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HomeMy WebLinkAbout2013-01-29; City Council; 21108; Approval Loan Documents Carol Harding AcquisitionCITY COUNCIL AGENDA BILL AB# MTG. DEPT. 21,108 1/29/13 HNS APPROVAL OF FORM OF LOAN DOCUMENTS AND AUTHORIZATION FOR EXECUTION FOR THE CAROUHARDING ACQUISITION - AFFORDABLE HOUSING DEVELOPMENT DEPT. HEA CITY ATTY. CITY MGR. 5^ RECOMMENDED ACTION: That the City Council adopt Resolution No. 2013-026 APPROVING the form of the loan documents for the project known as the Carol-Harding Duplex Acquisition for an affordable housing development located in the historic Barrio neighborhood ofthe Village area, and authorizing the Interim City Manager, or designee, to execute said documents subject to final review and approval by the City Attorney, or designee. ITEM EXPLANATION: An affordable housing partnership - C&C Development and Irvine Housing Opportunities - have previously contracted with a private property owner to purchase 21 duplexes (42 units total) with addresses on Carol Place, Harding Street and Magnolia Avenue (site map attached) in the historic Barrio neighborhood ofthe Carisbad Village Area. The development partnership, which has incorporated and is now known as Harding Street Neighbors, LP, intends to initially acquire the duplexes, complete some minor health and safety standard upgrades, and then rent-restrict all of the units to provide affordable housing for lower income households. Within approximately 3 to 5 years, the development partnership intends to complete the acquisition of some additional properties within the neighborhood and then proceed with new construction of a much larger, higher density affordable housing development. As an additional note, the partnership has recently contracted to purchase one additional duplex within the subject neighborhood with private financing. Therefore, a total of 22 duplexes will be purchased by the partnership at the close of escrow (anticipated in February, 2013). If for any reason the new construction does not move fon^/ard to completion, the development partnership will proceed with substantial rehabilitation of the existing units and continue to rent-restrict those units for affordable housing purposes. The 3.39 acre site is located in close proximity to Jefferson School and is located within the general boundaries of 1-5 (east), Carol Place/Tamarack Avenue (south), Jefferson Street (west) and Magnolia Avenue (north). The development as originally proposed to the City consists of 42 existing rental units (2 bedroom/1 bath), single story with one car garages. DEPARTMENT CONTACT: Debbie Fountain 760-434-2815 debbie.fountain(S:)carisbadca.qov FOR CITY CLERKS USE ONLY. X COMMISSION APPROVED X CONTINUED TO DATE • ACTION: X SPECIFIC DENIED • CONTINUED TO DATE • UNKNOWN CONTINUED • RETURNED TO STAFF • WITHDRAWN • OTHER-SEE MINUTES • AMENDED • Page 2 As noted above, there will be an additional duplex unit acquired at the close of escrow with additional private financing; therefore, the total number of units for the project will increase to 44. Upon acquisition, the project will have the following affordability levels: • 20 units for households earning 60% of the San Diego County Area Median Income (AMI); • 23 units will be affordable to households earning 90% of AMI; • 1 unit will be for an on-site property manager. Financial Assistance As part of the project financing, the Developer partnership has requested that the City provide a residual receipts loan in the rounded amount of $7,408,000 to assist in the acquisition ofthe property. The City Council approved the full amount ofthe requested financing on November 6, 2012 from the Housing Trust Fund. The City Council requested that the loan documents be returned for approval by the Council. The loan documents have been drafted and are presented for City Council review and approval, and authorization to execute. Financial Assistance Documents As proposed and if approved, the City assistance ($7,408,000) will be provided in the form of a residual receipts loan secured by a note and deed of trust. The outstanding principal and accrued interest on the City loan will be amortized over a fifty-five year period and repaid from surplus cash in equal annual installments comprised of principal and interest. In the event that there is not adequate cash surplus to pay an annual installment, the outstanding balance shall accrue with simple interest at 3% per annum. The terms of the City assistance is the same loan structure that has been utilized for each previous affordable housing project developed in the City of Carisbad, with the exception of the following specific key conditions related to the uniqueness of this project - acquisition/rehabilitation/new construction: 1. Developer must acquire the additional properties required to construct a new, larger (higher density; approximately 140 units) affordable housing development on the site within 18 months from the date of approval of this agreement; or 2. No later than December 31, 2015 or three (3) years after the acquisition of the Property, whichever is later, the Developer must (a) obtain all planning approvals and building permits necessary to construct the future required improvements for a new, larger (higher density) affordable housing development or (b) immediately Initiate work to substantially rehabilitate the existing units with an investment of at least $75,000 per unit, including all improvements and amenities (if larger project is not feasible for any reason). 3. Developer must commence construction ofthe improvements for a new, larger (higher density; approximately 140 units) affordable housing development or the substantial rehabilitation ofthe existing units (if larger project is not feasible for any reason) no later than by December 31, 2016. 7- Page 3 4. Developer must complete construction of the improvements for a new, larger (higher density) affordable housing development or the substantial rehabilitation ofthe existing units (if larger project is not feasible for any reason) by December 31, 2018, or four (4) years after construction financing closing for the larger development, whichever is later. If any of the above conditions are not met and the City does not agree to extend the deadlines for satisfaction of the conditions, the City may declare a breach of contract or a default on the loan agreement resulting in a requirement for the development partnership to immediately repay the full amount ofthe loan with interest to the City of Carisbad. In order for the project to receive the $7,408,000 loan, the Developer is required to enter into loan and regulatory agreements with the City of Carisbad. The City Council is being asked to authorize the Interim City Manager, or designee, to execute the loan documents in the form set forth herein and deposit said documents to escrow for recordation against the subject property, following final review and approval by the City Attorney, or designee. The required documents are explained further below: 1. Loan Agreement states the terms and conditions relating to the City's loan. 2. Regulatory Agreement records the terms of affordability and the operational requirements for the project. 3. Promissory Note is executed by the Developer and expresses their intent to repay the loan. 4. Deed of Trust is recorded against the property to secure the City/Agency's interest in the subject property and related improvements. It is important to also note that the City will ultimately be required to subordinate the subject documents to the senior lien holder, which will initially be Bank of America. If approved, the attached resolution authorizes the Interim City Manager, or designee, to execute subsequent loan documents as well as a subordination agreement, upon final review and approval by the City Attorney, or designee. ENVIRONMENTAL REVIEW The project is exempt from the California Environmental Quality Act (CEQA) per CEQA Guidelines Section 15194 - Affordable Housing. The financial assistance from the City of Carisbad will be used by the developer to acquire existing residential units and rehabilitate them, and then to rent-restrict the units to be affordable to lower income households. This proposed project was reviewed pursuant to the California Environmental Quality Act (CEQA). The City Planner has determined that the proposed project is exempt from additional environmental review per Section 15194 (affordable housing exemption) of CEQA because the project site is 1) no larger than five acres, 2) is in an urbanized area, and 3) the project site has been previously developed for qualified urban uses (residential). The project also consists ofthe construction, conversion, or use of residential housing consisting of 100 or fewer units that are affordable to low-income households, and the developer will legally commit to ensure the continued availability and 3 Page 4 use of the housing units for lower income households for a period of at least 30 years at monthly costs deemed to be affordable rent for lower income households. The future larger (higher density) apartment development will require separate environmental review and approval, if it is determined that the subject project will proceed. The environmental review for the new construction project will be completed at a later date and represent a review of the project at the time it is proposed. FISCAL IMPACT: The financial assistance in the form of a $7,408,000 residual receipts loan will be provided from the Housing Trust Fund, which has a current undesignated fund balance of approximately $19.8 million. These funds may be used for affordable housing purposes only; these are not general fund monies that may be used for other services or projects. EXHIBITS: 1. City Council Resolution No. 2013-026 to approve the loan documents in the form submitted to the City Council for the Carol/Harding Acquisition and Affordable Apartment Development, and to authorize the Interim City Manager to execute said documents. 2. Project Location Map 3. Loan Agreement 4. Deed of Trust 5. Promissory Note 6. Regulatory Agreement 1 1 RESOLUTION NO. 2013-026 2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, TO APPROVE THE LOAN ^ DOCUMENTS IN THE FORM SUBMITTED TO THE CITY COUNCIL FOR A RESIDUAL RECEIPTS LOAN IN THE AMOUNT OF $7,408,000 TO PROVIDE FINANCIAL ASSISTANCE TO THE PARTNERSHIP OF C&C DEVELOPMENT AND IRVINE HOUSING OPPORTUNITIES, KNOWN AS HARDING STREET NEIGHBORS 6 LP, FOR THE ACQUISITION OF FORTY-TWO (42) RENTAL UNITS TO BE RESTRICTED FOR LOW INCOME AFFORDABLE HOUSING 7 WITHIN THE NORTHWEST QUADRANT OF THE CITY OF CARLSBAD, AND AUTHORIZING THE INTERIM CITY MANAGER ^ OR DESIGNEE TO EXECUTE SAID DOCUMENTS. 9 10 11 12 WHEREAS, C&C Development and Irvine Housing Opportunities (IHO) did partner and propose to acquire 21 duplex (42 total) rental residential units and convert them to rent- restricted affordable housing for lower income households on Harding Street, Carol Place and 13 Magnolia Avenue in the historic Barrio neighborhood of the Village Area within the Northwest 14 Quadrant of the City of Carlsbad; and 15 WHEREAS, C&C Development and IHO did request that the City of Carisbad provide financial assistance in the form of an acquisition loan in the amount of $7,408,000 that will convert to a residual receipts permanent loan to assist in the development of a new affordable housing rental opportunity within Carlsbad or the substantial rehabilitation of the existing development; and WHEREAS, C&C Development and IHO recently created a new partnership known as Harding Street Neighbors, LP, and request that said approved loan proceeds be disbursed to said 23 partnership for acquisition of the subject property; and 24 WHEREAS, Harding Street Neighbors, LP has agreed to diligently pursue the 25 development of a new, larger (higher density) affordable housing development on the site of the 26 subject property, or to substantially rehabilitate the existing units if the new, larger (higher density) development is not feasible for any reasons. 5" 17 18 19 20 21 22 27 28 4 5 6 7 8 9 10 1 WHEREAS, the public benefits of the proposed project include physical enhancement of 2 a deteriorating neighborhood in the historic Barrio neighborhood of the Village area, ^ rehabilitation of existing dwelling units to improve livability for the residents, diversity of housing opportunities for lower income households, and additional units to count as an affordable housing opportunity for the City of Carlsbad's Housing Element; and WHEREAS, the proposed acquisition and rehabilitation project will also encourage future new development and upgrading of the neighborhood further, as well as providing for desirable amenities to support economic development (with implementation of a micro- enterprise loan program to residents for new businesses) and encouraging a sustainable 11 community (addition of a community garden). 12 WHEREAS, the City Council did on November 6, 2012 hold a public meeting to ^ ^ consider public comment on said request for City financial assistance for the acquisition of said 42 lower income-restricted affordable housing apartment units by the affordable housing developer partnership of C&C Development and IHO, now known as Harding Street Neighbors, LP, and did approve said request for $7,408,000 for acquisition of property with conditions that the development partnership proceed with development of a new, larger (higher density) affordable housing development within 3 to 5 years, or substantially rehabilitate the existing units if the larger new development is not feasible for any reason; and, 21 WHEREAS, the City Council desires to review and approve the loan documents in the 22 form submitted to the City Council, and authorize the Interim City Manager, or designee, to 23 execute said documents upon final review and approval by the City Attomey. //// //// //// 14 15 16 17 18 19 20 24 25 26 27 28 1 NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council oftiie City 2 of Carlsbad, Califomia, as follows: 1. The above recitations are tme and correct. 3 4 . The City Council approved the financial assistance request ($7,408,000) for the 5 acquisition of property for an affordable housing development at Carol Place, Harding Street, Magnolia Avenue in the historic Barrio neighborhood of the Village 6 area by C&C Development and Irvine Housing Opportunities (IHO), now known as ^ Harding Street Neighbors, LP, on November 6, 2012. g 3. That the City Coimcil hereby approves the loan documents as to form as submitted herein, and authorizes the Interim City Manager, or designee, to execute all loan 9 documents related to provision of the City financial assistance in the form of a residual receipts loan, subject to final review and approval by the City Attomey, to 10 fund the subject acquisition of property by Harding Street Neighbors, LP (C&C Development and Irvine Housing Opportunities) for development of a low income- restricted affordable housing project through acquisition and new constmction or acquisition and substantial rehabilitation, and to deposit said documents to escrow for recordation at time of property acquisition. 16 12 13 .. 4. That the City Coimcil authorizes the City Manager, or designee, to also execute 14 subsequent subordination agreement(s) subordinating the City's Regulatory Agreement and Deed of Tmst to the Deed of Tmst to senior liens for permanent 15 lenders, as required, subject to review and approval by the City Attomey, and subject to the City Manager finding that no other financing that does not require subordination is reasonably available and the loan amount subordinated to by the City does not exceed $4 million dollars unless good cause is demonstrated to the City Manager to exceed this amount. 18 5. That the City Council authorizes the Finance Director to disburse the loan proceeds as 19 set forth within this approval in the total amount of $7,408,000, and appropriately account for the residual receipts loan for the subject affordable housing project, and 2^ as set forth in the approved loan documents. 21 22 23 26 27 28 //// 24 //// 25 //// //// 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 PASSED, APPROVED AND ADOPTED at a Regular Meeting ofthe City Council of the City of Carisbad on the 29*^ day of January 2013, by the following vote to wit: AYES: Council Members Hall, Wood, and Blackburn. NOES: Council Members Packard and Douglas. ABSENT: None. MATTiHALL, Mayor ATTEST: EXHIBIT 2 PROJECT LOCATION MAP Subsequent Acquisition Sf Total Land Area Including City Street- Approximately 7.02 acres EXHIBITS LOAN AGREEMENT LOAN AGREEMENT BY AND BETWEEN CITY OF CARLSBAD AND HARDING STREET NEIGHBORS, LP (Carol-Harding Duplex Property Acquisition) This Loan Agreement ("Agreement") is entered into as of , 2013, by and between the City ofCarlsbad, a Municipal Corporation ("City") and Harding Street Neighbors LP, a Califomia limited partnership, (Borrower), with reference to the following facts, purposes and intentions. RECITALS A. These Recitals refer to and utilize certain capitalized terms which 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. Pursuant to Resolution Number 2012-235, adopted by the City on November 6, 2012, the City committed to provide financial assistance in the form of a residual receipts loan of Housing Tmst Funds to C & C Development Co., LLC and Irvine Housing Opportunities, both as joint borrower, to allow for the acquisition of property with existing dwelling units for affordable housing purposes. C. The joint borrower of C&C Development Co., LLC and Irvine Housing Opportunities shall herein be known as Harding Street Neighbors LP within this Agreement and all other related loan documents for said Development. D. Borrower will receive an amount not to exceed Seven Million Four Hundred Eight Thousand Dollars ($7,408,000) initially for acquisition and minor rehabilitation of property to be used to provide affordable housing opportunities for lower and moderate income households until such time as the borrower can move forward as developers to build a larger, higher density affordable rental development (of approximately 140 rental units) or substantially rehabilitate the existing units if a new constmction project is not approved for any reason. The loan will be funded solely from local govemment sources and will not be funded with any federal funds. E. As a condition to providing the Loan, the City is requiring that the Borrower assist lower and moderate income households and to the maximum extent legally possible give priority or preference in marketing to a proportionate share of Carlsbad residents or those employees that work in Carlbad as set forth within the Regulatory Agreement between the borrower and the City of Carlsbad and for a minimum of fifty-five years. Draft: Carol-Harding Duplex Loan; 1/8/13 1 F. The noted property acquisition has been reviewed pursuant to the Califomia Environmental Quality Act (CEQA) and found to be exempt from CEQA pursuant to Section 1530. NOW, THEREFORE, in consideration of the recitals hereof and the mutual promises and covenants set forth in this Agreement, the Parties agree as follows: ARTICLE 1 DEFINITIONS AND EXHIBITS Section 1.1 Definitions. The following capitalized terms have the meanings set forth in this Section 1.1 wherever used in this Agreement, unless otherwise provided: (a) "Agreement" means this Loan Agreement. (b) "Approved Development Budget" means the proforma development budget, including sources and uses of funds, as approved by the City, and attached hereto and incorporated herein as Exhibit B, but which may be amended with the approval of the City as set forth in this Agreement. (c) "Approved Financing" means the City's Housing Tmst Funds set forth herein and a private bank loan for the acquisition of property set forth herein. This loan agreement will be amended at such time as additional financing is acquired for the ultimate development of new rental units on said property or to allow for the substantial rehabilitation of the existing dwelling units. (d) "Borrower" means Harding Street Neighbors LP, a Califomia limited partnership. (e) "City" means the City of Carlsbad, a municipal corporation. (f) "City Council" means the City Council of the City. (g) "Control" means (i) direct or indirect management or control ofthe 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 ofa 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 ofa corporation. Draft: Carol-Harding Duplex Loan; 1/8/13 2 (h) "Deed of Tmst" means the deed of tmst that will encumber the Development to secure repayment of the Loan. The form of the Deed of Tmst shall be provided by the City. (i) "Default" has the meaning set forth in Section 6.1 below, (j) "Development" means the Property and the Improvements. (k) "Hazardous Materials" has the meaning set forth in Section 3.16 below. (1) "Hazardous Materials Claim" has the meaning set forth in Section 3.16 below. below. (m) "Hazardous Materials Law" has the meaning set forth in Section 3.16 (n) "Improvements" means the approximately twenty-one duplexes or forty- two (42) total existing dwelling units, to be acquired and rehabilitated for health and safety improvements on the Property, plus an additional parcel of vacant land. (o) "Loan" means the amount not to exceed Seven Million Four Hundred Eight Thousand Dollars ($7,408,000) to be provided by the City to the Borrower pursuant to the Loan Documents. The Loan is more particularly described in Section 2.1. (p) "Loan Documents" means this Agreement, the Note, the Regulatory Agreement, and the Deed of Tmst. (q) "Note" means the promissory note that will evidence the Borrower' obligation to repay the Loan. The form of the Note shall be provided by the City. (r) "Parties" means the City and the Borrower. (s) "Property" means the real property located in the historic Barrio neighborhood ofthe City ofCarlsbad, County of San Diego, State of Califomia, more particularly described in the attached Exhibit A, which includes 21 existing duplex rental units and a vacant lot. (t) "Regulatory Agreement" means the Regulatory Agreement between the Borrower associated with the Loan and recorded against the Property. (u) "Regulatory Term" means the term of the Regulatory Agreement. (v) "Term" means the earlier of either: 1) fifty-five (55) years from the issuance of a Certificate of Occupancy, or its equivalent; or 2) sixty (60) years from the date of this agreement. Draft: Carol-Harding Duplex Loan; 1/8/13 (w) "Transfer" has the meaning set forth in Section 4.1 below. (x) "Unit" means one of the approximately forty-two (42) apartment units to be acquired and rehabilitated on the Property; twenty (20) units of which will be specifically restricted and required to be rented to lower income households by the City. Section 1.2 Exhibits. The following exhibits are attached to this Agreement and incorporated into this Agreement by this reference: EXHIBIT A: Legal Description of the Property EXHIBIT B: Approved Development Budget ARTICLE 2 LOAN PROVISIONS Section 2.1 Loan: Excess Proceeds of Permanent Financing. (a) Subject to satisfaction of the conditions set forth in Section 2.5, the City shall lend to the Borrower the Loan in the principal sum not to exceed Seven Million Four Hundred and Eight Thousand Dollars ($7, 408,000). The Borrower's obligation to repay the Loan shall be evidenced by the Note. Section 2.2 Interest. (a) Subject to the provisions of Section 2.2(b) below, the outstanding principal balance ofthe Loan shall accme simple interest at the rate of three percent (3%). (b) In the event of a Default, interest on the Loan shall begin to accme, as of the date of Default and continue until such time as the Loan funds are repaid in full or the Default is cured, at the default rate of the lesser of ten percent (10%), compounded annually, or the highest rate permitted by law. Section 2.3 Use of Funds. (a) The Loan funds shall be used for acquisition of the Property. In addition, if financially feasible, the loan funds shall be used for permanent financing for the development ofthe Property with a larger, higher density rental development to be affordable to lower income households. Altematively, ifthe Borrower is unable to develop the larger and denser affordable rental development, the Borrower shall utilize the Loan funds to finance the substantial rehabilitation of the existing dwelling units on the Property. Draft: Carol-Harding Duplex Loan; 1/8/13 4 IS (b) The Borrower shall not use the Loan for any other purpose without the prior written consent of the City, and without amendment to this loan agreement. Section 2.4 Security. The Borrower shall secure its obligation to repay the Loan, as evidenced by the Note, by executing the Deed of Trust, and recording it as a lien against the Borrower's fee interest in the Property in a lien position reasonably acceptable to the City. Section 2.5 Loan Disbursement. The City shall not be obligated to fund any portion of the Loan or take any other action under the Loan Documents unless all of the following conditions precedent are satisfied. Upon satisfaction ofthe conditions set forth below, the City shall promptly disburse the Loan Amount into the appropriate escrow account to allow for acquisition of said property. (a) There exists no Default nor any act, failure, omission or condition that would constitute or cause a Default; (b) The Borrower has delivered to the City a copy of a duly adopted resolution authorizing the Borrower to execute the Loan Documents and the transactions contemplated by the Loan Documents; (c) The Borrower has fiimished the City with evidence of the insurance coverage meeting the requirements of Section 3.21 below; (d) The Borrower will hold fee interest to the Property at the close of escrow on the property acquisition; (e) The Borrower has executed and delivered to the City this Agreement, the Note, the Deed of Tmst and the Regulatory Agreement, and the Deed of Trust and the Regulatory Agreement have been recorded against the Property in the Office ofthe Recorder of the County of San Diego in a lien position acceptable to the City; (f) The Borrower has executed and delivered to the City all documents, instmments, and policies required under the Loan