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Home My WebLink About2005-09-13; City Council; 18236; Roosevelt St Affordable Apartment DevelopmentI1 -I AB# 18,236 MTG. 9/13/2005 DEPT. HlRED HOUSING AND REDEVELOPMENT COMMISSION AND CITY COUNCIL AGENDA BILL - TITLE: DEPT. HD. JOINT PUBLIC HEARING TO APPROVE OF CITY AND REDEVELOPMENT AGENCY FINANCIAL ASSISTANCE AND CITY ATTY. RELATED DOCUMENTS FOR THE ROOSEVELT STREET AFFORDABLE APARTMENT DEVELOPMENT CITY MGR. RECOMMENDED ACTION: That the City Council hold a public hearing and take the following two actions: 1) ADOPT Resolution No. 2005-248 AUTHORlZlNG the Finance Director to appropriate up to a maximum of $236,528 in Community Development Block Grant Funds and $351,863 in HOME Investment Partnership funds to provide financial assistance in the form of a loan to Wakeland Housing and Development Corporation, and authorize the Carlsbad Redevelopment Agency to administer the expenditure of those funds on behalf of the City for construction of an eleven (1 1) unit affordable housing project on property owned by the Carlsbad Redevelopment Agency located at 2578 Roosevelt Street; and 2) ADOPT Resolution No. 2005-249 APPROVING the Roosevelt Street Apartments as a combined project under the City's lnclusionary Housing Ordinance and allowing for the Carlsbad Redevelopment Agency to sell housing credits within the project to private housing developers within the Northwest Quadrant to satisfy inclusionary housing requirements for private housing developments, with said participation subject to subsequent final approval by the City Council. That the Housing and Redevelopment Commission hold a public hearing and take the following two actions: 1) ADOPT Resolution No. AUTHORIZING the Finance Director to appropriate up to a maximum of $1,595,689 in Redevelopment Agency Housing Set-Aside Funds and to provide such funding to Wakeland Housing and Development Corporation in the form of a loan to assist in the construction of an eleven (11) unit affordable housing project on property owned by the Carlsbad Redevelopment Agency located at 2578 Roosevelt Street in the Village Redevelopment Area, and to approve related loan documents and ground lease for construction of said project in substantially the form submitted and subject to final approval by the Agency's General Counsel and/or Special Legal Counsel, and 2) ADOPT Resolution No. 401 APPROVING the credit purchase price for the project, subject to City Council designation of the project as a Combined Project under the lnclusionary Housing Ordinance. 400 ITEM EXPLANATION: AFFORDABLE HOUSING PROJECT DESCRIPTION On January 11, 2005, the Housing and Redevelopment Commission approved the major redevelopment permit for construction of the Roosevelt Street Affordable Apartment Project. The project site is a .56 acre parcel that is located at 2578 Roosevelt Street in the Village Redevelopment Area. The property is bordered by a commercial office building to the north, a two-story apartment complex to the south, and two single family dwellings to the east. To the west of the site, there is an office complex and trailer park. The project will be developed by Wakeland Housing and Development Corporation, a non-profit affordable housing developer. The proposed 1 I-unit affordable apartment project consists of two separate two-story buildings. Building 1 provides 5 units and Building 2 provides 6 units. There will be 8 one bedroom units and 3 two bedroom units. All of the units will be affordable to households earning 50% or less of Area Median Income (which is currently $27,600 or less for a family of 2). I Page 2 of AB # 18,236 FINANCIAL ASSISTANCE FOR THE AFFORDABLE HOUSING PROJECT The Developer is requesting that the City/Agency provide financial assistance for construction of the project in the total amount of $2,184,080, or $145,062 per unit. The City/Agency has previously provided assistance to this project through acquisition of the property at a total cost of $692,058, or $69,914 per unit. In addition, a pre-development loan was previously provided to the developer in the total amount of $200,000, or $18,182 per unit. The financial details of the subject project are provided below. On March I, 2005, the City CouncillCommission considered the need for financial assistance for this project and authorized staff to proceed with efforts to prepare the appropriate documents and submit the request for formal approval. USES AND SOURCES OF FUNDS The total cost of the Roosevelt Street Apartment Project is estimated to be $3.3 million, inclusive of the value of the land. This amounts to a total per unit cost of $302,973. The following chart provides a breakdown of the project costs, or uses of funds. It also provides a comparison to the last four affordable rental projects that have received (or proposed to receive) financial assistance from the City. Based on a detailed review of the costs, staff has found that the costs are high on a per unit basis for the project. However, when compared to other recently approved or pending projects, the costs appear to be reasonable with consideration of the very small size of the project (1 1 units) and the much higher cost of land in the Village Area. The average per unit cost for the last four (4) affordable rental projects (outside the Village Area) is $221,999. In the past, the ‘Developer Fee” has been a specific point for discussion. For this project, the proposed developer fee is $200,000, which represents 6% of total project costs. The fee is considered reasonable by industry standards. The fee on other affordable housing projects within the City have ranged from 3% to 11 % of total project costs. Development Costs $225,250 $20,477 7% 7% $14,650 Developer Fee $200,000 $1 8,182 6% 7% $15,341 Financing Fees & Other Costs $1 00,726 $9,157 3% 5% $1 3,068 - Total Uses of Funds $3,332,701 $302,973 100% 100% $221,999 The following chart provides a breakdown of the sources of funds for the proposed development. The primary source of funding for the proposed project is CityIAgency assistance. As noted above, the Agency previously purchased the property and will ground lease it to the Developer as part of the Agency’s contribution to the project. The total land cost is $692,058. The City also previously provided a pre-development loan in the amount of $200,000. The additional cash assistance required for the project is $2,184,080. The City and Agency‘s cash contribution, if approved by the Council/Commission, will be provided to the developer in the form of a construction loan to be repaid through future surplus cash generated from project operations. The ground lease will also be paid according to the amount of surplus cash generated by the project. I I City Construction Loan $2,184,080 I $198,552 t (CDBG, HOME & Red Housing Set-Aside) I I Total Sources of Funds' I $3,332,700 1 $302,973 The City'/Agency's proposed contribution of $279,649 per unit is much higher than that which has been previously approved for many similar projects. In general, the City/Agency has provided about $10,000 to $15,000 per unit for similar projects. However, the City Council did recently approve a per unit subsidy of $49,702 for the Affirmed Housing Project to be located on El Camino Real. Staff believes that the greater amount of assistance is warranted for several reasons. First, the project is being developed in a manner which allows it to serve as a combined project for the City-wide lnclusionary Housing Program and satisfies a portion of the Redevelopment Agency's lnclusionary requirement per State Law. Second, the project serves as a redevelopment project as well as an affordable housing project, and its construction represents the elimination of a condition of blight within the area. The subject property is significantly underutilized and was previously a visually blighted site with an abandoned single family home and significant industrial type storage. The abandoned building has been demolished and the site cleaned up as a result of the proposed project. In addition, due to the small size of the project, it will not be able to compete for tax credits and has literally no other sources of financing available to it. FINANCIAL ASSISTANCE DOCUMENTS In order for the project to receive the $2,184,080 loan from the Redevelopment Agency, the Developer is required to enter into loan and regulatory agreements. These agreements and related documents are attached for review. As one of the actions set forth within this report, the Housing and Redevelopment Commission is being asked to approve, in substantially the form presented, the Land Disposition and Loan Agreement, Deed of Trust, Promissory Note, Regulatory Agreement and Declaration of Restrictive Covenants, and Ground Lease. These documents are explained below: 1. 2. 3. 4. 5. Disposition, Development and Loan Agreement states the terms and conditions relating to the Agency's loan, and the specific conditions to be satisfied prior to the Redevelopment Agency's lease of the land to the Developer. Regulatory Agreement and Declaration of Restricthe Covenants records the terms of affordability and the operation requirements for the project. Promissory Note is executed by the Developer and expresses their obligation to repay the loan. Deed of Trusf is recorded against the property to secure the Agency's interest in the subject improvements. Ground Lease states the terms and conditions under which the Agency will lease the subject property to the developer for development of subject affordable housing project. It is important to also note that the Agency will most likely be required to subordinate the subject loan documents to the senior lien holder. If approved, the attached resolution authorizes the Agency Executive Director, or hidher designee, to execute subsequent subordination agreements. The Agency Executive Director may subordinate the Agency loan only after the finding required under Health and 3 Page 4 of AB # 18,236 Safety Code Section 33334 has been made by the Agency. While the subordination documents will not return to the Agency for review, Staff will take the necessary steps to insure that the documents provide the Agency with adequate notice and cure ability. The subordination documents will be reviewed by, and be subject to final approval by the Agency General Counsel. HOUSING COMMISSION RECOMMENDATION ON FINANCIAL ASSISTANCE At their meeting on March 24, 2005, the Housing Commission reviewed the request from the Developer for financial assistance. The Commission recommended (4-0, Huston - absent) that the Housing and Redevelopment Commission/City Council approve total financial assistance in the amount of $2,384,081 for the subject project. A total of $200,000 was previously approved by the City Council in the form of a pre-development loan. Therefore, the additional financial assistance required for the project at this time, and recommended for approval by the Housing Commission, is $2,184,080. The Housing Commission did express concern about the total cost of the project and the per unit subsidy required from the City. The Commission felt that the cost was high and was concerned that efforts were not made by the developer to contain the cost of the project. As a result, the Commission recommended a condition be added to the approval requiring the developer to obtain three competitive bids from general contractors, and for each of those contractors to make a good faith effort to obtain three competitive bids for each major labor trade area. The Commission felt that the competitive bid process will ensure the best construction pricing for the subject project. -The Commission further recommended that City/Agency staff review each of the three (3) bids. If the bids are not acceptable, the Commission recommended that the developer be required to rebid the project. RISK ANALYSIS In its role as a lender to the project, the City/Agency is exposed to three risks inherent to real estate development. These risks generally include 1) predevelopment (project does not get to construction); 2) construction (project cannot be completed, cost overruns, contractor problems; and 3) operation (revenues do not cover expenses). Adding to this risk, any City/Agency financial assistance will be subordinated to conventional financing. The City previously provided a pre-development loan to the Developer. If the project does not get to construction, the City will have approximately $200,000 invested in the project which will not be repaid by the Developer. These funds are not required to be repaid if the development does not proceed to construction. If the project is successful, these funds will be included as part of the permanent loan and repaid according to the terms of the loan agreement. Construction and operation risks are mitigated by a couple of factors. The development team has a strong track record with similar affordable housing projects. They are well-established and understand and are experienced in the affordable housing development business. As of this date, the City/Agency has experienced no problems with successful completion of construction and/or ongoing financial operations of affordable housing developments in Carlsbad. The favorable financing offered by the City/Agency ensures that the developer will be able to complete and operate the subject project in a financially feasible manner. STAFF RECOMMENDATION ON FINANCIAL ASSISTANCE Staff recommends that the Housing and Redevelopment Commission and the City Council adopt the attached resolutions to authorize appropriation of the noted CDBG, HOME and Redevelopment Agency Housing funds and to provide them as financial assistance to Wakeland Housing and Development Corporation for construction of the Roosevelt Street Affordable Apartment Project. Staff has recommended that the financial assistance be provided in the form of a loan. It is important to note Y Page 5 of AB# 18,236 that the project proforma does not currently indicate that the project will generate adequate income to repay the loan. Staff, however, believes that the assistance should still be provided in the form of the loan in order to protect the CityIAgency's interest and allow for repayment if the project does at some time generate surplus cash or there are cost savings through construction. COMBINED PROJECT AND RELATED CREDIT PURCHASE PRICE As indicated above, staff is recommending that the City Council designate the Roosevelt Street Affordable Apartment Project as a combined housing project under the City's lnclusionary Housing Ordinance, and allow the Redevelopment Agency to sell credits in the subject project to assist other private housing developer's in the Northwest Quadrant to meet their inclusionary housing obligations under said Ordinance. Pursuant to the lnclusionary Housing Ordinance (CMC 21.85.080), the City Council has sole discretion to authorize a residential site to be designated as a combined inclusionary housing project. The City Council also ultimately has sole discretion as to which private housing developments may satisfy their inclusionary housing obligations by financially participating in an off-site combined housing project. An action at this time to designate the Roosevelt Street Apartment project as a combined housing project for inclusionary housing purposes does not concurrently approve any specific projects for financial participation. Each private housing development will be subject to separate review and approval by the City Council. This requested action simply indicates that the Roosevelt Street Apartment project is designated as a combined project. In 1996, the City designated the Villa Loma Affordable Apartment Project as a combined housing project and has permitted housing developers with small developments within the southwest and southeast quadrants of the City to satisfy their inclusionary obligations off-site through financial participation in the subject project. The City reviews each request on a case-by-case basis. The City originally provided a total of 184 credits in the project. To date, housing developers have been approved to purchase 143 credits. An additional 38 credit purchases are pending approval. This would bring the total to 181. The current housing credit price for Villa Loma is $45,000 per credit. This has increased from $28,000 in 1996. The credit price was originally set according to the per unit subsidy provided by the City for project construction. If the City Council approves designation of the Roosevelt Street Apartments as a combined housing project for inclusionary housing purposes, then the Housing and Redevelopment Commission will need to determine the housing credit purchase price. There is not a set formula or policy for determining the credit price. However, if the same policy that was used for Villa Loma is used for the Roosevelt Street Apartments, then the credit price should be set according to the per unit subsidy amount required from the Redevelopment Agency. For the Roosevelt Street Apartments, this per unit subsidy amount will be $279,649 which is inclusive of land, pre-development, and cash assistance for construction (if approved by the Commission). Alternatives for setting the housing credit price are included in the report to the City Manager provided as Exhibit 6 to this report. STAFF RECOMMENDATION ON HOUSING CREDIT PRICE It is staffs recommendation that the housing credit price for the Roosevelt Street Apartments be set at the full subsidy cost of $279,649 per unit. Although staff understands that this is much higher than the Villa Loma Project, the project will also cost the City/Agency much more to produce as outlined in this report. The City/Agency is under no obligation to satisfy the inclusionary housing obligations for other developers. Therefore, if we provide units to satisfy their obligation, then staff believes that they should be required to reimburse us for all of our costs. The City/Agency would then be able to use those funds to produce additional affordable housing units at other locations within the City. As noted above, however, staff has provided some housing credit price alternatives for consideration by the Commission if the above credit price recommended by staff is not acceptable. 5 Page 6 of AB ## 18,236 Amount Source ENVIRONMENTAL REVIEW Purpose Planning staff conducted an environmental review of the project pursuant to the Guidelines for Implementation of the California Environmental Quality Act and the Environmental Protection Ordinance of the City of Carlsbad. As a result of staff's review, the project has been found to be exempt from environmental review pursuant to Section 15332 of the State CEQA Guidelines as an in- fill development project on a site less than five acres in an urbanized area that has no habitat value and is served by adequate facilities. The necessary finding for this environmental determination was approved by the Housing and Redevelopment Commission on January 11,2005. $351,863 $1,595,689 Review under the National Environmental Protection Act (NEPA) Guidelines was also completed for the subject project as a result of the intended use of federal funds (CDBG and HOME) for financial assistance. City staff completed the NEPA review for the CDBG funds which resulted in a finding of no significant impact. The City received the required Release of Funds authorization from the US Department of Housing and Urban Development (HUD) on October 28, 2002. County of San Diego Staff completed the NEPA review for the HOME funds which also resulted in a finding of no significant impact. HUD provided the required Release of Funds for the HOME funds in 2002 as well. HOME Funds Construction Redevelopment Housing Set- Construction FISCAL IMPACT: The financial assistance in the form of a $2,184,080 loan will be provided from several sources as noted below. $236,528 CDBG Funds Pre-development and/or I Off-site lmm-ovements I I Aside Funds I The noted funding from the CDBG and HOME programs were previously approved by the City Council for this project. The approval of these funds will authorize the Finance Director to appropriate and provide them to the Developer. The Village Redevelopment Housing Set-Aside Fund currently has a balance of approximately $2.3 million. Therefore, there are adequate funds available in this account to provide the noted assistance. EXHIBITS: 1. 2. 3. City Council Resolution No. 2005 - 248 , to approve the appropriation and expenditure of the CDBG and HOME Funds to provide financial assistance for the Roosevelt Street Apartment Project, and authorizing the Redevelopment Agency to administer the expenditure of those funds for the City. City Council Resolution No. 2005 - 249 Project as a combined project under the City's lnclusionary Housing Ordinance. to approve the Roosevelt Street Apartment Housing and Redevelopment Commission Resolution No. 400 authorizing the Finance Director to appropriate up to a maximum of $1,595,689 in Redevelopment Agency Housing Set- Aside Funds and to provide said funds in the form of a loan to Wakeland Housing to assist in the construction financing of the Roosevelt Street Affordable Apartment Project, and approving related loan documents and ground lease. Page 7 of AB # 18,236 4. 5. 6. 7. 8. 9. Housing and Redevelopment Resolution No. for the combined project, if approved by the City Council. Proforma for the Roosevelt Street Affordable Apartment Project. Report to City Manager on Housing Credit Price Alternatives. Loan Documents for financial assistance from the Carlsbad Redevelopment Agency, including a Land Disposition and Loan Agreement, Note, Deed of Trust, Regulatory Agreement, and Ground Lease. Housing Commission Staff Report dated, March 24, 2005, including minutes from the meeting. Housing Commission Resolution No. 2005-002 recommending approval of the requested financial assistance for the Roosevelt Street Apartment Project. 401 approving the credit purchase price IO. Site Map DEPARTMENT CONTACT: Debbie Fountain, (760) 434-281 5; dfoun@ci.carlsbad.ca.us 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CITY COUNCIL RESOLUTION NO. 2005-248 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, TO APPROVE A REQUEST TO PROVIDE FINANCIAL ASSISTANCE TO WAKELAND HOUSING AND DEVELOPMENT CORPORATION WHICH INCLUDES A LOAN OF $236,528 IN COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS AND $351,863 IN HOME FUNDS, AND TO AUTHORIZE THE CARLSBAD REDEVELOPMENT AGENCY TO ADMINISTER AND EXPEND SAID FUNDS TO FUND A LOAN WITH SAID DEVELOPER TO PROVIDE FOR THE CONSTRUCTION OF ELEVEN (11) AFFORDABLE APARTMENT UNITS WITHIN THE NORTHWEST QUADRANT OF THE CITY OF CARLSBAD AND VILLAGE REDEVELOPMENT AREA AT 2578 ROOSEVELT STREET. APPLICANT: WAKELAND HOUSING AND DEVELOPMENT CORPORATION CASE NO: RP 04-04 WHEREAS, Wakeland Housing and Development Corporation has proposed to construct eleven (1 1) apartment units affordable to lower and moderate income households at 2578 Roosevelt Street in the Village Redevelopment Area and Northwest Quadrant of the City of Carlsbad; and WHEREAS, Wakeland Housing and Development Corporation has requested that the City of Carlsbad assist in funding a construction loan to assist in the construction of said apartment units; and WHEREAS, on the 24th day of March, 2005, City of Carlsbad Housing Commission did hold a public meeting to consider a request for City financial assistance for the construction of said eleven (1 1) affordable housing apartment units by the affordable housing developer, Wakeland Housing and Development Corporation, and subsequently recommended approval of the request for assistance with a condition to require competitive bidding for said project; and I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WHEREAS, the City Council did hold a public meeting on the date of this resolution to consider said request for City financial assistance for the construction of said eleven (1 1) affordable housing apartment units by the affordable housing developer, Wakeland Housing and Development Corporation; and WHEREAS, at said public meeting, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Council considered all factors relating to the application and request for financial assistance: NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. 2. 3. 4. 5. 6. I/// I111 I111 I111 I111 The above recitations are true and correct. The request for City financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element and Consolidated Plan, and the Carlsbad General Plan. The request for City financial assistance will assist the affordable housing developer to construct a total of eleven (1 l), one and two bedroom affordable apartment units. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan. That the City Council of the City of Carlsbad hereby APPROVES $236,528 in Community Development Block Grant (CDBG) Funds and $351,863 in HOME Investment Partnership Funds to provide financial assistance in the form of a residual receipts loan to Wakeland Housing and Development Corporation for construction of the proposed affordable housing project known as the Roosevelt Street Apartments. That the City Council authorizes the Carlsbad Redevelopment Agency to administer the expenditure of the noted funds on behalf of the City and execute all appropriate loan documents related to provision of the City assistance, including but not limited to a Land Disposition and Loan Agreement, Promissory Note, Deed of Trust, Regulatory Agreement and Declaration of Restrictive Covenants, and Ground Lease in substantially the form presented to the City Council, and subject to review and final approval by the Agency’s General Counsel andor Special Legal Counsel. That the City Council authorizes the City Manager or hidher designee to execute subsequent subordination agreement(s) subordinating CitylAgency Regulatory Agreement and Deed of Trust to the Deed of Trust for Construction and Permanent Lenders, as required, subject to review and approval by the City Attorney, Agency’s General Counsel andor Special Legal Counsel. 2 i? 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7. That the City Council authorizes the City Manager, or hisher designee, to submit all applicable documents to the U.S Department of Housing and Urban Development and/or County of San Diego to allow for appropriation and release of $236,528 in Community Development Block Grant Funds and $35 1,863 in HOME Funds to provide proceeds for a portion of the residual receipts construction loan for pre-development and construction related activities for the subject affordable housing project. 8. That the City Council authorizes the Finance Director to appropriate and provide said funds to the Carlsbad Redevelopment Agency to fund a residual receipts construction loan in the total amount of $2,184,080 to Wakeland Housing and Development Corporation for the subject affordable housing project. PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the day of ,2005, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: CLAUDE A. LEWIS, Mayor ATTEST: LORRAINE M. WOOD, City Clerk 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CITY COUNCIL RESOLUTION NO. 2005-249 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, TO APPROVE THE DESIGNATION OF THE ROOSEVELT STREET CARLSBAD’S INCLUSIONARY HOUSING ORDINANCE, AND AUTHORIZE THE CARLSBAD REDEVELOPMENT AGENCY TO SELL HOUSING CREDITS WITHIN THE PROJECT TO OTHER HOUSING DEVELOPERS WITH PROJECTS WITHIN THE NORTHWEST QUADRANT, SUBJECT TO FINAL APPROVAL BY THE CITY APARTMENTS (RP 04-04) AS A COMBINED PROJECT UNDER THE CITY OF WEIEREAS, in 1993, the City of Carlsbad adopted an Inclusionary Housing Ordinance, Chapter 2 1.85 of the Carlsbad Municipal Code, which requires all housing developers to provide at least 15% of the housing units they construct to be affordable to lower income households; and, WHEREAS, pursuant to Chapter 2 1.85.080 of the Carlsbad Municipal Code, the City has sole discretion to authorize a residential site to be designated as a combined inclusionary housing project; and, WHEREAS, the City Council also has sole discretion as to which housing developments may satisfy their inclusionary housing obligations by financially participating in an off-site combined project; and WHEREAS, the Carlsbad Redevelopment Agency has partnered with Wakeland Housing and Development Corporation to construct a total of eleven (1 1) rental units affordable to very low income households on property owned by the Agency and located at 2578 Roosevelt Street within the Village Redevelopment Project Area and the Northwest Quadrant of the City of Carlsbad; and WHEREAS, said units are excess units in that they will not be provided to meet the inclusionary requirement of a specific master housing development but may be used to do so if approved by the City Council; and WHEREAS, the Carlsbad Redevelopment Agency has expressed a desire to sell the excess housing credits produced by said project, Roosevelt Street Apartments, at 2578 Roosevelt Street to housing developers with a small inclusionary housing requirement for a housing development located within the Northwest Quadrant of the City; and 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WHEREAS, the City Council has an interest in providing a combined project within the Northwest Quadrant to assist small housing developers in their effort to satisfy their inclusionary housing requirements. NOW, THEREFORE , BE IT HEREBY RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. 2. The City Council hereby designates the eleven (1 1) unit Roosevelt Street Apartment development to be constructed on Carlsbad Redevelopment Agency owned property located at 2578 Roosevelt Street as a combined housing project pursuant to Carlsbad Municipal Code 21.85.080. 3. The City Council hereby authorizes the Carlsbad Redevelopment Agency to sell a total of eleven (1 1) housing credits within the project to one or more small housing developers to assist them in their effort to satisfy their inclusionary housing obligations, subject to final financial participation approval by the City Council. 4. The City Council reserves its sole discretion to decide which private housing developments within the Northwest Quadrant will be permitted to satisfy their inclusionary housing obligations by financially participating in an off-site combined housing project. 5. The Carlsbad Redevelopment Agency shall be responsible for setting the housing credit purchase price for said combined project. PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the day of ,2005, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: 41TEST: LORRAINE M. WOOD, City Clerk 2 CLAUDE A. LEWIS, Mayor 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOUSING AND REDEVELOPMENT COMMISSION RESOLUTION NO. 400 A RESOLUTION OF THE HOUSING AND REDEVELOPMENT COMMISSION OF THE CITY OF CARLSBAD, CALIFORNIA, TO FUNDING IN THE AMOUNT OF $1,5%,689 TO ASSIST IN PROVIDING FINANCIAL ASSISTANCE TO WAKELAND HOUSING AND DEVELOPMENT CORPORATION FOR CONSTRUCTION OF ELEVEN (11) AFFORDABLE APARTMENT UNITS WITHIN TFIE NORTHWEST QUADRANT OF THE CITY OF CARLSBAD AND WITHIN THE VILLAGE REDEVELOPMENT PROJECT AREA, AND TO AUTHORIZE A RESIDUAL RECEIPTS LOAN TO WAKELAND HOUSING AND DEVELOPMENT CORPORATION IN THE TOTAL AMOUNT OF $2,184,080 WHICH WILL BE FUNDED WITH THE NOTED AGENCY FUNDS AS WELL AS COMMUNITY DEVELOPMENT BLOCK GRANT AND HOME INVESTMENT PARTNERSHIP FUNDS FROM THE CITY OF CARLSBAD, AND APPROVE A GROUND LEASE OF AGENCY PROPERTY FOR SAID PROJECT. APPROPRIATE REDEVELOPMENT AGENCY HOUSING SET-ASIDE APPLICANT: WAKELAND HOUSING AND DEVELOPMENT CORPORATION; RP 04-04 WHEREAS, Wakeland Housing and Development Corporation was selected by the Carlsbad Redevelopment Agency following a competitive process to develop an eleven (1 1) apartment project which shall be affordable to lower income households on property owned by the Carlsbad Redevelopment Agency and located at 2578 Roosevelt Street in the Northwest Quadrant of the City of Carlsbad, which is located within the boundaries of the Village Redevelopment Project Area; and WHEREAS, the Carlsbad Redevelopment Agency intends to enter into a long term ground lease with Wakeland Housing and Development Corporation to develop said project; and WHEREAS, the Ground Lease payment shall be calculated as thirty percent (30%) of the residual receipts or surplus cash from the proposed project, which represents the fhir reuse value of the ground lease for an affordable housing project to assist lower income households; and WHEREAS, Wakeland Housing and Development Corporation has requested that the City of Carlsbad provide financial assistance in the form of a construction and permanent loan in the total amount r>f $2,184,080 to assist in the construction of said apartment units on said property; and WHEREAS, the Redevelopment Agency of the City of Carlsbad, hereinafter referred to as ”Agency”, is a Community Redevelopment Agency organized and existing under the Community Redevelopment Law, Health and Safety Code Section 33000, etcseq., hereinafter referred to as the “Act”, md desires to assist in the financing of said project to be developed by Wakeland Housing and Development Corporation; and WHEREAS, the Agency is authorized to implement the Redevelopment Plan for the Carlsbad Village Redevelopment Project Area; and WHEREAS, Section 33334.2 of the Act requires that not less than twenty percent (20%) of all axes which are allocated to the Agency for purposes of increasing and improving the community’s supply Df low and moderate income housing; and WHEREAS, pursuant to Section 33334.2 of the Act, the Legislature declares its intent that the Low and Moderate Income Housing Set-Aside Fund shall be used to improve and increase the supply of affordable housing within the community; and 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ~-~ WHEREAS, to carry out the purposes of increasing and improving the community’s supply of low and moderate income housing, Section 33334.2(e) of the Act states that the Agency may exercise any or all of its powers, including without limitations, acquiring land or building sites, improving land or building sites with onsite or offsite improvements, donating land to private or public persons or entities, constructing buildings or structures, acquiring buildings or structures, providing subsidies to, or for the benefit of, very low income households, lower income households, or persons or families of low and moderate income, or other powers to carry out the purposes of the Act; and WHJ3REAS, on the 24th day of March, 2005, City of Carlsbad Housing Commission did hold a public meeting to consider a request for City/Agency financial assistance for the construction of said eleven (1 1) affordable housing apartment units by the affordable housing developer, Wakeland Housing and Development Corporation, and subsequently recommended approval of the request for assistance with conditions to require competitive bidding for said project and the Ground Lease; and WHEREAS, the City Council and Housing and Redevelopment Commission did hold a joint public hearing on the date of this resolution to consider said request for Ctty and Agency financial assistance for the Construction of said eleven (11) affordable housing apartment units by the affordable housing developer, Wakeland Housing and Development Corporation, including a Ground Lease; and, WHEREAS, at said public hearing, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said City Council and Housing and Redevelopment Commission considered all factors relating to the application and request for financial assistance, including a Ground Lease; and, WHEREAS, the Housing and Redevelopment Commission approved the appropriation and expenditure of $1,595,689 from the Low and Moderate Income Housing Set-Aside Fund for the purposes of providing loan proceeds to fund a construction loan for Wakeland Housing and Development Corporation to construct eleven (1 1) units of rental housing for very low income persons/families. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing and Redevelopment Commission of the City of Carlsbad, Callfomia, as follows: 1. 2. 3. 4. 5. The above recitations are true and correct. The Carlsbad Redevelopment Agency previously selected Wakeland Housing and Development Corporation through a competitive proposal process as the developer of the subject affordable housing development, known as the Roosevelt Street Apartments. The Developer’s request for Agency financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element and Consolidated Plan, the Carlsbad General Plan, and the Redevelopment Plan for the Village Redevelopment Project Area. The request for Agency financial assistance will assist the affordable housing .developer to construct a total of eleven (ll), one and two bedroom affordable apartment units. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan as well as meet the housing needs and inclusionary housing requirements for the Village Redevelopment Project Area in the City of Carlsbad. That the expenditure of monies from the Low and Moderate Income Housing Fund for the purposes of fbnding a construction and permanent loan to Wakeland Housing and Development Corporation for an affordable housing project containing eleven (1 1) rental units within the Village Redevelopment Project Area, in which such fbnds are generated, are and will be of benefit to the Project Area. ICI 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6. 7. 8. 9. That the Low and Moderate Income Housing Set-Aside Funds will promote the City of Carlsbad’s housing goals and satisfies specific requirements of the Community Redevelopment Law to expend a portion of its tax increment to produce affordable housing opportunities for low and moderate income persons. That the expenditure of the subject Low and Moderate Income Housing Set-Aside Funds in the form of a residual receipts construction loan in the total amount of $1,595,689 is consistent with the Village Redevelopment Area Low and Moderate Income Housing Set-Aside Spending StrategyPlan. That the subject Ground Lease with consideration equal to thirty percent (30%) of the residual receipts or surplus cash fiom operations of the subject affordable housing development, which may result in no payment, is not less than the fair reuse value for the property with the development of an affordable housing complex for very low income households. That the subject Ground Lease will assist in the elimination of blight or a blighting influence within the Village Redevelopment Area through development of an affordable housing complex for very low income households on an underutilized site which was previously visually blighted with the existence of an abandoned single family home and significant industrial type store. The property originally included non-conforming uses which have been eliminated as a result of said project. The project has resulted in no relocation costs, demolition or clean up costs to the Agency. 10. That the Housing and Redevelopment Commission authorizes the Agency’s Executive Director or hisfher designee to execute all loan and related documents to fund the residual receipts constructiodpermanent loan in the total amount of $2,184,080 to Wakeland Housing and Development Corporation for development of said project and to execute the Ground Lease in substantially the form presented to the Commission and subject to final approval by Agency’s General Counsel and/or Special Legal Counsel. Said residual receipts loan will be funded with $236,528 in Community Development Block Grant Funds, $351,863 in HOME Investment Partnership Funds, and $1,595,689 in Redevelopment Agency Low and Moderate Income Housing Set-Aside Funds. 11. That the Housing and Redevelopment Commission authorizes the Agency’s Executive Director or hisker designee to execute subsequent subordination agreement(s) subordinating the Agency’s Regulatory Agreement and Deed of Trust to the Deed of Trust for construction and permanent lenders, as required, subject to review and approval by the Agency’s General Counsel andfor Special LegaI Counsel, and subject to the Executive Director’s finding that no other financing that does not require subordination is reasonably available. 12. That the Housing and Redevelopment Commission authorizes the Finance Director to appropriate and expend the funds set forth within this approval for the residual receipts constructiodpermanent loan to Wakeland Housing and Development Corporation for the subject affordable housing project, and as set forth in the approved loan documents. 13. That the Housing and Redevelopment Commission hereby accepts $236,528 in Community Development Block Grant hds and $351,863 in HOME Investment Partnership Funds to provide proceeds for a portion of the residual receipts construction loan to be provided to Wakeland Housing and Development Corporation for the subject affordable housing project. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14. That the Housing and Redevelopment Commission hereby hrther conditions the affordable housing developer, Wakeland Housing and Development Corporation, to obtain at least three (3) competitive bids from general contractors who have made a good faith effort to also obtain three (3) competitive bids from each of the major labor trade areas for the project, and to have said bids reviewed by the Clty/Agency staff prior to the award of a contract for construction of said project. PASSED, APPROVED, AND ADOPTED at a meeting of the Housing and Redevelopment Commission of the City of Carlsbad, California, held on the day of- 2005, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: ATTEST: RAYMOND R. PATCHETT, Secretary CLAUDE A. LEWIS, Chairman 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOUSING AND REDEVELOPMENT COMMISSION RESOLUTION NO. 401 A RESOLUTION OF THE HOUSING AND REDEVELOPMENT COMMISSION OF THE CITY OF CARLSBAD, CALIFORNIA, TO SET THE HOUSING CREDIT PURCHASE PROJECT UNDER THE CITY OF CARLSBAD'S INCLUSIONARY HOUSING PRICE FOR THE ROOSEVELT STREET APARTMENTS (RP 04-04) COMBINED WHEREAS, in 1993, the City of Carlsbad adopted an Inclusionary Housing Ordinance, Chapter 21.85 of the Carlsbad Municipal Code, which requires all housing developers to provide at least 15% of the housing units they construct to be affordable to lower income households; and, WHEREAS, pursuant to Chapter 21 A5.080 of the Carlsbad Municipal Code, the City Council has sole discretion to authorize a residential site to be designated as a combined inclusionary housing project; and, WHEREAS, the City Council also has sole discretion as to which housing developments may satisfy their inclusionary housing obligations by financially participating in an off-site combined project; and WHEREAS, the Carlsbad Redevelopment Agency has partnered with Wakeland Housing and Development Corporation to construct a total of eleven (1 1) rental units affordable to very low income households on property owned by the Agency and located at 2578 Roosevelt Street within the Village Redevelopment Project Area and the Northwest Quadrant of the City of Carlsbad; and WHEREAS, said units are excess units in that they will not be provided to meet the inclusionary requirement of a specific master housing development but may be used to do so if approved by the City Council; and WHEREAS, the Carlsbad Redevelopment Agency expressed a desire to sell the excess housing credits produced by said project, Roosevelt Street Apartments, at 2578 Roosevelt Street to housing developers with a small inclusionary housing requirement for a housing development located within the Northwest Quadrant of the City; and I/// /Ill 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WHERAS, the Carlsbad Redevelopment Agency received approval from the Carlsbad City Council to designate the Roosevelt Street Apartments at 2578 Roosevelt Street as a combined housing project to assist small housing developers with projects located in the Northwest Quadrant in their effort to satisfy their inclusionary housing requirements pursuant to Chapter 21.85 of the Carlsbad Municipal Code; and WHEREAS, the Carlsbad Redevelopment Agency is required to set the housing credit purchase price for the Roosevelt Street Apartments combined project. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing and Redevelopment Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. 2. The Housing and Redevelopment Commission hereby accepts the designation of the eleven (1 1) unit Roosevelt Street Apartment development to be constructed on Carlsbad Redevelopment Agency owned property located at 25 78 Roosevelt Street as a combined housing project pursuant to Carlsbad Municipal Code 21.85.080. 3. The Housing and Redevelopment Commission hereby acknowledges that the City Council which private housing developments within the Northwest Quadrant will be permitted to satisfy their inclusionary housing obligations by financially participating in an off-site combined housing project such as the Roosevelt Street Apartments. 4. The Housing and Redevelopment Commission hereby sets the Housing Credit Purchase Price for the Roosevelt Street Apartments at the full subsidy cost of $279,649 per unit. This fee was determined by calculating the total per unit subsidy provided by both the Carlsbad Redevelopment Agency and the City of Carlsbad, including the cost of acquiring the property and providing pre- development fimding to the developer. This fee shall be subject to increase on an annual basis, as approved by the Housing and Redevelopment Commission. ’Ill ’Ill ‘Ill ‘Ill ‘Ill ‘Ill ‘Ill ‘Ill 2 le, 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5. The Housing Credit Purchase Price is not a development impact fee. Therefore, it is not subject to the requirements of California Government Code Sections 66001 and/or 66006. PASSED, APPROVED AND ADOPTED at a regular meeting of the Housing and Redevelopment Commission of the City of Carlsbad, California, held on the day of ,2005, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: 4TTEST: XAYMOND R. PATCHETT, Secretary 3 CLAUDE A. LEWIS, Chairman t? EXHIBIT 5 PROFORMA ROOSEVELT STREET APARTMENTS 11 una Ciy d Url.brd I FORECAST ASSUMPTIONS 8000% 0 0 0 0 0 Mgr Unit@ Markel 0 0 0 0 0 ]DEVELOPMENT SCHEDULE I 0 0 00% 056 ACM 11 0 11 19.84 AW Aue* w occos 3 oCI-05 15 [SOURCES AND USES OF FUNDS I 100.00% 0.oo.k TOW PraiM Source5 so 18.727 4.136 20.909 we 28.712 1 18.158 0 9.781 2,727 18.182 twso lo 2ffi.000 4S.m 230.m lo.m 326.827 1.3ffi.yo 0 107.589 3o.m 200.m 1115.351 Io $0 0 208.0 0 45,500 0 230.000 0 1o.Mx) 0 326.827 0 1.306.340 0 0 107.589 0 3o.o 0 200.000 0 185.351 $240,W1 52.647.eo3 su 52.647.608 so solo lo 31.W 342.083 0 342.083 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 209.593 2.305.524 0 2.jo5.524 IRESIDENTIAL UNIT MIUAFFORDABKITY ANALYSIS I E!t3w3BYlRb2e&zu 3@&2BAa%Z@b IaL!oi& lncOm 35.oML 0 0 0 0 0 0 0 8 3 0 IS.W% 0 50.00% 0 55.00% 0 0 0 0 60.00% 0 0 0 0 0 RUmE:T 01:18 PH DEE ET FINANCING ASSUMPTKW I COWSTRUCTIW LOAN. Consmrban Loan Interest Rate Loan Potnh and Fees PERMANENT LOAN Permanent Loan Rate Permanem Loan tonstant Loan Pcunb end Fees Debt Save Coverage Ram Loan Undmt~ng Tsrm Fears) Maxnnum Lm to Wue Ram Capltallubon Ram Pmp3 Vhe [NOUCap Rate) Yaxunurn Loan to Cost RaOo M Avahtde la DeM S~IVICS Loan m Vduc Rabo Permalent Lorn Annual Payment RaulOng DSC OTHER DEBTILOANS intern1 Rate Loan POlnk and Fa8s Loan Term wears) 6 25% 1 00% 7.25% 8.26% 1- 120 3.0 BO.W% 480.056 100 00% 33.w 71 26% 342,083 128.003) 7 wn 1 mo Redw'LOm 3.00% % o.o% O.Wo% 55 0 [TAX CREDIT FINANCING ASSUMPTIONS I Cdil Year Federal Tu Credit Rate Stall Tx Credit Fute Ddfiwtt m ~avelop % App)ubloFracMn MjUr(ad Ehglble Bass Annual Tor cledns lnvesmr Ymld on ge% of TOW CISdS Allocrtm Gross Invesbr GmmlnNcn m Louef Tw Mo&s Dc(and Pay-In on Tax Credit Equity NA NA NA NA NA NA NA NA NA NA Avme AMI for Afbrdable Unik 50.00% LOTHER ASSUMPTIONS 1 PIoprty Talms: Tan Rple Existing Pmpetly Basis (psr unil) New Unii E~SIS (per unit) 110% 0 0 0.00% 2.50% 3.50% 0.0% 0.0% 1 00.0%LHUD INCCME GUKKLlNEJlVTlL MLOWANCEIBASIS LIMITS I 0.0% 0.0% TOW UNCI % 0 8 3 $1 uNk 0.0% 72.7% 27.3% sq. ftiunn 0 674 900 1.017 1250 % Ft Gxt TOW Rasd Sq FI 0 5.3SZ 2.700 0 0 8.092 Leave room lor outdoor rec. space 0 200 0 (PARTNER ALLOCATIONS I . -.*" ,.,,a 10.065 Generill Parmer Limited PMner B Limited P&(K A Operattons Sde 001% 001% sswx Bern% 0 00% 0 OOK 5 mu 5 mu lo.m 5mx 24.000 6 65% I? mu 10 mx f 1 , I IO 10 I I 1 1 1 70 I I I I 10 10 12 1 I 4 3 3 3 7 7 1 1 7 7 7 I 1 10 1 1 1 10 1 1 10 1 I I t I 1 1 1 I 12 12 0 tmu OAP 2.p6.524 O 0 0 0 0 0 0 0 0 0 0 G 0 0 0 0 0 0 0 0 0 0 0 G 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1m.m 11o.m IM.~ ~za 1.m I,= 1- 1.m 1.m 1.m 1.m 0 0 0 0 0 0 0 0 0 r1.mc 4t.m 41m 0 0 0 0 0 0 0 0 I5.W I5.W I5.W 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 mm mm lo.m 0 0 0 0 0 0 0 0 lo.m 1o.m 1o.m 0 0 0 0 0 0 0 0 0.m 0.m 0.m 0 0 0 0 0 0 0 0 sm 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 7.500 7.m a M a 823 a @a 625 921 628 IM tW 101 101 IW im 101 2.025 2025 1.m 15.m I5.m 1Soo 1.- 1.m l.m 1.m 1.m 1.m 1.m j.m 41.525 ass 21.131 ZPT 2231 2.m 2.m 2231 2231 2.m z.zai 0 m.m 2m.m p0.m 0 0 0 0 0 0 0 0 lo.m tom 1o.m 0 0 0 0 0 0 0 0 11.m I,.yD I1.W 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 too00 l0.m loo00 0 0 0 0 0 0 0 0 17p.7 I1.947 5- 5w 59u 0 USP 44.m 14m 14.000 I4W 0 27.4W 27.4W S.lO0 am 8.- 0 0 0 0 0 a 0 0 0 0 0 0 mm 2rr.m w.m mmo aslmo a.m nm u.m 0 0 0 0 0 0 0 am= am.227 12I.142 117.142 tt?.~? 0 SOD.= m.am 0 0 0 141.486 141.4M I4I.W UI.W 141.a l4lY 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 am8 anta kh 0 kh 0 0 0 0 0 0 0 0 1.W 0.m a.m 0 0 0 0 0 0 0 0 1s 450 450 450 450 450 .W 45 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.- 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6.m 0 0 0 0 0 s.m 0 0 0 0 0 0 0 0 ,o,m 1o.m 5.m 0 0 0 0 0 0 0 0 a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 192 1 0 0 a 0 0 0 0 0 10s I.402 ?E 453 450 450 450 14.4- 450 450 4m lo.m tam 0 0 0 0 0 0 0 0 0 1o.m lom 0 0 0 0 0 0 0 0 0 1o.m lo.m lo.m 0 0 0 0 0 0 0 0 0 0 0 a 0 0 0 0 0 0 0 125 ’la t25 1XV I500 I25 125 1% 1% 125 1% I25 a1.w 3i.w 10.m 12s 1% 1% 11 1% 125 1% 0 0 0 m.m mc.m 1m.m 0 0 0 0 0 0 0 0 2,&7,bX 2,501,427 772.82 IRIN IP.414 tMlpD IMLP m.x+ im.2o9 m.sm msm 0 0 0 0 0 0 0 0 11110) 0 0 0 0 0 0 0 0 Wan1 *man m 1 i U TOTAL 1 10 11 11 I1 U 11 I. n 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1,323 0 0 0 0 0 tam 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 41.m 0 0 0 0 0 0 0 0 0 15.000 0 0 0 0 0 0 0 0 0 .o 0 0 0 0 0 0 0 0 0 1 10 10 1 1 I O 0 0 0 0 0 0 0 a mm 0 0 0 0 0 0 0 0 0 5.m 5m 0 0 0 0 0 0 0 0 5.m e2 0 0 0 0 0 0 0 0 1o.m 1m 0 0 0 0 0 0 0 0 116,am IO I 0 0 0 0 0 0 0 0 0 O.m 0 0 0 0 0 0 0 0 0 0.m 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1.m 0 0 0 0 0 0 0 0 15m u5 a75 625 0 0 0 0 0 0 l.m 1w ai 31 0 0 0 0 0 0 In26 ID1 6s bM 0 0 0 0 0 0 4l.525 0 0 0 0 0 0 0 0 0 n0.m 0 0 0 0 0 0 0 0 0 lorn 0 0 0 0 0 0 0 0 0 1lm 0 0 0 0 0 0 0 0 o zum 0 0 0 0 0 0 0 O 0 IoDX 0 0 0 0 0 0 0 0 0 am I IO IO I1 1 4 3 1 3 0 0 0 0 0 0 0 0 0 27.m 0 0 0 0 0 0 0 0 0 m1.m 141.0 0 0 0 0 0 0 0 0 ODOW 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 uzu 0 0 xa.m 024s 0 0 0 0 0 0 0 o m.11 ?.no 0 0 0 0 0 0 0 0 IIYD 13.714 0 0 0 0 0 0 0 o 0s.m 10.561 0 0 0 0 0 0 0 o <n.w 226224 0 0 0 0 0 0 0 0 1,A3O.D74 3.018 0 0 0 0 0 8.W 0 0 7.m 0 0 1- 0 0 15.m 0 0 o 0 a.m 0 1 1 10 I I 1 IO 1 I 10 1 1 1 I I 1 0 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 450 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 126,rnl 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 4w o mnml 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 I8.012 0 0 0 0 0 0 0 0 0 0 0 loam 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 11 units RUN DATE: oms105 RENTAL INCOME ASSUMPTIONS I RENTAL INCOME AN ALW& Family Nwnb.r Monlhly Utili N.1 Monlhiy Nel Annul Unil TOUl Rant/\ SIX. Unit Typ. of Unks Rem Allowan- Rem R.nl Sq. FI. Sq. Ft. Sq. FI.( 8 842 32 610 58.560 674 5.392 $0.91 3 n1 40 731 28.316 900 2.700 $0.81 TOTAL PROJECT 11 RELATE0 REWENTUL SPACE: Communi$ Center Lwndy Rooms MmlennaKa Cmulsmn L Balconies Tal R&bd Ruid.Mhl Sp.u TOTAL PROJECT SOURE FOOTAGE 643 64.876 736 8.092 so 87 0 200 0 1,773 1.973 10.065 .- EXHIBIT 6 HOUSING CREDIT PURCHASE PRICE ALTERNATIVES July 8,2005 Alternative # 1 TO: CITY MANAGER Alternative Description Alternate Fee Amount Set fee based on estimated per unit subsidy, including $243,373 FROM: HOUSING AND REDEVELOPMENT DIRECTOR 2 3 RE: ALTERNATIVES FOR HOUSING CREDIT PURCHASE PRICE FOR ROOSEVELT STREET APARTMENTS land, for units rented at 70% of AMI rather than 50% of AMI; this would be the actual requirement for market rate developers per the Inclusionary Ordinance. Set fee based on City construction cost subsidy for Roosevelt Street Apartments only. Cost of land and pre- development expenses subsidy not included. Average the City subsidies for all three affordable projects in the Village Area funded by the Agency (Tyler Court, $145,062 $126,79 1 The Housing and Redevelopment Commission will be asked to set the housing credit price for the new Roosevelt Street Affordable Apartments, subject to approval by the City Council of the development as a combined housing project under the Inclusionary Housing Ordinance. There is no standard policy on the manner for setting the housing credit price. For Villa Lorna, the only other project within the Carlsbad where credits are sold by the City, the price was set at the amount of the subsidy per unit provided by the City. The price is then increased each year by CPI. The current credit price is $45,000 per unit. Based on this previous action, Staff is recommending that the housing credit purchase price for the Roosevelt Street Apartments be set to reflect the total subsidy provided by the City which is estimated to be $279,649 per unit. However, because this is a very substantial price, staff is offering some alternatives for consideration by the Commission if the proposed price is unacceptable. 6 The following chart summarizes the alternatives: affordable rental housing developments located throughout the City (Affirmed Housing, Roosevelt, and Hunter Pte. - 235 units total) Average the City subsidies for 10 affordable housing $14,950 rental projects located throughout the City, including Roosevelt Street Apts (1239 units) Because there is no written policy on setting the housing credit price, the Housing and Redevelopment Commission may choose the price that they believe is most appropriate. The Commission may recapture full cost to the Agency or recapture only a portion of the cost. There are currently three (3) developers that have expressed an interest in purchasing credits (approximately 6 total) within the Roosevelt Street Apartments to satisfy their inclusionary housing obligations for projects located within the Northwest Quadrant. EXHIBIT 7 LOAN DOCUMENTS ROOSEVELT STREET APARTMENTS DISPOSITION, DEVELOPMENT AND LOAN AGREEMENT BETWEEN CARLSBAD REDEVELOPMENT AGENCY AND WAKELAND HOUSING AND DEVELOPMENT CORPORATION a California nonprofit public benefit corporation FOR ROOSEVELT VILLAS HOUSING DEVELOPMENT Dated as of August 1,2005 10 10\13\168937.5 31 TABLE OF CONTENTS ARTICLE 1 . DEFINITIONS AND EXHIBITS .............................................................................. 