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HomeMy WebLinkAbout1998-09-29; Housing Commission; MinutesMinutes of: HOUSING COMMISSION Time of Meeting: 6:OO P.M. Date of Meeting: Place of Meeting: SEPTEMBER 29, 1998 CITY COUNCIL CHAMBERS CALL TO ORDER: Chairperson Wellman called the Special Meeting to order at 6:05 p.m. PLEDGE OF ALLEGIANCE: Commissioner Noble led the pledge of allegiance. ROLL CALL: Present: Chairperson Wellman, Commissioners Escobedo, Latas, Noble, Rose, Scarpelli, and Walker Absent: Commissioner Calverley Staff Present: Debbie Fountain, Housing and Redevelopment Director Craig Ruiz, Management Analyst Lori Rosenstein, Management Analyst Mike Grim, Associate Planner, Planning Department Dennis Turner, Principal Planner, Planning Department APPROVAL OF MINUTES: ACTION: Motion by Commissioner Scarpelli, and duly seconded, to approve the Minutes of the Regular Meeting of August 27, 1998, as submitted. Escobedo, Latas, Noble, Rose, Scarpelli, Walker, Wellman VOTE: 7-0-0 AYES: NOES: None ABSTAIN: None COMMENTS FROM THE AUDIENCE ON ITEMS NOT LISTED ON THE AGENDA: There were no comments from the audience. NEW BUSINESS: 1. SDP 98-09 - POINSETTIA PROPERTIES AFFORDABLE HOUSING - RECOMMENDATION OF APPROVAL TO THE CITY COUNCIL TO PROVIDE $920,000 FINANCIAL ASSISTANCE FOR CONSTRUCTION OF 92 AFFORDABLE APARTMENT UNITS TO SATISFY THE REQUIREMENTS OF THE INCLUSIONARY HOUSING ORDINANCE FOR THE POINSETTIA PROPERTIES SPECIFIC PLAN. Craig Ruiz reviewed the background of the request and stated that this item was before the Commission on August 27, 1998. At that meeting the Commission recommended approval of both the Site Development Plan and the Affordable Housing Agreement for the Poinsettia Properties Specific Plan for the affordable housing component. The affordable apartment project is going to consist of 92 units with 36 one-bedroom units, 44 two-bedroom units, and 12 three- bedroom units. The rent levels will be rented for 60 percent of median income or less. The project developer for the affordable housing component is Bridge Housing Corporation. They have a lot of developmental experience both city- and nation-wide, and they developed the highly successful Villa Loma affordable apartment project. HOUSING COMMISSION MINUTES SEPTEMBER 29, 1998 PAGE 2 Mr. Ruiz explained that the total development cost for this project is roughly $11.8 million, which works out to $124,000 per unit. This is in line with previous projects this Commission has reviewed with similar costs for similar projects. The primary financing for this project is going to be a combination of tax-exempt funds and 4 percent tax credits, which will raise the majority of the money for this project. The master developer for Poinsettia Properties is contributing the land for this site, valued at $2.9 million, to be verified by Staff through an appraisal at a later date. The developer is also contributing $900,000 in cash to be disbursed during the construction of this project. Mr. Ruiz stated that a request is being made for financial assistance for $920,000, which works out to $10,000 per unit, and discussed the form of assistance as outlined on Page 3 in the Housing Commission report. Through negotiations with the developer, the developer fee, has been limited to 7 percent of the total project cost- similar to what has been done on other projects. This currently amounts to $820,000. The tax credit regulations would allow them to go to $1,200,000. Mr. Ruiz explained deferral of the developer fee, stating that in three previous projects, deferral was necessary to make the project work. In this instance, however, it may not be necessary to defer a portion. Staff and Bridge have discussed that deferral would be at the developer’s discretion. If the Commission agrees with the loan agreement, there is a modification that will need to be made as related to deferral of the fee. Mr. Ruiz stated that one item not mentioned in the Staff report is the public facility fee waiver. In the Proforma, they do not include paying the public facility fee. In 1979 the City Council adopted the public facility fee by Policy 17 to ensure that public services and facilities are available concurrent with community needs and prior to development. However, there are exceptions as to who needs to pay that fee and there is an exemption for affordable housing projects. Staff has waived that fee on previous projects and if the Commission elects to support the fee waiver, Staff would add an item to the findings of the Resolution. It is Staffs recommendation that the Commission take three actions: (1) Recommend approval of financial assistance in the amount of $920,000. (2) Recommend to the City Council approval of the loan agreement, note, deed of trust, and regulatory agreement in the form as presented and (3) Recommend the waiver of the public facility fee. Chairperson Wellman opened the item for discussion among the Commission members. Chairperson Wellman asked for the estimated amount of the public facility fee for this project. Mr. Grim stated that it is 3.5 percent of the evaluation of the property if they are not in a CFD. Otherwise, it goes down to 1.82 percent of the evaluation of the property. This is based on the evaluation of the building, not the land. Ms. Fountain explained that it would be more detailed once the project is actually approved. They still need to get a SDP, but the estimate of the fee is $200,000. Chairperson Wellman asked if that would be shown on a future chart. Ms. Fountain stated that it has already been taken out of their Proforma. Chairperson Wellman asked if it is then shown as a contribution of what the City is putting in. Ms. Fountain stated that it would be as an additional contribution or assistance from the City, in addition to providing assistance. Commissioner Latas asked if deferment of the developer fee was going to be a fourth action the Commission would need to take. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 3 Mr. Ruiz stated yes, that a motion could be made to amend the loan agreement. Commissioner Scarpelli asked if there was a rationale for waiving the facilities fee other than the fact that it has been waived in the past. Mr. Ruiz stated that in their proposal to the Planning Department for this project, they have shown that the public facilities requirement and the need for it has already been met or will be met as a part of this project. There will not be a shortage of public facilities, so they are showing that it can be met, even with the waiver of this fee, with no burden set on the community. Chairperson Wellman asked if Staff has presented that finding to the Planning Commission. Ms. Fountain stated it will be part of the final report that goes forward, but the Planning Commission has not seen it yet. Actually it is the City Council who takes action to waive the fee on a case-by-case basis. Ms. Fountain stated from Staffs standpoint, assistance is needed to help this project work financially. It is another way to assist a project that we have done in the past on affordable housing such as Villa Loma and Laurel Tree. It is a way of not having to write a check for the additional amount. The fee can be waived with the findings that the facilities are available, and that waiver of the fee is not going to have an impact on the City. It is basically additional public assistance to the project. Ms. Fountain said the City can either write a check for $200,000 to pay the fees, or recommend that the fees be waived because it is an affordable housing project and the project can meet it’s public facilities needs. Commissioner Latas stated that at the last meeting the Commission discussed the possibility of not getting the private bond and 4 percent tax credit financing, and asked if the City would make the loan if not approved. Mr. Ruiz stated that the 4 percent tax credit is more of a certainty than not as long as the developer meets their timelines and the CHFA Loan is approved. If they get their approvals from the City, and apply by the first part of 1999, the project should get it’s approvals. Chairperson Wellman asked if for some reason it did not happen, would the City be bound to this contribution of $920,000 or is that only if everything else is in place and they could actually build. Mr. Ruiz stated that everything would have to be in place. One of the conditions of disbursing the City money is that the developer have all of their permanent financing and commitments in place, and all of it comes together in an escrow process. Chairperson Wellman invited the applicant to speak. Lydia Tan, Bridge Housing Corporation, San Francisco, California stated that they are in concurrence with Staffs report and recommendations. They will be planning on making an application to SDLAC for the Bond Allocation toward the end of this year and will know at the beginning of next year if that happens. It is hoped that they will be on track for construction towards late spring of 1999. Chairperson Wellman asked for clarification of the land contributions. Ms. Tan stated that the master developer is contributing the land to the project, but the land is all part of the deal, and Bridge has been involved from the beginning in trying to negotiate how the deal is going to get put together. Bridge does not own the land, but eventually they will, so it is certainly part of the total project cost. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 4 Chairperson Wellman asked if there is any sense that the figure 2.9 million is a correct appraisal. Ms. Tan stated that the master developer has had an appraisal done on the property, and it was 2.9 million on a prorated basis. Chairperson Wellman asked if Bridge is requesting approval of the plan as presented by Staff. Ms. Tan responded yes. Mr. Ruiz referred to Page 8 of the Loan Agreement, Section 2.13 (a), Developer Fees; Net Proceeds of Permanent Financing. Staff recommends it read “The maximum cumulative developer fee that may be paid to any entity or entities providing development services to the development, whether paid up-front or on a deferred basis, at the discretion of the developer, shall not exceed Eight Hundred Nineteen Thousand Dollars ($8 19,000)1’. The remainder of that paragraph about deferring would be deleted. Chairperson Wellman asked if the cost went down, would the City still be locked into the $819,000 or would it be the proposed 7 percent of the costs. Ms. Fountain stated that the way it is written, it cannot exceed $819,000. If the cost went down, it would be a larger percentage than 7 percent. If the Commission wants it to say that it cannot be more than 7 percent of the total project costs, it would need to be stated. Chairperson Wellman stated that the language in the proposal indicates this amount is based on 7 percent of the total project cost. If that is not what is meant, it needs to be clear on what is being approved. Ms. Tan stated that the 7 percent is a rule-of-thumb number that Staff looked at when they looked at all the other projects. Carrillo Ranch is a few more units than Bridge, but they have a higher developer fee because of the percentage. She added that developing Poinsettia at 92 units is going to take as much energy and as much work as developing 116 units, and feels that 7 percent is a good way of measuring whether or not the developer fee that was negotiated with Staff is appropriate. She added that it is going to take the same amount of work whether they save money or not. To tie the developer fee to whether or not they save money is a direct disincentive for them. She proposed that the fee be fixed, which actually saves money for the City. Chairperson Wellman stated that it was her understanding that the applicant was willing to take a fixed amount of $819,000 if they could receive all that money at the time of permanent financing, rather than deferring either the $200,000 or the $100,000, having that being paid off over 10 years. Ms. Tan stated it was certainly a part of it. The other part is that Bridge is agreeing to take a $200,000 lower developer fee than they would otherwise be allowed under tax credit rules. Bridge has given up the developer fee that they could otherwise get under tax credit rules, and the fixing of the fee, which they have agreed to do if the deferred fee is an option. At this time they do plan on the $100,000 fee being deferred. Ms. Fountain stated that for clarification purposes, she is not sure Staff really wanted to combine the two issues of deferral and the maximum amount of the developer fee. The developer fee was more of a negotiated issue, she said. Staff wanted a cap on how much the developer fee could be, because in the long run what happens is that they end up helping to pay a portion of that because it is included in the total project cost. To make a project work financially, it is often necessary to defer a portion of the developer fee to make sure there is enough cash to actually construct. If Bridge needs to defer the fee, they will defer a portion of it. However, if for some reason the numbers come in slightly different and they are able to get their developer fee at permanent financing, then they would do that. It depends on the HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 5 total construction costs at the end. It is a negotiated position, but they are not tied in giving up one (developer fee) to get the other (deferred developer fee flexibility). Chairperson Wellman stated that it sounds like this is the maximum cumulative developer fee. It does not seem that it speaks to the issue that the fee cannot be reduced. If that is the understanding of the applicant and the City, then that should be stated. Again, it states, “The maximum cumulative developer fee that may be paid to any entity or entities providing development services to the Development, whether paid up-front or on a deferred basis, at the discretion of the developer, shall not exceed $819,000.” Ms. Fountain stated that they are capping the maximum that they can get out of the project. Based on the current Proforma, that is about 7 percent of their total estimated project costs. Commissioner Scarpelli recommended changing the wording to remove the word “exceed.” Ms. Tan stated she likes the language because it gives them the option to reduce the developer fee. What she does not want is to have it tied to a percentage of development costs. She likes the language as it is and feels she has enough flexibility to make the project work. Commissioner Scarpelli asked if they are saying that the developer may be willing to accept less than the $8 19,000 if it makes the project work. Ms. Tan stated that they are not in negotiations with the City. But on a voluntary basis, if they had to reduce the fee, they would like to have the ability to do that. Chairperson Wellman asked if the City agrees with the ceiling of $819,000, Ms. Fountain stated Staff is recommending that the ceiling be $819,000. Only at the discretion of the applicant could it be less, and they would not have to come back and negotiate that fee with the City, as long as it did not exceed $8 19,000. Chairperson Wellman asked if Bridge suddenly left, and they had another substitute applicant in, would this bind their successors too. Ms. Fountain stated yes. Commissioner Latas stated that there is no mention that what the City is getting for this loan is 92 units that will probably be rented at 60 percent median income. Mr. Ruiz stated that the City’s Inclusionary Housing Ordinance restricts the affordable requirement at 80 percent of median. Staff is only restricting 45 of the units to be for lower income units and the remainder at moderate. The reason for this is because there are other regulations that will supersede this. When they go to get the tax credits and they make that proposal, they will enter into a separate regulatory agreement with the Tax Credit Allocation Committee. They will actually bind them to all of the units at 60 percent. That is how they are financing the deal and coming up with their tax credits, which makes the Proforma work. Chairperson Wellman asked if that is in writing somewhere, or is there an agreement signed that the City and the applicant recognize that their entity regulations will end up superseding what they are signing presently. Mr. Ruiz stated that when they make their application, the application comes back to the City through the State. The City is one of the reviewing agencies. If Bridge was to change it, it would blow apart their Proforma, and they would not have enough money to do the deal. The Proforma that they are using is also what they submit to the State, and it is HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 6 one of the attachments to this Agreement. If they were making radical changes to it, the City would see that in the review process; the deal would not work; and they would not be living up to the terms and conditions of this Agreement. Chairperson Wellman stated that the Resolution states that the Commission is recommending that the City Council approve 92 one, two, and three-bedroom units, and the Commission’s intent is that they are approving affordable housing. It does not, however, specify the 36 one-bedroom, 44 two-bedroom, and 12 three-bedroom units. She added that the Resolution should specify the specific breakdown as to what is being proposed. Mr. Ruiz reminded the Commission that they have already taken this action when they recommended approval of the Site Development Plan and the Affordable Housing Agreement. Ms. Fountain explained that the Affordable Housing Agreement goes through the specifics of what actually is going to be provided, and that is what is approved. She added that this is a separate document as to how the City is going to give them money for their projects. Mr. Ruiz added that the Inclusionary Ordinance requires that 10 percent of all the units be three-bedroom units. Chairperson Wellman opened the public testimony and issued the invitation to speak. David Ricker, Senior Lending Officer in Southern California for the Low-income Housing Fund, 4009 Conario, Carlsbad, CA 92008, wished to compliment the Commission and the Staff in getting a developer of the caliber of Bridge into this community to provide affordable housing. He stated developing affordable housing in Southern California and in communities like Carlsbad is a very difficult process. As a citizen of Carlsbad, this has 100 percent of his support, he said. There being no other persons desiring to address the Commission on this topic, Chairperson Wellman declared the public testimony closed and opened the item for discussion among the Commission members. ACTION: Motion by Commissioner Scarpelli, and duly seconded, that the Housing Commission ADOPT Resolution No. 98-014, recommending APPROVAL to the City Council to provide $920,000 in financial assistance from the Housing Trust Fund to Bridge Housing Corporation for construction of ninety- two (92) affordable apartment units to satisfy the requirement of the Inclusionary Housing Ordinance for the Poinsettia Properties Specific Plan, with the inclusion of Staff recommendations, given by Craig Ruiz, to include: (1) Recommendation regarding the waiver of the public facilities fee, that the resolution be amended to reflect that. (2) Page 8 of the Loan Agreement, Section 2.13 (a) be amended to read “The maximum cumulative developer fee that may be paid to any entity or entities providing development services to the Development, whether paid up-front or on a deferred basis, at the discretion of the developer, shall not exceed $819,000.” Escobedo, Noble, Rose, Scarpelli, Walker, Wellman VOTE: 6-0-0 AYES: NOES: Latas ABSTAIN: None Commissioner Latas stated that he did not approve the Housing Agreement, therefore he did not vote in favor of the loan. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 7 INFORMATIONAL ITEMS: 2. HOUSING ELEMENT - SELF-CERTIFICATION Dennis Turner, Principal Planner, spoke about the history of housing element updates; why they came about a need for a law that would allow them to do something locally rather than the State level, and the particulars and implementation of the process. He explained that last spring the City Council approved authorizing City staff to take whatever actions might be necessary to see if the City could qualify for self-certification. The housing element is one of six mandated elements of the General Plan. The General Plan is the principal land use policy document for the City and governs all of the physical development that occurs within the City. It is the one element of the General Plan under which the law stipulates that it shall be amended and updated on a periodic basis. The normal schedule for this is five years. It is the only element that is required to do that mandatory update. Before 199 1, elements were updated and looked at by the State Department of Housing and Community Development. The City could choose to ignore or follow their comments. However, in 1991, the law was changed and it required, for the first time, that elements being updated would have to be submitted to the State as a draft, and be reviewed and certified as to the conformance of that element with the extensive requirements of State law. The agencies in San Diego County were in the first batch of elements that underwent that certification process through the State. That has now been the law in the years since. Of the 500+ jurisdictions in California, approximately one-fifth of them are to update and undergo a certification process each year. The City’s original cycle was supposed to have ended in 1996; however, the cycle has been extended. The update process and the certification process turned out to be very difficult, and in the opinions of many cities, a very contentious and onerous process. The State would tend to disagree with some of the programs and the objectives. The last time the City spent a lot of money- trips to Sacramento, hiring of lobbyists and consultants to get the element approved. The San Diego agencies were the first group to go through. In subsequent years, many other agencies throughout the State found this to be a very difficult, contentious, and onerous process. In about 1993, there was an acknowledgment that State Housing Law was “broken” because of this update process. A number of bills were introduced into the State Legislature to fmd out ways to fix housing element law, including spending less time worrying about paper processing and shuffling, arguing back and forth with the State, and spending more time and money producing the housing that was needed. Three or four bills were put on the books because of the various parties involved, and none of them were approved. In the San Diego area, jurisdictions decided that they wanted to try another approach to fixing Housing Element Law, and rather than doing a comprehensive repair of the law as some of the other bills have been doing, it was agreed that cities would try another approach. The idea was to see if there would be a way that the City could self-certify their element that certain conditions might be met. That became the basis for a bill that the local agencies carried forward. It was approved and signed by the Governor and went into effect in January 1997. This bill, Assembly Bill 1715, pertains only to the jurisdictions in San Diego County. It is a pilot program and HCD has been working with the local agencies. This is an experiment to see if it works this cycle. If it does, it may potentially be considered for expansion to cover other jurisdictions throughout the State. At this time it only pertains to the eighteen jurisdictions in San Diego County. The bill has several provisions, however. It is stipulated that a local jurisdiction could self-certify if it made certain findings. It stipulated that there would be a local oversight body, which was to be the San Diego Association of Governments. That oversight body, the Housing Element Advisory Committee, would have the role of developing the guidelines that would be necessary to implement the program, because the Bill itself spoke in some general terms and there were a lot of specific things that needed to be worked out. Councilwomen, Julie Nygaard, has been the Chair of that Committee at SANDAG. The Committee met for approximately 1 1/2 years to work out the guidelines, and the result of that process was a fifty-page set of guidelines on how to implement this self-certification process. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 8 Mr. Turner explained that there are two housing element cycles under this Assembly Bill that involves self-certification. The current cycle started in 1991 with the certification of the element by HCD, and the adoption by Council. It was originally scheduled to go from July 1991 to July 1996. The State extended that cycle on several occasions by one year, so that under the current law, the element is set to expire in 1999. The City is launching the element update now, because the law provides one year to work on the element before taking it forward. Mr. Turner explained that the bill provided a means by which they could look at the element that they are now about to write, to self-certify it in 1999. It also provided a provision whereby this Housing Element Advisory Committee could provide guidelines and target objectives for the next cycle, called cycle three, that will expire in the year 2004. For both of the cycles (two and three), there are four findings that the City would have to meet. The self-certification process is voluntary. The action before the Council was whether they wished to try to certify themselves this cycle and next cycle. If they chose not to attempt to self-certify, then they would go through the normal certification process through the State Department of Housing and Community Development. If they are able to make these four findings, then they could self-certify. If they were unable to make the findings, then they would also have to go back and see HCD for certification. Mr. Turner explained the four findings. The first thing that would have to be done is to prepare a housing element that the City certifies is in substantial conformance with the law. That would be the action that the State would take if they were doing the certification process. In addition, the City would have to do three other things. They would have to meet certain numerical objectives for producing housing to lower income folks, and there are different objectives. One of the objectives for the current cycle (cycle two) and a second set of objectives are set out in the guidelines that were prepared for cycle three. The third thing they would have to do, as a fmding, has to do with the location of low income housing throughout the City. When the Bill was being prepared, the local agencies and legislature were concerned that some cities would tend to “dump” all of their affordable housing in one area of the city. Mr. Turner said they would have to make a finding that they have made reasonable efforts to disburse the low income housing reasonably throughout the City. The last finding the City would have to make is that there are no local policies contained in the General Plan or building codes that would prevent the attainment of low-income housing in the city. Of these findings, the first, the third, and the fourth are relatively easy to make. The one that is the big challenge is the second one--the numerical objectives. Mr. Turner referred to the chart provided in the Housing Report, Figure 1: Housing Element “Cycles” and Performance Standards For Self Certification Under AB 1715, Cycle 2, stating that the objective they would have to meet is 1,125 lower income housing units. These can be new housing units, or several options for other types of housing opportunities, such as acquisition, rehab, and Section 8 families that are being assisted, but they have to be new opportunities created during this particular cycle. The threshold of income affordability is the 80 percent level-the lower income that the City has been using under their inclusionary program. As of a couple of months ago, the City’s progress was 604 housing opportunities, matched up against the 1,125 objective. It is actually now a little higher and the current total is about 636 units or housing assisted. One of the things to note, since they only have six months before they have to have an element completed, is the City is short about 500 housing-assisted opportunities. The City will not to be able to self-certify this cycle, and they will therefore have to go to the State for certification. The City does have additional projects that are coming on line. He explained the Commission was approving some tonight, but it does not look like they will have constructed and ready to occupy the full 1,125 this cycle, and therefore will not qualify for self-certification. The guidelines then set out a series of formulas that talked about the numerical objectives that the City would try to attain for the upcoming cycle. In 1991, 1,125 was a number that was developed by the San Diego Association of HOUSING COMMISSION MINUTES SEPTEMBER 29, 1998 PAGE 9 Governments for each of the local jurisdictions as a good faith effort for housing production and housing opportunities. It was a number that was adopted and had nothing to do with self-certification. Mr. Turner added that it is important to realize that in order to self-certify next time, certain programs will need to be set up in the housing element which would address some income groups that have not been addressed in the past; Le., the very low income and the extremely low income groups. There are some implications about attempting to reach those groups, he said. Mr. Turner discussed some pros and cons of self-certification that was presented to the Council as discussed in the Staff report. Mr. Turner asked if there were any questions. The difficulty of achieving the 30 percent median income was discussed, stating that the Commission was having difficulty even getting to the 50 percent median income. Commissioner Scarpelli asked how it is going to be accomplished. Mr. Turner explained that this is going to be an extremely difficult group to serve, and while they are not talking about thousands of units, even getting 160 will be a challenge. Some of the things they might consider looking at will be alternative types of housing, i.e., second dwelling units or single-room occupancy hotel-type of arrangements; farm worker housing; or perhaps the City taking more of its own resources and applying them directly to the subsidies, implying possibly that those resources may not be then available to assist developers with inclusionary if they do not place these requirements as part of the City’s inclusionary ordinance. Commissioner Scarpelli asked if the 159 is a self-imposed number. Mr. Turner replied, no, that the guidelines that the committee Julie Nygaard sits on, worked out a series of formulas. There were housing advocates, elected officials, bankers, and developers. Through 1 1/2 years of discussion and compromise, they came up with a set of formulas that apply to all the jurisdictions. Commissioner Escobedo asked if the Planning Department in Carlsbad does the self-certification. Mr. Turner stated that in each jurisdiction the people who would actually do the self-certification would be the City Council or the Board of Supervisors for the County. They would have to make those previously mentioned four findings. Staff would make a recommendation and show how those findings could be made, if possible; but the Council would make the actual findings. They would then send a letter transporting those findings to the State. Once that is done, the City would be self-certified. The trick is making the findings honestly. Commissioner Walker asked if there was any issue not being able to self-certify this year with trying to go back and do it next time. Mr. Turner stated that there are no penalties, and said it is strictly a voluntary thing. The assumption is that you would go to the State and work with the State for certification. The self-certification is an option that the City may choose to use if they qualify for it. Commissioner Rose asked if they would have to make up next year what they lost this year. Mr. Turner replied no. One of the factors in the formula that affected the numbers for next cycle was how much the City produced in the current cycle through December 3 1, 1996. That became one of the factors that determined what they would get to do in the next cycle. Agencies who did well this cycle got bigger numbers for next cycle. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 10 Mr. Turner stated that one of the reasons there is a realization that housing element law is broken, is that in the past in (1991 and earlier cycles), the objectives that were laid out by SANDAG, were objectives based upon estimates of need. The State would tell the cities that based upon the need identified, they must respond to all of that need and were measured by how well they responded to the need. The realization came later when they found out housing element was broken, that you cannot possibly meet all of the needs because there are not adequate resources available to do so. That realization was the key thing that they wanted to get done in self-certification. The numerical objectives that are set out for this coming cycle are supposed to be a measure of what can realistically be done with the resources that the City anticipates are going to be there. That is why past progress is an important input to what will be asked in the future, because that will be a measure of the resources that should be available. The whole idea is to make the objectives more realistic relative to the resources that in fact are available, not just a response to need. Commissioner Rose stated that when you put in numbers that other parts of the State want to hear, that is not very practical. What is being practical, is getting down to the nitty-gritty on the construction and the loan. Mr. Turner stated the formulas that were developed based upon the typical amount of moneys that jurisdictions spend to produce the housing they did in this last cycle. Those funds discounted for the additional subsidies that would be required to target these groups. The result of that discounting was that the numerical objectives are smaller. The basic assumption is that the same pool of resources could produce these new objectives with the deeper discounts if you do fewer of them, compared to a lesser discount but a larger number before. The calculus involved in doing that was complex and it is not perfect for each of the jurisdictions in the region. A city like Carlsbad, where some of their inputs to total cost might be a little higher, maybe is not as appropriate for them. The idea is that the pool of resources the City had in the past would be available in the future and with that pool, the City should be able to meet those deeper discounts if the numbers are smaller. Mr. Turner explained that their numbers are not only derived from their production last year. The methodology actually broke all of the agencies in the County into four different groups, and the mean production of those groups was used to come up with a factor that was applied to all of the jurisdictions in each group. Carlsbad is in a group with some other cities that did better than they did. Ms. Fountain added that a lot of this is technicalities in terms of how the City meets objectives that are set by the State and people telling the City what they are suppose to do. The reality is that the City has done a lot toward affordable housing, with probably close to 1,200 units that are either pending, have been approved, or have been constructed. When looking at the progress as to where the City is really at, we are doing very well, she said. That number includes a lot of second dwelling units, apartments, first-time homebuyers program. If you look at where the City was in 1992 and now six years later, they have close to 1,200 units that are going to be soon coming on line--this is valuable to keep in mind. Building an apartment project usually takes about 18 months. Even once it is approved, it still is another 18 months before you actually see units on the ground, but they are making pretty substantial progress. It is just a little more complicated when you have to push it into these cycles that are set up by someone else. Mr. Turner stated that Carlsbad is placed in a group of four cities. These are cities with redevelopment agencies and with total housing of less than 25,000 units. Those cities are Carlsbad, Vista, El Cajon, and La Mesa. The factor that was used in the formula was calculated as the total number of housing opportunities created last time per thousand people in the City. Carlsbad’s factor was 13.6 housing opportunities per thousand people in the City; Vista’s was 15.7; El Cajon’s was 15.5; and La Mesa’s was 13.5. On page 44 of the guidelines, there is a table showing how the other jurisdictions fared. One of the big debates they had was how to handle the County, because they kept insisting that they were incredibly unique in all of their characteristics and they did not want to be lumped with any other group. There was some give and take, compromises that the committee members had to make, and the formula, while it is rational and logical, it is not scientific because there are politics involved. Commissioner Noble stated that a lot of figures were forced upon the cities by SANDAG’s study of how many houses were going to be build. At one time they had requirements to build 6,000 in one year. It was not possible to build even HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 11 fifty houses that year. One year the City had only one housing permit pulled. Now everybody is getting money and money is becoming available. If interest rates drop any further you might see a lot more money available, and then end up with all sorts of houses one year and then the next they are going to have a higher number and nothing gets built and you cannot certify yourself. He added that there are too many “ifs” in this whole process. Commissioner Scarpelli stated that the only concern he has is that using the method that has already been decided upon, it almost gets the State and Federal government and the local communities off the hook on affordable housing, because you are working off of actual reports. If you have done a bad job, then your next cycle is going to be determined by the previous cycle, and you will be producing fewer units rather than more units. Mr. Turner stated this was an observation that came up in the committee work over a year and half, again, and again, and again. Commissioner Latas stated that the Commission just approved 92 units at $1 1 million worth of construction costs at 80 percent median, and asked what would be the differences in constructing at 30 percent median. Ms. Fountain stated that the issue is more at the rents that you can set. It is not the total construction costs that change. When you have to subsidize down to someone who makes only 30 percent median income, you are going to need a lot more money to make that work on an operational basis. What happens is that more money will need to come from the City or some other source to try to reduce that total cost. What that means is if they have less money coming in for rent, for revenue, they will not be able to get as much in a private loan to construct that project. She said there was already a $10,000 subsidy required from the City to do the units presented. If they take that to 30 percent, they may be looking at a subsidy from the City of $30,000 a unit or something higher to make that same project work. It may be that it is the City who has to pick it up to get to that income level. Commissioner Latas asked if that contribution would essentially lower the cost of the project to allow the operation. Ms. Fountain stated that what they would have to do is figure out how that project is financed, so that it works, because they are not going to have a project that they don’t have enough money to operate on an ongoing basis, so they have to figure out long term. That is what the projects already do. Whatever income level they are set at, they try to figure out how much money they can get from those different pots of money and what is available to actually operate it. Mr. Turner stated that all of the numbers he presented to the Commission only pertain to San Diego jurisdictions under self-certification. If the City is not involved in self-certification, the numbers and those objectives have no meaning for them. He said Mr. Grim would be talking about the State’s objectives, which are a different set of numbers, and would be talking about the needs analysis for the region and for their share of those needs. Those income groups are very low, low-moderate, and other (upper income). The State would be looking at the City’s element if they go to them, not in terms of these numbers he just showed, but in terms of the programs they put in to meet housing for all four of those groups, including moderate and upper income. The City will set the goals and objectives in their element. Those goals, objectives, and programs are suppose to respond to that need that will be provided. . Ms. Fountain stated for the record that Kathleen Wellman had to leave at 7:OO p.m. Vice Chairperson Kathleen Walker has taken over responsibility for the Chair. Commissioner Rose left after the self-certification discussion. 3. HOUSING ELEMENT UPDATE Mike Grim, Associate Planner, Carlsbad Planning Department, stated he been charged with heading up the update of the housing element. Basically, his role is going to take all of the programs that Ms. Fountain and Mr. Ruiz have, along with all the numbers that Dennis just gave spoke of, crunch them together, and try to come up with an element that will provide the City the goal of self-certification in 2004, but bottom line just provide them with more affordable housing opportunities in Carlsbad. HOUSING COMMISSION MINUTES SEPTEMBER 29, 1998 PAGE 12 Mr. Grim explained that he is talking about the element that will guide housing development for the cycle of 1999- 2004. There are two items he wanted to address. The first was the anticipated housing element schedule. On that he wanted to give a little proportionality of how much time they are spending vs. public review spending vs. HCD actually reviewing it. That will also give a little appreciation for why they want to go through certification again. The second item is the Housing Commission’s role. There are three large components as the Commissions role: public review forum, public hearing on the final element, and recommendation to City Council. As far as the anticipated housing element schedule, right now they are in the “Staff’s Writes Draft mode”, and they only have 1 1/2 months for that. That would be basically getting together all the programs, including a review of their existing element. They will have to go back and take a look at all of their programs and compare them to what they hope to get out of them, how they did, and write a report on that. Then there is the City Public Review of Draft, which is an administrative management review of the policies they are proposing as a first-cut policy filter if you will. The second would be then coming and turning the element out to the public, which is required by State law. They are proposing that the Housing Commission be a part of that, so they can gain all of the public’s information. After that is done, Staff would basically compile all of those programs and policies and Mr. Grim would once again do the administrative housing policy team review of that and then would be ready to submit a draft element to the State Housing Community Department. $Because this is actually an amendment of the City’s element, rather than a new one, which is the process they went through last time, the review time is cut down in half. Each time they submit to HCD, they have 45 days to look at and turn around comments to them. They would anticipate, because of experience, a couple iterations in the draft. They submit it, HCD brings back comments on their first volley, the City sends back revised, or potentially revised programs, they come back with another volley of programs. This is anticipated to take about five months. Each time HCD brings up a new program, there are a variety of ways they might have to process that through the City and may even have to come to some discretionary indications as far as whether the City is willing to commit to whatever program they are trying to get them to do. Once they have settle on the HCD comments, they move to the final element preparation, involving taking it forward through the public hearing process, which would include the Housing Commission, Planning Commission, and City Council. They anticipate having a couple of meetings, at least one of those Commissions and Councils, because there will probably be some public comments or a great deal of comments from the Commission or Council members. HCD will then review the final element and this is where a lot of the negotiation goes back into it. The City has already said this is what they think comfortably Carlsbad can do and they are going to come back with the hardball comments. They really do not know how long that will take. The last time it took 9 months. The whole element update is taking the tone of “Hey, for an affluent community with very high land prices, and just about every constraint imaginable, including a growth management program, a strong habitat, commitments, arduous processing, time and procedures and a lot of review; the City is doing pretty good with providing affordable housing.” Although the sticks are not on the ground and the people are not living in them, the City has actually come a long way. After they get their comments back from HCD, approximately a four-month process, there are local approval of provisions, and once again that would have to go through the public hearing process as an amendment to the previous approvals, and anticipate another 2 months in there. Staff has about 1 1/2 months to prepare the actual document and the rest of the time is going to be review time. If there are any points along the way where they feel they are running behind schedule (technically they are supposed to have their element submitted to HCD by July 1999 and that on their scale would be at the end of the fourth block). If you add up all the months in those first four blocks, Staff Write Draft, City Public Review, HCD review and local approval, you are looking at about a year. Right now they are talking with HOUSING COMMISSION MINUTES SEPTEMBER 29, 1998 PAGE 13 the City Attorney’s office, trying to figure out how absolutely vital it is they make their 7/99 deadline, and also where is it, if it is vital, that they can shave off that time. The next part is the role that Staff is going to be requesting that the Housing Commission fulfill. One of the first parts was that if they were only relegated to the public review and approval process, which includes the Planning Commission and City Council, then the Housing Commission would not have the opportunity to see the draft, initial programs, and if they had a meeting exclusively just for them, it would be a strange facet when the public would fit in. What Staff is proposing is to combine the Housing Commission and the Public Review Forum into one meeting and have the Housing Commission as a part of their meetings, host a Housing ElementIPublic Review Forum that would involve Staff presenting what they think their administrative draft looks like at that time, including policies and programs. They would then be able to take comments from the public. The Housing Commission would be able to hear directly those comments and even ask questions. Staff would also be able to take all of the Commission’s comments individually and be able to direct the programs and policy revisions, if any, to those comments. The second role the Commission would play, would be after the City has already gone through the draft element review with HCD, taking the final element back for approval, there would be a public hearing on that final element and once again, the Commission would be able to make comments and hear if the public had any comments. After that public hearing, or if there happens to be two public hearings, they would then request that the Housing Commission make a recommendation to the Council on the element. They feel that with these three participation points, they are definitely getting the Housing Commission involved early before the draft is actually sent to HCD after the draft has been reviewed and they have HCD’s comments early in the final element review process. There would be a fourth role if HCD comes back and states the final element fell short and they want revisions. And when the City processed those revisions, once again, there would be a public hearing before the Housing Commission, who would make recommendations to the City Council. Mr. Turner stated that in the event that the City does not get its Housing Element certified, the way the State law is set up, there is a legal term called a “rebuttal presumption” as to the adequacy of your element. If you are certified by the State, are sued by some party on the basis of the adequacy of your element, the courts presume that the element is adequate and the burden of proof falls on the challenging party. If you fail to get certified, and you’re challenged, then the burden of proof is with the City to prove that they do comply with the law. The presumption lies with the challenger. That is a very, very powerful tool should we get challenged. Those parties out there who might be willing to take on a City for not having an adequate housing element, not doing enough for housing, will look for those jurisdictions where they do not have certification because it is easier to challenge those jurisdictions. Because we are not back in an era where the housing element cycle has been started again, and where tHe economy is going again, the City believes that there are entities out there who will be looking to go after those poor producers. Getting certification is very vital to the City from a legal protection standpoint. The assumption is that if you have an element, and the courts find it is inadequate, then the entire General Plan is considered to be inadequate, and you cannot approve any development until you remedy the deficiency. There is a lot at stake in certification. Ms. Fountain stated that sometimes when you look at numbers and you let someone else determine how they think you are doing, it is easy to lose site that you have accomplished a lot and you may not technically meet all of what everybody says you should, but you should be proud that you have come a long way and done a lot and not lose site of that because of other things with the State. Commissioner Scarpelli asked about the formulas and environmental factors. Mr. Turner stated that no environmental factors were part of the formulas. They principally had to do with how much growth, redevelopment potential, and production done in the previous cycle to be a measure of resources that might be available. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 14 Commissioner Scarpelli asked if it was addressed, because the City does have those other major factors that restrict their ability to use. Mr. Grim stated that those factors get totally discussed. Part of the housing element is opportunities and constraints, and that is one of the heavy constraints. Carlsbad has some of the most constraints, and that is why you can still paint a positive picture on their affordable housing production because their numbers this cycle reflected ramifications of those constraints. Mr. Turner stated that the dynamics on the Committee were very interesting in that every jurisdiction felt it was totally unique compared to all other jurisdictions. Frankly, the housing advocates and the State who were on the Committee said, “Tough, do it anyway.” That is where the negotiations started. Mr. Latas asked whether this current certification process has to do with whether they are going to meet that goal of 1,100 housing units by 1999. Mr. Turner stated the City will not be able to self-certify, so they have to take the new element to the State and see if they will certify the new element. What they are going to do is ask if the City has enough programs so they can respond to the needs over this upcoming five-year period. The City will debate whether or not they have adequate programs to do that. The state has nothing to do with self-certification; they do not care if the cities self-certify or not. The housing advocates don’t really care. It is simply a tool they can use to bypass the normal process, which is to go to the State. Mr. Turner stated that the element that they are currently operating under was conditionally certified by the State in 1992. The conditions were that the City made a bunch of promises in the current element that they were going to implement inclusionary housing, do an inclusionary ordinance, density bonus ordinance, and a bunch of other things. The State said they would conditionally certify the City, and they have a year to implement the ordinances. If the City does not do it, the State would take away the certification. So the City was in a big rush during 1992 and early into 1993 to get all of the inclusionary implementing ordinances done. When they were done, the City shipped that package to the State, and it was either late 1992 or early 1993 they said they would now give the City their final certification. Commissioner Scarpelli stated that the Commission has been concerned regarding the second dwelling units being included in the inclusionary housing, asked if that is going to have a negative effect on the ability to certify if Council would go along with the Commission’s recommendation. Mr. Turner stated that a second dwelling unit is one of the types of programs that they can count if they do it according to the guidelines. The way they do second dwelling units now would not meet these guidelines. In fact, some of the second dwelling units they produced this cycle do not get credit for self-certification this time. The guidelines stipulate the same kinds of changes generally as this Commission has recommended. ANNOUNCEMENTS: Ms. Fountain introduced Lori Rosenstein, Management Analyst, who started working with Staff September 14. She will primarily work on redevelopment projects and may also work on affordable housing. Frank Bent, currently in the City Manager’s Office will be coming to work with Staff in assisting with the administration of the CDBG program. Staff is currently in the process of recruiting their two positions within the Section 8 Program. HOUSING COMMISSION MINUTES SEPTEMBER 29,1998 PAGE 15 Ms. Fountain said the Boards and Commissions Appreciation Dinner is on October 8 at the Four Seasons. She said the October 22 meeting will probably be canceled, as Staff will not be ready to present anything to the Commission at that time, and currently Staff does not have any other projects that need to come to the Commission. Therefore, the next meeting will be in November. Vice-Chair Kathleen Walker thanked Staff for getting the packets to the Commission two weeks in advance. ADJOURNMENT: By proper motion, the Special meeting of September 29, 1998 was adjourned at 8:OO p.m. Respectfully submitted, c7 0- Y& - DEBBIE FOUNTAIN Housing and Redevelopment Director KATHY VAN PELT Minutes Clerk MINUTES ARE ALSO TAPED AND KEPT ON FILE UNTIL THE WRITTEN MINUTES ARE APPROVED. Construction Phasing (Developer Recommended) + Approval of agreement and SDP: 230 permits released for market rate units + Transfer of property to City or Bridge, payment of $900,000 subsidy and Bridge Housing recording a construction loan for the affordable project: All remaining units are released for market rate units. I The City of Carlsbad Housing & Redeudopment Department I AREIPORT TO THE 1 HOUSXNG COMMXSSION Staff: Craig: ~uiz Management Andy& I Xtem No. 1 DATE: SEPTEMBER 29,1998 SUBJECT: SDP 98-09 - POINSETTIA PROPERTIES AFFORDABLE HOUSING PROJECT - RECOMMENDATION OF APPROVAL TO THE CITY COUNCIL TO PROVIDE $920,000 IN FINANCIAL ASSISTANCE FOR CONSTRUCTION OF NINETY TWO AFFORDABLE APARTMENT UNITS TO SATISFY THE REQUIREMENTS OF THE INCLUSIONARY HOUSING ORDINANCE FOR THE POINSETTIA PROPERTIES SPECIFIC PLAN. I. 11. 111. RECOMMENDATION That the Housing Commission ADOPT Resolution No. 98-014, recommending APPROVAL to the City Council to provide $920,000 in financial assistance from the Housing Trust Fund to Bridge Housing Corporation for construction of ninety two (92) affordable apartment units to satisfy the requirement of the inclusionary housing ordinance for the Poinsettia Properties Specific Plan. PROJECT BACKGROUND On August 27, 1998, the Housing Commission recommended approval of the Site Development Plan and the related Affordable Housing Agreement for the construction of a 92 unit affordable apartment project for the Poinsettia Properties Specific Plan. At the August meeting, the issue of financial assistance was not discussed. PROTECT DESCRIPTION The Specific Plan is located generally on the easterly side of Avenida Encinas, north of Poinsettia Lane and west of Carlsbad Boulevard west of Carlsbad Boulevard. The affordable units will be located in the northeast corner of the Specific Plan. The affordable project will be developed by Bridge Housing Corporation (Developer). The proposed 92 unit affordable apartment project consists of seven separate residential structures. The proposed development includes 36 one bedroom (39%), 44 two bedroom (48%) and 12 three bedroom units (13%). The project will also feature an approximately 2,500 square foot recreation building, laundry facilities; a "tot-lot" with playground equipment; a swimming pool; a private pedestrian trail system and 192 parking spaces. SDP 98-09 - POINSETTIA PROPERTIES AFFORDABLE HOUSING PROJECT -. SEPTEMBER 29,1998 PAGE 2 IV. DEVELOPMENT TEAM The Master Developer for the Specific Plan has retained Bridge Housing Corporation (Bridge) to develop the affordable housing project. Bridge has developed and managed numerous affordable housing projects throughout the United States. Bridge has previous experience in the City of Carlsbad, having developed the highly successful 344 unit Villa Lorna affordable apartment project. The Architect for the project is Brad Burke of Studio E Architects. The architect has designed several award wining projects throughout the State. V. FINANCIAL ASSISTANCE A. Cost Reasonableness The developer has provided a detailed development proforma for review by staff and the Housing Commission (See Attachment 2). Since development costs are one of the key variables determining the need for subsidies, it is important that those costs be reasonable. At approximately $11.8 million, including land, the average unit cost of $124,000 is generally consistent with typical affordable multi-family development within the City. B. UndueGain It is important that any financial assistance have the effect of making the units more affordable and not creating undue gain for any party. The Developer will receive a "Developer Fee" of $819,011, or approximately 7%of total project costs. Staff is proposing that the Developer receive 76% of the developer fee ($619,011) at time of permanent financing. The remainder of the fee, $200,000, would be repaid over the first ten years of the project from the Cash Balance after the City Loan has been repaid. Staff feels that the developer fee is within acceptable limits for a project of this size and affordability. Further, the deferral of approximately 24% of the developer fee is consistent with previous recommendations adopted by the Housing Commission for similar projects. ' The Developer is requesting that they receive $719,011 at permanent financing while deferring $100,000 of the developer fee during the first ten years of the project. The attached proforma reflects the Developer's proposal. Should the Commission adopt staff's recommendation, the proforma will need to revised accordingly. C. Subsidy Analysis The Developer is proposing to finance the project with tax exempt bonds and 4% tax credits. Under this scenario, the developer would receive an approximately $4.1 million from the bond issuance and will raise $2.7 million through the sale of the tax credits, resulting in an approximate $5 million financing gap. Under this scenario, staff is recommending the City provide the $920,000 in financial assistance while the Master SDP 98-09 - POINSETTIA PROPERTIES AFFORDABLE HOUSING PROJECT SEPTEMBER 29,1998 PAGE 3 Developer would provide $1.18 million in financial assistance and $2.9 million in land contribution. Under this option, the City’s $920,000 million assistance equates to $10,000 per affordable unit. The following is a summary of the sources and uses of funds based on the estimated development costs and the proposed financing structure. The developer’s detailed proforma is attached as Exhibit 5: D. Form of Assistance City assistance will be in the form of a residual receipts loan secured by a note and deed of trust. The loan will begin accruing interest during construction of the Improvements. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from cash surplus in equal annual installments of principal and interest. In the event that there is not adequate cash surplus to repay the City loan, the outstanding balance shall accrue with simple interest at 3% per annum. The City may also receive repayment of the loan through any savings between the amount budgeted for construction and the actual construction cost. These savings will be split 50% to the City and 50% to the developer. The financial assistance will be provided from the City of Carlsbad‘s Housing Trust Fund. The Fund currently has a balance of approximately $1.7 million. E. Security As stated above, the City takes a security interest in the property for the affordable housing project. In addition, the Developer will be required to provide Completion Bonds to both the City and the permanent lender to insure that construction is completed. SDP 98-09 - POINSETTIA PROPERTIES AFFORDABLE HOUSING PROJECT SEPTEMBER 29,1998 PAGE 4 F. Risk In its role as a lender to the project, the City is exposed to three risks inherent to real estate development. These risks generally include 1) predevelopment (project does not get to construction, 2) construction (project cannot be completed, cost overruns, contractor problems), and 3) operation (revenues do not cover expenses). Adding to this risk, any City financial assistance will be subordinated to conventional financing. A number of factors mitigate the risks. First, the development team has a strong track record with similar affordable housing projects. The presence of other major financial commitments, such as a tax credit investment, is also key as this means that other stakeholders depend on the success of the project both short and long term. By its nature, affordable housing presents some, but very limited market risk because of deeply discounted rents. Finally, the vulnerabIe position of City and other subordinated financing is a feature which helps attract the necessary private financing. VI. VII. VI11 AFFORDABLE HOUSING AGREEMENT The Housing Commission has previously reviewed and recommended approval of the Affordable Housing Agreement for this project. Prior to final map, the developer will be required to execute the agreement. The Agreement with the City will bind the Developer and subsequent owners to the specifics of the affordable housing project including affordable rental rates, household income limits; a construction schedule; amount and form of City assistance; compliance reporting requirements and implementation agreements (e.g. loan agreements, regulatory agreements, trust deed, etc.). FINANCIAL ASSISTANCE AGREEMENT A copy of the draft Financial Assistance Agreement and related documents are provided as the exhibits (Exlzibif 3) to this report for review by the Housing Commission. The Commission is being requested to review and recommend approval of this agreement and related documents in substantially the form presented and subject to approval by the City Attorney. SUMMARY It is the role of the Housing Commission to make recommendations to the City Council based on several considerations with respect to affordable housing projects. These are: The proposal's effectiveness in serving the City's needs and priorities as expressed in the Housing Element of the General Plan and the Consolidated Plan. _- SDP 98-09 - POINSETTIA PROPERTIES AFFORDABLE HOUSING PROJECT SEPTEMBER 29,1998 PAGE 5 The proposal’s consistency with the City’s affordable housing policies and ordinances as expressed in the Housing Element, Inclusionary Housing Ordinance, Density Bonus Ordinance, etc. The proposal’s development and operating feasibility, emphasizing the development team capacity, financing sources and the role of the City in providing financial assistance or incentives. The Poinsettia Properties affordable apartment project is proposed by a capable development team led by a credible non-profit developer that is committed to affordable housing. The financing structure of the project is creative and sound. The proposed City assistance meets the City’s three key underwriting goals of a strong borrower, reasonable project costs and a high degree of leveraging. The project quality includes good design and location. City housing goals are supported by the project’s unit mix and affordability. It is the Affordable Housing Policy Team’s (staff) recommendation that the Housing Commission approve the resolution of support recommending that the proposed financial assistance be approved by the City Council. Also, the Staff Team recommends that the Commission recommend approval of the Financial Assistance Agreement and related documents in substantially the for presented and subject to approval by the City Attorney. VIII. EXHIBITS 1. Housing Commission Resolution No. 98-014 2. Proforma 3. Draft Financial Assistance Agreement, Loan Agreement, Deed of Trust, and Regulatory Agreement. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOUSING COMMISSION RESOLUTION NO. 98-014 THAT THE HOUSING RECOMMEND APPROVAL TO THE CITY COUNCIL TO $920,000 IN FINANCIAL ASSISTANCE FOR THE CONSTRUCTION OF NINETY TWO AFFORDABLE APARTMENT UNITS TO HELP SATISFY THE REQUIREMENTS OF THE INCLUSIONARY HOUSING ORDINANCE FOR THE POINSETTIA PROPERTIES SPECIFIC PLAN. APPLICANT: BRIDGE HOUSING CORPORATION CASE NO: SDP 98-09 WHEREAS, the master developer of the Poinsettia Properties Specific Plan, HSL/BP/Magellan, L.L.C, has proposed to construct 92 apartment units affordable to lower income households as a means to satisfy a portion of their affordable housing obligation as permitted by Carlsbad Municipal Code Section 2 1.85 of the City’s Inclusionary Housing Ordinance; and WHEREAS, the master developer’s proposal to construct said units has been submitted to the City of Carlsbad’s Housing Commission for review and consideration; and WHEREAS, said Housing Commission did, on the 27th day of August, 1998, hold a public meeting to consider said proposal to construct 92 affordable housing apartment units; and WHEREAS, at the conclusion of said special public meeting, the Housing Commission recommended approval of the proposal to the Planning Coinmission and City Council; and WHEREAS, said Housing Commission did, on the 29th day of September, 1998, hold a public meeting to consider the request for City financial assistance for the construction of said 92 affordable housing apartment units by of the affordable housing developer, Bridge Housing Corporation; and WHEREAS, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Commission considered all factors relating to the proposal to construct said affordable housing units. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. ... r .I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2. 3. 4. 5. Tlie request for City financial assistance is consistent with the goals and objectives of tlie City of Carlsbad's Housing Element, Consolidated Plan, the Inclusionary Housing Ordinance, and the Carlsbad General Plan. The request for City financial assistance will assist the affordable housing developer to construct a total of 92, one, two and three bedroom affordable apartment units. Tlie project, therefore, has the ability to effectively serve tlie City's housing needs and priorities as expressed in the Housing Element and tlie Consolidated Plan. That based on the information provided within the Housing Commission Staff Report and testimony presented during the public meeting of tlie Housing Commission on September 29, 1998, the Housing Coimnission hereby ADOPTS Resolution No. 98- 014, recommending APPROVAL to the City Council to provide up $920,0000 in financial assistance from the City of Carlsbad's Housing Trust Fund to Bridge Housing Corporation for the construction of ninety two (92) affordable apartment units to help satisfy the requirements of the Inclusionary Housing Ordinance for the Poinsettia Properties Specific Plan. That the Housing Commission recommends that tlie City Manager or his designee be authorized by tlie City Council to execute all documents related to provision of the City assistance, including but not limited to a Loan Agreement, Note, Deed of Trust and Regulatory Agreement, in substantially tlie form presented to tlie Housing Commission on September 29, 1998, and subject to review and approval by the City Attorney. PASSED, APPROVED, AND ADOPTED at a meeting of tlie Housing Commission of tlie City of Carlsbad, California, held on the 29th of September, 1998, by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: KATHLEEN DUNN WELLMAN, CHAIRPERSON CARLSBAD HOUSING COMMISSION DEBORAH K. FOUNTAIN HOUSING AND REDEVELOPMENT DIRECTOR HC RES0 NO. 98-014 PAGE 2 CITY LOAN AGREEMENT by and between THE CITY OF CARLSBAD and BRIDGE Housing Corporation - Southern California Poinsettia Apartments 101 0\05\114674.1 .. . . TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND EXHIBITS ............................................................................... 1 .. 1.1 Definitions ..................................................................................................................... 1 1.2 Exhibits ......................................................................................................................... 3 ARTICLE 2 LOAN .......................................................................................................................... 4 2.1 Amount ......................................................................................................................... 4 2.2 Interest ........................................................................................................................... 4 2.3 Repayment .................................................................................................................... 4 2.4 Prepayment ................................................................................................................... 6 2.5 Assumption ................................................................................................................... 6 2.6 Loan Disbursement ....................................................................................................... 6 2.7 Use of Loan Proceeds ................................................................................................... 6 2.8 Security for Loan .......................................................................................................... 7 2.9 Approval of Additional Financing ................................................................................ 7 2.10 Subordination of Deed of Trust .................................................................................. 7 2.1 1 Subordination of the City Regulatory Agreement ...................................................... 7 2.12 Reports and Accounting of Surplus Cash ................................................................... 7 2.13 Developer Fee; Use ofNet Proceeds of Permanent Financing ................................... 8 ARTICLE 3 DISBURSEMENT OF LOAN .................................................................................... 8 3.1 Conditions Precedent to Disbursement of Loan Proceeds ............................................ 8 3.2 Procedure for Disbursement of Loan Proceeds ........................................................... 10 ARTICLE 4 DEVELOPMENT OF THE IMPROVEMENTS ...................................................... 10 4.1 Commencement of Construction ................................................................................ 10 4.2 Completion of Construction ........................................................................................ 10 101 0\05\114674.1 .. . 4.3 Construction Pursuant to Plans ................................................................................... 10 4.4 Construction in Compliance with Law ....................................................................... 11 4.5 Entry by the City ......................................................................................................... 11 4.6 Equal Opportunity ....................................................................................................... 11 4.7 Mechanics Liens, Stop Notices, and Notices of Completion ...................................... 11 4.8 Estoppel Certificate of Completion ............................................................................ 12 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BORROWER ........................... 12 5.1 Representations and Warranties .................................................................................. 12 ARTICLE 6 CONTINUING OBLIGATIONS .............................................................................. 13 6.1 Applicability ............................................................................................................... 13 6.2 Compliance with Loan Documents . Borrower shall comply with all the terms and provisions of the Loan Documents ................................................. 14 6.3 Rental of Units ............................................................................................................ 14 6.4 Required Insurance Coverage ..................................................................................... 14 6.5 Insurance Policies and Premiums ............................................................................... 15 6.6 Proceeds of Insurance. ................................................................................................ 15 6.7 Taxes and Assessments ............................................................................................... 15 6.8 Compliance with Laws ............................................................................................... 15 6.9 Changes ....................................................................................................................... 15 ... 6.10 Notification of Litigation .......................................................................................... 16 6.1 1 Indemnity .................................................................................................................. 16 6.12 Hazardous Materials ................................................................................................. 16 6.13 Non-Discrimination .................................................................................................. 18 6.14 Mandatory Language in All Subsequent Deeds, Leases and Contracts .................... 18 6.15 Records ..................................................................................................................... 19 .. 101 0\05\114674.1 11 . . 6.16 Transfers ................................................................................................................... 19 ARTICLE 7 DEFAULT AND REMEDIES .................................................................................. 20 7.1 Events of Default ........................................................................................................ 20 7.2 Remedies ..................................................................................................................... 22 7.3 Right of Contest .......................................................................................................... 23 7.4 Remedies Cumulative ................................................................................................. 23 7.5 Waiver of Terms and Conditions ................................................................................ 23 ARTICLE 8 MISCELLANEOUS ................................................................................................. 24 .. 8.1 Time ............................................................................................................................ 24 8.2 Force Majeure ............................................................................................................. 24 8.3 Notices ........................................................................................................................ 24 8.4 Attorneys' Fees ............................................................................................................ 25 8.5 No Third Parties Benefited .......................................................................................... 25 8.6 Actions ........................................................................................................................ 25 8.7 Signs ............................................................................................................................ 25 8.8 Successors and Assigns ............................................................................................... 25 8.9 Construction of Words ................................................................................................ 25 .. 8.10 Partial Invalidity ........................................................................................................ 25 8.1 1 Governing Law .................... .................................................................................... 25 8.12 Amendment ............................................................................................................... 25 8.13 Captions and Headings ............................................................................................. 26 8.14 Action by the City ..................................................................................................... 