Documents; (g) A title insurer reasonably acceptable to the City is unconditionally and irrevocably committed to issuing an ALTA Lender's Policy of insurance insuring the priority of the Deed of Tmst in the amount ofthe Loan, subject only to such exceptions and exclusions as may be reasonably acceptable to the City, and containing such endorsements as the City may reasonably require; (h) The City has received and approved the final property purchase contract; Draft: Carol-Harding Duplex Loan; 1/8/13 5 (i) The Borrower shall have submitted to the City and obtained City approval of a acquisition/minor improvement budget for the Development. (j) The Borrower has closed all financing for said acquisition and minor improvements (other than the financing described in Sections 1.1(c). Section 2.6 Repayment of the Loan. The Loan shall be repaid as follows: (a) Term. The Term of the Loan shall commence as of the date of this Agreement and shall expire at the end of the Term. (b) Annual Repayments. Commencing on May 1 st of 2018, or May 1 of the first year after completion of the new larger, higher density development on said property, whichever is sooner, and on each May 1st thereafter throughout the Term ofthe Loan, the Borrower shall make repayments of the Loan to the City equal to seventy percent (70%) ofthe Residual Receipts calculated for the previous year. The Borrower shall provide the City, by each May 1st following each fiscal year, a report showing the actual income and expenditures with respect to the Development for the immediately preceding fiscal year, the calculation of Annual Operating Expenses, Gross Revenue, and Residual Receipts (including, the Borrower' Share of Residual Receipts, if any, and the City's Share of Residual Receipts), 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 City. Payments made to the City shall be credited first against accrued interest and then against outstanding principal. (c) Payment in Full. All principal and interest, if any, on the Loan shall, at the option ofthe City, be due and payable upon the eariiest of: (i) a Transfer other than a Transfer permitted or approved by the City as provided in Article 4 below; (ii) the occurrence of a Default for which the City exercises its right to cause the Loan indebtedness to become immediately due and payable; or (iii) the expiration of the Term specified in (a) above. (d) Prepayment. The Borrower shall have the right to prepay the Loan at any time without premium or penalty. However, this Agreement, the Deed of Tmst, and the Regulatory Agreement shall remain in effect for the entire Term, regardless of any prepayment. (e) Special Definitions. The following definitions shall apply for purposes of this Section 2.6: (1)"Annual Operating Expenses" with respect to a particular fiscal year shall mean the following costs reasonably and actually incurred for operation, maintenance and City-approved repairs ofthe Development to the extent that they are consistent with the annual budget for the Development, approved by the City pursuant to the Regulatory Agreement and with an annual independent audit performed by a certified public accountant, reasonably acceptable to the City, using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service (including required escrow and reserve deposits and tmstee and servicing fees) currently due on a non-optional basis (excluding debt Draft: Carol-Harding Duplex Loan; 1/8/13 .1 service due from residual receipts or surplus cash of the Development) on loans associated with development ofthe Development and approved by the City pursuant to Section 2.50); and 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 City ; partnership management fees (including asset management fees) payable to any partner or affiliate of any partner of Borrower, if any, not to exceed a total of Twenty-Five Thousand Dollars ($25,000), with such fees increasing at the rate of three percent (3%) per year; payment of any previously unpaid portion of the development fee not exceeding a cumulative development fee, which such fee is previously approved by the City; payment of a reasonable fee to a social service provider for the development, which such fee is previously approved by the City; 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; and cash deposited into reserve for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the City pursuant to Section 2.1 or by the City if no other lender or investor requires approvals of such amount; extraordinary operating costs specifically approved in writing by the City 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 from reserves; credit adjusters from cash flow; operating deficit loans; and other ordinary and reasonable operating expenses approved in writing by the City 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. (2)"Gross Revenue" with respect to a particular fiscal year shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing ofthe 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 intermption or similar insurance and not paid to senior lenders; the proceeds of title insurance not reinvested in the property; 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. (4)_"Residual Receipts" in a particular calendar year shall mean the amount by which Gross Revenue (as defined above) exceeds Annual Operating Expenses (as defined above). Section 2.7 Reports and Accounting of Residual Receipts. Draft: Carol-Harding Duplex Loan; 1/8/13 (a) Audited Financial Statement. In connection with the annual payments set forth in Section 2.6(b), within ninety (90) days of the end of the Borrower's fiscal year, the Borrower shall fumish to the City an audited statement duly certified by an independent firm of certified public accountants approved by the City, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. (b) Books and Records. The Borrower shall keep and maintain on the Property, or at its principal place of business, or elsewhere with the City's written consent, full, complete and appropriate books, records and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail the Borrower's calculation of Residual Receipts. Books, records and accounts relating to the Borrower'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 City, its auditors or other City authorized representatives at reasonable intervals during normal business hours. Copies of all tax retums and other reports that the Borrower may be required to fumish any govemmental agency shall at all reasonable times be open for inspection by the City at the place that the books, records and accounts ofthe Borrower are kept. The Borrower 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) Audits. The receipt by the City of any statement pursuant to subsection (a) above or any payment by the Borrower or acceptance by the City of any Loan repayment shall not bind the City as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the City or any designated agent or employee ofthe City 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 ofthe Borrower and other places where records are kept. Immediately after the completion of an audit, the City shall deliver a copy of the results of such audit to the Borrower. If it shall be determined as a result of such audit that there has been a deficiency in a Loan repayment to the City, then such deficiency shall become immediately due and payable with interest at the default rate set forth in this Agreement, determined as of and accming from the date that said payment should have been made. In addition, if the Borrower's auditor's statement for any Development fiscal year shall be found to have understated Residual Receipts by more than five percent (5%) and at least Five Thousand Dollars ($5,000), and the City is entitled to any additional Loan repayment as a result of said understatement, then the Borrower shall pay, in addition to the interest charges referenced hereinabove, all of the City's reasonable costs and expenses connected with any audit or review of the Borrower's accounts and records. (d) Maximization of Residual Receipts. The Borrower agrees at all times during the Term to continue its operations of the Development and to use its skills and diligence to produce the maximum Residual Receipts, subject to the rent and occupancy requirements of the Regulatory Agreement. Draft: Carol-Harding Duplex Loan; 1/8/13 Section 2.8 Non-Recourse. Except as provided below, the Borrower and its general partners shall not have any direct or indirect personal liability for payment of the principal of, or interest on, the Loan or the performance ofthe covenants of the Borrower under the Deed of Tmst. The sole recourse ofthe City with respect to the principal of, or interest on, the Note and defaults by the Borrower in the performance of its covenants under the Deed of Tmst shall be to the Property described in the Deed of Tmst; provided, however, that nothing contained in the foregoing limitation of liability shall (a) limit or impair the enforcement against all such security for the Note of all the rights and remedies ofthe City thereunder, or (b) be deemed in any way to impair the right ofthe City to assert the unpaid principal amount of the Note as demand for money within the meaning and intendment of Section 431.70 ofthe Califomia 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 ofthe principal of, and payment of interest on the Note and the performance of the Borrower' obligations under the Deed of Tmst, except as hereafter set forth; nothing contained herein is intended to relieve the Borrower of its obligation to indemnify the City under Sections 3.4, 3.6, and 3.15 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 Property that are payable or applicable prior to any foreclosure under the Deed of Tmst (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 Borrower other than in accordance with the Deed of Tmst; and (iv) the misappropriation of any proceeds under any insurance policies or awards resulting from condemnation or the exercise ofthe power of eminent domain or by reason of damage, loss or destmction to any portion ofthe Property. Section 2.9 Subordination. (a) Deed of Tmst The City agrees that the City Manager shall have the authority to agree to the subordination of the Deed of Tmst to the liens of the deeds of tmst securing the private and other primary financing, as appropriate, provided the subordination documents provide the City with reasonably adequate notice and cure rights to enable the City to avoid foreclosure ofthe deeds of tmst securing the private or other primary financing and the loan amount subordinated to by the City does not exceed four million dollars unless good cause is demonstrated to the City Manager to exceed this amount. (b) Regulatory Agreement. The City agrees that the City Manager, or designee, shall have the authority to agree to the subordination of the Regulatory Agreement and Deed of Tmst to the lien ofthe deeds of tmst securing the private and other primary financing upon the finding that (i) an economically feasible loan is not reasonably available on comparable terms and conditions without subordination, and (ii) the lien to which the Regulatory Agreement and Deed of Tmst is being subordinated contains provisions reasonably designed to protect the City's interests in the event of default under such lien, and (iii) the loan amount subordinated to by the City does not exceed four million dollars unless good cause is demonstrated to the City Manager to exceed this amount. The City agrees that the Regulatory Agreement and Deed of Tmst shall be subordinated to any federal or state govemmental agency regulating the Draft: Carol-Harding Duplex Loan; 1/8/13 9 2D Development which requires that the Regulatory Agreement be subordinate to such govemment agency's documents and liens. The City will execute subordination agreements in a form reasonably acceptable to the City and the lending entity or government agency requesting subordination of the Regulatory Agreement as provided in this Section. ARTICLE 3 ACQUISITION AND OPERATION OF THE DEVELOPMENT Section 3.1 Permits and Approvals. (a) As ofthe date of this Agreement, the Borrower has obtained all approvals necessary for the acquisition of the Property and operation of the existing dwelling units to provide affordable housing for lower income households, if any permits are required. (b) No later than December 31, 2015 or three (3) years after the acquisition of the Property, whichever is later, the Borrower shall (i) design, obtain approvals of land use entitlements and any other permits required for the constmction of a new larger, higher density project (approximately 140 units) on the Property with rent restrictions affordable to low income households, or (ii) immediately initiate work to substantially rehabilitate the existing forty-two (42) dwelling units on the property with an investment of at least seventy-five thousand dollars ($75,000) per unit, inclusive of all depreciation costs; which will permit community center, children's play area, and a community garden to be located on the Property; or, the City, at its option, and with thirty (30) days' prior written notice to the Borrower and opportunity to cure, may declare the Borrower in default hereunder and require repayment of the loan or transfer of ownership of the Property to the City. Section 3.2 Commencement of Construction of New Larger Development. The Borrower shall cause the commencement of constmction of the improvements for a new, larger development or for substantial rehabilitation of the existing units no later than December 31, 2016. For the purposes of this Agreement, the term "commencement of constmction" shall mean the date the Borrower commences, or causes the commencement of, physical demolition and new constmction or physical rehabilitation work on the Property pursuant to a building permit or other similar permit. Draft: Carol-Harding Duplex Loan; 1/8/13 1Q Section 3.3 Completion of Constmction. The Borrower shall diligently prosecute constmction of the applicable improvements to the Development to completion, and shall cause the completion of the constmction ofthe new, larger Development improvements or the substantial rehabilitation improvements to the existing dwelling unit no later than December 31, 2018, or four (4) years after constmction financing closing for the larger development, whichever is later. For the purposes of this Agreement, the term "completion of constmction" shall mean the date the development receives its Certificate of Occupancy for the Improvements, or the first date that a tenant is placed in residency within the Development. Section 3.4 Constmction Pursuant to Plans and Laws: Prevailing Wages. (a) The Borrower shall cause all work performed in connection with the Development to be performed in compliance with (i) all applicable laws, ordinances, mles and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (ii) all directions, mles and regulations of any fire marshal, health officer, building inspector, or other officer of every govemmental agency now having or hereafter acquiring jurisdiction. The work shall proceed only after procurement of each permit, license, or other authorization that may be required by any governmental agency having jurisdiction, and the Borrower shall be responsible to the City for the procurement and maintenance thereof, as may be required of the Borrower and all entities engaged in work on the Development. (b) To the extent applicable, Borrower shall and shall cause the contractor and subcontractors to pay prevailing wages, as applicable, in the constmction ofthe Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq., and the implementing regulations ofthe 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 ofthe DIR. To the extent applicable, the Borrower 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. If Labor Code Section 1720 et seq., applies to the Development, the Borrower shall indemnify, hold harmless and defend (with counsel reasonably selected by the City) the City of Carisbad, and its agents, officials, and employees, and members of the City Council against any claim for damages, compensation, fines, penalties or other amounts arising out ofthe failure or alleged failure of any person or entity (including Borrower, its contractors 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 ofthe 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 constmction of the Improvements or any other work undertaken or in connection with the Property. Draft: Carol-Harding Duplex Loan; 1/8/13 11 Section 3.5 Marketing Plan. (a) No later than six (6) months prior to the projected date of lease up ofthe dwelling units for said Development, the Borrower shall submit to the City for approval its plan for marketing the Development to program eligible families as required pursuant to the Regulatory Agreement and this Agreement, including information on affirmative marketing efforts and compliance with fair housing laws (the "Marketing Plan"). (b) Upon receipt of the Marketing Plan, the City shall promptly review the Marketing Plan and shall approve or disapprove it within thirty (30) days after submission. Ifthe Marketing Plan is not approved, the Borrower shall submit a revised Marketing Plan within thirty (30) days following the Borrower's receipt of the City's written disapproval. Ifthe City does not approve the revised Marketing Plan because the Borrower fails to make specific revisions requested by the City, the Borrower shall be in default hereunder. Section 3.6 Relocation. If and to the extent that acquisition of the Property or constmction of the improvements to the Development results in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then the Borrower shall comply with all applicable local, state, and federal statutes and regulations, (including without limitation the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended, Califomia Govemment Code Section 7260 et seq., and accompanying regulations, as amended) with respect to relocation planning, advisory assistance, and payment of monetary benefits. The Borrower 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 Borrower shall defend (with counsel reasonably acceptable to the City), the City against any claim for damages, compensation, fines, penalties, relocation payments or other amounts arising out ofthe failure or alleged failure of any person or entity (including the Borrower or the City) to satisfy relocation obligations related to the development of the Development. This obligation to indemnify shall survive termination of this Agreement. Section 3.7 Equal Opportunity. During the constmction of the new, larger Development or completion ofthe substantial rehabilitation improvements, there shall be no discrimination on the basis of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin, ancestry, or disability in the hiring, firing, promoting, or demoting of any person engaged in the construction or improvement work. Section 3.8 Progress Reports. The Borrower shall provide the City with quarterly progress reports regarding the status ofthe new constmction project or the substantial rehabilitation of the existing dwelling units, including a certification that the actual costs for operation of the existing development conform Draft: Carol-Harding Duplex Loan; 1/8/13 12 7-3 to the Approved Development Budget, as it may be amended from time to time pursuant to Section 3.11 below. Section 3.9 Constmction Responsibilities. (a) It shall be the responsibility of the Borrower to coordinate and schedule the work to be performed so that commencement and completion of constmction of improvements to the property will take place in accordance with this Agreement. (b) The Borrower shall be solely responsible for all aspects of the Borrower's conduct in connection with the Development, including (but not limited to) the quality and suitability of the Constmction Plans, the supervision of constmction 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 City with reference to the Development is solely for the purpose of determining whether the Borrower is properly discharging its obligations to the City, and should not be relied upon by the Borrower or by any third parties as a warranty or representation by the City as to the quality ofthe design or constmction of the improvements to the Development. Section 3.10 Inspections. The Borrower shall permit and facilitate, and shall require its contractors to permit and facilitate, observation and inspection at the Development by the City and by public authorities during reasonable business hours for the purposes of determining compliance with this Agreement. Section 3.11 Approved Development Budget; Revisions to Budget. As of the date of this Agreement, the City has approved the Approved Development Budget set forth in Exhibit B. The Borrower shall submit any required amendments to the Approved Development Budget to the City for approval within fifteen (15) days ofthe date the Borrower receive information indicating that actual costs of the Development vary or will vary from the costs shown on the Approved Development Budget. Written consent of the City shall be required to amend the Approved Development Budget. The City shall utilize best efforts to approve or disapprove requested amendments to the Development Budget within five (5) working days of receipt of a request for approval. Section 3.12 Information. The Borrower shall provide any information reasonably requested by the City in connection with the Development. Section 3.13 Records. (a) The Borrower shall maintain complete, accurate, and current records pertaining to the Development for a period of five (5) years after the creation of such records, Draft: Carol-Harding Duplex Loan; 1/8/13 13 and shall permit any duly authorized representative of the City to inspect and copy records. Such records shall include all invoices, receipts, and other documents related to expenditures from the Loan funds. Records must be kept accurate and current. (b) The City shall notify the Borrower of any records it deems insufficient. The Borrower shall have twenty-one (21) calendar days after the receipt of such a notice to correct any deficiency in the records specified by the City in such notice, or if a period longer than twenty-one (21) days is reasonably necessary to correct the deficiency, then the Borrower shall begin to correct the deficiency within twenty-one (21) days and correct the deficiency as soon as reasonably possible. Section 3.14 Audits. The Borrower shall make available for examination at reasonable intervals and during normal business hours to City all books, accounts, reports, files, and other papers or property with respect to all matters covered by this Agreement, and shall permit City to audit, examine, and make excerpts or transcripts from such records. City may make audits of any conditions relating to this Agreement. Section 3.15 Hazardous Materials. (a) The Borrower 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. The Borrower 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 hereinafter as "Hazardous Materials") except such ofthe foregoing as may be used in constmction of the Development or customarily kept and used in and about residential property of this type. (b) The Borrower shall immediately advise the City in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other govemmental or regulatory actions instituted, completed or threatened against the Borrower 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 the Borrower 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 are hereinafter referred to as "Hazardous Materials Claims"); and (iii) the Borrower'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 Draft: Carol-Harding Duplex Loan; 1/8/13 14 25 "border-zone property" under the provision of Califomia 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 ofthe Property under any Hazardous Materials Law. (c) The City 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 attomeys' fees in connection therewith paid by the Borrower. The Borrower shall indemnify and hold harmless the City, and its council members, board members, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectiy 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 ofthe Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by the City in connection with clauses (a) and (b), including but not limited to reasonable attomeys' fees. This obligation to indemnify shall survive termination of this Agreement, but shall not apply to the extent ofthe City's gross negligence or willful misconduct. (d) Without the City's prior written consent, which shall not be unreasonably withheld, the Borrower 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 the City's reasonable judgment, impair the value of the City's security hereunder; provided, however, that the City'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 the City's consent before taking such action, provided that in such event the Borrower shall notify the City as soon as practicable of any action so taken. The City 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) the Borrower will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action; (iii) the Borrower establishes to the reasonable satisfaction of the City that there is no reasonable altemative to such remedial action which would result in less impairment ofthe City's security hereunder; or (iv) the action has been agreed to by the City. (e) The Borrower hereby acknowledges and agrees that (i) this Section is intended as the City's written request for information (and the Borrower's response) conceming the environmental condition of the Property as required by Califomia Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Agreement (together with any indemnity obligation applicable to a breach of any such representation and warranty) with respect to the environmental condition of the Property is intended by the Parties to be an "environmental provision" for purposes of Califomia Code of Civil Procedure Section 736. Draft: Carol-Harding Duplex Loan; 1/8/13 15 (f) In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in Califomia Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in Califomia Code of Civil Procedure Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting the City's or the tmstee's rights and remedies under the Deed of Tmst, the City may elect to exercise its rights under Califomia 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 Borrower to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the City's right to proceed as an unsecured creditor under Califomia Code of Civil Procedure Section 726.5(a), the Borrower shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of Califomia Code of Civil Procedure Section 726.5(d)(1), ifthe release or threatened release of Hazardous Materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion ofthe Property and the Borrower 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) attomeys' fees, incurred by the City in connection with any action commenced under this paragraph, including any action required by Califomia 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 the Deed of Tmst and shall be due and payable to the City upon its demand made at any time following the conclusion of such action. Section 3.16 Fees and Taxes. The Borrower shall be solely responsible for payment of all fees, assessments, taxes, charges, and levies imposed by any public authority or utility company with respect to the Property or the Development to the extent owned by the Borrower, and shall pay such charges prior to delinquency. However, the Borrower shall not be required to pay and discharge any such charge so long as (a) the legality thereof is being contested diligently and in good faith and by appropriate proceedings, and (b) if requested by the City, the Borrower deposits with the City any funds or other forms of assurance that the City in good faith from time to time determines appropriate to protect the City from the consequences of the contest being unsuccessful. Section 3.17 Notice of Litigation. The Borrower shall promptly notify the City in writing of any litigation affecting the Borrower or the Property and of any claims or disputes that involve a material risk of litigation. Section 3.18 Operation of Development as Affordable Housing. (a) Until such time as the new, larger Development is constmcted or the substantial rehabilitation work is completed and this Agreement is amended to set forth new requirements for operation ofthe Development, the Borrower shall continuously operate and maintain the existing Development, promptly following close of escrow, as multifamily housing rented to eligible lower and moderate income occupants at the following rent levels (including Draft: Carol-Harding Duplex Loan; 1/8/13 16 2.