3 *. Section 1.1 Definitions .................................................................................................... 3 ARTICLE 2 . PREDISPOSITION REQUIREMENTS .................................................................... 9 Section 1.2 Exhibits ........................................................................................................ 8 Section 2.1 Section 2.2 Section 2.3 Section 2.4 Section 2.5 Other Governmental Approvals ................................................................. 11 Section 2.6 Management Agreement and Procedures .................................................. 11 Section 2.7 Financing .................................................................................................... 12 Section 2.8 Construction Contract ................................................................................ 12 Section 2.9 Construction Bonds .................................................................................... 13 Section 2.10 Insurance .................................................................................................... 13 ARTICLE 3 . LEASE OF PROPERTY .......................................................................................... 13 Conditions Precedent to Conveyance of Property ....................................... 9 Land Use Approvals .................................................................................... 9 Construction Plans ....................................................................................... 9 Financing Plan ............................................................................................. 9 Section 3.1 Lease ......................................................................................................... 13 Section 3.2 Opening Escrow ......................................................................................... 13 Section 3.3 Closing Date ............................................................................................... 13 Section 3.4 Condition of Title ....................................................................................... 14 Section 3.5 Condition of Property ................................................................................ 15 Section 3.6 Costs of Escrow and Closing ..................................................................... 17 ARTICLE 4 . CONSTRUCTION OF IMPROVEMENTS ............................................................ 18 .. Section 4.1 Section 4.2 Section 4.3 Section 4.4 Section 4.5 Section 4.6 Section 4.7 Section 4.8 Section 4.9 Section 4.10 Section 4.1 1 Section 4.12 Section 4.13 Section 4.14 Section 4.15 Construction Pursuant to Plans .................................................................. 18 Change in Construction of Improvements ................................................. 18 Commencement of Improvements ............................................................. 18 Completion of the Improvements .............................................................. 18 Equal Opportunity ...................................................................................... 18 Requirement ............................................................................................... 19 Progress Rep0 rt .......................................................................................... 19 Construction Responsibilities .................................................................... 19 Mechanics Liens, Stop Notices, and Notices of Completion ..................... 20 Inspections ................................................................................................. 20 Information ................................................................................................ 20 Relocation .................................................................................................. 21 Financial Accounting and Post-Completion Audits .................................. 21 Financing; Revisions to Plan ..................................................................... 22 Compliance with Applicable Law; Prevailing Wage Records ...................................................................................................... 21 1010\13\168937.5 i TABLE OF CONTENTS ARTICLE 5 . AGENCY LOAN PROVISIONS ............................................................................ 22 Section 5.1 Section 5.2 Interest ........................................................................................................ 22 Section 5.3 Section 5.4 Security ...................................................................................................... 23 Section 5.5 Section 5.6 Section 5.7 Reports and Accounting of Residual Receipts ........................................... 25 Section 5.8 Developer Fee ............................................................................................ 26 Section 5.9 Assumption ................................................................................................ 27 Section 5.10 Non-Recourse ............................................................................................ 27 Agency Loan .............................................................................................. 22 Use of Agency Loan .................................................................................. 23 Repayment Schedule .................................................................................. 23 Conditions Precedent to Disbursement of Agency Loan ........................... 24 ARTICLE 6 . ONGOING DEVELOPER OBLIGATIONS ........................................................... 28 Section 6.1 Applicability .............................................................................................. 28 Section 6.2 Use ......................................................................................................... 28 Section 6.3 Maintenance ............................................................................................... 28 Taxes and Assessments .............................................................................. 29 Mandatory Language in All Subsequent Deeds, Leases and Contracts .................................................................................................... 29 Hazardous Materials .................................................................................. 30 Management Agent; Periodic Reports ....................................................... 32 Insurance Requirements ............................................................................. 33 Section 6.4 Section 6.5 Section 6.6 Section 6.7 Section 6.8 Approval of Management Policies ............................................................. 33 Section 6.9 Section 6.10 Audits ........................................................................................................ 34 Section 6.11 CDBG and HOME Requirements .............................................................. 35 ARTICLE 7 . ASSIGNMENT AND TRANSFERS ....................................................................... 36 .. Section 7.1 Definitions .................................................................................................. 36 Section 7.2 Purpose of Restrictions on Transfer ........................................................... 37 Section 7.3 Prohibited Transfers ................................................................................... 37 Section 7.4 Permitted Transfers .................................................................................... 38 Section 7.5 Effectuation of Certain Permitted Transfers .............................................. 38 Section 7.6 Other Transfers with Agency Consent ....................................................... 38 ARTICLE 8 . DEFAULT AND REMEDIES ................................................................................. 39 Section 8.1 Section 8.2 Section 8.3 Section 8.4 Section 8.5 Section 8.6 Section 8.7 Section 8.8 Section 8.9 ... General Applicability ................................................................................. 39 No Fault of Parties ..................................................................................... 39 Fault of Developer ..................................................................................... 40 Right to Cure at Developer's Expense ....................................................... 42 Construction Plans ..................................................................................... 42 Rights of Mortgagees ................................................................................. 43 Remedies Cumulative ................................................................................ 43 Waiver of Terms and Conditions ............................................................... 43 Fault of Agency .......................................................................................... 39 .. .. 11 1010\13\168937.5 . ? +I 32 TABLE OF CONTENTS PaRe ARTICLE 9 . SECURITY FINANCING AND RIGHTS OF HOLDERS .................................... 43 Section 9.1 Section 9.2 Section 9.3 Section 9.4 Section 9.5 Section 9.6 Section 9.7 No Encumbrances Except for Development Purposes .............................. 43 Holder Not Obligated to Construct ............................................................ 44 Notice of Default and Right to Cure .......................................................... 44 Failure of Holder to Complete Improvements ........................................... 44 Right of Agency to Cure ............................................................................ 45 Right of Agency to Satisfy Other Liens ..................................................... 45 Holder to be Notified ................................................................................. 45 ARTICLE 10 . GENERAL PROVISIONS .................................................................................... 45 Section 10.1 Notices. Demands and Communications ................................................... 45 Section 10.2 Non-Liability of Agency Officials. Employees and Agents; Non-Liability of Developer's Members ..................................................... 46 Section 10.3 Forced Delay .............................................................................................. 46 Section 10.4 Inspection of Books and Records .............................................................. 47 Section 10.5 Provision Not Merged with Ground Lease ................................................ 47 Section 10.6 Title of Parts and Sections ......................................................................... 47 Section 10.7 General Indemnification ........................................................................... -47 Section 10.8 Applicable Law .......................................................................................... 47 Section 10.9 No Brokers ................................................................................................. 47 Section 10.10 Severability ................................................................................................ 48 Section 10.1 1 Legal Actions ............................................................................................. 48 Section 10.12 Binding Upon Successors .......................................................................... 48 Section 10.13 Parties Not Co-Venturers ........................................................................... 48 Section 10.14 Time ofthe Essence ................................................................................... 4~ Section 10.15 Action by the Agency ................................................................................ 49 Section 10.16 Representations and Warranties of the Developer ..................................... 49 Section 10.17 Complete Understanding of the Parties ..................................................... 50 Section 10.18 Entry by the Agency .................................................................................. 50 Section 10.19 Multiple Originals; Counterparts ............................................................... 51 Exhibit A: Exhibit B: Exhibit C: Exhibit D: Exhibit E: Exhibit F: Exhibit G: Exhibit H: Legal Description of the Property Financial Proposal Form of Agency Ground Lease Form of Regulatory Agreement Covenants Form of Agency Note Form of Agency Deed of Trust Schedule of Performance Form of Memorandum of Ground Lease ... 111 1010\13\168937.5 .-.-I ... DISPOSITION, DEVELOPMENT AND LOAN AGREEMENT FOR ROOSEVELT VILLAS HOUSING DEVELOPMENT This Disposition, Development and Loan Agreement (the "Agreement") is entered into as of August 1 , 2005 (the "Effective Date"), by and between the Carlsbad Redevelopment Agency, a public body, corporate and politic (the "Agency"), and Wakeland Housing and Development Corporation, a California nonprofit public benefit corporation (the "Developer"), with reference to the following facts, understandings and intentions of the parties: RECITALS A. These Recitals refer to and utilize certain capitalized terms that are defined in Article 1 of this Agreement. The Parties intend to refer to those definitions in connection with the use of capitalized terms in these Recitals. B. The City Council of the City of Carlsbad adopted the Redevelopment Plan establishing the Project Area. The Agency is responsible for implementing the Redevelopment Plan in the Project Area. The goals for the Redevelopment Plan include alleviation of blighting conditions and the stimulation of economic development and affordable housing activities in the Project Area. C. The Agency is the owner of the Property located in the Project Area. The Agency acquired the Property with funds it received from HUD under the CDBG Program, the HOME Program, and the Agency's Housing Fund. D. The Agency and the Developer desire for the Developer to develop an affordable housing development on the Property. To effectuate this purpose, the Agency will ground lease the Property to the Developer, subject to the terms and conditions of this Agreement. E. The Developer intends to finance the costs of development with the Agency Loan, as well as other construction and/or permanent financing. Exhibit By attached hereto, provides the Developer's financial proposal for the anticipated financing of development costs. F. The Agency and the Developer entered into a Predevelopment Loan Agreement dated as of September 26,2003, pursuant to which the Agency loaned Two Hundred Thousand Dollars ($200,000) to the Developer to finance certain predevelopment costs of the Development. Upon execution and recordation of the Agency Deed of Trust and Memorandum of Ground Lease, and the execution of the Agency Note, the Predevelopment Loan shall be incorporated into the Agency Loan. G. The Agency has determined that the Developer has the necessary expertise, skill and ability to carry out the commitments set forth in this Agreement and that this Agreement is 1 1010\13\168937.5 in the best interests, and will materially contribute to the implementation of, the Redevelopment Plan. H. The Agency has conducted a public hearing pursuant to Health and Safety Code Section 33433 with respect to the conveyance of the Property to the Developer for development of the Improvements. I. The Developer's construction and operation of the Development are not financially feasible without the Agency's financial assistance. The Agency therefore desires to ground lease the Property to the Developer in accordance with the terms set forth in the Ground Lease attached hereto and to provide the Developer with the Agency Loan to provide predevelopment and construction funding in consideration for the Developer's agreement to construct and operate the Development consistent with this Agreement and the Regulatory Agreement Covenants, including (without limitation) the occupancy and affordability restrictions. The amount of the Agency Loan is Two Million Three Hundred Eighty-Four Thousand Eighty Dollars ($2,3 84,080), which includes the Predevelopment Loan amount. The amount of Agency assistance provided pursuant to this Agreement does not exceed the amount of Agency assistance necessary to make the Developer's acquisition of the leasehold interest in the Property and the construction and operation of the Development, as restricted by this Agreement, financially feasible. J. Redevelopment of the Property pursuant to this Agreement will serve redevelopment plan goals and objectives by assisting in the stabilization of the economic base of the Project Area by enhancing the physical environment of the Project Area and emphasizing its favorable environmental characteristics, and by improving the supply of affordable housing. K. The Agency intends to apply the units to be developed pursuant to this Agreement toward satisfaction of the statutorily mandated housing production requirements for the Project Area under Health and Safety Code Section 33413(b)(2). L. Pursuant to the California Environmental Quality Act and its implementing guidelines, the City (in its capacity as "lead agency"), and the Agency (in its capacity as a "responsible agency") have prepared, reviewed and approved the Mitigated Negative Declaration for the major redevelopment permit approval for the Property and the transactions contemplated by this Agreement (including the development of the Improvements), following a duly noticed public hearing. The Mitigated Negative Declaration has served as the environmental documentation for the Agency's and City's consideration and approval of this Agreement and the transactions contemplated by this Agreement. Additionally, the City and Agency have conducted the applicable review required pursuant to NEPA. THEREFORE, the Agency and the Developer agree as follows: 1010\13\168937.5 2 ARTICLE 1. DEFINITIONS AND EXHIBITS Section 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following definitions shall apply throughout this Agreement. (a) "Agency" means the Carlsbad Redevelopment Agency, a public body, corporate and politic. (b) "Agency Deed of Trust" means the deed of trust that will encumber the Developer's leasehold interest in the Property to secure repayment of the Agency Note, substantially in the form attached hereto as Exhibit F. (c) "Agency Documents" means, collectively, this Agreement, the Ground Lease, the Agency Note, the Agency Deed of Trust, the Regulatory Agreement Covenants, and all other documents required to be executed by the Developer in connection with the transaction contemplated by this Agreement. (d) "Agency Event of Default" has the meaning set forth in Section 8.3 (e) "Agency Ground Lease" means the Ground Lease between the Agency and the Developer whereby the Developer shall lease the Property from the Agency, substantially in the form of Exhibit C. (f) "Agency Loan" means the loan made from the Agency to the Developer pursuant to the terms set forth in Article 5 of this Agreement. (g) "Agency Note" means the promissory note that will evidence the Developer's obligation to repay the Agency Loan substantially in the form attached hereto as Exhibit E. (h) "Agreement" means this Disposition, Development and Loan Agreement, including the attached Exhibits and all subsequent operating memoranda and amendments to this Agreement. (i) "Annual Operating Expenses" with respect to a particular Fiscal Year means the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with the annual budget for the Development, approved by the Agency pursuant to the Regulatory Agreement Covenants, and with an annual independent audit performed by a certified public accountant, reasonably acceptable to the Agency, using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service currently due on a non-optional basis (excluding debt service due from residual receipts or surplus cash of the Development) on loans associated with development of the Development and approved by the Agency in the Financing Plan pursuant to 3 1010\13\168937.5 >?I .J Section 2.4; property management fees and reimbursements, not to exceed fees and reimbursements which are standard in the industry and pursuant to a management contract approved by the Agency pursuant to Sections 2.6 and 6.7 of this Agreement; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including water, sewer, and trash collection and electricity and gas associated with the operation of the common areas; maintenance and repair; any annual license or certificate of occupancy fees required for operation of the Development; security services; lease-up, advertising and marketing; cash deposited into reserves for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the Agency pursuant to Section 2.4, or by the Agency if no other lender requires approvals of such amount; cash deposited into an operating reserve in an amount not to exceed the amount required in connection with the permanent financing- approved by the Agency pursuant to Section 2.4, or by the Agency if no other lender requires approvals of such amount; payment of any previously unpaid portion of the Developer Fee due (without interest) not exceeding a cumulative amount of the Developer Fee as set forth in Section 5.8; extraordinary operating costs specifically approved in writing by the Agency as part of the annual budget approval process pursuant to the Regulatory Agreement Covenants; payments of deductibles in connection with casualty insurance claims not normally paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not normally paid from reserves; and other ordinary and reasonable operating expenses approved in writing by the Agency and not listed above. Annual Operating Expenses shall not include the following: depreciation, amortization, depletion or other non-cash expenses; any amount expended from a reserve account; and any capital cost with respect to the Development, as determined by the accountant for the Development. 0) "Area Median Income" means the median gross yearly income, adjusted for household size, in the County of San Diego, California, as determined by the California Department of Housing and Community Development ("HCD"). In the event that such income determinations are no longer published, or are not updated for a period of at least eighteen (1 8) months, the Agency shall provide the Developer with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by HCD. (k) "CDBG Program" means the Community Development Block Grant program of Title I of the Housing and Community Development Act of 1974, as amended (1) "CDBG Component" means the portion of the City Loan described in Section S.l(a). (m) "Certificate of Occupancy'' means the final certificate of occupancy issued by the City upon the completion of construction of the Improvements. (n) "City" means the City of Carlsbad, California. (0) "City Council" means the City Council of the City of Carlsbad. (p) "Closing" means the date mutually acceptable to the Parties within thirty (30) days following the date on which all conditions precedent to conveyance set forth in Article 1010\13\168937.5 2 have been satisfied, but in no event later than the date set forth in the Schedule of Performance, or such other date that the Parties agree upon in writing. (9) "Construction Plans" means all construction documentation upon which the Developer, and the Developer's several contractors, shall rely in building each and every part of the Improvements (including landscaping, parking, and common areas) and shall include, but not necessarily be limited to, final architectural drawings, landscaping plans and specifications, final elevations, building plans and specifications (also known as "working drawings") and a time schedule for construction. (r) "Control" shall mean (i) direct or indirect management or control of the managing member or members in the case of a limited liability company; (ii) direct or indirect management or control of the managing general partner or general partners in the case of a partnership and (iii) (a) boards of directors that overlap by fifty percent (50%) or more of their directors, or (b) direct or indirect control of a majority of the directors in the case of a corporation, as determined by the Agency. (s) "Conventional Loans" means a construction loan andor permanent loans from the Developer, private lending institutions andor public lenders, approved by the Agency in the Financing Plan. (t) "Developer" means Wakeland Housing and Development Corporation, a California nonprofit public benefit corporation. (u) "Developer Event of Default" has the meaning set forth in Section 8.4. (v) "Developer Fee" means that amount of fee paid to the Developer, or its affiliates, in the amount and for the purposes set forth in Section 5.8. (w) "Development" means the Property and the Improvements (x) "Escrow" means the escrow established with the Title Company for the purpose of ground leasing the Property fi-om the Agency to the Developer. (y) "Financing Plan" means the Developer's plan for financing the acquisition of the leasehold interest in the Property and the development of the Improvements, approved by the Agency pursuant to Section 2.5. (z) "Fiscal Year" means the Developer's fiscal year which ends on June 30, except as the Developer otherwise notifies the Agency in writing. (aa) "Gross Revenue" with respect to a particular Fiscal Year means all revenue, income, receipts, and other consideration actually received from operation and leasing of the Development. Gross Revenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; net proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance and not paid 1010\13\168937.5 5 to senior lenders; the proceeds of casualty insurance not used to rebuild the Development and not paid to senior lenders; and condemnation awards for a taking of part or all of the Development for a temporary period not paid to senior lenders. Gross Revenue shall not include tenants' un- forfeited security deposits, loan proceeds, capital contributions or similar advances. (bb) "Hazardous Materials" means any substance, material, or waste which is: (1) defined as a ''hazardous waste", "hazardous material," "hazardous substance," ''extremely hazardous waste," "restricted hazardous waste," "pollutant" or any other terms comparable to the foregoing terms under any provision of California law or federal law; (2) petroleum; (3) asbestos; (4) polychlorinated biphenyls; (5) radioactive materials; (6) mold; (7) MTBE; or (8) determined by California, federal or local government authority to be capable of posing a risk of injury to health, safety or property. Without limiting the foregoing, Hazardous Materials means and includes any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any Hazardous Materials Laws including any federal, state or local environmental statute, regulation or ordinance presently in effect that may be promulgated in the future, as such as statutes, regulations and ordinances may be amended from time to time. The term "Hazardous Materials" shall not include: (i) construction materials, gardening materials, household products, office supply products or janitorial supply products customarily used in the construction, maintenance, rehabilitation, or management of commercial properties, buildings and grounds, or typically used in office or residential activities, or (ii) certain substances which may contain chemicals listed by the State of California pursuant to California Health & Safety Code Section 25249.8 et seq., which substances are commonly used by a significant portion of the population living within the region of the Improvements, including, but not limited to, alcoholic beverages, aspirin, tobacco products, Nutrasweet and saccharine, so long as such materials and substances are stored, used and disposed of in compliance with all applicable Hazardous Materials Laws. (cc) "Hazardous Materials Laws'' means all federal, state, and local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials in, on or under the Development or any portion thereof. (dd) "HOME Component" means the portion of the City Loan described in Section 5.1 (b). (ee) "HOME Program" means the HOME Investment Partnership Act Program pursuant to the Cranston-Gonzales National Housing Act of 1990, as amended. (ff) "Housing Fund" means the Agency's Low and Moderate Income Housing Program established in accordance with California Health & Safety Code Section 33334.2 et seq. (gg) "HUD" means the United States Department of Housing and Urban Development. (hh) "Improvements" means the eleven (1 1) affordable housing units to be constructed by the Developer and appurtenant landscaping and improvements. 6 1010\13\168937.5 (ii) "Management Agent" means a management agent retained by the Developer and approved by the Agency in accordance with the provisions of Sections 2.6 and 6.7 to manage the Development. (jj) "Memorandum of Ground Lease" means the memorandum of the Ground Lease to be recorded against the Property at the Closing. The form of the Memorandum of Ground Lease is attached as Exhibit H. (kk) "NEPA" means The National Environmental Policy Act of 1969,42 U.S.C. 4321-4347, as amended. (11) "Net Proceeds of Permanent Financing" means the portion of the approved Financing Plan funds that are not required to pay the costs of acquisition and development of the Development (including but not limited to the funding of reserves, the payment of deferred Developer Fee and repayment of construction financing). Net Proceeds of Permanent Financing, if any, shall be determined pursuant to the procedure set forth in Section 5.5(c). (mm) "Parties" means the Agency and the Developer. (nn) "Predevelopment Loan" means the loan of Two Hundred Thousand Dollars ($200,000) of HOME Funds and Agency Housing Funds made by the Agency to the Developer pursuant to the Predevelopment Loan Agreement. (00) "Predevelopment Loan Agreement" means the Predevelopment Loan Agreement by and between the Agency and the Developer dated as of September 26,2003. (pp) "Project Area" means the Carlsbad Village Redevelopment Project Area. (qq) "Property" means the real property to be redeveloped by the Developer pursuant to this Agreement, which real property is more particularly described in Exhibit A. (rr) "Redevelopment Plan" means the Carlsbad Village Redevelopment Plan adopted by the City pursuant to Resolution No. 9591 on July 21, 1981, as amended from time to time. (ss) "Regulatory Agreement Covenants" means the Regulatory Agreement Covenants that will be recorded upon execution of the Ground Lease of the Property and will restrict the development of the Property to affordable housing, the form of which is attached hereto as Exhibit D. (tt) "Residual Receipts" in a particular Calendar Year means the amount by which Gross Revenue exceeds Annual Operating Expenses. (uu) "Schedule of Performance" means the summary schedule of actions to be taken by the Parties pursuant to this Agreement to achieve disposition of the leasehold interest in 1010\13\168937.5 7 the Property to the Developer and the development of the Improvements. The Schedule of Performance is attached to this Agreement as Exhibit G. (w) "Security Financing Interest" has the meaning set forth in Section 9.1. (ww) "Term" means the term of this Agreement, which shall commence on the date of this Agreement and shall continue until the fifty-fifth (55*) anniversary of the date of issuance of the Certificate of Occupancy for the Development. (xx) "Title Company" means the San Diego office of Commonwealth Land Title Company, located at 750 B Street, San Diego, CA 92101, unless modified pursuant to Section 3.2. (yy) "Title Report" means the preliminary title report for the Property dated ,2005 prepared by the Title Company. (zz) (aaa) "Transfer" has the meaning set forth in Section 7.1. "Unit" means one of the residential units to be constructed on the Property. Section 1.2 Exhibits. The following exhibits are attached to and incorporated in the Agreement: Exhibit A: Exhibit B: Exhibit C: Exhibit D: Exhibit E: Exhibit F: Exhibit G: Exhibit H: Legal Description of the Property Financial Proposal Form of Ground Lease Form of Regulatory Agreement Covenants Form of Agency Note Form of Agency Deed of Trust Schedule of Performance Form of Memorandum of Ground Lease 1010\13\168937.5 8 ARTICLE 2. PREDISPOSITION REQUIREMENTS Section 2.1 Conditions Precedent to Conveyance of Property. The requirements set forth in this Article are conditions precedent to the Agency's obligations to lease the Property to the Developer. The Agency's obligation to lease the Property to the Developer shall be subject to the satisfaction of all such conditions precedent prior to the date or dates set forth in the Schedule of Performance. Section 2.2 Land Use Approvals. Concurrently with approval of this Agreement, the City Council approved a Major Redevelopment Permit for the Development. The Parties acknowledge that no other land use permits or approvals are necessary for the construction of the Improvements, other than a building permit. The Developer acknowledges that execution of this Agreement by the Agency does not constitute approval by the City of any required permits, applications, or allocations, and in no way limits the discretion of the City in the permit allocation and approval process. Section 2.3 Construction Plans. The Developer shall submit its Construction Plans in sufficient time to allow adequate Agency review of the Construction Plans, possible resubmission of the Construction Plans and final Agency approval of the Constructions Plans by the Closing. The Agency shall approve or disapprove the Construction Plans in writing within fifteen (1 5) days following the Agency's receipt of the complete Construction Plans, which approval shall not be unreasonably denied. If the Construction Plans are disapproved by the Agency, the Agency shall deliver a written notice to the Developer setting forth, in reasonable detail, the reasons for such disapproval. The Developer shall have thirty (30) days following the receipt of such notice to submit revised Construction Plans. The provisions of this Section relating to time periods for approval, disapproval, and resubmission of new Construction Plans shall continue to apply until the final Construction Plans have been approved by the Agency; provided, however, that if Agency's reasonable approval of the final Construction Plans has not been obtained by the date set forth in the Schedule of Performance the Agency may terminate this Agreement pursuant to Article 8. The Developer acknowledges that approval of the final Construction Plans by the Agency does not constitute approval by the City as required for issuance of a building permit. Section 2.4 Financing Plan. No later than the time set forth in the Schedule of Performance, the Developer shall submit for Agency approval evidence of the availability of the funds necessary to acquire the 9 1010\13\168937.5 leasehold interest in the Property and redevelop the Property (the "Financing Plan"). The Financing Plan shall include: (a) An estimated operating proforma for the Development for fifty-five (55) years, which shall show debt service on all loans (including but not limited to the Agency Loan); (b) An estimated sources and uses, including a cost breakdown for costs of constructing the Improvements. The sources and uses shall include all assumptions for all debt and equity financing, shall show the timing of uses of each source of financing and shall break down which expenses each source of financing is funding. The sources and uses shall detail the amount of the Developer Fee, if any, which cannot exceed the amount set forth in Section 5.6, and shall provide a proposed schedule of payments of the fees paid to the Developer, if any, based on performance milestones as to be mutually agreed to by the Developer and the Agency; (c) A description of any joint ventures or partnerships the Developer proposes to enter into in order to provide funds for construction of the Improvements and acquisition of the Property including copies of the proposed joint venture or partnership agreements; (d) A copy of the commitment or commitments obtained by the Developer for any loans and grants to assist in financing the construction of the Improvements certified by the Developer to be true and correct copies thereof. The Developer shall submit evidence of its efforts to receive competitive pricing on the Conventional Loans; and (e) A certified financial statement or other financial statement in such form reasonably satisfactory to the Agency evidencing other sources of capital sufficient to demonstrate that the Developer has adequate fimds available and is committing such funds to cover the difference, if any, between costs of development and construction of the Improvements and the amount available to the Developer from external sources. Upon receipt by the Agency of the proposed Financing Plan, the Agency shall promptly review the Financing Plan and shall approve or disapprove it within fifteen (1 5) days after submission if it conforms to the provisions of this Agreement. The Agency's review of the Financing Plan shall be limited to determining if the contemplated financing will be reasonably available, if the financing contemplated in the Financing Plan would provide sufficient funds to undertake and complete the development and construction of the Improvements and determining if it is consistent with the terms of this Agreement. If the Financing Plan is not approved by the Agency, the Agency shall notify the Developer in writing of the reasons therefore. The Developer shall thereafter resubmit a revised Financing Plan to the Agency for its approval within fifteen (1 5) days after the Agency's notification of disapproval. The Agency will either approve or disapprove the revised Financing Plan within fifteen (1 5) days after resubmission by the Developer, and if disapproved, this Agreement may be terminated pursuant to Article 9 below. Only upon the approval of the Financing Plan shall this pre-disposition condition be met. 1010\13\168937.5 10 The Parties agree that notwithstanding the time requirements set forth in this Section for submission and resubmission to the Agency by the Developer of a proposed Financing Plan and review and approval of the Financing Plan by the Agency, the Developer is responsible for assuring that a Financing Plan in approvable form is submitted to the Agency in a timely manner such that the Agency may have the time permitted by this Section to review and approve a Financing Plan no later than the date set forth in the Schedule of Performance. Prior to the issuance of the certificate of completion for the Improvements, any material change, modification, revision or alteration of the approved Financing Plan must first be submitted to and approved by the Agency for conformity to the provisions of this Agreement. If not so approved, the approved Financing Plan shall continue to control. Section 2.5 Other Governmental ADprovals. No later than ten the date set forth in the Schedule of Performance, the Developer shall apply for a building permit allowing for the construction of the Improvements called for in the Construction Plans. After submitting an application for a building permit, the Developer shall diligently pursue and obtain a building permit for the Improvements, and no later than the date set forth in the Schedule of Performance, the Developer shall deliver evidence to the Agency that the Developer is entitled to issuance of a building permit for the Improvements upon payment of permit fees. Only upon delivery to the Agency of such evidence in a form reasonably satisfactory to the Agency shall the predisposition condition of this Section 2.5 be deemed met. If such evidence is not delivered by the date set forth in the Schedule of Performance, this Agreement may be terminated pursuant to Article 8. The Agency shall render all reasonable assistance to the Developer to obtain the building permit. The Developer acknowledges that execution of this Agreement by the Agency does not constitute approval by the City of any required permits, applications, or allocations, and in no way limits the discretion of the City in the permit allocation and approval process. Section 2.6 Management Agreement and Procedures. No later than the date set forth in the Schedule of Performance, the Developer shall submit to the Agency for approval the name and qualifications of a proposed management agent, a proposed management agreement and written guidelines or procedures for tenant selection, operation and management of the Development, and implementation of the income certification and reporting requirements of the Regulatory Agreement Covenants (collectively, the "Management Documents"). The Agency shall approve or disapprove the Management Documents in writing within fifteen (1 5) calendar days following the Agency's receipt of the complete Management Documents, which approval shall not be unreasonably denied. If the Management Documents are disapproved by the Agency, the Agency shall deliver a written notice to the Developer setting forth, in reasonable detail, the reasons for such disapproval. The Developer shall have fifteen (1 5) calendar days following the receipt of such notice to submit revised Management Documents. The provisions of this Section relating to time periods for approval, disapproval, and resubmission of new Management Documents shall continue to apply until the Management Documents have been approved by the Agency; provided, however, that if 11 1010\13\168937.5 45 the Agency's reasonable approval of the Management Documents has not been obtained by the date set forth in the Schedule of Performance the Agency may terminate this Agreement pursuant to Article 8. Agency approval of these documents shall be a condition precedent to Agency executing the Ground Lease leasing the Property to the Developer. Section 2.7 Financing. All financing necessary to construct the Improvements, as approved by the Agency in the Financing Plan, shall be closed by the Developer prior to, or simultaneously with, the execution of the Ground Lease by the Agency. The Developer shall also submit to the Agency evidence reasonably satisfactory to the Agency that any conditions to the release or expenditure of funds described in the approved Financing Plan as the sources of hnds to pay the costs of constructing the Improvements have been met or will be met upon the execution of the Ground Lease and subject to the Developer's satisfaction of standard disbursement preconditions required to be satisfied on a periodic basis, for constructing the Improvements. Submission by the Developer, and approval by the Agency, of such evidence of funds availability shall be a condition precedent to the Agency's obligation to execute the Ground Lease leasing the Property to the Developer. Section 2.8 Construction Contract. No later than the date set forth in the Schedule of Performance, the Developer shall submit to the Agency for its limited approval the proposed construction contract for the Improvements. The Agency's review and approval shall be limited exclusively to a determination whether (a) the guaranteed maximum construction cost set forth in the construction contract is consistent with the approved Financing Plan; (b) the construction contract is with a contractor approved by the Agency; (c) the construction contract contains provisions consistent with Article 4 of this Agreement; (d) the construction contract requires a retention of ten percent (10%) of costs until completion of the Improvements; and (e) the construction contract includes all applicable CDBG and HOME requirements as set forth in Section 6.1 1 below. The Agency's approval of the construction contract shall in no way be deemed to constitute approval of or concurrence with any other term or condition of the construction contract. Upon receipt by the Agency of the proposed construction contract, the Agency shall promptly review same and approve it within five (5) days if it satisfies the limited criteria set forth above. If the construction contract is not approved by the Agency, the Agency shall set forth in writing and notify the Developer of the Agency's reasons for withholding such approval. The Developer shall thereafter submit a revised construction contract for Agency approval, which approval shall be granted or denied in five (5) days in accordance with the criteria and procedures set forth above. Failure of the Agency to respond within the five (5)-day period(s) set forth above shall be deemed approval by the Agency. Any construction contract executed by the Developer for the Improvements shall be in a form approved or deemed approved by the Agency. 10 10\13\168937.5 12 Section 2.9 Construction Bonds. No later than the date set forth in the Schedule of Performance, the Developer shall obtain one (1) labor and material bond and one (1) performance bond for construction of the Improvements, each in an amount equal to one hundred percent (100%) of the scheduled cost of construction. Each bond shall name the Agency as co-obligee and shall be issued by a reputable insurance company licensed to do business in California, reasonably acceptable to the Agency. The form of the labor and material bond and the performance bond shall be subject to the Agency's prior review and written approval, which shall not be unreasonably withheld. Section 2.10 Insurance. The Developer shall Msh to the Agency evidence of the insurance coverage meeting the requirements of Section 6.9 below, no later than the date set forth in the Schedule of Performance. ARTICLE 3. LEASE OF PROPERTY Section 3.1 Lease. Provided the pre-disposition requirements set forth in Article 2 and the additional closing conditions set forth in Section 3.3 have been satisfied, the Agency shall lease to the Developer the Property pursuant to the terms, covenants, and conditions of this Agreement and the Ground Lease. Section 3.2 Opening Escrow. The Parties shall establish the Escrow with the Title Company. The Parties shall execute and deliver all written instructions to the Title Company to accomplish the terms hereof, which instructions shall be consistent with this Agreement. Upon request by the Developer, the Title Company may be changed to a company requested by the Developer, provided (a) the Developer makes the request prior to the opening of escrow, (b) the proposed title company is approved by the Agency, and (c) the Developer shall pay all title insurance and escrow costs of the new title company. Section 3.3 Closing Date. The Closing shall occur no later than the date set forth in the Schedule of Performance, and only in the event that all conditions precedent to conveyance set forth in Article 2 have been satisfied or waived by the Agency. In addition to the conditions precedent to execution of the Ground Lease as set forth in Article 2 (including but not limited to the closing of the financing set forth in the approved Financing Plan), the following conditions shall be satisfied prior to or concurrently with, and as conditions of, execution of the Ground Lease: 13 1010\13\168937.5 (a) The Developer shall provide the Agency with a certified copy of a corporate authorizing resolution, approving this Agreement and the Ground Lease and the conditions and covenants set forth in this Agreement and the Ground Lease. (b) The Developer shall have executed and delivered to the Agency the Ground Lease, the Memorandum of Ground Lease, the Agency Note, Agency Deed of Trust, and Regulatory Agreement Covenants and any other documents and instruments required to be executed and delivered, all in a form and substance satisfactory to the Agency. (c) The Agency Deed of Trust, the memorandum of Ground Lease, and Regulatory Agreement Covenants shall have been recorded against the Property as liens subject only to the exceptions authorized by the Agency. (d) The Developer shall have obtained issuance of a building permit for construction of the Development by paying the required building permit fees. (e) A title insurer reasonably acceptable to the Agency is unconditionally and irrevocably committed to issuing an ALTA Lender's Policy of insurance insuring the lien priority of the Agency Deed of Trust in the amount of the Agency Loan subject only to such liens approved by the Agency in the Financing Plan as prior to the lien of the Agency Deed of Trust and such exceptions and exclusions as may be reasonably acceptable to the Agency and containing such endorsements as the Agency may reasonably require. (f) There shall exist no condition, event or act which would constitute a breach or default under this Agreement. (g) All representations and warranties of the Developer contained in any part of this Agreement shall be true and correct. Section 3.4 Condition of Title. Upon the Closing Date, the Developer shall have insurable leasehold interest to the Property which shall be free and clear of all liens, encumbrances, clouds and conditions, rights of occupancy or possession, except: (a) applicable building and zoning laws and regulations; (b) the provisions of the Redevelopment Plan; (c) the provisions of this Agreement; (d) the provisions of the Ground Lease (as evidenced by the Memorandum of Ground Lease); (e) the provisions of the Regulatory Agreement Covenants; 14 1010\13\168937.5 (0 the Agency Deed of Trust; (g) any lien for current taxes and assessments or taxes and assessments accruing subsequent to recordation of the Memorandum of Ground Lease; (h) the liens of any loan approved by the Agency in the Financing Plan; and (i) conditions, covenants, restrictions or easements currently of record or as otherwise approved by the Developer in its reasonable discretion; and (i) exceptions, and as shown in the Title Report. Section 3.5 Condition of Property. (a) "AS 1S"CONVEYANCE. THE DEVELOPER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT THE AGENCY IS CONVEYING AND THE DEVELOPER IS OBTAINING THE LEASEHOLD INTEREST IN THE PROPERTY ON AN "AS IS WITH ALL FAULTS" BASIS AND THAT THE DEVELOPER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM THE AGENCY AS TO ANY MATTERS CONCERNING THE PROPERTY, INCLUDING WITHOUT LIMITATION: (A) THE QUALITY, NATURE, ADEQUACY AND PHYSICAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, TOPOGRAPHY, CLIMATE, AIR, WATER RIGHTS, WATER, GAS, ELECTRICITY, UTILITY SERVICES, GRADING, DRAINAGE, SEWERS, ACCESS TO PUBLIC ROADS AND RELATED CONDITIONS); (B) THE QUALITY, NATURE, ADEQUACY, AND PHYSICAL CONDITION OF SOILS, GEOLOGY AND GROUNDWATER, (C) THE EXISTENCE, QUALITY, NATURE, ADEQUACY AND PHYSICAL CONDITION OF UTILITIES SERVING THE PROPERTY, (D) THE DEVELOPMENT POTENTIAL OF THE PROPERTY, AND THE PROPERTY'S USE, HABITABILITY, MERCHANTABILITY, OR FITNESS, SUITABILITY, VALUE OR ADEQUACY OF THE PROPERTY FOR ANY PARTICULAR PURPOSE, (E) THE ZONING OR OTHER LEGAL STATUS OF THE PROPERTY OR ANY OTHER PUBLIC OR PRIVATE RESTRICTIONS ON THE USE OF THE PROPERTY, (F) THE COMPLIANCE OF THE PROPERTY OR ITS OPERATION WITH ANY APPLICABLE CODES, LAWS, REGULATIONS, STATUTES, ORDINANCES, COVENANTS, CONDITIONS AND RESTRICTIONS OF OTHER PERSON OR ENTITY, (G) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY OR THE ADJOINING OR NEIGHBORING PROPERTY, AND (H) THE CONDITION OF TITLE TO THE PROPERTY. THE DEVELOPER AFFIRMS THAT THE DEVELOPER HAS NOT RELIED ON THE SKILL OR JUDGMENT OF THE AGENCY OR ANY OF ITS RESPECTIVE AGENTS, EMPLOYEES OR CONTRACTORS TO SELECT OR FURNISH THE PROPERTY FOR ANY PARTICULAR PURPOSE, AND THAT THE AGENCY MAKES NO WARRANTY THAT THE PROPERTY IS FIT FOR ANY ANY GOVERNMENTAL OR QUASI-GOVERNMENTAL ENTITY OR OF ANY 15 1010\13\168937.5 PARTICULAR PURPOSE. THE DEVELOPER ACKNOWLEDGES THAT IT SHALL USE ITS INDEPENDENT JUDGMENT AND MAKE ITS OWN DETERMINATION AS TO THE SCOPE AND BREADTH OF ITS DUE DILIGENCE INVESTIGATION WHICH IT SHALL MAKE RELATIVE TO THE PROPERTY AND SHALL RELY UPON ITS OWN INVESTIGATION OF THE PHYSICAL, ENVIRONMENTAL, ECONOMIC AND LEGAL CONDITION OF THE PROPERTY (INCLUDING, WITHOUT LIMITATION, WHETHER THE PROPERTY IS LOCATED IN ANY AREA WHICH IS DESIGNATED AS A SPECIAL FLOOD HAZARD AREA, DAM FAILURE INUNDATION AREA, EARTHQUAKE FAULT ZONE, SEISMIC HAZARD ZONE, HIGH FIRE SEVERITY AREA OR WILDLAND FIRE AREA, BY ANY FEDERAL, STATE OR LOCAL AGENCY). THE DEVELOPER UNDERTAKES AND ASSUMES ALL RISKS ASSOCIATED WITH ALL MATTERS PERTAINING TO THE PROPERTY'S LOCATION IN ANY AREA DESIGNATED AS A SPECIAL FLOOD HAZARD AREA, DAM FAILURE INUNDATION AREA, EARTHQUAKE FAULT ZONE, SEISMIC HAZARD ZONE, HIGH FIRE SEVERITY AREA OR WILDLAND FIRE AREA, BY ANY FEDERAL, STATE OR LOCAL AGENCY. (b) Survival. The terms and conditions of this Section 3.5 shall expressly survive the Closing, shall not merge with the provisions of the Ground Lease, or any other closing documents and shall be deemed to be incorporated by reference into the Ground Lease. The Agency is not liable or bound in any manner by any oral or written statements, representations or information pertaining to the Property furnished by any contractor, agent, employee, servant or other person. The Developer acknowledges that the lease payments pursuant to the Ground Lease reflect the "as is" nature of this conveyance and any faults, liabilities, defects or other adverse matters that may be associated with the Property. The Developer has fully reviewed the disclaimers and waivers set forth in this Agreement with the Developer's counsel and understands the significance and effect thereof. (c) Acknowledment. The Developer acknowledges and agrees that (i) to the extent required to be operative, the disclaimers of warranties contained in Section 3.5 hereof are "conspicuous" disclaimers for purposes of all applicable laws and other legal requirements, and (ii) the disclaimers and other agreements set forth in such sections are an integral part of this Agreement, that the lease payments pursuant to the Ground Lease have been adjusted to reflect the same and that the Agency would not have agreed to convey the Property to the Developer pursuant to the Ground Lease without the disclaimers and other agreements set forth in this Section. (d) Developer's Release of the Agency. The Developer, on behalf of itself and anyone claiming by, through or under the Developer hereby waives its right to recover from and fully and irrevocably releases the City, the Agency and their respective council members, board members, employees, officers, directors, representatives, and agents (the "Released Parties") from any and all claims, responsibility and/or liability that the Developer may have or hereafter acquire against any of the Released Parties for any costs, loss, liability, damage, expenses, demand, action or cause of action arising from or related to (i) the condition (including any construction defects, errors, omissions or other conditions, latent or otherwise), valuation, salability or utility of the Property, or its suitability for any purpose whatsoever, (ii) any presence 1010\13\168937.5 16 so of Hazardous Materials, and (iii) any information furnished by the Released Parties under or in connection with this Agreement. (e) Scope of Release. The release set forth in Section 3.5(d) hereof includes claims of which the Developer is presently unaware or which the Developer does not presently suspect to exist which, if known by the Developer, would materially affect the Developer's release of the Released Parties. The Developer specifically waives the provision of any statute or principle of law that provides otherwise. In this connection and to the extent permitted by law, the Developer agrees, represents and warrants that the Developer realizes and acknowledges that factual matters now unknown to the Developer may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and the Developer further agrees, represents and warrants that the waivers and releases herein have been negotiated and agreed upon in light of that realization and that the Developer nevertheless hereby intends to release, discharge and acquit the Agency from any such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses. Accordingly, the Developer, on behalf of itself and anyone claiming by, through or under the Developer, hereby assumes the above-mentioned risks and hereby expressly waives any right the Developer and anyone claiming by, through or under the Developer, may have under Section 1542 of the California Civil Code, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Developer's Initials: Notwithstanding the foregoing, this release shall not apply to, nor shall the Agency be released from, the Agency's actual fraud or misrepresentation. Section 3.6 Costs of Escrow and Closing. Ad valorem taxes, if any, shall be prorated as of the date of conveyance. The Developer shall pay the cost of title insurance, transfer tax, Title Company document preparation, recordation fees and the escrow fees of the Title Company, if any, and any additional costs to close Escrow. The costs borne by the Developer are in addition to the lease payments pursuant to the Ground Lease and the repayment of the Agency Loan. 10 10\13\168937.5 17 ARTICLE 4. CONSTRUCTION OF IMPROVEMENTS Section 4.1 Construction Pursuant to Plans. Unless modified by operation of Section 4.2, the Improvements shall be constructed substantially in accordance with the Construction Plans and the terms and conditions of the land use permits and approvals and building permits, including any variances granted. Section 4.2 Change in Construction of Improvements. If the Developer desires to make any material change in the Improvements which are not substantially consistent with the Construction Plans, the Developer shall submit the proposed change to the Agency for its approval. No change which is required for compliance with building codes or other government health and safety regulations shall be deemed material. If the Improvements, as modified by any such proposed change, will conform to the requirements of this Agreement, and the Construction Plans, the Agency shall approve the change by notifying the Developer in writing. Unless a proposed change is rejected by the Agency withn ten (1 0) working days, it shall be deemed approved. If rejected within such time period, the previously approved Construction Plans shall continue to remain in full force and effect. If the Agency rejects a proposed change, it shall provide the Developer with the specific reasons therefore. The approval of changes in the Construction Plans by the Agency pursuant to this Section shall be in addition to any approvals required to be obtained from the City pursuant to building permit requirements. Approval of changes in the Construction Plans by the Agency shall not constitute approval by the City and shall in no way limit the City's discretion in approving changes to the Construction Plans. Section 4.3 Commencement of Imurovements. The Developer shall commence construction of the Improvements no later than the date set forth in the Schedule of Performance. Section 4.4 Completion of the Imurovements. The Developer shall diligently prosecute to completion the construction of the Improvements no later than the date set forth in the Schedule of Performance. Section 4.5 Esual Opportunity. During the construction of the Improvements there shall be no discrimination on the basis of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry in the hiring, firing, promoting or demoting of any person engaged in the construction work. 1010\13\168937.5 18 Section 4.6 Compliance with Applicable Law; Prevailing Wage Requirement. (a) The Developer shall cause all construction to be performed in compliance with (a) all applicable laws, ordinances, rules and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (b) all directions, rules and regulations of any fire marshal, health officer, building inspector, or other officer of every governmental agency now having or hereafter acquiring jurisdiction. The work shall proceed only after the payment of all applicable fees, procurement of each permit, license, or other authorization that may be required by any governmental agency having jurisdiction, and the Developer shall be responsible to the Agency for the procurement and maintenance thereof, as may be required of the Developer and all entities engaged in work on the Property. (b) The Developer shall and shall cause the contractor and subcontractors to pay prevailing wages in the construction of the Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq., and the implementing regulations of the Department of Industrial Relations (the "DIR") and comply with the other applicable provisions of Labor Code Sections 1720 et seq., including but not limited to the hiring of apprentices as required by Labor Code Sections 1775 et seq., and the implementing regulations of the DIR. The Developer shall and shall cause the contractor and subcontractors to keep and retain such records as are necessary to determine if such prevailing wages have been paid as required pursuant to Labor Code Sections 1720 et seq, and that apprentices have been employed as required by Labor Code Section 1777.5 et seq. Copies of the currently applicable per diem prevailing wages are available from the City. During the construction of the Improvements the Developer shall or shall cause the contractor to post at the Property the applicable prevailing rates of per diem wages. The Developer shall indemnify, hold harmless and defend (with counsel reasonably selected by the Agency) the Agency and the City against any claim for damages, compensation, fines, penalties or other amounts arising out of the failure or alleged failure of any person or entity (including Developer, its contractor and subcontractors) to pay prevailing wages as determined pursuant to Labor Code Sections 1720 et seq., to hire apprentices in accordance with Labor Code Sections 1777.5 et seq., and the implementing regulations of the DIR or comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR in connection with construction of the Improvements or any other work undertaken or in connection with the Property. Section 4.7 Promess Report. Until such time as the Developer has completed construction of the Improvements, as evidenced by a Certificate of Occupancy from the City building inspector, the Developer shall provide the Agency with quarterly progress reports regarding the status of the construction of the Development, including a certification that the actual construction costs to date conform to the Financing Plan. Section 4.8 Construction Responsibilities. (a) It shall be the responsibility of the Developer to coordinate and schedule the work to be performed so that commencement and completion of construction will take place in accordance with this Agreement. 