26 Exhibit A . Legal Description of the Land Exhibit B . City Note Exhibit C . City Regulatory Agreement 1010\05\114674.1 iii Exhibit D - City Deed of Trust Exhibit E - Permitted Uses of Loan Proceeds Exhibit F - Form of Estoppel Certificate of Completion 101 0\05\114674.1 iv . - CITY LOAN AGREEMENT This City Loan Agreement ("the Agreement") is entered into as of this -2 1998, by and between the City of Carlsbad (the "City") and BRIDGE Housing Corporation- Southern California, a California Limited Partnership (the "Borrower"). RECITALS 1. Pursuant to Title 2 1, Chapter 2 1.85 of the Carlsbad Municipal Code, the City has established a Housing Trust Fund administered by the City and used for the purpose of providing funding assistance for the provision of affordable housing consistent with the policies and programs contained in the Housing Element of the City's General Plan. 2. Borrower desires to construct ninety-two (92) residential units in the City of Carlsbad, of which at least forty-five (45) shall be rented to low income households at affordable housing cost and the remainder, excluding a managerk unit, shall be rented to moderate income households at affordable housing cost. 3. The City desires to provide financial assistance to Borrower for development costs in the form of a loan for a total amount not to exceed Nine Hundred Twenty Thousand Dollars ($920,000) (the "City Loan"). The funds utilized to fund the City Loan are Housing Trust Fund monies and are not federal funds or the proceeds of a tax-exempt bond issue. 4. The City intends to utilize the development to obtain affordable housing production credits for the Agency pursuant to Health and Safety Code Section 33413(b)(2)(A)(ii) as newly constructed housing units located outside of the Carlsbad Village Redevelopment Area (the "Redevelopment Area") and available at affordable housing cost to low and moderate income households. Such units are required to remain affordable to such households for not less than the period of the land use controls established in the Redevelopment Plan for the Redevelopment Area. This Agreement and the accompanying City Regulatory Agreement are also intended to implement this requirement. ARTICLE 1 DEFINITIONS AND EXHIBITS 1.1 Definitions. The following terms shall have the following meanings in this Agreement: (4 "Agreement" shall mean this City Loan Agreement. 1010\05\114674.1 (b) "Agency" shall mean the Carlsbad Redevelopment Agency, Carlsbad, California, a public body corporate and politic. (4 "Borrower" shall mean BRIDGE Housing Corporation-Southem California, a California nonprofit public benefit corporation. (4 "City Deed of Trust" shall mean the deed of trust to be placed on the Development, in substantially the form shown in Exhibit D attached hereto and incorporated herein, securing the City Note and naming the City as beneficiary. (e) "City Loan" shall mean the loan for an amount not to exceed Nine Hundred Twenty Thousand Dollars ($920,000) by the City to Borrower, which loan is the subject of this Agreement. (9 "City Note" shall mean the promissory note, in substantially the form shown in Exhibit B attached hereto and incorporated herein, in the principal amount of Nine Hundred Twenty Thousand Dollars ($920,000), evidencing the City Loan. (g) "City Regulatory Agreement" shall mean the City Regulatory Agreement in the form attached as Exhibit C to this Agreement to be recorded against the Land pursuant to Section 3.1 below. (h) "Construction and Permanent Financing" shall mean any of the following loans acquired by the Borrower for the purpose of financing the Improvements, in addition to the City Loan: (9 Private institutional lender construction loan in an approximate amount of Five Million Nine Hundred Fifty Thousand Four Hundred Sixty-Seven Dollars ($5,950,467) (the "Bank Construction Loan"); (ii) Permanent loan financed with multifamily housing revenue bond proceeds in the approximate amount of Four Million One Hundred Twenty-Five Thousand Dollars ($4,125,000) (the "Permanent Loan"); (iii) Master developer cash contribution in the amount of Nine Hundred Thousand Dollars ($900,000); and (iv) Tax credit investor equity funds in the approximate amount of Two Million Seven Hundred Twenty Six Thousand Seven Hundred Forty-Four Dollars ($2,726,744). (9 "Development" shall mean the Land and Improvements to be constructed on the Land. 101 0\05\114674.1 2 (i) "Improvements" shall mean the buildings and improvements to be constructed on the Land, including the Units, and the parking spaces and landscaping appurtenant to such buildings and improvements. (k) "Land" shall mean the property on which the Borrower shall construct the Improvements, which property is more particularly described in Exhibit A attached hereto and incorporated herein. (1) "Loan Amount'' shall mean the amount loaned to Borrower pursuant to Section 2.1 below. (m) evidencing the City Loan: (i) the City Note; (ii) the City Regulatory Agreement; (iii) the City Deed of Trust; (iv) this Agreement. "Loan Documents'' shall mean the following documents (n) "Parties" shall mean the City and the Borrower. (0) "Partnership" shall mean a limited partnership in which the Borrower or a nonprofit affiliate of the Borrower is the general partner. (PI ''Term'' shall mean the term of the City Loan commencing on the date of disbursement of the Loan Amount and ending fifty-five (55) years following the date of issuance of a certificate of occupancy for all Units in the Development, but in no event later than June 30,2055. (9) located within the Development. "Unit" shall mean one of the ninety-two (92) dwelling units 1.2 incorporated herein: Exhibits The following Exhibits are attached to this Agreement and Exhibit A - Legal Description of the Land Exhibit B - City Note Exhibit C - City Regulatory Agreement Exhibit D - City Deed of Trust Exhibit E - Permitted Uses of Loan Proceeds Exhibit F - Form of Estoppel Certificate of Completion 1010\05\114674.1 3 ARTICLE 2 LOAN 2.1 Amount. The City hereby agrees to loan, and the Borrower hereby agrees to borrow, an amount not to exceed Nine Hundred Twenty Thousand Dollars ($920,000), subject to the terms and conditions set forth in this Agreement, and subject further to the terms and conditions set forth within the documents and instruments executed by the Borrower in connection with this transaction, including: (4 The City Note; (b) The City Regulatory Agreement; and (4 The City Loan Deed of Trust. 2.2 Interest. The outstanding principal amount of the Loan shall accrue simple interest at three percent (3%) per annum. 2.3 Repayment. (a) Repayment of the Loan shall be deferred during construction of the Improvements. Commencing on the date of issuance by the City of a certificate of occupancy for all Units in the Development, the outstanding principal and accrued interest on the City Loan shall be amortized over the next fifty-five (55) years of the Term such that equal payments of principal and interest (the "Amortized Payments") shall be due and payable on May 1 of each calendar year, commencing on the first May 1 following recordation of the deed of trust securing the Permanent Loan; provided however, that the Amortized Payments shall be due and payable only to the extent of seventy percent (70%) of Surplus Cash (as defined below) generated by the Development in the previous calendar year. (b) "Surplus Cash" means, in a particular calendar year, the amount by which Gross Revenue (as defined below) exceeds Annual Operating Expenses (as defined below). (i) calendar year, shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Development. "Gross Revenue" shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; proceeds from vending and laundry room machines; the proceeds of business interruption or similar Gross Revenue. "Gross Revenue," with respect to a particular 4 101 0\05\114674.1 insurance; the proceeds of casualty insurance to the extent not utilized to repair or rebuild the Development; and condemnation awards for a taking of part or all of the Development for a temporary period. "Gross Revenue" shall also include the fair market value of any goods or services provided in consideration for the leasing or other use of any portion of the Development. "Gross Revenue'' shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (ii) Annual Operating Expenses. "Annual Operating Expenses," with respect to a particular calendar year shall mean the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with an annual independent audit performed by a certified public accountant using generally accepted accounting principles: property and other taxes and assessments imposed on the Development; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including but not limited to water, sewer, trash collection, gas and electricity; maintenance and repair including but not limited to pest control, landscaping and grounds maintenance, painting and decorating, cleaning, common systems repairs, general repairs, janitorial, supplies, and others; any annual license or certificate of occupancy fees required for operation of the Development; general administrative expenses including but not limited to advertising and marketing, security services and systems, and professional fees for legal, audit and accounting; property management fees and reimbursements including on-site manager expenses, not to exceed fees and reimbursements which are standard in the industry; asset management'partnership management fees in an annual amount approved by the City; deferred developer fees in an amount approved by the City; cash deposited into a reserve for capital replacements of Development improvements and an operating reserve in such reasonable amounts as are required by Development lenders andor equity investors, and approved by the City; and debt service payments on financing for the Development approved by the City, including the financing described above in Section l.l(g) (excluding debt service due from residual receipts or surplus cash of the Development. "Annual Operating Expenses" shall not include the following: depreciation, amortization, depletion or other non-cash expenses or any amount expended from a reserve account. In the event that seventy percent (70%) of Surplus Cash in any year is less than the amount of the Amortized Payment due on May 1 of the following year, the difference between the amount of seventy percent (70%) of Surplus Cash and the Amortized Payment shall accrue with simple interest at three percent (3%) per annum, and shall be paid on the next May 1 when and to the extent Surplus Cash becomes available. All payments on the City Loan shall be applied first to accrued, but unpaid, amounts for prior years and then to the 101 0\05\114674.1 5 current Amortized Payment due, beginning with the earliest year for which an Amortized Payment accrued. (4 In the event that seventy percent (70%) of Surplus Cash in any year exceeds the amount necessary to make the Amortized Payment due on May 1 of the following calendar year, plus any amounts due pursuant to subsection (c) above, such excess amount shall be paid to the City as prepayment of the City Loan. Such prepayment shall not reduce the amounts of subsequent Amortized Payments due, except to the extent that the City Loan is fully repaid. (e) Prepayment of the City Loan may also occur pursuant to Section 2.13 below. Such prepayment shall not reduce the amounts of subsequent Amortized Payments due, except to the extent the City Loan is fully repaid. (f) Any portion of the principal and interest on the City Loan not sooner paid shall be due and payable upon the earlier of: (i) the occurrence of an Event of Default hereunder; (ii) expiration of the Term; or (iii) sale or transfer of the Development other than a transfer described in Section 2.5 below. 2.4 Prepayment. Borrower may prepay the principal and any interest due the City under the City Note prior to or in advance of the time for payment thereof as provided in the City Note, without penalty; provided, however, that Borrower acknowledges that the provisions of the City Regulatory Agreement will be applicable to the Development throughout the term of the City Regulatory Agreement even though Borrower may have prepaid the City Note. 2.5 Assumption. The Loan shall not be assumable by any transferee, except a transferee meeting the requirements of Section 6.16(c) below. 2.6 Loan Disbursement. Upon satisfaction of the preconditions to disbursement set forth in Sections 3.1 below and pursuant to the disbursement procedures set forth in Sections 3.1 and 3.2 below, the City will disburse to Borrower the Loan Amount. 2.7 Use of Loan Proceeds. Borrower shall use Loan Proceeds only to pay the costs of the items set forth in Exhibit E. 2.8 Securitv for Loan. The Loan shall be secured by the City Deed of Trust on Borrower's interest in the Development. The Borrower shall provide the City with an ALTA lenders policy of title insurance insuring the City Deed of Trust as a lien against the Development, subject only to the lien or liens of the Mortgages recorded in connection with the Construction and Permanent Financing described above in Section 1 .l(h)(i) and (ii). 2.9 Approval of Additional Financing. The Borrower shall not place any encumbrances on the Development other than the Construction and Permanent Financing without the prior written consent of the City, which consent shall not be withheld unreasonably. 101 0\05\114674.1 6 2.10 Subordination of Deed of Trust. The City agrees to subordinate the City Deed of Trust to the liens of the deeds of trust securing the Bank Construction Loan and the Permanent Loan, described in Section 1.1 (h)(i) and (ii) above. 2.1 1 Subordination of the City Regulatory Agreement. The City agrees that the City's Housing and Redevelopment Manager shall subordinate the City Regulatory Agreement to the lien or encumbrance of any private construction or permanent financing provided for the Development upon the finding of the City's Housing and Redevelopment Manager that (i) an economically feasible loan is not reasonably available on comparable terms and conditions without subordination, and (ii) the mortgage to which the City Regulatory Agreement is being subordinated contains provisions meeting the requirements of Health and Safety Code Section 33334.14(a) reasonably designed to protect the City's and Agency's interests in the event of default under such mortgage. The City agrees that the City Regulatory Agreement shall be subordinated to any federal or state governmental agency regulating the Development which requires that the City Regulatory Agreement be subordinate to such government 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 City Regulatory Agreement as provided in this Section. 2.12 Reports and Accounting of Surplus Cash. (a) Audited Financial Statement. In connection with the annual repayment of the City Loan, the Borrower shall furnish to the City within one hundred and twenty (120) days after the end of the calendar year 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 Surplus Cash during the preceding calendar year. (b) Books and Records. The Borrower shall keep and maintain at the location of the Development, 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 Borrower's calculation of Surplus Cash. Books, records and accounts relating to 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 Surplus Cash 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 authorized representatives at reasonable intervals during normal business hours and upon five (5) days prior written notice to Borrower. Copies of all tax returns and other reports that Borrower may be required to furnish any governmental agency shall at all reasonable times be open for inspection by the City at the place that the books, records and accounts of the Borrower are kept and upon 5 days prior written notice to Borrower. The Borrower shall preserve records on which any statement of Surplus Cash is based for a period of not less than five (5) years after such statement is rendered. 101 0\05\114674.1 7 2.13 Developer Fee: Use of Net Proceeds of Permanent Financing. (a) The maximum cumulative developer fee that may be paid to any entity or entities providing development services to the Development, whether paid up-front or on a deferred basis, shall not exceed Eight Hundred Nineteen Thousand Dollars ($8 19,000), of which Two Hundred Thousand Dollars ($200,000) shall be deferred (the "Deferred Developer Fee") and paid from cash flow of the Development, in amounts approved by the City, or from the Net Proceeds of Permanent Financing, as described below. (b) For purposes of this Section 2.13, the term "Net Proceeds of Permanent Financing" shall mean the portion of the capital contributions of the investor limited partner of the Partnership and the proceeds of the Permanent Loan that is not required to repay the Bank Construction Loan and pay other costs of the Development (including but not limited to the funding of reserves), and excluding the Deferred Developer Fee. (4 The Net Proceeds of Permanent Financing shall be utilized as follows: (9 Borrower may retain one-half of the Net Proceeds of Permanent Financing, and shall utilize such funds to pay part or all of the Deferred Developer Fee; and (ii) One-half of the Net Proceeds of Permanent Financing shall be paid to the City as a partial prepayment of the City Loan. ARTICLE 3 DISBURSEMENT OF LOAN 3.1 Conditions Precedent to Disbursement of Loan Proceeds. The City shall not disburse Loan proceeds to the Borrower until all of the following conditions precedent are satisfied. (a) Budget. Borrower shall have submitted to the City and obtained City approval of a development budget for the Development, and the City has determined that the undisbursed proceeds of the City Loan, together with other funds or firm commitments for funds that the Borrower has obtained in connection with the Development, are not less than the amount that the City determines is necessary to pay for the construction of the Development and to satisfy all of the covenants contained in this Agreement. (b) Corporate Authorization; Good Standing. Borrower shall have provided the City with a certified copy of a corporate authorizing resolution of the Borrower or, if the loan has been assigned to the Partnership, the general partner of the Partnership, approving the Loan and the Borrower's execution of all Loan Documents, and with evidence reasonably satisfactory to the City that the Borrower exists in good standing at the time of the proposed disbursement. . 101 0\05\114674.1 8 .a (4 Purchase of Land. Borrower shall hold title to the Land. (d) Close of Construction Loan. Borrower shall have closed the Bank Construction Loan for the Development described in Section I. I (h)(i) above. (e) Execution, Delivery and Recordation of Documents. Borrower shall have executed and delivered to the City the City Note, the City Deed of Trust, and the City Regulatory Agreement, and any other documents and instruments required to be executed and delivered, all in form and substance satisfactory to the City, and the City Deed of Trust and the City Regulatory Agreement shall have been recorded against the Development. (f) Insurance. Borrower shall have furnished the City with evidence of the insurance coverage required pursuant to Sections 6.4 and 6.5 below. (8) Bonds. Prior to any disbursement for hard construction costs, the City has received copies of labor and material (payment) bonds and performance bonds, or a dual bond which covers both payment and performance obligations, with respect to the construction of the Development in a penal sum each of not less than one hundred percent (1 00%) of the scheduled cost of construction. Such bonds must be issued by an insurance company reasonable acceptable to the City and must name the City as a co-obligee. (h) Construction Contracts. Prior to any disbursement for hard construction costs, the City has received and approved all contracts that the Borrower has entered or proposed to enter into for construction of the Development. All construction work and professional services shall be performed by persons or entities licensed or otherwise authorized to perform the applicable construction work or service in the State of California. Each contract that the Borrower enters for construction of the Development shall provide that at least ten percent (1 0%) of the costs incurred shall be payable only upon completion of said contractor's construction and shall include the nondiscrimination language set forth in Section 6.14 below. (9 No Default. There shall exist no condition, event or act constituting an Event of Default (as hereinafter defined) hereunder or which, upon the giving of notice or the passage of time, or both, would constitute an Event of Default. 3.2 Procedure for Disbursement of Loan Proceeds. Upon satisfaction of the conditions set forth in Section 3.1 above, the City shall promptly, but in no event later than five (5) business days after receiving Borrower's written request and any required documentation disburse the Loan Amount to Borrower from time to time, but in no event more than monthly (if Borrower requests), upon receipt of written requests from the Borrower: reaffirming the accuracy as of the date of the disbursement request of Borrower's representation, and warranties set forth in Article 5 below; (b) certifying that Borrower is not in default under the City Loan Documents or loan documents for other Construction and Permanent Financing; and (c) setting forth the proposed uses of funds consistent with Section 2.7 above, the amount of funds needed, and, where applicable, a copy of the bill or invoice covering a cost incurred or to be incurred. 1010\05\114674.1 9 . When a disbursement is requested to pay any contractor in connection with the Development, the written request must be accompanied by certification by Borrower that the work for which disbursement is requested has been completed (although the City reserves the right to inspect the Development and make an independent evaluation), and lien releases andor mechanics lien title insurance endorsements reasonably acceptable to the City. ARTICLE 4 DEVELOPMENT OF THE IMPROVEMENTS 4.1 Commencement of Construction. Subject to Section 8.2 below, the Borrower hereby covenants and agrees to commence construction of the Development no later than thirty (30) days following the recordation of the City Deed of Trust. 4.2 Completion of Construction. The Borrower hereby covenants and agrees to diligently prosecute to completion the construction of the Development within 0 months fiom the date of commencement of construction, subject to Section 8.2 below. 4.3 Construction Pursuant to Plans. The Borrower shall construct the Improvements in accordance with the plans approved by the City in connection with issuance of the building permit, and with the terms and conditions of all land use permits and approvals required by the City. 4.4 Construction in Comuliance with Law. The Borrower shall cause all work performed in connection with the Development, including construction of the Improvements, to be performed in compliance with all governmental requirements, including (without limitation and where applicable) the following: (a> The prevailing wage provisions of Sections 1770 et seq. of the California Labor Code and implementing rules and regulations, if applicable. (b) All directions, rules, and regulations of any fire marshal, health officer, building inspector, or other officer of any governmental agency having 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. 4.5 Entry bv the Citv. Borrower shall permit the City, through its officers, agents, or employees, at all reasonable times and upon three (3) business days prior written notice to enter into the Development and inspect the work of construction to determine that the same is in conformity with the construction plans approved by the City. Borrower acknowledges that the City is under no obligation to supervise, inspect, or inform Borrower of the progress of construction, and Borrower shall not rely upon the City therefor. Any inspection by the City is 1010\05\114674.1 10 entirely for its purposes in determining whether Borrower is in default under this Agreement and is not for the purpose of determining or informing Borrower of the quality or suitability of construction. Borrower shall rely entirely upon its own supervision and inspection in determining the quality and suitability of the materials and work, and the performance of architects, subcontractors, and material suppliers. 4.6 Equal Omortunitv. During the construction of the Improvements there shall be no discrimination on the basis of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry, or handicap in the hiring, firing, promoting, or demoting of any person engaged in the construction work. 4.7 Mechanics Liens, Stop Notices. and Notices of Completion. (a) If any claim of lien is filed against the Land or a stop notice affecting the City Loan is served on the City or any other lender or other third party in connection with the Development, then the Borrower shall, within twenty (20) days after such filing or service, either pay and fully discharge the lien or stop notice, effect the release of such lien or stop notice by delivering to the City a surety bond in sufficient form and amount, or provide the City with other assurance satisfactory to the City that the claim of lien or stop notice will be paid or discharged. (b) If the Borrower fails to discharge any lien, encumbrance, charge, or claim in the manner required in Section 4.7(a), then in addition to any other right or remedy, the City may (but shall be under no obligation to) discharge such lien, encumbrance, charge, or claim at the Borrower's expense. Alternately, the City may require the Borrower to immediately deposit with the City the amount necessary to satisfy such lien or claim and any costs, pending resolution thereof. The City may use such deposit to satisfy any claim or lien that is adversely determined against the Borrower. (4 The Borrower shall file a valid notice of cessation or notice of completion upon cessation of construction on the Development for a continuous period of thirty (30) days or more, and take all other reasonable steps to forestall the assertion of claims of lien against the Land. The Borrower authorizes the City, but without any obligation, to record any notices of completion or cessation of labor, or any other notice that the City deems necessary or desirable to protect its interest in the Development. 