-1 rent, utilities and related services): twenty (20) units shall have rents set at sixty percent (60%) of the Area Median Income for San Diego County and twenty-two (22) units shall have rents set at ninety percent (90%) ofthe Area Median Income for San Diego County as set forth by the US Department of Housing and Urban Development, and in conformity with the Regulatory Agreement and this Agreement. (b) Before initially leasing the first Unit in the Development, the Borrower shall submit its proposed form of lease agreement for the City's review and approval. (c) Before initially leasing the first Unit in the Development, the Borrower must provide the City, for its review and approval, with the Borrower's written tenant selection plan. (d) The Borrower must determine the income eligibility of each tenant household occupying a Unit pursuant to the City's approved tenant certification procedures no later than sixty (60) days before the household's expected occupancy. The Borrower shall certify each tenant household's income on an annual basis. (e) The maximum household income of a household occupying a Lower Income Unit (with total charges for rent, utilities, and related services not exceeding 30% of 60% of gross AMI), shall not exceed sixty percent (60%) of the Area Median Income for San Diego County, as set forth by the US Department of Housing and Urban Development, and the maximum household income of a household occupying a Moderate Income Unit (with total charges for rent, utilities, and related services not exceeding 30% of 90%) of gross AMI), shall not exceed ninety (90%) ofthe Area Median Income for San Diego County, as set forth by the US Department of Housing and Urban Development. Section 3.19 Non-Discrimination. The Borrower covenants by and for itself and 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, religion, creed, sex, sexual orientation, marital status, familial status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment ofthe Development, nor shall the Borrower or any person claiming under or through the Borrower 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. Section 3.20 Insurance Requirements. The Borrower shall maintain the following insurance coverage throughout the Loan Term: (a) Workers' Compensation insurance to the extent required by law, including Employer's Liability coverage, with limits not less than One Million Dollars ($1,000,000) each accident. Draft: Carol-Harding Duplex Loan; 1/8/13 17 (b) 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 coverage for Contractual Liability, Personal Injury, Broad form Property Damage, and Products and Completed Operations. (c) Comprehensive Automobile Liability insurance with limits not less than One Million Dollars ($1,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverage for owned, non-ovmed and hired vehicles, as applicable; provided, however, that if the Borrower do not own or lease vehicles for purposes of this Agreement, then no automobile insurance shall be required. (d) Property insurance, including builder's risk insurance during the course of any constmction of improvements on the Property, covering the Development, in form appropriate for the nature of such property, covering all risks of loss, excluding earthquake, for one hundred percent (100%) of the replacement value, with deductible, if any, acceptable to the City, naming the City as a Loss Payee, as its interests may appear. Flood insurance shall be obtained if required by applicable federal regulations. (e) The Borrower shall cause any general contractor or agent working on the Development under direct contract with the Borrower to maintain insurance ofthe types and in at least the minimum amounts described in subsections (a), (b), and (c) above, except that the limit of liability for commercial general liability insurance for subcontractors shall be One Million Dollars ($1,000,000), and shall require that such insurance shall meet all of the general requirements of subsections (e), (f), and (g) below, including, without limitation, the requirement of subsection (f). Subcontractors working on the Development under indirect contract with the Borrower shall be required to maintain the insurance described in subsections (a), (b), and (c) 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 City, and its officers, agents, employees and board members, and members of the City Council. (f) The required insurance shall be provided under an occurrence form, and the Borrower shall maintain such coverage continuously so long as the Note is outstanding. Should any ofthe 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. (g) Commercial General Liability and Property insurance policies shall be endorsed to name as an additional insured the City and its officers, agents, employees and members of the City Council. (h) All policies and bonds shall contain (a) the agreement of the insurer to give the City 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 City; (c) Draft: Carol-Harding Duplex Loan; 1/8/13 18 a provision that no act or omission of the Borrower shall affect or limit the obligation ofthe insurance carrier to pay the amount of any loss sustained; and (d) a waiver by the insurer of all rights of subrogation against the City and its authorized parties in connection with any loss or damage thereby insured against. Section 3.21 Developer Fee. There shall be no developer fee paid to the Borrower or other related parties for the acquisition of property and ongoing operation until such time as a new, larger development is proposed for constmction on the site or substantial rehabilitation is completed to the existing dwelling units. The fee may be reconsidered at a later date for the constmction ofthe new, larger development or the substantial rehabilitation work, and will require an amendment to this Agreement. ARTICLE 4 ASSIGNMENT AND TRANSFERS Section 4.1 Definitions. As used in this Article Four, the term "Transfer" means: (a) Any total or partial sale, lease, assignment, or other conveyance, or any tmst or power, or any transfer in any other mode or form, of or with respect to this Agreement or of any part ofor interest in the Development, or any agreement to do any ofthe foregoing; or (b) Any total or partial sale, assignment, or other conveyance, or any tmst or power, or any transfer in any other mode or form, of or with respect to any ownership interest in the Borrower or any agreement to do any of the foregoing. Section 4.2 Purpose of Restrictions on Transfer. This Agreement is entered into solely for the purpose of the Borrower's acquisition and operation ofthe Development in accordance with the terms of this Agreement and the Regulatory Agreement, until such time as a new, larger development is approved for constmction on said Property or substantial rehabilitation is completed to the existing dwelling units; an amendment to this Agreement shall be required to proceed with the new constmction or substantial rehabilitation projects. The qualifications and identity of the Borrower are of particular concem to the City, in view of: (a) The importance of the development of the Property to the general welfare of the community; (b) The public aids that have been made available by law and by the government for the purpose of making such development possible; Draft: Carol-Harding Duplex Loan; 1/8/13 19 30 (c) The reliance by the City upon the unique qualifications and ability ofthe Borrower to serve as the catalyst for futre development of the Property and upon the continuing interest which the Borrower will have in the Property to assure the quality ofthe use, operation, and maintenance deemed critical by the City in the development ofthe Property; (d) The fact that a change in ownership or control of the owner ofthe Property, or ofa 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 ofthe Borrower or the degree thereof, is for practical purposes a transfer or disposition ofthe Property; and (e) The importance to the City of the standards of use, operation, and maintenance of the Property. It is because ofthe qualifications and identity of the Borrower that the City is entering into this Agreement and that Transfers are permitted only as provided in this Agreement. Section 4.3 Prohibited Transfers. The limitations on Transfers set forth in this Article Four shall apply throughout the Term. Except as expressly permitted in this Agreement, the Borrower represent that it has not made or created, and agrees that it 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 ofthe City. Any Transfer made in contravention of this Section 4.3 shall at the City's discretion be void and shall be deemed to be a default under this Agreement, whether or not the Borrower knew of or participated in such Transfer. Section 4.4 Permitted Transfers Without Prior City Approval. The only Transfer permitted at any time without the prior approval of the City is the rental ofa Unit by the Borrower in the ordinary course of business and in compliance with the Regulatory Agreement. Section 4.5 Permitted Transfers With Prior Approval: City Pre-Approved Transfers. (a) Except as permitted under Section 4.4, any Transfer shall be permitted only after (a) the City, in its sole discretion, has delivered to the Borrower its prior written approval of such Transfer, and (b) the transferee has assumed the Borrower's obligations under this Agreement by signing an assignment and assumption agreement, in a form prepared by the City, and such other reasonable documentation as the City may reasonably require to evidence such transferee's assumption of the Borrower's duties and obligations under the Loan Documents. (b) The Borrower anticipates syndicating the Tax Credits that will be generated for future new constmction of the larger rental Development or substantial rehabilitation of existing units (if a new constmction project is not approved), which syndication will require the admission ofthe Tax Credit Investor as a limited partner in the Borrower. This Draft: Carol-Harding Duplex Loan; 1/8/13 20 3» Agreement shall be amended to include the admission of the Tax Credit Investor and set forth the requirements for said admission at such time as the Tax Credits are approved. Section 4.6 Release of the Borrower. Upon all ofthe terms of this Article Four being satisfied for a permitted Transfer to be effective, the Borrower or the successor transferor party, as applicable, shall be released from all liability under this Agreement so transferred arising subsequent to the effectiveness of such Transfer. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section 5.1 Representations and Warranties. (a) The Borrower hereby represents to the City as follows: (1) Organization. The Borrower represent duly organized entities, validly existing as Califomia limited partnerships, and are in good standing under the laws ofthe State of Califomia and have the power and authority to jointly own the Property and carry on its business as now being conducted. (2) Authority of the Borrower. The Borrower has full power and authority to execute and deliver this Agreement and to make and accept the borrowings contemplated hereunder, to execute and deliver the Loan Documents and all other documents or instmments executed and delivered, or to be executed and delivered, pursuant to this Agreement, and to perform and observe the terms and provisions of all ofthe above. (3) Authority of Persons Executing Documents. This Agreement and the Loan Documents and all other documents or instmments 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 Borrower, and all actions required under the Borrower's organizational documents and applicable goveming law for the authorization, execution, delivery and performance of this Agreement and the Loan Documents and all other documents or instmments executed and delivered, or to be executed and delivered, pursuant to this Agreement, have been duly taken. (4) Valid Binding Agreements. This Agreement and the Loan Documents and all other documents or instmments 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 ofthe Borrower enforceable against it in accordance with their respective terms. (5) No Breach of Law or Agreement. Neither the execution nor delivery of this Agreement and the Loan Documents or of any other documents or instmments executed and delivered, or to be executed or delivered, pursuant to this Agreement, nor the Draft: Carol-Harding Duplex Loan; 1/8/13 21 3'2- performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, mle or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Borrower, or any provision ofthe organizational documents of the Borrower, or will conflict with or constitute a breach ofor a default under any agreement to which the Borrower is a party, or will result in the creation or imposition of any lien upon any assets or property of the Borrower, other than liens established pursuant hereto. (6) Pending Proceedings. The Borrower 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 ofthe Borrower, threatened against or affecting the Borrower or the Property, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Borrower, materially affect the Borrower's ability to repay the Loan or impair the security to be given to the City pursuant hereto. (b) The Borrower hereby warrants to the City as follows: (1) Compliance With Laws: Consents and Approvals. Any constmction of improvements to the Development will comply with all applicable laws, ordinances, mles and regulations of federal, state and local governments and agencies, and with all applicable directions, mles and regulations of the fire marshal, health officer, building inspector and other officers of any such govemment or agency. The Development shall be constmcted substantially in accordance with any Constmction Plans approved by the City pursuant to Section 3.2. (2) Title to Land. At the time of recordation of the Deed of Tmst and the Regulatory Agreement, the Borrower will have good and marketable fee 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 liens for current real property taxes and assessments not yet due and payable, and liens in favor of the City or approved in writing by the City. (3) Financial Statements. The financial statements of the Borrower and other financial data and information fiimished by the Borrower to the City 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 Borrower from that shown by such financial statements and other data and information. (4) Sufficient Funds. The Borrower will hold or upon its acquisition ofthe Property will hold sufficient funds and/or binding commitments for sufficient funds to complete the acquisition ofthe Property and the constmction of any necessary improvements to the Development for health and safety purposes. (5) Acquisition of additional Duplex Properties. Borrower shall move forward in a diligent manner to complete acquisition of all properties required to develop a Draft: Carol-Harding Duplex Loan; 1/8/13 22 larger, higher density affordable rental development (of approximately 140 rental units) on the identified site no later than eighteen (18) months from the date of approval of this Agreement or such other time period as determined by the City Council, and then to subsequently diligently move forward to design and obtain all required permits and financing to constmct a larger, higher density affordable rental development within a reasonable period of time as determined by the City Council and set forth within this Agreement. If Borrower is unable to develop the larger development. Borrower shall diligently proceed with the substantial rehabilitation ofthe existing units on the Property. ARTICLE 6 DEFAULT AND REMEDIES Section 6.1 Events of Default. Each ofthe following shall constitute a "Defauh" by the Borrower under this Agreement: (a) Failure to Obtain Approvals. Inability of the Borrower to obtain all planning approvals and building permits necessary to constmct the future improvements for a new, larger, and higher density affordable rental development or complete substantial rehabilitation ofthe existing Development within a reasonable period of time as determined by the City Council and set forth within this Agreement. (b) Failure to Make Payment. Failure to repay the principal and any interest on the Loan that is due and payable to the City pursuant to the Loan Documents following written notice by the City to the Borrower of such failure and thirty (30) days opportunity to cure. (c) Failure to Constmct. Failure of the Borrower to commence and complete constmction of the new, larger, and higher density affordable rental development or the substantial rehabilitation work on the existing Development within a reasonable period of time as determined by the City Council and set forth within this Agreement. (d) Breach of Covenants. Failure by the Borrower to duly perform, comply with, or observe any of the conditions, terms, or covenants of any ofthe Loan Documents, and such failure having continued uncured for thirty (30) days after receipt of written notice thereof by the Borrower from City or, ifthe breach cannot be cured within thirty (30) days, the Borrower shall not be in breach so long as the Borrower is diligently undertaking to cure such breach and such breach is cured within ninety (90) days from the date of the City's written notice to the Borrower; provided, however, that if a different period or notice requirement is specified under any other section of this Article 6, the specific provisions shall control. Draft: Carol-Harding Duplex Loan; 1/8/13 23 (e) Default Under Other Loans. A defauh is declared under the Approved Financing or any other financing secured against the Property by the lender of such financing, following the expiration of any applicable grace or cure period. (f) Insolvency. A court having jurisdiction shall have made or entered any decree or order (i) adjudging the Borrower to be bankmpt or insolvent, (ii) approving as properiy filed a petition seeking reorganization ofthe Borrower or seeking any arrangement for the Borrower under the bankmptcy law or any other applicable debtor's relief law or statute ofthe United States or any state or other jurisdiction, (iii) appointing a receiver, trustee, liquidator, or assignee ofthe Borrower in bankmptcy or insolvency or for any of their properties, (iv) directing the winding up or liquidation of the Borrower, if any such decree or order described in clauses (i) to (iv), inclusive, shall have continued unstayed or undischarged for a period of ninety (90) days; or (y) the Borrower 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 ofthe nature described in clauses (i) to (iv), inclusive. The occurrence of any of the events of Default in this paragraph shall act to accelerate automatically, without the need for any action by the City, the indebtedness evidenced by the Note. (g) Assignment: Attachment. The Borrower 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 retumed or released within ninety (90) days after such event or, if sooner, prior to sale pursuant to such sequestration, attachment, or execution. The occurrence of any of the events of default in this paragraph shall act to accelerate automatically, without the need for any action by the City, the indebtedness evidenced by the Note. (h) Suspension: Dissolution. The Borrower shall have voluntarily suspended its business or the dissolution of the Borrower. (i) Liens on Property and the Development. There shall be filed any claim of lien (other than liens approved in writing by the City) against the Development, the Property, or any part thereof, or any interest or right made appurtenant thereto, or the service of any notice to withhold proceeds ofthe Loan and the continued maintenance of said claim of lien or notice to withhold for a period of twenty (20) days without discharge or satisfaction thereof or provision therefore (including, without limitation, the posting of bonds) satisfactory to the City. (j) Condemnation. The condemnation, seizure, or appropriation of all or the substantial part ofthe Property and the Development, except that condemnation by the City shall cause the Loan to accelerate but shall not be a Default. (k) Unauthorized Transfer. Any Transfer other than as permitted by Article 4 or approved by the City in writing. (1) Representation or Warranty Incorrect. Any representation or warranty of the Borrower contained in this Agreement, or in any application, financial statement, certificate. Draft: Carol-Harding Duplex Loan; 1/8/13 24 3^ or report submitted to the City in connection with any of the Loan Documents, proves to have been incorrect in any material and adverse respect when made. (m) Insufficient Funds. The Borrower fails to obtain funds, or commitment of funds, sufficient to acquire the Property and complete any required improvements to the Development, as determined by the City in the City's reasonable discretion. (n) Applicability to General Partner. In the event the Borrower is a partnership, the occurrence of any of the events set forth in subsection (f), subsection (g), or subsection (h) in relation to the general partner of Borrower. Occurrences under this subsection will not constitute a default if, within thirty (30) days of notice of such event, the Investor commences and diligently pursues the removal and replacement of the offending General Partner pursuant to the permitted transfer provisions of Section 4.5(d). Section 6.2 Remedies. The City agrees that any cure of a Default by a limited partner of the Borrower shall be deemed to be a cure by the Borrower, and shall be accepted or rejected on the same basis as if made or tendered by the Borrower. The occurrence of any Default hereunder following the expiration of all applicable notice and cure periods will, either at the option ofthe City or automatically where so specified, relieve the City of any obligation to make or continue the Loan and shall give the City the right to proceed with any and all remedies set forth in this Agreement and the Loan Documents, including but not limited to the following: (a) Acceleration of Note. Subject to the provisions of Section 2.8, the City shall have the right to cause all indebtedness of the Borrower to the City under this Agreement and the Note, together with any accmed interest thereon, to become immediately due and payable. The Borrower waives all right to presentment, demand, protest or notice of protest or dishonor. The City may proceed to enforce payment of the indebtedness and to exercise any or all rights afforded to the City as a creditor and secured party under the law including the Uniform Commercial Code, and including foreclosure under the Deed of Tmst. The Borrower shall be liable to pay the City on demand all reasonable expenses, costs and fees (including, without limitation, reasonable attomey's fees and expenses) paid or incurred by the City in connection with the collection ofthe Loan and the preservation, maintenance, protection, sale, or other disposition of the security given for the Loan. (b) Specific Performance. The City shall have the right to mandamus or other suit, action or proceeding at law or in equity to require the Borrower to perform its obligations and covenants under the Loan Documents or to enjoin acts on things which may be unlaw^l or in violation of the provisions of the Loan Documents. (c) Right to Cure at the Borrower's Expense. The City shaU have the right (but not the obligation) to cure any monetary default by the Borrower under a loan other than the Loan. The Borrower agree to reimburse the City for any funds advanced by the City to cure a monetary default by the Borrower upon demand therefore, together