1010\13\168937.5 19 (b) The Developer shall be solely responsible for all aspects of the Developer's conduct in connection with the Development, including (but not limited to) the quality and suitability of the plans and specifications, the supervision of construction work, and the qualifications, financial condition, and performance of all architects, engineers, contractors, subcontractors, suppliers, consultants, and property managers. Any review or inspection undertaken by the Agency with reference to the Development is solely for the purpose of determining whether the Developer is properly discharging its obligations to the Agency, and should not be relied upon by the Developer or by any third parties as a warranty or representation by the Agency as to the quality of the design or construction of the Development. Section 4.9 Mechanics Liens. Stop Notices, and Notices of Completion. (a) If any claim of lien is filed against the Property or the Improvements or a stop notice affecting the Agency Loan is served on the Agency or any other lender or other third party in connection with the Development, then the Developer shall, within thirty (30) days after such filing or service, either pay and fully discharge the lien or stop notice, effect the release of such lien or stop notice by delivering to the Agency a surety bond from a surety acceptable to the Agency in sufficient form and amount, or provide the Agency with other assurance satisfactory to the Agency that the claim of lien or stop notice will be paid or discharged. (b) If the Developer fails to discharge any lien, encumbrance, charge, or claim in the manner required in this Section or obtain a surety bond, then in addition to any other right or remedy, the Agency may (but shall be under no obligation to) discharge such lien, encumbrance, charge, or claim at the Developer's expense. Alternatively, the Agency may require the Developer to immediately deposit with the Agency the amount necessary to satisfy such lien or claim and any costs, pending resolution thereof. The Agency may use such deposit to satisfy any claim or lien that is adversely determined against the Developer. (c) The Developer shall file a valid notice of cessation or notice of completion upon cessation of construction of the Development for a continuous period of thirty (30) days or more, and take all other reasonable steps to forestall the assertion of claims of lien against the Property and/or Improvements. The Developer authorizes the Agency, but without any obligation, to record any notices of completion or cessation of labor, or any other notice that the Agency deems necessary or desirable to protect its interest in the Development and Property. Section 4.10 Inspections. The Developer shall permit and facilitate, and shall require its contractors to permit and facilitate, observation and inspection at the Development by the Agency and by public authorities during reasonable business hours for the purposes of determining compliance with this Agreement. Section 4.1 1 Information. The Developer shall provide any information reasonably requested by the Agency in connection with the Development. 10 10\13\168937.5 20 Section 4.12 Records. (a) The Developer shall maintain complete, accurate, and current records pertaining to the Development for a period of five (5) years after the creation of such records, and shall permit any duly authorized representative of the Agency to inspect and copy records upon reasonable notice to the Developer. Such records shall include all invoices, receipts, and other documents related to expenditures from the Agency Loan funds. Records must be kept accurate and current. (b) The Agency shall notify the Developer of any records it deems insufficient. The Developer shall have thirty (30) calendar days after the receipt of such a notice to correct any deficiency in the records specified by the Agency in such notice, or if a period longer than thirty (30) days is reasonably necessary to correct the deficiency, then the Developer shall begin to correct the deficiency within thirty (30) days and complete the correction of the deficiency as soon as reasonably possible. Section 4.13 Relocation. If and to the extent that the acquisition of the leasehold interest in the Property or construction of the Development by the Developer result in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then the Developer shall comply with all applicable local, state, and federal statutes and regulations, (including without limitation California Government Code Section 7260 et seq. and accompanying regulations) with respect to relocation planning, advisory assistance, and payment of monetary benefits. The Developer shall be solely responsible for payment of any relocation benefits to any displaced persons and any other obligations associated with complying with such relocation laws. The Developer shall defend (with counsel reasonably acceptable to the Agency and City), the Agency and City against any claim for damages, compensation, fines, penalties, relocation payments or other amounts arising out of the failure or alleged failure of any person or entity (including the Developer, Agency or City) to satisfy relocation obligations related to the development of the Development. This obligation to indemnify shall survive termination of this Agreement. Section 4.14 Financial Accounting and Post-Completion Audits. (a) No later than ninety (90) days following completion of construction of the Development, the Developer shall provide to the Agency a financial accounting of all sources and uses of funds for the Development. No later than one hundred fifty (1 50) days following completion of construction of the Development, the Developer shall submit an audited financial report to the Agency showing the sources and uses of all funds utilized for the Development. Such audit shall be used to determine the Net Proceeds of Permanent Financing and shall be subject to the Agency's approval as set forth in Section 5.5. (b) The Developer shall make available for examination at reasonable intervals and during normal business hours to Agency all books, accounts, reports, files, and other papers or property with respect to all matters covered by this Agreement, and shall permit Agency to audit, examine, and make excerpts or transcripts from such records upon reasonable prior notice to the Developer. The Agency, in its reasonable discretion, may make audits of any 1010\13\168937.5 21 55 records related to the development or operation of the Development or the Developer's compliance with the Agency Documents. Section 4.15 Financing; Revisions to Plan. As of the Effective Date, the Agency has approved the Financing Proposal set forth in Exhibit C. In accordance with Section 2.4, the Developer shall obtain the Agency's approval of the Financing Plan. The Developer shall submit any required amendments to the Financing Plan, including but not limited to and amendments or modifications to the development budget, or the commitment letter from any lender, to the City for approval within fifteen (15) days of the date the Developer receives information indicating that actual costs of the Development vary or will vary from the line item costs shown on the Financing Plan. Written consent of the Agency shall be required to amend the Financing Plan. ARTICLE 5. AGENCY LOAN PROVISIONS Section 5.1 Agency Loan. The Agency shall provide the Agency Loan to the Developer as predevelopment and construction financing in the principal amount of Two Million Three Hundred Eighty Four Thousand Eighty Dollars ($2,384,080), which amount includes the principal amount of the Predevelopment Loan. The Developer's obligation to pay the Agency Loan shall be evidenced by the Agency Note. For the purposes of this Article 5 the principal amount of the Agency Loan shall be treated in three (3) separate components: (a) CDBG Component. The CDBG Component consists of Two Hundred Thirty Six Thousand Five Hundred Twenty Eight Dollars ($236,528) and shall be used in the manner set forth in Section 5.3(a). (b) Fifty-One Thousand Eight Hundred Sixty Three Dollars ($351,863) and shall be used in the manner set forth in Section 5.3(b). HOME Component. The HOME Component consists of Three Hundred (c) Housing Fund Component. The Housing Fund Component consists of One Million Five Hundred Ninety Five Thousand Six Hundred Eighty Nine Dollars ($1,595,689) and shall be used in the manner set forth in Section 5.3(c). Section 5.2 Interest. Simple interest at three percent (3%) per annum shall accrue on the principal amount of the Agency Loan except for a Developer Event of Default by the Developer, whereupon interest shall accrue from and after the date of the Note until paid at the then current rate imposed under California Civil Code Section 3289(b), or any similar or successor provision thereof. 22 10 lOU3U68937.5 Section 5.3 Use of Agency Loan. The Agency Loan shall be used for predevelopment and construction financing in accordance with the Financing Plan to be approved by the Agency. Provided applicable predisposition requirements are met, the Agency Loan proceeds shall be disbursed for eligible project expenses, prior to the disbursement of other sources of funds. (a) CDBG Component. The CDBG Component shall be used by the Developer, in accordance with all applicable rules and regulations of CDBG, only for eligible predevelopment costs consistent with the Financing Proposal. (b) HOME Component. The HOME Component shall be used by the Developer, in accordance with all applicable rules and regulations of HOME, only for eligible off-site improvement costs consistent with the Financing Proposal. (c) Housing Fund Comuonent. The Housing Fund Component shall be used by the Developer, in accordance with all applicable provisions of the California Community Redevelopment Law (Health & Safety Code Section 33,000 et seq.), only for eligible predevelopment and construction costs consistent with the Financing Proposal. Section 5.4 Security. The Developer shall secure its obligation to pay the Agency Loan, as evidenced by the Agency Note, by executing the Agency Deed of Trust, which shall be recorded as a lien against the Developer's leasehold interest in the Property. The Agency agrees to subordinate the Agency Deed of Trust and the Regulatory Agreement Covenants to the lien(s) of the deed(s) of trust securing the Conventional Loans approved by the Agency in writing pursuant to the Financing Plan, provided the Agency is able to make the findings required to be made pursuant to Health and Safety Code Section 33334.14 and provided hrther the subordination documents are in a form reasonably acceptable to the Agency and provide the Agency with reasonably adequate notice and cure rights to enable the Agency to avoid foreclosure of a Conventional Loan. Section 5.5 Repayment Schedule. The Agency Loan shall be repaid as follows: (a) Term. The Agency Loan shall have a term that expires on the earlier of: (1) fifty-five (55) years after the date of issuance of a Certificate of Occupancy for the Improvements; or (2) August 1,2062. (b) Payments. Commencing on the May lSt first occurring after the Fiscal Year in which the Improvements are completed pursuant to this Agreement, and on each May lSt thereafter throughout the term of the Agency Loan, the Developer shall make repayments of the Agency Loan equal to seventy percent (70%) of the Residual Receipts. The Developer shall provide the Agency, by each May 1'' following each Fiscal Year, a report showing the actual income and expenditures with respect to the Development for the immediately preceding Fiscal 1010\13\168937.5 23 Year, the calculation of Annual Operating Expenses, Gross Revenue, and Residual Receipts and the status of all reserve funds, including without limitation, an annual audited financial statement for the Development prepared by a certified public accountant approved by the Agency. Payments made shall be credited first against accrued interest and then against outstanding principal. (c) Special Repayments from Net Proceeds of Permanent Financing. The Net Proceeds of Permanent Financing shall be paid one hundred percent (1 00%) to the Agency as a special repayment of the Agency Loan. The amount of the Net Proceeds of Permanent Financing shall be determined by the Developer and submitted to the Agency for approval on the date the Developer submits the final cost audit for the Development to the Agency pursuant to Section 4.14. The amount of the Net Proceeds of Permanent Financing shall be calculated using the actual principal amount of the permanent loan made to the Developer, provided that the Developer provides sufficient evidence that the permanent loan is the maximum principal amount that the Developer could secure for the Development applying reasonable underwriting standards. In addition to the audit submitted to the Agency, the Developer shall also submit to the Agency any additional documentation sufficient to verify the amount of the Net Proceeds of Permanent Financing set forth in such audit. The Agency shall reasonably approve or disapprove the Developer's determination of the amount of the Net Proceeds of Permanent Financing in writing within thirty (30) days of the receipt of the Developer's cost audit and supplemental documentation. If the Developer's determination is disapproved by the Agency, the Developer shall re-submit documentation to the Agency until the Agency approval is obtained. The City's share of the Net Proceeds of Permanent Financing shall be due the Agency from the Developer no later than five (5) days following the date the Agency approves the post- completion audit. (d) Pavment in Full. Subject to the provisions of subsection (d) below, all principal and interest, if any, on the Agency Loan shall, at the option of the Agency, be due and payable upon the earliest of: (i) a Transfer other than a Transfer permitted or approved by the , Agency as provided in Article 7 below; (ii) the occurrence of an Event of Default for which the Agency exercises its right to cause the Agency Loan indebtedness to become immediately due and payable; or (iii) the expiration of the term specified in (a) above. (e) Prepayment. The Developer shall have the right to prepay the Agency Loan at any time. However, this Agreement and'the Regulatory Agreement Covenants shall remain in effect for their entire respective terms, regardless of any prepayment or timely payment of the Agency Loan. Section 5.6 Conditions Precedent to Disbursement of Agency Loan. The Agency has already disbursed Two Hundred Thousand Dollars ($200,000) of the Agency Loan to the Developer pursuant to the Predevelopment Loan Agreement. The remaining amount of Agency Loan hds to be disbursed to the Developer pursuant to this Section 5.6 shall not exceed Two Million One Hundred Eighty Four Thousand Eighty Dollars ($2,184,080). Upon the Agency's disbursement of any portion of the remaining amount of the Agency Loan the Predevelopment Loan Agreement shall be cancelled by the Parties. The Agency shall not be obligated to make any disbursements of such remaining Agency Loan proceeds for costs of the Development unless 10 10\13\168937.5 24 the following conditions precedent are satisfied prior to each such disbursement of the Agency Loan: (i) The Agency has leased the Property to Developer, the Developer has executed and delivered to the Agency the Agency Note, the Agency Deed of Trust, the Ground Lease, the Memorandum of Ground Lease, and the Regulatory Agreement Covenants and the Agency Deed of Trust, the Memorandum of Ground Lease and Regulatory Agreement Covenants have been recorded against the Property; (ii) There exists no Developer Event of Default nor any act, failure, omission or condition that would constitute a Developer Event of Default under this Agreement; (iii) The Agency has received and approved the general contractor's construction contract that the Developer has entered or proposed to enter for construction of the Development as required pursuant to Section 2.8 above; (iv) The Agency has reasonably approved: (i) the copy of the labor and material (payment) bond and (ii) the copy of the performance bond from the Developer, or the Developer's general contractor, previously approved by the Agency for the construction of the Improvements as required pursuant to Section 2.9 above; (v) The Developer has closed all construction financing for the Development and has provided evidence reasonably acceptable to the Agency that the Developer is prepared to commence construction of the Improvements no later than the date set forth in the Schedule of Performance; and (vi) The Agency has received a written draw request from Developer, including certification that the condition set forth in Section 5.6(b)(ii) continues to be satisfied, and setting forth the proposed uses of funds consistent with the Financing Plan, the amount of funds needed, and, where applicable, a copy of the bill or invoice covering a cost incurred or to be incurred. When a disbursement is requested to pay any contractor in connection with the Improvements, the written request must be accompanied by (i) certification by Developer's architect reasonably acceptable to the Agency that the work for which disbursement is requested has been completed (although the Agency reserves the right to inspect the Development and make an independent evaluation); and (ii) lien releases and/or mechanics lien title insurance endorsements reasonably acceptable to the Agency. Section 5.7 Reports and Accounting of Residual Receipts. (a) Audited Financial Statement. In connection with the annual repayment of the Agency Loan, the Developer shall furnish to the Agency an audited statement duly certified by an independent firm of certified public accountants approved by the Agency, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. 1010\13\168937.5 25 (b) Books and Records. The Developer shall keep and maintain at the Development, or elsewhere with the Agency's written consent, full, complete and appropriate books, record and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail the Developer's calculation of Residual Receipts. Books, records and accounts relating to the Developer's compliance with the terms, provisions, covenants and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Agreement which provide for the calculation of Residual Receipts on a cash basis. All such books, records, and accounts shall be open to and available for inspection by the Agency, its auditors or other authorized representatives at reasonable intervals during normal business hours. Copies of all tax returns and other reports that the Developer may be required to hish any governmental agency shall at all reasonable times be open for inspection by the Agency at the place that the books, records and accounts of the Developer are kept. The Developer shall preserve records on which any statement of Residual Receipts is based for a period of not less than five (5) years after such statement is rendered, and for any period during which there is an audit undertaken pursuant to subsection (c) below then pending. (c) Agency Audits. The receipt by the Agency of any statement pursuant to subsection (a) above or any payment by the Developer or acceptance by the Agency of any loan repayment for any period shall not bind the Agency as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the Agency or any designated agent or employee of the Agency at any time shall be entitled to audit the Residual Receipts and all books, records, and accounts pertaining thereto. Such audit shall be conducted during normal business hours at the principal place of business of the Developer and other places where records are kept. Immediately after the completion of an audit, the Agency shall deliver a copy of the results of such audit to the Developer. If it shall be determined as a result of such audit that there has been a deficiency in a loan repayment to the Agency, then such deficiency shall become immediately due and payable with interest at the default rate set forth in Section 5.2(b) above, determined as of and accruing from the date that said payment should have been made. In addition, if the Developer's auditor's statement for any calendar year shall be found to have understated Residual Receipts by more than five percent (5%) and the Agency is entitled to any additional Loan repayment as a result of said understatement, then the Developer shall pay, in addition to the interest charges referenced hereinabove, all of the Agency's reasonable costs and expenses connected with any audit or review of the Developer's accounts and records. Notwithstanding the above, the Agency shall not require the Developer to pay the Agency's audit costs and expenses unless the amount due the Agency as a result of the audit exceeds Three Thousand Dollars ($3,000), or if the Agency reasonably determines that the Developer's error is a repeated error or otherwise made in bad faith. Section 5.8 Developer Fee. The amount and the terms of the Agency Loan, as provided in this Article 5, have been established by taking into account the anticipated costs of development, including a maximum Developer Fee to be paid for development and construction management services. In this regard, the Developer shall be entitled to a Developer Fee in an amount not to exceed Two Hundred 26 10 10\13\168937.5 Thousand Dollars ($200,000). Except for the Developer Fee, no compensation from any source shall be received by or be payable to the Developer, or any affiliate of the Developer in connection with the provision of development and construction management services for the acquisition and construction of the Development. Section 5.9 Assumption. The Agency Note shall not be assumable by successors and assigns of the Developer without the prior written consent of the Agency, which consent shall be granted or denied in the Agency's sole discretion. Section 5.10 Non-Recourse. Following recordation of the Agency Deed of Trust, and except as provided below, the Developer shall not have any direct or indirect personal liability for payment of the principal of, or interest on, the Agency Loan or the performance of the covenants of the Developer under the Agency Deed of Trust. The sole recourse of the Agency with respect to the principal of, or interest on, the Agency Note and defaults by the Developer in the perfonnance of its covenants under the Agency Deed of Trust shall be to the property described in the Agency Deed of Trust; provided, however, that nothing contained in the foregoing limitation of liability shall (a) limit or impair the enforcement against all such security for the Agency Note of all the rights and remedies of the Agency thereunder, or (b) be deemed in any way to impair the right of the Agency to assert the unpaid principal amount of the Agency Note as demand for money within the meaning and intendment of Section 43 1.70 of the California Code of Civil Procedure or any successor provision thereto. The foregoing limitation of liability is intended to apply only to the obligation for the repayment of the principal of, and payment of interest on the Agency Note and the performance of the Developer's obligations under the Agency Deed of Trust, except as hereafter set forth; nothing contained herein is intended to relieve the Developer of its waiver of Agency liability in Section 3.5 and the Developer's obligation to indemnify the Agency under Sections 4.6,4.13,6.6(b), and 10.7, 10.9 of this Agreement, or liability for (i) fraud or willful misrepresentation; (ii) the failure to pay taxes, assessments or other charges which may create liens on the Developer's leasehold interest of the Property that are payable or applicable prior to any foreclosure under the Agency Deed of Trust (to the full extent of such taxes, assessments or other charges); (iii) the fair market value of any personal property or fixtures removed or disposed of by the Developer other than in accordance with the Agency Deed of Trust; and (iv) the misappropriation of any proceeds under any insurance policies or awards resulting from condemnation or the exercise of the power of eminent domain or by reason of damage, loss or destruction to any portion of the Development. Prior to recordation of the Agency Deed of Trust, the Agency Loan shall be fully recourse to the Developer. 1010\13\168937.5 27 ARTICLE 6. ONGOING DEVELOPER OBLIGATIONS Section 6.1 Awlicabilitv. The conditions and obligations set forth in this Article 6 shall apply throughout the Term, unless a different period of applicability is specified for a particular condition or obligation. Section 6.2 Use. The Developer hereby agrees that, for the entire Term, the Development will be used only for residential use consistent with the Regulatory Agreement Covenants. The Regulatory Agreement Covenants shall require that a portion of the Units shall be affordable to and occupied by Very Low Income Households as that term is defined in the Regulatory Agreement Covenants. Section 6.3 Maintenance. The Developer agrees, for the entire Term of this Agreement, to maintain all interior and exterior improvements, including landscaping, of the Development in first-class condition, repair and sanitary condition (and, as to landscaping, in a healthy condition) and in accordance with a management plan approved pursuant to Section 2.6 of this Agreement (including without limitation any landscape and signage plans), as the same may be amended from time to time, and all applicable laws, rules, ordinances, orders, and regulations of all federal, state, Agency, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. The Developer acknowledges the great emphasis the Agency places on quality maintenance to protect its investment and to provide quality low-income housing for area residents and to ensure that Agency-assisted affordable housing projects are not allowed to deteriorate due to deficient maintenance. In addition, the Developer shall keep the Development free from all graffiti and any accumulation of debris or waste material. The Developer shall promptly make all repairs and replacements necessary to keep the Development in first-class condition and repair and shall promptly eliminate all graffiti and replace dead and diseased plants and landscaping with comparable approved materials. In the event that the Developer breaches any of the covenants contained in this Section 6.3 and such default continues for a period of ten (10) days after written notice from the Agency (with respect to graffiti, debris, waste material, and general maintenance) or thirty (30) days after written notice from the Agency, with respect to landscaping and building improvements (and subject to any stricter requirements included in any applicable City ordinance), then the Agency, in addition to whatever other remedy it may have under this Agreement, at law or in equity, shall have the right to enter upon the Development and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, the Agency shall be permitted (but is not required) to enter upon the Development and perform all acts and work 28 10 10\13\168937.5 necessary to protect, maintain and preserve the improvements and landscaped areas of the Property, and to attach a lien on the Developer's leasehold interest in the Property, or to assess the Developer's leasehold interest in the Property, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by the Agency and/or costs of such cure. The Developer shall promptly pay to the Agency, as applicable, the amount of the expenditure arising from such acts and work of protection, maintenance, and preservation by the Agency and/or costs of such cure, including a fifteen percent (1 5%) administrative charge. Section 6.4 Taxes and Assessments. The Developer shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property or the Developer's leasehold interest in the Property; provided, however, that the Developer shall have the right to contest in good faith any such taxes, assessments, or charges. In the event the Developer exercises its right to contest any tax, assessment, or charge against it, the Developer, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against it, together with all costs, charges and interest. Section 6.5 Mandatory Language in All Subsequent Deeds. Leases and Contracts. (a) Basic Requirement. The Developer covenants by and for itself, its successors and assigns that there shall be no discrimination against or segregation of a person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry or disability in the sale, lease, sublease transfer, use, occupancy, tenure or enjoyment of the Development nor shall the Developer or any person claiming under or through the Developer establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Development. The foregoing covenant shall run with the land. (b) Provisions In Conveyance Documents. All deeds, leases or contracts made or entered into by Developer, its successors or assigns, as to any portion of the Property shall contain therein the following language: In Deeds: "Grantee herein covenants by and for itself, its successors and assigns that there shall be no discrimination against or segregation of a person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry or disability in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property herein conveyed nor shall the grantee or any person claiming under or through the grantee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, 1010\13\168937.5 sublessees or vendees in the property herein conveyed. The foregoing covenant shall run with the land." In Leases: '!The lessee herein covenants by and for the lessee and lessee's heirs, personal representatives and assigns and all persons claiming under the lessee or through the lessee that this lease is made subject to the condition that there shall be no discrimination against or segregation of any person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry or disability in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the land herein leased nor shall the lessee or any person claiming under or through the lessee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein leased." In Contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry or disability in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property nor shall the transferee or any person claiming under or through the transferee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the land." Section 6.6 Hazardous Materials. (a) Covenants. (i) No Hazardous Materials Activities. The Developer hereby represents and warrants to the Agency that, at all times from and after the Closing, the Developer shall not cause or permit the Property, or the Improvements thereon to be used as a site for the use, generation, manufacture, storage, treatment, release, discharge, disposal, transportation or presence of any Hazardous Materials. (ii) Hazardous Materials Laws. The Developer hereby represents and warrants to the Agency that, at all times from and after the Closing, the Developer shall comply and cause the Property, and the Improvements thereon to comply with Hazardous Materials Laws, including without limitation, those relating to soil and groundwater conditions. (iii) Notices. The Developer hereby represents and warrants to the Agency that, at all times from and after the Closing, the Developer shall immediately notify the Agency in writing of: (i) the discovery of any Hazardous Materials on or under the Property; (ii) any knowledge by the Developer that the Property does not comply with any Hazardous 1010\13\168937.5 30 Materials Laws; (iii) any claims or actions pending or threatened against the Developer, the Property, or the Improvements by any governmental entity or agency or any other person or entity relating to Hazardous Materials or pursuant to any Hazardous Materials Laws (collectively "Hazardous Materials Claims"); and (iv) the discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property, that could cause the Property, or any part thereof to be designated as "border zone property" under the provisions of California Health and Safety Code Sections 25220, et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Development under any Hazardous Materials Laws. The Agency shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorney's fees in connection therewith paid by the Developer. (iv) Without the Agency's prior written consent, which shall not be unreasonably withheld, the Developer shall not take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Development (other than in emergency situations or as required by governmental agencies having jurisdiction), nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Materials Claims. (b) Indemnity. Without limiting the generality of the indemnification set forth in Section 10.7 below, the Developer hereby agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the Agency) the Agency, the City, their respective board and council members, officers, and employees from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including, but not limited to, reasonable attorney's fees and expenses), arising directly or indirectly, in whole or in part, out of: (1) the failure of the Developer or any other person or entity to comply with any Hazardous Materials Law relating in any way whatsoever to the handling, treatment, presence, removal, storage, decontamination, cleanup, transportation or disposal of Hazardous Materials into, on, under or from the Development on or after the date of conveyance of the Property to the Developer; (2) the presence in, on or under the Development of any Hazardous Materials or any releases or discharges of any Hazardous Materials into, on, under or from the Development to the extent it arises on or after the date of conveyance of the Property to the Developer; or (3) any activity carried on or undertaken on or off the Development, subsequent to the conveyance of the Property to the Developer, and whether by the Developer or any successor in title or any employees, agents, contractors or subcontractors of the Developer or any successor in title, or any third persons at any time occupying or present on the Development, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport or disposal of any Hazardous Materials at any time located or present on or under the Development. The foregoing indemnity shall further apply to any residual contamination on or under the Development, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, treatment, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with Hazardous Materials Laws. The provisions of this subsection 1010\13\168937.5 31 c': ..J shall survive expiration of the Term or other termination of this Agreement, and shall remain in full force and effect. (c) No Limitation. The Developer hereby acknowledges and agrees that the Developer's duties, obligations and liabilities under this Agreement, including, without limitation, under subsection (b) above, are in no way limited or otherwise affected by any information the Agency may have concerning the Development and/or the presence within the Development of any Hazardous Materials, whether the Agency obtained such information fi-om the Developer or from its own investigations. Section 6.7 Management Agent; Periodic Reports. (a) Management Anent. The Development shall at all times be managed by an experienced Management Agent reasonably acceptable to the Agency, with demonstrated ability to operate residential facilities like the Development in a manner that will provide decent, safe, and sanitary housing. For any change in the Management Agent, the Developer shall submit for the Agency's approval the identity of any proposed Management Agent. The Developer shall also submit such additional information about the background, experience and financial condition of any proposed Management Agent as is reasonably necessary for the Agency to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. If the proposed Management Agent meets the standard for a qualified Management Agent set forth above, the Agency shall approve the proposed Management Agent by notifying Developer in writing. (b) Performance Review. The Agency reserves the right to conduct a periodic review of the management practices and financial status of the Development within thirty (30) days after each anniversary of the issuance of the Certificate of Occupancy. The purpose of each periodic review will be to enable the Agency to determine if the Development is being operated and managed in accordance with the requirements and standards of this Agreement. The Developer shall cooperate with the Agency in such reviews. (c) Books, Records and Reports. For purposes of such periodic reviews, the Developer and the Management Agent shall make available to the Agency for inspection all books and records with respect to the Development. In addition, the Developer shall provide the Agency with: (1) by not later than thirty (30) days prior to commencement of each Fiscal Year, the annual budget for the upcoming Fiscal Year; (2) within ninety (90) days following the end of each Fiscal Year, a report showing the actual income and expenditures with respect to the Development for the immediately preceding Fiscal Year and the status of all reserve funds; and (3) within ninety (90) days following the end of each Fiscal Year, a copy of the Developer's federal income tax filings, or annual statement submitted to the IRS, for the Fiscal Year. (d) Replacement of Management Agent. If, as a result of a periodic review, the Agency determines in its reasonable judgment that the Development is not being operated and managed in accordance with any of the requirements and standards of this Agreement, the Agency shall deliver notice to the Developer of its intention to cause replacement of the Management Agent. Within fifteen (1 5) days of receipt by the Developer of such written notice, 10 10\13\168937.5 32 Agency staff and the Developer shall meet in good faith to consider methods for improving the financial and operating status of the Development, including, without limitation, replacement of the Management Agent. If, after such meeting, Agency staff recommends in writing the replacement of the Management Agent, the Developer shall promptly dismiss the then Management Agent, and shall appoint as the Management Agent a person or entity meeting the standards for a Management Agent set forth in subsection (a) above and approved by the Agency pursuant to subsection (a) above. Any contract for the operation or management of the Development entered into by the Developer shall provide that the contract can be terminated as set forth above. Failure to remove the Management Agent in accordance with the provisions of this Section shall constitute a Developer Event of Default under this Agreement, and the Agency may enforce this provision through legal proceedings as specified in Article 8. Section 6.8 Approval of Management Policies. Pursuant to Section 2.6, the Agency is to review and approve the written management policies for the Development prior to execution of the Ground Lease. The Developer shall submit any changes to the approved written management policies with respect to the Development to the Agency for its review and approval, and shall amend such policies in any way necessary to ensure that such policies comply with the provisions of this Agreement. The Agency's approval of the management policies, or amendments thereto, shall not be unreasonably withheld. Section 6.9 Insurance Requirements. (a) Required Coverage. The Developer shall maintain and keep in force, at the Developer's sole cost and expense, the following insurance applicable to the Development: (i) To the extent required by law, Worker's Compensation insurance, including Employer's Liability coverage, with limits not less than required by applicable law. (ii) Comprehensive or Commercial General Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for Contractual Liability, Personal Injury, Broadform Property Damage, Products and Completed Operations. (iii) Comprehensive Automobile Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for owned, non-owned and hired vehicles, as applicable; provided, however, that if the Developer does not own or lease vehicles for purposes of this Agreement, then no automobile insurance shall be required and both parties to this Agreement shall initial this provision signifying same. 1010\13\168937.5 33 L; 'I (iv) Property insurance covering the Development covering all risks of loss, including earthquake (but only if it is commercially affordable at a reasonable price and with a reasonable deductible, in Agency's reasonable opinion, and if Agency requests in writing that such coverage be carried) and flood, if the Property is located in a flood zone, for one hundred percent (1 00%) of the replacement value, with deductible, if any, acceptable to the Agency, naming the Agency as a Loss Payee, as its interest may appear. (b) Contractor's Insurance. The Developer shall cause any general contractor or agent working on the Development under direct contract with the Developer (including, but not limited to, the Developer's architect) to maintain insurance of the types and in at least the minimum amounts described in subsections (a)(l), (a)(2), and (a)(3) above, and shall require that such insurance shall meet all of the general requirements of subsection (c) below. Subcontractors working on the Development under indirect contract with the Developer shall be required to maintain the insurance described in subsections (a)( l), (a)(2) and (a)(3) above. Liability and Comprehensive Automobile Liability insurance to be maintained by such contractors and agents pursuant to this subsection shall name as additional insureds the Agency, the City, their board members, officers, agents, and employees. (c) General Reauirements. The required insurance shall be provided under an occurrence form, and the Developer shall maintain such coverage continuously throughout the Term. Should any of the required insurance be provided under a form of coverage that includes an annual aggregate limit or provides that claims investigation or legal defense costs be included in such annual aggregate limit, such annual aggregate limit shall be three times the occurrence limits specified above. Comprehensive General Liability, Comprehensive Automobile Liability and Property insurance policies shall be endorsed to name as additional insureds the Agency and its board members, officers, agents, and employees. All policies and bonds shall contain (a) the agreement of the insurer to give the Agency at least thirty (30) days' notice prior to cancellation (including, without limitation, for non payment of premium) or any material change in said policies; (b) an agreement that such policies are primary and non contributing with any insurance that may be carried by the Agency; (c) a provision that no act or omission of the Developer shall affect or limit the obligation of the insurance carrier to pay the amount of any loss sustained; and (d) a waiver by the insurer of all rights of subrogation against the Agency and its authorized parties in connection with any loss or damage thereby insured against. Upon the execution of the Ground Lease, in the event of any conflict between this Agreement and the Ground Lease regarding insurance, the provisions of the Ground Lease shall control. (d) Certificates of Insurance. Upon the Agency's request at any time during the term of this Agreement, the Developer shall provide certificates of insurance, in form and with insurers reasonable acceptable to the Agency, evidencing compliance with the requirements of this Section, and shall provide complete copies of such insurance policies, including a separate endorsement naming the Agency as additional insured, if requested by the Agency. Section 6.10 Audits. The Developer shall make available for examination at reasonable intervals and during normal business hours to Agency all books, accounts, reports, files, and 1010\13\168937.5 34 other papers or property with respect to all matters covered by this Agreement, and shall permit Agency to audit, examine, and make excerpts or transcripts from such records. Agency may make audits of any conditions relating to this Agreement. Section 6.1 1 CDBG and HOME Requirements. (a) The Developer shall comply with all applicable laws and regulations governing the use of the CDBG Component as set forth in 24 CFR 570 et seq., and HOME Component as set forth in 24 CFR 92 et seq., including but not limited to the requirements of the Regulatory Agreement Covenants. In the event of any conflict between this Agreement and applicable laws and regulations governing the use of the CDBG Component or HOME Component, the applicable laws and regulations shall govern. (b) The laws and regulations governing the use of the CDBG Component and HOME Component include (but are not limited to) the following: (i) Environmental and Historic Preservation. Section 104(f) of the Housing and Community Residence Act of 1974 and 24 CFR Part 58, which prescribe procedures for compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 432 1 - 4361), and the additional laws and authorities listed at 24 CFR 58.5. (ii) Applicability of OMB Circulars. The applicable policies, guidelines, and requirements of OMB Circulars Nos. A-87, A-102, Revised, A-1 10 and A-122. (iii) Architectural Barriers. The requirements of the Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157). (iv) Lead-Based Paint. The requirement of the Lead-Based Paint Poisoning Prevention Act, as amended (42 U.S.C. 4821 et seq.) and implementing regulations at 24 CFR Part 35. (v) Relocation. The requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. If and to the extent that acquisition and of the Development results in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then Developer shall comply with all applicable local, state, and federal statutes and regulations as set forth in Section 4.13. (vi) Handicap Discrimination. The requirements of Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 706), and federal regulations issued pursuant thereto, which prohibits discrimination against the handicapped in any federally assisted program, and the applicable requirements of Title I1 and/or Title I11 of the Americans with Disabilities Act of 1990 (42 U.S.C. 12131 et seq.). (vii) Training Opp ortunities. The requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.C. 1701, requiring that to the greatest extent feasible opportunities for training and employment be given to lower income residents of the project area and agreements for work in connection with the project be awarded 1010\13\168937.5 35 G'4 to business concerns which are located in, or owned in substantial part by persons residing in, the areas of the project. Developer agrees to include the following language in all subcontracts executed under this Agreement: "The work to be performed under this agreement is a project assisted under a program providing direct federal financial assistance from HUD and is subject to the requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended 12 U.S.C. 1701. Section 3 requires that to the greatest extent feasible opportunities for training and employment be given to lower income residents of the project area and agreements for work in connection with the project be awarded to business concerns which are located in, or owned in substantial part by persons residing in, the areas of the project." (viii) Drup Free Workplace. The requirements of the Drug Free Workplace Act of 1988 (P.L. 100-690) and implementing regulations at 24 CFR Part 24. (ix) Davis-Bacon Act and implementing regulations. Davis-Bacon Act. The prevailing wages requirements of the (x) HUD Regulations. Any other HUD regulations present or as may be amended, added, or waived in the future pertaining to the CDBG Component and the HOME Component. ARTICLE 7. ASSIGNMENT AND TRANSFERS Section 7.1 Definitions. As used in this Article, the term "Transfer" means: (a) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to this Agreement or of the Development or any part thereof or any interest therein or any contract or agreement to do any of the same; or (b) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to any ownership interest in Developer or any contract or agreement to do any of the same; or (c) Any merger, consolidation, sale or lease of all or substantially all of the assets of Developer; or (d) The leasing of part or all of the Property or the Improvements thereon; provided, however, that leasing of the Units included within the Improvements to tenant occupants in accordance with the Regulatory Agreement Covenants shall not be deemed a "Transfer" for purposes of this Article. 