Loading...
HomeMy WebLinkAbout2002-07-09; City Council; 16823; Villages of La Costa Affordable Housing ProjectCITY OF CARLSBAD - AGENDA BILL - 1 - .~ AB# 16,823 DEPT. HlRED CITY ATT E PROJECT, AND APPROVAL OF THE CITY’S INTENTION TO THE VILLAGES OF LA COSTA AFFORDABLE HOUSING MTG. 7/9/02 DEPT. HD m: APPROVAL OF CITY FINANCIAL ASSISTANCE FOR CITY M CONSTRUCTION OF THE SUBJECT PROJECT. ISSUE MULTI-FAMILY HOUSING REVENUE BONDS FOR RECOMMENDED ACTION: That the City Council take the following four actions: 1) ADOPT Resolution No. 2002- 208 APPROVING a request to provide financial assistance to Dove Family Housing Associates, L.P., which includes a construction loan of $2,070,000 from the City’s Housing Trust Fund and to approve the related loan documents for construction of one hundred eighty (180) affordable apartment units within the Villages of La Costa Master Plan; 2) ADOPT Resolution No. 2002 - 209 APPROVING the City’s intention to issue tax-exempt multi-family revenue bonds in an amount not to exceed $20 million for the purposes of financing the construction of the Villages of La Costa Affordable Apartment Project; 3) set August 6, 2002 as the public hearing date to accept comments from the public on the City’s intent to issue bonds for the subject project; and 4) AUTHORIZE the Finance Director, or designee, to accept and hold the Developer’s Bond Allocation Application following City receipt of a written notification from the California Debt Limit Allocation Committee Deposit in the amount of one hundred thousand dollars ($lOO,OOO), and then to release the deposit (CDLAC) authorizing release or forfeiture of the deposit, in whole or in part, pursuant to CDLAC procedures. ITEM EXPLANATION: AFFORDABLE HOUSING PROJECT DESCRIPTION The project site is located on a vacant lot at the northwest corner of the future intersection of Alga Road and Estrella de Mar Road. The project will be developed by Dove Family Housing Associates, L.P, a partnership comprised of Community Housing of North County and Mercy Housing (Developer). The proposed project will satisfy the affordable housing requirement for the first phase of development in the Villages of La Costa Master Plan. The proposed 180-unit affordable apartment project consists of seven residential structures and a 5,200 square foot recreation and community building. The proposed development includes one, two, three and four bedroom units. Of the 180 units, 53 units (30% of the project) will be affordable to households earning 50% of the San Diego County Area Median Income (AMI), 125 units (70%) will be affordable to households earning 60% of AMI and there will be two manager units. The project will also feature laundry facilities, a “tot-lot“ with playground equipment and an outdoor recreation area. The Site Development Plan (SDP) for the project was approved by the City Council at their June 18‘h meeting. The Housing Commission reviewed the request for financial assistance at their May gth meeting and recommended approval to the City Council. FINANCIAL ASSISTANCE FOR THE AFFORDABLE HOUSING PROJECT As part of the project financing, the Developer is requesting that the City provide a construction loan in the amount of $2,070,000, or $11,500 per unit, from the Housing Trust Fund. In addition to the loan, the Developer is requesting that the City issue tax-exempt multi-family revenue bonds in an amount not to exceed $20 million to assist in financing the subject project. In addition to the City’s financial participation, the Developer will use a variety of sources to finance the affordable development. The financial details of the subject project are provided below. Page 2 of AB # 823 USES AND SOURCES OF FUNDS The total cost of the Villages of La Costa Affordable Apartment Project is estimated to be $25 million, exclusive of the value of the land. The following chart provides a breakdown of the project costs, or uses of funds. Based on a detailed review of the costs, staff has found that the costs are reasonable and the total per unit cost of $139,000 is generally consistent with other affordable multi-family developments within the City. In the past, the "Developer Fee" has been a specific point for discussion. The proposed developer fee is $1,200,000, which represents 5% of total project costs. This fee is included within the total for development soft costs noted in chart below. On a percentage basis, the developer fee is less than what has been previously approved by the City Council for similar projects. However, the fee is considered reasonable by industry standards for a project of this size, and is the maximum amount permitted under the tax credit program regulations. The following chart provides a breakdown of the permanent sources of funds for the proposed development. The two primary sources of funding for the proposed project are 1) proceeds from tax- exempt multi-family revenue bonds; and, 2) proceeds from the sale of tax credits to a limited partnership. As indicated in the project Proforma (Exhibit 3), the Master Developer for the Villages of La Costa will contribute the land (valued at $8.1 million) and cash in the amount of $4.3 million to the project. The Developer is requesting that the City contribute a total of $2,070,000 to the project. The City's contribution, if approved by the Council, will be provided to the project in the form of a construction loan to be repaid through future surplus cash generated from project operations. The City's proposed contribution of $11,500 per unit is slightly higher than that which has been previously approved for similar projects. In general, the City has provided $10,000 per unit for similar projects. However, staff believes that the greater amount of assistance is warranted because the project will provide for a substantial number of three and four bedroom units. The lnclusionary the subject project containing large bedroom units (3 or more bedrooms), the project far exceeds this Housing Ordinance requires that 10% of the project contain three bedroom units. With over 60% of requirement. According to the City's Consolidated Plan, large bedroom rental units are the City's greatest need. Because of the large number of three and four bedroom units, the cost of constructing this project is greater than it would be if the project contained primarily one and two bedroom units. The higher assistance amount recognizes these increased costs. a FINANCIAL ASSISTANCE DOCUMENTS As proposed, the City assistance ($2,070,000) will be provided in the form of a residual receipts loan will be amortized over fifty-five years and repaid from surplus cash in equal annual installments of secured by a note and deed of trust. The outstanding principal and accrued interest on the City loan outstanding balance shall accrue with simple interest at 3% per annum. The terms of the City principal and interest. In the event that there is not adequate cash surplus to repay the City loan, the assistance is the same loan structure that was utilized for the Villa Loma, Laurel Tree, Rancho Carrillo, Poinsettia Station and Vista Las Flores Affordable Housing projects. and regulatory agreements with the City of Carlsbad. These agreements and related documents are In order for the project to receive the $2,070,000 loan, the Developer is required to enter into loan attached for review. As one of the actions set forth within this report, the City Council is being asked to approve, in substantially the form presented, the Loan Agreement, Deed of Trust, Promissory Note explained below: and Regulatory Agreement that are all attached as Exhibit 4 for review. These documents are 1. Loan Agreement states the terms and conditions relating to the City’s loan. 2. Regulatory Agreement records the terms of affordability and the operation requirements for the project. 3. Promissory Note is executed by the Developer and expresses their intent to repay the loan. 4. Deed of Trust is recorded against the property to secure the City’s interest in the subject property and related improvements. documents to the senior lien holder. If approved, the attached resolution authorizes the City It is important to also note that the City will ultimately be required to subordinate the subject documents will not return to the City Council for review, Staff will take the necessary steps to insure Manager, or his designee, to execute subsequent subordination agreements. While the subordination that the documents provide the City with adequate notice and cure ability. The subordination documents will be reviewed by, and be subject to final approval by the City Attorney. BOND ISSUANCE REQUEST As noted above, in addition to the direct financial assistance, the Developer has requested that the Through this process, the City may act as a conduit whereby bonds are issued and sold, and the City issue tax-exempt, Multi-Family Housing Revenue Bonds to assist in financing the project. the bonds will function as the construction and permanent loan lender. The legal obligation for the proceeds are loaned to a Developer to be used for a private development purpose. The purchaser of with the bond issuance, including any fees and expenses incurred or assessed by the City, are paid repayment of the bonds rests solely with the developer of the project. Further, all costs associated from the proceeds of the bonds. In the above Sources of funds chart, the Developer states that approximately $10.6 million in bond proceeds will be required to finance the subject project on a long-term basis. However, the Council is being asked to issue bonds in an amount not to exceed $20 million, as the majority of the funds from the tax credit equity will not be available until after the project is constructed. The bond issue will be structured to pay down the bonds as the funds are received from the various equity sources such as tax credit and other revenue. Once project construction is complete, the bonds will be paid down to approximately $10.6 million as shown above, and will be repaid over a 30-year period. 