with interest thereon at the Draft: Carol-Harding Duplex Loan; 1/8/13 25 3o lesser ofthe maximum rate permitted by law or ten percent (10%)) per annum from the date of expenditure until the date of reimbursement. Section 6.3 Assignment of Plans, Data and Approvals. If this Agreement is terminated pursuant to Section 6.2, then the Borrower shall promptly assign and deliver to the City, copies of all plans, studies, reports, data 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 Improvements (collectively, the "Planning Documents"). The Planning Documents shall be delivered by the Borrower without any warranties or representations of any type or kind, express or implied, including whether the Planning Documents have been completed in final form. The City agrees and acknowledges that all such Planning Documents will be delivered subject to the rights of any copyright holders. Section 6.4 Remedies Cumulative. Subject to the non-recourse provisions contained in the Note, no right, power, or remedy given to the City by the terms of this Agreement or the Loan Documents 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 to the City by the terms of any such instmment, or by any statute or otherwise against the Borrower and any other person. Neither the failure nor any delay on the part of the City to exercise any such rights and remedies shall operate as a waiver thereof, nor shall any single or partial exercise by the City of any such right or remedy preclude any other or further exercise of such right or remedy, or any other right or remedy. ARTICLE 7 GENERAL PROVISIONS Section 7.1 Relationship of Parties. Nothing contained in this Agreement shall be interpreted or understood by any ofthe parties, or by any third persons, as creating the relationship of employer and employee, principal and agent, limited or general partnership, or joint venture between the City and the Borrower or the Borrower's agents, employees or contractors, and the Borrower shall at all times be deemed an independent contractor and shall be wholly responsible for the manner in which it or its agents, or both, perform the services required of it by the terms of this Agreement for the development ofthe Development. In regards to any future development of, or improvements to, the Development or operation of said Development, the Borrower shall be solely responsible for all matters relating to payment of its employees, including compliance with Social Security, withholding and all other laws and regulations goveming such matters, and shall include requirements in each contract that contractors shall be solely responsible for similar matters relating to their employees. The Borrower agrees to be solely responsible for its own acts and those of its agents and employees. Draft: Carol-Harding Duplex Loan; 1/8/13 26 3^ Section 7.2 No Claims. Nothing contained in this Agreement shall create or justify any claim against the City, by any person the Borrower may have employed or with whom the Borrower may have contracted, or will contract with, relative to the purchase of materials, supplies or equipment, or the fumishing or the performance of any work or services with respect to future development, or improvements to the Development or operation of said Development, and the Borrower shall include similar requirements in any contracts entered into for the future development of, or improvements to, the Development and operation of said Development. Section 7.3 Amendments. No alteration or variation of the terms of this Agreement shall be valid unless made in writing by the Parties. Section 7.4 Entire Understanding of the Parties. This Agreement constitutes the entire understanding and agreement of the Parties with respect to the Loan. Section 7.5 Indemnification. Except as directiy caused by the City's gross negligence or willful misconduct, the Borrower agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the City), the City and its board members, council members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of: (i) the Borrower' performance or non-performance of its obligations under this Agreement; (ii) the Borrower' ownership of the Property; (iii) the development, marketing, rental and operation of the Development, or (iv) any documents executed by the Borrower in connection with the Development. The provisions of this Section 7.5 shall survive termination of this Agreement. Section 7.6 Non-Liability of City Officials, Employees and Agents. No member, official, employee or agent of the City shall be personally liable to the Borrower, or any successor in interest, in the event of any Default or breach by the City, or for any amount which may become due to the Borrower or its successor or on any obligation under the terms of this Agreement. Section 7.7 No Third Party Beneficiaries. There shall be no third party beneficiaries to this Agreement. Draft: Carol-Harding Duplex Loan; 1/8/13 27 38 Section 7.8 Action by the City. Except as may be otherwise specifically provided herein, whenever any approval, notice, direction, consent, request, extension of time, waiver of condition, termination, or other action by the City is required or permitted under this Agreement, such action may be given, made, or taken by the City Manager, or designee, without further approval by the City Council, and any such action shall be in writing. The amount of the Loan and the deadlines for acquiring additional property, constmcting a new larger, higher density development or completing substantial rehabilitation of the existing Development may not be increased and/or revised without prior approval of the City Council. Any consents or approvals required under this Agreement by the City Manager, of designee, shall not be unreasonably withheld or made, except where it is specifically provided that a sole discretion standard applies. The City shall not unreasonably delay in reviewing and approving or disapproving any proposal by the Borrower made in connection with this Agreement. Section 7.9 Waivers. Any waiver by the city of any obligation or condition in this Agreement must be in writing. No waiver will be implied from any delay or failure by the City to take action on any breach or default of the Borrower or to pursue any remedy allowed under this Agreement or applicable law. Any extension of time granted to the Borrower to perform any obligation under this Agreement shall not operate as a waiver or release from any of its obligations under this Agreement. Consent by the City to any act or omission by the Borrower shall not be constmed to be a consent to any other or subsequent act or omission or to waive the requirement for the City's written consent to future waivers. Section 7.10 Notices, Demands and Communications. Formal notices, demands, and communications between the City and the Borrower shall be sufficientiy given if and shall not be deemed given unless dispatched by registered or certified mail, postage prepaid, retum receipt requested, or delivered by reputable ovemight delivery service, retum receipt requested, or delivered personally, to the principal office ofthe City and the Borrower as follows: City: City of Carlsbad 1200 Carlsbad Village Drive Carlsbad, CA 92008 Attn: Housing and Neighborhood Services Director Draft: Carol-Harding Duplex Loan; 1/8/13 28 Borrower: Harding Street Neighbors LP C/O Irvine Housing Opportunities 19772 MacArthur Blvd, Suite 110 Irvine, Ca. 92612 with a copy to: C&C Development Co. 14211 Yorba Street, Suite 200 Tustin, Ca. 92780 with a copy to: Goldfarb and Lipman LLP 1300 Clay Street 11* Floor Oakland, Ca. 94612 Attn: M. David Kroot with a copy to: Goldfarb and Lipman LLP 1300 Clay Street Oakland, Ca. 94612 Attn: Amy DeVaudrenil 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. Receipt shall be deemed to have occurred on the date shown on a written receipt for delivery or refusal of delivery. Section 7.11 Applicable Law and Venue. This Agreement will be govemed by Califomia law. Any action brought claiming a breach of this Agreement or interpreting this Agreement shall be brought and venued in San Diego County, Califomia. Section 7.12 Parties Bound. Draft: Carol-Harding Duplex Loan; 1/8/13 29 ^0 Except as otherwise limited herein, the provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, legal representatives, successors and assigns. This Agreement is intended to mn with the land and shall bind the Borrower and its successors and assigns in the Property and the Development for the entire Term, and the benefit hereof shall inure to the benefit of the City and its successors and assigns. Section 7.13 Severability. If any term 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 7.14 Force Majeure. In addition to specific provisions of this Agreement, performance by either Party shall not be deemed to be in default where delays or defaults are due to war; insurrection; strikes; lock- outs; riots; floods; earthquakes; fires; quarantine restrictions; freight embargoes; lack of transportation; or court order; or any other similar causes (other than lack of funds ofthe Borrower or the Borrower's inability to finance the constmction of the future Development or the substantial rehabilitation 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 commencement of the cause and the Party granting the extension agrees to the extension in writing. In no event shall the City be required to agree to cumulative delays in excess of one hundred eighty (180) days. Section 7.15 Attomeys Fees. If any lawsuit is commenced to enforce any of the provisions of this Agreement, the prevailing party may recover its reasonable attomey's fees and costs ofthe suit. Section 7.16 Title of Parts and Sections. Any titles of the sections or subsections of this Agreement are inserted for convenience of reference only and shall be disregarded in interpreting any part of the Agreement's provisions. Section 7.17 Multiple Originals; Counterpart. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. Draft: Carol-Harding Duplex Loan; 1/8/13 30 Ml WHEREFORE, this Agreement has been entered into by the undersigned as of the date first above written. Harding Street Neighbors LP, a Califomia limited partnership By: IHO Harding Street LLC Its managing general partner By: Patricia C. Whitaker Its: Chief Executive Officer By: C&C Harding Street, LLC Its administrative general partner By: Todd R. Cottle Its: Member By: Barry A. Cottle Its: Tmstee Draft: Carol-Harding Duplex Loan; 1/8/13 31 APPROVED AS TO FORM: City Attomey or Assistant City Attomey CITY : CITY OF CARLSBAD, a municipal corporation By: Name: John Coates Its: Interim City Manager Draft: Carol-Harding Duplex Loan; 1/8/13 32 M3 EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY A-l Draft: Carol-Harding Duplex Loan; 1/8/13 EXHIBIT B APPROVED DEVELOPMENT BUDGET B-1 Draft: Carol-Harding Duplex Loan; 1/8/13 M5 Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Revised: Page 1 of 10 1/16/2013 SOURCES OF FUNDS PERMANENT SOURCES - 2020 Conventional Perm Loan City of Carlsbad City of Carlsbad - Land Contribution Income From Operations General Partner Equity Limited Partner Equity TOTAL vs. TDC Financing Surplus/(Cap) Total Term Amount Interest (Yrs) Comments $8,166,550 $7,400,000 $1,750,000 $1,234,540 $100 $24,997,500 $43,548,690 $43,548,690 $0 6.50% 3.00% 3.00% 35 55 55 Includes income from Cash Flow Reserve. Tax Credit Pricing: $1.00 Financing Surplus/(Gap) CONSTRUCTION SOURCES - 2018 Total Term Interest [Mnts) Comments Amount Total Term Interest [Mnts) Comments Conventional Construction Loan $24,794,295 4.00% 24 City of Carlsbad $7,400,000 3.00% 24 City of Carlsbad - Land Contribution $1,750,000 3.00% 24 Income From Operations $1,234,540 Includes income from Cash Flow Reserve. General Partner Equity $100 Limited Partner Equity $6,249,375 25% of Total Equity. Dev. Fee Deferred Until Completion $1,300,000 other Costs Deferred Until Completion $820,380 Refer to Development Budget for Details. TOTAL $43,548,690 VS. TDC $43,548,690 jACQ./PREDEV. SOURCES - 2013 BofA Acquisition/Predevelopment Loan City of Carlsbad Income From Open (33% of 5 Year Net Cash Flow) TOTAL Financing Surplus/(Gap) $0 Total Amount Interest Term (Yrs) Comments $3,874,291 $7,400,000 $385,452 $11,659,743 $0 4.00% 5 3.00% 5 0.00% 5 57% of 3 year Net Cash Flow 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative www, scinitiative. com ^16 Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Revised: Page 2 of 10 1/16/2013 ACQUISTION/PREDEVELOPMENT USES BY SOURCE Closing City of BofA BofA Income From Item Amount Costs Carlsbad (Closing) (Post Closing) Operations Property Purchase Price $10,450,000 $8,850,000 $7,400,000 $1,450,000 $1,600,000 Legal: Acquisition $15,000 $15,000 $15,000 Legal: Organization of Partnership $20,000 $20,000 $20,000 Acq./Predev. Lender Fee (1%) $38,743 $38,743 $38,743 Acq./Predev. Lender Expenses $30,000 $30,000 $30,000 Acq./Predev. Lender Legal $20,000 $20,000 $20,000 Pre-Construction Rehab $50,000 $50,000 Local Permit Processing Fees $50,000 $50,000 Environmental Studies $60,000 $60,000 Appraisal & Market Study $25,000 $25,000 Engineering $175,000 $99,548 $75,452 Architectural Design & Supervision $337,500 $337,500 Soils Engineer $80,000 $80,000 Relocation (inc. Consultant) $40,000 $40,000 $40,000 Dry Utility Consultant $30,000 $30,000 Financial/Syndication Consultant $32,500 $12,500 $12,500 $20,000 Title/Recording/Escrow - Acquisition $40,000 $25,000 $25,000 $15,000 Soft Cost Contingency $26,000 $26,000 Additional Potential Acq./Predev. Costs $140,000 $140,000 $11,659,743 $9,051,243 $7,400,000 $1,651,243 $2,223,048 $385,452 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consuiting Initiative www, scinitiative. com 41 Carlsbad •• New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Revised: Page 3 of 10 1/16/2013 ESTIMATED ACQUISITION/PREDEVELOPMENT DRAW SCHEDULE 1 4.00% Income Monthly City of Income From Oper. BofA BofA Month/Year Draws Totat Drawn Vo Drawn Carlsbad From Oper. Balance BofA Balance Interest CLOSING Feb-13 9,051,243 9,051,243 $7,400,000 $0 $385,452 1,651,243 $2,223,048 $5,504 1 Mar-13 -9,051,243 0.00% $0 $0 $385,452 $0 $2,223,048 $5,504 2 Apr-13 -9,051,243 0.00% $0 $0 $385,452 $0 $2,223,048 $5,504 3 May-13 -9,051,243 0.00% $0 $0 $385,452 $0 $2,223,048 $5,504 4 Jun-13 403,750 9,454,993 15.48% $0 $0 $385,452 $403,750 $1,819,298 $6,850 5 Jul-13 -9,454,993 0.00% $0 $0 $385,452 $0 $1,819,298 $6,850 6 Aug-13 -9,454,993 0.00% $0 $0 $385,452 $0 $1,819,298 $6,850 7 Sep-13 60,000 9,514,993 2.30% $0 $60,000 $325,452 $0 $1,819,298 $6,850 8 Oct-13 403,750 9,918,743 15.48% $0 $0 $325,452 $403,750 $1,415,548 $8,196 9 Nov-13 -9,918,743 0.00% $0 $0 $325,452 $0 $1,415,548 $8,196 10 Dec-13 -9,918,743 0.00% $0 $0 $325,452 $0 $1,415,548 $8,196 11 Jan-14 -9,918,743 0.00% $0 $0 $325,452 $0 $1,415,548 $8,196 12 Feb-14 403,750 10,322,493 15.48% $0 $0 $325,452 $403,750 $1,011,798 $9,542 13 Mar-14 -10,322,493 0.00% $0 $0 $325,452 $0 $1,011,798 $9,542 14 Apr-14 75,452 10,397,945 2.89% $0 $75,452 $250,000 $0 $1,011,798 $9,542 15 May-14 -10,397,945 0.00% $0 $0 $250,000 $0 $1,011,798 $9,542 16 Jun-14 403,750 10,801,695 15.48% $0 $0 $250,000 $403,750 $608,048 $10,887 17 Jul-14 -10,801,695 0.00% $0 $0 $250,000 $0 $608,048 $10,887 18 Aug-14 80,000 10,881,695 3.07% $0 $80,000 $170,000 $0 $608,048 $10,887 19 Sep-14 -10,881,695 0.00% $0 $0 $170,000 $0 $608,048 $10,887 20 Oct-14 -10,881,695 0.00% $0 $0 $170,000 $0 $608,048 $10,887 21 Nov-14 -10,881,695 0.00% $0 $0 $170,000 $0 $608,048 $10,887 22 Dec-14 -10,881,695 0.00% $0 $0 $170,000 $0 $608,048 $10,887 23 Jan-15 30,000 10,911,695 1.15% $0 $30,000 $140,000 $0 $608,048 $10,887 24 Feb-15 -10,911,695 0.00% $0 $0 $140,000 $0 $608,048 $10,887 25 Mar-15 -10,911,695 0.00% $0 $0 $140,000 $0 $608,048 $10,887 26 Apr-15 -10,911,695 0.00% $0 $0 $140,000 $0 $608,048 $10,887 27 May-15 35,000 10,946,695 1.34% $0 $35,000 $105,000 $0 $608,048 $10,887 28 Jun-15 35,000 10,981,695 1.34% $0 $35,000 $70,000 $0 $608,048 $10,887 29 Jul-15 -10,981,695 0.00% $0 $0 $70,000 $0 $608,048 $10,887 30 Aug-15 -10,981,695 0.00% $0 $0 $70,000 $0 $608,048 $10,887 31 Sep-15 -10,981,695 0.00% $0 $0 $70,000 $0 $608,048 $10,887 32 Oct-15 35,000 11,016,695 1.34% $0 $35,000 $35,000 $0 $608,048 $10,887 33 Nov-15 35,000 11,051,695 1.34% $0 $35,000 $0 $0 $608,048 $10,887 34 Dec-15 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 35 Jan-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 36 Feb-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 37 Mar-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 38 Apr-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 39 May-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 40 Jun-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 41 Jul-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 42 Aug-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 43 Sep-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 44 Oct-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 45 Nov-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 46 Dec-16 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 47 Jan-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 48 Feb-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 49 Mar-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 50 Apr-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 51 May-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 52 Jun-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 53 Jul-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 54 Aug-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 55 Sep-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 56 Oct-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 57 Nov-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 58 Dec-17 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 59 Jan-18 -11,051,695 0.00% $0 $0 $0 $0 $608,048 $10,887 60 Feb-18 -11,051,695 0.00% $0 $0 $0 $0 $608,048 76.690% $7,400,000 $385,452 $7,806,328 $3,266,243 $599,396 130116_Carlsbad (Acq.-Predev-Const.- Pernn).xlsx Prepared bv: Strategic Consulting Initiative www.scinitiative.com Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 4 of 10 1/16/2013 DEVELOPMENT BUDGET Tax Credit Eligible (100%) Total Project Depreciable Non -Acquisition Construction Item Costs Residential Depreciable Amortize Expense Basis /Rehab Basis ACQUISITION Property Purchase Price $10,450,000 $0 $10,450,000 Value of City Land Contribution $1,750,000 $0 $1,750,000 $0 Demolition $500,000 $0 $500,000 $0 Legal: Acquisition $15,000 $0 $15,000 $0 Subtotal Acquisition $12,715,000 $0 $12,715,000 $0 $0 $0 $0 CONSTRUCTION Residential Structures (Inc. Site Work) $15,710,032 $15,660,032 $50,000 $15,660,032 Offsite Improvenients $200,000 $200,000 $200,000 PV/Solar $300,000 $300,000 $300,000 Furnishings Included in Contract $50,000 $50,000 $50,000 GC Profit, Overhead/Gen. Conditions $2,346,404 $2,346,404 $2,346,404 Construction Bonds $150,000 $0 $150,000 $0 Builder's Risk & Liability Insurance $120,000 $120,000 $120,000 Construction Contingency $952,822 $952,822 $952,822 Subtotal Construction $19,829,258 $19,629,258 $200,000 $0 $0 $0 $19,629,258 SOFT COSTS Local Development Impact Fees $2,450,000 $2,450,000 $2,450,000 Local Permit Processing Fees $400,000 $400,000 $400,000 Environmental Studies $120,000 $120,000 $120,000 Appraisal & Market Study $25,000 $25,000 $25,000 Engineering $175,000 $175,000 $175,000 Architectural Design & Supervision $450,000 $450,000 $450,000 Soils Engineer $80,000 $80,000 $80,000 Relocation $1,300,000 $1,300,000 $1,300,000 Civil Engineering/Survey/Mapping $150,000 $150,000 $150,000 Dry Utility Consultant $50,000 $50,000 $50,000 Financial/Syndication Consultant $50,000 $0 $50,000 $0 Legal: Construction $20,000 $20,000 $20,000 Legal: Permanent $20,000 $0 $20,000 $0 Legal: Organization of Partnership $20,000 $0 $20,000 $0 Legal: Syndication $40,000 $0 $40,000 $0 Title/Recording/Escrow - Acquisition $40,000 $0 $40,000 $0 Title/Recording/Escrow - Construction $20,000 $20,000 $20,000 Const. Loan Interest $1,190,200 $892,650 $297,550 $892,650 Marketing (lease-up. Advertisement, Setup) $50,000 $0 $50,000 $0 Construrtion Inspection $13,000 $0 $13,000 $0 Insurance During Construction/Operations $120,000 $90,000 $30,000 $90,000 Real Estate Taxes $220,000 $165,000 $55,000 $165,000 TCAC App/Allocation - (Mont. Fee Below) $102,000 $0 $102,000 $0 Soft Cost Contingency $406,000 $406,000 $406,000 Investor Due Diligence $54,500 $0 $54,500 $0 Audit/Cost Certification $40,000 $40,000 $40,000 Developer Fee (Overhead) $500,000 $500,000 $0 $500,000 Developer Fee (Profit) $1,500,000 $900,000 $600,000 $0 $900,000 Subtotal Soft Costs $9,605,700 $8,233,650 $797,500 $142,000 $432,550 $0 $8,233,650 COSTS oeFERRBD UNTIL CONVERSION Title/Recording/Escrow - Permanent $20,000 $0 $20,000 $0 Operating Reserve $743,800 $0 $743,800 $0 TCAC Monitoring Fee $56,580 $0 $56,580 $0 Subtotal Deferred Costs $820,380 $0 $743,800 $76,580 $0 $0 $0 FINANCING COSTS Acq./Predev. Lender Orig. Fees $38,743 $8,243 $30,500 $8,243 Constr Lender Orig. Fees $247,943 $247,943 $247,943 Constr. Lender Expense $60,000 $60,000 $60,000 Constr Lender Legal $45,000 $0 $45,000 $0 Acq. Lender Expense $30,000 $6,383 $23,617 $6,383 Acq. Lender Legal $20,000 $4,255 $15,745 $4,255 Perm Lender Orig. Fees $81,666 $0 $81,666 $0 Perm Lender Expense $25,000 $0 $25,000 $0 Perm Lender Legal $30,000 $0 $30,000 $0 Subtotal Financing Costs $578,352 $326,824 $69,862 $181,666 $0 $0 $326,824 TOTAL DEVELOPMENT COST $43,548,690 $28,189,732 $14,526,162 $400,246 $432,550 $0 $28,189,732 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative Carlsbad - New Construction Page 5a of 10 Developer: C&C/IHO Revised: 1/16/2013 Version: Acq.-Predev-Const.-Pernn UNIT MIX & RENTAL INCOME (Existina Units) Avg Affordability (At Restricted AMIs): 78.24% UNIT MIX SUMMARY 2 Bdrm 52 100.00% Total 52 100.00% Initial Acquisition (Total of 42 units) Restriction 60% AMI 39.22% Restricted AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type Program No. Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom Carlsbad 20 60% $1,084 ($44) $1,040 $20,800 $249,600 Subtotal 20 $1,040 $20,800 $249,600 Vacancy 5.00% Effective Gross 60% AMI: $19,760 $237,120 Note: Restriction 90% AMI 41.18% Restricted AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type Program No. Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom Carlsbad 21 77% $1,394 ($44) $1,350 $28,350 $340,200 Subtotal 21 $1,350 $28,350 $340,200 Vacancy 5.00% Effective Gross 90% $26,933 $323,190 Note: Subsequent Acquisition (Total of 10 units) Restriction 90% AMI 19.61% Restricted AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type Program No. Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom Carlsbad 10 77% $1,394 ($44) $1,350 $13,500 $162,000 Subtotal 10 $1,350 $13,500 $162,000 Vacancy 5.00% Effective Gross 90% 4MJ; $12,825 $153,900 Note: Manager's Unit AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type No. Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bdrms 1 0% $0 $0 $0 $0 $0 Subtotal 1 $0 $0 $0 Vacancy 0.00% Effective Gross 0% AMI: $0 $0 Note: Gross Rents $62,650 $751,800 TOTAL 52 Avg. Vacancy 5.00% Effective Gross Rents $59,518 $714,210 MISCELLANEOUS INCOME j P/U/Month MONTHLY ANNUAL Laundry $6.00 $312 $3,744 Subtotal $312 $3,744 Vacancy Factor 5.00% Eff. Gross Misc. Inc. $296 $3,557 Total Units TOTAL EFF. GROSS INCOME MONTHLY ANNUAL TOTAL 52 GROSS INCOME $62,962 $755,544 EFF. GROSS INCOME $59,814 $717,767 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative 50 Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 6a of 10 Revised: 1/16/2013 OPERATING EXPENSES (Existing Units) Income Summary Gross Income Avg. Gross Income Vacancy Miscellaneous Income Misc. Income Reduction ANNUAL OPERATING EXPENSES General Administrative Advertising Legal Accounting/Audit Telephone/Computer Office Expense Total Gen. Administrative Management Fee Utilities Electricity Water & Sewer Total Utilities Payroll/Pavroli Taxes On-site Manager Maintenance Personnel Payroll Taxes, Benefits Other Total Payroll/Payroll Taxes Insurance Maintenance Painting Repairs Exterminating Landscaping Supplies Other Total Maintenance TOTAL OPERATING EXPENSES Taxes, Reserves^ Services, Other Real Estate Taxes Replacement Reserves Total Other Costs TOTAL ANNUAL OPER. EXPENSES Vac. Factor Residential $751,800 5.00% ($37,590) $3,744 5.00% ($187) $717,767 Total Per Unit $2,500 $48 $3,000 $58 $9,000 $173 $2,500 $48 $2,500 $48 $19,500 $375 $57,421 $1,104 $2,500 $48 $40,000 $769 $42,500 $817 $20,000 $385 $20,000 $385 $8,000 $154 $4,500 $87 $52,500 $1,010 $11,700 $225 $4,000 $77 $15,700 $302 $4,500 $87 $12,000 $231 $7,500 $144 $7,500 $144 $51,200 $985 $234,821 $4,516 $79,600 $1,531 $13,000 $250 $92,600 $1,781 $327,421 $6,297 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative SI Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 5b of 10 Revised: 1/16/2013 UNIT MIX & RENTAL INCOME (New Construction - 2018) (Rents are based on 2012 AMI, trended by 2.5% for 6 years) |Avg Affordability (At Restricted AMIs): | 48.84% 1 UNIT MIX SUMMARY 2 Bdrm 98 70.00% 3 Bdrm 42 30.00% iTotal TCAC Affordability Points: | 52.00 1 Total 140 100,00% Restriction 300/0 AMI 10.14% Restricted] 1 TCAC PTS: 17.00 AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type Program No. Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom TCAC 9 30% $628 ($54) $574 $5,165 $61,983 3 Bedroom TCAC 5 30% $726 ($64) $662 $3,310 $39,725 Subtotal 14 $1,236 $8,476 $101,707 Vacancy 5.00% Effective Gross 50% AMJ: $8,052 $96,622 Note: Restriction 400/0 AMI 20.29% Restricted! 1 TCAC PTS: 15.00 AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type Program No. Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom TCAC 20 40% $838 ($54) $784 $15,678 $188,139 3 Bedroom TCAC 8 40% $968 ($64) $904 $7,233 $86,792 Subtotal 28 $1,688 $22,911 $274,931 Vacancy 5,00% Effective Gross 40% AAfJ; $21,765 $261,184 Note; Restriction 50»/o AMI 40.58% Restricted! 