1010\13\168937.5 36 Section 7.2 Purpose of Restrictions on Transfer. This Agreement is entered into solely for the purpose of development and operation of the Development and its subsequent use in accordance with the terms hereof. The Developer recognizes that the qualifications and identity of the Developer are of particular concern to the Agency, in view of: (a) The importance of the development of the Property to the general welfare of the community; and (b) The land acquisition assistance and other public aids that have been made available by law and by the government for the purpose of making such development possible; and (c) The reliance by the Agency upon the unique qualifications and ability of the Developer to serve as the catalyst for development of the Property and upon the continuing interest which the Developer will have in the Property to assure the quality of the use, operation and maintenance deemed critical by the Agency in the development of the Property; and (d) The fact that a change in ownership or control of the owner of the Property, or of a substantial part thereof, or any other act or transaction involving or resulting in a significant change in ownership or with respect to the identity of the parties in control of the Developer or the degree thereof is for practical purposes a transfer or disposition of the Property; and (e) The fact that the Property is not to be acquired or used for speculation, but only for development and operation by the Developer in accordance with the Agreement; and (f) The importance to the Agency and the community of the standards of use, operation and maintenance of the Property. (g) The Developer further recognizes that it is because of such qualifications and identity that the Agency is entering into this Agreement with the Developer and that Transfers are permitted only as provided in this Agreement. Section 7.3 Prohibited Transfers. The limitations on Transfers set forth in this Section shall apply until execution of the Ground Lease. Except as expressly permitted in this Agreement, the Developer represents and agrees that the Developer has not made or created, and will not make or create or suffer to be made or created, any Transfer, either voluntarily or by operation of law without the prior written approval of the Agency. Any Transfer made in contravention of this Section shall be void and shall be deemed to be a default under this Agreement whether or not the Developer knew of or participated in such Transfer. 10 10\13\168937.5 37 Section 7.4 Permitted Transfers. Notwithstanding the provisions of Section 7.3, the following Transfers shall be permitted and are hereby approved by the Agency. (a) Any Transfer creating a Security Financing Interest permitted pursuant to the approved Financing Plan; (b) Any Transfer directly resulting from the foreclosure of a Security Financing Interest or the granting of a deed in lieu of foreclosure of a Security Financing Interest or as otherwise permitted under Article 7. (c) Any Transfer to an entity Controlled by the Developer, provided that, (1) the Developer has submitted such entity's organizational documents to the Agency and the Agency has determined that such entity is Controlled by the Developer, and (2) upon such Transfer, the transferee, by an instrument in writing prepared by the Agency and in form recordable among the land records, shall expressly assume the obligations of the Developer under this Agreement and the Agency Documents and agrees to be subject to the conditions and restrictions to which the Developer is subject arising during this Agreement and the Agency Documents. Section 7.5 Effectuation of Certain Permitted Transfers. No Transfer of this Agreement permitted pursuant to Section 7.6 shall be effective unless, at the time of the Transfer, the person or entity to which such Transfer is made, by an instrument in writing prepared by the Agency and in form recordable among the land records, shall expressly assume the obligations of the Developer under this Agreement and agree to be subject to the conditions and restrictions to which the Developer is subject arising during this Agreement, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. Anything to the contrary notwithstanding, the holder of a Security Financing Interest whose interest shall have been acquired by, through or under a Security Financing Interest or shall have been derived immediately from any holder thereof shall not be required to give to Agency such written assumption until such holder or other person is in possession of the Property or entitled to possession thereof pursuant to enforcement of the Security Financing Interest. In the absence of specific written agreement by the Agency, no such Transfer, assignment or approval by the Agency shall be deemed to relieve the Developer or any other party from any obligations under this Agreement. Section 7.6 Other Transfers with Agency Consent. The Agency may, in its sole discretion, approve in writing other Transfers as requested by the Developer. In connection with such request, there shall be submitted to the Agency for review all instruments and other legal documents proposed to affect any such Transfer. If a requested Transfer is approved by the Agency such approval shall be indicated to the Developer 1010\13\168937.5 38 in writing. Such approval shall be granted or denied by the Agency within thirty (30) days of receipt by the Agency of Developer's request for approval of a Transfer. Upon such approval, if granted, the transferee, by an instrument in writing prepared by the Agency and in form recordable among the land records, shall expressly assume the obligations of the Developer under this Agreement and agree to be subject to the conditions and restrictions to which the Developer is subject arising during this Agreement, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. ARTICLE 8. DEFAULT AND REMEDIES Section 8.1 General Auplicability. The provisions of this Article shall govern the Parties' remedies for breach or failure of this Agreement. Section 8.2 No Fault of Parties. The following events constitute a basis for a party to terminate this Agreement without the fault of the other: (a) The Developer, despite good faith and diligent efforts, is unable to satisfy all of the conditions precedent to the Agency's obligation to execute the Ground Lease set forth in Article 2 by no later than the dates set forth in the Schedule of Performance; or (b) The Agency, despite good faith and diligent efforts, is unable to execute the Ground Lease and lease the Property to the Developer and the Developer is otherwise entitled to the lease of the Property. Upon the happening of any of the above-described events, and at the election of either party, this Agreement may be terminated by written notice to the other party. After termination, neither party shall have any rights against or liability to the other under this Agreement, except that the waiver and indemnification provisions of Sections 3.5,4.6,4.13, 6.6(b), 10.7 and 10.9 shall survive such termination and remain in full force and effect. Section 8.3 Fault of Agency. Except as to events constituting a basis for termination under Section 8.2, the following events each constitute an Agency Event of Default and a basis for the Developer to take action against the Agency: (a) The Agency, without good cause, fails to lease the Property to the Developer within the time and in the manner set forth in Article 3 and the Developer is otherwise entitled by this Agreement to such conveyance; or 1010\13\168937.5 39 (b) The Agency, without good cause, fails to disburse the proceeds of the Agency Loan when Developer is entitled to such disbursement pursuant to the provisions of this Agreement. (c) The Agency breaches any other material provision of this Agreement. Upon the happening of any of the above-described events, the Developer shall first notify the Agency in writing of its purported breach or failure, giving the Agency forty-five (45) days from receipt of such notice to cure or, if cure cannot be accomplished within forty-five (45) days, to commence to cure such breach, failure, or act. In the event the Agency does not then so cure within said forty-five (45) days, or if the breach or failure is of such a nature that it cannot be cured within forty-five (45) days, the Agency fails to commence to cure within such forty-five (45) days and thereafter diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (120) days, then the Developer shall be afforded all of its rights at law or in equity, by taking all or any of the following remedies: (1) terminating in writing this Agreement (provided, however, that the indemnification provisions of Sections 3.5, 4.6,4.14,6.6(b), 10.7 and 10.9 shall survive such termination) and the Ground Lease; and (2) prosecuting an action for damages or specific performance. Section 8.4 Fault of Develotler. Except as to events constituting a basis for termination under Section 8.2, the following events each constitute a Developer Event of Default and a basis for the Agency to take action against the Developer: (a) The Developer fails to exercise good faith and diligent efforts to satisfy, within the time set forth in the Schedule of Performance, one or more of the conditions precedent to the Agency's obligation to convey the Property to the Developer; or (b) The Developer refuses to execute the Ground Lease within the time set forth in the Schedule of Performance and under the terms set forth in Article 3; or (c) The Developer constructs or attempts to construct the Improvements in violation of Article 4; or (d) The Developer has not satisfied all preconditions set forth in this Agreement to commencement of construction of the Improvements by the date set forth in the Schedule of Performance, or fails to commence or complete construction of the Improvements within the times set forth in the Schedule of Performance, or abandons or suspends construction of the Improvements prior to completion of all construction for a period of sixty (60) days after written notice by the Agency of such abandonment or suspension; (e) The Developer fails to comply with any obligation or requirement set forth in Articles 5 or 6; or 1010\13\168937.5 40 (f) A Transfer occurs, either voluntarily or involuntarily, in violation of Article 7; (8) Any representation or warranty contained in this Agreement or in any application, financial statement, certificate or report submitted to the Agency in connection with this Agreement proves to have been incorrect in any material and adverse respect when made. (h) An Event of Default occurs under the Agency Ground Lease, the Regulatory Agreement Covenants, the Agency Deed of Trust, or the Agency Note. (i) A court having jurisdiction shall have made or entered any decree or order (1) adjudging the Developer to be bankrupt or insolvent, (2) approving as properly filed a petition seeking reorganization of the Developer or seeking any arrangement for the Developer under the bankruptcy law or any other applicable debtor's relief law or statute of the United States or any state or other jurisdiction, (3) appointing a receiver, trustee, liquidator, or assignee of the Developer in bankruptcy or insolvency or for any of their properties, or (4) directing the winding up or liquidation of the Developer, if any such decree or order described in clauses (1) to (4), inclusive, shall have continued unstayed or undischarged for a period of ninety (90) days unless a lesser time period is permitted for cure under any other mortgage on the Property, in which event such lesser time period will apply under this subsection (i) as well; or the Developer shall have admitted in writing its inability to pay its debts as they fall due or shall have voluntarily submitted to or filed a petition seeking any decree or order of the nature described in clauses (1) to (4), inclusive. (j) The Developer shall have assigned its assets for the benefit of its creditors or suffered a sequestration or attachment of or execution on any substantial part of its property, unless the property so assigned, sequestered, attached or executed upon shall have been returned or released within ninety (90) days after such event (unless a lesser time period is permitted for cure under any other mortgage on the Property, in which event such lesser time period shall apply under this subsection (i) as well) or prior to sooner sale pursuant to such sequestration, attachment, or execution. In the event that the Developer is diligently working to obtain a return or release of the property, as determined in the Agency's reasonable business judgment, and the Agency's interests under the Agreement are not immediately threatened, in the Agency's reasonable business judgment, the Agency shall not declare a default under this subsection; or (k) The Developer shall have voluntarily suspended its business or, if the Developer is a partnership, the partnership shall have been dissolved or terminated; or (1) document related to any loans, secured by a deed of trust on the Development after the expiration of all applicable cure periods; or There shall occur any default declared by any lender under any loan (m) The Developer breaches any other material provision of this Agreement. Upon the happening of any of the above-described events, the Agency shall first notify the Developer in writing of its purported breach, failure or act above described, giving the 41 1010\13\168937.5 Developer in writing forty-five (45) days from receipt of such notice to cure, or, if cure cannot be accomplished within said forty-five (45) days, to commence to cure such breach, failure, or act. In the event the Developer fails to cure within said forty-five (45) days, or if such breach is of a nature that it cannot be cured within forty-five (45) days, Developer fails to commence to cure within said forty-five (45) days and diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (1 20) days, then the Agency shall be afforded all of its rights at law or in equity by taking any or all of the following remedies: (i) Termination of this Agreement and the Ground Lease by written notice to the Developer; provided, however, that the Agency's remedies pursuant to this Article 8 or any other Agency Document and the indemnification provisions of Sections 4.6,4.13,6.6(b), 10.7 and 10.9 shall survive such termination. (ii) Prosecuting an action for damages or specific performance; and (iii) Any of the remedies specified in Sections 8.5 and 8.6. (iv) Acceleration of the Agency Loan. Section 8.5 Ripht to Cure at DeveloDer's Expense. The Agency shall have the right to cure any monetary default by the Developer under a loan in connection with the Development. However, if the Developer is in good faith contesting a claim of default under a loan and the Agency's interest under this Agreement is not imminently threatened by such default, in the Agency's sole judgment, the Agency shall not have the right to cure such default. The Developer agrees to reimburse the Agency for any funds advanced by the Agency to cure a monetary default by the Developer upon demand therefor, together with interest thereon at the lesser of the rate of ten percent (10%) per annum or the maximum rate permitted by law fiom the date of expenditure until the date of reimbursement. Section 8.6 Construction Plans. If this Agreement is terminated pursuant to Section 8.2 or Section 8.4, then the Developer shall promptly deliver to the Agency, within ten (10) days of such termination, copies of all plans and specifications for the Development, all permits and approvals obtained in connection with the Development, and all applications for permits and approvals not yet obtained but needed in connection with the Development (collectively, the "Section 8.6 Documents"). The delivery of the Section 8.6 Documents shall be accompanied by an assignment, in form reasonably satisfactory to the Agency, of the Developer's right, title and interest in the Section 8.6 Documents; provided however, that any use of the Section 8.6 Documents by the Agency or any other person shall be without liability of any kind to the Developer and without any representation or warranty of the Developer or its employees, as to the quality, validity, or usability of the Section 8.6 Documents. 1010\13\168937.5 42 '7 6 Section 8.7 Rights of Mortgagees. Any rights of the Agency under this Article shall not defeat, limit or render invalid any Security Financing Interest permitted by this Agreement or any rights provided for in this Agreement for the protection of holders of Security Financing Interests. Section 8.8 Remedies Cumulative. No right, power, or remedy given by the terms of this Agreement is intended to be exclusive of any other right, power, or remedy; and each and every such right, power, or remedy shall be cumulative and in addition to every other right, power, or remedy given by the terms of any such instrument, or by any statute or otherwise. Neither the failure nor any delay to exercise any such rights and remedies shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or remedy preclude any other or further exercise of such right or remedy, or any other right or remedy. Section 8.9 Waiver of Terms and Conditions. No waiver of any default or breach by the Developer hereunder shall be implied from any omission by the Agency to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the waiver, and such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term, or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term, or condition. The consent or approval by the Agency to or of any act by the Developer requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar act. The exercise of any right, power, or remedy shall in no event constitute a cure or a waiver of any default under this Agreement, the Ground Lease or the Regulatory Agreement Covenants, nor shall it invalidate any act done pursuant to notice of default, or prejudice the Agency in the exercise of any right, power, or remedy hereunder or under this Agreement, unless in the exercise of any such right, power, or remedy all obligations of the Developer to the Agency are paid and discharged in full. ARTICLE 9. SECURITY FINANCING AND RIGHTS OF HOLDERS Section 9.1 No Encumbrances Except for Development Pumoses. Notwithstanding any other provision of this Agreement, mortgages and deeds of trust, or any other reasonable method of security are permitted to be placed upon the Developer's leasehold interest in the Property but only for the purpose of securing loans approved by the Agency pursuant to the approved Financing Plan. Mortgages, deeds of trust, or other reasonable security instruments securing loans approved by the Agency pursuant to the approved Financing Plan are each referred to as a "Security Financing Interest." The words "mortgagerr and "deed of 1010\13\168937.5 43 trust" as used in this Agreement include all other appropriate modes of financing real estate acquisition, construction, and land development. Section 9.2 Holder Not Obligated to Construct. The holder of any Security Financing Interest authorized by this Agreement is not obligated to construct or complete any improvements or to guarantee such construction or completion; nor shall any covenant or any other provision in the Ground Lease be construed so to obligate such holder. However, nothing in this Agreement shall be deemed to permit or authorize any such holder to devote the Property or any portion thereof to any uses, or to construct any improvements thereon, other than those uses of improvements provided for or authorized by this Agreement. Section 9.3 Notice of Default and Right to Cure. Whenever the Agency pursuant to its rights set forth in Article 8 of this Agreement delivers any notice or demand to the Developer with respect to the commencement, completion, or cessation of the construction of the Improvements, the Agency shall at the same time deliver to each holder of record of any Security Financing Interest creating a lien upon the Developer's leasehold interest in the Property or any portion thereof a copy of such notice or demand. Each such holder shall (insofar as the rights of the Agency are concerned) have the right, but not the obligation, at its option, within ninety (90) days after the receipt of the notice, to cure or remedy or commence to cure or remedy any such default or breach affecting the Property which is subject to the lien of the Security Financing Interest held by such holder and to add the cost thereof to the security interest debt and the lien on its security interest. Nothing contained in this Agreement shall be deemed to permit or authorize such holder to undertake or continue the construction or completion of the Improvements (beyond the extent necessary to conserve or protect such improvements or construction already made) without first having expressly assumed in writing the Developer's obligations to the Agency relating to such Improvements under this Agreement. The holder in that event must agree to complete, in the manner provided in this Agreement, the Improvements to which the lien or title of such holder relates. Any such holder properly completing such Improvements pursuant to this paragraph shall assume all rights and obligations of Developer under this Agreement and shall be entitled, upon completion and written request made to the Agency, to a certificate of completion from the Agency, in a form acceptable by the Agency. Section 9.4 Failure of Holder to Complete Improvements. In any case where six (6) months after default by the Developer in completion of construction of the Improvements under this Agreement, the holder of record of any Security Financing Interest, having first exercised its option to construct, has not proceeded diligently with construction, the Agency shall be afforded those rights against such holder it would otherwise have against Developer under this Agreement. 1010\13\168937.5 44 Section 9.5 Right of Agency to Cure. In the event of a default or breach by the Developer of a Security Financing Interest prior to the completion of development, and the holder has not exercised its option to complete the development called for on the Property, the Agency may cure the default, prior to the completion of any foreclosure. In such event the Agency shall be entitled to reimbursement from the Developer of all costs and expenses incurred by the Agency in curing the default. The Agency shall also be entitled to a lien upon the Developer's leasehold interest in the Property or any portion thereof to the extent of such costs and disbursements. The Agency agrees that such lien shall be subordinate to any Security Financing Interest, and the Agency shall execute from time to time any and all documentation reasonably requested by Developer to effect such subordination. Section 9.6 Right of Agency to Satisfv Other Liens. After the conveyance of the leasehold interest in the Property or any portion thereof and after the Developer has had a reasonable time to challenge, cure or satisfy any liens or encumbrances on the leasehold interest in the Property or any portion thereof, the Agency shall have the right to satisfy any such lien or encumbrances; provided, however, that nothing in this Agreement shall reqbire the Developer to pay or make provision for the payment of any tax, assessment, lien or charge so long as the Developer in good faith shall contest the validity or amount therein and so long as such delay in payment shall not subject the Property or any portion thereof to forfeiture or sale. Section 9.7 Holder to be Notified. The provisions of this Article shall be incorporated into the relevant deed of trust or mortgage evidencing each Security Financing Interest to the extent deemed necessary by, and in form and substance reasonably satisfactorily to the Agency, or shall be acknowledged by the holder of a Security Financing Interest prior to its coming into any security right or interest in the Property. ARTICLE 10. GENERAL PROVISIONS Section 10.1 Notices, Demands and Communications. Formal notices, demands, and communications between the Agency and the Developer shall be sufficiently given if and shall not be deemed given unless dispatched by registered or certified mail, postage prepaid, return receipt requested, by reputable overnight delivery service, or delivered personally, to the principal office of the Agency and the Developer as follows: 1010\13\168937.5 45 Agency: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director Developer: Wakeland Housing and Development Corporation 625 Broadway Street, Suite 1000 San Diego, CA 92101 Attn: Kenneth L. Sanders, President Such written notices, demands and communications may be sent in the same manner to such other addresses as the affected party may from time to time designate by mail as provided in this Section. Section 10.2 Non-Liability of Agency Officials, Employees and Agents: Non-Liability of Developer's Members. No member, official, employee or agent of the Agency or the City shall be personally liable to the Developer, or any successor in interest, in the event of any default or breach by the Agency or for any amount which may become due to the Developer or successor or on any obligation under the terms of this Agreement. Section 10.3 Forced Delay. In addition to specific provisions of this Agreement, performance by either party hereunder shall not be deemed to be in default where delays or defaults are due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of God; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; governmental restrictions or priority; litigation (including suits filed by third parties concerning or arising out of this Agreement); weather or soils conditions which, in the opinion of the Developer's contractor, will necessitate delays; inability to secure necessary labor, materials or tools; acts of the other party; acts or failure to act of any public or governmental agency or entity (other than the acts or failure to act of the Agency); or any other causes (other than Developer's inability to obtain financing for the Improvements) beyond the control or without the fault of the party claiming an extension of time to perform. An extension of time for any cause will be deemed granted if notice by the party claiming such extension is sent to the other within ten (10) days from the date the party seeking the extension first discovered the cause and such extension of time is not rejected in writing by the other party within ten (1 0) days after receipt of the notice. Times of performance under this Agreement may also be extended in writing by the Agency and the Developer. In no event shall the cumulative delays exceed one hundred eighty (1 SO) days, unless otherwise agree to by the Parties in writing. 1010\13\168937.5 46 Section 10.4 Inspection of Books and Records. Upon request, the Developer shall permit the Agency to inspect at reasonable times and on a confidential basis those books, records and all other documents of the Developer necessary to determine Developer's compliance with the terms of this Agreement. The Developer also has the right at all reasonable times to inspect the books, records and all other documentation of the Agency pertaining to its obligations under this Agreement. Section 10.5 Provision Not Merged with Ground Lease. None of the provisions of this Agreement are intended to or shall be merged by any Ground Lease transferring title to any real property which is the subject of this Agreement fiom Agency to Developer or any successor in interest, and any such Ground Lease shall not be deemed to affect or impair the provisions and covenFts of this Agreement. Section 10.6 Title of Parts and Sections. Any titles of the articles, sections or subsections of this Agreement are inserted for convenience of reference only and shall be disregarded in construing or interpreting any part of its provision. Section 10.7 General Indemnification. The Developer agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the Agency) the Agency, its board members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of the Developer's performance or non-performance under this Agreement, or any other agreement executed pursuant to this Agreement, or arising out of acts or omissions of any of Developer's contractors, subcontractors, or persons claiming under any of the aforesaid, except as directly caused by the Agency's willful misconduct or gross negligence. The provisions of this section shall survive expiration of the Term or other termination of this Agreement, and shall remain in full force and effect. Section 10.8 Applicable Law. This Agreement shall be interpreted under and pursuant to the laws of the State of California. Section 10.9 No Brokers. Each party represents to the other that it has not had any contact or dealings regarding the Property, or any communication in connection with the subject matter of this transaction, through any real estate broker or other person who can claim a right to a commission or finder's fee except as agreed to in writing by the Agency and Developer. If any broker or finder makes a claim for a commission or finder's fee based upon a contact, dealings, or communications, the party through whom the broker or finder makes this claim shall indemnify, defend with counsel 47 1010\13\168937.5 of the indemnified party's choice, and hold the indemnified party harmless from all expense, loss, damage and claims, including the indemnified party's attorneys' fees, if necessary, arising out of the broker's or finder's claim. The provisions of this section shall survive expiration of the Term or other termination of this Agreement, and shall remain in full force and effect. Section 10.10 Severability. If any term, provision, covenant or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall continue in full force and effect unless the rights and obligations of the parties have been materially altered or abridged by such invalidation, voiding or unenforceability. Section 10.1 1 Legal Actions. In the event any legal action is commenced to interpret or to enforce the terms of this Agreement or to collect damages as a result of any breach thereof, the venue for such action shall be the Superior Court of the County of San Diego. Section 10.12 Binding Upon Successors. This Agreement shall be binding upon and inure to the benefit of the heirs, administrators, executors, successors in interest and assigns of each of the Parties hereto except that there shall be no Transfer of any interest by any of the parties hereto except pursuant to the terms of this Agreement. Any reference in this Agreement to a specifically named party shall be deemed to apply to any successor, heir, administrator, executor or assign of such party who has acquired an interest in compliance with the terms of this Agreement, or under law. The covenants and restrictions set forth in this Agreement shall run with the land, and shall bind all successors in title to the Property. However, on the termination of this Agreement, such covenants and restrictions shall expire. Each and every contract, deed, or other instrument hereafter executed covering or conveying the Property shall be held conclusively to have been executed, delivered, and accepted subject to such covenants and restrictions, regardless of whether such covenants or restrictions are set forth in such contract, deed, or other instrument, unless the Agency expressly releases the Property from the requirements of this Agreement. Section 10.13 Parties Not Co-Venturers. Nothing in this Agreement is intended to or does establish the Parties as partners, co- venturers, or principal and agent with one another. Section 10.14 Time of the Essence. In all matters under this Agreement, the Parties agree that time is of the essence. 1010\13\168937.5 48 Section 10.15 Action by the Agency. Except as may be otherwise specifically provided in this Agreement or another Agency Document, whenever any approval, notice, direction, finding, consent, request, waiver, or other action by the Agency is required or permitted under this Agreement or another Agency Document, such action may be given, made, or taken by the Agency, or by any person who shall have been designated in writing to the Developer by the Agency, without further approval by the Agency Board. Any such action shall be in writing. Section 10.16 Representations and Warranties of the Developer. The Developer hereby represents and warrants to the Agency as follows: (a) Organization. The Developer is a duly organized, validly existing California nonprofit public benefit corporation, and is in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. (b) Authority of Developer. The Developer has full power and authority to execute and deliver this Agreement, and the other Agency Documents to be executed and delivered pursuant to this Agreement, and to perform and observe the terms and provisions of all of the above. (c) Authority of Persons Executing Documents. This Agreement and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of the Developer, and all actions required under the Developer's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Agreement and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement, have been duly taken. (d) Valid Binding Agreements. This Agreement and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Agreement constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of the Developer enforceable against it in accordance with their respective terms. (e) No Breach of Law or Ameement. Neither the execution nor delivery of this Agreement or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Agreement, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Developer, or any provision of the organizational documents of the Developer, or will conflict with or constitute a breach of or a default under any agreement to which the Developer is a party, or will result in the creation or imposition of any lien upon any assets or property of the Developer, other than liens established pursuant hereto. 10 10\13\168937.5 49 (0 Compliance With Laws; Consents and Approvals. The construction of the Improvements will comply with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. (g) Pending Proceedings. The Developer is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of the Developer, threatened against or affecting the Developer, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Developer, materially affect the Developer's ability to develop the Improvements. (h) Title to Property. Upon the recordation of the Memorandum of Ground Lease, the Developer will have good and marketable leasehold title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than those liens approved by the Agency, liens for current real property taxes and assessments not yet due and payable, and liens in favor of the Agency or approved in writing by the Agency. (i) Financial Statements. The financial statements of the Developer and other financial data and information furnished by the Developer to the Agency fairly present the information contained therein. As of the date of this Agreement, there has not been any adverse, material change in the financial condition of the Developer fiom that shown by such financial statements and other data and information. ('j) Sufficient Funds. The Developer holds sufficient fhds or binding commitments for sufficient funds to obtain the leasehold interest in the Property, and complete the construction of the Improvements in accordance with this Agreement Section 10.17 Complete Understanding of the Parties. This Agreement and the attached exhibits constitute the entire understanding and agreement of the Parties with respect to the matters set forth in this Agreement. Section 10.18 Entry by the Agency. The Developer shall permit the Agency, through its officers, agents, or employees, at all reasonable times to enter into the Development (a) to inspect the work of construction to determine that the same is in conformity with the requirements of this Agreement, and (b), following completion of construction, to inspect the ongoing operation and management of the Development to determine that the same is in conformance with the requirements of this Agreement. The Developer acknowledges that the Agency is under no obligation to supervise, inspect, or inform the Developer of the progress of construction, or operations and the Developer shall not rely upon the Agency therefore. Any inspection by the Agency during the construction is entirely for its purposes in determining whether the Developer is in compliance with this Agreement and is not for the purpose of determining or informing the Developer of the quality or 1010\13\168937.5 50 suitability of construction. The Developer shall rely entirely upon its own supervision and inspection in determining the quality and suitability of the materials and work, and the performance of architects, subcontractors, and material suppliers. Section 10.19 Multiple Originals; Counterparts. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. Remainder of Page LejZ Intentionail) Biank 51 10 10\13\168937.5 IN WITNESS WHEREOF, the Agency and the Developer have executed this Agreement in triplicate on or as of the date first above written. DEVELOPER: WAKELAND HOUSING AND DEVELOPMENT CORPORATION, a California nonprofit public benefit corporation By: Its: AGENCY: CARLSBAD REDEVELOPMENT AGENCY, a public body, corporate and politic APPROVED AS TO FORM: By: Ronald Ball, Agency General Counsel 101 0\13\168937.5 52 EXHIBIT A Legal Description of the Property A- 1 1010\13\168937.5 EXHIBIT B Financial Proposal B- 1 10 10\13\168937.5 EXHIBIT C Form of Agency Ground Lease c- 1 1010\13\168937.5 GROUND LEASE By and Between THE CARLSBAD REDEVELOPMENT AGENCY and WAKELAND HOUSING AND DEVELOPMENT CORPORATION ,2005 1010\13\169008.4 TABLE OF CONTENTS ARTICLE 1 : DEFINITIONS AND EXHIBITS .............................................................................. 1 Section 1.1 Definitions ........................................................................................................ 1 Section 1.2 Exhibits ............................................................................................................. 4 ARTICLE 2: LEASE OF THE PROPERTY; PAYMENT OF ....................................................... 5 Section 2.1 Lease of the Property ........................................................................................ 5 Section 2.2 Use .................................................................................................................... 5 Section 2.3 Possession ......................................................................................................... 5 Section 2.4 Lease Term ....................................................................................................... 5 Section 2.5 Payment of Rent ............................................................................................... 5 Section 2.6 Reports and Accounting of Residual Receipts ................................................. 7 Section 2.7 Title to Improvements; Surrender Upon Termination ...................................... 8 Section 2.8 Assignment of Lessee's Leasehold Interest; Transfer of the Development ...... 8 Section 2.9 Net-Net-Net Lease ............................................................................................ 8 ARTICLE 3: DEVELOPMENT OF IMPROVEMENTS ............................................................... 8 Section 3.1 Commencement of Construction ...................................................................... 8 Section 3.2 Completion of Construction ............................................................................. 8 Section 3.3 Construction Pursuant to Permits and DDLA .................................................. 8 Section 3.4 Equal Opportunity ............................................................................................ 9 Section 3.5 Discharge of Liens ............................................................................................ 9 Section 3.6 Protection of the Agency .................................................................................. 9 Section 3.7 Permits, Licenses and Easements ..................................................................... 9 Section 3.8 Compliance with Applicable Law .................................................................... 9 Section 3.9 Prevailing Wage ............................................................................................. 10 Section 3.10 The Lessee to Furnish and Equip the Improvements .................................... 10 . ARTICLE 4: USE AND MAINTENANCE OF THE IMPROVEMENTS ................................... 11 Section 4.1 Use of Development ....................................................................................... 11 Section 4.2 Compliance with the Regulatory Agreement ................................................. 12 Section 4.3 Maintenance of the Development ................................................................... 12 Section 4.4 Utilities ........................................................................................................... 12 Section 4.5 Taxes and Assessments .................................................................................. 12 Section 4.6 Assistance in Making Payments ..................................................................... 13 Section 4.7 Hazardous Materials ....................................................................................... 13 Section 4.8 Non-Discrimination ........................................................................................ 15 ARTICLE 5: APPROVED LOANS .............................................................................................. 16 Section 5.1 Loan Obligations ............................................................................................ 16 1010\13\169008.4 i 9 . TABLE OF CONTENTS Section 5.2 Liens and Encumbrances Against Lessee's Interest in the Leasehold Estate . 16 Section 5.3 Cost of Approved Loans to be Paid by Lessee ............................................... 19 Section 5.4 Proceeds of Approved Loans .......................................................................... 19 Section 5.6 Modifications .................................................................................................. 19 Section 5.5 Notice and Right to Cure Defaults Under Approved Loans ........................... 19 Section 5.7 Estoppel Certificates ....................................................................................... 20 ARTICLE 6: INSURANCE ........................................................................................................... 20 Section 6.1 Required Insurance Coverage ......................................................................... 20 Section 6.3 Proceeds of Insurance ..................................................................................... 21 Section 6.4 Indemnification ............................................................................................... 21 Section 6.2 Insurance Policies and Premiums ................................................................... 20 ARTICLE 7: CONDEMNATION. DAMAGE OR ....................................................................... 21 Section 7.1 Condemnation ................................................................................................. 21 Damage or Destruction of Development ........................................................ 23 Proceedings ..................................................................................................... 23 Section 7.2 Administration of Construction Fund in the Event of Condemnation. or Section 7.3 Lessee. Agency. Approved Lenders to be Made Parties in Legal Section 7.4 Termination .................................................................................................... 24 ARTICLE 8: ASSIGNMENT AND TRANSFERS ...................................................................... 24 Section 8.1 Definitions ...................................................................................................... 24 Section 8.2 Purpose of Restrictions on Transfer ............................................................... 24 Section 8.3 Prohibited Transfers ....................................................................................... 24 Section 8.4 Permitted Transfers ......................................................................................... 25 Section 8.5 Procedure for Approval of Certain Transfers ................................................. 25 Section 8.6 Assignments ................................................................................................... 26 ARTICLE 9: REPRESENTATIONS AND ASSURANCES ........................................................ 26 Section 9.1 Agency to Give Peaceful Possession .............................................................. 26 Section 9.2 Lessee Representations ................................................................................... 26 Section 9.3 Release of Agency .......................................................................................... 28 Section 9.4 Holding Over .................................................................................................. 28 Section 9.5 No Merger ...................................................................................................... 28 ARTICLE 10: DEFAULTS AND REMEDIES ............................................................................ 29 Section 10.1 Events of Default; Remedy for Default by Lessee ....................................... 29 Section 10.2 Remedy for Default by Agency .................................................................... 30 .. 10 10\13\169008.4 11 y *.-. 1 t TABLE OF CONTENTS & ARTICLE 1 1 : MISCELLANEOUS .............................................................................................. 30 Section 11.1 Instrument Is Entire Agreement .................................................................... 30 Section 11.3 Non-Liability of Officials. Employees and Agents ...................................... 31 Section 11.4-Force Majeure ............................................................................................... 31 Section 11.6 Binding Upon Successors; Covenants to Run With Land ............................ 32 Section 11.7 Employment Opportunity ............................................................................. 32 Section 11.2 Notices .......................................................................................................... 31 Section 1 1.5 Non-Waiver of Breach .................................................................................. 31 Section 1 1.8 Relationship of Parties .................................................................................. 32 Section 1 1.9 Titles ............................................................................................................. 32 Section 1 1.10 Severability ................................................................................................ 32 Section 1 1.1 1 Applicable Law .......................................................................................... 33 Section 1 1 . 12 Venue ......................................................................................................... 33 Section 11.13 Approvals ................................................................................................... 33 Section 1 1.16 Counterparts ............................................................................................... 33 Section 11.14 Inspection of Books and Records .............................................................. 33 Section 1 1.15 Lease Binding on Successors ..................................................................... 33 EXHIBIT A Description of the Property EXHIBIT B Insurance Requirements EXHIBIT C Preliminary Title Report 1010\13\169008.4 ... 111 .... .- .\ .