3 TO issue tax-exempt bonds, the City must apply for, and receive, an allocation of private activity bonds from the California Debt Limit Allocation Committee (CDLAC). While the City will be the applicant, it will actually be the responsibility of the Developer to complete and submit the application to CDLAC in the name of, and on behalf of the City, subject to staff review, Typically, CDLAC meets three times per year to issue bond allocations. The deadline to apply for the final round of bond allocation is July 17, 2002. Before the City may apply to CDLAC, the Council must adopt an lnducement Resolution allowing for the City’s intention to issue tax-exempt bonds; 2) allowance for a portion of the bond proceeds to be certain actions to occur. The subject resolution must contain the following provisions: 1) declaration of of the City’s intent to hold a public hearing in compliance with Section 147(f) of the Internal Revenue used to reimburse appropriate expenditures related to the subject bond issuance; and, 3) declaration Code of 1986, which requires approval of the issuance of the bonds to be approved by the applicable elected representative (City Council), following a reasonably noticed public hearing. With approval of the City Council, a public hearing will be scheduled for August 6, 2002 to accept public comments on the City’s intent to issue bonds to finance the subject project. The subject public hearing is required to 6th and instructs the City Clerk to publish the required notice by July 22, 2002. be noticed by July 22, 2002. The attached lnducemenf Resolufion sets the public hearing for August In conjunction with submitting the application, staff is requesting that the Council take required action related to the Developer’s Bond Allocation Application Deposit. Per the requirements of CDLAC, the the total amount of the requested bond allocation. When submitting the application to CDLAC, the Developer is required to place on deposit with the City an amount equal to one half of one percent of Developer will make a deposit to the City in the amount of $100,000. The City is required to hold the deposit until such time as it receives written notification from CDLAC that the deposit is authorized to be released or forfeited to either CDLAC or the Developer. Therefore, staff is requesting that the Council authorize the Finance Director to receive and hold the subject deposit and then reimburse the funds to either CDLAC and/or the Developer, upon written notification from CDLAC. Adoption of the lnducement Resolution expresses the City’s intent to issue the bonds. However, it does not obligate the City to issue the bonds. The lnducemenf Resolution establishes the maximum amount of bonds to be issued for the purposes of tiling an application to the State for approval of a comments on the intent to issue bonds. Then, a future action by the Council will be required to adopt bond allocation for the project. The public hearing on August 6th will allow the Council to receive a “Bond Resolution” to authorize the actual sale and issuance of the bonds. This action on the actual authorization to issue the bonds would most likely occur in December 2002. HOUSING COMMISSION RECOMMENDATION ON FINANCIAL ASSISTANCE At their meeting on May 9, 2002, the Housing Commission reviewed the request from the Developer for financial assistance related to the subject affordable housing project. The proposal that was before the Commission was that the City would issue bonds in an amount not to exceed $17.5 million. Originally, the Developer was going to utilize the $17.5 million tax-exempt bond proceeds for construction, along with an additional market rate construction loan of $2.5 million. By increasing the amount of the bond issuance to $20 million, the Developer will not need the market rate loan. Because the interest rate on the bonds is lower than the market rate loan, the amount of interest paid during construction will be reduced, thus reducing the overall cost of the project. While the original amount of the bonds will be increased from that which was proposed to the Housing Commission, the amount of bonds which will be outstanding once the project has been completed ($10.6 million) will remain unchanged. The Commission also reviewed the drafl financial assistance agreements/documents. The Commission recommended (4-0) that the City Council approve the construction loan in the amount of Y Page 5 of AB # 16,823 $2,070,000 from the Housing Trust Fund. They also recommended approval of the related loan and regulatory documents. STAFF RECOMMENDATION for the Villages of La Costa Affordable Apartment Project. Adoption of the second resolution will Staff recommends that the City Council adopt the attached resolution to authorize financial assistance indicate the City’s intent to issue tax-exempt bonds to finance the project and reimburse appropriate expenditures related to that bond issuance. Approval of the second resolution will also set the date of August 6, 2002 for a public hearing to receive comments from the public on the City’s intent to issue bonds. These actions will allow the Developer to submit the required application to CDLAC by July 17, 2002 for a bond allocation in the amount of $20 million. ENVIRONMENTAL REVIEW A Negative Declaration was approved by the City Council for the Site Development Plan (SDP 01-17) on June 18, 2002. No further environmental review is required as part of the approval of the subject financial assistance or the bond issuance. FISCAL IMPACT The financial assistance in the form of a $2,070,000 residual receipts loan will be provided from the City of Carlsbad’s Housing Trust Fund, which has a current undesignated fund balance of approximately $4.98 million. The Council is also being asked to take action to express the City’s intent to issue tax-exempt bonds in an amount not to exceed $20 million to assist in financing the subject project. If the Council does in fact take action at a later date to issue bonds for the subject project, all costs associated with issuance of those bonds (City expenses, bond counsel, underwriting, financial advisor, etc.) will be paid from the proceeds of the bond issue. In addition, the entire legal obligation to repay the bonds rests with the Developer. Therefore, there will be no net fiscal impact to the City resulting from the issuance of the bonds. EXHIBITS: 1. City Council Resolution No. 2002 - 208 , to approve financial assistance for the 2. City Council Resolution No. 2002 - 209 , to indicate the City’s intent to issue 3. Loan Documents for financial assistance from the City of Carlsbad, including a Loan Agreement, 4. Development Proforma for the Villages of La Costa Affordable Apartment Project. 6. Draft Housing Commission Minutes of May 9, 2002. 5. Housing Commission Staff Report dated, May 9, 2002. 7. Housing Commission Resolution No. 2002-002 recommending approval of the requested financial 8. Vicinity Map. Villages of La Costa Affordable Apartment Project. bonds and to reimburse appropriate expenditures. Note, Deed of Trust and Regulatory Agreement. assistance for the Villages of La Costa Affordable Apartment Project. 5 1 2 2 4 5 6 7 8 9 IO 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CITY COUNCIL RESOLUTION NO. 2002-208 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, TO APPROVE A REQUEST TO PROVIDE FINANCIAL ASSISTANCE TO DOVE FAMILY HOUSING ASSOCIATES, L.P. WHICH INCLUDES A CONSTRUCTION LOAN OF $2,070,000 FROM THE HOUSING TRUST FUND AND TO APPROVE THE RELATED LOAN DOCUMENTS FOR CONSTRUCTION OF ONE HUNDRED EIGHTY (180) AFFORDABLE APARTMENT UNITS WITHIN THE VILLAGES OF LA COSTA MASTER PLAN. APPLICANT: DOVE FAMILY HOUSING ASSOCIATES, L.P. CASE NO: SDP 01-17 WHEREAS, the master developer of the Villages of La Costa Master Plan, Real Estate Collateral Management, has proposed to construct 180 apartment units affordable to lower income households as a means to satisfy their affordable housing obligation as permitted by Carlsbad Municipal Code Section 21.85 of the City’s Inclusionary Housing Ordinance; and WHEREAS, Real Estate Collateral Management has retained Dove Family Housing Associates, L.P., to develop and operate the 180 apartment units affordable to lower income households; and WHEREAS, Dove Family Housing Associates has requested that the City of Carlsbad provide financial assistance in the form of a construction loan to assist in the construction of said apartment units; and WHEREAS, on the 9* day of May, 2002, City of Carlsbad Housing Commission did hold a public meeting to consider a request for City financial assistance for the construction of said 180 affordable housing apartment units by the affordable housing developer, Dove Family Housing Associates and subsequently recommended approval of the request for assistance; and WHEREAS, on the 9’ day of July, 2002, the City Council did hold a public meeting to consider said request for City financial assistance for the construction of said 180 affordable housing apartment units by the affordable housing developer, Dove Family Housing Associates; and; G 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 CC Resolution No. 2002-208 Page 2 WHEREAS, at said public meeting, upon hearing and considering all testimony, if any, of all persons desiring to be heard, said Council considered all factors relating to the application and request for financial assistance: NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council of the City of Carlsbad. California, as follows: 1. 