MEETING DATE:
NOVEMBER 12, 2024
SUBJECT:
Title
RESOLUTION NO. 2024-9379 - ADOPTING AMENDED AND RESTATED CONTRACTUAL AGREEMENTS AND LOAN DOCUMENTS WITH TERRA COTTA HOUSING ASSOCIATES, LP.
Body
Recommendation
Recommendation
1. OPEN, CONDUCT and CLOSE a public hearing to consider the terms of an Amended and Restated Declaration of Covenants, Conditions, and Restrictions and Loan Agreements with Terra Cotta Housing Associates, LP.
2. Adopt resolution approving an Amended and Restated Declaration of Covenants, Conditions, and Restrictions and Loan Agreements with Terra Cotta Housing Associates, LP by and among the City of San Marcos in its capacity as the Successor Housing Agency to the former San Marcos Redevelopment Agency.
Body
Board or Commission Action
Resolution No. RDA 96-268 of April 23, 1996 authorizing the project's funding component
Resolution No. RDA 97-275 of January 28, 1997 authorizing bond financing for two affordable housing projects, including Terra Cotta
Resolution No. RDA 97-277 of April 8, 1997 authorizing financing for Terra Cotta
Relevant Council Strategic Theme
Good Governance
Executive Summary
Terra Cotta Apartments is a 168-unit, 100% affordable housing property located at 523 Rush Drive in the City of San Marcos. Terra Cotta Apartments were placed in service in 2000 with a 55-year deed restriction. BRIDGE Housing Corp., (BRIDGE) a non-profit affordable housing developer, is the owner and the property management company. The City provided two loans totaling $6.3 million to support the development of the Terra Cotta Apartments. The property is 24-years old and requires maintenance and repairs as evidenced by a capital needs assessment conducted in 2021. The required pending maintenance has prompted the developer to seek a permanent loan refinance with Fannie Mae, serviced by JP Morgan Chase, to cover the majority of those predicted costs. A public hearing and City approval is required, as original financing included Redevelopment Agency funding.
Discussion
Terra Cotta Apartments is a deeply targeted affordable housing property, restricted to 20% to 50% of Area Median Income (AMI) levels. Rental income for the property does not provide ample revenues to yield a high cash flow for significant maintenance. Lower rents coupled with industry-wide operational cost increases, seen in all affordable housing projects, in addition to standard maintenance associated with an aging property, require Terra Cotta to fund increasing maintenance and repair expenses.
Starting in 2021, the property could not generate sufficient cash flow to cover for all its operating and repair costs. BRIDGE estimates that the property has approximately $8,000,000 of deferred maintenance and replacement costs projected over the next 10 years. The proposed repairs would include additional unit balcony repairs (as required under California Senate Bill 721), unit HVAC replacements, common area repairs, unit boiler replacements, and other capital expenditures that have reached the end of effective useful life.
BRIDGE is requesting approval to refinance the permanent loan with Fannie Mae to cover for most of those predicted costs and seeks City Council approval to amend the loan agreement and associated authorizing documents to fund maintenance and replacement costs. In addition to requesting approval of the proposed amendments, BRIDGE is asking the City of San Marcos to agree to subordinate the existing City debt to the new proposed Fannie Mae loan; the subordination to the new loan is a Fannie Mae requirement. Approval of amended documents would extend the affordability agreement of 55 years by an additional 27 years, thus providing affordable units until 2079.
All loan amendments and revised loan documents have been reviewed by the special counsel for Housing as well as Housing staff to ensure the amended regulatory agreements are in favor of the City and will provide the greatest benefit to the city and the residents of Terra Cotta Apartments. Staff recommends approving amendments to existing loan agreements and associated regulatory documents and authorizing the City Manager to sign amended documents. Draft documents are included as Attachment 2.
Environmental Review
The proposed activity is not a project as defined under the California Environmental Quality Act (CEQA), and therefore does not require analysis under CEQA.
Fiscal Impact
No direct fiscal impact is anticipated from adoption of this resolution. All financing contributed were approved via prior resolutions including RDA 96-268, RDA 97-275, and RDA 97-277.
Attachment(s)
1. City Council Resolution approving an Amended and Restated Declaration of Covenants, Conditions, and Restrictions, and Loan Agreements with Terra Cotta Housing Associates, LP, by and among the City of San Marcos in its capacity as the Successor Housing Agency to the former San Marcos Redevelopment Agency.
2. Amended and Restated Loan documents and Covenants, Conditions and Restrictions
Prepared & submitted by: Sylvia Solis Daniels, Housing & Neighborhood Services Manager
Reviewed by: Tess Sangster, Community & Economic Development Director
Approved by: Michelle Bender, City Manager