*. GROUND LEASE THIS GROUND LEASE (the "Lease") is entered into as of , 2005, by and between The Carlsbad Redevelopment Agency, a public body, corporate and politic (the "Agency"), and Wakeland Housing and Development Corporation, a California nonprofit public benefit corporation (the "Lessee"), with reference to the following facts, purposes, and understandings. RECITALS A. These Recitals refer to and utilize certain capitalized terms that are defined in Article 1 of this Lease. The Parties intend to refer to those definitions in connection with the use of capitalized terms in these Recitals. B. The Agency owns the Property. The Lessee and the Agency entered into the DDLA, pursuant to which Agency agreed to lease the Property to Lessee and Lessee agreed to develop the Property. C. In accordance with the DDLA and this Lease, the Lessee shall develop and operate on the Property an eleven (1 1) unit housing development affordable to very low income and moderate income households. D. The Agency desires to lease the Property to the Lessee, and the Lessee desires to lease the Property from the Agency, for a term specified in this Lease. WITH REFERENCE TO THE FACTS RECITED ABOVE, the Agency and the Lessee (collectively the "Parties") agree as follows: ARTICLE 1 : DEFINITIONS AND EXHIBITS Section 1.1 Definitions. The following terms shall have the following meanings in this Lease: (a) "Agency" shall mean the Carlsbad Redevelopment Agency, a public body, corporate and politic, and its successors and assigns. (b) "Agency Documents'' shall mean this Lease, the DDLA, the Regulatory Agreement, the Agency Note (as defined in the DDLA) and Agency Deed of Trust (as defined in the DDLA). (c) "Agency Loan" shall mean the loan of Two Million Three Hundred Eighty Four Thousand and Eighty Dollars ($2,384,080) by the Agency to the Lessee pursuant to the DDLA. 1010\13\169008.4 1 (d) "Approved Lenders" shall mean all of the lenders providing the Approved Loans to the Lessee and their designees, nominees, successors and assigns. (e) "Approved Loan Documents" shall mean all documents executed by the Lessee evidencing or securing the Approved Loans. (f) "Approved Loans" shall mean the loans contained in the Financing Plan submitted to the Agency by the Lessee as required by the DDLA and approved by the Agency, or any other loan obtained by the Lessee in connection with and secured by the Development and approved in writing by the Agency. (g) "Authorized Officers" shall mean, in the case of the Agency, its Executive Director, and in the case of the Lessee, its President. (h) "City" shall mean the City of Carlsbad, California, a municipal corporation, operating through its governing body, the City Council, and its various departments. (i) "Commencement Date" means the date of the Closing as defined in the DDLA. (i) "Control" shall mean (i) control of the managing member or members in the case of a limited liability company; (ii) control of the managing general partner or general partners in the case of a partnership and (iii) (a) boards of directors that overlap by fifty percent (50%) or more of their directors, or (b) control of a majority of the directors in the case of a corporation. (k) "DDLA" shall mean that certain Disposition Development and Loan Agreement dated August 1,2005, by and between the Agency and the Lessee. (1) "Development" shall mean the Improvements and the Lessee's leasehold interest in the Property. (m) "Development Documents" shall mean all construction documentation prepared by the Lessee or on the Lessee's behalf and approved by the Agency pursuant to the Disposition Agreement. (n) "Event of Default" shall have the meaning specified in Section 10.1. (0) "Financing Plan" means the Financing Plan approved by the Agency pursuant to the provisions of the DDLA. (p) "Foreclosure Transferee" shall mean a transferee who acquires the Lessee's interest in this Lease and the Development through the exercise of remedies (such as foreclosure or a deed in lieu of foreclosure) pursuant to Approved Loan Documents. (9) "Hazardous Materials" shall mean any substance, material, or waste which is: (1) defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant" or any other terms comparable to the 1010\13\169008.4 2 y CC; , foregoing terms under any provision of California law or federal law; (2) petroleum; (3) asbestos; (4) polychlorinated biphenyls; (5) radioactive materials; (6) mold; (7) MTBE; or (8) determined by California, federal or local government authority to be capable of posing a risk of injury to health, safety or property. Without limiting the foregoing, Hazardous Materials means and includes any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar term, by any Hazardous Materials Laws including any federal, state or local environmental statute, regulation or ordinance presently in effect that may be promulgated in the future, as such as statutes, regulations and ordinances may be amended from time to time. The term "Hazardous Materials" shall not include: (i) construction materials, gardening materials, household products, office supply products or janitorial supply products customarily used in the construction, maintenance, rehabilitation, or management of commercial properties, buildings and grounds, or typically used in household activities, or (ii) certain substances which may contain chemicals listed by the State of California pursuant to California Health & Safety Code Section 25249.8 et seq., which substances are commonly used by a significant portion of the population living within the region of the Improvements, including, but not limited to, alcoholic beverages, aspirin, tobacco products, Nutrasweet and saccharine, so long as such materials and substances are stored, used and disposed of in compliance with all applicable Hazardous Materials Laws. (r) "Hazardous Materials Laws" means all federal, state, and local laws, ordinances, regulations, orders and directives pertaining to Hazardous Materials in, on or under the Development or any portion thereof. (s) "Improvements" shall mean the eleven (1 1) housing units and appurtenant improvements to be constructed on the Property by the Lessee. (t) "Lease" shall mean this Ground Lease. (u) "Lease Term" shall mean the term of this Lease, which shall commence on the Commencement Date and shall terminate fifty-five (55) years after the Commencement Date. (v) "Lease Year" shall mean a period of twelve (12) full calendar months. The first Lease Year shall begin on the Commencement Date. Each succeeding Lease Year shall commence on the anniversary of the Commencement Date. (w) "Lessee" shall mean Wakeland Housing and Development Corporation, a California nonprofit public benefit corporation, and its permitted successors and assigns. (x) "Median Income" shall mean the median gross yearly income, adjusted for actual household size as specified herein, in the County of San Diego, California as determined by the California Department of Housing and Community Development. (y) "Memorandum of Lease" shall mean the memorandum of ground lease substantially in the form attached to the DDLA as Exhibit H. 101 0\13\169008.4 3 (2) "Official Records" shall mean the Official Records of San Diego County, California. (aa) "Parties" shall mean the Agency and the Lessee. (bb) "Party" shall mean any one of the Agency or Lessee. (cc) "Preliminary Title Report" shall mean that certain title report dated issued by Chicago Title Company a copy of which is attached as Exhibit C. (dd) "Property" shall mean the property located at 2578 Roosevelt Street, Carlsbad, California, as more particularly described in the attached Exhibit A. (ee) "Redevelopment Plan" shall mean the Carlsbad Village Redevelopment Plan approved and adopted by the City Council of the City of Carlsbad by Ordinance No. 9591 on July 21,198 1, as it may be amended from time to time. (ff) "Regulatory Agreement" shall mean that Regulatory Agreement and Declaration of Restrictive Covenants to be entered into by the Agency and the Lessee substantially in the form attached to the DDLA as Exhibit D. (gg) "Rent" shall mean the annual rent payment made to the Agency by the Lessee in the amount of thirty percent (30%) of the Residual Receipts as specified in Section 2.4. (hh) "Rent Commencement Date" shall mean the first April 1 st immediately following the calendar year in which the certificate of occupancy was issued by the City for the Improvements, or April 1,2007, whichever is earlier. (ii) "Transfer" is defined in Section 8.1. (jj) "Very Low Income Households" shall mean a household whose income does not exceed the qualifying limits for a very low income household as established and amended fkom time to time pursuant to Section 8 of the United States Housing Act of 1937, adjusted for assumed household size. Section 1.2 Exhibits. The following exhibits are attached to and made part of this Lease: EXHIBIT A Legal Description of the Property EXHIBIT B Insurance Requirements EXHIBIT C Preliminary Title Report 1010\13\169008.4 4 ARTICLE 2: LEASE OF THE PROPERTY; PAYMENT OF RE"; OWNERSHIP OF IMPROVEMENTS Section 2.1 Lease of the Property. (a) The Agency hereby leases the Property to the Lessee, and the Lessee hereby leases the Property from the Agency, pursuant to the terms of this Lease. (b) The Parties shall cause the Memorandum of Lease to be recorded against the Property in the Official Records substantially in the form attached to the DDLA. (c) The closing costs associated with execution of this Lease and recordation of the Memorandum of Lease including, but not limited to recording charges, county documentary transfer tax, and conveyance taxes (if any) and the cost of the Lessee's title insurance policy shall be borne by the Lessee. Each Party shall bear its own attorneys' fees and costs. Section 2.2 Use. Subject to the provisions of this Lease, the Lessee shall use the Property for the redevelopment thereof and for the construction, development and operation of the Improvements on the Property in accordance with the restrictions and requirements set forth in Article 5 hereof. Section 2.3 Possession. The City agrees to and shall provide possession of the Property to the Lessee immediately following the Commencement Date. To the best of the City's knowledge, the Property is subject only to the encumbrances listed in the Preliminary Title Report and such encumbrances approved by the Parties and recorded concurrently with the Memorandum of Lease. The City shall convey the Property to the Lessee in the physical condition set forth in the DDLA. Section 2.4 Lease Term. Unless earlier terminated pursuant to the provisions of this Lease, the Lease Term shall be for the period commencing on the Commencement Date and terminating at midnight (12:OO a.m.) on the day immediately preceding the fifty-fifth (55'h) anniversary of the Commencement Date. Section 2.5 Payment of Rent. The Lessee shall make annual lease payments to the Agency under the Ground Lease as follows: (a) Annual Payment. Commencing on the Rent Commencement Date, and continuing through each May 1 st thereafter throughout the Lease Term (each such May 1 st is referred to as a "Payment Date"), annual rent payments in an amount equal to thirty percent (30%) of Residual Receipts (as defined below) shall be due from the Lessee to the City. The Lessee shall accompany each payment of Residual Receipts with an audited financial statement (as described in Section 2.6 below). Payments shall be made only to the extent that there exists Residual Receipts resulting from operation of the Development during the preceding calendar year which ended prior to the Payment Date. 10 10\13\169008.4 5 (b) Special Definitions. The following special definitions shall apply for purposes of this Section 2.4: (i) "Residual Receipts" in a particular calendar year means the amount by which Gross Revenue (as defined below) exceeds Annual Operating Costs (as defined below). (ii) "Gross Revenue" with respect to a particular Lease Year shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Development. Gross Revenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; net proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance and not paid to senior lenders; the proceeds of casualty insurance not used to rebuild the Development and not paid to senior lenders; and condemnation awards for a taking of part or all of the Development for a temporary period not paid to senior lenders. Gross Revenue shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (iii) "Annual Operating Costs'' with respect to a particular Lease Year shall mean the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with the annual budget for the Development, approved by the Agency pursuant to the Regulatory Agreement, and with an annual independent audit performed by a certified public accountant using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service currently due on a non-optional basis (excluding debt service due from residual receipts or surplus cash of the Development) on loans associated with development of the Development and approved by the Agency in the Financing Plan pursuant to Section 2.4 of the DDLA; property management fees and reimbursements, not to exceed fees and reimbursements which are standard in the industry and pursuant to a management contract approved by the Agency pursuant to the DDLA; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including water, sewer, and trash collection; maintenance and repair; any annual license or certificate of occupancy fees required for operation of the Development; security services; advertising and marketing; cash deposited into reserves for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the Agency pursuant to Section 2.4 of the DDLA, or by the Agency if no other lender requires approvals of such amount; cash deposited into an operating reserve in an amount not to exceed the amount required in connection with the permanent financing approved by the Agency pursuant to Section 2.4 of the DDLA, or by the Agency if no other lender requires approvals of such amount; payment of any previously unpaid portion of the Developer Fee due (without interest) not exceeding a cumulative amount of the Developer Fee as set forth in Section 5.8 of the DDLA; extraordinary operating costs specifically approved in writing by the Agency as part of the annual budget approval process pursuant to the Regulatory Agreement; payments of deductibles in connection with casualty insurance claims not normally paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not normally paid fiom reserves; and other ordinary and reasonable operating expenses approved in writing by the Agency and not listed above. Annual Operating Expenses 1010\13\169008.4 6 .! ! shall not include the following: depreciation, amortization, depletion or other non-cash expenses; any amount expended from a reserve account; and any capital cost with respect to the Development, as determined by the accountant for the Development. Section 2.6 Reports and Accounting of Residual Receipts. (a) Audited Financial Statement. In connection with the annual payment of Rent, the Lessee shall furnish to the Agency an audited statement duly certified by an independent firm of certified public accountants previously approved by the Agency in writing, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. (b) Books and Records. The Lessee shall keep and maintain on the Property, or elsewhere with the Agency's written consent, full, complete and appropriate books, record and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail Lessee's calculation of Residual Receipts. Books, records and accounts relating to Lessee's compliance with the terms, provisions, covenants and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Agreement which provide for the calculation of Residual Receipts on a cash basis. All such books, records, and accounts shall be open to and available for inspection by the Agency, its auditors or other authorized representatives at reasonable intervals during normal business hours. Copies of all tax returns and other reports that Lessee may be required to furnish any governmental agency shall at all reasonable times be open for inspection by the Agency at the place that the books, records and accounts of the Lessee are kept. The Lessee shall preserve records on which any statement of Residual Receipts is based for a period of not less than five (5) years after such statement is rendered, and for any period during which there is an audit undertaken pursuant to subsection (c) below then pending. (c) Agency Audits. The receipt by the Agency of any statement pursuant to subsection (a) above or any payment by Lessee or acceptance by the Agency of any loan repayment for a Lease Year shall not bind the Agency as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the Agency or any designated agent or employee of the Agency at any time shall be entitled to audit the Residual Receipts and all books, records, and accounts pertaining thereto. Such audit shall be conducted during normal business hours at the principal place of business of Lessee and other places where records are kept. Immediately after the completion of an audit, the Agency shall deliver a copy of the results of such audit to Lessee. If it shall be determined as a result of such audit that there has been a deficiency in a Rent payment to the Agency, then such deficiency shall become immediately due and payable with interest at the rate of ten percent (1 0%) per annum, determined as of and accruing fi-om the date that said payment should have been made. In addition, if Lessee's auditor's statement for any calendar year shall be found to have understated Residual Receipts by more than five percent (5%) and the Agency is entitled to any additional Rent payments as a result of said understatement, then Lessee shall pay, in addition to the interest charges referenced hereinabove, all of the Agency's reasonable costs and expenses connected with any audit or review of Lessee's accounts and records. 1010\13\169008.4 7 Section 2.7 Title to Improvements; Surrender Upon Termination. The Agency hereby grants to the Lessee, without warranty (express or implied), any right, title, or interest that the Agency may have in the improvements located on the Property from time to time prior to the termination of this Lease. The Improvements on the Property during the Lease Term shall be and remain the property of the Lessee; however, the Lessee shall have no right to destroy, demolish or remove the Improvements except as specifically provided for in this Lease or as otherwise approved in writing by the Agency. When the Lease Term expires, or when this Lease is otherwise terminated under the terms of this Lease, the Lessee shall surrender the Property and deliver to the Agency the Property (including all Improvements thereon) and title to the Improvements shall revert to and vest in the Agency without cost to the Agency in their then- existing condition. It is the intent of the Parties that this Lease shall create a constructive notice of severance of the Improvements from the Property without the necessity of a deed from the Agency to the Lessee after the Improvements have been constructed. The Improvements, when built, shall be and remain real property and shall be owned in fee by the Lessee for the Lease Term. If requested by the Agency, the Lessee shall execute, at the end of the Lease Term, within ten (1 0) days of receipt of the Agency's written request, a confirmatory quitclaim deed of the Improvements to be recorded at the Agency's option and expense, and any other documents that may be reasonably required by the Agency or the Agency's title company to provide the Agency title to the Property and the Improvements free and clear of all monetary liens and monetary encumbrances not caused or agreed to by the Agency, but otherwise in their "as-is" condition. Section 2.8 Assiment of Lessee's Leasehold Interest; Transfer of the Development. Subject the provisions of Article 8, the Lessee may not assign its interest in this Lease and sell or transfer the Development without the prior written consent of the Agency. Section 2.9 Net-Net-Net Lease. This Lease is a net-net-net lease, and Rent and other payments payable to or on behalf of the Agency shall: (a) be paid without notice or demand and without offset, counterclaim, abatement, suspension, deferment, deduction or defense; and (b) be an absolute net return to the Agency, free and clear of any expenses, charges or offsets whatsoever. ARTICLE 3: DEVELOPMENT OF IMPROVEMENTS Section 3.1 Commencement of Construction. The Lessee shall commence construction of the Improvements no later thanthe time specified in the DDLA. Section 3.2 Completion of Construction. The Lessee shall prosecute diligently to completion the construction of the Improvements, and shall complete construction by the time specified in the DDLA. Section 3.3 Construction Pursuant to Permits and DDLA. The Improvements shall be constructed in accordance with the Development Documents and the terms and conditions of the City's land use permits and approvals and building permits. 1010\13\169008.4 8 Section 3.4 Equal Opportunity. During the construction of the Improvements there shall be no discrimination on the basis of race, color, creed, religion, sex, sexual orientation, age, disability, marital status, national origin, or ancestry in the hiring, firing, promoting, or demoting of any person engaged in the construction work. Section 3.5 Discharge of Liens. The Lessee shall not create or permit or suffer to be created or to remain, and will discharge, any lien (including, but not limited to, the liens of mechanics, laborers, materialmen, suppliers or vendors for work or materials alleged to be done or furnished in connection with the Property and the Improvements thereon), encumbrances or other charge upon the Property and the Improvements thereon, or any part thereof, or upon the Lessee's leasehold interest therein. The Lessee shall have the right to contest in good faith and by appropriate legal proceedings the validity or amount of any mechanics', laborers', materialmens', suppliers' or vendors' lien or claimed lien; provided that the Lessee shall utilize all reasonable means (including the posting of adequate security for payment) to protect the Property and any part thereof or the Improvements thereon against foreclosure, and shall indemnify and hold harmless the Agency from any adverse effects resulting from such lien. Section 3.6 Protection of the Agency. Nothing in this Lease shall be construed as constituting the consent of the Agency, expressed or implied, to the performance of any labor or the furnishing of any materials or any specific improvements, alterations of or repairs to the Property or the Improvements thereon, or any part thereof, by any contractor, subcontractor, laborer or materialman, nor as giving the Lessee or any other person any right, power or authority to act as agent of or to contract for, or permit the rendering of, any services or the furnishing of any materials in such manner as would give rise to the filing of mechanics' liens or other claims against the fee interest of the Property or the Improvements thereon. The Agency shall have the right at all reasonable times to post and keep posted on the Property any notices which the Agency may deem necessary for the protection of the Agency and of the Property and the Improvements thereon from mechanics' liens or other claims. In addition, the Lessee shall make, or cause to be made, prompt payment of all monies due and legally owing to all persons doing any work or fbrnishing any materials or supplies to the Lessee, or any of its respective contractors or subcontractors in connection with the Property and the Improvements thereon. Section 3.7 Permits. Licenses and Easements. Within ten (10) days after receipt of written request from the Lessee, the Agency shall (at no expense to the Agency) join in any and all applications (consistent with the DDLA) for permits, licenses or other authorizations required by any governmental or other body claiming jurisdiction in connection with any work that the Lessee may do pursuant to this Lease or the operation of the Development, and shall also join in any grants of easements for public utilities useful or necessary to the proper construction of the Improvements or the operation of the Development. Section 3.8 Compliance with Applicable Law. The Lessee shall cause all work performed in connection with construction of the Development to be performed in compliance with (a) all applicable laws, ordinances, rules and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (b) all directions, rules and regulations of any fire marshal, health officer, building inspector, or other officer of every governmental agency now having or hereafter acquiring jurisdiction. The work 1010\13\169008.4 9 shall proceed only after procurement of each permit, license, or other authorization that may be required by any governmental agency having jurisdiction, and the Lessee shall be responsible to the Agency for the procurement and maintenance thereof, as may be required of the Lessee and all entities engaged in work on the Property. Section 3.9 Prevailing Wage. The Lessee shall and shall cause the contractor and subcontractors to pay prevailing wages in the construction of the Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq., and the implementing regulations of the Department of Industrial Relations (the "DIR"), to employ apprentices as required by Labor Code Section 1777.5 et seq., and comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR. The Lessee shall and shall cause the contractor and subcontractors to keep and retain such records as are necessary to determine if such prevailing wages have been paid as required pursuant to Labor Code Sections 1720 et seq., and that apprentices have been employed as required by Labor Code Section 1777.5 - et seq. Copies of the currently applicable per diem prevailing wages are available from the Agency. During the construction of the Improvements, Lessee shall or shall cause the contractor to post at the Property the applicable prevailing rates of per diem wages. Lessee shall indemnify, hold harmless and defend (with counsel reasonably acceptable to the Agency) the Agency and the City against any claim for damages, compensation, fines, penalties or other amounts arising out of the failure or alleged failure of any person or entity (including the Lessee, its contractor and subcontractors) to pay prevailing wages as determined pursuant to Labor Code Sections 1720 et seq., to employ apprentices as required by Labor Code Section Labor Code Sections 1720 et seq., and the implementing regulations of the DIR or comply with the other applicable provisions of Labor Code Sections 1720 et seq., and the implementing regulations of the DIR in connection with construction of the Improvements or any other work undertaken or in connection with the Property. Section 3.10 The Lessee to Furnish and Eauip the Immovements. Upon completion of construction of the Improvements, the Lessee covenants and agrees to furnish and equip the Improvements, with all fixtures, furnishings, equipment and other personal property (collectively, the "Personal Property") of a quantity as necessary to operate a first class housing development in accordance with the standards set forth in this Lease and the Regulatory Agreement. The Lessee hrther agrees to take good care of such Personal Property, to keep the same in good order and condition ordinary wear and tear excepted, and promptly, at the Lessee's own cost and expense, to make all necessary repairs, replacements and renewals thereof. As used in this Lease, the term "Personal Property" includes all such replacements and renewals, and all fixtures, furnishings, equipment and other personal property of the Lessee located in, on or about the Property and the Improvements thereon. Any and all fixtures, furnishings, equipment and other personal property placed in, on or about the Property shall be the Personal Property of the Lessee during the Lease Term. 1010\13\169008.4 10 ARTICLE 4: USE AND MAINTENANCE OF THE IMPROVEMENTS Section 4.1 Use of Development. (a) During the Lease Term, the Lessee shall at all times use and operate the Development in accordance with this Lease, the Disposition Agreement, the Regulatory Agreement, and all requirements of the Approved Loan Documents. Any use of the Property for any other purpose other than the operation of the Improvements in accordance with the Regulatory Agreement or any proposed "Major Additional Improvements" to the Property shall be subject to the Agency's prior written approval which may be granted or denied in the Agency's sole discretion. For the purposes of this Section 4.1 the term "Major Additional Improvements" means any of the following: (1) any new buildings, structures or outdoor facilities other than the Improvements to be located on the Property, (2) any substantial alterations, remodeling or rehabilitation of the Improvements, (3) construction of additional spaces or facilities, or (4) any other alteration, construction, remodeling or reconstruction on the Property with a cost in excess of Twenty-Five Thousand Dollars ($25,000). (b) During the Lease Term, the Lessee shall comply with all applicable and lawhl statutes, rules, orders, ordinances, requirements, and regulations of the United States, the State of California, and any other governmental authority having jurisdiction over the Development; however, the Lessee may, in good faith and on reasonable grounds, dispute the applicability or the validity of any charge, complaint, or action taken pursuant to or under color of any statute, rule, order, ordinance, requirement, or regulation, defend against the same, and in good faith diligently conduct any necessary proceedings to prevent and avoid any adverse consequence of the same. The Lessee agrees that any such contest shall be prosecuted to a final conclusion as promptly as reasonably possible. (c) The Lessee shall: (i) use the Development only to provide proper housing facilities and ancillary uses to tenants, and to maintain the character of the Development as required by this Lease, the Regulatory Agreement and any Approved Loan Documents for so long as such agreements remain in effect, and shall not use the Development for any disorderly or unlawful purpose; (ii) use reasonable efforts to prevent any residential tenant from committing or maintaining any nuisance or unlawful conduct on or about the Development; (iii) use reasonable efforts to prevent any residential tenant from violating any of the covenants and conditions of this Lease with respect to the Development; (iv) residential tenant upon notice from the Agency; use reasonable efforts to abate any violation of this Lease by any 1010\13\169008.4 11 i :I (v) subject to any applicable laws of the State of California and the rights of residential tenants in the Development, permit the Agency and its agents to inspect the Development at any reasonable time during the Lease Term; and (vi) Not commit or suffer to be committed any waste in, on or about the Property. Section 4.2 Compliance with the Regulatory Agreement. The Lessee hereby agrees that, for the term of the Regulatory Agreement, the Development will be used only for residential uses consistent with this Lease and the Regulatory Agreement. A portion of the residential units shall be rented to and occupied by or, if vacant, available for occupancy by Very Low Income Households and other households as set forth in the Regulatory Agreement. Section 4.3 Maintenance of the Development. The Lessee shall cause the Property and the Development to be well maintained and repaired in a condition reasonably acceptable to the Agency during the Lease Term, including but not limited to cleaning, painting, decorating, plumbing, carpentry, grounds care and such other maintenance and repairs as may be necessary. The Lessee shall perform, or cause to be performed, all maintenance and repairs necessary to maintain the Development in good repair and tenantable condition. The Agency shall have the right, upon reasonable notice to the Lessee, to enter the Development to make inspections to determine the Lessee's compliance with this Section 4.3. The Agency shall have additional rights and remedies regarding maintenance as set forth in the Regulatory Agreement. As between the Agency and the Lessee, all costs incurred in the operation and maintenance of the Improvements shall be paid by the Lessee. Section 4.4 Utilities. The Lessee shall be responsible for the cost of all utilities, including water, heat, gas, electricity, waste removal, sewers, and other utilities or services supplied to the Development, and the Lessee shall pay or cause utility costs to be paid currently and as due. Section 4.5 Taxes and Assessments. (a) Payment of Taxes and Assessments. The Lessee shall, during the entire Lease Term, at its own cost and expense, pay the public officers charged with their collection, as the same become due and payable and before any fine, penalty, interest, or other charge may be added to them for nonpayment, all real estate taxes, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind and nature, made, assessed, levied, or imposed upon, or due and payable in connection with, or which become a lien upon, the Property, the Improvements, or any part of the Property or Improvements, or upon the Lessee's leasehold interest in the Property pursuant to this Lease, as well as assessments for sidewalks, streets, sewers, water, or any other public improvements and any other improvements or benefits which shall, during the Lease Term, be made, assessed, levied, or imposed upon or become due and payable in connection with, or a lien upon, the Property, the Improvements, or any part of the Property or Improvements, or upon the Lessee's leasehold interest in the Property pursuant to this Lease. The Lessee acknowledges that, pursuant to Health and Safety Code Section 33673, 1010\13\169008.4 12 the Property will be assessed for property tax purposes as if privately owned and the Lessee shall be responsible for the payment of all such property taxes. (b) Pavment of Fees. During the entire Lease Term, the Lessee shall pay, at its own cost and expense, before any fine, penalty, interest, or other charge may be added for nonpayment, all license and permit fees, charges for public utilities, and governmental charges relating to the use or occupancy of the Improvements. (c) Copies of Notices to Lessee. The Agency shall promptly send to the Lessee copies of any and all notices received by it in respect to any taxes, assessments, charges, or fees for which the Lessee is liable pursuant to this Section 4.5. (d) The Agency's Right Cure. If the Lessee, in violation of the provisions of this Lease, shall fail to pay and to discharge any taxes, or any other fee, the Agency may (but shall not be obligated to) pay or discharge such taxes, and the amount paid by the Agency and the amount of all costs, expenses, interest and penalties connected therewith, including attorneys' fees, together with interest as set forth in Section 2.6(c) shall be deemed to be and shall, upon demand of the Agency, be payable by the Lessee as repayment of such advance by the Agency. Section 4.6 Assistance in Making Pavments. The parties acknowledge that Lessee is responsible under this Lease for making various payments to third parties, such as tax and utility payments in accordance with the provisions of this Article 4. In case any person or entity to whom any sum is directly payable by the Lessee under any of the provisions of this Lease (e.g., a tax collector or utility company) shall refuse to accept payment of such sum from the Lessee (due to the fact that the Lessee is not the fee owner of the Property or for any other reason), the Lessee shall thereupon give written notice of such fact to the Agency and shall pay such sum directly to Agency at the address specified in Section 1 1.2 hereof, and Agency shall thereupon pay such sum to such person or entity. Section 4.7 Hazardous Materials. (a) Covenants and Agreements. The Lessee hereby covenants and agrees that: (i) The Lessee shall not knowingly permit the Development or the Property or any portion thereof to be a site for the use, generation, treatment, manufacture, storage, disposal or transportation of Hazardous Materials or otherwise knowingly permit the presence of Hazardous Materials in, on or under the Property or the Development in violation of any applicable law; (ii) The Lessee shall keep and maintain the Property and the Development and each portion thereof in compliance with, and shall not cause or permit the Property and the Development or any portion thereof to be in violation of, any Hazardous Materials Laws; 1010\13\169008.4 13 (iii) Upon receiving actual knowledge of the same the Lessee shall immediately advise the Agency in writing of: (A) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Lessee or the Development pursuant to any applicable Hazardous Materials Laws; (B) any and all claims made or threatened by any third party against the Lessee or the Development relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in the foregoing clause (A) and this clause (B) are hereinafter referred to as "Hazardous Materials Claims"); (C) the presence of any Hazardous Materials in, on or under the Property or the Development in such quantities which require reporting to a government agency; or (D) the Lessee's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Development classified as "borderzone property" under the provisions of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Development under any Hazardous Materials Laws. If the Agency reasonably determines that the Lessee is not adequately responding to a Hazardous Material Claim, the Agency shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any such Hazardous Materials Claims and to have its reasonable attorney's fees in connection therewith paid by the Lessee. (iv) Without the Agency's prior written consent, which shall not be unreasonably withheld or delayed, the Lessee shall not take any remedial action in response to the presence of any Hazardous Materials on, under, or about the Development (other than in emergency situations or as required by governmental agencies having jurisdiction), nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Materials Claims. (b) Indemnity. Without limiting the generality of the indemnification set forth in Section 6.4, the Lessee hereby agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the Agency) the Agency, the City, their respective boardmembers and councilmembers, officers, and employees from and against any and all claims, losses, damages, liabilities, fines, penalties, charges, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including, but not limited to, attorney's fees and expenses), arising directly or indirectly, in whole or in part, out of: (1) the failure of the Lessee or any other person or entity, during the Lease Term, to comply with any Hazardous Materials Law relating in any way whatsoever to the handling, treatment, presence, removal, storage, decontamination, cleanup, transportation or disposal of Hazardous Materials into, on, under or from the Development; (2) the presence in, on or under the Property or the Development of any Hazardous Materials or any releases or discharges, during the Lease Term, of any Hazardous Materials into, on, under or from the Property or the Development; or (3) any activity carried on or undertaken on or off the Property or the Development, during the Lease Term, and whether by the Lessee or any employees, agents, contractors or subcontractors of the Lessee, or any third persons occupying or present on the Property or the Development, in connection with the handling, treatment, removal, storage, decontamination, cleanup, transport or disposal of any Hazardous Materials located or present on or under the Development 1010\13\169008.4 14 f (collectively "Indemnification Claims"). The foregoing indemnity shall further apply to any residual contamination on or under the Property or the Development, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the Indemnification Claims and irrespective of whether any of such activities were or will be undertaken in accordance with Hazardous Materials Laws; provided, however, the foregoing indemnity shall not apply to any Indemnification Claims arising directly or indirectly, in whole or in part, from the Agency's gross negligence or willful misconduct. This obligation to indemnify, set forth in this Section 4.6(b) shall survive termination of this Lease. (c) No Limitation. The Lessee hereby acknowledges and agrees that the Lessee's duties, obligations and liabilities under this Lease, including, without limitation, under subsection (b) above, are in no way limited or otherwise affected by any information the Agency may have concerning the Development and/or the presence within the Development of any Hazardous Materials, whether the Agency obtained such information from the Lessee or from its own investigations. (d) Environmental Work. The Lessee shall be responsible for performing the work of any investigation and remediation that may be required by applicable law on the Property in order to develop the Development. The determination as to whether any such remediation is needed, and as to the scope and methodology thereof, shall be made by mutual agreement of the governmental agency with responsibility for monitoring such remediation and the Agency and the Lessee. The Lessee shall notify the Agency promptly upon discovery of any actionable levels of Hazardous Materials, and upon any release thereof, and shall consult with the Agency in order to establish the extent of remediation to be undertaken and the procedures by which remediation thereof shall take place. The Lessee shall comply with, and shall cause its agents and contractors to comply with, all laws regarding the use, removal, storage, transportation, disposal and remediation of Hazardous Substances. The investigation and remediation work shall be carried out in accordance with all applicable laws (including Hazardous Materials Laws) and such other procedures and processes as may be described in this Lease. Section 4.8 Non-Discrimination. The Lessee shall not, in the selection or approval of tenants or provision of services or in any other matter relating to the development and operation of the Development, discriminate against any person or group of persons on the grounds of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry, age, or disability. All such deeds, leases or contracts shall contain or be subject to substantially the following nondiscrimination or no segregation clause: (a) In deeds: "The grantee herein, covenants by and for the grantee, the grantee's heirs, executors, administrators and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, martial status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the premises herein conveyed, nor shall the grantee, or any person claiming under or through the grantee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, 1010\13\169008.4 15 lessees, subtenants, sublessees or vendees in the premises herein conveyed. The foregoing covenants shall run with the land. (b) In Leases: "The lessee herein covenants by and for the lessee, the lessee's heirs, executors, administrators and assigns, and all persons claiming under or through the lessee, and this lease is made and accepted upon and subject to the following conditions. "That there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, marital status, ancestry or national origin in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the premises herein leased, nor shall the lease, or any person claiming under or through the lessee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the premises herein leased." (c) In contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, age, handicap, marital status, ancestry or national origin in the sale, lease, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the premises, nor shall the transferee, or any person claiming under or through the transferee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the premises." ARTICLE 5: APPROVED LOANS Section 5.1 Loan Obligations. Nothing contained in this Lease shall relieve the Lessee of its obligations and responsibilities under any Approved Loans to operate the Development as set forth in the applicable Approved Loan Documents. Section 5.2 Liens and Encumbrances Against Lessee's Interest in the Leasehold Estate. (a) The Lessee shall have the right to encumber the leasehold estate created by this Lease and the Improvements with the lien or liens securing one or more Approved Loans, subject to the Agency's review and prior approval of the Approved Loan Documents which approval shall not be unreasonably withheld or conditioned. Within thirty (30) days following receipt of the proposed Approved Loan Documents along with Lessee's written notice requesting approval of such documents, the Agency shall review and either approve or disapprove the Approved Loan Documents. (b) The Lessee shall have the right to encumber the Agency's interest in the Property and the Improvements with a lien of an Approved Loan only upon the prior written approval of the Agency which may be granted or denied in the Agency's sole discretion. (c) For as long as there is any lien securing any Approved Loans: 10 10\13\169008.4 16 (i) The Agency shall not agree to any mutual termination or accept any surrender of this Lease, nor shall the Agency consent to any amendment or modification of this Lease, without prior written consent of all Approved Lenders that have an outstanding Approved Loan. Notwithstanding any default by the Lessee under this Lease, the Agency shall have no right to terminate this Lease unless the Agency has given all Approved Lenders which have an outstanding Approved Loan written notice of such default pursuant to the requirement of Sections 5.2(c)(vi) and 1 1.2 and such Approved Lenders have failed to remedy such default or acquire the Lessee's leasehold estate created by this Lease or commence foreclosure or other appropriate proceedings as set forth in, and within the time specified by, subsection 5.2(c), as applicable. If the Agency receives competing or conflicting offers to cure any default, then the Agency shall accept the offers to cure in the following order: first, the Lessee, then each Approved Lender in the relative priority of their respective deeds of trust. Notwithstanding the foregoing, an Approved Lender shall not be required to obtain possession or commence or continue foreclosure proceedings as a prerequisite to curing a default by the Lessee. (ii) Any Approved Lender which has an outstanding Approved Loan shall have the right, but not the obligation, at any time to pay any or all of the Rent due pursuant to the terms of this Lease, and do any other act or thing required of the Lessee by the terms of this Lease, to prevent termination of this Lease. Each Approved Lender shall have sixty (60) days after receipt of notice from the Agency describing such default to cure the default. All payments so made and all things so done shall be as effective to prevent a termination of this Lease as the same would have been if made and performed by the Lessee instead of by the Approved Lender(s) and the costs thereof may be added to the security interest and the lien securing the Approved Loans(s) thereof (iii) In addition to the cure period provided in paragraph (ii) above, if the default is such that possession of the Development may be reasonably necessary to remedy the default, any Approved Lender which has an outstanding Approved Loan shall have a reasonable time after the expiration of such sixty (60)-day period within which to remedy such default, provided that (A) such Approved Lender has fully cured any default in the payment of any monetary obligations of the Lessee under this Lease within such sixty (60)-day period and shall continue to pay currently such monetary obligations when the same are due, (B) such Approved Lender has acquired the Lessee's leasehold estate hereunder or commenced foreclosure or other appropriate proceedings prior to or within such period, and shall be diligently prosecuting the same; and (C) after gaining possession of the Development, the Approved Lender has cured all non-monetary defaults capable of cure by the Approved Lender and performed all obligations of the Lessee capable of performance by the Approved Lender when the obligations are due. (iv) Any default under this Lease which by its nature cannot be remedied by any Approved Lender shall be deemed to be remedied if (A) within sixty (60) days after receiving written notice from the Agency describing the default, or prior thereto, any 10 10\13\169008.4 17 Approved Lender has acquired the Lessee's leasehold estate or commenced foreclosure or other appropriate proceedings, (B) the Approved Lender diligently prosecutes any such proceedings to completion, (C) the Approved Lender has fully cured any default in the payment of any monetary obligations of Lessee hereunder which does not require possession of the Development, and (D) after gaining possession of the Development, the Approved Lender performs all other obligations of Lessee hereunder capable of perfonnance by the Approved Lender when the obligations are due. (v) If Approved Lenders are prohibited, stayed, or enjoined by any bankruptcy, insolvency, or other judicial proceedings involving the Lessee from commencing or prosecuting foreclosure or other appropriate proceedings, then the times specified for commencing or prosecuting such foreclosure or other proceedings shall be extended for the period of such prohibition, so long as the Approved Lender claiming the extension has hlly cured any default in the payment of any monetary obligations of Lessee under this Lease, continues to pay currently such monetary obligations when the same fall due, and does not interfere with the Agency's efforts to seek compliance by the Lessee with any non-monetary obligation under this Lease. (vi) The Agency shall mail or deliver to any Approved Lenders which have any outstanding Approved Loan a duplicate copy of all notices which the Agency may fiom time to time give to the Lessee pursuant to this Lease. All notices delivered by the City to any Approved Lenders shall also comply with the notice provisions of Section 11.2. The conveyance of the Lessee's interest in the Development to a Foreclosure Transferee by means of a foreclosure or a deed in lieu of foreclosure shall not be subject to the Agency's prior consent. In the event Foreclosure Transferee becomes the Lessee under this Lease by means of foreclosure or deed in lieu of foreclosure or pursuant to any new lease obtained under subsection (viii) below, the Agency shall recognize the Foreclosure Transferee and the Foreclosure Transferee shall be personally liable under this Lease or such new lease only for the period of time that the Foreclosure Transferee remains the lessee. Nothing in this section obligates any Foreclosure Transferee to remedy any default of the Lessee, and any failure of any Approved Lender to complete any such cure after commencing the same shall not give rise to any liability of the Approved Lender to the Agency. If any Foreclosure Transferee shall acquire the Lessee's interest in the Development, such Foreclosure Transferee shall thereafter have the right to assign or transfer such interest in the Development to an assignee, subject to the consent provisions of Article 8 below. The Foreclosure Transferee shall be released and relieved of any liability under this Lease for acts occurring after the assignment and under any other document entered into in connection herewith upon assignment of all of the Foreclosure Transferee's interest in the Development. (vii) If a Foreclosure Transferee becomes the legal owner of the leasehold estate, and upon written request by the Foreclosure Transferee or its permitted transferee within sixty (60) days after becoming the legal owner of the leasehold estate, the Agency shall enter into a new lease of the Property with the Foreclosure Transferee or its 10 10\13\169008.4 18 permitted transferee for the remainder of the Lease Term with the same agreements, covenants, reversionary interests, and conditions (except for any requirements which have been fulfilled by the Lessee prior to termination) as are contained in this Lease and with priority equal to this Lease, so long as the Foreclosure Transferee or its permitted transferee promptly cures any existing defaults by the Lessee susceptible to cure by the Foreclosure Transferee or its permitted transferee. (viii) If this Lease is terminated by a bankruptcy proceeding, foreclosure, or by other operation of law, then the Agency shall, upon request by an Approved Lender or its permitted transferee, execute a new lease of the Property to the Approved Lender or other transferee, as the case may be, on the same terms and conditions as this Lease, except that the term will commence on the date of the new lease and will continue for the remaining unexpired term of this Lease. If the Agency receives conflicting requests for a new lease of the Property, then the Agency shall execute a new lease of the Property with the requesting Approved Lender having the most senior deed of trust. (ix) The Agency shall cooperate in including in this Lease by suitable amendment from time to time any provision which may reasonably be requested by any proposed leasehold mortgagee for the purpose of implementing the mortgagee-protection provisions contained in this Lease and allowing such leasehold mortgagee reasonable means to protect or preserve the lien of the leasehold mortgage and the value of its security. The Agency shall execute and deliver (and acknowledge, if necessary, for recording purposes) any agreement necessary to effect any such amendment, so long as such amendment does not in any way affect the Lease Term or Rent under this Lease or otherwise in any material respect adversely affect any rights of the Agency under this Lease. Section 5.3 Cost of Approved Loans to be Paid by Lessee. The Lessee shall bear all of the costs and expenses in connection with (a) the preparation and securing of the Approved Loans, (b) the delivery of any instruments and documents and their filing and recording, if required, and (c) all taxes and charges payable in connection with the Approved Loans. Section 5.4 to and become the property of the Lessee, and the Agency shall have no right to receive any such Approved Loan proceeds. Proceeds of Approved Loans. All Approved Loan proceeds shall be paid Section 5.5 Notice and Right to Cure Defaults Under Approved Loans. The Lessee shall include in all Approved Loan Documents that in the event of default by the Lessee under an Approved Loan, notice shall be given to the Agency at the same time given to the Lessee, and the Agency shall have the right, but not the obligation, to cure the default with a cure period which extends not less than thirty (30) days beyond the cure period provided to the Lessee under the applicable Approved Loan Document. Any payments made by the Agency to cure a default shall be treated as Rent due from the Lessee, which shall be paid within thirty (30) days of the date on which the payment was made by the Agency. Section 5.6 Modifications. If a lender under an Approved Loan should, as a condition of providing financing for development of all or a portion of the Development, request any ; “1 1010\13\169008.4 19 \\ &.. i modification of this Lease in order to protect its interests in the Development or this Lease, the Agency shall consider such request in good faith consistent with the purpose and intent of this Lease and the rights and obligations of the Parties under this Lease. Section 5.7 Estoppel Certificates. The Agency and the Lessee agree that at any time and from time to time upon not less than twenty (20) days' prior written notice by the other party, or upon request from any Approved Lender or a permitted assignee or other interested party, the Agency or the Lessee will execute, acknowledge and deliver to the other party or to such other parties a statement in writing certifying (a) that this Lease is unmodified and in full force and effect: (b) the date through which the Rent has been paid; and (c) that, to the knowledge of the certifier (if such be the case), there is no default, set-off, defense or other claim against the Agency or the Lessee, as applicable, other than those, if any, so specified under the provisions of this Lease. It is intended that any such statement may be relied upon by any persons proposing to acquire the interest of the Agency, the Lessee or any Approved Lender, as the case may be, in this Lease or by any assignee of any Approved Lender. ARTICLE 6: INSURANCE Section 6.1 Required Insurance Coverage. Upon the execution of this Lease, the Lessee shall furnish to the Agency the type and amounts of insurance specified in Exhibit B. The Agency and the City shall be named as additional insureds on the policies specified in Exhibit B. The Lessee shall insure that all worker compensation insurance policies carried by the Lessee's architect, general contractor and subcontractors working on the Development include a waiver of subrogation in favor of the Agency and the City. Section 6.2 Insurance Policies and Premiums. (a) All liability policies required by this Lease or any Approved Loan Document shall comply with the requirements set forth in Exhibit B. (b) Insurance shall be placed with insurers with a current Best Rating of no less than A:VII. Any deductible or self-insured retention shall be disclosed to and approved by the Agency. (c) The Lessee shall furnish the Agency with certificates and original endorsements effecting the required coverage promptly upon request. The endorsements shall be signed by persons authorized by the insurer to bind coverage on its behalf. The endorsements shall be on forms provided by the Agency or as approved by the Agency. If the Lessee does not keep all required insurance policies in full force and effect, then the Agency may, in addition to other remedies under this Lease, and upon not less than fifteen (1 5) days prior written notice and the failure of the Lessee to obtain such insurance within such fifteen (1 5)-day period, take out the necessary insurance, and the Lessee shall pay the cost of such insurance. 