2. 3. 4. 5. 6. Ill Ill Ill The above recitations are true and correct. The request for City financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element and Consolidated Plan, 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 180, one, two, three and four bedroom affordable apartment units. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the Consolidated Plan. That the City Council of the City of Carlsbad hereby APPROVES financial assistance to the proposed affordable housing project known as the Villages of La Costa Affordable Apartments Project in the form of a construction loan in the amount of $2,070,000 from the City of Carlsbad’s Housing Trust Fund. That the City Council authorizes the City Manager or his designee 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 the form presented to the City Council, subject to review and approval by the City Attorney. That the City Council authorizes the City Manager or his designee to execute subsequent subordination agreement(s), as required, subject to review and approval by the City Attorney andlor Special Legal Counsel. 7 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 21 28 CC Resolution No. 2002-208 Page 3 PASSED, APPROVED, AND ADOPTED at a regular meeting of the City Council of the City of Carlsbad, California, held on the 9' day of July , 2002, by the following vote, to wit: AYES: Council Members Lewis, Finnila, Hall NOES: None ABSENT: Council Membe ABSTAIN: Council Membe 1 1 2 3 4 5 6 7 8 9 IO 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 2002-209 I A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD DECLARING INTENTION TO REIMBURSE OBLIGATIONS AND DIRECTING CERTAIN ACTIONS INCLUDING AUTHORIZATION TO THE FINANCE DIRECTOR, OR DESIGNEE, TO HOLD THE DEVELOPER'S BOND ALLOCATION APPLICATION DEPOSIT IN THE AMOUNT OF ONE HUNDRED THOUSAND DOLLARS (%lOO,OOO), AND THEN TO RELEASE SAID DEPOSIT FOLLOWING CITY RECEIPT OF A WRITTEN NOTIFICATION FROM THE CALJFORNIA DEBT LIMIT ALLOCATION COMMITTEE (CDLAC) AUTHORIZING RELEASE OR FORFEITURE OF THE DEPOSIT, IN WHOLE OR IN PART, PURSUANT TO CDLAC PROCEDURES. APPLICANT: DOVE FAMILY HOUSING ASSOCIATES CASE NO: SDP 01-17 EXPENDITURES FROM THE PROCEEDS OF TAX-EXEMPT WHEREAS, the City of Carlsbad (the "City") intends to issue tax-exempt obligations (the "Obligations") for the purpose, among other things, of making a loan to the Dove Family Housing Associates ("Dove") or a limited partnership or limited liability company to be established by Dove (the "Developer"), the proceeds of which shall be used by the Developer to finance the acquisition, construction and development of a multifamily housing rental facility to be located near the Northeast comer of Alga Road and El Camino Real in tbe City of Carlsbad, California (the "Project"); and WHEREAS, the City is authorized by Chapter 7 of Part 5 of Division 3 1 of the Health and Safety Code of the State of California (the "Law") to issue and sell revenue bonds for the purpose of financing the acquisition, construction and development of multifamily rental housing facilities to be occupied in part by low and very low income tenants; and WHEREAS, it is in the public interest and for the public benefit that the City declare its official intent to reimburse the expenditures referenced herein; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Carlsbad DECLARES and ORDERS as follows: 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 X Resolution No. 2002-209 'age 2 1. The City intends to issue the Obligations for the purpose of paying the costs of financing the acquisition, construction and development of the Project. 2. The City hereby declares that it reasonably expects that a portion of the proceeds of the Obligations will be used for reimbursement of expenditures for the acquisition, construction and development of the Project that are paid before the date of initial execution and delivery of the Obligations. 3. The maximum amount of proceeds of the Obligations to be used for reimbursement of :xpenditures for the acquisition, construction and development of the Project that are paid before the date )f initial execution and delivery of the Obligations is $20,000,000. 4. The foregoing declaration is consistent with the budgetary and financial circumstances )f the City in that there are no funds (other than proceeds of the Obligations) that are reasonably expected to be (i) reserved, (ii) allocated or (iii) otherwise set aside, on a long-term basis, by or on behalf of the City, or any public entity controlled by the City, for the expenditures for the acquisition, construction and development of the Project that are expected to be reimbursed from the proceeds of the Obligations. 5. The Developer shall be responsible for the payment of all present and future costs in connection with the issuance of the Obligations, including, but not limited to, any fees and expenses incurred by the City in anticipation of the issuance of the Obligations, the City's financing fee with respect to the issuance of the Obligations, the City's annual administration fee with respect to administering the provisions of a regulatory agreement with respect to the Project, the cost of printing any official statement, rating agency costs, bond counsel fees and expenses, underwriting discount and costs, financial advisor's fees and expenses, trustee fees and expense, and the costs of printing the Obligations. The payment of the principal, redemption premium, if any, and purchase price of and interest on the Obligations shall be solely the responsibility of the Developer. The Obligations shall not constitute a debt or obligation of the City. IO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6. The City of Carlsbad will collect from the Developer and will place on deposit One Hundred Thousand Dollars which equals one half of one percent of the amount of private activity bond allocation being requested. The City Council hereby authorizes the Finance Director or designee to hold said deposit and then to release the deposit following City receipt of a written notification from the California Debt Limit Allocation Committee authorizing release or forfeiture of the deposit, in whole or in part, pursuant to the procedures of the Committee. 7. The City Clerk is hereby directed to publish on or before July 22, 2002 in a paper of general circulation within the City of Carlsbad a notice of public hearing with respect to a public hearing to be held by the City Council on August 6, 2002 regarding the financing of the Project. 8. The law firm of Jones Hall, A Professional Law Corporation, is hereby named as bond counsel to the City in connection with the issuance of the Obligations. The fees and expense of bond counsel are to be paid solely from the proceeds of the Obligations or directly by the Developer 9. The appropriate officers or staff of the City are hereby authorized, for and in the name of and on behalf of the City, to make an application to the California Debt Limit Allocation Committee for an allocation of private activity bonds for the financing of the Project. 10. The adoption of this Resolution is solely for the purpose of meeting the requirements of the provisions of the Internal Revenue Code of 1986, as amended, and shall not be construed in any other manner, with neither the City nor its staff having fully reviewed or considered the financial feasibility of the Project or the expected operation of the Project with regards to any State of California statutory requirements, and such adoption shall not obligate, without further formal action to be taken by this City Council, including, but not limited to, the approval of the financing documents by the City Council by resolution, (i) the City to provide financing to the Developer for the acquisition, construction and development of the Project or to issue the Obligations for purposes of such financing; or (ii) the City, or any department of the City, to approve any application or request for, or take any other action in connection with, any environmental, General Plan, zoning or any other permit or other action necessary for the acquisition, construction, development or operation of the Project. II 1 2 3 4 5 6 7 8 9 IO 11 12 13 14 1s 16 17 18 19 20 21 22 23 24 25 26 27 28 :C Resolution No. 2002-209 'age 4 PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council of the Xy of Carlsbad, California on the 9' day of Julv, 2002, by the following vote, to wit: AYES: Council Members Lewis, Finnila, Hall NOES: None ABSENT: Council Member ABSTAIN: Council Member K ATTEST EXHIBIT 3 CITY LOAN AGREEMENT This City Loan Agreement ("the Agreement") is entered into as of , 2002, by and between the City of Carlsbad (the "City") and Dove Family Housing Associates, a California limited partnership (the "Borrower"). RECITALS 1. Pursuant to Title 21, Chapter 21.85 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 one hundred eighty (180) residential units in the City of Carlsbad, of which at least fifty-three (53) units shall be rented to very low income households at affordable housing cost and thirty-six (36) units shall be rented to low income households at affordable housing cost and the remainder, excluding a manager's 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 Two Million Seventy Thousand Dollars ($2,070,000) (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: (a) "Agreement" shall mean this City Loan Agreement. (b) "Agency" shall mean the Carlsbad Redevelopment Agency, Carlsbad, California, a public body corporate and politic. June 19.2002 1 \3 (c) "Borrower" shall mean Dove Family Housing Associates, a California limited partnership. (d) "Certificate of Completion" shall have the meaning set forth in Section 4.8 of this Agreement. (f) "City Deed of Trust" shall mean the deed of trust to be placed on the Development, in a form to be provided by the City, securing the City Note and naming the City as beneficiary. (g) "City Loan" shall mean the loan for an amount not to exceed Two Million Seventy Thousand Dollars ($2,070,000) by the City to Borrower, which loan is the subject of this Agreement. (h) "City Note" shall mean the promissory note, in a form to be provided by the City, in the principal amount of Two Million Seventy Thousand Dollars ($2,070,000), evidencing the City Loan. (i) "City Regulatory Agreement" shall mean the City Regulatory Agreement in a form to be provided by the City to be recorded against the Development pursuant to Section 3.1 below. 0) "Construction and Permanent Financing" shall mean any of the following financing acquired by the Borrower for the purpose of financing the Improvements and approved by the City, in addition to the City Loan: (i) construction loan in an amount not to exceed ~ Dollars ($ ); and (ii) City multifamily housing revenue bond-financed loan in the approximate amount of Twenty Million Dollars ($20,000,000) and (the "City Bond Loan"); and (iii) Tax credit investor equity funds in the approximate amount of Seven Million Five Hundred Twenty Five Thousand Eight Hundred Sixty Four Dollars ($7,525,864.00); and (iv) Real Estate Collateral Management construction and permanent loan in the approximate amount of Dollars ($- (1) "Development" shall mean the Land and Improvements to be constructed on the Land. (m) "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. June 19.2002 2 (4 "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. (0) "Limited Partner" shall mean the limited partner of Borrower, if and when admitted as a limited partner of Borrower, and its successors and assigns, provided the limited partner has given the City written notice of its name and address and that it has been admitted as a limited partner to the Borrower. (p) "Loan Amount" shall mean the amount loaned to Borrower pursuant to Section 2.1 below. (9) "Loan Documents" shall mean the following documents evidencing the City Loan: (i) the City Note; (ii) the City Regulatory Agreement; (iii) the City Deed of Trust; (iv) this Agreement. (r) "Parties" shall mean the City and the Borrower. (s) "Term" shall mean the term of the City Loan commencing on , and ending fifty-five (55) years following the date of issuance of a certificate of occupancy for all Units in the Development. (t) "Unit" shall mean one of the one hundred eighty (180) dwelling units located within the Development. 1.2 Exhibits. The following Exhibits are attached to this Agreement and incorporated herein: Exhibit A - Legal Description of the Land Exhibit B - Permitted Uses of Loan Proceeds Exhibit C - Form of Certificate of Completion ARTICLE 2 LOAN 2.1 Amount. The City hereby agrees to loan, and the Borrower hereby agrees to borrow, an amount not to exceed Two Million Seventy Thousand Dollars ($2,070,000), 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: (a) The City Note; (b) The City Regulatory Agreement; and June 19,2002 3 \5 (c) 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 filly-five (55) years of the Term such that equal payments of principal and interest (the "Amortized Payments") shall be due and payable on June lst of each calendar year, commencing on the first June 1" following the 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) Gross Revenue. "Gross Revenue," with respect to a particular 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 insurance; the proceeds of casualty insurance to the extent not utilized to repair or rebuild the Development or repay existing loans; and condemnation awards for a taking of part or all of the Development for a temporary period. "Gross Revenue" shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (ii) Annual Omrating 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 June 19,2002 4 systems, and professional fees for legal, audit and accounting; property management fees, including resident services, 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 not to exceed Twenty-Five Thousand Dollars ($25,000) increasing annually by three percent (3%); 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 and/or 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 1.16) (excluding debt service due from residual receipts or surplus cash of the Development). "Annual Operating Expenses" shall not include the following: ground lease payments, depreciation, amortization, depletion or other non-cash expenses or any amount expended from a reserve account. (c) In the event that seventy percent (70%) of Surplus Cash in any year is less than the amount of the Amortized Payment due on June 1 of the following year, the difference between the amount of seventy percent (70%) of Surplus Cash and the Amortized Payment shall be deferred, and shall be paid on the next June 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 current Amortized Payment due, beginning with the earliest year for which an Amortized Payment accrued. (d) In the event that seventy percent (70%) of Surplus Cash in any year exceeds the amount necessary to make the Amortized Payment due on June 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) A mandatory partial prepayment of the City Loan may also occur pursuant to Section 2.14 below. Such prepayment shall not reduce the amounts of subsequent Amortized Payments due, except to the extent the City Loan is fully repaid. (0 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. (9) Repayment of the City Loan shall be nonrecourse to the Borrower as set forth in Section 10 of the City Note, subject to the exceptions set forth therein. 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 June 19,2002 5 17 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 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 B. 2.8 Security for Loan. The City Loan shall be secured by the City Loan Deed of Trust on Borrower's fee interest in the Land. The Borrower shall provide the City with a ALTA lender's policy of title insurance in an amount equal to the City's loan, issued by Title Insurer, insuring the City Loan Deed of Trust as a lien against the Borrower's fee interest in the Land, subject only to the lien or liens of the Construction and Permanent Financing mortgages. The City shall not accept any mechanics liens exceptions related to Borrower's early start of construction. 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. 2.10 Subordination of Deed of Trust. The City agrees to subordinate the City Deed of Trust to the lien of the deeds of trust securing the Construction and Permanent Loans. 2.1 1 Subordination of the City Regulatorv Agreement. The City agrees that the City's Housing and Redevelopment Director 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 Director 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 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 that 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 Reaorts and Accounting of Sumlus 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 Borrower's fiscal year (ending December 3 1'' of each year) an audited statement June 19,2002 6 1% 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 General Partners, 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 at place of storage 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. 2.13 Developer Fee. 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 Borrower's discretion), shall not exceed One Million Two Hundred Thousand Dollars ($1,200,000). 