4.8 Estoppel Certificate of Completion. When the Borrower has determined it has met its obligations under this Article 4, the Borrower may request that the City issue an Estoppel Certificate of Completion, in the form shown in Exhibit F. Within ten (1 0) days of such a request, the City shall issue an Estoppel Certificate of Completion or shall provide the Borrower with a written explanation of its refusal to issue the Estoppel Certificate of Completion. If and when the Borrower has taken the specified measures or met the specified standards, the City shall issue an Estoppel Certificate of Completion. 101 0\05\114674.1 11 The Estoppel Certificate of Completion shall not be deemed a notice of completion under the California Civil Code, nor shall it constitute evidence of compliance with or satisfaction of any obligation of the Borrower to any holder of a deed of trust securing money loaned to finance the Development. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BORROWER 5.1 Representations and Warranties. Borrower hereby represents and warrants to the City as follows: (a> Organization. Borrower is duly formed, validly existing and in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. 1010\05\114674.1 12 (b) Authority of Borrower. 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 instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement, and to perform and observe the terms and provisions of all of the above. (c> Authority of Persons Executing Documents. This Agreement and the Loan Documents and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of Borrower, and all actions required under Borrower's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Agreement and the Loan Documents and all other documents or instruments 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 instruments which have been executed and delivered pursuant to or in connection with this Agreement constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of Borrower. (e> Pending Proceedings. There are no claims, actions, suits or proceedings pending or, to the knowledge of Borrower, threatened against or affecting Borrower or the Development, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to Borrower, materially affect Borrower's ability to repay the City Loan or impair the security to be given to the City pursuant hereto. (f) Financial Statements. The financial statements of Borrower and other financial data and information furnished by 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 Borrower from that shown by such financial statements and other data and information. ' ARTICLE6 CONTINUING OBLIGATIONS 6.1 Applicability. The Borrower shall comply with the provisions of this Article 6 throughout the Term, 6.2 Compliance with Loan Documents. Borrower shall comply with all the terms and provisions of the Loan Documents. 6.3 Rental of Units. The Borrower shall comply with the occupancy and affordability restrictions for the rental of the Units as set forth in the City Regulatory Agreement. 1010\05\114674.1 13 6.4 Required Insurance Coverage. (4 Fire and Extended Coverage Endorsement. The Borrower shall during the Term keep the Development insured against loss or damage by a standard all risk policy in amounts not less than the replacement value of the Development, or should insurance in such amount not be reasonably and commercially available, such lesser amount as may be acceptable to the City. The amount of such insurance shall be adjusted by reappraisal of the Improvements by the insurer or its designee at least once every five (5) years during the Term, if requested by the City. If an all risk policy insuring the full replacement value of the Development is not reasonably and commercially available, the Borrower shall use best efforts to obtain and maintain an extended coverage endorsement that ensures the full replacement value of the Development as soon as such coverage becomes commercially and reasonably available. (b) Liability and Property Damage Insurance. During the Term, the Borrower shall keep in full force and effect a policy or policies of comprehensive general liability and property damage insurance against liability for bodily injury to or death of any person or property damage arising out of an occurrence on or about the Development. The limits of such insurance shall be not less than one million dollars ($1,000,000) combined single limit for bodily injury and property damage. The limits of the insurance shall be adjusted once every five (5) years if and as reasonably required by the City. (4 Workers' Compensation Insurance. The Borrower shall carry or cause to be carried workers' compensation insurance covering all persons employed by the Borrower in connection with the Development and with respect to whom death, bodily injury, or sickness insurance claims could be asserted against the Borrower or the City. (4 Builders' Risk Insurance. During the course of any alteration, construction or reconstruction, the cost of which exceeds one hundred thousand dollars ($100,000), the Borrower shall provide or require any contractor to provide builders' risk insurance for not less than, in the event of new construction, the full insurable value of the Development or, in the event of alteration or reconstruction, the insurable value of the alteration or reconstruction, insuring the interests of the City, the Borrower and any contractors and subcontractors. 1010\05\114674.1 14 6.5 Insurance Policies and Premiums. (a> All liability policies required by this Agreement shall name the City as an additional insured. Duplicate copies of such policies or certificates of such insurance shall be promptly furnished to the City. (b) To the extent obtainable, any policy of insurance shall provide that any change or cancellation of said policy must be made in writing and sent to the Borrower and the City at their respective principal offices at least thirty (30) days before the effective date of any change or cancellation. 6.6 Proceeds of Insurance. All fire and standard risk or extended coverage (casualty) insurance proceeds shall be applied to the payment of the costs of repairing or rebuilding that part of the Development damaged or destroyed if (i) the Borrower agrees in writing within ninety (90) days after payment of the proceeds of insurance that such repair or rebuilding is economically feasible, and (ii) each lender of an outstanding Construction and Permanent Loan permits such repairing or rebuilding, provided that the extent of Borrower's obligation to restore the Development shall be limited to the amount of the insurance proceeds. If the Development is not repaired or rebuilt as provided in this Section 6.6, all such proceeds shall be applied to repayment of outstanding loans including this City Loan, in the order of lien priority. 6.7 Taxes and Assessments. So long as Borrower owns the Development, Borrower shall pay all real and personal property taxes, assessments and charges and all franchise, income, unemployment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Development; provided, however, that Borrower shall have the right to contest in good faith any such taxes, assessments, or charges. In the event Borrower exercises its right to contest any tax, assessment, or charge against it, Borrower, on final determination of the proceeding or contest, shall immediately pay or discharge any judgment rendered against it, together with all costs, charges, and interest. 6.8 Compliance with Laws. Borrower shall comply with all laws and regulations of the United States and of California and of any political subdivision thereof, or of any governmental authority which may be applicable to it or to its business, subject to Borrower's right to contest the validity or applicability of laws or regulations. 6.9 Changes. Borrower shall promptly notify the City in writing of any changes in the location of any place of business or material assets of the Borrower. 6.10 Notification of Litigation. Borrower shall promptly notify the City in writing of any litigation affecting the Borrower or the Development and of any claims or disputes that involve a material risk of litigation, which may materially adversely affect the City Loan. 1010\05\114674.1 15 . 6.1 1 Indemnity. Borrower shall defend, indemnify, save and hold the City and the Agency, their councilmembers, boardmembers, officers, employees, agents, and contractors, utilizing attorneys approved by the City, harmless from any and all claims, actions, demands, costs, expenses, and reasonable attorneys' fees, arising out of, attributable to, or otherwise occasioned, in whole or in part, by any act or omission of Borrower arising from or related to the Development, except as such claim may arise from the negligence or willful misconduct of an indemnified party. This Section 6.1 1 shall not operate to impose personal liability on Borrower or its partners for nonpayment of principal and interest under the City Note. 6.12 Hazardous Materials. (4 The Borrower shall keep and maintain the Development in compliance with, and shall not cause or permit the Development to be in violation of, any federal, state, or local laws, ordinances, or regulations relating to industrial hygiene or to the environmental conditions on or under the Development, 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 Development, or transport to or from the Development, 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 as "Hazardous Materials") except such of the foregoing as may be customarily and lawfully kept and used in and about multifamily residential property. (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 governmental or regulatory actions instituted, completed, or threatened against the Borrower or the Development 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 Development 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 referred to as "Hazardous Materials Claims"); and (iii) the Borrowe& discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Development that could cause the Development or any part thereof to be classified as "border-zone property" under California Health and Safety Code Sections 25220 et seq. or corresponding regulations, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability, or use of the Development under any Hazardous Materials Law. (4 The Borrower shall permit the City to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials. The Borrower shall indemnify, defend (with counsel reasonably chosen by the City, at the City's option), and hold harmless the City, and the Agency, and their respective councilmembers, boardmembers, officers, agents, and employees from and against any loss, 1010\05\114674.1 16 .- damage, cost, expense, or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on or under the Development, including (without limitation): (i) all foreseeable consequential damages; (ii) the costs of any required or necessary repair, cleanup, or detoxification of the Development and the preparation and implementation of any closure, remedial, or other required plans; and (iii) all reasonable costs and expenses incurred by the City or the City in connection with clauses (i) and (ii), including (but not limited to) reasonable attorneys' fees. This paragraph shall survive termination of this Agreement. (4 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 Development, 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 judgement, 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 Development 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 alternative to such remedial action which would result in less impairment of the 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 6.12 is intended as the City's written request for information (and the Borrower's response) concerning the environmental condition of the Development as required by California 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 Development is intended by the Parties to be an "environmental provision'' for purposes of California Code of Civil Procedure Section 736. 6.13 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, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the 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. Pursuant to the terms of the City 1010\05\114674.1 17 Regulatory Agreement, the foregoing covenant shall run with the land and shall survive termination of this Agreement. 6.14 Mandatory Lanwage in All Subsequent Deeds, Leases and Contracts. The Borrower and its agents shall not, in the selection or approval of tenants or provision of services or in any other matter, discriminate against any person or group of persons on the grounds of race, color, creed, religion, sex, sexual orientation, marital status, national origin, ancestry, age, or disability. All deeds, contracts, or leases made or entered into by Borrower, its successors or assigns, as to any portion of the Development shall contain the following language: (a> In Deeds: "Grantee herein covenants by and for itself, its successors and assigns that there shall be no discrimination against or segregation of a person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property herein conveyed nor shall the grantee or any person claiming under or through the grantee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the property herein conveyed. The foregoing covenant shall run with the land." In Contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry in the sale, transfer or use of the property." (c> In Leases: "The lessee herein covenants by and for the lessee and lessee's heirs, personal representatives and assigns and all persons claiming under the lessee or through the lessee that this lease is made subject to the condition that there shall be no discrimination against or segregation of any person or of a group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin or ancestry in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the land herein leased nor shall the lessee or any person claiming under or through the lessee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein leased.'' 101 0\05\114674.1 18 6.15 Records. (4 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, and shall permit any duly authorized representative of the City to inspect and copy records, including records pertaining to income and household size of residents of the Development. Such records shall include records regarding the occupancy and rent levels of the residential units in the Development, as well as records that accurately and fully show the date, amount, purpose, and payee of all expenditures drawn from Loan funds. Such records shall also include all invoices, receipts, and other documents related to expenditures from the City 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 fifteen (1 5) 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 fifteen (1 5) days is reasonably necessary to correct the deficiency, then the Borrower shall begin to correct the deficiency within fifteen (1 5) days and correct the deficiency as soon as reasonably possible. (4 The Borrower shall promptly comply with all requirements or conditions of the City Loan Documents relating to notices, extensions, and other events required to be reported or requested. The Borrower shall promptly supply, upon the request of the City, any and all information and documentation involving the Development. 6.16 Transfers. (a) For purposes of this Agreement, "Transfer1' shall mean any sale, assignment, or transfer, whether voluntary of involuntary, of (i) any rights andor duties under this Agreement, and/or (ii) any interest in the Development, including (but not limited to) a fee simple interest, a joint tenancy interest, a life estate, a partnership interest, a leasehold interest, a security interest, or an interest evidenced by a land contract by which possession of the Development is transferred and the Borrower retains title. The term "Transfer'l shall exclude the leasing of any single unit in the Development to an occupant in compliance with the City Regulatory Agreement. (b) No Transfer shall be permitted without the prior written consent of the City, which the City shall not unreasonably withhold, provided that construction of the Development has been completed, the proposed transferee meets the City's reasonable standards regarding creditworthiness, and the proposed transferee has at least five (5) years experience in the ownership, management, and operation of large affordable housing developments, without any record of material violations of discrimination laws, housing codes, or other federal, state, or local laws or regulations applicable to such developments. Pursuant to Section 2.3(e) above, the City Loan shall automatically accelerate and be due in full upon any unauthorized Transfer. 1010\05\114674.1 19 (4 The City hereby approves a transfer of the Development from the Borrower to the Partnership, and a subsequent transfer of the Development from the Partnership back to the Borrower or to a nonprofit affiliate of the Borrower, provided that the transferee expressly assumes the obligations of the Borrower under this Agreement, the City Note, the City Deed of Trust and the City Regulatory Agreement, utilizing a form of assignment and assumption agreement approved by the City. (4 The City approves the grant of the security interests in the Development in connection with the financing described in Section 1.1 (h) above. ARTICLE 7 DEFAULT AND REMEDIES 7.1 Events of Default. Each of the following shall constitute an "Event of Default" by Borrower under this Agreement: (a) Failure to Construct. Subject to Section 8.2, failure of Borrower to construct all of the Development within the time set forth in Section 4.2 above; (b) Failure to Make Payment. Failure to make prompt payments of the principal and interest on the City Note when due and such failure having continued uncured for thirty (30) days after receipt of written notice thereof to the Borrower from the City; (c> Breach of Covenants. Failure by Borrower to duly perform, comply with, or observe any of the conditions, terms, or covenants of any of the Loan Documents, and such failure having continued uncured for thirty (30) days after receipt of written notice thereof by the Borrower from the City or, if the breach cannot be cured within thirty (30) days, the Borrower shall not be in breach so long as Borrower is diligently undertaking to cure such breach and such breach is cured within ninety (90) days; provided, however, that if a different period or notice requirement is specified under any other section of this Article 7, the specific provisions shall control. (4 Default &der Other Loans. Failure to make any payment or perform any of Borrower's covenants, agreements, or obligations under the documents evidencing and securing the Construction and Permanent Financing following expiration of all applicable notice and cure periods. 1010\05\114674.1 20 . (e) Insolvency. A court having jurisdiction shall have made or entered any decree or order (i) adjudging Borrower to be bankrupt or insolvent, (ii) approving as properly filed a petition seeking reorganization of Borrower or seeking any arrangement for Borrower under the bankruptcy law or any other applicable debtor's relief law or statute of the United States or any state or other jurisdiction, (iii) appointing a receiver, trustee, liquidator, or assignee of Borrower in bankruptcy or insolvency or for any of their properties, or (iv) directing the winding up or liquidation of 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 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 of the 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. If the City Loan is assigned to the Partnership pursuant to Section 6.16(c) below, the occurrence of any of the events described in this subsection with respect to a general partner of the Partnership shall also constitute an Event of Default hereunder. (f) Assignment; Attachment. Borrower (or, if the City Loan is assigned to the Partnership, a general partner of 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 returned or released within ninety (90) days after such event or prior to sooner 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. (g) Suspension; Termination. Borrower (or, if the City Loan is assigned to the Partnership, a general partner of Borrower) shall have voluntarily suspended its business or, if the City Loan is assigned to the Partnership, the Partnership shall have been dissolved or terminated, other than a technical termination of the Partnership for tax purposes. (h) Liens on Property and the Proiect. There shall be filed any claim of lien (other than liens approved in writing by the City) against the Development or any part thereof, or any interest or right made appurtenant thereto, or the service of any notice to withhold proceeds of the City Loan and the continued maintenance of said claim of lien or notices to withhold for a period of twenty (20) days without discharge or satisfaction thereof or provision therefor satisfactory to the City. In the event that Borrower is diligently working to remove a claim of lien or to remove a notice to withhold proceeds and the City's interests under the Loan Documents are not imminently threatened, the City shall not declare a default under this subsection. (9 Condemnation. The condemnation, seizure, or appropriation of all or the substantial part of the Land and the Development. 1010\05\114674.1 21 6) Unauthorized Transfer. Any Transfer other than as permitted by Article Six. (k) Representation or Warranty Incorrect. Any Borrower representation or warranty contained in this Agreement, or in any application, financial statement, certificate, or report submitted to the City in connection with any of the City Loan Documents, proving to have been incorrect in any material respect when made. 7.2 Remedies. The occurrence of any Event of Default following the expiration of all applicable notice and cure periods will, either at the option of the City or automatically where so specified, relieve the City of any obligation to make or continue the City 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: (4 Acceleration of Note. The City shall have the right to cause all indebtedness of the Borrower to the City under this Agreement and the City Note, together with any accrued 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, including foreclosure under the City Deed of Trust. The Borrower shall be liable to pay the City on demand all reasonable expenses, costs and fees (including, without limitation, reasonable attorney's fees and expenses) paid or incurred by the City in connection with the collection of the 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 Borrower to perform its obligations and covenants under the Loan Documents or to enjoin acts on things which may be unlawful or in violation of the provisions of the Loan Documents. Right to Cure at Borrower's Expense. The City shall have the right (but not the obligation) to cure any monetary default by Borrower under a loan other than the City Loan. The Borrower agrees to reimburse the City for any funds advanced by the City to cure a monetary default by Borrower upon demand therefor, together with interest thereon at the rate of three percent (3%) per annum from the date of expenditure until the date of reimbursement. 7.3 Right of Contest. Borrower shall have the right to contest in good faith any claim, demand, levy, or assessment the assertion of which would constitute an Event of Default hereunder. Any such contest shall be prosecuted diligently and in a manner unprejudicial to the City or the rights of the City hereunder. 7.4- Remedies Cumulative. 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 1010\05\114674.1 22 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 instrument, or by any statute or otherwise against 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. 7.5 Waiver of Terms and Conditions. The City Manager may at his or her discretion waive in writing any of the terms and conditions of this Agreement, without the Borrower completing an amendment to this Agreement. No waiver of any default or breach by Borrower hereunder shall be implied from any omission by the City to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the waiver, and such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term, or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term, or condition. The consent or approval by the City to or of any act by Borrower requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to or of any subsequent similar act. The exercise of any right, power, or remedy shall in no event constitute a cure or a waiver of any default under this Agreement or the Loan Documents, nor shall it invalidate any act done pursuant to notice of default, or prejudice the City in the exercise of any right, power, or remedy hereunder or under the Loan Documents. ARTICLE 8 MISCELLANEOUS 8.1 Time Time is of the essence in this Agreement. 8.2 Force Maieure. Performance by either party hereunder shall not be deemed to be in default where defaults are due to war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fires; casualties; acts of God; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; governmental restrictions or priority; litigation (including suits filed by third parties concerning or arising out of this Agreement); weather or soils conditions which, in the opinion of the Borrower's contractor, will necessitate delays; inability to secure necessary labor, materials or tools; delays of any contractor, sub-contractor or supplier; acts of the other party; acts or failure to act of any public or governmental agency or entity (other than the acts or failure to act of the City); or any other causes (other than Borrower's inability to obtain financing for the Development) beyond the control or without the fault of the party claiming an. extension of time to perform. Times of performance under this Agreement may also be extended in writing by the City and the Borrower. 