-unit project located in the City of Fullerton. On February 6, 1996, the Board approved a change in name of the partnership from Fullerton Hotel Limited Partnership to 224 E. Commonwealth Apartments, a California Limited Partnership. The Board also approved the addition of Ajit Development and Investment, Inc. to the partnership and the withdrawal of Urban Counties from the partnership. Ajit Development and Investment, Inc. eventually changed the name of the organization from Ajit Development and Investment, Inc. to Advanced Development and Investment, Inc. (ADI).
On April 30, 1996, the Board approved the withdrawal of Residential Hotel Corporation from the partnership. The remaining partners of the limited partnership are ADI, the operating general partner, and National Corporate Tax Credit Fund VI, the limited partner tax credit equity investor. On July 24, 2001, the Board approved ADI’s request to subordinate the County’s Amended Loan Agreement, Deed of Trust, and Regulatory Agreement for Fullerton City Lights to a new First Deed of Trust with California Community Reinvestment Corporation in the amount of $1.06 million.
On November 14, 2017, the Board approved subordination of the County’s existing Regulatory Agreement to a new senior mortgage up to $4.6 million. As part of the new financing, 224 E. Commonwealth Apartments sold the project to Post FCL, LP, and CARE Housing Services Corporation, the Managing General Partner of Post FCL, LP, and Post FCL MM, LLC, the co-General Partner of Post FCL, LP and a subsidiary of Post and repaid the County loan.
The individual member of the Post FCL MM, LLC, is withdrawing from the partnership and, as proposed, Post is requesting County approval to replace the existing Co-General Partner, Post FCL MM, LLC, with a new Co-General Partner, Post FCL MM II, LLC. Both entities are subsidiaries of Post.
As mentioned previously, Post is a seasoned owner of affordable housing. Approving the replacement of the Co-General Partner with another Post entity will preserve and allow for continued operation and maintenance of the 137-units of affordable housing at Fullerton City Lights. Additionally, Post will be keeping the same management company and nonprofit in place at the property providing continued operation of Fullerton City Lights.
The County loan has been paid off and the project is being operated in compliance with all regulatory agreements. Staff recommends approval of the replacement of the existing Co-General Partner, Post FCL MM, LLC, with a new Co-General Partner, Post FCL MM II, LLC.
Compliance with CEQA: This action is not a project within the meaning of 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 regards to the projects since it is for the approval of the sale and transfer related to Sterling Court which will allow for the continued operation of a 34-unit development in City of Anaheim, the partnership interest transfer and refinance of Solara Court which will allow for the continued operation of a 132-unit development also located in the City of Anaheim and the substitution of the Co-General Partner in the limited partnership of Fullerton City Lights will allow for the continued operation of a 137-unit development in the City of Fullerton. This proposed activity is therefore not subject to CEQA. Any individual, specific work authorized pursuant to this contract will be reviewed for compliance with CEQA.
Compliance with NEPA: The proposed activity is Exempt per CFR part 58.34 (a)(3).
FINANCIAL IMPACT:
N/A
STAFFING IMPACT:
N/A