2.14 Use of Net Proceeds of Permanent Financing. (a) For purposes of this Section 2.14, the term "Net Proceeds of Permanent Financing" shall mean the portion of the Construction and Permanent Financing that is not required to pay the costs of development of the Development (including but not limited to the funding of reserves, and the developer fee, subject to the cap described in Section 2.13 above). (b) The Net Proceeds of Permanent Financing shall be utilized as follows: (i) Borrower may retain one-half of the Net Proceeds of Permanent Financing for any use it deems appropriate (subject to the limitations on developer fee set forth in Section 2.13 above) and which is approved by the City; and (ii) One-half of the Net Proceeds of Permanent Financing shall be paid to the City as a mandatory partial prepayment of the City Loan. (c) The amount of the Net Proceeds of Permanent Financing shall be determined by the Borrower and submitted to the City for approval on the date the Borrower submits the final cost audit for the Development to the California Tax Credit Allocation Committee. The Borrower shall also submit to the City any additional documentation sufficient to verify the amount of the Net Proceeds of Permanent Financing. The City shall approve or disapprove Borrower's determination of the amount of the Net Proceeds of Permanent Financing in writing within thirty (30) days of the City's receipt of Borrower's cost audit and supplemental June 19,2002 7 documentation. If Borrower's determination is disapproved by the City, Borrower shall re- submit documentation to the City until City approval is obtained. The City's one-half share of the Net Proceeds of Permanent Financing shall be due the City from the Borrower no later than five (5) days following the date Borrower receives its final capital contribution from the Borrower's investor limited partner. As of the date of this Agreement, this final capital contribution is expected to be received on ,200 ARTICLE 3 DISBURSEMENT OF LOAN nc 3.1 )t disburse satisfied. Conditions Precedent to Disbursement of Loan Proceeds. The City shall Loan proceeds to the Borrower until all of the following conditions precedent are (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) Cornorate Authorization; Good Standing. Borrower shall have provided the City with a certified copy of a corporate authorizing resolution of 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. (c) Purchase of Land. Borrower shall hold fee title to the Land. (d) Close of Construction Loan. Borrower shall have closed the Construction Loan, or such loan shall close concurrently with the City Loan. (f) Execution, Deliven, 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. (g) Insurance. Borrower shall have furnished the City with evidence of the insurance coverage required pursuant to Sections 6.4 and 6.5 below. (h) 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 (100%) of the scheduled cost of construction. Such bonds must be issued by an insurance company reasonable acceptable to the Citv and must name the Citv as a co-obligee. June 19,2002 - 8 (i) 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 (10%) of the costs incurred shall be payable only upon completion of said contractor's construction (unless an early release of retention or no retention for specified subcontractors has been approved by the City) and shall include the nondiscrimination language set forth in Section 6.14 below. Approval of the construction contract by the City shall constitute City approval of any early release of retention or no retention for specified subcontractors that is included in the construction contract. 6) Auuroval of Loan Guarantees. Borrower shall have provided documentation satisfactory to the City assuring that adequate funding exists to pay for all construction costs. (k) 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 fifteen (15) 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: (a) 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. 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 and/or mechanics lien title insurance endorsements reasonably acceptable to the City. June 19,2002 9 a\ 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 Comuletion of Construction. The Borrower hereby covenants and agrees to diligently prosecute to completion the construction of the Development within eighteen (18) months from 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 Compliance 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. The City is not imposing a prevailing wage requirement independent of any applicable California Labor Code requirement. (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 Changes in Develoument Budget. Developer shall submit all material changes in the development budget for the Development, as approved by the City pursuant to Section 3.l(a) above, to the City for approval, which approval shall not be unreasonably withheld. 4.6 Entw bv the City. 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 therefore. Any inspection by the City is 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. June 19,2002 10 aa 4.7 Eaual 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. 4.8 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 4.8, 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. (c) 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 necessaly or desirable to protect its interest in the Development. 4.9 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 a Certificate of Completion, in the form shown in Exhibit C. Within ten (IO) days of such a request, the City shall issue a Certificate of Completion or shall provide the Borrower with a written explanation of its refusal to issue the Certificate of Completion. If and when the Borrower has taken the specified measures or met the specified standards, the City shall issue a Certificate of Completion. The 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. June 19,2002 11 a3 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BORROWER 5.1 Reuresentations 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. (b) Authoritv 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) Authoritv 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. (d) Valid Binding Ameements. 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. ARTICLE 6 CONTINUING OBLIGATIONS 6.1 Auplicability. The Borrower shall comply with the provisions of this Article 6 throughout the Term. - June 19,2002 12 aL\ 6.2 Comdiance 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. 6.4 Reauired Insurance Coverage. (a) 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) Liabilitv and Prouem 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 five million dollars ($5,000,000) combined single limit for bodily injury and property damage. The limits of the insurance shall be adjusted once every five (5) years if and as reasonably required by the City. (c) Workers' Comuensation Insurance. The Borrower shall carry or cause to be carried workers' compensation insurance covering all persons employed by the Borrower in connection with the Development and with respect to whom death, bodily injury, or sickness insurance claims could be asserted against the Borrower or the City. (d) Builders' Risk Insurance. During the course of any alteration, construction or reconstruction, the cost of which exceeds one hundred thousand dollars ($lOO,OOO), 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. 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. lune 19,2002 13 (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. The City acknowledges that Borrower intends to apply for a property tax exemption for the Development pursuant to California Revenue and Taxation Code Section 214(g). 6.8 Comuliance 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. 6.11 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. June 19,2002 14 6.12 Hazardous Materials. (a) 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 Borrower's 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. (c) 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, 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. (d) Without the City's prior written consent, which shall not be unreasonably withheld, the Borrower shall not take any remedial action in response to the presence of any June 19,2002 15 a7 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 judgment, impair the value of the City's security hereunder; provided, however, that the City's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the 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 Regulatory Agreement, the foregoing covenant shall run with the land and shall survive termination of this Agreement. 6.14 Mandatorv Language 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 June 19,2002 16 aaB 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." (b) 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." 