1 TCAC PTS: 20.00 AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN, NET Unit Type Program No, Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom TCAC 40 50% $1,048 ($54) $994 $39,757 $477,078 3 Bedroom TCAC 16 50% $1,211 ($64) $1,147 $18,353 $220,239 Subtotal 56 $2,141 $58,110 $697,317 Vacancy 5,00% Effective Gross 50% AMI: $55,204 $662,451 Note: Restriction 600/0 AMI 28,99% Restricted! AMI Gross Monthly Net TOTAL TOTAL Based on Monthly Utility Monthly NET MON. ANN. NET Unit Type Program No, Units LIHTC Rents Allowance Rents RENTS RENTS 2 Bedroom TCAC 27 60% $1,257 ($54) $1,203 $32,479 $389,744 3 Bedroom TCAC 13 60% $1,453 ($64) $1,389 $18,058 $216,696 Subtotal 40 $2,592 $50,537 $606,440 Vacancy 5,00% Effective Gross 60% AMI: $48,010 $576,118 Note: Manager's Unit Unit Type No. Units AMI Based on LIHTC Gross Monthly Net Monthly Utility Monthly Rents Allowance Rents TOTAL NET MON. RENTS TOTAL ANN. NET RENTS 2 Bdrms 2 0% $0 $0 $0 $0 $0 Subtotal 2 $0 $0 $0 Vacancy 0.00% Effective Gross 0% AMI: $0 \ $0 Note: Gross Rents $140,033 $1,680,395 TOTAL 140 lAvg. Vacancy 5,00% Effective Gross Rents $133,031 $1,596,375 MISCELLANEOUS INCOME) P/U/Month MONTHLY ANNUAL Laundry $6,00 $840 $10,080 Subtotal $840 $10,080 Vacancy Factor 5,00% Eff. Cross Misc. Inc. $798 $9,576 Total Units TOTAL EFF. GROSS INCOME MONTHLY ANNUAL TOTAL 140 GROSS INCOME $140,873 $1,690,475 EFF, GROSS INCOME $133,829 $1,605,951 130116_Carlsbad (Acq.-Predev-Const,- Perm),xlsx Prepared by: Strategic Consulting Initiative 52 Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 6b of 10 Revised: 1/16/2013 OPERATING EXPENSES (New Construction - 2018) (Expenses are based on 2012 Estimate trended by 3.5% for 6 years) I Income Summary Vac. Factor Gross Income Avg. Gross Income Vacancy Miscellaneous Income Misc. Income Reduction lANNUAL OPERATING EXPENSES General Administrative Advertising Legal Accounting/Audit Security Telephone/Computer Office Expense Totai Gen. Administrative Management Fee Utilities Gas Electricity Water & Sewer Total Utilities Payroll/Payroll Taxes On-site Manager Maintenance Personnel Payroll Taxes, Benefits Other Totai Payroll/Payroll Taxes Insurance Maintenance Painting Repairs Trash Removal Exterminating Landscaping Supplies Other Total Maintenance TOTAL OPERATING EXPENSES Taxes, Reserves, Services, Other Real Estate Taxes Replacement Reserves Program Services Total Other Costs TOTAL ANNUAL OPER. EXPENSES 5.00% 5.00% Total Residentiai $1,680,395 ($84,020) $10,080 ($504) $1,605,951 Per Unit $4,500 $32 $4,500 $32 $15,000 $107 $22,500 $161 $6,500 $46 $8,000 $57 $61,000 $436 $128,476 $918 $6,500 $46 $20,000 $143 $80,000 $571 $106,500 $761 $65,000 $464 $60,000 $429 $25,000 $179 $15,000 $107 $165,000 $1,179 $31,500 $225 $49,000 $350 $85,000 $607 $40,000 $286 $27,000 $193 $40,000 $286 $20,000 $143 $35,000 $250 $296,000 $2,114 $788,476 $5,632 ^30,000 $214 ^42,000 $300 $35,000 $250 $107,000 $764 $895,476 $6,396 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative 53 Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 7 of 10 Revised: 1/16/2013 I^ORTGAGE CALCULATION NET AVAILABLE INCOME FINANCIAL EXPENSES Debt Service Coverage (Conventional Financing) Available for Conventional Debt Service Year 2013 52 Units $390,346 Net Cash Fiow Year 2018 140 Units $710,475 1.20 592,063 $118,413 LOAN CONSTANT/IMPUTED TOTAL INTEREST COST INTEREST RATE STACK Acq./Predev. Loan Conventional Construction Loan Conventional Perm Loan LIBOR/Perm Rate 0.250% 0,250% 3.000% Spread 3.500% 3.000% 2.000% Cushion 0.250% 0.750% 1.500% Base Rate 4.000% 4.000% 6.500% Term (Months) 60 24 420 DSC --1.20 Totai All-In Underwriting Rate 4.000% 4.000% 6.500% Imputed Totai Interest Cost (TIC) 4.000% 4.000% 6.500% PERMANENT MORTGAGE Loan Based on Debt Service Coverage (1.2 DSC) Maximum Loan $8,166,550 $8,166,550 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consuiting Initiative SH Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Pernn Revised: Page 8 of 10 1/16/2013 THRESHOLD BASIS LIMIT BASIS LIMITS CALCULATIONS 90/0 Total County: San Diego Unit Basis Limit # of Units Unadjusted Tlireshold 2 $234,400 98 $22,971,200 3 $300,032 42 $12,601,344 Total: 140 $35,572,544 (G) Plus (+) local development impact fees required to be paid to local government entities Certification from local entities assessing fees also required. $2,450,000 iTotal Threshold Limit: $38,022,5441 High Cost Test I Total Eligilbe Basis $28,189,732 Percentage of Adjusted Threshold Basis Limit 74.140% (Not a High Cost Project) 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative 55 Carlsbad - New Construction Developer: C&C/IHO .Version: Acq.-Predev-Const.-Perm Page 9 of 10 Revised: 1/16/2013 TAX CREDIT CALCULATION Construction/ Reiiabilitation Acquisition Total I Threshold Basis Limit $38.022,544 $0 $38.022,544 Total Eligible Basis $28,189,732 $0 $28,189,732 Deducted From Eligible Basis - Eligible Basis Voluntarily Excluded ($2,131,779) $0 ($2,131,779) 7ota/ 6as/s Reduction ($2,131,779) $0 ($2,131,779) I rota/ Requested Unadjusted Eligible Basis $26,057,953 $0 $26,057,953 Higii Cost Area Yes 130% 100% Total Adjusted Eligible Basis $33,875,339 $0 $33,875,339 Applicable Fraction 100% 100% 100% Qualified Basis $33,875,339 $0 $33,875,339 Credit Rate November-12 7.38% 0.00% Total Annual Federal Credits $2,500,000 $0 $2,500,000 Total Federal Credits Over 10 Years $25,000,000 $0 I $25,000,000 I 1 CONSTRUCTION/REHABILITATION CREDITS Building # Bldg ID Total # Total # LIHTC LIHTC Units Units Unit <Vb Total Sq. Ft LIHTC UHTC Total Sq. Ft Sq. Ft <Vo Sq. Ft % Requested Eligible Basis QCT/ DDA UHTC Applicable % QUALIFIED BASIS Credit Annual Rate Credits 138 138 100% 100% 100.00% $26,057,953 130% 100% $33,875,339 7.38% $2,500,000 138 138 100.00% $26,057,953 $33,875,339 $2,500,000 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative Carlsbad - New Construction Developer: CftC/IHO Version: Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 60 YEAR CASH FLOW ANALYSIS % Residential Operational 83% 100% 100% 100% 100% 100.00% % Residential Operational r Acauisition/Hold Period Construciton Period! Year 1 2013 Year 2 2014 Year 3 2015 Year 4 2016 Year 5 2017 Year 1 2018 Year 2 2019 Year 1 2020 Year 2 2021 Year 3 2022 1 INCOME ASSUMPTIONS 1 $1,782,731 Restricted Unit Rents 3.00% $626,500 $774,354 $797,585 $821,512 $846,158 $1,680,395 $1,730,807 $1,782,731 GROSS POTENTIAL INCOME - HOUSING $626,500 $774,354 $797,585 $821,512 $846,158 $1,680,395 $1,730,807 $1,782,731 OTHER INCOME Miscellaneous Income 3.00% $3,120 $3,856 $3,972 $4,091 $4,214 $10,080 $10,382 $10,694 GROSS POTENTIAL INCOME - OTHER $3,120 $3,856 $3,972 $4,091 $4,214 $10,080 $10,382 $10,694 GROSS POTENTIAL INCOME - TOTAL $629,620 $778,210 $801,557 $825,603 $850,371 $1,690,475 $1,741,189 $1,793,425 IVACANCY ASSUMPTIONS 1 ($89,137) ($535) Restricted Units Miscellaneous Income TOTAL VACANCY LOSS 5.00% 5.00% ($31,325) ($156) ($38,718) ($193) ($39,879) ($199) ($41,076) ($205) ($42,308) ($211) ($84,020) ($504) ($86,540) ($519) ($89,137) ($535) Restricted Units Miscellaneous Income TOTAL VACANCY LOSS ($31,481) ($38,911) ($40,078) ($41,280) ($42,519) ($84,524) ($87,059) ($89,671) EFFECTIVE GROSS INCOME $598,139 $739,300 $761,479 $784,323 $807,853 $1,605,951 $1,654,130 $1,703,754 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $195,684 $66,333 $243,040 $81,192 $251,546 $82,816 $260,350 $84,472 $269,462 $86,162 $823,476 $30,000 $852,298 $30,600 $882,128 $31,212 OPERATING EXPENSES Residential Expenses Real Estate Taxes $262,018 $324,232 $334,362 $344,822 $355,624 $853,476 $882,898 $913,340 NET OPERATING INCOME $336,122 $415,068 $427,117 $439,501 $452,229 $752,475 $771,232 $790,414 RESERVE DEPOSITS Replacement Reserve 3.00% $10,833 $13,390 $13,792 $14,205 $14,632 $42,000 $43,260 $44,558 AVAILABLE FOR DEBT SERVICE $325,288 $401,678 $413,325 $425,295 $437,597 $710,475 $727,972 ^745,856 1 DEBT SERVICE 1 $67,320 $524,742 $71,829 $520,234 Principal Interest $74,004 $122,573 $130,644 $130,644 $130,644 $63,095 $528,968 $67,320 $524,742 $71,829 $520,234 TOTAL DEBT SERVICE $74,004 $122,573 $130,644 $130,644 $130,644 $592,063 $592,063 $592,063 15% Reserve Account 15.00% $37,693 $41,866 $42,402 $44,198 $46,043 NET CASH FLOW $213,591 $237,239 $240,279 $250,453 $260,910 $118,413 $135,910 $153,793 DEBT SERVICE COVERAGE RATIO 1.20 1.23 1.26 1 NET CASH FLOW DISTRIBUTION 1 LP Management Fee $5,000 3.00% $5,000 $5,150 $5,305 General Partner Management Fee $25,000 3.00% $25,000 $25,750 $25,523 Residual Receipts $42,902 $50,955 $59,184 City of Carlsbad 48.52% $42,902 $50,955 $59,184 Begin Bai Accrued Interest $7,400,000 $7,400,000 tiss.ooo $7,585,000 4222,000 $7,807,000 $222,000 $8,029,000 $222,000 $8,251,000 $222,000 $8,473,000 $222,000 $8,652,098 $222,000 $8,823,143 $222,000 Subtotal Payment End.Ln Bai $7,585,000 $0 $7,807,000 $0 $8,029,000 $0 $8,251,000 $0 $8,473,000 $0 $8,695,000 $42,902 $8,874,098 $50,955 $9,045,143 $59,184 Subtotal Payment End.Ln Bai $7,585,000 $7,807,000 $8,029,000 $8,251,000 $8,473,000 $8,652,098 $8,823,143 $8,985,959 Citv of Carisbad - Land Contribution 11.48% $10,146 $12,050 $13,996 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $1,750,000 $1,750,000 $43,750 $1,793,750 $52,500 $1,846,250 $52,500 $1,898,750 $52,500 $1,951,250 $52,500 $2,003,750 $52,500 $2,046,104 $52,500 $2,086,554 $52,500 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $1,793,750 $0 $1,846,250 $0 $1,898,750 $0 $1,951,250 $0 $2,003,750 $0 $2,056,250 $10,146 $2,098,604 $12,050 $2,139,054 $13,996 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $1,793,750 $1,846,250 $1,898,750 $1,951,250 $2,003,750 $2,046,104 $2,086,554 $2,125,058 GP Incentive Management Fee (90%) $31,829 $37,803 $43,908 General Partner (.01%) Limited Partner (99.99%) $0 $3,536 $0 $4,200 $0 $4,878 130116_Carisbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 160 YEAR CASH FLOW ANALYSIS % Residential Operational Year 4 2023 Year 5 2024 Year 6 2025 Year 7 2026 Year 8 2027 Year 9 2028 Year 10 2029 Year 11 2030 Year 12 2031 Year 13 2032 1 INCOME ASSUMPTIONS Restricted Unit Rents 1 3.00% $1,836,213 $1,891,300 $1,948,039 $2,006,480 $2,066,674 $2,128,674 $2,192,535 $2,258,311 $2,326,060 $2,395,842 GROSS POTENTIAL INCOME - HOUSING $1,836,213 $1,891,300 $1,948,039 $2,006,480 $2,066,674 $2,128,674 $2,192,535 $2,258,311 $2,326,060 $2,395,842 OTHER INCOME Miscellaneous Income 3.00% $11,015 $11,345 $11,685 $12,036 $12,397 $12,769 $13,152 $13,547 $13,953 $14,?72 GROSS POTENTIAL INCOME - OTHER $11,015 $11,345 $11,685 $12,036 $12,397 $12,769 $13,152 $13,547 $13,953 $14,372 GROSS POTENTIAL INCOME - TOTAL $1.847,228 $1.902.645 $1.959.724 $2.018.516 $2.079.071 $2.141.443 $2.205.687 $2.271.857 S2.340.013 $2.410.213 I VACANCY ASSUMPTIONS Restricted Units 5.00% ($91,811) ($94,565) ($97,402) ($100,324) ($103,334) ($106,434) ($109,627) ($112,916) ($116,303) ($119,792) TOTAL VACANCY LOSS ($92,361) ($95,132) ($97,986) ($100,926) ($103,954) ($107,072) ($110,284) ($113,593) ($117,001) ($120,511) EFFECTIVE GROSS INCOME $1,754,866 $1,807,512 $1,861,738 $1,917,590 $1,975,118 $2,034,371 $2,095,402 $2,158,264 $2,223,012 $2,289,703 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $913,003 $31,836 $944,958 $32,473 $978,031 $33,122 $1,012,262 $33,785 $1,047,691 $34,461 $1,084,361 $35,150 $1,122,313 $35,853 $1,161,594 $36,570 $1,202,250 $37,301 $1,244,329 $38,047 OPERATING EXPENSES Residential Expenses Real Estate Taxes $944,839 $977,431 $1,011,154 $1,046,047 $1,082,152 $1,119,510 $1,158,166 $1,198,164 $1,239,551 $1,282,376 NET OPERATING INCOME $810,028 $830,082 $850,584 $871,543 $892,966 $914,861 $937,236 $960,100 $983,461 $1,007,327 RESERVE DEPOSITS Replacement Reserve 3.00% $45,895 $47,271 $48,690 $50,150 $51,655 $53,204 $54,800 $56,444 $58,138 $59,882 AVAILABLE FOR DEBT SERVICE $764,133 $782,810 $801,895 $821,393 $841,311 $861,656 $882,436 $903,656 $925,323 $947,445 DEBT SERVICE i $120,649 $471,414 $128,729 $463,334 $137,350 $454,713 Principal Interest $76,639 $515,423 $81,772 $510,291 $87,248 $504,814 $93,092 $498,971 $99,326 $492,737 $105,978 $486,085 $113,076 $478,987 $120,649 $471,414 $128,729 $463,334 $137,350 $454,713 TOTAL DEBT SERVICE $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 15% Reserve Account 15.00% NET CASH FLOW $172,070 $190,748 $209,832 $229,330 $249,248 $269,594 $290,373 $311,593 $333,261 $355,382 DEBT SERVICE COVERAGE RATIO 1.29 1.32 1.35 1.39 1.42 1.46 1.49 1.53 1.56 1.60 NET CASH FLOW DISTRIBUTION 1 LP Management Fee $5,000 3.00% $5,464 $5,628 $5,796 $5,970 $6,149 $6,334 $6,524 $6,720 $6,921 $7,129 General Partner Management Fee $25,000 3.00% $27,318 $28,138 $28,982 $29,851 $30,747 $31,669 $32,619 $33,598 $34,606 $35,644 Residual Receipts $141,562 $151,692 City of Carisbad 48,52% $67,589 $76,175 $84,944 $93,899 $103,043 $112,378 $121,908 $131,635 $141,562 $151,692 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $7,400,000 $8,985,959 $222,000 $9,140,370 $222,000 $9,286,195 $222,000 $9,423,251 $222,000 $9,551,352 $222,000 $9,670,309 $222,000 $9,779,930 $222,000 $9,880,022 $222,000 $9,970,387 $222,000 $10,050,824 $222,000 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $9,207,959 $67,589 $9,362,370 $76,175 $9,508,195 $84,944 $9,645,251 $93,899 $9,773,352 $103,043 $9,892,309 $112,378 $10,001,930 $121,908 $10,102,022 $131,635 $10,192,387 $141,562 $10,272,824 $151,692 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $9,140,370 $9,286,195 $9,423,251 $9,551,352 $9,670,309 $9,779,930 $9,880,022 $9,970,387 $10,050,824 $10,121,132 Citv of Carisbad - Land Contribution 11.48% $15,984 $18,014 $20,088 $22,206 $24,368 $26,576 $28,830 $31,130 $33,478 $35,873 Begin Bai Accrued Interest $1,750,000 $2,125,058 $52,500 $2,161,574 $52,500 $2,196,060 $52,500 $2,228,471 $52,500 $2,258,766 $52,500 $2,286,897 $52,500 $2,312,821 $52,500 $2,336,492 $52,500 $2,357,862 $52,500 $2,376,884 $52,500 Subtotal Payment End.Ln Bai $2,177,558 $15,984 $2,214,074 $18,014 $2,248,560 $20,088 $2,280,971 $22,206 $2,311,266 $24,368 $2,339,397 $26,576 $2,365,321 $28,830 $2,388,992 $31,130 $2,410,362 $33,478 $2,429,384 $35,873 Subtotal Payment End.Ln Bai $2,161,574 $2,196,060 $2,228,471 $2,258,766 $2,286,897 $2,312,821 $2,336,492 $2,357,862 $2,376,884 $2,393,511 GP Incentive Management Fee (90%) $50,144 $56,514 $63,019 $69,663 $76,447 $83,373 $90,443 $97,659 $105,024 $112,539 General Partner (.01%) Limited Partner (99.99%) $1 $5,571 $1 $6,279 $1 $7,001 $1 $7,740 $1 $8,493 $1 $9,263 $1 $10,048 $1 $10,850 $1 $11,668 $1 $12,503 130116_Carlsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative Carlsbad - New Construction Developer: C81C/IHO Version: Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 160 YEAR CASH FLOW ANALYSIS % Residential Operational Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 1 $2,467,717 $2,541,748 $2,618,001 $2,696,541 $2,777,437 $2,860,760 $2,946,583 $3,034,981 $3,126,030 $3,219,811 $2,467,717 $2,541,748 $2,618,001 $2,696,541 $2,777,437 $2,860,760 $2,946,583 $3,034,981 $3,126,030 $3,219,811 $14,803 $15,247 $15,704 $16,175 $16,661 $17,161 $17,675 $18,206 $18,752 $19,314 I INCOME ASSUMPTIONS Restricted Unit Rents GROSS POTENTIAL INCOME - HOUSING OTHER INCOME Miscellaneous Income GROSS POTENTIAL INCOME - OTHER $14,803 $15,247 $15,704 $16,175 $16,661 $17,161 $17,675 $18,752 $19,314 GROSS POTENTIAL INCOME - TOTAL $2.482.520 $2.556.995 $2,633.705 $2.712,716 $2,794.098 $2.877.921 $2.964.258 $3.053.186 $3.144.782 $3.239.125 'Restrirtedu"nTtl 5.00%' ($123,386) ($127,087) ($130,900) ($134,827) ($138,872) ($143,038) ($147,329) ($151,749) ($156,302) ($160,991) IVACANCY ASSUMPTIONS TOTAL VACANCY LOSS ($124,126) ($127,850) ($131,685) ($135,636) ($139,705) ($143,896) ($148,213) ($152,659) ($157,239) ($161,956) EFFECTIVE GROSS INCOME $2,358,394 $2,429,146 $2,502,020 $2,577,081 $2,654,393 $2,734,025 $2,816,046 $2,900,527 $2,987,543 $3,077,169 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $1,287,880 $38,808 $1,332,956 $39,584 $1,379,610 $40,376 $1,427,896 $41,184 $1,477,872 $42,007 $1,529,598 $42,847 $1,583,134 $43,704 $1,638,543 $44,578 $1,695,892 $45,470 $1,755,249 $46,379 OPERATING EXPENSES Residential Expenses Real Estate Taxes $1,326,688 $1,372,540 $1,419,986 $1,469,079 $1,519,879 $1,572,445 $1,626,838 $1,683,122 $1,741,362 $1,801,628 NET OPERATING INCOME $1,031,705 $1,056,605 $1,082,034 ^1.108,001 $1,134,514 $1,161,580 $1,189,208 $1,217,405 $1,246,180 $1,275,541 RESERVE DEPOSITS Replacement Reserve 3.00% $61,678 $63,529 $65,435 $67,398 $69,420 $71,502 $73,647 $75,857 $78,132 $80,476 AVAILABLE FOR DEBT SERVICE $970,027 $993,076 $1,016,600 $1,040,603 $1,065,094 $1,090,077 $1,115,560 $1,141,548 $1,168,048 $1,195,065 1 DEBT SERVICE 1 $216,222 $375,841 $230,702 $361,360 $246,153 $345,910 $262,638 $329,424 Principal Interest $146,549 $445,514 $156,363 $435,700 $166,835 $425,228 $178,008 $414,054 $189,930 $402,133 $202,650 $389,413 $216,222 $375,841 $230,702 $361,360 $246,153 $345,910 $262,638 $329,424 TOTAL DEBT SERVICE $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 15% Reserve Account 15.00% NET CASH FLOW $377,964 $401,014 $424,537 ^448,541 $473,031 $498,015 $523,497 $549,486 $575,985 $603,002 DEBT SERVICE COVERAGE RATIO 1.64 1.68 1.72 1.76 1.80 1.84 1.88 1.93 1.97 2.02 INET CASH FLOW DISTRIBUTION 1 LP Management Fee $5,000 3.00% $7,343 $7,563 $0 $0 $0 $0 $0 $0 $0 $0 General Partner Management Fee $25,000 3.00% $36,713 $37,815 $38,949 $40,118 $41,321 $42,561 $43,838 $45,153 $46,507 $47,903 Residual Receipts $232,753 $244,725 $256,927 $269,360 City of Carisbad 48.52% $162,028 $172,571 $187,105 $198,186 $209,485 $221,007 $232,753 $244,725 $256,927 $269,360 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $7,400,000 $10,121,132 $222,000 $10,181,104 $222,000 $10,230,533 $222,000 $10,265,428 $222,000 $10,289,243 $222,000 $10,301,757 $222,000 $10,302,750 $222,000 $10,291,997 $222,000 $10,269,272 $222,000 $10,234,345 $222,000 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $10,343,132 $162,028 $10,403,104 $172,571 $10,452,533 $187,105 $10,487,428 $198,186 $10,511,243 $209,485 $10,523,757 $221,007 $10,524,750 $232,753 $10,513,997 $244,725 $10,491,272 $256,927 $10,456,345 $269,360 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $10,181,104 $10,230,533 $10,265,428 $10,289,243 $10,301,757 $10,302,750 $10,291,997 $10,269,272 $10,234,345 $10,186,985 Citv of Carisbad - Land Contribution 11.48% $38,317 $40,811 $44,248 $46,868 $49,540 $52,265 $55,043 $57,874 $60,760 $63,700 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $1,750,000 $2,393,511 $52,500 $2,407,694 $52,500 $2,419,383 $52,500 $2,427,635 $52,500 $2,433,267 $52,500 $2,436,226 $52,500 $2,436,461 $52,500 $2,433,918 $52,500 $2,428,544 $52,500 $2,420,284 $52,500 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $2,446,011 $38,317 $2,460,194 $40,811 $2,471,883 $44,248 $2,480,135 $46,868 $2,485,767 $49,540 $2,488,726 $52,265 $2,488,961 $55,043 $2,486,418 $57,874 $2,481,044 $60,760 $2,472,784 $63,700 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $2,407,694 $2,419,383 $2,427,635 $2,433,267 $2,436,226 $2,436,461 $2,433,918 $2,428,544 $2,420,284 $2,409,084 GP Incentive Management Fee (90%) $120,207 $128,029 $138,812 $147,032 $155,416 $163,963 $172,678 $181,560 $190,612 $199,836 General Partner (.01%) Limited Partner (99.99%) $1 $13,355 $1 $14,224 $2 $2 $16,335 $2 $17,267 $2 $18,216 $2 $19,184 $2 $20,171 $2 $21,177 $2 $22,202 130116_Cartsbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative 5^ Carlsbad - New Construction Developer; C81C/IHO Version; Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 160 YEAR CASH FLOW ANALYSIS % Residential Operational Year 24 2043 Year 25 2044 Year 26 2045 Year 27 2046 Year 28 2047 Year 29 2048 Year 30 2049 Year 31 2050 Year 32 2051 Year 33 2052 INCOME ASSUMPTIONS Restricted Unit Rents 1 3.00% $3,316,405 $3,415,897 $3,518,374 $3,623,926 $3,732,643 $3,844,623 $3,959,961 $4,078,760 $4,201,123 $4,327,157 GROSS POTENTIAL INCOME - HOUSING $3,316,405 $3,415,897 $3,518,374 $3,623,926 $3,732,643 $3,844,623 $3,959,961 $4,078,760 $4,201,123 $4,327,157 OTHER INCOME Miscellaneous Income 3.00% $19,894 $20,491 $21,105 $21,738 $22,391 $23,062 $23,754 $24,467 $25,201 $25,957 GROSS POTENTIAL INCOME - OTHER $19,894 $20,491 $21,105 $21,738 $22,391 $23,062 $23,754 $24,467 $25,201 $25,957 GROSS POTENTIAL INCOME - TOTAL {VACANCY ASSUMPTIONS Restricted Units $3.336.299 $3.436.388 $3.539.480 $3.645.664 $3.755.034 $3.867.685 $3.983.716 $4.103.227 $4.226.324 $4.353.113 • 5.00% ($165,820) ($170,795) ($175,919) ($181,196) ($186,632) ($192,231) ($197,998) ($203,938) ($210,056) ($216,358) TOTAL VACANCY LOSS ($166,815) ($171,819) ($176,974) ($182,283) ($187,752) ($193,384) ($199,186) ($205,161) ($211,316) ($217,656) EFFECTIVE GROSS INCOME $3,169,484 $3,264,569 $3,362,506 $3,463,381 $3,567,282 $3,674,301 $3,784,530 $3,898,066 $4,015,008 $4,135,458 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $1,816,682 $47,307 $1,880,266 $48,253 $1,946,076 $49,218 $2,014,188 $50,203 $2,084,685 $51,207 $2,157,649 $52,231 $2,233,166 $53,275 $2,311,327 $54,341 $2,392,224 $55,428 $2,475,952 $56,536 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $1,863,989 $1,928,519 $1,995,294 $2,064,391 $2,135,891 $2,209,879 $2,286,442 $2,365,668 $2,447,651 $2,532,488 NET OPERATING INCOME $1,305,495 $1,336,049 $1,367,212 $1,398,990 f 1.431.391 $1,464,421 $1,498,088 $1,532,398 $1,567,356 $1,602,970 RESERVE DEPOSITS Replacement Reserve 3.00% $82,891 $85,377 $87,939 $90,577 $93,294 $96,093 $98,976 $101,945 $105,003 $108,153 AVAILABLE FOR DEBT SERVICE $1,222,604 $1,250,672 $1,279,273 $1,308,413 ^1,338,097 $1,368,328 ^1,399,112 ^1,430,452 $1,462,353 $1,494,817 DEBT SERVICE $441,146 $150,917 $470,690 $121,373 $502,213 $89,850 Principal Interest $280,228 $311,835 $298,995 $293,068 $319,019 $273,043 $340,385 $251,678 $363,181 $228,882 $387,504 $204,559 $413,456 $178,607 $441,146 $150,917 $470,690 $121,373 $502,213 $89,850 TOTAL DEBT SERVICE $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,063 $592,053 $592,053 $592,063 15% Reserve Account 15.00% $630,541 $658,609 $687,210 $716,350 $746,034 $776,266 $807,049 $838,390 $870,290 $902,754 DEBT SERVICE COVERAGE RATIO 2.06 2.11 2.16 2.21 2.26 2.31 2.36 2.42 2.47 2.52 NET CASH FLOW DISTRIBUTION LP Management Fee $5,000 3.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 General Partner Management Fee $25,000 3.00% $49,340 $50,820 $52,344 $53,915 $55,532 $57,198 $58,914 $60,682 $62,502 $64,377 Residual Receipts $377,380 $391,976 $406,819 City of Carisbad 48.52% $282,026 $294,927 $308,066 $321,444 $335,063 $348,924 $363,030 $377,380 $391,976 $406,819 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $7,400,000 $10,186,985 $222,000 $10,126,960 $222,000 $10,054,032 $222,000 $9,967,966 $222,000 $9,868,522 $222,000 $9,755,459 $222,000 $9,628,534 $222,000 $9,487,505 $222,000 $9,332,125 $222,000 $9,162,149 $222,000 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $10,408,985 $282,026 $10,348,960 $294,927 $10,276,032 $308,066 $10,189,966 $321,444 $10,090,522 $335,063 $9,977,459 $348,924 $9,850,534 $363,030 $9,709,505 $377,380 $9,554,125 $391,976 $9,384,149 $405,819 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $10,126,960 $10,054,032 $9,967,966 $9,868,522 $9,755,459 $9,628,534 $9,487,505 $9,332,125 $9,162,149 $8,977,330 Citv of Carisbad - Land Contribution 11.48% $66,695 $69,746 $72,853 $76,017 $79,238 $82,516 $85,852 $89,245 $92,697 $95,207 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $1,750,000 $2,409,084 $52,500 $2,394,889 $52,500 $2,377,643 $52,500 $2,357,289 $52,500 $2,333,772 $52,500 $2,307,034 $52,500 $2,277,018 $52,500 $2,243,667 $52,500 $2,205,921 $52,500 $2,166,724 $52,500 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $2,461,584 $66,695 $2,447,389 $69,746 $2,430,143 $72,853 $2,409,789 $76,017 $2,386,272 $79,238 $2,359,534 $82,516 $2,329,518 $85,852 $2,296,167 $89,245 $2,259,421 $92,697 $2,219,224 $96,207 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai $2,394,889 $2,377,643 $2,357,289 $2,333,772 $2,307,034 $2,277,018 $2,243,667 $2,206,921 $2,166,724 $2,123,017 GP Incentive Management Fee (90%) $209,233 $218,804 $228,552 $238,477 $248,581 $258,864 $269,329 $279,975 $290,804 $301,816 General Partner (.01%) Limited Partner (99.99%) $2 $23,246 $2 $24,309 $3 $25,392 $3 $26,495 $3 $27,617 $3 $28,760 $3 $29,922 $3 $31,105 $3 $32,308 $3 $33,532 130116_Carisbad (Acq.-Predev-Const - Perm).xlsx Prepared by: Strategic Consulting Initiative Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 160 YEAR CASH FLOW ANALYSIS % Residential Operational Year 34 Year 35 Year 36 Year 37 Year 38 Year 39 Year 40 Year 41 Year 42 Year 43 2053 2054 2055 2056 2057 2058 2059 2060 2061 2062 llNCOME ASSUMPTIONS 1 Restricted Unit Rents 3.00% $4,456,971 $4,590,680 $4,728,401 $4,870,253 $5,016,361 $5,156,851 $5,321,857 $5,481,513 $5,645,958 $5,815,337 GROSS POTENTIAL INCOME - HOUSING $4,456,971 $4,590,680 $4,728,401 $4,870,253 $5,016,361 $5,166,851 $5,321,857 $5,481,513 $5,645,958 $5,815,337 OTHER INCOME Miscellaneous Income 3.00% $26,736 $27,538 $28,364 $29,215 $30,091 $30,994 $31,924 $32,881 $33,868 $34,884 GROSS POTENTIAL INCOME - OTHER $26,736 $27,538 $28,364 $29,215 $30,091 $30,994 $31,924 $32,881 $33,868 $34,884 GROSS POTENTIAL INCOME - TOTAL $4,483,707 $4,618,218 $4,756,765 $4,899,468 $5,046,452 $5,197,845 $5,353,781 $5,514,394 $5,679,826 $5,850,221 {VACANCY ASSUMPTIONS Restricted Units Miscellaneous Income 5.00% 5.00% ($222,849) ($1,337) ($229,534) ($1,377) ($236,420) ($1,418) ($243,513) ($1,461) ($250,818) ($1,505) ($258,343) ($1,550) ($266,093) ($1,596) ($274,076) ($1,644) ($282,298) ($1,693) ($290,767) ($1,744) TOTAL VACANCY LOSS ($224,185) ($230,911) ($237,838) ($244,973) ($252,323) ($259,892) ($267,689) ($275,720) ($283,991) ($292,511) EFFECTIVE GROSS INCOME $4,259,522 $4,387,307 $4,518,926 $4,654,494 $4,794,129 $4,937,953 $5,086,091 $5,238,674 $5,395,834 $5,557,709 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $2,562,610 $57,667 $2,652,301 $58,820 $2,745,132 $59,997 $2,841,211 $61,197 $2,940,654 $62,421 $3,043,577 $63,659 $3,150,102 $64,942 $3,260,355 $66,241 $3,374,458 $57,566 $3,492,574 $68,917 OPERATING EXPENSES Residential Expenses Real Estate Taxes $2,620,277 $2,711,121 $2,805,128 $2,902,408 $3,003,074 $3,107,246 $3,215,044 $3,326,597 $3,442,034 $3,561,492 NET OPERATING INCOME $1,639,245 $1,676,186 $1,713,798 $1,752,086 $1,791,055 $1,830,707 $1,871,047 $1,912,078 $1,953,801 $1,996,218 RESERVE DEPOSITS Replacement Reserve 3.00% $111,398 $114,740 $118,182 $121,728 $125,380 $129,141 $133,015 $137,006 $141,116 $145,349 AVAILABLE FOR DEBT SERVICE $1,527,847 $1,561,446 $1,595,616 $1,630,359 $1,665,675 $1,701,566 ^1.738.032 $1,775,072 $1,812,685 $1,850,869 1 DEBT SERVICE Principal Interest $535,847 $56,216 $571,734 $20,329 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 fO TOTAL DEBT SERVICE $592,063 $592,063 $0 $0 $0 $0 $0 ^0 $0 $0 15% Reserve Account 15.00% $935,784 $969,383 $1,595,616 $1,630,359 $1,665,675 $1,701,566 $1,738,032 $1,775,072 $1,812,685 $1,850,869 DEBT SERVICE COVERAGE RATIO 2.58 2.64 N/A N/A N/A N/A N/A N/A N/A N/A INET CASH FLOW DISTRIBUTION LP Management Fee $5,000 3.