8.3 Notices. All notices, demands and communications between the Borrower and the City shall be sufficiently given and shall not be deemed given unless dispatched by certified mail, postage prepaid, return receipt requested, or delivered by express delivery service with a delivery receipt, to the principal officers of the Borrower and the City as follows: 1010\05\114674.1 23 Borrower: City: BRIDGE Housing Corporation-Southem California One Hawthorne St., 4th Floor San Francisco, CA 94105 Attn: President City of Carlsbad Housing and Redevelopment Department 2965 Roosevelt Drive, Suite B Carlsbad, CA 92008 Attn: Housing and Redevelopment Director Such addresses may be changed by notice to the other party given in the same manner as provided above. Notice shall be deemed to have been effective on the date shown on the delivery receipt as the date of delivery, the date delivery was refused, or the date the notice was returned as undelivered. 8.4 Attorneys' Fees. If either party brings a legal or administrative action or proceeding to enforce, protect or establish any right or remedy hereunder or under any of the Loan Documents, the prevailing party shall be entitled to recover from the other party its costs of suit and reasonable attorneys' fees which shall be fixed by the court. 8.5 Agreement, and no person or persons other than the Borrower and the City shall have any right of action hereon. No Third Parties Benefited. There are no third party beneficiaries of this 8.6 Actions. The City shall have the right to commence, appear in, or defend any action or proceeding purporting to affect the rights, duties, or liabilities of the parties hereunder, or the disbursement of any proceeds of the Loan. 8.7 Signs. Borrower agrees that the City may place signs mutually satisfactory to Borrower and the City upon the Development at locations selected by Borrower and the City advising of the financing of the Development by the City. The City may also announce such placement through press releases to newspapers and trade publications. 8.8 Successors and Assigns. The terms hereof shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto; provided, however, that no assignment of Borrower's rights hereunder shall be made, voluntarily or by operation of law, without the prior written consent of the City and that any such assignment without said consent shall be void. 1010\05\114674.1 24 8.9 Construction of Words. Except where the context otherwise requires, words imparting the singular number shall include the plural number and vice versa, words imparting persons shall include firms, associations, partnerships and corporations, and words of either gender shall include the other gender. 8.10 Partial Invalidity. If any provision of this Agreement shall be declared invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions hereof shall not in any way be affected or impaired. 8.1 1 Governing; Law. This Agreement and the Loan Documents and other instruments given pursuant hereto shall be construed in accordance with and be governed by the laws of the State of California. 8.12 Amendment. This Agreement may not be changed orally, but only by agreement in writing signed by Borrower and City. 8.13 Captions and Headings. Captions and headings in this Agreement are for convenience of reference only, and are not to be considered in construing the Agreement. 8.14 Action by the City. Except as may be otherwise specifically provided herein, whenever any approval, notice, direction, consent, request, 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 by any person who shall have been designated in writing to the Borrower by the City Manager, without further approval by the City Council, and any such action shall be in writing. The City Manager is also hereby authorized to approve, on behalf of the City, requests by Borrower for reasonable extensions of time deadlines set forth in this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. BORROWER: 1010\05\114674.1 BRIDGE Housing Corporation-Southem California, a California nonprofit public benefit corporation, its general partner By: Its: CITY: City of Carlsbad, a municipal corporation 25 By: Its: APPROVED AS TO FORM: By: Ron Ball City Attorney 1010\05\114674.1 26 101 0\05\114674.1 EXHIBIT A Legal Description of the Land A- 1 101 0\05\114674.1 EXHIBIT B City Note B-1 CITY NOTE $920,000 ,1998 Carlsbad, California FOR VALUE RECEIVED, BRIDGE Housing Corporation-Southem California, a California nonprofit public benefit corporation ("Borrower"), promises to pay to the City of Carlsbad ("City"), or order, the principal sum of Nine Hundred Twenty Thousand Dollars ($920,000), or so much thereof as is advanced to Borrower by the City pursuant to Section 2.6 of the Loan Agreement (defined below), plus simple interest accruing at the rate of three percent (3%) per annum, commencing upon disbursement. 1. Loan Agreement. This City Note is made pursuant to a City Loan Agreement dated as of 1998, by and between the Borrower and the City (the "City Loan Agreement"), and as congmplated by a Regulatory Agreement executed by the Borrower, the City, and the Carlsbad Redevelopment Agency, Carlsbad, California (the "City Regulatory Agreement"). 2. Term. The term of this City Note (the "Term") shall commence on the date of this City Note and shall end on the earlier of: (i) fifty-five (55) years from the date of issuance of a certificate of occupancy for all units in the Development (as defined in the City Loan Agreement); or (ii) June 30,2055. 3. Amount and Time of Payments. All amounts due under this City Note shall be due and payable as set forth in Section 2.3 of the City Loan Agreement. 4. Prepayment. Borrower shall have the right to prepay all or a portion of the principal and interest due under this City Note without any charge or penalty being made therefor. 5. Deed of Trust. This City Note is secured by a deed of trust of even date herewith (the "City Deed of Trust). Acceleration. Upon the occurrence of a default under the City Loan Agreement, City Regulatory Agreement or City Deed of Trust, and expiration of all applicable notice and cure periods (an "Event of Default"), the City shall have the right to accelerate the Term of this City Note and declare all of the unpaid principal and accrued interest immediately due and payable. Any failure by the City to pursue its legal and equitable remedies upon an Event of Default shall not constitute a waiver of the City's right to declare an Event of Default and exercise all of its rights under this City Note, the City Regulatory Agreement, the City Deed of Trust, and the City Loan Agreement. Nor shall acceptance by the City of any payment provided for herein constitute a waiver of the City's right to require prompt payment of any remaining principal and interest owed. hereafter have against the City, its successors and assigns. 6. 7. No Offset. Borrower hereby waives any rights of offset it now has or may 8. Waiver; Attorneys' Fees. Borrower and any endorsers or guarantors of this City Note, for themselves, their heirs, legal representatives, successors and assigns, respectively, severally waive diligence, presentment, protest, and demand, and notice of protest, dishonor and non-payment of this City Note, and expressly waive any rights to be released by reason of any extension of time or change in terms of payment, or change, alteration or release of any security given for the payments hereof, and expressly waive the right to plead any and all statutes of limitations as a defense to any demand on this City Note or agreement to pay the same, and jointly and severally agree to pay all costs of collection when incurred, including reasonable attorneys' fees. If an action is instituted on this City Note, the undersigned promises to pay, in addition to the costs and disbursements allowed by law, such sum as a court may adjudge reasonable as attorneys' fees in such action. 9. Manner and Place of Payment. All payments of principal and interest due under this City Note, as well as any additional payments set forth in the City Deed of Trust, shall be payable in lawful money of the United States of America at the office of the Housing and Redevelopment Department, City of Carlsbad, 2965 Roosevelt Drive, Suite B, Carlsbad, California 92008, or such other address as the City may designate in writing. 10. Nonrecourse Obligation. Except as provided below, neither the Borrower nor, if the Borrower is a partnership, any partner of the Borrower shall have any direct or indirect personal liability for payment of the principal of, or interest on, this City Note, the City Loan Agreement, or the City Regulatory Agreement or the performance of the covenants of the Borrower under the City Deed of Trust. The sole recourse of the City with respect to the principal of, or interest on, the City Note and defaults by Borrower in the performance of its covenants under the City Loan Agreement, City Regulatory Agreement, and City Deed of Trust shall be to the property described in the City Deed of Trust; provided, however, that nothing contained in the foregoing limitation of liability shall (a) limit or impair the enforcement against all such security for the City Note of all the rights and remedies of the City thereof, or (b) be deemed in any way to impair the right of the City thereof to assert the unpaid principal amount of the Note as demand for money within the meaning and intendment of Section 43 1.70 of the California Code of Civil Procedure or any successor provision thereto. The foregoing limitation of liability is intended to apply only to the obligation for the repayment of the principal of, and payment of interest on the Note and the performance of Trustor's obligations under the City Regulatory Agreement and the City Deed of Trust, except as hereafter set forth; nothing contained therein is intended to relieve the Borrower of its obligation to indemnify the City under Section 6.1 1 and 6.12(c) of the City Loan Agreement, or liability for (i) fraud or wilIful 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 City 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 Borrower other than in accordance with the City Deed of Trust; and (iv) the misapplication of any proceeds under any insurance policies or awards resulting from condemnation or the exercise of the power of eminent domain or by reason of damage, loss or destruction to any portion of the Property. BRIDGE Housing Corporation-Southern California, a California nonprofit public benefit corporation, its general partner By: 101 0\05\114674.1 EXHIBIT C City Regulatory Agreement c-1 .- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of Carlsbad Housing and Redevelopment Department 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Housing and Redevelopment Director REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS This Regulatory Agreement and Declaration of Restrictive Covenants (the "Agreement'l) is made and entered into as of this Carlsbad, a municipal corporation (the "City"), Carlsbad Redevelopment Agency, Carlsbad, California, a public body corporate and politic (the "Agencyf') and BRIDGE Housing Corporation-Southern California, a California nonprofit public benefit corporation ("Owner"). day of , 1998, by and between the City of RECITALS 1. The City has entered into the Loan Agreement with Owner under which the City will loan funds (the "Loan") to Owner which will be used, together with funds obtained fi-om other sources, for the development and construction of ninety-two (92) residential units known as Carlsbad, County of San Diego, more particularly described in Exhibit A attached hereto and incorporated herein (the "Property"). (the "Development"), located on the real property in the City of 2. The funds loaned to Owner pursuant to the Loan Agreement are City Housing Trust Fund monies. 3. The City and the Agency intend to utilize the Development to obtain affordable housing production credits for the Agency pursuant to Health and Safety Code Section 3341 3(b)(2)(A)(ii) as newly constructed housing units located outside of the Carlsbad Village Redevelopment Project Area and available at affordable housing cost to low and moderate income households. Such units are required to remain affordable to such households for not less than the period of the land use controls established in the Redevelopment Plan for the Carlsbad Village Redevelopment Project Area. This Agreement is also intended to implement this requirement. 4. The City has agreed to loan funds to Owner on the condition that the Development be maintained and operated in accordance with Health and Safety Section 33413(b) 101 0\05\114762.1 09/15/98 1 _- and in accordance with additional restrictions concerning affordability, operation, and maintenance of the Development, as specified in this Agreement. 5. In consideration of receipt of the Loan at an interest rate substantially below the market rate, Owner 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, the Agency and Owner wish to enter into this Agreement. THEREFORE, the City, the Agency and Owner hereby agree as follows: ARTICLE 1 DEFINITIONS 1.1 Definitions When used in this Agreement, the following terms shall have the respective meanings assigned to them in this Article 1. (a> "Adjusted Income" shall mean the total anticipated annual income of all persons in a household, as calculated in accordance with 25 California Code of Regulations Section 6914 or pursuant to a successor State housing program that utilizes a reasonably similar method of calculation of adjusted income. In the event that no such program exists, the City shall provide the Owner with a reasonably similar method of calculation of adjusted income as provided in said Section 69 14. (b) "Agency" shall mean the Carlsbad Redevelopment Agency, Carlsbad, California, a public body, corporate and politic. (c> "Agreement1' shall mean this Regulatory Agreement and Declaration of Restrictive Covenants. (4 "City" shall mean the City of Carlsbad, a municipal corporation. (e) "Deed of Trust'' shall mean the deed of trust to the City on the Property which secures repayment of the Loan and performance of this Agreement. (0 "Development" shall mean the Property and the ninety-two (92) units to be constructed on the Property, as well as all landscaping, roads and parking spaces existing thereon, as the same may from time to time exist. (g> "HCD" shall mean the California Department of Housing and Community Development. 1010\05\114762.1 ow1 5/98 2 _- (h) "Loan" shall mean all funds loaned to Owner pursuant to the Loan Agreement. (0 "Loan Agreement" shall mean the City Loan Agreement entered into by and between the City and Owner and dated of even date herewith. (i) "Median Income" shall mean the median gross yearly income adjusted for actual household size, in the County of San Diego, California, as published from time to time by HCD. In the event that such income determinations are no longer published, or are not updated for a period of at 1east.eighteen (1 8) months, the City shall provide the Owner with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by HCD. (k) "Moderate Income Household" shall mean a household whose annual gross income does not exceed one hundred and twenty percent (1 20%) of Median Income, adjusted for household size. (1) "Moderate Income Units" shall mean the Units limited to occupancy by Moderate Income Households pursuant to Section 2.1 below. (m) "Note" shall mean the promissory note from the Owner to the City evidencing all or any part of the Loan. (n) "Owner" shall mean BRIDGE Housing Corporation-Southern California, and its successors and assigns to the Development. (0) "Property" shall mean the real property described in Exhibit A attached hereto and incorporated herein. (P) "Rent" shall mean the total of monthly payments by the tenants 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 Owner which are required of all tenants, other than securitjr 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; 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 Owner, and paid by the tenant. (9) recordation of this Agreement and ending fifty-five (55) years after a Certificate of Occupancy is issued by the City for all Units. "Term" shall mean the period of time beginning on the date of 0-1 l'Units'l shall mean the nine-two (92) rental units to be constructed on the Property by the Owner, but excluding therefrom one (1) resident manager's unit. 1010\05\114762.1 0911 5/98 3 (4 "Very Low Income Household" shall mean a household with an Adjusted Income that does not exceed the qualifying limits for very low income households as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, and as published by HCD. (t) "Very Low Income Units" shall mean the Units which, pursuant to Section 2.2 below, are required to be occupied by Very Low Income Households. ARTICLE 2 AFFORDABILITY COVENANTS 2.1 Occuuancy Requirement. (4 Forty-five (45) of the Units shall be rented and occupied by or, if vacant, available for rental and occupancy by Very Low Income Households. The remainder of the Units shall be occupied by Moderate Income Households. 2.2 Allowable Rent. (a) Subject to Section 2.3 below, the Rent charged the occupants of the Very Low Income Units shall not exceed one-twelfth of thirty percent (30%) of fifty percent (50%) of Median Income, adjusted for household size. The Rent charged the occupants of the Moderate Income Units shall not exceed one-twelfth of thirty percent (30%) of one hundred ten percent (1 10%) of Median Income, adjusted for household size. (b) for the Very Low Income Units and the Moderate Income Units, the following assumed household sizes shall be utilized: Subject to Section 2.3.b. below, in calculating the allowable Rent Number of Bedrooms Assumed Household Size 1010\05\114762.1 0911 5/98 Studio One Two Three Four 4 2.3 Increased Income of Occupying Households. n the event, upon recertification of an (a) occupant household's income, the Owner discovers that a Very Low Income Household no longer qualifies as a Very Low Income Household (but does qualify as a Moderate Income Household), such household's Unit shall be considered a Moderate Income Unit (and the Rent may be increased to one-twelfth of thirty percent of one hundred ten percent (1 10%) of Median Income upon sixty (60) days written notice to the household) and the Owner shall rent the next available Very Low Income Unit to a Very Low Income Household to comply with the requirements of Section 2.1 above. In the event that the income of a Very Low Income Household or a Moderate Income Household increases above the qualifying limit for a Moderate Income Household, the rent shall remain at the level required for a Moderate Income Unit and the Unit shall be deemed to be a Moderate Income Unit until the occupying household vacates the Unit, and the next available Unit shall be rented to a Very Low Income Household or an Moderate Income Household as necessary to meet the requirements of Section 2.1 above. Moreover, a Unit occupied by a Very Low Income Household or Moderate Income Household shall be deemed, upon the termination of such Very Low Income Household's or Moderate Income Household's occupancy, to be continuously occupied by a Very Low Income Household or a Moderate Income Household, as applicable, until reoccupied, at which time the character of the Unit shall be redetermined. (b) f the Development is subject to federal low income housing tax credit requirements, the provisions of those requirements regarding assumed household size and continued occupancy by households whose incomes exceed the eligible income limitations and rents to be charged to those households shall apply in place of the provisions set forth in subsections 2.2(b) and 2.3(a) above. 2.4 Lease Provisions. Owner shall include in leases for all Units provisions which authorize Owner to immediately terminate the tenancy of any household one or more of whose members misrepresented any fact material to the household's qualification as a Very Low Income Household or a Moderate Income Household. Each lease or rental agreement shall also provide that the household is subject to annual certification in accordance with Section 3.1 below, and that, if the household's income increases above the applicable limits for a Very Low Income Household or a Moderate Income Household, as applicable, such household's Rent may be subject to increase. 2.5 Section 8 Certificate Holders. The Owner 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, or its successor. The Owner shall not apply selection criteria to Section 8 certificate or voucher holders that is more burdensome than criteria applied to all other prospective tenants, nor shall the Owner 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. 101 0\05\114762.1 0911 5/98 5 2.6 Condominium Conversion. The Owner shall not convert Development units to condominium or cooperative ownership or sell condominium or cooperative conversion rights to the Property during the Term of this Agreement. ARTICLE 3 INCOME CERTIFICATION AND REPORTING 3.1 Income Certification. The Owner will obtain, complete and maintain on file, immediately prior to initial occupancy and annually thereafter, income certifications from each Very Low Income Household and each Moderate Income Household renting any of the Units. The Owner 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 of the following steps as a part of the verification process: (1) obtain a pay stub for the most recent pay period; (2) obtain an income tax return 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 California Department of Social Services if the applicant receives assistance from either of such agencies; or (6) if the applicant is unemployed and has no such tax return, obtain another form of independent verification. Copies of tenant income certifications shall be available to the City upon written request. 3.2 Annual Report to City. Each year Owner shall submit an annual report to the City and the Agency, in a form approved by the City and the Agency. The annual report shall include for each Unit covered by this Agreement, the Rent and the income and household size of the household occupying the Unit. The report shall also state the date the tenancy commenced for each rental Unit and such other information as the City may be required by law to obtain. 3.3 Additional Information. Owner shall provide any additional information reasonably requested by the City or the Agency. Upon 5 days prior written request and during regular business hours, the City and the Agency shall have the right to examine and make copies of all books, records or other documents of Owner which pertain to any Unit. 3.4 Records. Owner shall maintain complete, accurate and current records pertaining to the Units, and, upon 5 days prior written request by the City or the Agency, shall permit any duly authorized representative of the City and the Agency to inspect records, including records pertaining to income and household size of tenant households. 3.5 Welfare Reform Act Compliance. Unless Owner is otherwise exempt from the following requirement under applicable law, Owner shall comply with the requirements of the Public Responsibility and Work Opportunity Reform Act of 1996, as amended, including, without limitation, verifying the citizenship or immigration status of prospective tenants in accordance with the verification procedures established under such Act. 1010\05\114762.1 0911 5/98 6 ARTICLE 4 OPERATION OF THE DEVELOPMENT 4.1 Residential Use. The Development shall be operated only for residential use. No part of the Development shall be operated as transient housing. 4.2 Compliance with Loan Agreement. Owner shall comply with all the terms and provisions of the Loan Agreement. 4.3 Property Tax Exemption. Owner shall not apply for a property tax exemption for the Property under any provision of law other than Revenue and Taxation Section 2 14(g) without the City's prior written consent which consent shall not be unreasonably withheld. 4.4 Property Tax Exemption. Owner shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property; provided, however, that Owner shall have the right to contest in good faith, any such taxes, assessments, or charges. In the event Owner exercises its right to contest any tax, assessment, or charge against it, Owner, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against it, together with all costs, charges and interest. 4.5 Nondiscrimination. All of the Units shall be available for occupancy on a continuous basis to members of the general public who are income eligible. Owner 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 Very Low Income Households and Moderate Income Households or to Agency or City displacees pursuant to Section 4.6 below. There shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, or ancestry, in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of any Unit nor shall Owner or any person claiming under or through the Owner, 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 operation and management of the Development. All deeds, leases or contracts made or entered into by Owner as to the Units or the Development or portion thereof, shall contain covenants concerning discrimination as prescribed by the Loan Agreement. 4.6 Preference to Displacees. Owner shall give a preference in the rental of any Units to eligible households displaced by activity of the Agency or the City upon receiving a written request of the Agency or the City regarding such displacement. 101 0\05\114762.1 0911 5/98 7 ARTICLE 5 PROPERTY MANAGEMENT AND MAINTENANCE 5.1 Management Responsibilities. The Owner 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 and the Agency shall have no responsibility over management of the Development. The Owner shall retain a professional property management company approved by the City in its reasonable discretion to perform its management duties hereunder, unless the Owner demonstrates to the City that it has the capacity to self-manage the Development and receives written City approval for self-management. A resident manager shall also be required, selection of whom shall be at the discretion of the Owner. 5.2 Management Agent; Periodic Reports. 