6.15 Records. (a) The Borrower shall maintain complete, accurate, and current records pertaining to the'Development for a period of five (5) years after the creation of such records, 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 (15) 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 (15) days is reasonably necessary to correct the deficiency, then the Borrower shall begin to correct the deficiency within fifteen (15) days and correct the deficiency as soon as reasonably possible. (c) 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, "Transfer" shall mean any sale, assignment, or transfer, whether voluntary of involuntary, of (i) any rights and/or 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 June 19,2002 17 as 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” 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. Upon request to transfer, Borrower must submit a “Reserve Plan” on how the existing reserves will be used to the benefit and long term health of the Development. Said Reserve Plan must be acceptable to the City. (c) The City approves the transfer of limited partnership interests to an investor limited partner in connection with the low income housing tax credit syndication of the Development, provided Borrower’s partnership agreement and related syndication documents are first approved by the City, which approval shall not be withheld unreasonably. (d) If a Limited Partner removes the general partner of Borrower in accordance with the terms of Borrower’s partnership agreement, such removal will not constitute a default under any of the Loan Documents, provided that within ninety (90) days after the removal of the general partner, Limited Partner shall have selected a substitute general partner approved by the City, which approval shall not be unreasonably withheld or delayed. Notwithstanding anything contained in the Loan Documents to the contrary, any assignment or transfer by Limited Partner of Limited Partner’s partnership or ownership interest in Borrower pursuant to Borrower’s partnership agreement will not constitute a default or impermissible transfer under any of the Loan Documents. (e) The City approves the grant of the security interests in the Development in connection with the financing described in Section 1.16) 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; June 19,2002 18 30 (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. (d) 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. The occurrence of any of the events described in this subsection with respect to a general partner of the Borrower shall also constitute an Event of Default hereunder. (f) Assignment: Attachment. Borrower (or 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) Susuension; Termination. Borrower (or a general partner of Borrower) shall have voluntarily suspended its business or, Borrower's partnership shall have been dissolved or terminated, other than a technical termination of the partnership for tax purposes. (h) Liens on ProDerty 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 June 19,2002 19 3\ 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. (i) Condemnation. The condemnation, seizure, or appropriation of all or the substantial part of the Land and the Development. (j) Unauthorized Transfer. Any Transfer other than as permitted by Article Six. (k) Remesentation or Warranty Incorrect. Any material 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. (1) Limited Partner Notice and Cure Rights. Notwithstanding anything to the contrary contained in the Loan Documents, Limited Partner shall have the right, but not the obligation, to cure defaults of Borrower under any of the Loan Documents and the City agrees to accept cures tendered by Limited Partner as follows: (a) with respect to any monetary default under any of the Loan Documents, the City shall notify Limited Partner in writing of the monetary default and Limited Partner shall have thirty (30) days after the receipt of said notice of such monetary default to cure such monetary default; and (b) with respect to any breach of covenant pursuant to Section 7.l(c) above, the City shall notify Limited Partner in writing of the breach and Limited Partner shall have thirty (30) additional days to cure the breach beyond the cure periods granted to Borrower under Section 7.l(c). If a Limited Partner cannot cure a breach because the Borrower's general partner is in bankruptcy andor because the cure requires removal of the general partner of the Borrower and the Limited Partner is proceeding diligently to remove the general partner of the Borrower in order to effect a cure of the breach, the cure period shall be extended for such reasonable time as is necessary for the Permitted Limited Partner to effect a cure of the breach, but in no event longer than one hundred and eighty (180) days after the date of receipt by the Limited Partner of written notice of the breach. The City agrees that no Event of Default hereunder shall be deemed to exist until the expiration of any contractual notice and cure periods provided to Borrower and Limited Partner. 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: (a) 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 June 19,2002 20 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. (c) Riaht 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 Riaht 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 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. June 19,2002 21 33 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: Borrower: Dove Family Housing Associates Attn: Susan M. Reynolds 1820 S. Escondido Blvd, Suite 101 Escondido, CA 92025 City: Mercy Properties, Inc. Attention: Portfolio Risk Management 601 E. 18th Street, Ste. 150 Denver, CO 80203 Mercy Housing California Attention: Director 500 South Main Street, Suite 110 Orange, CA 92868 City of Carlsbad Housing and Redevelopment Department Attn: Housing and Redevelopment Director 2965 Roosevelt Drive, Suite B Carlsbad, CA 92008 Such addresses may be changed by notice to the other party given in the same manner as provided above. June 19,2002 22 3q 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 No Third Parties Benefited. There are no third party beneficiaries of this Agreement, and no person or persons other than the Borrower and the City shall have any right of action hereon, except with respect to Section 7.1(1), the limited partner of Borrower shall be a third party beneficiary. 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 h. 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. 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. 8.11 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 Cautions and Headings. Captions and headings in this Agreement are for convenience of reference only, and are not to be considered in construing the Agreement. lune 19,2002 23 35 8.14 Action by the Citv. 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 CITY Dove Family Housing Associates, a City of Carlsbad, a municipal corporation California Limited Partnership By: Community Housing of North By: County, a California Non Profit Public Raymond R. Patchett, City Manager Benefit Corporation, General Partner By: Susan M. Reynolds, Executive Director By: Mercy Properties Inc., A Colorado Approved as to Form Nonprofit Corporation, General Partner Ronald R. Ball, City Attorney By: By: Jane Graf, Assistant Vice President Jane Mobaldi, Assistant City Attorney June 19,2002 24 36 June 19,2002 EXHIBIT A Legal Description of the Land A- 1 37 June 19.2002 EXHIBIT B Permitted Uses of Loan Proceeds B-1 EXHIBIT C Form of 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 CERTIFICATE OF COMPLETION Pursuant to Section 4.9 of the City Loan Agreement by and between the City of Carlsbad, a municipal corporation (the "City"), and Dove Family Housing Associates, a California Limited Partnership (the "Borrower"), the City certifies that the Borrower has met its obligations under Article 4 of the Loan Agreement. This 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] June 19,2002 c-1 39 CITY NOTE $2,070,000 ,2002 Carlsbad, California FOR VALUE RECEIVED, Dove Family Housing Associates, a California Limited Partnership ("Borrower"), promises to pay to the City of Carlsbad ("City"), or order, the principal sum of Two Million Seventy Thousand Dollars ($2,070,000), 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 the final certificate of occupancy for the development. 1. Loan Agreement. This City Note is made pursuant to a City Loan Agreement dated as of ,2002, by and between the Borrower and the City (the "City Loan Agreement"), and as contemplated by a Regulatory Agreement executed by the Borrower and the City (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, 2060. 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). 6. 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. 7. No Offset. Borrower hereby waives any rights of offset it now has or may hereafter have against the City, its successors and assigns. 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 willful misrepresentation; (ii) the failure to pay taxes, assessments or other charges which may create liens on the Property that are payable or applicable prior to any foreclosure under the 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 misappropriation of any proceeds under any insurance policies or awards resulting from condemnation or the exercise of the power of eminent domain or by reason of damage, loss or destruction to any portion of the Property. Dove Family Housing Associates, a California Limited Partnership By: Community Housing of North County, a California Non Profit Public Benefit Corporation, General Partner Susan M. Reynolds, Executive Director By: Mercy Properties Inc., A Colorado Nonprofit Corporation, General Partner Jane Graf, Assistant Vice President RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of Carlsbad City Clerk's Office Attn. City Clerk 1200 Carlsbad Village Drive Carlsbad. CA 92008 (Space above for Recorder's Use) CITY DEED OF TRUST AND SECURITY AGREEMENT THIS CITY DEED OF TRUST AND SECURITY AGREEMENT ("Deed of Trust") is made as of ,2002, by and among Dove Family Housing Associates, a California Limited Partnership, ("Trustor"), ,a ("Trustee"), and the City of Carlsbad, a municipal corporation ("Beneficiary"). 