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 General Partner Management Fee $25,000 3.00% $66,308 $68,298 $70,347 $72,457 $74,631 $75,870 $79,176 $81,551 $83,997 $86,517 Residual Receipts City of Carisbad 48.52% $421,909 $437,248 $740,131 $755,955 $772,048 $788,377 $804,953 $821,774 $838,838 $856,144 Begin Bai Accrued Interest $7,400,000 $8,977,330 $222,000 $8,777,421 $222,000 $8,562,173 $222,000 $8,044,042 $222,000 $7,510,077 $222,000 $6,960,029 $222,000 $6,393,652 $222,000 $5,810,698 $222,000 $5,210,924 $222,000 $4,594,086 $222,000 Subtotal Payment End.Ln Bai $9,199,330 $421,909 $8,999,421 $437,248 $8,784,173 $740,131 $8,266,042 $755,965 $7,732,077 $772,048 $7,182,029 $788,377 $6,515,552 $804,953 $6,032,698 $821,774 $5,432,924 $838,838 $4,816,086 $856,144 Subtotal Payment End.Ln Bai $8,777,421 $8,562,173 $8,044,042 $7,510,077 $6,960,029 $6,393,552 $5,810,698 $5,210,924 $4,594,086 $3,959,941 Citv of Carisbad - Land Contribution 11.48% $99,776 $103,403 $175,031 $178,776 $182,579 $186,441 $190,351 $194,338 $198,374 $202,467 Begin Bai Accrued Interest $1,750,000 $2,123,017 $52,500 $2,075,741 $52,500 $2,024,838 $52,500 $1,902,307 $52,500 $1,776,032 $52,500 $1,645,953 $52,500 $1,512,012 $52,500 $1,374,152 $52,500 $1,232,313 $52,500 $1,086,439 $52,500 Subtotal Payment End.Ln Bai $2,175,517 $99,776 $2,128,241 $103,403 $2,077,338 $175,031 $1,954,807 $178,776 $1,828,532 $182,579 $1,698,453 $186,441 $1,564,512 $190,361 $1,426,652 $194,338 $1,284,813 $198,374 $1,138,939 $202,467 Subtotal Payment End.Ln Bai $2,075,741 $2,024,838 $1,902,307 $1,776,032 $1,645,953 $1,512,012 $1,374,152 $1,232,313 $1,086,439 $936,473 GP Incentive Management Fee (90%) $313,011 $324,391 $549,097 $560,845 $572,776 $584,891 $597,188 $609,668 $622,327 $635,166 General Partner (.01%) Limited Partner (99.99%) $3 $34,776 $4 $36,040 $6 $51,005 »6 $62,310 $6 $53,535 $6 $64,981 $7 $66,348 $7 $57,734 $7 $69,141 $7 $70,567 130116_Carisbad (Acq.-Predev-Const - Perm).xlsx Prepared by: Strategic Consulting Initiative 61 Carlsbad - New Construction Developer: CftC/IHO Version: Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 [60 YEAR CASH FLOW ANALYSIS I % Residential Operational Year 44 Year 45 Year 46 Year 47 Year 48 Year 49 Year 50 Year 51 Year 52 Year 53 2063 2064 2065 2066 2067 2068 2069 2070 2071 2072 llNCOME ASSUMPTIONS 1 Restricted Unit Rents 3.00% $5,989,797 $6,169,491 $6,354,575 $6,545,213 $6,741,569 $6,943,816 $7,152,131 $7,356,695 $7,587,695 $7,815,326 GROSS POTENTIAL INCOME - HOUSING $5,989,797 $6,169,491 $6,354,575 $6,545,213 $6,741,569 $6,943,816 $7,152,131 $7,366,695 $7,587,695 $7,815,326 OTHER INCOME Miscellaneous Income 3.00% $35,930 $37,008 $38,118 $39,262 $40,440 $41,653 $42,903 $44,190 $45,5^5 $46,881 GROSS POTENTIAL INCOME - OTHER $35,930 $37,008 $38,118 $39,262 $40,440 $41,653 $42,903 $44,190 $45,515 $46,881 GROSS POTENTIAL INCOME - TOTAL $6.025.727 $6.206.499 $6.392.694 $6.584.475 $6.782,009 $6,985.469 $7,195.033 $7.410.884 $7.633.211 $7.862.207 IVACANCY ASSUMPTIONS Restricted Units 5.00% ($299,490) ($308,475) ($317,729) ($327,251) ($337,078) ($347,191) ($357,607) ($368,335) ($379,385) ($390,766) TOTAL VACANCY LOSS ($301,286) ($310,325) ($319,635) ($329,224) ($339,100) ($349,273) ($359,752) ($370,544) ($381,661) ($393,110) EFFECTIVE GROSS INCOME $5,724,441 $5,896,174 $6,073,059 $6,255,251 $6,442,909 $6,636,196 $6,835,282 $7,040,340 $7,251,550 $7,469,097 OPERATING EXPENSES Residential Expenses Real Estate Taxes 3.50% 2.00% $3,614,814 $70,296 $3,741,333 $71,702 $3,872,279 $73,136 $4,007,809 $74,598 $4,148,083 $76,090 $4,293,265 $77,612 $4,443,530 $79,164 $4,599,053 $80,748 $4,760,020 $82,363 $4,926,621 $84,010 OPERATING EXPENSES Residential Expenses Real Estate Taxes $3,685,110 $3,813,034 $3,945,415 $4,082,408 $4,224,173 $4,370,878 $4,522,694 $4,679,801 $4,842,383 $5,010,631 NET OPERATING INCOME $2,039,331 $2,083,140 $2,127,644 $2,172,843 $2,218,736 $2,265,318 $2,312,588 $2,360,539 $2,409,168 $2,458,466 RESERVE DEPOSITS Replacement Reserve 3.00% $149,710 $154,201 $158,827 $163,592 $168,500 $173,555 $178,761 $184,124 $189,648 $195,337 AVAILABLE FOR DEBT SERVICE $1,889,621 $1,928,939 $1,968,817 $2,009,252 $2,050,236 $2,091,764 $2,133,826 $2,176,415 $2,219,520 $2,263,129 DEBT SERVICE Principal Interest $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL DEBT SERVICE $0 $0 $0 $0 $0 $0 $0 $0 $0 15% Reserve Account 15.00% NET CASH FLOW $1,889,621 $1,928,939 $1,968,817 $2,009,252 $2,050,236 $2,091,764 $2,133,826 $2,176,415 $2,219,520 $2,263,129 DEBT SERVICE COVERAGE RATIO N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1 NET CASH FLOW DISTRIBUTION LP Management Fee $5,000 3.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 General Partner Management Fee $25,000 3.00% $89,113 $91,786 $94,540 $97,376 $100,297 $103,306 $106,405 $109,598 $112,886 $116,272 Residual Receipts City of Carisbad 48.52% $873,689 $891,471 $909,485 $927,730 $946,200 $743,366 $0 $0 $0 $0 Begin Bai Accrued Interest $7,400,000 $3,959,941 $222,000 $3,308,252 $222,000 $2,638,781 $222,000 $1,951,296 $222,000 $1,245,556 $222,000 $521,366 $222,000 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Payment End.Ln Bai $4,181,941 $873,689 $3,530,252 $891,471 $2,860,781 $909,485 $2,173,296 $927,730 $1,467,555 $946,200 $743,366 $743,356 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Payment End.Ln Bai $3,308,252 $2,638,781 $1,951,296 $1,245,566 $521,366 $0 $0 $0 $0 $0 Citv of Carisbad - Land Contribution 11.48% $206,616 $210,821 $215,081 $219,396 $223,763 $175,795 $0 $0 $0 $0 Begin Bai Accrued Interest $1,750,000 $936,473 $52,500 $782,357 $52,500 $624,036 $52,500 $461,455 $52,500 $294,560 $52,500 $123,296 $52,500 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Payment End.Ln Bai $988,973 $206,616 $834,857 $210,821 $676,536 $215,081 $513,955 $219,396 $347,060 $223,763 $175,796 $175,796 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Payment End.Ln Bai $782,357 $624,036 $461,455 $294,560 $123,296 $0 $0 $0 $0 $0 GP Incentive Management Fee (90%) $548,183 $661,375 $674,740 $688,275 $701,978 $962,365 $1,824,579 $1,860,136 $1,895,971 $1,932,171 General Partner (.01%) Limited Partner (99.99%) $7 $72,013 $7 $73,479 $7 $74,964 $8 $76,467 $8 $77,990 $11 $106,919 $20 $202,722 $21 $205,551 $21 $210,642 $21 $214,664 130115_Carisbad (Acq.-Predev-Const.- Perm).xlsx Prepared by: Strategic Consulting Initiative (/I Carlsbad - New Construction Developer: C&C/IHO Version: Acq.-Predev-Const.-Perm Page 10 of 10 1/16/2013 60 YEAR CASH FLOW ANALYSIS % Residential Operational Year 54 Year 55 2073 2074 1 $8,049,786 $8,291,280 $8,049,786 $8,291,280 $48,287 $49,736 llNCOME ASSUMPTIONS Restricted Unit Rents GROSS POTENTIAL INCOME - HOUSING OTHER INCOME Miscellaneous Income GROSS POTENTIAL INCOME - OTHER $48,287 $49,736 GROSS POTENTIAL INCOME - TOTAL IVACANCY ASSUMPTIONS Restricted Units Miscellaneous Income TOTAL VACANCY LOSS EFFECTIVE GROSS INCOME OPERATING EXPENSES Residential Expenses Real Estate Taxes $8.098.073 $8.341.016 5.00% 5.00% ($402,489) ($2.414) ($414,554) (^2,487) ($404,904) ($417,051) $7,693,170 $7,923,965 3.50% $5,099,053 $5,277,519 2.00% $85.590 $87.404 $5,184,743 $5,364,923 NET OPERATING INCOME RESERVE DEPOSITS Replacement Reserve 3.00% $201,197 $207,233 AVAILABLE FOR DEBT SERVICE $2,307,230 $2,351,808 1 DEBT SERVICE Principal Interest 1 $0 $0 $0 $0 TOTAL DEBT SERVICE $0 $0 15% Reserve Account 15.00% NET CASH FLOW $2,307,230 $2,351,808 DEBT SERVICE COVERAGE RATIO I NET CASH FLOW DISTRIBUTION LP Management Fee General Partner Management Fee Residual Receipts City of Carisbad Begin Bai Accrued Interest Subtotal Payment End.Ln Bai City of Carisbad - Land Contribution $5,000 3.00% $0 $0 $25,000 3.00% $119,750 $123,353 Begin Bai Accrued Interest Subtotal Payment End.Ln Bai GP Incentive Management Fee (90%) General Partner (.01%) Limited Partner (99.99%) $1,750,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $1,968,723 $2,005,610 $22 $22 $218,725 $222,823 130115_Cartsbad (Acq.-Predev-Const - Perm).xlsx Prepared by: Strategic Consulting Initiative 63 EXHIBIT 4 DEED OF TRUST RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City ofCarlsbad Housing and Neighborhood Services Department 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director No fee for recording pursuant to Govemment Code Section 27383 DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (Carol-Harding Duplex Acquisition) THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT ("Deed of Trust") is made as of , 2013, by and among Harding Street Neighbors, LP, a Califomia limited partnership ("Trustor"), Fidelity National Title Company , a Califomia corporation ("Tmstee"), and the City of Carlsbad, a municipal corporation ("Beneficiary"). FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the tmst herein created, the receipt of which is hereby acknowledged. Trustor hereby irrevocably grants, transfers, conveys and assigns to Tmstee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, Tmstor's fee interest in the property located in the City ofCarlsbad, County of San Diego, State of Califomia, 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 Tmstor 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 ofthe 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 Tmstor 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 Tmstor, now ovmed or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, Draft: Carol-Harding Duplex DOT; 1/8/13 ] (.5 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 Tmstor 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 Tmstor now have 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 Tmstor'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 ftjmished 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 Tmstor'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, fumiture and ftjmishings, 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, instmments, 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 Tmstor; all replacements, additions, accessions and proceeds; and all books, records and files relating to any ofthe foregoing. All ofthe foregoing, together with the Property, is herein referred to as the "Security." To have and to hold the Security together with acquittances to the Tmstee, its successors and assigns forever. FOR THE PURPOSE OF SECURING: (a) Payment of just indebtedness of Tmstor 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 Draft: Carol-Harding Duplex DOT; 1/8/13 2 (b) Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Tmst following a breach of Tmstor's obligations 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 Tmstor 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 Tmst, the following terms shall have the following meanings in this Deed of Trust: Section 1.1 The term "Loan Agreement" means that certain Loan Agreement between Trustor and Beneficiary, dated of even date herewith providing for the Beneficiary to loan to the Tmstor an amount not to exceed Seven Million Four Hundred Eight Thousand Dollars ($7,408,000) for the development ofthe Property. Section 1.2 The term "Loan Documents" means this Deed of Tmst, the Note, the Loan Agreement, the Regulatory Agreement, and any other debt, loan or security instmments between Tmstor and the Beneficiary relating to the Property. Section 1.3 The term "Note" means the promissory note in the principal amount of Seven Million Four Hundred Eight Thousand Dollars ($7,408,000 ) dated of even date herewith executed by the Tmstor in favor of the Beneficiary, the payment of which is secured by this Deed of Tmst. (A copy ofthe 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 Tmstor, 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 Tmstor. The Tmstor agree that at all times prior to full payment of the sum owed under the Note, Draft: Carol-Harding Duplex DOT; 1/8/13 3 the Tmstor will, at the Tmstor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition. The Tmstor 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. Tmstor agree to pay fiilly and discharge (or cause to be paid fiilly and discharged) all claims for labor done and for material and services fiimished 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 constmction 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 Tmstor irrevocably appoint, designate and authorize 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 Tmstor only in the event that Tmstor shall fail to take, or shall fail to diligently continue to take, those actions as hereinbefore provided. Upon demand by Beneficiary, Tmstor shall make or cause to be made such demands or claims as Beneficiary shall specify upon laborers, material men, subcontractors or other persons who have fiimished or claim to have fiimished labor, services or materials in connection with the Security. Nothing herein contained shall require Tmstor to pay any claims for labor, materials or services which Tmstor in good faith dispute and are diligentiy contesting provided that Tmstor, 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. Tmstor 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 assign and transfer 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 or agreement of Trustor in the Loan Documents, Tmstor shall collect and receive all rents and revenues of the Property as trustee for the benefit of Beneficiary and Tmstor to apply the rents Draft: Carol-Harding Duplex DOT; 1/8/13 4 LB and revenues so collected to the sums secured by this Deed of Tmst with the balance, so long as no such breach has occurred, to the account of Tmstor, it being intended by Tmstor 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 Tmstor of the breach by Tmstor of any covenant or agreement of Tmstor in the Loan Documents, and without the necessity of Beneficiary entering upon and taking and maintaining fiill control ofthe Property in person, by agent or by a court-appointed receiver. Beneficiary shall immediately be entitied 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 Tmstor as trustee for the benefit of Beneficiary only; provided, however, that the written notice by Beneficiary to Tmstor of the breach by Tmstor shall contain a statement that Beneficiary exercises its rights to such rents. Tmstor agrees that commencing upon delivery of such written notice of Tmstor's breach by Beneficiary to Tmstor, 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 fiirther as to the existence of a default by Tmstor. Except as previously approved by the Beneficiary as set forth in the Loan Agreement, Tmstor hereby covenants that Tmstor has not executed any prior assignment of said rents, that Tmstor has not performed, and will not perform, any acts or has not executed and will not execute, any instmment which would prevent Beneficiary from exercising its rights under this Section 2.3, and that at the time of execution of this Deed of Tmst, there has been no anticipation or prepayment of any ofthe rents ofthe Property for more than two (2) months prior to the due dates of such rents. Tmstor covenants that Tmstor will not hereafter collect or accept payment of any rents ofthe Property more than two (2) months prior to the due dates of such rents. Tmstor fiirther covenant that Tmstor will execute and deliver to Beneficiary such fiirther assignments of rents and revenues ofthe Property as Beneficiary may from time to time request. Upon Tmstor' breach of any covenant or agreement of Tmstor 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 fiill 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 ofthe Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance ofthe Property, all on such terms as are deemed best to protect the security of this Deed of Tmst. In the event Beneficiary elects to seek the appointment of a receiver for the Property upon Tmstor's breach of any covenant or agreement of Tmstor in this Deed of Tmst, Tmstor hereby expressly consents to the appointment of such receiver. Beneficiary or the receiver shall be entitied to receive a reasonable fee for so managing the Property. All rents and revenues collected subsequent to delivery of written notice by Beneficiary to Tmstor ofthe breach by Tmstor of any covenant or agreement of Tmstor 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, attomey's fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies. Draft: Carol-Harding Duplex DOT; 1/8/13 5 taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Tmstor as lessor or landlord of the Property and then to the sums secured by this Deed of Tmst. 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 Tmstor, anyone claiming under or through Tmstor or anyone having an interest in the Property by reason of anything done or left undone by Beneficiary under this Section 2.3. Ifthe 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 fimds expended by Beneficiary for such purposes shall become indebtedness of Tmstor to Beneficiary secured by this Deed of Trust pursuant to Section 3.3 hereof Unless Beneficiary and Tmstor agree in writing to other terms of payment, such amounts shall be payable upon notice from Beneficiary to Tmstor 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 Tmst ceases to secure indebtedness held by Beneficiary. The rights ofthe Beneficiary under this Section 2.3 are subject to the rights of any senior mortgage lender. ARTICLE 3 TAXES AND INSURANCE; ADVANCES Section 3.1 Taxes, Other Govemmental Charges and Utility Charges. Tmstor shall pay, or cause to be paid 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 Tmstor 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) Tmstor maintains reserves adequate to pay any liabilities contested pursuant to this Section 3.1. With respect to taxes, special assessments or other similar govemmental charges, Tmstor shall pay such amount in fiill prior to the attachment of any lien therefor on any part ofthe Security; provided, however, if such taxes, assessments or charges may be paid in installments, Tmstor may pay in such installments. Except as provided in clause (b) ofthe first sentence of this paragraph, the provisions of this Section 3.1 shall not be constmed to require that Tmstor maintain a reserve account, escrow account, impound account or other similar account for the payment of fiiture taxes, assessments, charges and levies. In the event that Tmstor shall fail to pay any of the foregoing items required by this Section to be paid by Tmstor, 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 Tmstor 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 Draft: Carol-Harding Duplex DOT; 1/8/13 6 10 the maximum rate permitted by law, shall become an additional obligation of Tmstor to the Beneficiary and shall be secured hereby, and Tmstor agrees to pay all such amounts. Section 3.2 Provisions Respecting Insurance. Tmstor agrees to provide insurance conforming in all respects to that required under the Loan Documents during the course of constmction and following completion, and at all times until all amounts secured by this Deed of Tmst have been paid and all other obligations secured hereunder fiilfilled^ and this Deed of Tmst reconveyed. All such insurance policies and coverages shall be maintained at Tmstor's sole cost and expense. Certificates of insurance for all of the above insurance policies, showing the same to be in fiill 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 Tmst. Tmstee is aware that Califomia Civil Code Section 2955.5(a) provides as follows: No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property. Section 3.3 Advances. In the event the Tmstor shall fail to maintain the full insurance coverage required by this Deed of Tmst 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 ofthe Tmstor to the Beneficiary (together with interest as set forth below) and shall be secured hereby, which amounts the Tmstor 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 ofthe power of eminent domain, (2) any damage to or destmction ofthe Property or in any part thereof by insured casualty, and (3) any other injury or damage to all or any part ofthe 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 indebtedness or obligation secured hereby, in such order and manner as the Beneficiary shall determine at its sole option. The Beneficiary shall be entitied to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain from the Draft: Carol-Harding Duplex DOT; 1/8/13 7 71 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 Tmstor upon such conditions as the Beneficiary may impose for its disposition, and Beneficiary agrees to release Funds to Tmstor to be used for the restoration ofthe Project so long as Beneficiary is reasonably satisfied that the proceeds of insurance, together with any additional proceeds made available by Tmstor, are sufficient to restore the Project, subject to the rights of any senior mortgage lender. Application of all or any part ofthe Funds collected and received by the Beneficiary or the release thereof shall not cure or waive any default under this Deed of Tmst. The rights of the Beneficiary under this Section 4.1 are subject to the rights of any senior mortgage lender. ARTICLE 5 AGREEMENTS AFFECTING THE PROPERTY; FURTHER ASSURANCES; PAYMENT OF PRINCIPAL AND INTEREST Section 5.1 Other Agreements Affecting Property. The Tmstor 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 Attomeys' Fees and Expenses. In the event of any Event of Default (as defined below) hereunder, and if the Beneficiary should employ attomeys 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 ofthe Tmstor in this Deed of Tmst, the Tmstor agrees that it will, on demand therefor, pay to the Beneficiary the reasonable fees of such attomeys 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 Tmst, 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 Tmstor 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 Tmst shall constitute a fixtures filing under the Califomia 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 Califomia Commercial Code. Draft: Carol-Harding Duplex DOT; 1/8/13 Section 5.5 Financing Statement. The Tmstor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instmments as are required to convey to the Beneficiary a valid perfected secuiity interest in the Security. The Tmstor 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 instmment. Section 5.6 Operation of the Security. The Tmstor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Tmst, the transferee shall operate such portion of the Security) in full 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, attomeys, experts, engineers, accountants and representatives, shall have the right, without payment of charges or fees, to inspect the Security. Section 5.8 Nondiscrimination. The Tmstor herein covenant by and for themselves, their 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 Tmstor 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 mn with the land. ARTICLE 6 HAZARDOUS WASTE Tmstor 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. Tmstor 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 Draft: Carol-Harding Duplex DOT; 1/8/13 9 hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily kept and used in and about multifamily residential property. Tmstor shall immediately advise Beneficiary in writing if at any time they receive written notice of (i) any and all enforcement, cleanup, removal or other govemmental or regulatory actions instituted, completed or threatened against Tmstor 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 Tmstor 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) Tmstor's discovery of any occurrence or condition on any real property adjoining or in the vicinity ofthe Property that could cause the Property or any part thereof to be classified as "border-zone property" under the provision of Califomia 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 attomeys' fees in connection therewith paid by Tmstor. Tmstor 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 indirectiy 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, Tmstor 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 ofthe 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 Tmstor 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) Tmstor establishes to the reasonable satisfaction of Beneficiary that there is no reasonable altemative 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. Draft: Carol-Harding Duplex DOT; 1/8/13 1Q The Tmstor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Tmstor' response) conceming the environmental condition of the Property as required by Califomia Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Tmst or any ofthe 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 Tmstor to be an "environmental provision" for purposes of Califomia 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 Califomia Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in Califomia Code of Civil Procedure Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Tmstee's rights and remedies under this Deed of Tmst, the Beneficiary may elect to exercise its rights under Califomia 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 Tmstor 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 Califomia Code of Civil Procedure Section 726.5(a), the Tmstor shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of Califomia Code of Civil Procedure Section 726.5(d)(1), 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 Tmstor 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 Califomia 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 Tmst 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 Defauh. The following shall constitute Events of Defauh following the expiration of any applicable notice and cure periods: (1) failure to make any payment to be paid by Tmstor under the Loan Documents; (2) failure to observe or perform any of Tmstor's other covenants, agreements or obligations under the Loan Documents, including, without limitation, the provisions conceming discrimination; or (3) failure to make any payment or perform any of Tmstor's other covenants, agreements, or obligations under any other debt instmments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein. Draft: Carol-Harding Duplex DOT; 1/8/13 11 15 Section 7.2 Acceleration of Maturity. If an Event of Default shall have occurred and be continuing, then at the option ofthe Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal ofthe Note shall immediately become due and payable, upon written notice by the Beneficiary to the Tmstor (or automatically where so specified in the Loan Documents), and no omission on the part ofthe Beneficiary to exercise such option when entitled to do so shall be constmed 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 ofthe 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 Defauh or pursuant to such Notice of Default and, notwithstanding the continuance in possession ofthe Security, Beneficiary shall be entitied to exercise every right provided for in this Deed of Tmst, or by law upon occurrence of any Event of Defauh, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Tmst as a mortgage, appoint a receiver, or specifically enforce any ofthe covenants hereof; (c) Deliver to Tmstee a written declaration of default and demand for sale, and a written notice of default and election to cause Tmstor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Tmstee or Beneficiary shall cause to be duly filed for record in the Official Records of San Diego County; or (d) Exercise all other rights and remedies provided herein, in the instmments by which the Tmstor acquired 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. 