1010\13\169008.4 20 I 1, i .. (d) Promptly upon the Agency's request from time to time during the Lease Term, the Lessee shall increase the amount of the insurance policies, or otherwise modify such policies set forth in Exhibit B. Section 6.3 Proceeds of Insurance. (a) For so long as any Approved Loan on the Development is outstanding, the disposition of all commercial property insurance (including builder's risk) proceeds shall be governed by the Approved Loan Documents. If the Improvements are not repaired or rebuilt, all such proceeds shall be applied in a manner consistent with the terms of the Approved Loans, with any conflicts resolved in accordance with the relative priority of their respective deeds trust. (b) If the Lessee fails to agree in writing within thirty (30) days after payment of the proceeds of insurance that such repair or rkbuilding is economically feasible and the Improvements as so restored will be economically viable, then within an additional sixty (60) days, Lessee shall commence to demolish and clear the Property of the Improvements, unless otherwise directed by the Agency, and this Lease shall terminate at the option of the Agency upon the completion of the clearance of the Property by the Lessee. Section 6.4 Indemnification. The Lessee agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the Agency) the Agency, its board members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of the Lessee's performance or non-performance under this Lease, or any other agreement executed pursuant to this Lease, or arising out of acts or omissions of any of Lessee's contractors, subcontractors, or persons claiming under any of the aforesaid, except as directly caused by the Agency's willful misconduct or gross negligence. The provisions of this section shall survive expiration of the Lease Term or other termination of this Lease, and shall remain in full force and effect. ARTICLE 7: CONDEMNATION, DAMAGE OR DESTRUCTION OF THE IMPROVEMENTS Section 7.1 Condemnation. If the Improvements or the Property or any part thereof is taken or condemned, for any public or quasi-public purpose or use by any competent entity in appropriate proceedings, or by any right of eminent domain, then the Agency and Lessee shall request that awards and other payments on account of a taking of the Improvements and the Property (less costs, fees and expenses incurred by the Agency and Lessee in connection with the collection thereof) be divided by the presiding court between loss of value of the fee interest in the Property and loss of value of the Improvements and the leasehold interest in the Property. In any case, subject to the rights of Approved Lenders under the Approved Loan Documents (with any conflicts resolved in accordance with the relative priority of their respective deeds of trust), such awards and payments shall be applied as follows: 1010\13\169008.4 21 (a) Net awards and payments received on account of a partial taking of the Improvements, other than a taking for a temporary use not exceeding one (1) year, shall be allocated and paid in the following order of priority: (i) If the Lessee reasonably believes restoration is economically feasible, and unless the Approved Lenders under the Approved Loan Documents require that the proceeds be applied to the outstanding indebtedness under the Approved Loans, first, to pay the cost of restoration of the Improvements, provided that the extent of the Lessee's obligations to restore the Improvements shall be limited to the amount of the net award and payment received by and available to Lessee on account of the taking. In such event, the condemnation proceeds shall be paid into the Construction Fund described in Section 7.2 below, subject to the rights of Approved Lenders to collect and disburse such funds. (ii) Second (or first if (i) the Lessee does not believe that restoration is economically feasible or viable as described above, or (ii) the Approved Lender(s) under the Approved Loan Documents require(s) that such proceeds be applied to the outstanding indebtedness under the Approved Loan(s)) to any Approved Lenders (in the order of their respective lien priority, if there is more than one Approved Lender) in an amount necessary to reduce the outstanding indebtedness under the approved Loan(s) to the extent required by the Approved Lender(s). (iii) The balance, if any, shall be divided between the Agency and the Lessee in the manner specified in subparagraph (e) below. (b) Net awards and payments received on account of a partial or total taking of only the Agency's fee interest in the Property or the reversionary interest in the Improvements (that is, a taking of the Agency's fee interest in the Property or the Agency's reversionary interest in the Improvements that has no effect on the value of the Lessee's leasehold interest in the Property or the Lessee's fee interest in the Improvements), including severance damages, shall be paid to the Agency which amount shall be free and clear of any claims of the Lessee, or any other persons claiming rights to the Property through or under the Lessee. (c) Net awards and payments received on account of a taking for temporary use not exceeding one (1) year and relating to a period during the Lease Term shall be paid to the Lessee; however, if such taking for temporary use has resulted in any damage to or destruction of the Development, then such net awards and payments shall be first applied to pay the cost of restoration if the Lessee determines that restoration is economically feasible. Net awards and payments received on account of a taking for temporary use not exceeding one (1) year and relating to a period beyond the Lease Term shall be paid to the Agency. (d) Net awards and payments received on account of a total taking of the Development shall be allocated and paid in the following order of priority: (i) First, to any Approved Lenders with then-outstanding Approved Loans secured by the Development (in the order of their respective lien priority, if there is more 1010\13\169008.4 22 than one Approved Lender), an amount equal to the unpaid balance secured by their respective Approved Loans up to the total amount of such awards and payments; (ii) The balance, if any, shall be divided between the Agency and the Lessee in the manner specified in subparagraph (e) below. (e) For purposes of subsections (a)(iii) and (d)(ii) above, proceeds shall be paid in the following manner; first the Lessee shall receive reimbursement for any funds it has reasonably expended for repair and/or reconstruction of the Development (other than funds received from Approved Lenders). Second, the balance, if any, shall be paid to the Lessee and the Agency pari passu. The Lessee shall receive the portion of the payment attributable the Improvements, Lessee's leasehold interest, and Lessee's trade fixtures and personal property. The Agency shall receive the portion of the payment attributable to the Agency's fee interest in the Property and the Agency's reversionary interest in the Improvements. (f) The Lessee shall receive any award granted for or allocated to trade fixtures, moving expenses or loss of business. Section 7.2 Administration of Construction Fund in the Event of Condemnation. or Damage or Destruction of Development. If the Approved Loans have been paid in full, and if the Improvements, or any part of it, is to be repaired or reconstructed after damage or destruction or condemnation, then all proceeds collected under any and all policies of insurance referred to in Article 6 above covering such damage or destruction, or all compensation received for such taking by the exercise of the power of eminent domain, shall be paid into a special trust fund to be created and held by the Lessee during such repairing or reconstructing (the "Construction Fund"). Any surplus of such insurance or condemnation proceeds remaining in the Construction Fund after the completion of all payments for such repairing or reconstructing shall be held or applied by the Lessee in a manner consistent with the applicable provision of this Article 7. Section 7.3 Lessee, Agency, Approved Lenders to be Made Parties in Legal Proceedings. (a) In the event proceedings shall be instituted (i) for the exercise of the power of eminent domain, or (ii) as a result of any damage to or destruction of the Development, the resulting proceeds shall be paid to the Approved Lenders for application or disbursement in accordance with the Approved Loan Documents (in the order of their respective lien priority, if there is more than one such Approved Lender). The Lessee, Agency, and, as necessary, any Approved Lender with a then-outstanding Approved Loan shall be made parties to those proceedings, and if not made parties by the petitioning party, shall be brought into the proceedings by appropriate proceedings of the other parties so that adjudication may be made of the damages, if any, to be paid to the Lessee, the Agency and Approved Lenders as compensation for loss of their rights in the Improvements or the Property, or for damage to or destruction of the Development. Should the Agency or Lessee receive notice of institution of any proceedings subject to Section 7.1 , the Party receiving such notice shall notify the other Party not later than thirty (30) days after receiving such notice. 1010\13\169008.4 23 (b) The Agency and the Lessee shall cooperate and consult with each other in all matters pertaining to the settlement, compromise, arbitration, or adjustment of any and all claims and demands for damages on account of damage to, or destruction of, the Development, or for damages on account of the taking or condemnation of the Improvements or the Property. Section 7.4 Termination. In the event of a total taking or in the event of damage, destruction, or a partial taking, other than a temporary taking of the Development, which the Lessee reasonably determines renders continued operation of the Development infeasible both as a whole and in substantial part, this Lease shall terminate at the option of the Agency (except if the Lessee is rebuilding the Development in accordance with the terms of this Lease), and in such event any proceeds shall be allocated pursuant to Section 6.3 or Article 7, as appropriate. In the event of a partial taking that does not result in termination pursuant to this Section 7.4, this Lease shall remain in full force and effect as to the portion of the Development remaining. ARTICLE 8: ASSIGNMENT AND TRANSFERS Section 8.1 Definitions. As used in this Article 8, the term "Transfer" means: (a) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to this Lease or of the Property or any part thereof or any interest therein or of the Development constructed thereon, or any contract or agreement to do any of the same; or (b) Any total or partial sale, assignment or conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to any ownership interest in the Lessee, or any contract or agreement to do any of the same. Section 8.2 Purpose of Restrictions on Transfer. This Lease is entered into solely for the purpose of development and operation of the Development on the Property and its subsequent use in accordance with the terms of this Lease. The qualifications and identity of the Lessee are of particular concern to the Agency, in view of: (a) The importance of the redevelopment of the Property to the general welfare of the community; and (b) The fact that a Transfer as defined in Section 8.1 above is for practical purposes a transfer or disposition of the Property. It is because of the qualifications and identity of the Lessee that the Agency is entering into this Lease with the Lessee and that Transfers are permitted only as provided in this Lease. Section 8.3 Prohibited Transfers. The limitations on Transfers set forth in this Section 8.3 shall apply for the Lease Term. Except as expressly permitted in this Lease, the Lessee represents and agrees that the Lessee has not made or created, and will not make or create or suffer to be made or created, any Transfer, either voluntarily or by operation of law, without the 1010\13\169008.4 24 prior approval of the Agency. The Agency may approve any such Transfer in its sole discretion. Any Transfer made in contravention of this Section 8.3 shall be void and shall be deemed to be a default under this Lease, whether or not the Lessee knew of or participated in such Transfer. Section 8.4 Permitted Transfers. Notwithstanding the provisions of Section 8.3, the following Transfers shall be permitted without the prior written consent of the Agency (subject to satisfaction of the conditions of Section 8.5). (a) Any Transfer creating an Approved Loan. (b) Any Transfer directly resulting fiom the foreclosure of an Approved Loan or the granting of a deed in lieu of foreclosure of an Approved Loan. (c) The leasing of residential units within the Development. (d) Any Transfer resulting directly fi-om the death of an individual. (e) The granting of easements or permits to facilitate the development of the Property. (0 Any Transfer to an entity Controlled by the Lessee, provided that, (1) the Lessee has submitted such entity's organizational documents to the Agency and the Agency has determined that such entity is Controlled by the Lessee, and (2) upon such Transfer, the transferee, by an instrument in writing prepared by the Agency and in form recordable among the land records, shall expressly assume the obligations of the Lessee under this Lease and the Agency Documents and agrees to be subject to the conditions and restrictions to which the Lessee is subject arising during this Lessee and the Agency Documents. Section 8.5 Procedure for Approval of Certain Transfers. The Agency shall in its sole discretion approve or disapprove a request for a Transfer made by the Lessee upon the Lessee's delivery of written notice to the Agency requesting such approval. Such notice shall be accompanied by evidence regarding the proposed Transfer in reasonably sufficient detail to enable the Agency to evaluate the proposed Transfer, including, without limitation, transferee financial statements, information regarding prior transferee experience, and information regarding transferee's proposed use and/or development of the Property. Within thirty (30) days after receipt of the Lessee's written notice requesting Agency approval of a proposed Transfer, the Agency shall either reasonably approve or disapprove such proposed Transfer, or shall respond in writing by stating what further information, if any, the Agency reasonably requires in order to determine whether or not to grant the requested approval. Upon receipt of such a response, the Lessee shall promptly furnish to the Agency such further information as may be reasonably requested. Within ten (1 0) days after the Agency's receipt of the Lessee's submittal of the requested further information, the Agency shall either reasonably approve or disapprove such proposed Transfer. The Agency's failure to respond within such ten (1 0)-day period to any such request for approval shall be deemed to be the Agency's approval thereof. 1010\13\169008.4 25 Upon the Agency granting approval of such proposed Transfer, the person or entity to which such Transfer is made, by an instrument in writing prepared by the Agency and in form recordable among the land records of the County, shall expressly assume the obligations of the Lessee under this Lease, the other Agency Documents, and shall agree to be subject to the conditions and restrictions to which the Lessee is subject arising during this Lease, to the fullest extent that such obligations are applicable to the particular portion of or interest in the Development conveyed in such Transfer. Section 8.6 Assiments. Any assignment of rights and/or delegation of obligations under this Lease in connection with a Transfer (whether or not Agency approval is required) shall be in writing executed by the Lessee and the assignee or transferee, with a copy thereof delivered to the Agency within thirty (30) days after the effective date thereof. Upon assignment or transfer of the Development pursuant to an assumption agreement described in Section 8.5 above, the assignor shall be relieved of liability with respect to any such obligations relating to the Development assumed by the assignee. Notwithstanding the foregoing, unless such assignee specifically assumes the obligations under this Lease with respect to the Development, the assignor will retain such obligations and remain jointly and severally liable for such obligations with such assignee. In the absence of specific written agreement by the Agency (which the Agency may grant or withhold in its sole discretion), no Transfer permitted by this Lease or approved by the Agency shall be deemed to relieve the transferor from any obligation under this Lease. ARTICLE 9: REPRESENTATIONS AND ASSURANCES Section 9.1 Agency to Give Peaceful Possession. Lessee shall have, hold, and enjoy, during the Lease Term, peaceful, quiet, and undisputed possession of the Property without hindrance or molestation by or fiom the Agency so long as the Lessee is not in default under this Lease following the expiration of all applicable notice and cure periods. Section 9.2 Lessee Representations. The Lessee represents and warrants, as of the date of this Lease, as follows: (a) Ormnization. The Lessee is a duly organized, validly existing California nonprofit public benefit corporation, and is in good standing under the laws of the State of California, and has the power and authority to own its property and carry on its business as now being conducted. (b) Authority of Lessee. The Lessee has full power and authority to execute and deliver this Lease, or to be executed and delivered, pursuant to this Lease, and to perform and observe the terms and provisions of all of the above. (c) Authority of Person Executing Documents. This Lease and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Lease have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of Lessee, and all actions required under the Lessee's 1010\13\169008.4 26 organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Lease and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Lease, have been duly taken. (d) Valid Binding Agreements. This Lease and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Lease constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of the Lessee enforceable against it in accordance with their respective terms. (e) No Breach of Law or Agreement. Neither the execution nor delivery of this Lease or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Lease, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Lessee, or any provision of the organizational documents of the Lessee, or will conflict with or constitute a breach of or a default under any agreement to which the Lessee is a party, or will result in the creation or imposition of any lien upon any assets or property of the Lessee, other than liens established pursuant hereto. (0 Compliance With Laws; Consents and Approvals. The construction of the Improvements will comply with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. (8) Pending Proceedings. The Lessee is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened against or affecting the Lessee, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Lessee, materially affect the Lessee's ability to develop the Improvements. (h) Title to Property. Upon the recordation of the Memorandum of Lease, the Lessee will have good and marketable leasehold title to the Property and there will exist thereon or with respect thereto no mortgage lien, pledge or other encumbrance of any character whatsoever other than those liens approved by the Agency, liens for current real property taxes and assessments not yet due and payable, and liens in favor of the Agency or approved in writing by the Agency. (i) Financial Statements. The financial statements of the Lessee and other financial data and information hished by the Lessee to the Agency fairly present the information contained therein. As of the date of this Lease, there has not been any adverse, material change in the financial condition of the Lessee from that shown by such financial statements and other data and information. 10 10\13\169008.4 27 (i) Sufficient Funds. The Lessee holds sufficient funds or binding commitments for sufficient funds to complete the construction of the Improvements in accordance with this Agreement. Section 9.3 Release of Agency. The Agency may sell, assign, transfer or convey all or any part of Agency's interest in the Property, reversionary interest in the Improvements, or this Lease without obtaining the Lessee's consent, as long as the purchaser, assignee, or transferee: (i) expressly assumes all of the obligations of the Agency under this Lease by a written instrument in a form reasonably satisfactory to Lessee and recordable in the Official Records. In the event of a sale, assignment, transfer or conveyance by the Agency of the Property or its rights under this Lease, the same shall operate to release the Agency from any future liability upon any of the covenants or conditions of this Lease, expressed or implied, in favor of the Lessee, and in such event the Lessee shall look solely to the successor in interest of the Agency. This Lease shall not be affected by any such sale or transfer, and the Lessee agrees to attorn to any such purchaser or assignee. Section 9.4 Holding Over. If the Lessee shall retain possession of the Property or the Improvements thereon or any part thereof without the Agency's prior written consent following the expiration of the Lease Term or sooner termination of this Lease for any reason, then the Lessee shall pay to the Agency the greater of: (i) an amount equal to two hundred percent (200%) of the Rent during the Lease Year prior to such termination or (ii) the fair market rent for the Property as of the date the Lessee retained possession of the Property or the Improvements, or any part thereof without the Agency's prior written consent following the expiration or sooner termination of this Lease as determined by a licensed real estate appraiser selected by the Agency in its sole discretion (the "Holdover Rent"). In addition to the Holdover Rent, the Lessee shall pay the Agency all other payments that would have been due had the Lease not expired or been terminated and had the Rent and other payment terms in effect at the time of the expiration or sooner termination of the Lease remained in effect. These payments shall be applicable to a holding over of any kind by the Lessee. The Lessee shall also indemnify and hold the Agency harmless from any loss or liability resulting from delay by the Lessee in surrendering the Property, including, without limitation, any claims made by any succeeding lessee founded on such delay. Acceptance of Rent by the Agency following expiration or termination shall not constitute a renewal of this Lease and nothing contained in this Section 9.4 shall waive the Agency's right of reentry or any other right. The Lessee shall be only a Lessee at sufferance, whether or not the Agency accepts any Rent from the Lessee while the Lessee is holding over without the Agency's written consent. Section 9.5 No Merger. Except upon expiration of the Lease Term or upon termination of this Lease pursuant to an express right of termination set forth herein, there shall be no merger of either this Lease or the Lessee's estate created hereunder with the fee estate of the Property or any part thereof by reason of the fact that the same person may acquire, own or hold, directly or indirectly, (a) this lease, the Lessee's estate created hereunder or any interest in this Lease or the Lessee's estate (including the Improvements), and (b) the fee estate in the Property or any part thereof or any interest in such fee estate (including the Improvements), unless and until all persons, including any assignee of the Agency, having an interest in (i) this 10 1 OM 3U69008.4 28 \*: -'i Lease or the Lessee's estate created hereunder, and (ii) the fee estate in the Property or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same. ARTICLE 10: DEFAULTS AND REMEDIES Section 10.1 Events of Default; Remedy for Default by Lessee. (a) Any one or more of the following events shall constitute an "Event of Default" by the Lessee: (i) Failure to pay Rent, as required pursuant to Section 2.5 of this Lease, or any other payment required hereunder, and continuance of such failure for a period of ten (10) days after receipt by the Lessee of written notice specifying the nonpayment; (ii) Failure of the Lessee to observe and perform any other covenant, condition or agreement hereunder on its part to be performed, and (A) continuance of such failure for a period of forty-five (45) days after receipt by the Lessee of written notice specifying the nature of such default, or (B) if by reason of the nature of such default the same cannot be remedied within such forty-five (45) days, the Lessee fails to proceed with reasonable diligence after receipt of such notice to cure the same within a reasonable amount of time thereafter but in no event later than one hundred twenty (120) days following the City's initial notice; or (iii) A default by the Lessee under the Agency Loan, or any of the Agency Documents which continues beyond the expiration of all applicable notice and cure periods; or (iv) The Lessee's abandonment of the Property for the period of time required for such abandonment to be legally recognized as such under California law; or (v) A general assignment by the Lessee for the benefit of creditors; or (vi) The filing of a voluntary petition by the Lessee, or the filing of an involuntary petition by any of the Lessee's creditors, seeking the rehabilitation, liquidation or reorganization of the Lessee under any law relating to bankruptcy, insolvency or other relief of debtors, provided that in the case of an involuntary petition Lessee shall have ninety (90) days to cause such petition to be withdrawn or dismissed; or (vii) The appointment of a receiver or other custodian to take possession of substantially all of the Lessee's assets or of this leasehold, which appointment is not withdrawn or dismissed within sixty (60) days, excluding any receivership initiated by an Approved Lender which shall not constitute an Event of Default; or (viii) The Lessee becomes insolvent or declares in writing it is unwilling to pay its debts as they become due; or any court enters a decree or order directing the winding up or liquidation of the Lessee or of substantially all of its assets; or the Lessee takes any action 1010\13\169008.4 29 toward the dissolution or winding up of its affairs or the cessation or suspension of its use of the Development; or (ix) Attachment, execution or other judicial seizure of substantially all of the Lessee's assets or this leasehold, which is not dismissed, bonded, or stayed within thirty (30) days; or (x) A violation of the Lessee's obligations under any of the Approved Loan Documents (without cure or waiver after expiration of applicable cure periods), including (without limitation) a failure to operate, maintain, and manage the Improvements in accordance with this Lease; or (xi) A Transfer occurs, either voluntarily or involuntarily, in violation of Article 8. (b) Whenever any default has occurred and is continuing and upon expiration of any applicable cure periods, and subject to the cure rights of Approved Lenders, an Event of Default shall exist, the Agency may take whatever action at law or in equity as may appear reasonably necessary to enforce performance or observance of this Lease, including without limitation, termination of this Lease. In the event of an Event of Default, Agency's remedies shall be cumulative, and no remedy expressly provided for in this section shall be deemed to exclude any other remedy allowed by law. Section 10.2 Remedv for Default by Agency. If the Agency defaults under this Lease, then the Lessee shall first notify the Agency in writing of its purported breach or failure, giving the Agency forty-five (45) days from receipt of such notice to cure or, if cure cannot be accomplished within forty-five (45) days, to commence to cure such breach, failure, or act. In the event the Agency does not then so cure within said forty-five (45) days, or if the breach or failure is of such a nature that it cannot be cured within forty-five (45) days, the Agency fails to commence to cure within such forty-five (45) days and thereafter diligently complete such cure within a reasonable time thereafter but in no event later than one hundred twenty (120) days, then the Lessee shall be afforded all of its rights at law or in equity, by taking all or any of the following remedies: (1) terminating in writing this Lease (provided, however, that the indemnification provisions shall survive such termination); and (2) prosecuting an action for damages or specific performance. ARTICLE 1 1 : MISCELLANEOUS Section 1 1.1 Instrument Is Entire Agreement. This Lease and the DDLA constitute the entire agreement between the Parties with respect to the matters set forth herein and completely supersede all prior understandings or agreements, both written and oral, between the Parties relating to the lease of the Property. 10 10\13\169008.4 30 Section 11.2 Notices. All notices hereunder shall be in writing signed by the Authorized Officer@) and shall be sufficient if sent by United States first class, certified mail, postage prepaid, or express delivery service with a receipt showing the date of delivery, addressed if to the Agency: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director if to Lessee: Wakeland Housing and Development Corporation 625 Broadway Street, Suite 1000 San Diego, CA 92101 Attn: Kenneth L. Sauder, President or any other address as either Party may have furnished to the other in writing pursuant to the requirements of this Section 1 1.2 as a place for service of notice. Any notice so mailed shall be deemed to have been given on the delivery date or the date that delivery is refused by the addressee, as shown on the return receipt. Section 1 1.3 Non-Liability of Officials, Employees and Agents. No member, official, employee or agent of the Agency or the City shall be personally liable to the Lessee, or any successor in interest, in the event of an Agency default. Section 1 1.4 Force Mgeure. Performance by either Party shall not be deemed to be in default where defaults are due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of God; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigation (including suits filed by third parties concerning or arising out of this Lease); weather or soils conditions which, in the opinion of the Lessee's contractor, will necessitate delays; inability to secure necessary labor, materials or tools; delays of any contractor, sub-contractor or supplier; acts of the other Party; acts or failure to act of any public or governmental agency or entity (other than the acts or failure to act of the Agency); or any other causes (other than the Lessee's inability to obtain financing for the Development) beyond the control or without the fault of the Party claiming an extension of time to perform. Times of performance under this Lease may also be extended in writing by the Agency and the Lessee. In no event shall the cumulative delays exceed one hundred eighty (1 80) days, unless otherwise agreed to in writing by the Parties. Section 1 1.5 Non-Waiver of Breach. Neither the failure of a Party to insist upon strict performance of any of the covenants and agreements of this Lease nor the failure by the Party to exercise any rights or remedies granted to such Party under the terms of this Lease shall be deemed a waiver or relinquishment (a) of any covenant herein contained or of any of the rights or remedies of the applicable Party, (b) of the right in the future of the applicable Party to insist upon and to enforce, by any appropriate legal remedy a strict compliance with all of the covenants and conditions thereof, or (c) the right of the Agency to recover possession of the 10 10\13\169008.4 31 Property upon occurrence of a default and the expiration of applicable notice and cure periods or the expiration of the Lease Term. Section 1 1.6 Binding Upon Successors; Covenants to Run With Land. This Lease shall be binding upon and inure to the benefit of the heirs, administrators, executors, successors in interest and assigns of each of the Parties; provided however, that there shall be no transfer of any interest by the Lessee except pursuant to the terms of this Lease. Any reference in this Lease to a specifically named party shall be deemed to apply to any successor, heir, administrator, executor or assign of such party who has acquired an interest in compliance with the terms of this Lease, or under law. The terms of this Lease shall run with the land and shall bind all successors in title to the Property during the Lease Term, except that the provisions of this Lease that are specified to survive termination of this Lease shall run with the land in perpetuity and remain in full force and effect following such termination. Every contract, deed, or other instrument hereafter executed covering or conveying the Property or the Improvements or any portion thereof shall be held conclusively to have been executed, deliver, and accepted subject to such covenants and restrictions, regardless of whether such covenants or restricts are set forth in such contract, deed or other instrument, unless the Agency expressly releases the Property, the Improvements, or the applicable portion of the Property, from the requirements of this Lease. Section 1 1.7 Employment Ouportunity. The Lessee and its successors, assigns, contractors and subcontractors shall not discriminate against any employee or applicant for employment in connection with the construction and operation of the Improvements because of race, color, religion, sex, sexual preference, marital status, ancestry or national origin. Each of the following activities shall be conducted in a nondiscriminatory manner: hiring; upgrading; demotion and transfers; recruitment and recruitment advertising; layoff and termination; rate of pay and other forms of compensation; and selection for training including apprenticeship. Section 1 1.8 Relationship of Parties. Nothing contained in this Lease shall be deemed or construed by the Parties or by any third party to create the relationship of principal or agent; partnership; joint venture; association; or buyer and seller. Neither the computation of any payments and other charges under the terms of this Lease nor any other provisions contained in this Lease, nor any act of the Parties, shall be deemed to create any relationship between the Parties other than the relationship of landlord and tenant. Section 1 1.9 Titles. Any titles of the sections or subsections of this Lease are inserted for convenience of reference only and shall be disregarded in interpreting any of its provisions. Section 1 1.10 Severabilitv. If any provision of this Lease or the application of any provision to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 1010\13\169008.4 32 Section 1 1.1 1 Applicable Law. This Lease shall be governed by and construed in accordance with the laws of the State of California. Section 1 1.12 Venue. The Superior Court of the County of San Diego shall be the forum and venue for all litigation arising from this Lease. Section 1 1.13 Approvals. (a) Whenever this Lease calls for a Party’s approval, consent, or waiver, the written approval, consent, or waiver of the Party’s Authorized Officer(s) shall constitute the approval, consent, or waiver of the Party, without further authorization required from the Party’s board. The Parties hereby authorize their Authorized Officers to deliver such approvals or consents as are required by this Lease, or to waive requirements under this Lease, on behalf of them. (b) All approvals under this Lease shall be subject to a reasonableness standard, except where a sole discretion standard is specifically provided. Section 1 1.14 Inspection of Books and Records. The Agency has the right, at all reasonable times, to inspect and copy, on a confidential basis, subject to the California Public Records Act (California Government Code Section 625 1 et seq.), the books, records and all other documentation of the Lessee pertaining to its obligations under this Lease. The Lessee also has the right, at all reasonable times, to inspect and copy the books, records and all other documentation of the Agency pertaining to its obligations under this Lease. Each Party shall maintain adequate records for a period of at least three (3) years after the end of the operating year in which the records were created. Section 1 1.15 Lease Binding on Successors. This Lease shall inure to the benefit of and shall be binding upon, the Agency, the Lessee, and their respective permitted successors and assigns. Section 1 1.16 Counterparts. This Lease may be executed in counterparts and multiple originals, each of which shall be an original and all of which shall constitute the same. 1010\13\169008.4 33 BY SIGNING BELOW, the Parties confirm their agreement to the terms of this Lease as of the date first written above. AGENCY: THE CARLSBAD REDEVELOPMENT AGENCY, a public body, corporate and politic By: APPROVED AS TO FORM: Agency General Counsel By: Ron Ball LESSEE: WAKELAND HOUSING AND DEVELOPMENT CORPORATION, a California nonprofit public benefit corporation By: 1010\13\169008.4 34 1010\13\169008.4 EXHIBIT A DESCRIPTION OF THE PROPERTY A- 1 EXHIBIT B INSURANCE REQUIREMENTS (a) Required Coverage. The Lessee shall maintain and keep in force, at the Lesseels sole cost and expense, the following insurance applicable to the Development: (i) To the extent required by law, Workerls Compensation insurance, including Employer's Liability coverage, with limits not less than required by applicable law. (ii) Comprehensive or Commercial General Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for Contractual Liability, Personal Injury, Broadform Property Damage, Products and Completed Operations. (iii) Comprehensive Automobile Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for owned, non-owned and hired vehicles, as applicable; provided, however, that if the Lessee does not own or lease vehicles for purposes of this Lease, then no automobile insurance shall be required and both parties to this Lease shall initial this provision signifylng same. (iv) Property insurance covering the Development covering all risks of loss, including earthquake (but only if it is commercially affordable at a reasonable price and with a reasonable deductible, in the Agency's reasonable opinion, and if the Agency requests in writing that such coverage be carried) and flood, if the Property is located in a flood zone, for one hundred percent (1 00%) of the replacement value, with deductible, if any, acceptable to the Agency, naming the Agency as a Loss Payee, as its interest may appear. (b) Contractor's Insurance. The Lessee shall cause any general contractor or agent (including but not limited to the Lessee's architect) working on the Development under direct contract with the Lessee to maintain insurance of the types and in at least the minimum amounts described in subsections (a)@, (a)@), and (a)(iii) above, and shall require that such insurance shall meet all of the general requirements of subsection (c) below. Subcontractors working on the Development under indirect contract with the Lessee shall be required to maintain the insurance described in subsections (a)(i), (a)(ii) and (a)(iii) above; provided that the amount of Commercial General Liability insurance for each subcontractor shall have a limit of not less than One Million Dollars ($1,000,000). Liability and Comprehensive Automobile Liability insurance to be maintained by such contractors and agents pursuant to this subsection shall name as additional insureds the City, the Agency, their respective council and board members, officers, agents, and employees. (c) General Requirements. The required insurance shall be provided under an occurrence form, and the Lessee shall maintain such coverage continuously throughout the Lease Term. Should any of the required insurance be provided under a form of coverage provides that 10 10\13\169008.4 B- 1 i claims investigation or legal defense costs be included in such annual aggregate limit, such annual aggregate limit shall be three times the occurrence limits specified above. Comprehensive General Liability, Comprehensive Automobile Liability and Property insurance policies shall be endorsed to name as additional insureds the City, the Agency, and their respective council and board members, officers, agents, and employees. All policies and bonds shall be endorsed to provide (i) thirty (30) days prior written notice of cancellation, reduction in coverage, intent not to renew or any material change in said policies to the address established for notices to the Agency pursuant to the Lease; (ii) an agreement that such policies are primary and non contributing with any insurance that may be carried by the Agency; (iii) a provision that no act or omission of the Lessee shall affect or limit the obligation of the insurance carrier to pay the amount of any loss sustained; and (d) a waiver by the insurer of all rights of subrogation against the Agency and its authorized parties in connection with any loss or damage thereby insured against. (d) Certificates of Insurance. Upon the Agency's request at any time during the Lease Term, the Lessee shall provide certificates of insurance, in form and with insurers reasonable acceptable to the Agency, evidencing compliance with the requirements of this Exhibit, and shall provide complete copies of such insurance policies, including a separate endorsement naming the Agency as additional insured, if requested by the Agency. 1010\13\169008.4 B-2 EXHIBIT C PRELIMINARY TITLE REPORT 1010\13\l69008.4 c- 1 EXHIBIT D Form of Regulatory Agreement and Declaration of Restrictive Covenants D- 1 10 lOU3U68937.5 EXHIBIT E Form of Agency Note E- 1 1010\13\168937.5 Exhibit E Form of Agency Promissory Note Agency Loan Promissory Note (Roosevelt Villas) $2,384,080 Carlsbad, California ,2005 FOR VALUE RECEIVED, Wakeland Housing and Development Corporation, a California nonprofit public benefit corporation, or its successor or assign approved by the Agency (the "Developer"), promises to pay to the Carlsbad Redevelopment Agency (the "Agency"), or order, the principal sum of up to Two Million Three Hundred Eighty Four Thousand and Eighty Dollars ($2,384,080), with interest as provided below. 1. Disposition and Development Agreement; Ground Lease. This promissory note (the "Note") is made pursuant to the terms of the Disposition, Development and Loan Agreement between Developer and the Agency, executed as of August 1,2005 (the "DDLA"). All capitalized terms used but not defined in this Note shall have the meanings set forth in the (the "Ground Lease"). DDLA. Developer and Agency have also entered into a Ground Lease dated ,200- 2. simple interest at the rate of three percent (3%) per annum commencing on the date of disbursement and shall be due and payable at the times and in the manner set forth in the DDLA. All amounts of principal and interest hereunder shall be due in full on the earlier to occur of (i) an Event of Default under the DDLA or Ground Lease; (ii) a Transfer not approved by the Agency pursuant to the DDLA; (iii) fifty-five (55) years following the date of issuance of a Certificate of Occupancy by the City for the Improvements; or August 1,2062. In the event of a default by Developer under the Agency Documents, which default is not cured within the applicable notice cure periods, interest shall accrue, commencing on the date of default, at the default rate equal to the lesser of ten percent (1 0%) per annum or the maximum rate permitted by law. Interest; Repayment Terms. The outstanding principal amount due hereunder shall bear 3. Prepayment. As more fully set forth in Section 53d) of the DDLA, the Developer shall have the right to prepay all or a portion of the principal and interest due under this Note without any charge or penalty being made therefor. 1010\13\174659.2 E- 1 4. herewith to the encumbrancing Developer leasehold interest in the Property. Agency - Deed of Trust. This Note is secured by the Agency Deed of Trust of even date 5. of an Event of Default by Developer or as defined in the DDLA, Ground Lease, or Agency Deed of Trust, the Agency shall have the right to declare all of the unpaid principal and accrued interest immediately due and payable. Neither acceptance by the Agency of the payments provided for herein nor any failure by the Agency to pursue its legal and equitable remedies upon default shall constitute 'a waiver of the Agency's right to require prompt payments when due of all principal and interest owing or to declare a default and exercise all of its rights under this Note, the Agency Deed of Trust, the DDLA, the Ground Lease and the other Agency Documents. Acceleration. As more fully set forth in Sections 8.4 of the DDLA, upon the occurrence 6. have against the Agency, its successors and assigns, and agrees to make the payments called for herein in accordance with the terms of this Note. No Offset. The Developer hereby waives any rights of offset it now has or may hereafter 7. for themselves, their heirs, legal representatives, successors and assigns, respectively, severally waive diligence, presentment, protest, and demand, and notice of protest, dishonor and non- payment of this Note, and expressly waive any rights to be released by reason of any extension of time or change in terms of payment, or change, alteration or release of any security given for the payments hereof, and expressly waive the right to plead any and all statutes of limitations as a defense to any demand on this Note or agreement to pay the same, and jointly and severally agree to pay all costs of collection when incurred, including reasonable attorneys' fees. If an action is instituted on this Note, the undersigned promises to pay, in addition to the costs and disbursements allowed by law, such sum as a court may adjudge reasonable as attorneys' fees in such action. Waiver: Attorneys' Fees. The Developer and any endorsers or guarantors of this Note, 8. due under this Note, as well as any additional payments set forth in the Agency Deed of Trust, shall be payable in lawhl money of the United States of America at the office of the Agency as set forth in Section 10.1 of the DDLA or at such other address as the Agency may provide to the Developer by notice in accordance with Section 10.1 of the DDLA. Manner and Place of Pavment. All payments of principal and interest and any late charge 9. set forth in Section 5.10 of the DDLA. Nonrecourse Oblipation. Repayment of this Note shall be nonrecourse to Developer as 10. discretion. Assiment. The Agency's rights under this Note may be assigned by the Agency in its 1 0 1 O\ 1 3\ 1 7465 9.2 E-2 1 1. DDLA, the term or provision of the DDLA shall control to the extent of such conflict. Conflict. If any term or provision of this Note conflicts with any term or provision of the WAKELAND HOUSING AND DEVELOPMENT CORPORATION, a California nonprofit public benefit corporation By: Name: Its: E-3 10 10\13\174659.2 EXHIBIT F Form of Agency Deed of Trust F- 1 1 0 1 O\ 1 3\ 1 6 8 93 7.5 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Carlsbad Redevelopment Agency Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad, CA 92008 No fee for recording pursuant to Government Code Section 27383 DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (Roosevelt Villas) THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT ("Deed of Trust") is made as of Housing and Development Corporation, a California nonprofit public benefit corporation ("Trustor"), Redevelopment Agency, a public body, corporate and politic ("Beneficiary"). , 2005, by and among Wakeland , a California corporation ("Trustee"), and the Carlsbad FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust herein created, the receipt of which is hereby acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, Trustor's fee interest in the property located in the City of Carlsbad, County of San Diego, State of California, that is described in the attached Exhibit A, incorporated herein by this reference (the "Property"). TOGETHER WITH all interest, estates or other claims, both in law and in equity which Trustor now has or may hereafter acquire in the Property and the rents; TOGETHER WITH all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, including (without limiting the generality of the foregoing) all tenements, hereditaments and appurtenances thereof and thereto; TOGETHER WITH any and all buildings and improvements of every kind and description now or hereafter erected thereon, and all property of the Trustor now or hereafter affixed to or placed upon the Property; TOGETHER WITH all building materials and equipment now or hereafter delivered to said property and intended to be installed therein; TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, 1 1010\16\221043.1 adjoining the Property, and any and all sidewalks, alleys and strips and areas of land adjacent to or used in connection with the Property; TOGETHER WITH all estate, interest, right, title, other claim or demand, of every nature, in and to such property, including the Property, both in law and in equity, including, but not limited to, all deposits made with or other security given by Trustor to utility companies, the proceeds from any or all of such property, including the Property, claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereafter acquire, any and all awards made for the taking by eminent domain or by any proceeding or purchase in lieu thereof of the whole or any part of such property, including without limitation, any awards resulting from a change of grade of streets and awards for severance damages to the extent Beneficiary has an interest in such awards for taking as provided in Paragraph 4.1 herein; TOGETHER WITH all of Trustor's interest in all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner; and TOGETHER WITH all of Trustor's interest in all building materials, fixtures, equipment, work in process and other personal property to be incorporated into the Property; all goods, materials, supplies, fixtures, equipment, machinery, furniture and furnishings, signs and other personal property now or hereafter appropriated for use on the Property, whether stored on the Property or elsewhere, and used or to be used in connection with the Property; all rents, issues and profits, and all inventory, accounts, accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, trade names, trademarks and service marks arising from or related to the Property and any business conducted thereon by Trustor; all replacements, additions, accessions and proceeds; and all books, records and files relating to any of the foregoing. All of the foregoing, together with the Property, is herein referred to as the "Security." To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever. FOR THE PURPOSE OF SECURING: (a) Payment ofjust indebtedness of Trustor to Beneficiary as set forth in the Note (defined in Article 1 below) until paid or cancelled. Said principal and other payments shall be due and payable as provided in the Note. Said Note and all its terms are incorporated herein by reference, and this conveyance shall secure any and all extensions thereof, however evidenced; and 101 0\16\221043.1 2 (b) Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Trust following a breach of Trustor's obligation to advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; and (c) Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents (defined in Section 1.2 below). AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms shall have the following meanings in this Deed of Trust: Section 1.1 The term "Loan Agreement" means that certain Disposition, Development, and Loan Agreement between Trustor and Beneficiary, dated of even date herewith providing for the Beneficiary to loan to the Trustor Two Million Three Hundred Eighty Four Thousand and Eighty Dollars ($2,384,080) for the Development of the Property. Section 1.2 The term "Loan Documents" means this Deed of Trust, the Note, the Loan Agreement, the Regulatory Agreement, and any other debt, loan or security instruments between Trustor and the Beneficiary relating to the Property. Section 1.3 The term "Note" means the promissory note in the principal amount of Two Million Three Hundred Eighty Four Thousand and Eighty Dollars ($2,384,080) dated of even date herewith executed by the Trustor in favor of the Beneficiary, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.). Section 1.4 The term "Principal" means the amount required to be paid under the Note. Section 1.5 The term "Regulatory Agreement" means the regulatory agreement by and between the Beneficiary and the Trustor, dated and recorded in the official Records of San Diego County concurrently herewith. ARTICLE 2 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY Section 2.1 Maintenance and Modification of the Property by Trustor. 1010\16\221043.1 3 The Trustor agrees that at all times prior to full payment of the sum owed under the Note, the Trustor will, at the Trustor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition. The Trustor will from time to time make or cause to be made all repairs, replacements and renewals deemed proper and necessary by it. The Beneficiary shall have no responsibility in any of these matters or for the making of improvements or additions to the Security. Trustor agrees to pay fully and discharge (or cause to be paid fully and discharged) all claims for labor done and for material and services furnished in connection with the Security, diligently to file or procure the filing of a valid notice of cessation upon the event of a cessation of labor on the work or construction on the Security for a continuous period of thirty (30) days or more, and to take all other reasonable steps to forestall the assertion of claims of lien against the Security of any part thereof. Trustor irrevocably appoints, designates and authorizes Beneficiary as its agent (said agency being coupled with an interest) with the authority, but without any obligation, to file for record any notices of completion or cessation of labor or any other notice that Beneficiary deems necessary or desirable to protect its interest in and to the Security or the Loan Documents; provided, however, that Beneficiary shall exercise its rights as agent of Trustor only in the event that Trustor shall fail to take, or shall fail to diligently continue to take, those actions as hereinbefore provided. Upon demand by Beneficiary, Trustor shall make or cause to be made such demands or claims as Beneficiary shall specify upon laborers, materialmen, subcontractors or other persons who have furnished or claim to have furnished labor, services or materials in connection with the Security. Nothing herein contained shall require Trustor to pay any claims for labor, materials or services which Trustor in good faith disputes and is diligently contesting provided that Trustor, upon written request of the Beneficiary, shall, within thirty (30) days after the filing of any claim of lien, record in the Office of the Recorder of San Diego County, a surety bond in an amount 1 and 1/2 times the amount of such claim item to protect against a claim of lien. Section 2.2 Granting of Easements. Trustor may not grant easements, licenses, rights-of-way or other rights or privileges in the nature of easements with respect to any property or rights included in the Security except those required or desirable for installation and maintenance of public utilities including, without limitation, water, gas, electricity, sewer, telephone and telegraph, or those'required by law and as approved, in writing, by Beneficiary. Section 2.3 Assignment of Rents. As part of the consideration for the indebtedness evidenced by the Note, Trustor hereby absolutely and unconditionally assigns and transfers to Beneficiary all the rents and revenues of the Property including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless of to whom the rents and revenues of the Property are payable. Trustor hereby authorizes Beneficiary or Beneficiary's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Beneficiary or Beneficiary's agents; provided, however, that prior to written notice given by Beneficiary to Trustor of the breach by Trustor of any covenant 4 10 10\16\22 1043.1 or agreement of Trustor in the Loan Documents, Trustor shall collect and receive all rents and revenues of the Property as trustee for the benefit of Beneficiary and Trustor to apply the rents and revenues so collected to the sums secured by this Deed of Trust with the balance, so long as no such breach has occurred, to the account of Trustor, it being intended by Trustor and Beneficiary that this assignment of rents constitutes an absolute assignment and not an assignment for additional security only. Upon delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, and without the necessity of Beneficiary entering upon and taking and maintaining full control of the Property in person, by agent or by a court-appointed receiver, Beneficiary shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 2.3 as the same becomes due and payable, including but not limited to rents then due and unpaid, and all such rents shall immediately upon delivery of such notice be held by Trustor as trustee for the benefit of Beneficiary only; provided, however, that the written notice by Beneficiary to Trustor of the breach by Trustor shall contain a statement that Beneficiary exercises its rights to such rents. Trustor agrees that commencing upon delivery of such written notice of Trustor's breach by Beneficiary to Trustor, each tenant of the Property shall make such rents payable to and pay such rents to Beneficiary or Beneficiary's agents on Beneficiary's written demand to each tenant therefor, delivered to each tenant personally, by mail or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire further as to the existence of a default by Trustor. Except as previously approved by the Beneficiary as set forth in the Loan Agreement, Trustor hereby covenants that Trustor has not executed any prior assignment of said rents, that Trustor has not performed, and will not perform, any acts or has not executed and will not execute, any instrument which would prevent Beneficiary from exercising its rights under this Section 2.3, and that at the time of execution of this Deed of Trust, there has been no anticipation or prepayment of any of the rents of the Property for more than two (2) months prior to the due dates of such rents. Trustor covenants that Trustor will not hereafter collect or accept payment of any rents of the Property more than two (2) months prior to the due dates of such rents. Trustor further covenant that Trustor will execute and deliver to Beneficiary such further assignments of rents and revenues of the Property as Beneficiary may from time to time request. Upon Trustor's breach of any covenant or agreement of Trustor in the Loan Documents, Beneficiary may in person, by agent or by a court-appointed receiver, regardless of the adequacy of Beneficiary's security, enter upon and take and maintain fbll control of the Property in order to perform all acts necessary and appropriate for the operation and maintenance thereof including, but not limited to, the execution, cancellation or modification of leases, the collection of all rents and revenues of the Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance of the Property, all on such terms as are deemed best to protect the security of this Deed of Trust. In the event Beneficiary elects to seek the appointment of a receiver for the Property upon Trustor's breach of any covenant or agreement of Trustor in this Deed of Trust, Trustor hereby expressly consents to the appointment of such receiver. Beneficiary or the receiver shall be entitled to receive a reasonable fee for so managing the Property. 