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 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; 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; April 30,2002 1 Y3 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; and (b) Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Trust following a breach of Trustor's obligation to advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; and (c) Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents (defined in Section 1.2 below). AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms shall have the following meanings in this Deed of Trust: April 30,2002 2 Section 1.1 The term "Loan Agreement" means that certain City Loan Agreement between Trustor and Beneficiary dated as of ,2002, providing for the Beneficiary to loan to Trustor Two Million Seventy Thousand Dollars ($2,070,000) for the development on the Property of improvements. 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 Two Million Seventy Thousand Dollars ($2,070,000) dated ,2002, executed by Trustor in favor of the Beneficiary, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.) Section 1.4 The term "Principal" means the aggregate of the amounts required to be paid under the Note. 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 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. April 30,2002 3 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 andor direct the Trustee to grant such easements. ARTICLE 3 TAXES AND INSURANCE; ADVANCES 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, 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. April 30, 2002 4 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 lesser rate of ten percent (10%) per annum or the maximum amount permitted by law. ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. All judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or 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 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 A~ril30,2002 5 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 (10%) 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. 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. April 30,2002 6 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 01 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 rumwith the land. ARTICLE 6 EVENTS OF DEFAULT AND REMEDIES Section 6.1 Events of Default. The following shall constitute Events of Default under this Deed of Trust: (1) failure to make any payment to be paid by Trustor under the Loan Documents subject to applicable notice and cure periods set forth in the Loan Documents; (2) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents, including, April 30, 2002 7 without limitation, the provisions concerning discrimination, subject to applicable notice and cure periods, if any, included in the Loan Documents; or (3) failure to make any payment or perform any of Trustor's other covenants, agreements, or obligations under any other debt instruments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein. Section 6.2 Acceleration of Maturity. If an Event of Default shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal of the Note shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right. Section 6.3 The Beneficiary's Right to Enter and Take Possession. If an Event of Default shall have occurred and be continuing, the Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof), 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; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of San Diego County; or (d) Exercise all 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. April 30,2002 8 Sb Section 6.4 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. (a) Upon receipt of such notice from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Default and Election to Sell as then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after lapse of such time as may then be required by law and after recordation of such Notice of Default and Election to Sell and after Notice of Sale having been given as required by law, sell the Security, at the time and place of sale fixed by it in said Notice of Sale, whether as a whole or in separate lots or parcels or items as Trustee shall deem expedient and in such order as it may determine unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts shall be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale, and Trustor hereby covenants to warrant and defend the title of such purchaser or purchasers. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of: (i) the unpaid Principal amount of the Note; (ii) all other amounts owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. (c) Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter, and without 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 6.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of April 30, 2002 9 entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. Section 6.6 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 6.7 No Waiver. (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. 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 6.8 Suits to Protect the Security. The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be April 30,2002 10 unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. Section 6.9 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 6.10 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. ARTICLE 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: April 30,2002 11 53 City of Carlsbad 2965 Roosevelt Drive, Suite B Carlsbad, CA 92008 Attention: Housing and Redevelopment Director and (2) if intended for Trustor shall be addressed to: Dove Family Housing Associates Attn: Susan M. Reynolds 1820 S. Escondido Blvd, Suite 101 Escondido, CA 92025 Mercy Properties, Inc. Attention: Portfolio Risk Management 601 E. 18th Street, Ste. 150 Denver, CO 80203 Mercy Housing California Attention: Director 500 South Main Street, Suite 1 IO Orange, CA 92868 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. April 30,2002 12 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. 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. April 30,2002 13 Section 7. 13 Restrictions under the Internal Revenue Code. The parties hereto acknowledge that Section 42(h)(6)(E)(ii) of the Internal Revenue code of 1986, as amended, does not permit the eviction or termination of tenancy (other than for good cause) of an existing tenant of any low-income unit or any increase in the gross rent with respect to such unit not otherwise permitted under Section 42 for a period of three (3) years after the date the building is acquired by foreclosure or instrument in lieu of foreclosure. Beneficiary agrees that, in the event Beneficiary acquires the Property through foreclosure or an instrument in lieu of foreclosure, Beneficiary will refrain for a 3-year period thereafter from terminating tenancies (other than for good cause) or increasing rents in a manner not permitted by Section 42. IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR Dove Family Housing Associates, a California Limited Partnership By: Community Housing of North County, a California Non Profit Public Benefit Corporation, General Partner Susan M. Reynolds, Executive Director By: Mercy Properties Inc., A Colorado Nonprofit Corporation, General Partner Jane Graf, Assistant Vice President April 30,2002 14 5b STATE OF CALIFORNIA ) COUNTY OF ) On ,200 - , before me, the undersigned, a Notary Public, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name@) idare subscribed to the within instrument, and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by hishedtheir signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. ) ss 57 EXHIBIT A (Legal Description of Property) The land is situated in the State of California, County of San Diego, and is described as follows: A- 1 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: City of Carlsbad City Clerk's Office Attn. City Clerk 1200 Carlsbad Village Drive Carlsbad, CA 92008 (Space above for Recorder's Use) REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS This Regulatory Agreement and Declaration of Restrictive Covenants (the "Agreement") is made and entered into as of this day of ,2002, by and between the City of Carlsbad, a municipal corporation (the "City"), Dove Family Housing Associates, a California limited partnership ("Owner"). RECITALS 1. The City has entered into the Loan Agreement with Owner under which the City will loan fimds (the "Loan") to Owner which will be used, together with funds obtained from other sources, for the development and construction of one hundred eighty (180) residential units known as Dove Family Housing ("Development"), located on the real property in the City of Carlsbad, County of San Diego, more particularly described in Exhibit A attached hereto and incorporated herein (the "Property"). 2. The funds loaned to Owner pursuant to the Loan Agreement are City Housing Trust Fund monies. Such funds are required to be utilized to assist housing affordable to lower income households. This Agreement is intended to implement this requirement. 