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 Tmstee (the "Notice of Sale") and shall deposit with Tmstee this Deed of Tmst which is secured hereby (and the deposit of which shall be deemed to constitute evidence that the unpaid principaf amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Tmstee may require. Draft: Carol-Harding Duplex DOT; 1/8/13 12 (a) Upon receipt of such notice from the Beneficiary, Tmstee shall cause to be recorded, published and delivered to Tmstor such Notice of Defauh and Election to Sell as then required by law and by this Deed of Tmst. Tmstee shall, without demand on Tmstor, after lapse of such time as may then be required by law and after recordation of such Notice of Defauh 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 Tmstee shall deem expedient and in such order as it may determine unless specified otherwise by the Tmstor according to Califomia Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawfiil money of the United States payable at the time of sale. Tmstee 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 tmthfulness thereof Any person, including, without limitation, Tmstor, Tmstee or Beneficiary, may purchase at such sale, and Tmstor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Tmstee, including costs of evidence of title in connection with such sale, Tmstee 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 Tmstor. (c) Tmstee 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 further 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 fiirther notice to Tmstor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Tmstor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers ofthe Security (or a part thereof), and Tmstor hereby irrevocably consent 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 Tmst 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. Draft: Carol-Harding Duplex DOT; 1/8/13 13 77 Section 7.7 No Waiver. (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accming upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be constmed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Tmst 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 Tmstor, or a waiver of any obligation of Tmstor 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 Tmstor 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 Tmstor. (b) If the Beneficiary (i) grants forbeai'ance 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 Tmst, or otherwise changes any of the terms, covenants, condhions 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 Tmst, or any other obligation of the Tmstor 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 instmment or instmments executed by the Beneficiary shall the lien of this Deed of Tmst 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 Tmst, (b) preserve or protect its interest (as described in this Deed of Tmst) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other govemmental enactment, mle or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, mle or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. Section 7.9 Tmstee May File Proofs of Claim. In the case of any receivership, insolvency, bankmptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Tmstor, their creditors or their property, the Tmstee, 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 ofthe Draft: Caro^Harding Duplex DOT; 1/8/13 14 Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Tmstor hereunder after such date. Section 7.10 Waiver. The Tmstor waive 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 Tmst. ARTICLE 8 MISCELLANEOUS Section 8.1 Amendments. This instmment cannot be waived, changed, discharged or terminated orally, but only by an instmment in writing signed by Beneficiary and Tmstor. Section 8.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid or forgiven, that all obligations to be performed by the Tmstee under the Loan Documents (including, but not limited to, the operation of the Property in accordance with, and for the entire term of, the Regulatory Agreement), and upon surrender of this Deed of Tmst to Tmstee for cancellation and retention, and upon payment by Tmstor of Tmstee's reasonable fees, Tmstee shall reconvey the Security to Tmstor, or to the person or persons legally entitled thereto. Section 8.3 Notices. If at any time after the execution of this Deed of Tmst 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, by reputable ovemight delivery service, or by depositing the same in the registered United States mail, retum receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to: City ofCarlsbad Housing and Neighborhood Services Department 1200 Carlsbad Village Drive Carlsbad, CA 92008 Attn: Housing and Neighborhood Services Director Draft: Carol-Harding Duplex DOT; 1/8/13 15 and (2) if intended for Trustor shall be addressed to: Harding Street Neighbors LP C/O Irvine Housing Opportunities 19772 MacArthur Blvd, Suite 110 Irvine, Ca. 92612 and copies to: C& C Development Co 14211 Yorba Street, Suite 200 Tustin, Ca. 92780 Goldfarb & Lipman LLP 1300 Clay Street ll^"" Floor Oakland, Ca. 94612 Attn: M. David Kroot Goldfarb & Lipman LLP 1300 Clay Street Oakland, Ca. 94612 Attn: Amy DeVaudrenil 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 maimer herein specified, on the delivery date or date delivery is refused by the addressee, as shown on the retum receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Tmstor 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 Tmstor. Where an obligation is created herein binding upon Tmstor, the obligation shall also apply to and bind any transferee or successors in interest. Where the terms ofthe Deed of Tmst have the effect of creating an obligation of the Trustor and transferees, such obligation shall be deemed to be a joint and several obligation of the Tmstor and such transferees. Where Tmstor is more than one entity or person, all obligations of Tmstor shall be deemed to be a joint and several obligation of each and every entity and person comprising Tmstor. 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 Tmst. Draft: Carol-Harding Duplex DOT; 1/8/13 16 Section 8.6 Invalidity of Certain Provisions. Every provision of this Deed of Tmst 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 Tmst 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 Tmst. Section 8.7 Goveming Law. This Deed of Tmst shall be govemed by and constmed in accordance with the laws of the State of Califomia. Section 8.8 Gender and Number. In this Deed of Tmst 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 Tmst, Mortgage. Any reference in this Deed of Tmst to a mortgage shall also refer to a deed of tmst and any reference to a deed of tmst shall also refer to a mortgage. Section 8.10 Actions. Tmstor agree to appear in and defend any action or proceeding purporting to affect the Security. Section 8.11 Substitution of Trustee. Beneficiary may from time to time substitute a successor or successors to any Tmstee named herein or acting hereunder to execute this Tmst. Upon such appointment, and without conveyance to the successor tmstee, the latter shall be vested with all title, powers, and duties conferred upon any Tmstee herein named or acting hereunder. Each such appointment and substitution shall be made by written instmment executed by Beneficiary, containing reference to this Deed of Tmst 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 tmstee. 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 Tmst is hereby waived to the full extent permissible by law. Draft: Carol-Harding Duplex DOT; 1/8/13 17 Section 8.13 Subordination. The rights and remedies of the Beneficiary under this Deed of Tmst shall be subject in all respects to the terms and conditions of that certain subordination agreement by and among the Beneficiary, the Tmstor, Bank of America and Fidelity National Title Company , as tmstee, recorded concurrently herewith. Section 8.14 Acceptance by Tmstee. Tmstee accepts this Tmst when this Deed of Tmst, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Tmstee is not obligated to notify any party hereto of pending sale under this Deed of Tmst or of any action of proceeding in which Tmstor, Beneficiary, or Tmstee shall be a party unless brought by Tmstee. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Draft: Carol-Harding Duplex DOT; 1/8/13 1 g IN WITNESS WHEREOF, Tmstor has executed this Deed of Tmst as of the day and year first above written. TRUSTOR: Harding Street Neighbors LP, a limited partnership By: IHO Harding Street LLC Its managing general partner By: Irvine Housing Opportunities, Inc. Its sole member By: Patricia C. Whitaker Its: Chief Executive Officer By: C&C Harding Street, LLC Its administrative general partner By: Todd R. Cottle Its: Member By: The Cottle Family Tmst dated 3/8/1987; Barry A. Cottle Its; Member; tmstee PROPER NOTARIAL ACKNOWLEDGEMENT OF EXECUTION MUST BE ATTACHED Draft: Carol-Harding Duplex DOT; 1/8/13 19 82 EXHIBIT A (Legal Description) A-l I010\20\406821.1 EXHIBITS PROMISSORY NOTE PROMISSORY NOTE (Carol-Harding Duplex Acquisition) $7,408,000 Carlsbad, Califomia ,2013 FOR VALUE RECEIVED, Harding Street Neighbors LP, a Califomia limited partnership ("Borrower"), promises to pay to the City of Carlsbad , a municipal corporation (the "City"), or order, the principal sum of up to Seven Million Four Hundred Eight Thousand Dollars ($7,408,000), or so much as is disbursed to Borrower, plus interest thereon pursuant to Section 2 below. 1. Borrower's Obligation. This promissory note ("Note") evidences the Borrower's obligation to pay the City the principal amount of up to Seven Million Four Hundred Eight Thousand Dollars ($7,408,000), or so much as is disbursed, for the funds loaned to the Borrower by City to finance the acquisition and rehabilitation of the Property pursuant to the Loan Agreement between the Borrower and the City, dated , 2013 (the "Agreement"). All capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Agreement. 2. Interest. The outstanding principal balance of this Note shall bear simple interest at the rate of three percent (3%) per annum from the date of disbursement until paid; provided, however, if a Defauh occurs, interest on the principal balance shall begin to accme, as ofthe date of Default (following expiration of applicable notice and cure periods), and continuing until such time as the Loan funds are repaid in full or the Default is cured, at the defauh rate of the lesser of ten percent (10%), compounded annually, or the highest rate permitted by law. 3. Term and Repavment Requirements. The term of this Note shah commence with the date of this Note and shall expire the earlier of either 1) fifty-five (55) years from the issuance ofa Certificate of Occupancy, or its equivalent, or 2) sixty (60) years from the date of this Agreement. This Note shall be due and payable as set forth in Section 2.6 ofthe Loan Agreement. Repayment of this Note shall be nonrecourse to the Borrower pursuant to Section 2.8 ofthe Loan Agreement, and subject to the exceptions set forth therein. 4. No Assumption. This Note shall not be assumable by the successors and assigns of Borrower without the prior written consent of the City, or as set forth in Article 4 of the Agreement. 5. Securitv. This Note is secured by a Deed of Tmst with Assignment of Rents and Security Agreement (the "Deed of Tmst") of even date herewith, wherein the Borrower are Tmstors and the City is the Beneficiary, covering the Borrower's fee interest in the Property. I010\20\406820. 6. Terms of Pavment. (a) All payments due under this Note shall be paid in currency of the United States of America, which at the time of payment is lawful for the payment of public and private debts. (b) All payments on this Note shall be paid to the City at City of Carlsbad, Housing and Neighborhood Services Department, 1200 Carlsbad Village Drive, Carlsbad, CA 92008 or to such other place as the City may from time to time designate in writing. (c) All payments on this Note shall be without expense to the City, and the Borrower agree to pay all costs and expenses, including re-conveyance fees and reasonable attomey's fees ofthe City, incurred in connection with the payment of this Note and the release of any security hereof (d) Notwithstanding any other provision of this Note, or any instmment securing the obligations of the Borrower under this Note, if, for any reason whatsoever, the payment of any sums by the Borrower pursuant to the terms of this Note would result in the payment of interest which would exceed the amount that the City may legally charge under the laws ofthe State of Califomia, then the amount by which payments exceeds the lawful interest rate shall automatically be deducted from the principal balance owing on this Note, so that in no event shall the Borrower be obligated under the terms of this Note to pay any interest which would exceed the lawful rate. 7. Default. (a) Any of the following shall constitute an Event of Default under this Note: (i) Any failure ofthe Borrower to obtain all planning approvals and building permits necessary to constmct the future improvements for a new, larger and higher density affordable rental development or complete substantial rehabilitation ofthe existing Development within a reasonable period of time as determined by the City Council and set forth with the Loan Agreement; (ii) Any failure to pay, in full, any payment required under this Note when due following written notice by the City to Borrower of such failure and thirty (30) days opportunity to cure by Borrower; (iii) Any failure of the Borrower to commence and complete constmction ofthe new, larger, and higher density affordable rental development or the substantial rehabilitation work on the existing Development within a reasonable period of time as determined by the City Council and set forth with the Loan Agreement (iv) Any failure in the performance by the Borrower of any term, condition, provision or covenant set forth in this Note subject to the notice and cure period set forth in Section 6.1 of the Loan Agreement; and 2 Draft: Promissory Note - Carol-Harding Duplex - 1/8/13e (v) The occurrence of any Default under the Agreement, the Deed of Tmst or the Regulatory Agreement (the "Loan Documents"), or other instmment securing the obligations ofthe Borrower under this Note or under any other promissory notes hereafter issued by the Borrower to the City pursuant to the Agreement or the Deed of Tmst, subject to notice and cure periods, if any, set forth therein. (b) Upon the occurrence of such an Event of Default, the entire unpaid principal balance, together with all interest thereon, and together with all other sums then payable under this Note and the Deed of Tmst shall at the option of the City become immediately due and payable upon written notice by the City to the Borrower without further demand. (c) The failure to exercise the remedy set forth in Subsection 7(b) above or any other remedy provided by law upon the occurrence of one or more ofthe foregoing events of default shall not constitute a waiver of the right to exercise any remedy at any subsequent time in respect to the same or any other defauh. The acceptance by City hereof of any payment which is less than the total of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or at any subsequent time, or nullify any prior exercise of any such remedy or option, without the express consent of the City, except as and to the extent otherwise provided by law. (d) The rights and remedies of the City under this Note shall be subject in all respects to the terms and conditions of that certain Subordination Agreement by and among the City, the Borrower and Fidelity National Title Company, as Tmstee, executed concurrently herewith. 8. Waivers. (a) The Borrower hereby waives diligence, presentment, protest and demand, and notice of protest, notice of demand, and notice of dishonor of this Note. The Borrower expressly agrees that this Note or any payment hereunder may be extended from time to time, and that the City may accept further security or release any security for this Note, all without in any way affecting the liability of the Borrower. (b) No extension of time for payment of this Note or any installment hereof made by agreement by the City with any person now or hereafter liable for payment of this Note shall operate to release, discharge, modify, change or affect the original liability ofthe Borrower under this Note, either in whole or in part. (c) The obligations of the Borrower under this Note shall be absolute and the Borrower waives any and all rights to offset, deduct or withhold any payments or charges due under this Note for any reason whatsoever. 9. Miscellaneous Provisions. (a) All notices to the City or the Borrower shall be given in the manner and at the addresses set forth in the Agreement, or to such addresses as the City and the Borrower may hereinafter designate. 3 Draft: Promissory Note - Carol-Harding Duplex - 1/8/13e QB (b) The Borrower promises to pay all costs and expenses, including reasonable attomey's fees, incurred by the City in the enforcement of the provision of this Note, regardless of whether suit is filed to seek enforcement. (c) This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (d) This Note shall be govemed by and constmed in accordance with the laws of the State of Califomia. (e) The times for the performance of any obligations hereunder shall be strictly constmed, time being of the essence. (f) This document, together with the Loan Documents, contains the entire agreement between the parties as to the Loan. It may not be modified except upon written consent of the parties. 10. Non-Recourse. Except as provided below, the Borrower and its general partners shall not have any direct or indirect personal liability for payment ofthe principal of, or interest on, the Loan or the performance of the covenants of the Borrower under the Deed of Tmst. The sole recourse ofthe City with respect to the principal of, or interest on, the Note and defaults by the Borrower in the performance of its covenants under the Deed of Tmst shall be to the Property described in the Deed of Tmst; provided, however, that nothing contained in the foregoing limitation of liability shall (a) limit or impair the enforcement against all such security for the Note of all the rights and remedies of the City thereunder, or (b) be deemed in any way to impair the right ofthe City to assert the unpaid principal amount ofthe Note as demand for money within the meaning and intendment of Section 431.70 of the Califomia 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 Note and the performance of the Borrower' obligations under the Deed of Tmst, except as hereafter set forth; nothing contained herein is intended to relieve the Borrower of its obligation to indemnify the City under Sections 3.4, 3.6, 3.15, and 7.5 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 Property that are payable or applicable prior to any foreclosure under the 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 Borrower other than in accordance with the Deed of Tmst; and (iv) the misappropriation of any proceeds under any insurance policies or awards resulting from condemnation or the exercise ofthe power of eminent domain or by reason of damage, loss or destruction to any portion ofthe Property. [Remainder of this page has been left intentionally blank] 4 Draft: Promissory Note - Carol-Harding Duplex - 1/8/13e 8^ Borrower: Harding Street Neighbors LP, A Califomia limited partnership By: IHO Harding Street LLC Its: managing general partner By: Irvine Housing Opportunities, Inc. Its: sole member By:. Patricia C. Whitaker Its: Chief Executive Officer By: C & C Harding Street, LLC Its: administrative general partner By: Todd R. Cottle, Its: Member By: The Cottle Family Trust dated 3/8/1987 Its: Member By: Barry A. Cottle, Its: Tmstee 5 Draft: Promissory Note - Carol-Harding Duplex - 1/8/13e ^0 EXHIBITS REGULATORY AGREEMENT RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City Clerk's Office City ofCarlsbad Attn: City Clerk 1200 Carlsbad Village Drive Carlsbad, CA 92008 No fee for recording pursuant to Govemment Code Section 27383 REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (Carol-Harding Duplex Acquisition) This Regulatory Agreement and Declaration of Restrictive Covenants (the "Agreement") is made and entered into as of , 2013 (the "Agreement Date"), by and among the City ofCarlsbad, a municipal corporation (the "City"), and Harding Street Neighbors LP, a Califomia limited partnership (the "Developer"). RECITALS 1. The City and the Developer have entered into a Loan Agreement (the "Agreement") under which the City agreed to loan up to Seven Million Four Hundred Eight Thousand Dollars ($7,408,000) (the "City Loan") to the Developer to finance the acquisition of twenty-one (21) duplex dwelling units, forty-two (42) total dwelling units, appurtenances, landscaping and vacant parcel of land to provide for affordable housing for lower and moderate income household on property described as Carol-Harding and fiirther described in Exhibit A. Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Loan Agreement. 2. The City Loan consists of Seven Million Four Hundred Eight Thousand Dollars ($7,408,000) ofCarlsbad Housing Tmst Funds. 3. The Carlsbad Housing Trust Fund must be used to provide housing for lower income households for the longest feasible time, determined to be a minimum of fifty-five (55) years. The City intends to initially restrict twenty (20) of the units in the Development to low income households, and shall amend this Agreement to regulate a larger number if a new, larger, and higher density development is approved for said property. 4. Through this Agreement the City is imposing occupancy and affordability restrictions on the Development in order to meet the needs for affordable housing in Carlsbad for lower and moderate income households. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 1 5. In consideration of receipt ofthe City Loan, the Developer has further agreed to observe all the terms and conditions set forth below. 6. In order to ensure that the entire Development will be used and operated in accordance with these conditions and restrictions, the City and the Developer wish to enter into this Agreement. THEREFORE, the City and the Developer hereby agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Definitions. When used in this Agreement, the following terms shall have the respective meanings assigned to them in this Article 1. (a) "Actual Household Size" shall mean the actual number of persons in the applicable household. (b) "Adjusted Income" shall mean the total anticipated annual income of all persons in a household as calculated in accordance with 24 CFR 92.203(b)(1) (which incorporates 24 CFR 813). (c) "Agreement" shall mean this Regulatory Agreement and Declaration of Restrictive Covenants. (d) "Agreement Date" shall mean the last date opposite the respective signatures ofthe Developer and the City on this Agreement. (e) "Assumed Household Size" shall mean the assumed household size of three (3) persons for a two-bedroom unit. (f) "City" shall mean the City of Carlsbad, a municipal corporation. (g) "City Loan" shall mean the funds loaned to the Developer by the City pursuant to the Loan Agreement. (h) "Deed of Tmst" shall mean the deed of tmst of even date herewith in favor ofthe City on the Developer' interest in the Property which secures repayment ofthe City Loan and the performance of the Loan Agreement. (i) "Developer" shall mean Harding Street Neighbors LP, a Califomia limted partnership, and hs permitted successors and assigns. (j) "Development" shall mean the Property and the forty-two (42) residential units and related improvements to be acquired on the Property, as well as any additional Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 2 ^ . improvements in the future, and all landscaping, roads and parking spaces existing thereon, as the same may from time to time exist. (k) "Housing Fund" shall mean the City's Housing Trust Fund. (1) "Low Income Household" shall mean a household with an Adjusted Income that does not exceed sixty percent (60%) of the Area Median Income for San Diego County, and as published by the US Department of Housing and Urban Development. (m) "Median Income" shall mean the median gross yearly income, adjusted for Actual Household Size or Assumed Household Size as specified herein, in the County of San Diego, Califomia, as published from time to time by the United States Department of Housing and Urban Development ("HUD") and the State of Califomia. In the event that such income determinations are no longer published, or are not updated for a period of at least eighteen (18) months, the City shall provide the Developer with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by HUD and the State. (n) "Other Income Household" shall mean a household with an Adjusted Income which does not exceed ninety percent (90%) of Median Income, adjusted for Actual Household Size. (o) "Other Income Units" shall mean the Units which, pursuant to Section 2.1(c) below, are required to be occupied by Other Households. (p) "Property" shall mean the real property described in Exhibit A attached hereto and incorporated herein. (q) "Rent" shall mean the total of monthly payments by the Tenant of a Unit for the following: use and occupancy of the Unit and land and associated facilities, including parking; any separately charged fees or service charges assessed by the Developer which are required of all Tenants, other than security deposits; an allowance for the cost of an adequate level of service for utilities paid by the Tenant, including garbage collection, sewer, water, electricity, gas and other heating, cooking and refrigeration fuel, but not telephone service or cable TV; and any other interest, taxes, fees or charges for use of the land or associated facilities and assessed by a public or private entity other than the Developer, and paid by the Tenant. (r) "Tenant" shall mean a household legally occupying a Unit pursuant to a valid lease with the Developer. (s) "Term" shall mean the term of this Agreement, which shall commence on the earlier of (1) fifty-five (55) years from the issuance of a Certificate of Occupancy, or equivalent, or (2) sixty (60) years from the date of this Agreement and shall continue until the end of the term. (t) "Unit(s)" shall mean one (1) or all of the forty-two (42) rental units to be constmcted on the Property. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 3 ARTICLE 2. AFFORDABILITY AND OCCUPANCY COVENANTS Section 2.1 Occupancy Requirements. (a) The Developer shall regulate the use and occupancy ofthe Units in the following manner: Forty-two (42) Units shall be rented to and occupied by or, if vacant, available for occupancy by households as follows: Low (Sixty Percent) Other Income (Ninety Percent) Total Two Bedroom 20 21 41 Total 20 21 41 (+1 Mgr Unit) (b) If the Developer is able to constmct the larger development of approximately 140 units, the City and the Developer will amend these occupancy requirements. (c) Notwithstanding the occupancy and income requirements in this Section 2.1, the existing tenants at the time of acquisition within the development shall not be required to be displaced unless required by another public agency. Section 2.2 Allowable Rent. (a) Low. Sixtv Percent Rent. Subject to Section 2.3 below, the Rent charged to Tenants ofthe Low, Sixty Percent Units shall not exceed one-twelfth (1/12'*') of thirty percent (30%) of sixty percent (60%) of Area Median Income for San Diego County, adjusted for Assumed Household Size. (c) Other Income Rent. Subject to the provisions of Section 2.3 below, the Rent charged to Tenants ofthe Other Income Units shall not exceed one-twelfth (1/12^) of thirty percent (30%) of ninety percent (90%) of Area Median Income for San Diego County, adjusted for Assumed Household Size. (d) Assumed Household Size. In calculating the allowable Rent for the Units, the following Assumed Household Size shall be utilized: three (3) persons per two (2) bedroom unit. (e) Approval of Rents for Units. Imtial rents for all Units shall be approved by the City prior to occupancy. All rent increases for all Units shall also be submitted to the City for approval not less than thirty (30) days before notice is given to the affected Tenant and shall be imposed only if in compliance with this Agreement. The City shall provide the Developer with a schedule of maximum permissible rents for the Units annually. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 4 ^5 Section 2.3 Increased Income of Tenants. (a) Increased Income Over Low Income. In the event that, following recertification of a Tenant's income, the Developer determines that a former Low Income Household has an Adjusted Income that exceeds the qualifying limit for a Low Income Household but does not exceed ninety percent (90%) of Area Median Income for San Diego County, adjusted for Actual Household Size, then, upon expiration of the Tenant's lease and sixty (60) days' written notice to the Tenant, such household's Unit shall be considered an Other Unit, and the Rent may be increased to one-twelfth (1/12^*^) of thirty percent (30%) of ninety percent (90%) of Median Income, and the Developer shall rent the next available Umt to a Low Income Household to comply with the requirements of Section 2.1 above. (b) Increased Income over 90% of Median Income. If, upon recertification of a Tenant's income, the Developer determines that a Tenant has an Adjusted Income exceeding ninety percent (90%) of Area Median Income for San Diego County, adjusted for Actual Household Size, such Tenant shall be permitted to continue to occupy the Unit, and, upon expiration ofthe Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth (1/12'*') of thirty percent (30%) of actual Adjusted Income ofthe Tenant, and the Unit shall continue to be classified as an Other Unit until the Tenant vacates the Unit at which time the Unit shall be re-rented to an income-eligible household to meet the requirements of Section 2.1. (c) Termination of Occupancy. Upon termination of occupancy of a Umt by a Tenant, such Unit shall be deemed to be continuously occupied by a household ofthe same income level (e.g., Low Income Household) as the income level of the vacating Tenant, until such Unit is reoccupied, at which time the income character of the Unit (e.g.. Low Income Household) shall be redetermined. Section 2.4 Units Available to the Disabled. The Developer shall comply with all requirements of the American Disabilities Act. ARTICLE 3. INCOME CERTIFICATION AND REPORTING Section 3.1 Income Certification. The Developer shall obtain, complete and maintain on file, immediately prior to initial occupancy and annually thereafter, income certifications from each Tenant renting any ofthe Units (excluding the manager's Unit). The Developer shall make a good faith effort to verify that the income provided by an applicant or occupying household in an income certification is accurate by taking one or more ofthe following steps as a pari of the verification process: (1) obtain a pay stub for the most recent pay period; (2) obtain an income tax retum for the most recent tax year; (3) conduct a credit agency or similar search; (4) obtain an income verification form from the applicant's current employer; (5) obtain an income verification form from the Social Security Administration and/or the Califomia Department of Social Services ifthe Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 5 applicant receives assistance from either of such agencies; or (6) if the applicant is unemployed and has no such tax retum, obtain another form of independent verification. Copies of tenant income certifications shall be available to the City upon request. Section 3.2 Annual Report to the Citv. The Developer shall submit to the City (a) not later than the sixtieth (60^'') day after the close of each calendar year, or such other date as may reasonably be requested by the City, a statistical report, including income and rent data for all Unhs covered by this Agreement, setting forth the information called for therein, and (b) within fifteen (15) days after receipt ofa written request, any other information or completed forms requested by the City in order to comply with reporting requirements ofthe City. Section 3.3 Addhional Information. The Developer shall provide any additional information reasonably requested by the City. The City shall have the right to examine and make copies of all books, records or other documents ofthe Developer which pertain to the Development. Section 3.4 Records. The Developer shall maintain complete, accurate and current records pertaining to the Development, and shall permit any duly authorized representative ofthe City to inspect records, including records pertaining to income and household size of Tenants. All Tenant lists, applications and waiting lists relating to the Development shall at all times be kept separate and identifiable from any other business of the Developer and shall be maintained as required by the City, in a reasonable condition for proper audit and subject to examination during business hours by representatives ofthe City. The Developer shall retain copies of all materials obtained or produced with respect to occupancy of the Units for a period of at least five (5) years. Section 3.5 On-site Inspection. The City shall have the right to perform an on-site inspection of the Development at least one (1) time per year. The Developer agrees to cooperate in such inspection. Ifthe City desires to inspect the interior ofthe Units, the City shall give Developer sufficient notice to allow the Developer to give seventy-two (72) hours notice to residents. Such right to annually inspect the Development shall be addition to the City's right to inspect the Development in accordance with the City's municipal code as may be amended from time to time. ARTICLE 4. OPERATION OF THE DEVELOPMENT Section 4.1 Residential Use. The Development shall be operated only for residential use. No part ofthe Development shall be operated as short term transient or emergency housing. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 6 Section 4.2 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 accming, or any lien or charge from attaching to the Property; provided, however, that Developer shall have the right to contest in good faith, any such taxes, assessments, or charges. In the event Developer exercise their rights to contest any tax, assessment, or charge against it. Developer, on final determination ofthe proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against h, together wilh all costs, charges and interest. The Developer shall not apply for a property tax exemption for the Property under any provision of law, including but not limited to Revenue and Taxation Section 214, without the City's prior written consent. Section 4.3 Preference to Displacees. The Developer shall give a preference in the rental of any Units to eligible households displaced by activity ofthe City upon receiving a written request ofthe City regarding such displacement. ARTICLE 5. PROPERTY MANAGEMENT AND MAINTENANCE Section 5.1 Management Responsibilities. The Developer is responsible for all management functions with respect to the Development, including without limitation the selection of tenants, certification and recertification of household size and income, evictions, collection of rents and deposits, maintenance, landscaping, routine and extraordinary repairs, replacement of capital items, and security. The City shall have no responsibility over management of the Development. The Developer shall retain a professional property management company approved by the City in its reasonable discretion to perform its management duties hereunder as set forth below. A resident manager shall also be required. Section 5.2 Management Agent. The Development shall at all times be managed by an experienced management agent reasonably acceptable to the City, with demonstrated ability to operate residential facilities like the Development in a manner that will provide decent, safe, and sanitary housing (as approved, the "Management Agent"). The Developer shall submit for the City'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 City to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. Ifthe proposed Management Agent meets the standard for a qualified Management Agent set forth above, the City shall approve the proposed Management Agent by notifying the Developer in writing. Ifthe proposed Management Agent is disapproved by the City, the disapproval shall state with reasonable specificity the basis for disapproval. Thereafter, the Developer shall submh a Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 7 different proposed Management Agent, and submit such additional information about the background, experience and financial condition of the proposed Management Agent as is reasonably necessary for the City to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. Only upon the City's written approval ofthe Developer's proposed Management Agent shall constitute the Developer's compliance with this Section. Section 5.3 Periodic Performance Review. The City reserves the right to conduct an annual (or more frequently, if deemed necessary by the City) review ofthe management practices and financial status of the Development, including the performance ofthe Management Agent. The purpose of each periodic review will be to enable the City 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 City in such reviews. Section 5.4 Replacement of Management Agent. If, as a result of a periodic review, the City determines in its reasonable judgment that the Development is not being operated and managed in accordance with any ofthe material requirements and standards of this Agreement, the City shall deliver notice to Developer of its intention to cause replacement ofthe Management Agent, including the reasons therefor. Within fifteen (15) days of receipt by Developer of such written notice. City 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. City staff recommends in writing the replacement ofthe Management Agent, 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 Section 5.2 above and approved by the City pursuant to Section 5.2 above. Any contract for the operation or management of the Development entered into by 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 default under this Agreement, and the City may enforce this provision through legal proceedings as specified in Section 6.8. Section 5.5 Approval of Management Policies. The Developer shall submit its written management policies with respect to the Development to the City for its review, and shall amend such policies in any way necessary to ensure that such policies comply with the provisions of this Agreement. Section 5.6 Property Maintenance. The Developer agrees, for the entire Term of this Agreement, to maintain all interior and exterior improvements, including landscaping, on the Property in good condition and repair (and, as to landscaping, in a healthy condition) and in accordance with all applicable laws, mles, ordinances, orders and regulations of all federal, state, county, municipal, and other Draft: Carol-Harding Duplex Regulatory Agreement; 1 /8/13 g ^ govemmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. The City places prime importance on quality maintenance to protect its investment and to ensure that all City-assisted affordable housing projects within the City are not allowed to deteriorate due to below-average maintenance. Normal wear and tear of the Development will be acceptable to the City assuming the Developer agrees to provide all necessary improvements to assure the Development is maintained in good condition. The Developer shall make all repairs and replacements necessary to keep the improvements in good condition and repair. In the event that the Developer breaches any of the covenants contained in this section and such default continues for a period of ten (10) days after written notice from the City with respect to graffiti, debris, and waste material, or thirty (30) days after written notice with respect to general maintenance, landscaping and building improvements, (and subject to any stricter requirements included in any applicable City ordinance) then the City, in addition to whatever other remedy it may have at law or in equity, shall have the right to enter upon the Property and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, the City shall be permitted (but is not required) to enter upon the Property and perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Property, and to attach a lien on the Property, or to assess the Property, in the amount of the reasonable expenditures arising from such acts and work of protection, maintenance, and preservation by the City and/or costs of such cure, including an administrative charge equal to fifteen percent (15%) of such expenditures, which amount shall be promptly paid by the Developer to the City upon demand. ARTICLE 6. MISCELLANEOUS Section 6.1 Lease Provisions. The Developer shall use a form of Tenant lease approved by the City. The form of Tenant lease shall also comply with all requirements of this Agreement and the Loan Agreement, and shall, among other matters: (a) provide for termination of the lease and consent by the Tenant to immediate eviction for failure: (1) to provide any information required under this Agreement or reasonably requested by the Developer to establish or recertify the Tenant's qualification, or the qualification of the Tenant's household, for occupancy in the Development in accordance with the standards set forth in this Agreement, or (2) to qualify as a Low Income Household as a result of any material misrepresentation made by such Tenant with respect to the income computation or certification; and (b) be for an initial term of not less than one (1) year, and provide for no Rent increase during such year. After the initial year of tenancy, the lease may be month to month by mutual agreement of the Developer and the Tenant, however the Rent may not be raised more Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 9 often than once every twelve (12) months. The Developer will provide each Tenant with at least sixty (60) days' written notice of any increase in Rent applicable to such Tenant, and with such further notice as may be required by Section 2.3 above. (c) any termination of a lease or refusal by the Developer to renew must be preceded by no less than sixty (60) days written notice to the tenant by the Developer specifying the grounds for the action. Section 6.2 Nondiscrimination. All ofthe Units shall be available for occupancy on a continuous basis to members ofthe general public who are income eligible. The Developer shall not give preference to any particular class or group of persons in renting or selling the Units, except to the extent that the Units are required to be leased to Low Income Households. 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, source of income (e.g., SSI), age, ancestry, or disability, in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of any Unit 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, sublessees, subtenants, or vendees of any Unit or in connection with the employment of persons for the constmction, operation and management of any Unit. All deeds, leases or contracts made or entered into by Developer as to the Units or the Development or portion thereof, shall contain covenants conceming discrimination as prescribed by the Loan Agreement. Section 6.3 Section 8 Certificate Holders. The Developer will accept as Tenants, on the same basis as all other prospective Tenants, persons who are recipients of federal certificates for rent subsidies pursuant to the existing housing program under Section 8 of the United States Housing Act of 1937, as amended, or hs successor. The Developer shall not apply selection criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective Tenants, nor shall the Developer apply or permit the application of management policies or lease provisions with respect to the Development which have the effect of precluding occupancy of units by such prospective Tenants. Section 6.4 Term. The provisions of this Agreement shall apply to the Property for the entire Term. This Agreement shall bind any successor, heir or assign of the Developer, whether a change in interest occurs voluntarily or involuntarily, by operation of law or otherwise, except as expressly released by the City. The City makes the City Loan on the condition, and in consideration of, this provision, and would not do so otherwise. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 1Q Section 6.5 Compliance with Loan Agreement and Program Requirements. The Developer's actions with respect to the Property shall at all times be in full conformity with: (i) all requirements of the Loan Agreement; and, (ii) all requirements imposed on projects assisted with the City's Housing Tmst Fund. Section 6.6 Notice of Expiration of Term. At least six (6) months prior to the expiration of the Term the Developer shall provide by first-class mail, postage prepaid, a notice to all Tenants in the Units containing (a) the anticipated date of the expiration of the Term, (b) any anticipated Rent increase upon the expiration of the Term, (c) a statement that a copy of such notice will be sent to the City, and (d) a statement that a public hearing may be held by the City on the issue and that the Tenant will receive notice of the hearing at least fifteen (15) days in advance of any such hearing. The Developer shall also file a copy of the above-described notice with the City. Section 6.7 Covenants to Run With the Land. The City and the Developer hereby declare their express intent that the covenants and restrictions set forth in this Agreement shall mn with the land, and shall bind all successors in title to the Property, provided, however, that on the expiration of the Term of this Agreement said covenants and restrictions shall expire. Each and every contract, deed or other instmment hereafter executed covering or conveying the Property or any portion thereof, 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 instmment, unless the City expressly releases such conveyed portion of the Property from the requirements of this Agreement. Section 6,8 Default by the Developer: Enforcement by the City. If the Developer fails to perform any obligation under this Agreement (including but not limited to the failure to rent the Units as set forth in Section 2.1), and fails to cure the default within thirty (30) days after the City has notified the Developer in writing of the default or, if the default cannot be cured within thirty (30) days, fails to commence to cure within thirty (30) days and thereafter diligently pursue such cure and complete such cure within ninety (90) days, or such longer period as approved by the City in writing, the City shall have the right to enforce this Agreement by any or all of the following actions, or any other remedy provided by law: (a) Calling the Citv Loan. The City may declare a default under the Loan Agreement, and declare the City Loan due and payable and proceed with foreclosure under the Deed of Tmst. (b) Action to Compel Performance or for Damages. The City may bring an action at law or in equity to compel the Developer' performance of its obligations under this Agreement, and/or for damages. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 11 (c) Remedies Provided Under Loan Agreement. The City may exercise any other remedy provided under the Loan Agreement. Section 6.9 Recording and Filing. The City and the Developer shall cause this Agreement, and all amendments and supplements to it, to be recorded in the Official Records of the County of San Diego. Section 6,10 Goveming Law. This Agreement shall be govemed by the laws of the State of Califomia. Section 6.11 Waiver of Requirements. Any of the requirements of this Agreement may be expressly waived by the City in writing, but no waiver by the City of any requirement of this Agreement shall, or shall be deemed to, extend to or affect any other provision of this Agreement. Section 6.12 Amendments. This Agreement may be amended only by a written instmment executed by all the parties hereto or their successors in title, and duly recorded in the real property records ofthe County of San Diego. Section 6.13 Notices. Any notice requirement set forth herein shall be deemed to be satisfied three (3) days after mailing of the notice first-class United States certified mail, postage prepaid, addressed to the appropriate party as follows: Developer: Harding Street Neighbors LP C/O Irvine Housing Opportunities 19772 MacArthur Blvd Suite 110 Irvine, Ca. 92612 With a copy to: C&C Development Co 14211 Yorba Street Suite 200 Tustin, Ca. 92780 With a copy to: Goldfarb & Lipman LLP 1300 Clay Street 11*^ Floor Oakland, Ca. 94612 Attn: M. David Kroot Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 12 With a copy to: Goldfarb and Lipman LLP 1300 Clay Street Oakland, Ca 94612 Attn: Amy DeVaudrenil City: City of Carlsbad 1200 Carlsbad Village Drive Carlsbad, Ca 92008 Attn: Housing and Neighborhood Services Director Such addresses may be changed by notice to the other party given in the same manner as provided above. Section 6.14 Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability ofthe remaining portions of this Agreement shall not in any way be affected or impaired thereby. Section 6.15 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. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 13 j 0iJ IN WITNESS WHEREOF, the City and the Developer have executed this Agreement by duly authorized representatives, as of the last date written below. Developer: Harding Street Neighbors LP a Califomia limited partnership By: IHO Harding Street LLC Its managing general partners By: Irvine Housing Opportunities, Inc. Its sole member By: Patricia C. Whitaker Its: Chief Executive Officer By: C & C Harding Street, LLC Its administrative general partner By: Todd R. Cottle Its: Member By: The Cottle Family Trust dated 3/8/1987 Its: Member By: Barry A. Cottle Its: Tmstee City: CITY OF CARLSBAD, a municipal corporation By: John Coates Its: Interim City Manager Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 14 loS APPROVED AS TO FORM By City Attomey or Assistant City Attomey By: All party signatures must be notarized. Draft: Carol-Harding Duplex Regulatory Agreement; 1/8/13 15 jpy 11/24/03 1010\16\220427.1 trj EXHIBIT A (Legal Description) The land is situated in the State of Califomia, County of San Diego, City of Carlsbad, and is described as follows: A-l ^ I010\16\220427.1