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 Owner shall submit for the City's approval the identity of any proposed Management Agent. The Owner 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. If the 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 Owner in writing. Unless the proposed Management Agent is disapproved by the City within thirty (30) days, which disapproval shall state with reasonable specificity the basis for disapproval, it shall be deemed approved. The City hereby approves BRIDGE Property Management Company as the initial management agency of the Development. 5.3 Performance Review. The City reserves the right to conduct an annual (or more frequently, if deemed necessary by the City) review of the management practices and financial status of the Development. 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 Owner shall cooperate with the City in such reviews. 5.4 Replacement of Management Agent. If, as a result of a periodic review, the City determines in its reasonable judgement that the Development is not being operated and managed in accordance with any of the material requirements and standards of this Agreement, the City shall deliver notice to Owner of its intention to cause replacement of the Management Agent, including the reasons therefor. Within fifteen (1 5) days of receipt by Owner of such written notice, City staff and the Owner 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. 1010\05\114762.1 ow1 5/98 8 If, after such meeting, City staff recommends in writing the replacement of the Management Agent, Owner 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 Owner 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 6.3. 5.5 ADproval of Manapement Policies. The Owner 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. 5.6 Property Maintenance. The Owner 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, rules, ordinances, orders and regulations of all federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. The City and the Agency place prime importance on quality maintenance to protect its investment and to ensure that all Agency and 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 and the Agency assuming the Owner agrees to provide all necessary improvements to assure the Development is maintained in good condition. The Owner shall make all repairs and replacements necessary to keep the improvements in good condition and repair. In the event that the Owner breaches any of the covenants contained in this section and such default continues for a period of five (5) days after written notice from the City with respect to graffiti, debris, waste material, 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 (1 5%) of such expenditures, which amount shall be promptly paid by the Owner to the City upon demand. 1 01 0\05\114762.1 ow 5/98 9 ARTICLE 6 MISCELLANEOUS 6.1 Term. The provisions of this Agreement shall apply to the Property for the entire Term even if the entire Loan is paid in full prior to the end of the Term. This Agreement shall bind any successor, heir or assign of Owner, whether a change in interest occurs voluntarily or involuntarily, by operation of law or otherwise, except as expressly released by the City and the Agency. The City makes the Loan on the condition, and in consideration of, this provision, and would not do so otherwise. 6.2 Covenants to Run With the .Land. The City, the Agency, and Owner hereby declare their express intent that the covenants and restrictions set forth in this Agreement shall run 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 instrument 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 instrument, unless the City and the Agency expressly release such conveyed portion of the Property from the requirements of this Agreement. 6.3 Enforcement by the City and the Agency. If Owner fails to perform any obligation under this Agreement, and fails to cure the default within 30 days after the City or the Agency has notified the Owner in writing of the default or, if the default cannot be cured within 30 days, failed to commence to cure within 30 days and thereafter diligently pursue such cure, the City and the Agency 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 Loan. The City may declare a default under the Note, accelerate the indebtedness evidenced by the Note, and proceed with foreclosure under the Deed of Trust. (b) Action to Compel Performance or for Damages. The City and/or the Agency may bring an action at law or in equity to compel Owner's performance of its obligations under this Agreement, and/or for damages. (c> Remedies Provided Under Loan Agreement. The City may exercise any other remedy provided under the Loan Agreement. 6.4 Attorneys Fees and Costs. In any action brought to enforce this Agreement, the prevailing party shall be entitled to all reasonable costs and expenses of suit, including reasonable attorneys' fees. This section shall be interpreted in accordance with California Civil Code Section 171 7 and judicial decisions interpreting that statute. 1010\05\114762.1 0911 5/98 10 . 6.5 Recording and Filing. The City, the Agency, and Owner shall cause this Agreement, and all amendments and supplements to it, to be recorded against the Property in the Official Records of the County of San Diego. 6.6 State of California. Governing Law. This Agreement shall be governed by the laws of the 6.7 Amendments. This Agreement may be amended only by a written instrument executed by all the parties hereto or their successors in title, and duly recorded in the real property records of the County of San Diego, California. 6.8 Notice. All notices given or certificates delivered under this Agreement shall be deemed received on the delivery or refusal date shown on the delivery receipt, if: (i) personally delivered by a commercial service which furnishes signed receipts of delivery or (ii) mailed by certified mail, return receipt requested, postage prepaid, addressed as shown on the signature page. Any of the parties may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or communications shall be sent. 6.9 Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions of this Agreement shall not in any way be affected or impaired thereby. 101 0\05\114762.1 09/15/98 11 IN WITNESS WHEREOF, the City, the Agency, and Owner have executed this Agreement by duly authorized representatives, all on the date first written above. CITY: CITY OF CARLSBAD, a municipal corporation Address: Housing and Redevelopment Department By: 2965 Roosevelt Street, Suite B Its: Carlsbad, CA 92008 Attn: Housing and Redevelopment Director AGENCY: Carlsbad Redevelopment Agency, Carlsbad California, a public body, corporate and politic Address: Housing and Redevelopment Department By: Its: Carlsbad, CA 92008 Attn: Housing and Redevelopment Director 2965 Roosevelt Street, Suite B OWNER: BRIDGE Housing Corporation-Southern California, a California nonprofit public benefit corporation, its general partner Address: One Hawthorne St., 4th Floor San Francisco, CA 94 105 Attention: President APPROVED AS TO FORM By: Ron Ball City Attorney By: Its: 101 0\05\114762.1 0911 5/98 12 1010\05\114762.1 0911 5/98 EXHIBIT A Property Description A- 1 1010\05\114674.1 EXHIBIT D City Deed of Trust D- 1 CITY DEED OF TRUST RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of Carlsbad 2965 Roosevelt Drive, Suite B Carlsbad, CA 92008 Attention: Housing and Redevelopment Director No fee for recording pursuant to Government Code Section 27383 (Space above reserved for Recorder) CITY DEED OF TRUST AND SECURITY AGREEMENT THIS CITY DEED OF TRUST AND SECURITY AGREEMENT ("Deed of Trust") is made as of this - day of Southern California, ("Trustor"), Chicago Title Company, a California corporation (IfTrusteel'), and the City of Carlsbad, a municipal corporation ("Beneficiary"). , 1998, by and among BRIDGE Housing Corporation- FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust herein created, the receipt of which is hereby acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, Trustor's leasehold interest in the property located in the County of San Diego, State of California, that is described in the attached Exhibit A, incorporated herein by this reference (the "Property"). TOGETHER WITH all interest, estates or other claims, both in law and in equity which Trustor now has or may hereafter acquire in the Property and the rents; TOGETHER WITH Trustor's interest in all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, including (without limiting the generality of the foregoing) all tenements, hereditaments and appurtenances thereof and thereto; TOGETHER WITH Trustor's interest in any and all buildings and improvements of every kind and description now or hereafter erected thereon, and all property of the Trustor now or hereafter affixed to or placed upon the Property; TOGETHER WITH Trustor's interest in all building materials and equipment now or hereafter delivered to said property and intended to be installed therein; 1010\05\114749.1 0911 5/98 1 TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, 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 Trustor's estate, interest, right, title, other claim or demand, of every nature, in and to such property, including the Property, both in law and in equity, including, but not limited to, all deposits made with or other security given by Trustor to utility companies, the proceeds from any or all of such property, including the Property, claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereafter acquire, any and all awards made for the taking by eminent domain or 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; and TOGETHER WITH all of Trustor's interest in all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, 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. All of the foregoing, together with the Property, is herein referred to as the "Security.'' To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever. FOR THE PURPOSE OF SECURING: (a) Payment ofjust indebtedness of Trustor to Beneficiary as set forth in the Note and the Loan Agreement (both as defined in Article 1 below) until paid or cancelled. Said principal and other payments shall be due and payable as provided in the Note and the Loan Agreement. The Note, the Loan Agreement, and the Regulatory Agreement (defined below), and all their terms are incorporated herein by reference, and this conveyance shall secure any and all extensions thereof, however evidenced; ahd (b) Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Trust following a breach of Trustor's obligation to advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; and (c) Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents (defined in Section 1.2 below). 101 0\05\114749.1 0911 5/98 2 AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms shall have the following meanings in this Deed of Trust: Section 1.1 The term "Loan Agreement'' means that certain City Loan Agreement between Trustor and Beneficiary dated as of Beneficiary to loan to the Trustor Nine Hundred Twenty Thousand Dollars ($920,000) for the development on the Property of improvements. -, 1998, providing for the Section 1.2 The term "Loan Documents" means this Deed of Trust, the Note, the Loan Agreement, and the Regulatory Agreement. Section 1.3 The term "Note" means the City Note in the principal amount of Nine Hundred Twenty Thousand Dollars ($920,000) dated -, 1998, executed by the Trustor in favor of the Beneficiary, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.) Section 1.4 to be paid under the Note. The term "Principal" means the aggregate of the amounts required Section 1.5 The term "Regulatory Agreement" means the Regulatory Agreement by and between the Trustor and the Beneficiary of even date herewith. ARTICLE 2 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY Section 2.1 Maintenance and Modification of the Property by Trustor. The Trustor agrees that at all times prior to full payment of the sum owed under the Note, the Trustor will, at the Trustor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition, subject to Article 4 below. The Trustor will from time to time make or cause to be made all repairs, replacements and renewals deemed proper and necessary by it. The Beneficiary shall have no responsibility in any of these matters or for the making of improvements or additions to the Security. Trustor agrees to pay fully and discharge (or cause to be paid fully and discharged) all claims for labor done and for material and services furnished in connection with the Security, diligently to file or procure the filing of a valid notice of cessation upon the event of a cessation of labor on the work or construction on the Security for a continuous period of thirty (30) days or more, and to take all other reasonable steps to forestall the assertion of claims of lien against the 1010\05\114749.1 0911 5/98 3 Security of any part thereof. Trustor irrevocably appoints, designates and authorizes Beneficiary as its agent (said agency being coupled with an interest) with the authority, but without any obligation, to file for record any notices of completion or cessation of labor or any other notice that Beneficiary deems necessary or desirable to protect its interest in and to the Security or the Loan Documents; provided, however, that Beneficiary shall exercise its rights as agent of Trustor only in the event that Trustor shall fail to take, or shall fail to diligently continue to take, those actions as hereinbefore provided, after notice and expiration of all applicable cure periods. Notwithstanding anything to the contrary contained in this Deed of Trust, Trustor shall not be obligated.to pay any claims for labor, materials or services which Trustor in good faith disputes and is diligently contesting provided that Trustor shall, at Beneficiary's written request, 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, or provide such other security reasonably satisfactory to Beneficiary. Section 2.2 Granting of Easements. Trustor may not grant easements, licenses, rights-of-way or other rights or privileges in the nature of easements with respect to any property or rights included in the Security except those required or desirable for installation and maintenance of public utilities including, without limitation, water, gas, electricity, sewer, telephone and telegraph, or those required by law. As to these exceptions, Beneficiary will grant and/or direct the Trustee to grant such easements. ARTICLE 3 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY Section 3.1 Taxes, Other Governmental Charges and Utility Charges. Trustor shall pay, or cause to be paid, prior to 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, if such taxes, assessments or charges may be paid in installments, Trustor may pay in such installments; and provided further, that Trustor shall not be required to pay and discharge any such tax, assessment, charge or levy so long as Trustor is contesting the legality thereof in good faith and by appropriate proceedings and Trustor has adequate funds to pay any liabilities contested pursuant to this Section 3.1. The provisions of this Section 3.1 shall not be construed to require that Trustor maintain a reserve account, escrow account, impound account or other similar account for the payment of future taxes, assessments, charges and levies. In the event that Trustor shall fail to pay any of the foregoing items required by this Section to be paid by Trustor, Beneficiary may (but shall be under no obligation to) pay the same, after the Beneficiary has notified the Trustor in writing of such failure to pay and the Trustor fails to fully pay such items within seven (7) business days after receipt of such notice or, 101 0\05\114749.1 0911 5/98 4 alternatively, provides Beneficiary with evidence Trustor is contesting such items in accordance with this Section. Any amount so advanced therefor by Beneficiary, together with interest thereon from the date of such advance at the maximum rate permitted by law, shall become an additional obligation of Trustor to the Beneficiary and shall be secured hereby, and Trustor agrees to pay all such amounts. Section 3.2 Provisions Respecting Insurance. Trustor agrees to provide insurance conforming in all respects to that required under the Loan Documents during the course of construction and following completion, and at all times until all amounts secured by this Deed of Trust have been paid and all other obligations secured hereunder fulfilled, and this Deed of Trust reconveyed. All such insurance policies and coverages shall be maintained at Trustor's sole cost and expense. Certificates of insurance for all of the above insurance policies, showing the same to be in full force and effect, shall be delivered to the Beneficiary upon demand therefor at any time prior to the Beneficiary's receipt of the entire Principal and all amounts secured by this Deed of Trust. Section 3.3 Advances. In the event the Trustor shall fail to maintain the full insurance coverage required by this Deed of Trust, the Beneficiary, after at least seven (7) days prior written notice to Trustor, may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same; and all amounts so advanced therefor by the Beneficiary shall become an additional obligation of the Trustor to the Beneficiary (together with interest as set forth below) and shall be secured hereby, which amounts the Trustor agrees to pay on the demand of the Beneficiary, and if not so paid, shall bear interest from the date of the advance at the rate of six percent (6%) per annum. ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. All judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or any part thereof by insured casualty, and (3) any other injury or damage to all or any part of the Property ("Funds") are hereby assigned to and shall be paid to, subject to the requirements of lienholders senior to Beneficiary, the Beneficiary by a check made payable to the Beneficiary. Upon the occurrence of an Event of Default (as defined in the Loan Agreement), the Beneficiary shall be entitled to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain from the proceeds of such insurance the amount of all 1010\05\114749.1 0911 5/98 5 ,- expenses incurred by it in connection with any such settlement or adjustment. All fire and standard risk or extended coverage (casualty) insurance proceeds shall be applied to the payment of the costs of repairing or rebuilding that part of the improvements on the Property damaged or destroyed if (i) the Trustor agrees in writing within ninety (90) days after payment of the proceeds of insurance that such repair or rebuilding is economically feasible, and (ii) each lender in connection with outstanding Construction and Permanent Financing (as defined in the Loan Agreement) permits such repairing or rebuilding, provided that the extent of Trustor's obligation to restore the improvements shall be limited to the amount of the insurance proceeds. If the improvements are not repaired or rebuilt as provided in this Section 4.1, all such proceeds shall be applied to repayment of outstanding loans including the loan secured by this Deed of Trust, in the order of lien priority. Application of all or any part of the Funds collected and received by the Beneficiary or the release thereof shall not cure or waive any default under this Deed of Trust. 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 Trustor shall duly and punctually perform all terms, covenants, conditions and agreements binding upon it under the Loan Documents and any other agreement of any nature whatsoever now or hereafter involving or affecting the Security or any part thereof. Section 5.2 Agreement to Pay Attorneys' Fees and Expenses. In the event of any Event of Default (as defined below) hereunder, and if the Beneficiary should employ attorneys or incur other expenses for the collection of amounts due or the enforcement of performance or observance of an obligation or agreement on the part of the Trustor in this Deed of Trust, the Trustor agrees that it will, on demand therefor, pay to the Beneficiary the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Beneficiary; and any such amounts paid by the Beneficiary shall be added to the indebtedness secured by the lien of this Deed of Trust, and shall bear interest from the date such expenses are incurred at the lesser of ten percent (1 0%) per annum or the maximum amount permitted by law. Section 5.3 Payment of the Principal. The Trustor shall pay to the Beneficiary the Principal and any other payments as set forth in the Note in the amounts and at the times set out therein. Section 5.4 Personal Property. 1010\05\114749.1 0911 5/98 6 To the maximum extent permitted by law, the personal property subject to this Deed of Trust shall be deemed to be fixtures and part of the real property and this Deed of Trust shall constitute a fixtures filing under the California Commercial Code. As to any personal property not deemed or permitted to be fixtures, this Deed of Trust shall constitute a security agreement under the California Commercial Code. Section 5.5 Financing Statement. The Trustor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instruments as are reasonably required to convey to the Beneficiary a valid perfected security interest in the Security. The Trustor agrees to perform all acts which the Beneficiary may reasonably request so as to enable the Beneficiary to maintain such valid perfected security interest in the Security in order to secure the payment of the Note in accordance with its terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it shall deem appropriate from time to time in order to protect the security interest established pursuant to this instrument. Section 5.6 Operation of the Security. The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in full compliance with the Loan Documents. Section 5.7 Inspection of the Security At any and all reasonable times upon seventy-two (72) hours prior written notice, subject to the rights of tenants, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives shall have the right, without payment of charges or fees, to inspect the Security. Section 5.8 Nondiscrimination. The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, age, disability, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Security, nor shall the Trustor itself or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Security. The foregoing covenants shall run with the land. ARTICLE 6 EVENTS OF DEFAULT AND REMEDIES 1010\05\114749.1 0911 ma Section 6.1 Acceleration of Maturity. If an Event of Default, (as defined in the Loan Agreement), shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal of the Note shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right. Section 6.2 The Beneficiary's Right to Enter and Take Possession. If an Event of Default shall have occurred and be continuing, the Beneficiary may: (4 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), in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof. The entering upon and taking possession of the Security shall not cure or waive any Event of Default or Notice of Default (as defined below) hereunder or invalidate any act done in response to such Event of Default or pursuant to such Notice of Default and, notwithstanding the continuance in possession of the Security, Beneficiary shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (4 Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of San Diego County; or (4 Exercise ail other rights and remedies provided herein, 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 6.3 Foreclosure By Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained following an Event of Default, the Beneficiary shall give notice to the Trustee (the "Notice of Sale") and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which shall be deemed to constitute evidence that the unpaid principal amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. 1010\05\114749.1 ow1 5/98 8 (a) Upon receipt of such notice from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and Election to Sell and after Notice of Sale having been given as required by law, sell the Security, at the time and place of sale fixed by it in said Notice of Sale, whether as a whole or in separate lots or parcels or items as Trustee shall deem expedient and in such order as it may determine unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of: (i) the unpaid Principal amount of the Note; (ii) all other amounts owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. (4 Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter, and without 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 6.4 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. 1010\05\114749.1 0911 5/90 9 Section 6.5 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 6.6 No Waiver. (4 No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. No consent or waiver, expressed or implied, by the Beneficiary to any breach by the Trustor in the performance of the obligations hereunder shall be deemed or construed to be a consent to or waiver of obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor. (b) If the Beneficiary (i) grants forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or (iv) makes or consents to any agreement subordinating the lien hereof, any such act or omission shall not release, discharge, modify, change or affect the obligations under this Deed of Trust, or any other obligation of the Trustor or any subsequent purchaser of the Security or any part thereof, or any maker, co-signer, endorser, surety or guarantor (unless expressly released); nor shall any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary shall the lien of this Deed of Trust be altered thereby. Section 6.7 Suits to Protect the Security The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, 101 0\05\114749.1 0911 5/98 10 rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. Section 6.8 Trustee May File Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Trustor, its creditors or its property, the Beneficiary, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Trustor hereunder after such date. Section 6.9 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. ARTICLE 7 MISCELLANEOUS Section 7.1 Amendments. This instrument cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor. Section 7.