5 10 10\16\22 1043.1 All rents and revenues collected subsequent to delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents shall be applied first to the costs, if any, of taking control of and managing the Property and collecting the rents, including, but not limited to, attorney's fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Trustor as lessor or landlord of the Property and then to the sums secured by this Deed of Trust. Beneficiary or the receiver shall have access to the books and records used in the operation and maintenance of the Property and shall be liable to account only for those rents actually received. Beneficiary shall not be liable to Trustor, anyone claiming under or through Trustor or anyone having an interest in the Property by reason of anything done or left undone by Beneficiary under this Section 2.3. If the rents of the Property are not sufficient to meet the costs, if any, of taking control of and managing the Property and collecting the rents, any funds expended by Beneficiary for such purposes shall become indebtedness of Trustor to Beneficiary secured by this Deed of Trust pursuant to Section 3.3 hereof. Unless Beneficiary and Trustor agree in writing to other terms of payment, such amounts shall be payable upon notice from Beneficiary to Trustor requesting payment thereof and shall bear interest from the date of disbursement at the rate stated in Section 3.3. Any entering upon and taking and maintaining of control of the Property by Beneficiary or the receiver and any application of rents as provided herein shall not cure or waive any default hereunder or invalidate any other right or remedy of Beneficiary under applicable law or provided herein. This assignment of rents of the Property shall terminate at such time as this Deed of Trust ceases to secure indebtedness held by Beneficiary. ARTICLE 3 TAXES AND INSURANCE; ADVANCES Section 3.1 Taxes, Other Governmental Charges and Utility Charges. Trustor shall pay, or cause to be paid, at least fifteen (1 5) days prior to the date of delinquency, all taxes, assessments, charges and levies imposed by any public authority or utility company which are or may become a lien affecting the Security or any part thereof; provided, however, that Trustor shall not be required to pay and discharge any such tax, assessment, charge or levy so long as (a) the legality thereof shall be promptly and actively contested in good faith and by appropriate proceedings, and (b) Trustor maintains reserves adequate to pay any liabilities contested pursuant to this Section 3.1. With respect to taxes, special assessments or other similar governmental charges, Trustor shall pay such amount in full prior to the attachment of any lien therefor on any part of the Security; provided, however, if such taxes, assessments or charges may be paid in installments, Trustor may pay in such installments. Except as provided in clause (b) of the first sentence of this paragraph, the provisions of this Section 3.1 shall not be construed to require that Trustor maintain a reserve account, escrow account, impound account or other similar account for the payment of future taxes, assessments, charges and levies. 6 In the event that Trustor shall fail to pay any of the foregoing items required by this Section to be paid by Trustor, Beneficiary may (but shall be under no obligation to) pay the same, after the Beneficiary has notified the Trustor of such failure to pay and the Trustor fails to fully pay such items within seven (7) business days after receipt of such notice. Any amount so advanced therefor by Beneficiary, together with interest thereon from the date of such advance at the maximum rate permitted by law, shall become an additional obligation of Trustor to the Beneficiary and shall be secured hereby, and Trustor agrees to pay all such amounts. Section 3.2 Provisions Respecting Insurance. Trustor agrees to provide insurance conforming in all respects to that required under the Loan Documents during the course of construction and following completion, and at all times until all amounts secured by this Deed of Trust have been paid and all other obligations secured hereunder fulfilled, and this Deed of Trust reconveyed. All such insurance policies and coverages shall be maintained at Trustor's sole cost and expense. Certificates of insurance for all of the above insurance policies, showing the same to be in full force and effect, shall be delivered to the Beneficiary upon demand therefor at any time prior to the Beneficiary's receipt of the entire Principal and all amounts secured by this Deed of Trust. Section 3.3 Advances. In the event the Trustor shall fail to maintain the full insurance coverage required by this Deed of Trust or shall fail to keep the Security in accordance with the Loan Documents, the Beneficiary, after at least seven (7) days prior notice to Beneficiary, may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same or may make such repairs or replacements as are necessary and provide for payment thereof; and all amounts so advanced therefor by the Beneficiary shall become an additional obligation of the Trustor to the Beneficiary (together with interest as set forth below) and shall be secured hereby, which amounts the Trustor agrees to pay on the demand of the Beneficiary, and if not so paid, shall bear interest from the date of the advance at the lesser of eight percent (8%) per annum or the maximum rate permitted by law. ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. All judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or in any part thereof by insured casualty, and (3) any other injury or damage to all or any part of the Property ("Funds") are hereby assigned to and shall be paid to the Beneficiary by a check made payable to the Beneficiary. The Beneficiary is authorized and empowered (but not required) to collect and receive any funds and is authorized to apply them in whole or in part upon any 7 10 10\16\221043.1 indebtedness or obligation secured hereby, in such order and manner as the Beneficiary shall determine at its sole option. The Beneficiary shall be entitled to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain from the proceeds of such insurance the amount of all expenses incurred by it in connection with any such settlement or adjustment. All or any part of the amounts so collected and recovered by the Beneficiary may be released to Trustor upon such conditions as the Beneficiary may impose for its disposition, and Beneficiary agrees to release Funds to Trustor to rebuild the Project on the Property provided Trustor demonstrates to Beneficiary that such rebuilding is economically feasible. Application of all or any part of the Funds collected and received by the Beneficiary or the release thereof shall not cure or waive any default under this Deed of Trust. ARTICLE 5 AGREEMENTS AFFECTING THE PROPERTY; FURTHER ASSURANCES; PAYMENT OF PRINCIPAL AND INTEREST Section 5.1 Other Agreements Affecting Property. The Trustor shall duly and punctually perform all terms, covenants, conditions and agreements binding upon it under the Loan Documents and any other agreement of any nature whatsoever now or hereafter involving or affecting the Security or any part thereof. Section 5.2 Agreement to Pay Attorneys' Fees and Expenses. In the event of any Event of Default (as defined below) hereunder, and if the Beneficiary should employ attorneys or incur other expenses for the collection of amounts due or the enforcement of performance or observance of an obligation or agreement on the part of the Trustor in this Deed of Trust, the Trustor agrees that it will, on demand therefor, pay to the Beneficiary the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Beneficiary; and any such amounts paid by the Beneficiary shall be added to the indebtedness secured by the lien of this Deed of Trust, and shall bear interest from the date such expenses are incurred at the lesser of ten percent (10%) per annum or the maximum rate permitted by law. Section 5.3 Payment of the Principal. The Trustor shall pay to the Beneficiary the Principal and any other payments as set forth in the Note in the amounts and by the times set out therein. Section 5.4 Personal Property. To the maximum extent permitted by law, the personal property subject to this Deed of Trust shall be deemed to be fixtures and part of the real property and this Deed of Trust shall constitute a fixtures filing under the California Commercial Code. As to any personal property not deemed or permitted to be fixtures, this Deed of Trust shall constitute a security agreement under the California Commercial Code. Section 5.5 Financing Statement. 8 10 10\16\22 1043.1 The Trustor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instruments as are required to convey to the Beneficiary a valid perfected security interest in the Security. The Trustor agrees to perform all acts which the Beneficiary may reasonably request so as to enable the Beneficiary to maintain such valid perfected security interest in the Security in order to secure the payment of the Note in accordance with their terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it shall deem appropriate from time to time in order to protect the security interest established pursuant to this instrument. Section 5.6 Operation of the Security. The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in hll compliance with the Loan Documents. Section 5.7 Inspection of the Security. At any and all reasonable times upon seventy-two (72) hours' notice, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right, without payment of charges or fees, to inspect the Security. Section 5.8 Nondiscrimination. The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Security, nor shall the Trustor itself or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Security. The foregoing covenants shall run with the land. ARTICLE 6 HAZARDOUS WASTE Trustor shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Trustor shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to 9 1010\16\22 1043.1 hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily kept and used in and about multifamily residential property. Trustor shall immediately advise Beneficiary in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Trustor or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against Trustor or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above hereinafter referred to a "Hazardous Materials Claims"); and (iii) Trustor's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" under the provision of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. Beneficiary shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Trustor. Trustor shall indemnify and hold harmless Beneficiary and its boardmembers, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Beneficiary in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees. Without Beneficiary's prior written consent, which shall not be unreasonably withheld, Trustor shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in Beneficiary's reasonable judgement, impair the value of the Beneficiary's security hereunder; provided, however, that Beneficiary's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain Beneficiary's consent before taking such action, provided that in such event Trustor shall notify Beneficiary as soon as practicable of any action so taken. Beneficiary agrees not to withhold its consent, where such consent is required hereunder, if either (i) a particular remedial action is ordered by a court of competent jurisdiction, (ii) Trustor will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action; (iii) Trustor establishes to the reasonable satisfaction of Beneficiary that there is no reasonable alternative to such remedial action which would result in less impairment of Beneficiary's security hereunder; or (iv) the action has been agreed to by Beneficiary. 10 10 10\16\221043.1 The Trustor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Trustor's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Trust or any of the other Loan Documents (together with any indemnity applicable to a breach of any such representation and warranty) with respect to the environmental condition of the property is intended by the Beneficiary and the Trustor to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726S(e)(3)) or to be an "affected parcel'' (as that term is defined in California Code of Civil Procedure Section 726S(e)(l)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Trustee's rights and remedies under this Deed of Trust, the Beneficiary may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Trustor to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Beneficiary's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Trustor shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code of Civil Procedure Section 726.5(d)( l), if the release or threatened release of hazardous materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Trustor knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Beneficiary in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the rate specified in the Note until paid, shall be added to the indebtedness secured by this Deed of Trust and shall be due and payable to the Beneficiary upon its demand made at any time following the conclusion of such action. ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default. The following shall constitute Events of Default following the expiration of any applicable notice and cure periods: (1) failure to make any payment to be paid by Trustor under the Loan Documents; (2) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents, including, without limitation, the provisions concerning discrimination; or (3) failure to make any payment or perform any of Trustor's other covenants, agreements, or obligations under any other debt instruments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein. 11 10 10\16\22 1043.1 Section 7.2 Acceleration of Maturity. If an Event of Default shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal of the Note shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right. Section 7.3 The Beneficiary's Right to Enter and Take Possession. If an Event of Default shall have occurred and be continuing, the Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof. The entering upon and taking possession of the Security shall not cure or waive any Event of Default or Notice of Default (as defined below) hereunder or invalidate any act done in response to such Default or pursuant to such Notice of Default and, notwithstanding the continuance in possession of the Security, Beneficiary shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of San Diego County; or Exercise all other rights and remedies provided herein, in the instruments by which the Trustor acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing all or any portion of the obligations secured hereby, or provided by law. (d) Section 7.4 Foreclosure By Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained, the Beneficiary shall give notice to the Trustee (the "Notice of Sale") and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which shall be deemed to constitute evidence that the unpaid principal amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. 12 10 10\16\22 1043.1 (a) Upon receipt of such notice from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and Election to Sell and after Notice of Sale having been given as required by law, sell the Security, at the time and place of sale fixed by it in said Notice of Sale, whether as a whole or in separate lots or parcels or items as Trustee shall deem expedient and in such order as it may determine unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of: (i) the unpaid Principal amount of the Note; (ii) all other amounts owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. (c) Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter, and without Mher notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new Notice of Sale. Section 7.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. Section 7.6 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 7.7 No Waiver. 1010\16\221043.1 13 (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. Beneficiary 's expressed or implied consent to a breach by Trustor, or a waiver of any obligation of Trustor hereunder shall not be deemed or construed to be a consent to any subsequent breach, or further waiver, of such obligation or of any other obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor. (b) If the Beneficiary (i) grants forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or (iv) makes or consents to any agreement subordinating the lien hereof, any such act or omission shall not release, discharge, modify, change or affect the original liability under this Deed of Trust, or any other obligation of the Trustor or any subsequent purchaser of the Security or any part thereof, or any maker, co- signer, endorser, surety or guarantor (unless expressly released); nor shall any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary shall the lien of this Deed of Trust be altered thereby. Section 7.8 Suits to Protect the Security. The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. 14 101 0\16\22 1043.1 Section 7.9 Beneficiary May File Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Trustor, its creditors or its property, the Beneficiary, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Trustor hereunder after such date. Section 7.10 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. - ARTICLE 8 MISCELLANEOUS Section 8.1 Amendments. This instrument cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor. Section 8.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid or forgiven, and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment by Trustor of Trustee's reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto. Section 8.3 Notices. If at any time after the execution of this Deed of Trust it shall become necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication shall be in writing and shall be served personally or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to: Carlsbad Redevelopment Agency 2965 Roosevelt St., Suite B Carlsbad, CA 92008 Attn: Executive Director 15 1010\16\22 1043.1 and (2) if intended for Trustor shall be addressed to: Wakeland Housing and Development Corporation 625 Broadway Street, Suite 1000 San Diego, CA 92101 Attn: Kenneth L. Sanders, President Any notice, demand or communication shall be deemed given, received, made or communicated on the date personal delivery is effected or, if mailed in the manner herein specified, on the delivery date or date delivery is refused by the addressee, as shown on the return receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective. Section 8.4 Successors and Joint Trustors. Where an obligation is created herein binding upon Trustor, the obligation shall also apply to and bind any transferee or successors in interest. Where the terms of the Deed of Trust have the effect of creating an obligation of the Trustor and a transferee, such obligation shall be deemed to be a joint and several obligation of the Trustor and such transferee. Where Trustor is more than one entity or person, all obligations of Trustor shall be deemed to be a joint and several obligation of each and every entity and person comprising Trustor. Section 8.5 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. Section 8.6 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid or applied to the full payment of that portion of the debt which is not secured or partially secured by the lien of this Deed of Trust. Section 8.7 Governing Law. This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California. 10 10\16\221043.1 16 Section 8.8 Gender and Number. In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires. Section 8.9 Deed of Trust, Mortgage. Any reference in this Deed of Trust to a mortgage shall also refer to a deed of trust and any reference to a deed of trust shall also refer to a mortgage. Section 8.10 Actions. Trustor agrees to appear in and defend any action or proceeding purporting to affect the Security. Section 8.1 1 Substitution of Trustee. Beneficiary may fiom time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed of Trust and its place of record, which, when duly recorded in the proper office of the county or counties in which the Property is situated, shall be conclusive proof of proper appointment of the successor trustee. Section 8.12 Statute of Limitations. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law. Section 8.13 Acceptance by Trustee. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee. 1010\16\22 1043.1 17 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR: WAKELAND HOUSING AND DEVELOPMENT CORPORATION, a California nonprofit public benefit corporation By: Name: Its: 101 0\16\221043.1 18 STATE OF CALIFORNIA ) COUNTY OF 1 ) ss. on , before me, , personally appeared the basis of satisfactory evidence) to be the person(s) whose name(s) idare subscribed to the within instrument and acknowledged to me that he/she/they executed the same in hishedtheir authorized capacity(ies), and that by hishedtheir signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. , personally known to me (or proved to me on WITNESS my hand and official seal. 10 10\16\22 1043.1 EXHIBIT A (Legal Description) The land is situated in the City of Carlsbad, County of San Diego, State of California, and is described as follows: A- 1 1010\16\221043.1 EXHIBIT G Schedule of Performance G- 1 10 10\13\168937.5 EXHIBIT H Form of Memorandum of Ground Lease H- 1 1010\13\168937.5 EXHIBIT 8 HOUSING COMMISSION STAFF REPORT & MINUTES MARCH 24,2005 AREPORT TO THE HOUSING- UO-SSXON I I SWf: Debbie Founta,in Houeingg amd Rede.uelopment Direofor Xtmm No. 1 AMENDED REPORT DATE: MARCH 24,2005 SUBJECT: RP 04-04 - ROOSEVELT STREET APARTMENTS - RECOMMENDATION OF APPROVAL TO THE CITY COUNCIL TO PROVIDE A TOTAL OF $2,384,081 IN FINANCIAL ASSISTANCE FOR CONSTRUCTION OF ELEVEN (11) AFFORDABLE APARTMENT UNITS IN THE VILLAGE REDEVELOPMENT AREA. I. RECOMMENDATION That the Housing Commission ADOPT Resolution No. 2005-002, recommending APPROVAL to the City Council to provide $2,384,081 in financial assistance fiom CDBG, HOME and Redevelopment Agency Housing Set-Aside Funds to Wakeland Housing and Development Corporation for construction of eleven (1 1) affordable apartment units in the Village Redevelopment Area. 11. PROJECT BACKGROUND In December, 2004, the Housing and Redevelopment Commission approved the major redevelopment permit for the Roosevelt Street Affordable Apartments development. It is an eleven (1 1) unit housing project which will be affordable to lower income households (50% of AMI). This project is unique because it represents a partnership between the Carlsbad Redevelopment Agency and the affordable housing developer, Wakeland Housing. The Agency purchased the property in March of 2003 with the intent of ultimately developing a low income affordable housing project on the site. Wakeland Housing was selected through a request for proposal process to act as the developer of the project. The Agency will continue to own the property and ground lease it back to the project. Wakeland will construct and subsequently operate the housing development. RP 94-04 - ROOSEVELT STREET APARTMENTS March 24,2005 PAGE 2 111. PROJECT DESCRIPTION The subject project will be located on a .56 acre parcel that is located at 2578 Roosevelt Street in the Village Redevelopment Area. The proposed 1 1 -unit affordable apartment project consists of two separate two-story buildings with surface level parking. There will be 8 one bedroom, 1 bath units (674sf) and 3 two bedroom, 2 bath units (9OOsf). Due to the size of the project, there are no amenities on site. All of the 11 units will be affordable to households earning 50% of the San Diego County Area Median Income (AMI). IV. DEVELOPMENT TEAM Wakeland Housing will develop, own, and operate the affordable housing project. Wakeland, which is a nonprofit corporation based in San Diego, has developed over 3500 units of affordable housing within their portfolio. These units are located mostly in San Diego County, with some in Orange County, Sacramento and Seattle. Their developments include the Vista Las Flores affordable housing development (28 units) in Carlsbad. The development team has extensive experience in all major areas of residential development. V. FINANCIAL ASSISTANCE A. Cost Reasonableness The developer has provided a bdtailed development proforma for review by staff and the Housing Commission (See Attachment 2). Since development costs are one of the key variables determining the need for subsidies, it is important that those costs be reasonable. At approximately $3.3 million, including the cost of the land, the average unit cost of $302,973 is reasonable with significant consideration of the requirement to pay prevailing wage rates, current costs of construction and the small size of the project which has reduced economies of scale. B. UndueGain It is important that any financial assistance have the effect of making the units more affordable and not creating undue gain for any party. The Developer will receive a “Developer Fee” of $200,000, or approximately 6% of total project costs (including land). The Developer is proposing that they receive 100% of the developer fee during the development of the project. The developer fee is appropriate for the size of the project and level of complexity of the financing for, or development of, the project. RP 04-04- ROOSEVELT STREET APARTMENTS MARCH 24,2005 PAGE 3 C. Subsidy Analysis The Developer is proposing to finance the project with a conventional loan of approximately $256,562 and subsidy financing from the City of Carlsbad in the amount of $2,384,081. As previously mentioned, the land was previously purchased by the Carlsbad Redevelopment Agency at a total cost of $692,058. The financial assistance for the project is, therefore, provided in two forms. The land acquisition and then direct financial (cash) assistance. The direct financial assistance to Wakeland Housing will equate to approximately $216,735 per affordable unit. With the addition of the land cost, the total City subsidy will be $279,649 per affordable unit. The $279,649 per unit is significantly larger than what has been previously approved for similar affordable housing projects in Carlsbad. However, as staff mentioned previously, this project is different than the other projects in that it was initiated by the Carlsbad Redevelopment Agency and intended to function as a partnership project. In this case, the City is acting as a Master Developer. Following are the reasons to provide the financial assistance to the project: 1. The Carlsbad Redevelopment Agency currently has an obligation to produce a total of 11 units of very low income housing (6% of total new housing in Village Area) as a result of previous housing projects constructed within the project area since 1981. This obligation comes fiom the construction of Jefferson House I and II (105 units total), the Village by the Sea (65 units) and the Laguna Pointe project (21 units). This project will help the Carlsbad Redevelopment Agency to satis@ the very low income housing requirements for the Village Redevelopment Area. 2. The project itself will not produce adequate income to make it financially feasible. Therefore, subsidy is required fkom the CityRedevelopment Agency in order to ensure that the units can be constructed and operated in a financially feasible manner. The CityRedevelopment Agency has funding available that must be spent in a timely manner before sanctions are imposed due to lack of expenditures to date. This fimding comes from the federal Community Development Block Grant and HOME programs, as well as the Redevelopment Agency LowModerate Income Housing hd. Therefore, there is appropriate and adequate funding available to provide the required subsidy. 3. The project will produce 1 1 new residential units within the Village Area and provide for an attractive development, which will be of benefit to the efforts to revitalize and redevelopment the area. RP 04-04 - ROOSEVELT STREET APARTMENTS MARCH 24,2005 PAGE 4 I TOTAL The following is a summary of the sources and uses of funds based on the estimated development costs and the proposed financing structure. The developer’s detailed proforma is attached as Exhibit 2: PER UNIT Redevelopment Agency Land Acq. CityRedevelopment Agency Contribution (cash assistance) II Conventional ~oan 1 $256.562 I $23.32411 $692,058 $62,914 $2,384,081 $216,735 II Total Sources I 33,332,701 I $302,971 11 D. Form of Assistance City cash assistance will be in the form of a residual receipts loan secured by a note and deed of trust. The loan will begin accruing after the completion of construction of the improvements. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from cash surplus, as cash is available or becomes available. In the event that there is not adequate cash surplus to repay the City loan, the outstanding balance shall accrue with simple interest at 3% per annum. The financial assistance will be provided from the City of Carlsbad’s CDBG, HOME and Redevelopment Agency Housing Set- Aside Funds. E. Security The Developer will be required to provide completion bonds to both the City and the permanent lender to insure that construction is completed. F. Risk In its role as a lender to the project, the City is exposed to three risks inherent to real estate development. These risks generally include 1) predevelopment (project does not get to construction, 2) construction (project cannot be completed, cost overruns, contractor problems), and 3) operation (revenues do not cover expenses). Adding to this risk, any City financial assistance will be subordinated to conventional financing. RP 04-04 - ROOSEVELT STREET APARTMENTS MARCH 24,2005 PAGE 5 A number of factors mitigate the risks. First, the development team has a strong track record with similar affordable housing projects and has been successful to date in all of its efforts to construct and operate those projects in a financially sound manner. The reasonable terms of the City/Agency loan allow the developer to lower its financing costs which help to ensure that expenses will not exceed revenues generated by the project. The developer will partner with a contractor with a proven history of success. Both the CityRedevelopment Agency and the developer will closely monitor the costs of the project and work with the contractor to address project issues in a timely manner to reduce cost impacts. Without the financial assistance from the CityLRedevelopment Agency, the project will be unable to proceed. The developer and the City/Agency have researched other funding sources which are typical of affordable housing developments, such as tax credits and various grant programs. Unfortunately, the subject project will either not compete well for these sources due to its size and other project features and/or the project is not eligible for some of these other fbnding sources. Therefore, in order to proceed, it will be necessary for the City/Agency to serve as the primary subsidy source for the project. VI. VI1 FINANCIAL ASSISTANCE AGREEMENT With a recommendation from the Housing Commission and approval of the City Council and/or Housing and Redevelopment Commission, appropriate documents, including a Financial Assistance Agreement, Regulatory Agreement, Promissory Note and Deed of Trust, will be prepared and executed to set forth the terms of the financial assistance and its repayment. SUMMARY AND STAFF RECOMMENDATION It is the role of the Housing Commission to make financial assistance recommendations to the City Council based on several considerations with respect to affordable housing projects. These are: o The proposal's effectiveness in serving the City's needs and priorities as expressed in the Housing Element of the General Plan and the Consolidated Plan. o The proposal's consistency with the City's affordable housing policies and ordinances as expressed in the Housing Element and Inclusionary Housing Ordinance. o The proposal's development and operating feasibility, emphasizing the development team capacity, financing sources and the role of the City in providing financial assistance or incentives. RP 04-04 - ROOSEVELT STREET APARTMENTS MARCH 24,2005 PAGE 6 The Roosevelt Street Affordable Apartment development is proposed by a capable development team that is committed to affordable housing. The proposed City assistance meets the City’s three key underwriting goals of a strong borrower, reasonable project costs based on the project size and requirements and an acceptable level of leveraging. The project quality includes good design and location. City housing goals are supported by the project’s affordability. It is the Affordable Housing Policy Team’s (staff) recommendation that the Housing Commission approve the resolution of support recommending to the City Council that the City provide a total of $2,384,081 in financial cash assistance to Wakeland Housing for the Roosevelt Street Affordable Apartment development. VIII. EXHIBITS 1. Housing Commission Resolution No. 2005-002. 2. Proforma. 3. Reduced copies of project plans. HOUSING COMMISSION RESOLUTION NO. 2005-002 THAT THE HOUSING COMMISSION RECOMMEND APPROVAL TO THE CITY COUNCIL OF $2,384,081 IN FINANCIAL CASH ASSISTANCE ASIDE FUNDS TO WAKELAND HOUSING AND DEVELOPMENT CORPORATION FOR CONSTRUCTION OF ELEVEN (1 1) AFFORDABLE APARTMENT UNITS TO BE LOCATED AT 2578 ROOSEVELT STREET IN THE VILLAGE REDEVELOPMENT AREA OF THE CITY OF CARLSBAD. FROM CDBG, HOME AND REDEVELOPMENT AGENCY HOUSING SET- APPLICANT: ROOSEVELT STREET APARTMENTS CASE NO: RP 04-04 WHEREAS, the Wakeland Housing and Development Corporation has proposed to construct 11 apartment units affordable to very low income households within the City of Carlsbad and has requested financial assistance from the City of Carlsbad to assist in the financing of said affordable housing project; and, WHEREAS, the request for financial assist to construct said units has been submitted to the City of Carlsbad’s Housing Commission for review and consideration; and WHEREAS, said Housing Commission did, on the 24th day of March, 2005, hold a public meeting to consider the request for City financial assistance for the construction of said 11 affordable housing apartment units by the affordable housing developer, Wakeland Housing and Development Corporation; and WHEREAS, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Commission considered all factors relating to the proposal to construct said affordable housing units. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. HC RESOLUTION NO. 2005-02 PAGE 2 2. The request for City financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element, Consolidated Plan, the Inclusionary Housing Ordinance, the Carlsbad General Plan and the Village Redevelopment Plan. 3. The request for City financial assistance will assist the affordable housing developer to construct a total of 11, one and two bedroom affordable apartment units which will be affordable to households earning 50% of area median income for San Diego County or less. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan. 4. That based on the information provided within the Housing Commission Staff Report and testimony presented during the public meeting of the Housing Commission on March 24, 2005, the Housing Commission hereby ADOPTS Resolution No. 2005-02, recommending APPROVAL to the City Council to provide up $2,384,081 in financial cash assistance from the City of Carlsbad’s DBG, HOME and Redevelopment Agency Housing Set-Aside Funds to Wakeland Housing and Development Corporation for the construction of eleven (1 1) affordable apartment units to be located at 2578 Roosevelt Street within the Village Redevelopment Area of the City of Carlsbad. Ill/ /Ill /Ill /Ill /Ill /Ill /I// If /I /Ill I/// 5. That the Housing Commission recommends that the City Manager or his or her designee be authorized by the City Council to prepare and execute all documents related to provision of the City assistance, including but not limited to a Financial Assistance Loan Agreement, Note, Deed of Trust and Regulatory Agreement, subject to review and approval by the City Attorney. PASSED, APPROVED, AND ADOPTED at a meeting of the Housing Commission of the City of Carlsbad, California, held on the 24'h of March, 2005, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: EDWARD SCARPELLI, CHAIRPERSON CARLSBAD HOUSING COMMISSION DEBORAH K. FOUNTAIN HOUSING AND REDEVELOPMENT DIRECTOR HC RESOLUTION NO. 2005-002 PAGE 3 (DEVELOPMENT SCHEDULE 1 Unda for Rent 11 M-6 Unib 0 TOW Numb of Unib 11 0.nnty Per Am 056 Acres 19 64 ConsMlrOn stan Ccmpb~ficate 01 Occupancy AM Consauctlon Pd (Monlhr) 12 sw of Leswng UNU ~easai per Monn Sbb~lued Occupancy oca Ldp Pnod (ManU~rl 3 Pwnunml Loan Takarut OCMS TOW MonW ~ COMl Stsn b Tsk~uI 15 A% [SOURCES AND USES of FUNDS I 100wx om Rwmt5&m&!w Lpm! USES: so wso so 18.727 106.000 0 2og.m 4.136 (5.500 0 4s.sw 20.909 230.000 0 23o.m 909 lo.m 0 1o.ooo 29.712 326.927 0 326.827 118.758 1,306.340 0 1.306.340 0 0 0 9.781 107,588 0 107.589 2,727 3o.m 0 3o.m lE.182 Mo.Oo0 0 200.000 18.Esa 1115.251 0 1115,351 $240,891 $2,647,808 so s2.64r.806 SO sow so 31.088 W.083 0 342.083 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 208,593 2.305.524 0 2.305.524 $240.681 S2.847.606 Io $2.847.806 SlS.eo4 ~RESlD€NTlM UNIT MWAFFORMBIUN ANALYSlS 1 ]DEBT FINANCING ASSUMPTIONS I CONSTRUCTION LOAN. Consvucmn LOM Inten*it Ratc Loan PMnu and Fees PERMANENT LOAN Penanenl Loan Rna Permanent Loan Constant Loan Pants md Fm Debt Swce Covaape Rata Loan Undawntrw~ Term (Years) MawnWnLonOVillueRaoa WfskzSbonRBte Pmm Vaue (N0VC.p Rae) Maxnnum Lam m Cos1 Rato Cash Avarlable for Debt Smce (NO0 Loan Lo Vdue Ram Pemanenl Loan Anna Plymen1 RglJting DSC OTHER DEBTILOANS Inusest RaLs Loan Pomu and Fm Loan Tam (Years) 6 25% 100% 7 25% 8 26% 100% 1 20 M 7 W% 480.M6 1W.OOK 33.m 71 28% 342.083 08.003) 1 200 80 wm 3.00% % 0.000% o.mm 55 0 [TAX CREDIT FINANCING ASSUMPTIONS 1 NA NA NA NA NA NA NA NA NA NA Average AMI tor Afford& Unib 50.00% (OTHER ASSUMPTIONS I Proprty Tar: Tal Rnc Exism Pmperty Basis (pM unll New Unil Borrs (par will Ground Luu: Ftmm on Gmund Lease 1.10% 0 0 0.00% lnllrtkn 1nd.u.: Z.&W5AlQ&!lB&2REUU SE28A!lWZ&4 T?. 1 Illcorn InflrOr 2 50% IlKOm Eapauc Inww 3 50% 50wx 100 0%(HUD INCOME GUlDEUNEYllTlL ALLOWANCEfBASIS LIMITS 1 5600% 00% mOMc 0 0 0 00% WWU 0 0 0 0 0% 5000% Mgr Unit@ Mark* 0 0 0 0 00% TOW Umtr % 0 8 0.0% 72.7% 3 27.3% 04 0.oq 11 ulUU Sq. FLlllN 0 674 900 1.017 1250 Sq. FI. Cost Total Fksd Sq F1 0 5.382 2.700 0 0 8.m R&Ud RgtdmW Sq. FI. Communny Center Laundry Rcnnm Mainmame Qrculawn 6 BsJwn~h TOW Squam Fael Leave mom for ouldwr rec. space 0 200 0 . -., [PARTNER ALLC€ATIONS 1 ,,,,a 10,065 Gcnefpl Parmer Limited PamerB Limited P-erA Opcratmns SdL 001% 001% gem =.mu 0 00% 0 00% t 1 I IO 10 1 t 1 1 I IO 1 1 1 I 10 io 12 1 1 4 3 a a 7 7 7 7 7 7 7 I 1 10 1 I 7 10 I 7 10 I 1 I 1 I I 1 I I 12 11 0 0 0 0 0 0 0 0 0 0 0 5m 0 0 0 0 0 0 0 0 0 0 lMl2 l6.012 DCQ8 0 0 0 0 em 0 0 0 24.m 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 t0.m t0.m 5.m 0 0 0 0 5.m 0 0 0 0 a nmo 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 0 0 0 0 0 0 0 0 0 0 0 in.m lo.m 0 0 0 0 0 0 0 0 0 10m 10.- 0 0 0 0 0 0 0 0 0 lam t0.m 1o.m n 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1% I* 3I.y10 3i.m 10.128 125 la In fn in 1% B0.m 1m.m 1m.m 0 0 0 0 0 0 0 0 z,u~.m ZSIW n2.w~ tn,m 1n.m iplm 191.8s =,3M tu191 spu mpa '25 11 11 1w lxa 1% 125 1% 1% 128 1% 0 0 0 0 lm+ a=,m 0 ---.- &" - LEww*cuvDI)(cI1 I 1 1 10 10 1 , 1 7 1 IO 1 I I 10 10 12 1 I 4 3 3 3 7 1 7 7 7 7 7 1 1 10 1 1 I 10 1 1 10 1 I 1 1 1 1 I 1 1 12 12 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 0 0 P 0 0 0 0 0 0 0 0 0 C 0 0 0 0 lsIJ 0 0 0 0 0 15m 0 0 0 0 0 0 0 0 0 0 a 0 0 0 0 0 0 0 0 41.m 0 0 0 0 0 0 0 0 I j5m 0 0 0 0 0 0 0 0 O 0 E 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8.m 0 0 0 0 0 0 0 0 0 5m m 0 0 0 0 0 0 0 0 5.m u 0 0 0 0 0 0 0 0 w.m 1.925 0 0 0 0 0 0 0 0 1*6m 0 0 0 0 0 0 0 0 0 m.m a 0 0 0 0 0 0 0 0 s.om 0 0 O 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1.m 0 0 0 0 0 0 0 0 t5m 95 625 625 0 0 0 0 0 0 7.m 31 0 a 0 0 0 0 2,oa 2Dl L aa 0 0 0 0 0 0 12.323 0 0 0 0 0 0 0 0 0 a0.m 0 0 0 0 0 0 0 0 0 10.m 0 0 0 0 0 D 0 0 0 1t.m 0 0 0 0 0 0 0 0 0 Nl.xa 0 0 0 0 0 0 0 0 0 1o.m 0 0 0 0 0 0 0 0 0 m.m 0 0 0 0 0 0 0 0 0 n.400 0 0 0 a 0 0 0 0 0 101.a 141,4s 0 0 0 0 0 0 0 a mss 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1m.m 0 0 0 a 0 0 0 o m.4~4 urn S.345 0 0 0 0 0 0 0 0 $4.520 0 0 0 0 0 0 0 0 96.m 8,567 0 0 0 0 0 0 0 0 lDm4 0 0 0 0 0 0 0 0 1.~,974 7.7- 13.714 as2w 0 0 0 0 0 0 4w 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 0 a 0 0 0 0 a 0 0 0 0 O D 0 O 0 0 D a D 0 0 0 0 0 0 0 0 0 0 4s 0 mm) 0 0 0 0 3.018 0 0 0 0 0 s.m 0 0 7.m 0 0 1s 0 0 15.m 0 0 3.421 0 0 0 0 0 0 0 0 11,012 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a 0 1om 0 0 0 0 0 0 0 0 1,902 0 0 W,W 1O.oOO 0 0 0 0 0 0 lorn 0 5.m s.m 0 0 0 n.m 0 0 0 0 a 0 0 0 0 ,o.m 0 0 0 0 0 0 0 0 0 0 I25 125 125 0 0 0 0 0 0 1.m 10.125 5.125 5.125 0 0 0 0 0 0 3l.W 0 0 0 0 0 0 0 0 0 rm.m 0 0 0 0 0 0 O 100% 0 0 0 0 0 a 0 0 0 0 0 1.w.m I.sos524 0 0 0 0 0 0 0 0 0 0 0 It units RUN DATE: 021OoM5 RENTAL INCOUE ASSUYpflONS PENTAL INCOME ANALYSIe F-C ~uhr Monmly Utili NaIMonIhly NelAnnwl Unil Total Renq Sir. Unil Type ot units bnl Allowlnu Ram Rmm Sq. Ft. Sq. Fl. Sq. F1.J % d Mwdlm 5o.ooX 1BWlBA 8 642 32 610 58.560 674 5.392 $0.91 30.00% 2BWBA 3 771 40 731 26.316 900 2.700 $0.81 TOTAL PROJECT 11 REUTED RESIDENTIAL SPACE Ganrnwily tcnw Laundry Roams Mm)wnca Cmulmn 6 TOW R.Ia1.d R..id.nti.l Sp.u TOTAL PROJECT JQUARE FOOTAGE 643 64,816 7% 8.082 so a7 0 200 0 1.773 1.973 1o.w .. 000000000 h go f " 5 ND 0000000~ . 0000000~ . 000000000 mro-o o 5: 000000000 f g O $O E. NN OOOOOOO~ . 0000000~ . 000000000 000000O00 OOOOOOO$ . 000000000 0000000~ o R OOOOOOD 0000000$ o OOOOOOO~ n OoOOOOOn a 000000000 000000000 000000000 000000000 000000000 0000000~ o 9 0000000 000000000 000000000 ooooooo= D 000000000 si 0000000 OOOOOOO~ 000000000 on O NN N - 'W f EXHIBIT 3 REDUCED COPIES OF PROJECT PLANS f i I --m- -.-- I Minutes of: Time of Meeting: Date of Meeting: Place of Meeting: HOUSING COMMISSION 6:OO P.M. March 24,2005 CITY COUNCIL CHAMBERS CALL TO ORDER Chairperson Scarpelli called the Meeting to order at 6:08 p.m. PLEDGE OF ALLEGIANCE Commissioner Smith led the Pledge of Allegiance. ROLL CALL Present: Commissioners: Doris Ritchie Edward Scarpelli Margaret Schrd Bobbie Smith Absent: Renee Huston Staff Present: Housing and Redevelopment Director: Debbie Fountain Housing Program Manager: Roberta “Bobbi” Nunn APPROVAL OF MINUTES Minutes of February 24,2004, were approved with three changes. VOTE: 4-0 AYES: 4-0 NOES: None ABSTAIN: None COMMENTS FROM THE AUDIENCE ON ITEMS NOT LISTED ON THE AGENDA There was no audience in attendance, who wished to speak at this time. NEW BUSINESS The first item on the agenda is the recommendation by staff of the Roosevelt Street Apartments. Ms. Debbie Fountain, Director of Housing and Redevelopment, will present the Roosevelt Street Apartments. It is a recommendation being requested from the Housing Commission on the financial assistance request from the developer, which is Wakeland Housing. This project is a little different from what has been brought before the Housing Commission before. Chairperson Scarpelli reminded the Commissioners to be sure to have the amended report for the Roosevelt Street Apartments in front of them Ms. Fountain continued with the background on the project. This project was handled differently from some of our projects that come through the inclusionary housing where we have a master developer who provides the land and finds someone to do the affordable housing. In this particular case, the redevelopment initiated taking the lead on the project when we purchased property in March of 2003. It is a little over a half acre site that is on Roosevelt Street near Laguna in the Village Redevelopment area. One reason we pursued acquisition of the property was because the city had money through the Community Development Block Grant Program set aside for affordable housing. Specifically that money is typically used for acquisition purposes because CDBG money can’t be used for construction of affordable housing. The money can be used for predevelopment costs, acquisition, off-site HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 2 of 18 Improvements, or some other things. We were in a situation where the city was at risk of losing money because we weren’t spending it due to having difficulty in finding a project we could use this money for. The Council authorized staff to find a piece of property that we could purchase and use for affordable housing. We looked throughout the city at the time, and unfortunately when we were looking, either property was too expensive for what we had available to purchase with, or it just wasn’t available. We looked at apartment units to see if we could find some apartment units that we could purchase and rehabilitate and use the money that way. Finally we decided on this piece of property on Roosevelt Street for two reasons: 1. 