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid or forgiven, and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment by Trustor of Trustee’s reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto. Section 7.3 Notices. If at any time after the execution of this Deed of Trust it shall become necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication shall be in writing and shall be served personally or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to: City of Carlsbad 2965 Roosevelt Drive, Suite B 1010\05\114749.1 0911 5/98 11 Carlsbad, CA 92008 Attention: Housing and Redevelopment Director and (2) if intended for Trustor shall be addressed to: BRIDGE Housing Corporation-Southern California One Hawthorne St., Suite 400 San Francisco, CA 94 105 Attn: President Any notice, demand or communication shall be deemed given, received, made or communicated on the date personal delivery is effected or, if mailed in the manner herein specified, on the delivery date or date delivery is refused by the addressee, as shown on the return receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective. Section 7.4 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. Section 7.5 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid or applied to the full payment of that portion of the debt which is not secured or partially secured by the lien of this Deed of Trust. ' Section 7.6 Governing Law. This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California. Section 7.7 Gender and Number. In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires. 1010\05\114749.1 0911 5/98 12 Section 7.8 Deed of Trust. Mortgage. Any reference in this Deed of Trust to a mortgage shall also refer to a deed of trust and any reference to a deed of trust shall also refer to a mortgage. Section 7.9 Actions. Trustor agrees to appear in and defend any action or proceeding purporting to affect the Security. Section 7.10 Substitution of Trustee. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed of Trust and its place of record, which, when duly recorded in the proper office of the county or counties in which the Property is situated, shall be conclusive proof of proper appointment of the successor trustee. Section 7.1 1 Statute of Limitations. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law. Section 7.12 Acceptance by Trustee. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee. IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR: BRIDGE Housing Corporation-Southern California, a California nonprofit public benefit corporation By: Its: 1010\05\114749.1 09/15/98 13 . 1010\05\114674.1 EXHIBIT E Permitted Uses of Loan Proceeds E- 1 EXHIBIT F Form of Estoppel Certificate of Completion Recording Requested By And When Recorded Mail To: City of Carlsbad Housing and Redevelopment Department 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Housing and Redevelopment Director No fee for recording pursuant to Government Code Section 27383 ESTOPPEL CERTIFICATE OF COMPLETION Pursuant to Section 4.8 of the City Loan Agreement by and between the City of Carlsbad, a municipal corporation (the "City"), and BRIDGE Housing Corporation-Southern California Associates, a California Limited Partnership (the "Loan Agreement"), the City certifies that the Borrower has met its obligations under Article 4 of the Loan Agreement. This Estoppel Certificate of Completion shall not constitute evidence of compliance with or satisfaction of any obligation of the Borrower to any holder of a deed of trust securing money loaned to finance the Development (as defined in the Loan Agreement) or any part thereof and shall not be deemed either a notice of completion under the California Civil Code or a certificate of occupancy. City of Carlsbad, a municipal corporation By: Its: [Notarize signature and attach legal description] 101 0\05\114674.1 F- 1 The City of‘ Carlsbad Housing & Redevelopment Department AREPORT TO THE , HOUSING COMMXSSXON Stafi: Dendm Turner Princfpal Planner Xtem No. DATE: SEPTEMBER 29,1998 SUBJECT: HOUSING ELEMENT SELF-CERTIFICATION I. RECOMMENDATION Information item only. No action required. 11. DISCUSSION Under state law, all San Diego jurisdictions are required to comprehensively update the housing elements of their general plans by June 1999. Carlsbad is beginning this process now and a presentation of that overall program is a companion item on tonight’s agenda. A critical part of the law is the requirement that new or amended housing elements must be reviewed and certified by the California Department of Housing and Community Development (HCD) as to whether the elements conform to the extensive requirements of state law. This is an important requirement because case law has established that if the housing element (or any element of a general plan) is found to be legally inadequate, then the entire general plan can be found to be legally inadequate, with the possible result that no development could occur within the jurisdiction until the deficiencies are remedied. Consequently, the successful certification of an updated or amended housing element is critically important to a jurisdiction’s land use, planning, and development activities. Historically, jurisdictions throughout the state have found that the process of obtaining certification from HCD can be a confrontational, time-consuming, and onerous process. This was Carlsbad’s experience during 1991 and 1992 with the adoption and certification of our current housing element. Other jurisdictions in San Diego county have yet to obtain state certification. Because of these difficulties, in 1996 Assemblyman Jan Goldsmith carried through the state legislature on behalf of San Diego agencies A.B. 1715, which went into law on January I, 1997. This bill created a pilot program under which SANDAG’s member agencies can choose to self- certify their updated housing elements, instead of going to the state, provided they make certain findings set out generally by the bill. Under the bill self-certification is not required, however. An agency still has the option to pursue certification from the state, if it chooses to do so. In addition, a jurisdiction must go to the state if it is unable to make the required findings. HOUSING ELEMENT SELF-CERTIFICATION SEPTMBER 29,1998 PAGE 2 Recently the City Council considered the merits of pursuing self certification, including the pros and cons concerning what the City would have to do in order to qualify to make the necessary findings. In the end, the Council directed City staff to work towards qualifying the City for self- certification. Tonight staff will deliver an oral report providing additional information about self-certification, the findings which the City will have to make, and the pros and cons which the Council considered. Written information on these subjects is attached as Exhibit 1. 111. EXHIBITS 1. Memorandum to City Manager from Principal Planner - May 5, 1998. Exhibit 1 May 5, 1998 To : CITY MANAGER AND CITY COUNCIL F ro m : Principal Planner HOUSING ELEMENT SELF-CERTIFICATION This memorandum is to provide additional information regarding the housing element self- certification process resulting from A.B. 1715. The City Council is being asked 1) to direct its representative to the SANDAG Board to vote approval of the Housing Element Self Certification Report, including the Principles and Guidelines contained within it, and 2) to direct City staff to work towards the City’s qualification for housing element self-certification during the current and upcoming housing element cycles. This memorandum provides additional information on the following topics: 1. 2. 3. Housing element update cycles, as established by state law An outline of the major provisions of A.B. 1715, the self-certification bill. A discussion of the pros and cons of self-certification 1. Discussion of the Housing Element Cycles as Established by State Law The state requires all cities and counties to prepare a comprehensive revision of the housing elements of their general plans every five years. Approximately one-fifth of the state’s 500 + jurisdictions begin this cycle each year. The member jurisdictions of the San Diego Association of Governments began the current cycle (referred to as “Cycle 2”) on July 1. 199 1. Cycle 2 was originally supposed to end five years later on JUIY 30, 1996, however the state legislature extended the cycle and it is now scheduled to end on June 30 1999. The next cycle (“Cycle 3”) will run from July 1, 1999 until June 30, 2004. This will be followed by Cycle 4. Please refer to Figure 1 : “Housing Element Cycles”. Prior to the beginning of each cycle local jurisdictions are supposed to 1) adopt new housing elements and 2) submit the revised element to the state Department of Housing and Community Development for certification as to its substantial compliance with state housing law. Thus, Carlsbad is to revise it’s current element (adopted in 1991) and have the state review the update prior to July 1, 1999 and the beginning of Cycle 3. However, in lieu of having the state review the revision, A.B. 1715 now gives San Diego jurisdictions the opportunity to self-certify compliance with the law, provided the jurisdictions can make four findings required by the bill. These findings are discussed in more detail in the next section. Similarly, at the end of Cycle 3, Carlsbad again will be required to update its housing element prior to July 1, 2004 and the beginning of Cycle 4. - 1-IOUSING ELEMENT S. .’-CERTIFICATION Page 2 2. A. B. 1715 Provisions for Self-certification The housing element self-certification criteria (findings to be made) set forth in A.B. 171 5 (Section 65585.1 of the Government Code) for the next cycle are: Criterion 1 : The jurisdiction 3 adopted housing element or amendment substantially complies with the provisions of state housing element law. This criterion means that before June 30 1999 and June 30, 2004 jurisdictions choosing self-certification must prepare updated housing elements with the same content and analysis as is required of those who seek certification by the state. Critererion 2: For the third housing element revision (Cycle 3), the jurisdiction met it fair share of the regional hotising needs for the second housing element cycle as determined by SANDAG. This criterion means that in order to self-certify the element prepared for 1999, a jurisdiction must have met the performance objective for providing housing opportunities for low and very-low income housing established in 1990 in SANDAG’ s Regional Housing Needs Statement. This Performance must have been achieved between July 1, 199 1 and June 30, 1999. The fair share objective may be met by a variety of housing programs including new construction, acquisition, rehabilitation, rental or ownership assistance, and preservation of existing stock. Criterion 3: The jurisdiction must provide a slatement regarding how its adopted housing element addresses the dispersion of lower-income housing within the jurisdiction, documenting thnt additional affordable housing opportunities will not be developed only in areas where concentrations of lower-income households already exist, taking into consideration necessary public facilities and infuastructure. The updated elements for 1999 and 2004 would contain this information. Criterion 4: No local government actions or policies prevent the development of the sites identvied in the element for lower-income housing or accommodation of the .jurisdiction’s share of the total regional housing need. This criterion emphasizes requirements of state housing element law to avoid government actions which impede the construction of housing. The criteria for self certification for the fourth housing element update prior to 2004 are the same criteria as above, with one exception. The performance objectives set out in Criterion 2 are modified for 2004. Instead of simply using SANDAG’s 1990 Regional Housing Needs - HOUSING ELEMENT S F-CERTIFICATION Page 3 Statement, the performance objective for each city is developed from a methodology which takes into consideration the available financial resources and availability of regulatory measures. The methodology was developed by the SANDAG Housing Element Advisory Committee over the last year, as set out in the group’s document “Housing Element Self-certification Report”. This document will be taken before the SANDAG Board for approval (tentatively set for the Board’s June 1 998 meeting). This document also provides principles and guidelines for evaluating what local housing programs would receive credit towards the housing performance objectives. One other change required by A.B. 1715 is that the performance objectives must also address the housing needs of a new income group, the “extremely low” income household, defined as households earning no more than 30% of the county median income. This would be in addition to the low and very-low income groups already identified under the 1990 “fair share” objectives. 3. Pros and Cons of Participating in Self-certification This section is structured as a two sets of arguments, reasons for participating in self-certification and reasons not to participate. Within each set are individual points and each point is provided with a rebuttal statement. At the end of the section are several points worth considering which are neither “pro” nor “con”. Reasons For Participating 1. 2. Avoid State HCD Certification: The original purpose for creating A.B. 1715 was to provide a means by ‘which jurisdictions could adopt new Housing Elements without going through the lengthy, frustrating, and often expensive process of seeking state HCD certification, as called for under the law. After Carlsbad’s current element was drafted, it took over a year of additional effort negotiating with HCD staff before we obtained certification. The effort involved hundreds of additional staff hours, trips to Sacramento, and costs for consultant services. Under A.B. 171 5, when a jurisdiction satisfies four criteria, it may self-certify its element. Self certification may yield staff and dollar cost savings. Rebuttal: Self certification would involve its own costs in terms of added complexities to programs, deeper subsidies for progrnms, and administrative burdens. It is unclear if state or selfcertification would cost the City more. Greater Flexibility in Pro,marns to Meet Objectives: Currently regional share needs must be met only through new construction. Under self-certification, a much broader range of programs can be used to meet numerical objectives. In addition to new construction, eighteen types of programs are identified which can be counted. Some of these are programs in which the City is already engaged, but cannot currently receive regional share “credit”. Some of these programs could yield more units for the same dollar costs as new constrution, thus stretching available funds. Last, the self-certification program provides for a “sliding scale’’ of extra and partial credits that vary by type of program, length of tenure, and number - HOUSING ELEMENT S ?-CERTIFICATION Page 4 of bedrooms in units. Based upon the way we have carried out many of our programs we would qualify for more extra credits than many jurisdictions. Rebuttal: Greater flexibility is attended by fairly complex rules and guidelines about how these programs must be operated in order to qualifi. Some of Carlsbad current programs might have to be modijied somewhat to qualijj? For example, the current way we use second dwelling units in inclusionary housing would not qualifi under the guidelines. The coniplexiv would mean more d@culty in administrative burden (record keeping, reporting, etc). While we would qualifi for the exlra credits for some program, other programs we currently have, or might want to have in the future, might qualifi only for partial credits. In order to optimize credits, a care$il examination of housing programs would be needed. The desire to accrue credits for self certijcation could weight disproportionately against other important factors in deciding what housing programs and priorities to pursue. 3. Smaller Numerical Obiectives Under Self Certification: Regional Share Housing Needs for our current element call for 1,066 units of low-income housing and 1,443 units of very-low- income housing (2,509 units of “lower” income). Under self-certification numerical performance objectives would be smaller. For the housing cycle ending in 1999, the performance objective is the “fair share” number identified in 1990 by SANDAG, which is 1,125 “hoiising opportunities” of “lower income” housing. The final 2004 objective cannot be determined yet due to the way the formulas work. However, the preliminary number is 667 units. The 2004 objective is determined, in part, by the progress we made from 1991 - 1996, (the final counts of which are still pending) and, in part, by the total housing stock we will have in 2004). For 2004 the objective is further broken out by three income groups. Rebuttal: Although the numbers for 2004 appear quite small in comparison, the overall objective must be broken into components for low-income (41 %), very low-income (32%) and .. extremely low income (27%). The extremely low group is new, dejined as incomes below 30% of county median income. Subsidies necessary for the very low and extremely-low income groups will be great and make attaining the performance objective more dfjcult than housing for low income only. Though smaller, these objectives will not be easy to meet. 4. Commonality with Proposed Amendments to Inclusionary Ordinance: A number of the changes staff is considering for our inclusionary housing ordinance are in keeping with the things that are part of the self-certification program. For example: extending the definitions for targeted income groups to include deeper subsidies; incorporating some form of sliding scale or extra credit “offsets” for certain types of programs/projects; and allowing credits for solutions other than new construction in certain circumstances. Rebuttal: We should not let self-certijkation dictate where we want to go in these areas. Stqfdiscussions to date have not taken things asjar as is called for by selfcertijkation.. Reasons for Not Participating -_ 1-IOUSING ELEMENT SI ’-CERTIFICATION Page 5 1. The Tail Shouldn’t Wag the Dog: In trying to qualify for self certification we could end up moving from programs that are optimized for Carlsbad needs, policies, and sensibilities, in favor of things that may not be best for Carlsbad. We should establish our programs independently of the influence of self-certification. Rebuttal: The great array of programs provided under self-certification includes most of the things jurisdictions are doing throughout the region. Carlsbad can pick and choose from among these progranzs to create a custom housing program. Much of what we currently do LIIIWIL~ would qualifi for credit. Where minor changes might be necessary to meet the sey- certification guidelines, it is because the consensus of the housing experts in the region felt that such changes would make jor more eflective programs. We are already considering making changes to inclusionary housing regulations, so why not make them as compatible as possible with self-certification? 2. Deeper Subsidies and a New Target Group: The performance objectives for 2004 call for breaking out the over-all objective into “proportionality” with three income groups: low, very low, and extremely low-income households. The definitions of affordability for low and very low are changed under self-certification to require deeper subsidies. In addition there is a new requirement for “extremely low” income, with an affordability level of 30% of 30% of median income. These changes will take a significant toll on resources and will result in far fewer units being produced. In particular, the extremely low objective may simply be inipossible to meet as there are virtually no federal programs targeted at this level. Rebuttal: The 2004 perjormance objectives were developed out of a consideration for the resources that our best guess says are likely to be available through 2004, plus a considerution qf what jurisdictions have actually been able to produce this cycle (I 991 - 1996) adjusted for the addilional costs that result fionz the chunzed definitions. Yes, the dejinitions will result in deeper subsidies being needed. The numerical objectives are much smaller than the real, known need and represent: a) an attempt to provide some degree of service to a group that is not always currently served, and b) a rational and realistic appraisal of what a committed agency may feasibly achieve. Nobody said it would be easy. 3. Increased Administrative Burden: There are a host of rules and guidelines that would pertain to the programs allowed under self-certification. There would also so be increased and more detailed reporting requirements. These things may mean an increased administrative burden, costly in terms of staff time and budget. Rebuttal: There may be some additional “set‘-up” eflorts needed for accounting systems and some additional time for creating reports under inclusionary. However, an accounting of housing programs is already a part of most funding programs, us well as housing element law. Once the accounting systems are set up there should be no significant additional hurden to un ugency that keeps good records us it rolls along. Even ij‘ there are some _- HOUSING ELEMENT Si ;-CERTIFICATION Page 6 dditionnl efforts required, the benejit of not having to certiJL through HCD outweigh the cost. 4. It Would Force Modifications to our Existine Procrams: The Guidelines and Principles used by the self-certification program would necessitate changes to some of the City’s existing programs. One example is the use of “second units” as an inclusionary program. In order to be credited for self-certification, second units would have to be treated as if they were a public housing program, thus imposing certain conditions that would make the program much less attractive to builders to offer. There may be other examples. Bringing programs into compliance with the Guidelines and Principles may create difficulties for some projects that are in the pipeline and may create work demands on staff to effect the changes. Rebuttal: Yes, some changes may be necessary. However, the Housing Commission and others have already expressed concerns about the way second units are used in inclusionary housing Responses to these concerns would be in keeping. with the self-certijkation rules, and may need to come about with or without se2f-certiJication. In general, the eflorts needed to bring programs into conformance with self-certification are worth the benefits self- cevtijication brings to the City. Observations and Issues Neither Pro Nor Con 1. Active pursuit of self-certification is necessary to make it work. Attaining the performance objectives of self-certification will not be easy. It will likely require a concerted effort to target resources and focus programs to attain the credits needed. Progress through April 1998 has attained less than 60% of the objective for this current cycle. Attaining the objectives for the next cycle will be equally challenging. It won’t just happen. 2. The “extremely-low-income” objectives will be especially tough for next cycle. The performance objective for extremely low income doesn’t pertain to the current cycle. However, Federal and State funding programs targeted to these groups are virtually non- existent. In order for the City to make this objective by 2004, it will have to get creative with its own resources, which may have implications for how City resources are used for other objectives. This is an area of significant need, however, a fact taken into consideration by the SANDAG Housing Advisory Committee when it decided to focus on this new group. 3. Amendments to our inclusionarv ordinance should complement self-certification, if self- certification is a priority. We are considering amendments to our inclusionary ordinance. If we are not interested in self-certification we can ignore it. If we are interested in it, however, it would be a mistake to amend inclusionary in such a way that we have to keep separate books on what “counts” under the two programs. That would be an administrative burden. -. HOUSING ELEMENT Si ‘-CERTIFICATION Page 7 4. We must “encumber” redevelopment set-aside funds by 1999 or accrue penalties for non-use. A factor in the formula for the final performance objective for 2004 is the “Unencumbered Redevelopment Funds” factor. Units are added to the over-all performance objectives if certain levels of funds are not encumbered by the end of FY 1999. This has not been the problem for us that it has been for some other jurisdictions. We should assure it doesn’t become one in the future by not carrying over large sums of unencumbered set-aside funds. Conclusion All things considered, staff recommends that the City pursue trying to qualify for self- certification. Due to the short amount of time left this housing element cycle, it may be that we will not qualify this time. Next cycle we may be more successful. In either case, there is nothing to lose. Should we fail to self-certify we will end up going to the state. This is the same option we would have if we choose not to try for self-certification. If you have any questions please let me know. DENNIS A. TURNER ~ 50lL - POIL - &OIL - ZOlL - LOIL - OOlL -661L ~ 86lL L 6lL - 961L - 56lL P6lL - E61L - Z61L 16/L 06lL -. AREPORT TO THE HOUSXNG CO-XSSXON DATE: SEPTEMBER 29,1998 SUBJECT: HOUSING ELEMENT UPDATE I. RECOMMENDATION Informational item only. No action required. II. DISCUSSION The Housing Element of the General Plan is required to be updated and reviewed and approved by the State of California Housing and Community Development Department approximately every five years. Over the next few months, the Housing Commission will be involved in the updating of our current Element. Staff will provide the Commission with an oral presentation regarding the purpose and content of the Housing Element and the anticipated update procedures.