2. It was a blighted site. If we purchased the property and cleaned it up, we would at least clear the blight for redevelopment purposes. After reviewing the property, we decided it could work for an affordable housing project. We purchased the site at the total cost with fees of $692,000. We paid for that with CBDG money/HOME money, which is also federal money, and the redevelopment agency setting aside money. Recently, we valued that property and it is worth about 1.6 million dollars if it were to be sold on the open market. Once we purchased the property, we sent out a Request for Proposal to identify an affordable housing developer to do this project. Wakeland Housing, who is now the developer on record for this project, was selected, mady because they have done comparable projects that are smaller and more difficult to finance. They also have quite a bit of experience in the development of affordable housing. Wakeland Housing took the responsibility through an agreement with the City that they would act as the developer for preparing the site plan and the elevations and the permits for the project. In December of 2004, the Housing and Redevelopment Commission approved the redevelopment permit for an eleven-unit apartment project. It has been through the entitlement process, and it has received its entitlements. The site will consist of two buildings, a total of eleven units. It accesses off of Roosevelt Street. To the north there is an office complex called Brittney Court. To the south, there is an apartment complex. To the east, there are some single-family homes. Across the street on Roosevelt, there are some offices and at the end of Roosevelt Street at Laguna, there is a condominium project being built. It is a 21-unit for-sale condominium project. Ms. Fountain showed an elevation that was approved by the Housing and Redevelopment Commission. It is consistent with all of the standards for the redevelopment area. The project is eleven units: 8 one-bedroom, one bathroom units, which are about 674 square feet; 3 two-bedroom units, which are 900 square feet. There are nice quality landscape areas with barbeque areas as well as laundry facilities. The project is small so it doesn’t have a recreation center or a pool, like other larger projects, but one reason we were supportive of that is because of its location in the village area. It is within walking distance to the beach and other park areas. It is what is being encouraged in the downtown area, not to have gated communities that have private facilities. This is trying to create more of that urban type of development in the downtown. Ms. Fountain continued the rent levels proposed on this project will be affordable to households at 50% of the area median income. The me-bedroom units will be about $610 a month and the two bedroom units will be about $731 a month. Wakeland Housing is a non-profit corporation based in San Diego. Their portfolio includes development of about 3,500 units, which includes the Vista Las Flores project in Carlsbad. It is a 28-unit project near the Laurel Tree Apartment project. This project was done as part of the inclusionary housing obligation of a master development. We feel they have extensive experience in developing affordable housing projects. In terms of this project, the total cost is estimated at 3.3 million dollars, including the land that the City purchased. They are proposing that a conventional loan would be available for the property, which would be about $256,000. The rest of the contribution for the project would be coming from the City of Carlsbad. The City cash contribution HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 3 of 18 would be about 2.4 million dollars, and again with our City land contribution of 692,000 that equals a total of a City contribution of a little over 3 million dollars. Whenever we review projects, we try to review them in several different categories. One of them is cost reasonableness. We have a staff team that reviews these projects first, and that consists of the Finance Director for the City, myself, someone from the Planning Department, and our Community Development Department. We assess whether we think the costs are reasonable, what seems to be higher or what we have concerns about. When reviewing, typically we are looking at a per unit cost. We broke this down for your review on a cost per square foot, which the developer has estimated at about $98.40 a square foot. The average total cost per unit with the land is about $302,973. I put this in the report for comparison purposes, because our two most recent projects that we have looked at, the Affirmed Housing Project, which worked out to about $248,000; as well as Hunter’s Point, which is the second phase of the Villages of La Costa. Their pro fonna shows their average unit cost is about $246,000. Both of these are including land. As you can see, the average total cost per unit of this project is higher then what we have seen in the past. Both projects, Affirmed Housing and Hunter’s point, include prevailing wage, which is a significant contributing factor to the reason for increasing costs in projects. Also, there have been recent increases in construction materials, which has impacted the cost of projects. Unfortunately for the Roosevelt Street project, since that project is so small, it increases the per unit cost. We evaluate the whole picture in comparison to other projects. At a staff level, we have a spreadsheet that reviews all rental projects throughout the city from the time we began providing financial assistance, which was the Villa Loma Project in the mid 90’s to now. We are definitely seeing the costs increase in Carlsbad. Because we were concerned about the cost for this project, we had a third party review done to see if the costs were in line or not. In some cases, that review indicated that some of the numbers might actually be low in considering current market conditions. We also look at undue gain. We want to make sure the developer coming in isn’t making a substantial or unfair profit on the project. In most of the cases, we look at the developer fee. We have had this discussion with the Housing Commission on previous projects as what is an acceptable developer fee. In this particular case, the developer fee is proposed at $200,000, whch would be about 6% of the total project cost including the land. The staff felt that was appropriate. We have gone as high as about 11% on developer fee for some projects, which are complicated in their financing packages. They might have to file applications for tax credits. This seems reasonable for the complexity and the size of the project. In terms of the subsidy analysis, it will equal about $216,735 per unit. When the land is added which we purchased, it is about $279,649 per unit. That is significantly larger than anything we have given to any project to date, but the reason we are primarily the only other source of funding is the project is not eligible for any other types of funding such as tax credits. It is basically a conventional loan and the City would be the financing for the project. Ms. Fountain continued we initiated this project as a partnership rather than a master developer who has an inclusionary housing requirement where we are just a potion of the money going into it so they can get other funding for the project. As mentioned, staff did review the cost for subsidy and decided to move this project forward. We have the third party review of the cost to have an outside neutral third party. We did compare that with other projects. We did determine that the costs are high, but we felt they weren’t inconsistent with the current construction climate and probably reflective of the small size of the project. There really isn’t any other funding sources appropriate for it. We have three or four key reasons why we are looking at this project. The Redevelopment Agency itself, even if we didn’t have an inclusionary housing obligation for the City as a whole, by state law the Redevelopment Agency has to produce a certain amount of housing for low-income persons. Specifically, 6% of the total housing that we build in the downtown area has to be affordable to very low-income persons. Currently, when a project comes forward, such as the Village by the Sea project or the Laguna Point project, they are meeting their inclusionary requirement for low income; people at 80% of the area median income. We currently don’t have any of the developers that have HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 4 of 18 been made responsible to do the very low-income component. We felt the Redevelopment Agency has an obligation to provide some of that housing. That is one of the reasons we specifically looked in the village area for a site. We realized quickly if you can get property, it is expensive to buy. It is even more difficult to do a very low-income project that has restricted rents and you cannot just charge what the market will support. The project cannot produce adequate income to make it financially feasible so it will require subsidy. The debate is over how much subsidy, that is why it is with the Housing Commission this evening. The City does have funding available that must be spent in a timely matter. Even if we didn’t have the requirement, the project will produce an attractive project, eleven new residential units. From a redevelopment standpoint, it produces a nice project. It can be looked at in two ways: It is a redevelopment investment as well as an affordable housing investment, which is how the staff looked at it. In terms of the assistance in the funding, we had a predevelopment funding agreement that was approved by the City Council, which was using CDBG money. The maximum amount of that loan was $244,161.00. They have not spent all of that money yet. There has also been HOME money, whch is federal money that comes through the County of San Diego as part of the consortium for the county. The Council appropriated $544,230.00 from the HOME Program that has been in the reserve account specifically for this project when it goes to construction. The remaining appropriation that would need to be made to this project would be the $1,595,690.00. The reason we put the total financial assistance in the agenda bill is that is what we would be askmg the Council to reconfirm they would want to spend that 111 amount of money. There has been some money already spent on the predevelopment side of the equation. The HOME money has not been spent yet, since it is set aside for construction. The funding available for assistance is the Village Redevelopment Housing set aside funds of about 2.3 million dollars. The Housing Trust Fund has about $’10,000.000 in it. We also have some surplus cash from the operation of the Tyler Court Apartments, which we purchased back in 1997/1998. That has produced some money that can be used to fund another affordable housing project. We also just recently applied and are entitled to receive a grant from the State as a result of our success in providing affordable housing within the community to date. That will be about $561,000. Our proposal at this point is to use redevelopment money and state grant money to fund this project and not use our Housing Trust Fund money or that Tyler Court surplus cash. The Housing grant money we are getting from the State of California. It is not a loan or anythmg we have to repay. It is a reward to the City for producing affordable housing within the community. The redevelopment monies need to be spent as soon as possible, because they can have sanctions against the agency if the money isn’t spent. We feel like those two pots of money would be the best to use for this project if we decide to move forward with it, and use our Housing Trust Fund money and the Tyler Court money for other projects in other parts of the City. If this moves forward and we do agree to provide financial assistance to this project, there will be loan documents. This project will not produce enough surplus cash to actually make a loan payment. The reason we still want to do this in a loan is if for some reason there is some cost savings or something changes where there is surplus cash produced within the project operations, we want to make sure that is repaid to the City. We do all our financial assistance deals as loans to the project so we can recapture in some point in time if there is any surplus cash in the project or some development savings or other types of costs that help us to repay some of that money. One of the other options we are looking at also, is that it is possible we can create this project as a combined project that other developers can actually buy into. We could potentially raise some revenue that way. That would be separate from repayment of the loan. The project will have a note and a deed of trust and a regulatory agreement on it, and those documents will be prepared once we know if we are going to move forward with the project. We also do an analysis of our development risks, because if we partner in this and we provide financial assistance, we will have development risks. There are predevelopment risks in case something happens and the project doesn’t move forward. There are also construction risks if you are in construction and there are substantial cost overruns in the project. There are also operational risks once the project gets built and it is operational. The City assistance is typically subordinated to any conventional financing on the project. Those are risks we assume. We believe a number of those risks are mitigated and have been mitigated in the past on our projects if we can get a strong developer who understands affordable housing development. You can closely watch the construction costs as you are moving forward and it is being monitored and you quickly respond to any types of problems that are going to HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 5 of 18 increase it. Once you are operational, you need a strong operator for the project that will watch your costs. We believe that Wakeland has a good track record, and they have shown they are able to do this with other projects, one specifically in Carlsbad. We felt comfortable they have the skills and the ability and the capacity to mitigate some of that development risk for us. The recommendation before you tonight is to approve the financial cash assistance in the total amount of 2.3 million dollars, and then it would move forward to the City Council. This will include the previously approved allocations of funding. If we look at it from additional cash that is required to fund that has not yet been appropriated, it would be $1,595,690. The developer is here tonight so if the Commission has questions, I encourage you to ask that of the developer, address any concerns that you might have, and any other questions you might have about operations of the project. I’m sure the developer would be happy to answer those for you, and even give you information on their background and history. Commissioner Smith asked Ms. Fountain if we don’t use the funds to build this particular project, do we stand a chance of losing it? Ms. Fountain answered it is not this specific project that we have a risk of losing money if we don’t spend it. So if we didn’t do this project, then we would need to identify another project for that money to go into. I don’t want to mislead you that it has to be this project or we lose the money. It is just a timeliness issue on expenditure and has to be spent by a certain time. Commissioner Ritchie asked what is that certain time? Ms. Fountain said it is by the end of this summer, August of this year, that we need to spend the redevelopment monies. We have a little over a million dollars that we need to spend out of that pot of money. If we don’t spend it, we get put on a work out plan, and then we have a certain period of time to make some progress before they actually will make sanctions. So we probably have about a year before there would be any sanctions against us. Commissioner Ritchie thanked Ms. Fountain. Chairperson Scarpelli asked on the substitution for projects for use of the redevelopment, do we have anythmg else in line at this time that might need those finds? Ms. Fountain said we don’t have anything in line. You just recently approved the recommendation on the Affied Housing project, and that is a possibility to spend some redevelopment monies on that as well as some CDBG and HOME monies, but we don’t have another project out there ready to go that we could move forward on. Chairperson Scarpelli asked approximately how much of the 1 million do you think could be transferred to Affirmed’s project; percentage wise, roughly. Ms. Fountain answered you could transfer all of it. It is just moving pots of money around. It is which pots of money you decide to use on which project. Chairperson Scarpelli asked the developer, Bany Getzel, to give hs presentation. Barry Getzel, Senior Project Manager at Wakefield, restated they are a non-profit affordable housing developer, and that all his company does is affordable housing. I realize when people look at these numbers, they believe this is a lot of money. Last year in terms of material prices especially, increased extraordinarily. Steel increased 70%, lumber, especially plywood, increased 250% in 18 months, then to top that off, we are in this construction boom and there are contractors who are independent in terms of their own labor. These contractors feel they have enough jobs available so they can be choosy. Unfortunately, they all have that attitude, so it is not like you can find anybody who is good that you could get a deal. Currently, we are building two projects, one in San Ysidro that is 60 units, and HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 6 of 18 another in downtown San Diego that is 74 units, both affordable projects, and they are both very expensive projects. I can get into particulars if you would like to ask particular questions on costs. Chairperson Scarpelli said he would. He continued that he is not only Chairman of this Commission, but is also president of Western Mutual Development Corporation, a for-profit developer. We have just completed a project in Escondido of single-family homes. There were only 13 of those on a 15-lot subdivision. I am familiar with the costs that we used there, and I am also familiar with the fact that costs have risen, even since we constructed that project. In looking at this particular project, and I haven’t looked at the specifications of the projects, I have looked at the elevations and the floor plans, and basically what I am looking at is a cookie cutter project. It is not an out of the ordinary project. It is very well designed, however, I don’t see anything upgraded in it to any extent in the way of use of space, in the size of the bathrooms, the size of the kitchen, etc. Again, stating that I don’t know what appliances are being used, what plumbing fixtures are being used, what windows are being used, so it is hard for me to make a full determination on the cost. When I compare the cost of this project to my last project, which was a for- profit project, and we look for a minimum 25% profit on the basis of retail sales value, it does appear to be extremely high. It makes me very uncomfortable. I think what we need to do is to address the square footage price on the actual building at $98 a square foot. Are we talking building structure alone, from foundation up? Mr. Getzel said that is correct. Chairperson Scarpelli continued that the additional cost would be for the land development itself. Mr. Getzel said right and the general contractor fee overhead. Chairperson Scarpelli said in that particular case, even when he calculates out our cost of a project, and when I use the pro rate ratio because of the lesser square footage here versus the greater square footage that we are working with. Taking that into account, and taking into account 33% higher labor costs, higher material costs, and I’ve talked to a number of ow major subcontractors, I can’t reach $98 a square foot on the buildings themselves. My suggestion would be since we cannot clarify this number, and it seems to be so uncomfortable that I would be at this point recommending we not recommend to the City Council to move forward with this project because the costs appear to be way out of line. I suggest we enter into an agreement that you would be required, as the developer, to competitively bid with a minimum of three bids to each of the major trades, your subcontractors, and that we have the right to audit those bids, and also sign off on the contracts. The way it looks right now is that the project is being gifted the $2,384,000 because based on the pro forma, we have a negative cash flow with a few months in the early stages, then we go into a negative situation. I don’t see, based on this operating pro forma, that the City will be repaid the $2,384,000. Therefore, the only way that I can see the City accomplishing a number of tasks with one to provide affordable housing to people in that 50% or below income bracket, and to hopefully to get some reality or some real chance at getting some return of the $2,384,000 that this project be very heavily competitively bid out. Also, that we do everythmg in our power to have cost savings. That is the only way we might change that negative to a positive. Chairperson Scarpelli asked if Mr. Getzel’s organization would be willing to go into contract with the City on that basis, and that basis again would be: 1. Each of the major trades be competitively bid, both for direct and indirect costs. I am having a serious problem with the design landscape and architect fee of $120,000 for eleven units and two buildings. I have a serious problem dealing with the appraisal at $8,000 for an MA1 appraisal on two apartment buildings. They seem to be exorbitant. Would your organization be agreeable with caveats to any agreement we make that would indicate that it would be competitively bid by a minimum of three capable and quantified subcontractors in each of the major areas? That we have the opportunity to audit those bids. 2. 3. HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 7 of 18 Mr. Getzel said he didn’t think that would be a problem. His company is not a general contractor so they were going to have three bids from general contractors. I’m not sure if each of the general contractors would go out to three bids for each of the major trades in a project this small. For example, each general contractor had people they had worked with before and feel comfortable with. I can certainly approach your suggestion. It is our intent to at least get three bids for the general contractor. If you are interested, I can give you some of the data on how we got our figures because I think all of them are defensible. If you want to get into detail with the building costs or the architecture, I think they are all defensible as well. Chairperson Scarpelli commented on a project his company worked on recently where he had 13 homes that were 1914 square feet and 2500 square feet. We had three different floor plans and five models. That architect design fee, including landscaping fee, was under $30,000. Now taking that into consideration versus $120,000 for something as simple as this, though I am not criticizing this, but it is a cookie cutter, basic apartment project. To pay a $120,000 for that seems exorbitant in that there are architects out there that would do it for, in my opinion, a third of that. h4r. Getzel continued that the architect’s fee also includes engineering, the structural, the landscaping, the M&P person, and supervision during construction in terms of sign-offs on draws. Chairperson Scarpelli commented on the contractor’s fee and the overhead is 17%. A contractor’s fee of 9.69%. I believe there is another fee attributed to that. How much oversight do we need on building two buildings of 11 units. Mr. Getzel answered that a lender and maybe even the City would want as money is drawn down, they want an architect fee on an AIA form to sign off in terms of each one of those draws. Thjs is as far as the quality and the percentage of the completion of the construction. The architect will be out several times a month at a minimum to walk the site. Chairperson Scarpelli said he understands inspections because his company works with conventional lenders who have an inspection done before the draw is approved. I don’t feel that kind of number is going to justify this kmd of price. Again, if we competitively bid it out with all the requirements you feel are needed, and we get at least three bids on it, review them, and then we can tell if we are getting a fair price in terms of the building costs. Mr. Getzel asked if that was in terms of the building costs? Chairperson Scarpelli said he is talking about indirect costs when dealing with a question of a $120,000 for this fee. Mr. Getzel said the architect has been chosen already. He has a partial contract already. We did get a minimum of three bids from architects. The same thing is with the civil engineer. One of the problems is the fact that this project is a small project and it is difficult to require three bids on all aspects of it. If you make these requirements, you aren’t going to have anybody bidding on it. It wouldn’t be worth their time. Chairperson Scarpelli told Mr. Getzel he would give him names of some who would be willing for a lesser percentage. That was one of the questions I did have written down and you have already answered it. Your company’s name was? Mr. Getzel answered it is Wakeland Housing. Chairperson Scarpelli commented that Wakeland Housing is not a general contractor, rather a developer. Mr. Getzel said that is correct. Chairperson Scarpelli said then Wakeland will be hiring a general contractor on a cost plus basis? HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 8 of 18 Mr. Getzel answered they will do a max price. There may be some limitations sometimes on these contracts based on some conditions. Generally we have a fixed price contract. Chairperson Scarpelli said okay. Then your answer is as a developer, to get a minimum of three general contractor bids and to evaluate those. Ms. Fountain mentioned that it might be good for the City Council, if Barry Getzel gives a summary of how they came to their costs, for the record. This would address some of the issues you are raising. Chauperson Scarpelli asked everyone to turn to the Cost Breakdown Page beginning with land acquisition. Mr. Getzel said the big item, which has been mentioned, is the building cost itself. We have two projects under construction right now and they are both prevailing wage projects. One is in San Ysidro and one is in downtown San Diego. The one in San Ysidro is a 60-unit project. The end price was $92.30 a square foot at prevailing wage. The other project in downtown San Diego was $105 a square foot. In December 2003, which was about three or four months after Ms. Fountain’s group had selected us, we had a contractor look at a basic generic two-story and what the costs would be, and this was a well-respected firm that gave me the figure at that time, non-prevailing wage, it was $81.29 square foot. If you add on prevailing wage, we are already at $98 a square foot. All of those things led us to believe at $98 square foot, given we wouldn’t be in construction until just after the fwst of the year of 2006, hopefully earlier, that was a reasonable figure. I believe also the Redevelopment consultants thought we were low in our estimate of the price. They thought the figure should be closer to $105 a square foot. Based on those three examples, plus what the consultant said, we thought $98 is a good figure. Chairperson Scarpelli commented he still has his concerns about that number, only fiom his personal experience, which is recent. The other areas you talked about, the contractor’s fee and overhead fee, typically in the for-profit arena, it is about 8%, 10% at the most. Here it is 17%. You have given your rationale for that. Keeping in mind too that the contractor’s fee is based on prevailing wage costs, which would seem you are dealing with a higher cost factor as well. In any event, that fee seems high. He asked Mr. Getzel if he would like to comment on that one again? Mr. Getzel said as far as the contractor’s fee goes, we had an estimate by a contractor with respect to this project, and the fact that we are looking at $140,000 and they will spend about ten months on the project, maybe a little longer, depending on weather conditions and difficulties etcetera. In this market that is not considered an unreasonable figure. Chairperson Scarpelli said the concern he has and has made his point on, Wakeland is doing the bidding on this project and also selecting the people to provide the service, but the money is coming from the City of Carlsbad. In this particular case, we certainly would like to have those eleven units built on that site to meet our requirements and our desire to have those units for the people in the category of 50% or less of area median income. The concern being here if the City’s purse is the one opened to pay for all this, we want to make sure as a Commission that when these funds are being dispersed, everythmg possible to achieve cost savings has been done. From what I am looking at right now, the City is providing you with an open checkbook. The numbers don’t really mean anything unless you spend more than the $2,384,000 that the City is prepared to open the checkbook for. Is there enough due diligence spent on competitively building this project out, not only by the general contractor, but also the general contractor with hs subcontractors? Mr. Getzel said he wished he had more knowledge in terms of how many bids they could get on an eleven-unit project; whether we can get three bids for every subcontractor. I will definitely get three bids for the general contractor, and I would encourage them to get three bids for every subcontractor. I know we had a case in our downtown project, for example, which is 74 units, which was a $10,000,000 project. It went out to six framers and he got one bid. It is because they are doing too well to even want to bother with it. Many subcontractors feel if it is HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 9 of 18 an urban project at prevailing wage, it isn’t worth their time. I don’t know if we can get three bids for every subcontractor, but I do know I will get three bids fiom three different general contractors. Chairperson Scarpelli said he did not want to sound egotistical or disrespectful, but he could get three bids from every subcontractor on that eleven-unit project. I can assure of that, and they would be three good subcontractors. Mr. Getzel asked if that was at prevailing wage? Chairperson Scarpelli said sure, they would love to have the opportunity to pay prevailing wage to their employees. Mr. Getzel said in his experience, they don’t want to pay the prevailing wage. But he did say his company will try to, at a minimum, get three bids for the general contractors, and he will encourage them to get three bids for the subcontractors. He just can’t promised on every subcontractor that he can get three bids. On general contractors, he will require that. Chairperson Scarpelli said it sounds like the developer is going hat in hand to the general contractor, rather than vice versa. Under those circumstances, I’m not sure you are going to get the best bids that are out there because you are already convinced that the people aren’t there to get the work done or to do the bidding. That we have to take whatever we can get is a bad business approach on our part, and especially since it is the City’s money being spent. This just doesn’t seem like a sound approach to me on a competitive bidding process. Mr. Getzel asked if he could suggest as a protection for the City, since they have limited their developer fee to $200,000, and perhaps to do this we could say for every dollar we could build it for less, there is cost sharing arrangement with the City where the City gets fifty cents back. Would that work as a protection in terms of us being cost conscious and we can’t walk away with undue amounts of money in our pocket? Chairperson Scarpelli clarified that the Housing Commission doesn’t think that he is lining his own pockets. That is not the reason for this line of questioning. We are concerned that the City gets the most competitive bids possible to keep the costs down. Whether we get any repayment on this 2.3 million loan is going to be based on what hs project ultimately costs so in trying to have a chance of recovering some of those finds, it is going to be minimal at that. The only other area we can work on right now is the cost. Under the contracts, the release of funds is only going to be based on what the contract is invoicing for draws. We are not concerned that you as a developer is lining your pocket. Our concern is that you as a developer is using sufficient due diligence to get for the City the most competitive pricing possible to build these eleven units. That is the agenda. Mr. Getzel said okay. That would be our company’s incentive. We are always very cost conscious on all our projects. This is our business and we want to do repeat business with the cities we do work with. It is not like we would look to be careless with public funding. We would never do that. As I said, we would bid it with the general contractors. I would like to see multiple bids from every single trade, given it is a prevailing wage project. I could say we want to do that now, but later we might have a problem with getting that on an eleven-unit project for every single trade. Chairperson Scarpelli said he mentioned the major trades. That would be framing, plumbing, electrical, roofing, the major trades. Those are the big money items. For example, do you know yet what spec you have for appliances, since we have eleven ofeach, what brand? Mr. Getzel said his company would probably purchase the middle to bottom level of the General Electric on something like this. We would install laminated counters, VCT tile in the kitchen and the bathrooms. Chairperson Scarpelli asked what VCT tile is? HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 10 of 18 Mr. Getzel said it is a composition tile. In the living rooms, we would be doing a lower to mid end kind of carpet. The windows are vinyl. In the beginning of this meeting, you mentioned there is nothing extraor- about the specs, and you are absolutely right that there isn’t anything extraordinary. It will be very nice, and it will be good quality. The landscaping is going to be very, very nice. I think that is one of the things to have this project show well from the street. When someone walks by, we don’t want them to just see a sea of cars. The cars are tucked in behind landscaping and the landscaping will be nice. Since we do not have a community room, we could see having outdoor benches where people can congregate outside. It will be very well done. You are correct that we are not talking about quality of a half a million-dollar condominium. Chairperson Scarpelli said it is priced at that. He did say he appreciates h4r. Getzel’s response. Commissioner Smith said at first she didn’t realize where Chairperson Scarpelli was going, but she has been educated with the questions that have been asked of Mr. Getzel. She realizes how costs have increased. I do see that the costs are astronomical as Chairperson Scarpelli has stated for what is being developed, the eleven units. Chairperson Scarpelli said he thinks on the basis of the average square footage of this building and the total cost of the building, I believe that included the land cost, we are talking about $450 a square foot. Mr. Getzel said that is with all costs. That is misleading because of it being only eleven units, you have certain fixed costs that can’t be amortized over a lot of units. Chairperson Scarpelli said they understand that. He prefaced all of the remarks by saying we understood that. But it gives you a real feel for why there is concern here in this area. He made a motion to amend this resolution. Commissioner Smith asked about what we could be losing right now with all of the budget cuts, we do need affordable housing in Carlsbad. This is an excellent project, and I would like to see it go forward. I don’t want to see any delays. If you want to amend it, I can understand that and I would support that, but let’s not lose any money. We can’t afford to lose any more money. Chairperson Scarpelli said he doesn’t understand the loss of money. Could Commissioner Smith clarify that? Commissioner Smith said in the director’s presentation, she said we had money and if we don’t build something, we stand a chance of losing the funds, is that correct? Ms. Fountain said that will not be impacted by what Mr. Scarpelli is proposing to amend on this. I think he is proposing to add the competitive bid requirement, is that correct Mr. Scarpelli? Chairperson Scarpelli said we might even wait to see if we even get it approved, the amendment. However, just to clarify my understanding of what our director has said as regard to the million dollars in the redevelopment funds we have, we are dealing with the fact those funds can be earmarked by the end of this coming summer. In addition to that, she stated usually if we are in default in that area, the agencies would provide us at least one year to rectify it so it wouldn’t be an immediate loss. In addition to that, she indicated the monies that are in the redevelopment fund could possibly be used for the project we approved in our last meeting, which was the project by Affirmed Housing, some 56 units. I think our concern of losing the million dollars is certainly a possibility, but I don’t think it is a reality based on our director’s comments. Ms. Fountain said our department would do everythmg to prevent losing any money, whether it would be to quickly identify some other project or moving monies around. You are right, we don’t want to lose any money. If you don’t have a project to move forward, that is when you can be at risk of losing money. We just have to pay close attention to it. It is a reality of all the different funding sources we have to deal with. Chairperson Scarpelli continued with amending the resolution: HOUSING COMMISSION MINUTES MARCH 24,2005 PAGE 11 of 18 “The developer agrees to provide the City, for its evaluation and approval, three competitive general contractor bids for the project. Developer further agrees to make every attempt to secure subcontractor bids from the general contractor a minimum of three bids in the major construction cost areas for the evaluation and approval from the City of Carlsbad.” Commissioner Schraml asked if that would mean that the Housing Commission would have to approve the bids before they are accepted? Chairperson Scarpelli said yes, the City would approve them, not the Housing Commission. The City would review the general contractor bids and approve them. He added, “If the bids presented are not acceptable to the City, the developer would be required to seek additional bids.” Commissioner Schraml seconded the motion. Chairperson Scarpelli asked if there was any discussion on the amendment. Commissioner Ritchie asked for the amendment to be read back “The developer agrees to provide the City, for its evaluation and approval, three competitive general contractor bids for the project. Developer further agrees to make every attempt to secure subcontractor bids through the general contractor a minimum of three bids in the major construction cost areas for the evaluation and approval from the City of Carlsbad. If the bids presented are not acceptable to the City, the developer would be required to seek additional bids.” Chairperson Scarpelli called the amendment to a vote. VOTE: 4-0-0 AYES: NOES: None ABSTAIN: None Scarpelli, Ritchie, Schraml, and Smith Chairperson Scarpelli continued with the recommendation. Commissioner Ritchie moved to accept the recommendation to the City Council to provide a total of $2,384,08 1 in financial assistance for construction of eleven affordable apartment units in the Village Redevelopment Area. Commissioner Schraml seconded the motion. VOTE: 4-0-0 AYES: NOES: None ABSTAIN: None Scarpelli, btchie, Schraml, and Smith Chairperson Scarpelli stated the next item on the agenda is Carlsbad Public Housing Agency Annual Plan. Ms. Bobbi Nunn will make her presentation. Ms. Bobbi Nun, Housing Program Manager, said the agenda should read the Carlsbad Public Housing Agency Five- Year and Annual Plan. The Five-Year Plan will count for fiscal year 2005-2009 and our Annual Plan €or fiscal year 2005. EXHIBIT 9 HOUSING COMMISSION APPROVING RESOLUTION MARCH 24,2005 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOUSlNG COMMISSION RESOLUTION NO. 2005-002 That the Housing commission RECOMMEND APPROVAL to the City Council of $2,384,081 in financial cash assistance from CDBG, HOME and Redevelopment Agency Housing set-aside funds to wakeland housing and development corporation for construction of eleven (1 1) affordable apartment units to be located at 2578 Roosevelt street in the village redevelopment area of the city of carlsbad. APPLICANT: ROOSEVELT STREET APARTMENTS CASE NO: RP 04-04 WHEREAS, the Wakeland Housing and Development Corporation has proposed to construct 11 apartment units affordable to very low income households within the City of Carlsbad and has requested financial assistance from the City of Carlsbad to assist in the financing of said affordable housing project; and, WHEREAS, the request for financial assist to construct said units has been submitted to the City of Carlsbad’s Housing Commission for review and consideration; and WHEREAS, said Housing Commission did, on the 24th day of March, 2005, hold a public meeting to consider the request for City financial assistance for the construction of said 11 affordable housing apartment units by the affordable housing developer, Wakeland Housing and Development Corporation; and WHEREAS, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Commission considered all factors relating to the proposal to construct said affordable housing units. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. 1 .. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HC RESOLUTION NO. 2005-02 PAGE 2 2. 3. 4. The request for City financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element, Consolidated Plan, the Inclusionary Housing Ordinance, the Carlsbad General Plan and the Village Redevelopment Plan. The request for City financial assistance will assist the affordable housing developer to construct a total of 1 I, one and two bedroom affordable apartment units which will be affordable to households earning 50% of area median income for San Diego County or less. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan. That based on the information provided within the Housing Commission Staff Report and testimony presented during the public meeting of the Housing Commission on March 24, 2005, the Housing Commission hereby ADOPTS Resolution No. 2005-02, recommending APPROVAL to the City Council to provide up $2,384,081 in financial cash assistance from the City of Carlsbad’s DBG, HOME and Redevelopment Agency Housing Set-Aside Funds to Wakeland Housing and Development Corporation for the construction of eleven (11) affordable apartment units to be located at 2578 Roosevelt Street within the Village Redevelopment Area of the City of Carlsbad. 5. That the Housing Commission recommends that the City Manager or his or her designee be authorized by the City Council to prepare and execute all documents related to provision of the City assistance, including but not limited to a Financial Assistance Loan Agreement, Note, Deed of Trust and Regulatory Agreement, subject to review and approval by the City Attorney. ? I ( 1( 11 1; 1: 1L 1: 1f li 18 19 2c 21 22 23 24 25 26 27 28 6. The developer agrees to provide the City, for its evaluation and approval, three competitive general contractor bids for the project. Through the general contractor, the developer further agrees to make every attempt to secure a minimum of three subcontractor bids for each of the major construction cost areas for evaluation and approval by the City of Carlsbad. If the bids presented are not acceptable to the City, the developer would be required to seek additional bids. PASSED, APPROVED, AND ADOPTED at a meeting of the Housing Commission of the City of Carlsbad, California, held on the 24* of March, 2005, by the following vote, to wit: AYES: NOES: None ABSENT: Huston ABSTAIN: None Scarpelli, Ritchie, Scram1 and Smith ED ARD SC Ad ELLI, CHAIRPERSON C L SBAD HOUSING COMMISSION DEBORAH K. FOUNTAIN HOUSING AND REDEVELOPMENT DIRECTOR HC RESOLUTION NO. 2005-002 PAGE 3 1 EXHIBIT 10 SITE MAP I I . I I c 2378 ROOS€V€LT STR€€T OPTIONS FOR MEETING INCLUSIONARY HOUSING IN NORTHWEST AND NORTHEAST QUADRANTS ~~~~~~~~,~ CITY OF CARLSBAD CITY CLERK'S OFFICE C: Community Development Director At the request of the City Council, the following summary of options for satisfying the inclusionary housing obligations in the Northeast and Northwest Quadrants of the City of Carlsbad is provided for information purposes. L6'c' e;*! <{* pb%t;. e= *. cc All housing developers building a housing project of 7 units or more must produce units affordable to low income persons. The developer may choose the product type for the affordable units - for-sale or rental. If the developer is producing for-sale units, the units must be affordable to households at 80% or less of the Area Median Income. If the units are rental, they must be affordable to households at 70% or less of the Area Median Income. The units must be produced on the site of the market rate project unless an alternative is approved by the City Council to allow an off-site satisfaction of the requirement. In the Northwest and Northeast Quadrants of the City, a developer does not currently have the option of purchasing affordable housing credits in a combined project because none have been developed to date in the area. In the Southeast and Southwest Quadrants, developers can purchase housing credits in the Villa Lorna Affordable Housing Project and soon will be able to do the same for the Cassia Heights development. These projects were built with excess affordable housing units which produced the credits for other developers to purchase. Although the developers in the Northeast and Northwest Quadrants currently do not have the option of purchasing credits, they do have some other alternatives that could be considered by the Council. The alternatives may include but are not limited to: 1. 2. 3. 4. 5. 6. Construct smaller units on site of market rate project. Acquisition and rehabilitation of affordable units. Conversion of existing market rate units to affordable units (i.e.,purchase a market rate condominium and sell it for the restricted, affordable price). Construction of special needs housing (i.e., shelters, transitional housing, etc.) Second Dwelling Units (for single family developments only) Construction of an affordable housing project off-site of the market-rate units. This could be in partnership with another developer to produce a combined project. If excess units are produced, the developer could sell these credits to other developers with approval of the Council. VIA: 2578 Roosevelt Street Harding Street (So. of Carlsbad Village Drive) Roosevelt Street (So. of Carlsbad Village Drive) COMMUNITY DEVEL 22 17 37 FROM: HOUSING AND REDEVELOPMENT DIRECTOR ROOSEVELT STREET APARTMENT PROJECT - ALTERNATIVES On September 13, 2005, the City Council and Housing and Redevelopment will jointly consider the financial assistance request for the Roosevelt Street Apartment Project. This project is being proposed as a very low income (50% of AMI or less) affordable housing project to 1) satisfy inclusionary housing requirements for the Village Area as set forth by Redevelopment Law, and 2) to use CDBG, HOME and Redevelopment Agency LowMod funds designated for affordable housing in a timely manner. Due to concern expressed regarding the high cost of constructing the new apartment project, staff was asked by the CounciVCommission to investigate alternatives to construction of the proposed project. The following chart summarizes staffs research and alternatives that could be considered by the Council/Commission. Additional information on each alternative is noted below. Alternative Construction of New Condo Project (Habitat for Humanitv) Construct New Apartment Project (w/ underground parking) Acquire & Rehab Existing Apartment Complex Acquire & Rehab Existing Apartment Complex Construct New Apartment Project (Proposed Project) Location Number of Units Roosevelt Street 2578 Roosevelt Street 11 Construction of New Condominium Proiect Total Estimated Cost $3,500,000 $5,43 7,650 $4,140,000. $9,500,000 $3,332,70 1 Cost Per Unit $3 18,182 $247,166 $243,529 $256,756 $302,973 City Subsidy Per Unit $120,000 $21 5,034 $243,529 $256,756 $279,649 The assumption is that we will be able to provide the same number of units (1 1 total) as the Roosevelt Street Apartments. However, it would convert the project to a for-sale product (stacked flat condominiums). It is currently anticipated that the size of the units would remain the same at 675 square feet for a one bedroom and 900 square feet for a 2 bedroom. These would be small units but would be affordable to households at 50% of the Area Median Income. It most likely would be attractive to singles, the disabled, and/or seniors. Staff has spoken to Habitat for Humanity as a possible developer. They have very recently started constructing town homes and condominiums as part of their program. Generally, their policy is that they require the land to be donated to them, financial assistance for the pre-development expenses including fees, and the site work (foundations and utilities). Staff has estimated these costs to be a total of $1,320,000. This subsidy would come entirely from the Cityhtedevelopment Agency if we choose to move forward with this project. Habitat for Humanity has requested that we have the site ready for the “sticks and bricks” construction. They will then fund the construction of the units through the use of volunteers, donated materials and sponsorships. The land has already been acquired and much of the work is complete on design of the project. Additional permits, however, will need to be processed to convert the project from rental to condominiums. HOME Funds and Village Redevelopment Lowmoderate Income Housing Set-Aside Funds may be used to fund this project. Adequate funds are available in both of these accounts. Construct a New Higher Density Apartment Proiect with Underwound Parking The assumption is that we would double the density on the site (approx. 40 unitdacre) and construct 22 apartment units rather than 11 on the Roosevelt Street site. This will require underground parking (approximately 24 spaces). The size and mixture of bedroom sizes would remain proportionately the same. The income level for affordability would also remain at 50% of Area Median Income. The estimated total cost for this project is $5,437,650. This project would require new plans and permits. Acquisition and Rehabilitation Rental Housinp Proiect In or around the Village Redevelopment Area, staff has identified four (4) apartment complexes that are available for purchase. Two of the properties have expensive price tags with per unit costs of $466,000 to $566,000. There were two properties, however, with per unit costs of less than $200,000. Both of these properties were located south of Carlsbad Village Drive, outside the Village Redevelopment Area. One of the properties has 17 units (built in 1969). The other has 37 units (built in 1985). In considering an acquisition and rehabilitation project, the CityRedevelopment Agency will also need to consider the cost of rehabilitation and possible relocation costs (for residents that don’t meet the income qualifications). Staff has estimated the potential rehabilitation costs at $20,000 per unit and relocation costs at $40,000 per unithousehold for both properties. Since staff has not completed a full investigation of the rehabilitation needs of the units and has no income information on the households residing within the units, these estimated costs could ultimately be quite different than the final costs. The total estimated cost for the 17 unit project is $4,140,000. The total estimated cost for the 37 unit project is $9,500,000. These projects would be much more expensive to initially fund. While adequate funding is currently available in the Housing Trust Fund and Redevelopment LowLModerate Income Housing Fund for either project, staff would not advise their lump sum expenditure at this time. If there is interest in pursuing this type of project, staff should be instructed to complete additional research to determine other outside funding that might be available for the acquisition and rehabilitation of property for affordable housing purposes. It is unknown at this time if one of these projects could compete well for tax credits or other state or federal funding. Proposed Apartment Proiect As proposed, the project will provide 11 units of rental housing on a .56 acre site at 2578 Roosevelt Street. There will be 8 one-bedroom units and 3 two-bedroom units. The total cost of the project is $3,332,701. Proiect Funding Expended to Date ' The property was purchased on March 11,2003 at a total cost of $692,058.59. The acquisition was funded with: 1) Home Funds - $268,649; CDBG Funds - $376,351; and 3) Redev L/M Funds - $47,058.59. Prior to transfer of title for the property to the Redevelopment Agency, the property owner was required to demolish the existing (abandoned) building on the site and to clean up the property of all debris. As a result, the Agency received a clean, vacant lot for development. On September 9,2003, Wakeland Housing received approval of a Pre-Development Loan from the City/Agency for the proposed project in the total amount of $244,161. CDBG funds were used for this loan. Wakeland is not required to repay the loan if CityjAgency does not proceed with project. The loan becomes part of the permanent loan to be repaid by Wakeland if CityIAgency proceeds with project. There is no obligation to develop the project as a result of this loan. There is also no agreement yet providing Wakeland with development rights. The project can be terminated, with the land and pre-development costs as the only investment. If the property is sold, it is anticipated that the CityIAgency can recover the funding invested to date. The current market value of the property is estimated at $1.6 million. Staff Recommendations At this time, staff is recommending that the Council/Commission instruct staff to discontinue efforts to construct the 11 unit apartment project on Roosevelt Street due to the required high per unit subsidy. Staff would also recommend that the Council/Commission instruct staff to pursue a redesign of the project to allow for 11 condominiums on the site and that an agreement be negotiated with Habitat for Humanity for its construction. With the recent news that Habitat is willing to build condominium projects, the project subsidy (from the City/Agency) is much more reasonable at the estimated $120,000 per unit. With this action, the Redevelopment Agency will be able to meet its obligation to produce the required housing (1 1 units) for very low income households (50% of AMI) in a desirable for-sale product. This project would also meet the requirements for the expenditure of the CDBG and HOME funds. If the Council/Commission does not wish to pursue any type of affordable project at the subject site, these instructions can be provided to staff on September 13, 2005. The CounciVCommission would then simply deny the financial assistance for the project and instruct staff to return with an exit strategy for selling the property and reimbursing the CDBG and HOME funds used to acquire the property. If the property is not going to be used for affordable housing purposes, the property must be sold at full market value and all proceeds returned to the CDBG and HOME funds. e are any questions or comments regarding this report, please contact me at X2935. / U&k+& E FOUNTAIN September 13,2005 TO: MAYOR AND CITY COUNCIL FROM: HOUSING AND REDEVELOPMENT DIRECTOR REVISED ACTION FOR CITY COUNCIL ON ROOSEVELT STREET APARTMENTS The following motion language has been prepared for approval if the City CounciVHousing and Redevelopment Commission would like to discontinue efforts to construct the Roosevelt Street Apartments (through Wakeland Housing) and pursue construction of an 11 unit condominium project (through Habitat for Humanity): Action 1: The City Council and Housing and Redevelopment Commission deny the appropriation of financial assistance and related loan documents for the Roosevelt Street Affordable Apartment Project, and direct the Housing and Redevelopment Director to pursue redesign of the project and to return at a later date with appropriate legal documents to allow for funding and construction of 11 condominiums on the Roosevelt Street property affordable to households at 50% of the Area Median Income. Staff is directed to work with an affordable housing developer that will produce this housing in the most cost effective manner with the lowest possible subsidy requirement from the City of Carlsbad. Action 2: The City Council and Housing and Redevelopment Commission direct staff to return with the appropriate documents to approve the proposed Roosevelt Street Condominiums as a Combined Project under the City’s Inclusionary Housing Ordinance and allow for the Carlsbad Redevelopment Agency to sell housing credits within the project to private housing developers within the Northwest Quadrant to satisfy their inclusionary housing obligations. Staff is instructed to return said documents to the Council and Commission upon completion of negotiations with the appropriate developer to convert the affordable housing project to condominiums and to determine the actual subsidy required by the City of Carlsbad. The actual subsidy ultimately approved by the Council and Commission shall be used to determine the price for said housing credits. Roosevelt Street ApartmentsHousing and Redevelopment Commission and City CouncilJoint Public Hearing –September 13, 2005 Project Description♦.56 acre site ♦2578 Roosevelt Street♦11 rental units ♦8 one-bedroom and 3 two bedroom units♦674sf (1 bdr) and 894sf (2bdr)♦Affordable to households at 50% or below the Area Median Income ($27,600 or less for a family of 2) Previous Actions♦March, 2003 –Redevelopment Agency acquired the property ($692,058)♦August, 2003 -Pre-Development Loan Approved for Wakeland Housing ($200,000)♦January, 2005 –Commission approved Major Redevelopment Permit –Apartment Project♦March, 2005 –Council authorized staff to proceed with processing financial assistance for project Apartment Project Costs$221,999100%100%$302,973$3,332,701Total$13,0685%3%$9,157$100,726Financing$15,3417%6%$18,182$200,000Developer Fee$14,6507%7%$20,477$225,250Development$120,93454%49%$148,470$1,633,167Construction$16,2738%7%$20,909$230,000Fees$4,9162%8%$22,864$251,500Consultant$36,81717%21%$62,914$692,059LandAvg. per Unit (4)Avg. % other (4)% of TotalPer UnitTotal CostCost Project Financing$302,973$3,332,700Total$198,552$2,184,080Construction Loan (City & Agency)$18,189$200,000Pre-DevelopLoan (City)$62,914$692,059Land Purchase(Agency)$23,324$256,562ConventionalPer UnitTotal AmountSource Financial Assistance♦Land Acquisition -$692,059 –$376,351 CDBG–$268,649 HOME–$47,058 Redevelopment Agency Housing Set-Aside♦Pre-Development Loan -$200,000 (CDBG)♦Construction Loan -$2,184,080–$236,528 CDBG –$351,863 HOME–$1,595,689 Redevelopment Agency Housing Set-Aside ♦Total City/Agency Assistance: $3,076,139–$279,649 per unit Project Alternatives$279,649$302,973$3.3 million11SameCurrent Project$256,756$256,756$9.5 million37RooseveltAcquire & Rehab$243,529$243,529$4.4 million17HardingAcquire & Rehab$215,034$247,166$5.4 million22SameNew Apt Project$120,000$318,182$3.5 million11SameCondoSubsidy/UnitCost Per UnitTotal EstCost# of UnitsLocationAlternate Original Proposed Actions♦Council appropriate $236,528 in CDBG and $351,863 in HOME funding to construct apartment project.♦Commission appropriate $1,595,689 in Redevelopment Housing funding, and approve related loan documents & ground lease.♦Council authorize use of project as a combined project for inclusionaryhousing purposes.♦Commission set housing credit purchase price. Revised Actions♦Consider alternatives & provide direction.♦Revised Staff Recommendation:–Due to concern related to the per unit City subsidy ($279,649) required for the Roosevelt St Apartments, discontinue project and authorize staff to pursue an 11 unit condo project on the identified property.♦Return with documents to approve combined project & to set the credit price. Actions♦Deny the appropriation of financial assistance and related loan documents for apartment project.♦Direct Housing and Redevelopment Director to pursue redesign of project to condos and return at later date with appropriate legal documents for funding.♦Direct staff to return with appropriate documents to approve project as a combined project under the Inclusionary Housing Ordinance, and to set credit price according to actual City subsidy ultimately approved by the Council and Commission for the revised project.