3. The City intends to utilize the Development to obtain affordable housing production credits for the City of Carlsbad Redevelopment 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 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) and in accordance with additional restrictions concerning affordability, operation, and maintenance of the Development, as specified in this Agreement. Aoril30,2002 1 59 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. Owner holds a fee interest in the Development land, and in all improvements to be constructed by Owner on such land. 7. In order to ensure that the entire Development will be used and operated in accordance with these conditions and restrictions, the City and the Owner wish to enter into this Agreement. THEREFORE, the City and the 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 6914. (b) "Agency" shall mean the Carlsbad Redevelopment Agency, Carlsbad, California, a public body, corporate and politic. (c) "Agreement" shall mean this Regulatory Agreement and Declaration of Restrictive Covenants. (d) "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 that secures repayment of the Loan and performance of this Agreement. (f) "Development" shall mean the Property and the one hundred eighty (180) 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. (h) "Loan" shall mean all funds loaned to Owner pursuant to the Loan Agreement. Aoril30,2002 2 (i) "Loan Agreement" shall mean the City Loan Agreement entered into by and between the City and Owner and dated of even date herewith. (j) "Lower Income Household" shall mean a household with an Adjusted Income that does not exceed the qualifying limits for 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. (k) "Low Income Household" shall mean a household whose annual gross income is more than fifty (50%) percent but does not exceed ninety percent (70%) of Median Income, adjusted for household size. (1) "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 least eighteen (18) 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. (m) "Moderate Income Household" shall mean a household whose annual gross income does not exceed ninety percent (90%) of Median Income, adjusted for household size. (n) "Moderate Income Units" shall mean the Units limited to occupancy by Moderate Income Households pursuant to Section 2.1 below. (0) "Note" shall mean the promissory note from the Owner to the City evidencing all or any part of the Loan. (p) "Owner" shall mean Dove Family Housing Associates, a California limited partnership and its successors and assigns to the Development. (q) "Property" shall mean the real property described in Exhibit A attached hereto and incorporated herein. (r) "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 security deposits; an allowance for the cost of an adequate level of service for utilities paid by the tenant, including garbage collection, sewer, water, electricity, gas and other heating, cooking and refrigeration fuel, but not telephone service; 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. Aoril30,2002 3 (s) “Term” shall mean the period of time beginning on the date of recordation of this Agreement and ending fifty-five (55) years after a Certificate of Occupancy is issued by the City for all Units. (t) “Units” shall mean the one hundred eighty (180)rental units to be constructed on the Property by the Owner, but excluding therefrom one (1) resident manager’s unit. (u) “Very Low Income Household” shall mean shall mean a household whose annual gross income does not exceed fifty percent (50%) of Median Income, adjusted for household size. (v) Very Low Income Unit” shall mean the Units limited to occupancy by Moderate Income Households pursuant to Section 2 below. ARTICLE 2 AFFORDABILITY COVENANTS 2.1 OccuDancv Requirement. Fifty-three (53) of the Units shall he rented and occupied by or, if vacant, available for rental and occupancy by Very Low Income Households and thirty-six (36) units shall he rented and occupied by or, if vacant, available for rental and occupancy by 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 monthly Rent charged the occupants of the Very Low Income Units shall not exceed one-twelfth of thirty percent (30%) of fifty percent (500/) of Median Income, adjusted for household size and the monthly Rent charged the occupants of the Low Income Units shall not exceed one-twelfth of thirty percent (30%) of sixty percent (60%) 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 ninety percent (90%) of Median Income, adjusted for household size. (b) Subject to Section 2.3(b) below, in calculating the allowable Rent for all Units, the following assumed household sizes shall be utilized Number of Bedrooms Assumed Household Size Studio One Two Three Four Aoril30,2002 1 1.5 3 4.5 6 4 2.3 Increased Income of Occuuving Households. (a) In the event, upon recertification of an 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 Low Income Household), such household's Unit shall be considered a Low Income Unit (and the Rent may be increased to one-twelfth of thirty percent of sixty percent (60%) of Median Income upon sixty (60) days written notice to the household) and the Owner shall rent the next available Unit to a Very Low Income Household to comply with the requirements of Section 2.1 above. In the event, upon recertification of an occupant household's income, the Owner discovers that a Low Income Household no longer qualifies as a 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 ninety percent (90%) of Median Income upon sixty (60) days written notice to the household) and the Owner shall rent the next available Low Income Unit to a Low Income Household to comply with the requirements of Section 2.1 above. In the event that the income of a Very Low, Low or 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, Low or Moderate Income Household as necessary to meet the requirements of Section 2.1 above. Moreover, a Unit occupied by a Very Low, Low or Moderate Income Household shall be deemed, upon the termination of such Very Low, Low or Moderate Income Household's occupancy, to be continuously occupied by a Very Low, Low or Moderate Income Household, as applicable, until reoccupied, at which time the character of the Unit shall be redetermined. (b) If 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, 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 Aoril30,2002 5 b3 with respect to the Development which have the effect of precluding occupancy of units by such prospective tenants. 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, 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 andor 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, in a form approved by the City. 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. Upon 5 days prior written request and during regular business hours, the City 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, shall permit any duly authorized representative of the City to inspect records, including records pertaining to income and household size of tenant households. Aoril30,2002 6 3.5 Welfare Reform Act ComDliance. 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. 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 Comuliance with Loan Ameement. Owner shall comply with all the terms and provisions of the Loan Agreement. 4.3 Property Tax Exemution. Owner shall only apply for a property tax exemption for the Property under Revenue and Taxation Section 214(g), and not under any other provision of law, without the City's prior written consent, which consent, shall not be unreasonably withheld. 4.4 Taxes and Assessments. 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, Low Income Households and Moderate Income Households or to Carlsbad Redevelopment 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 Aoril30,2002 7 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 Carlsbad Redevelopment Agency or the City upon receiving a written request of the Agency or the City regarding such displacement. ARTICLE 5 PROPERTY MANAGEMENT AND MAINTENANCE 5.1 Management Resaonsibilities. 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 Manaaement 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 herby approves Mercy Services Corp. as the initial Management Agent. 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 judgment that the Development is not being operated and managed Aoril30,2002 8 in accordance with any of the material requirements and standards of this Agreement, the City shall deliver written notice to Owner of its intention to cause replacement of the Management Agent, including the reasons therefore. Within fifteen (15) 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. 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 Auuroval of Management 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 Prouertv 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 places prime importance on quality maintenance to protect its investment and to ensure that all City-assisted affordable housing projects within the City are not allowed to deteriorate due to below-average maintenance. Normal wear and tear of the Development will be acceptable to the City assuming the 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, and waste material, or thirty (30) days after written notice with respect to general maintenance, landscaping and building improvements, (and subject to any stricter requirements included in any applicable City ordinance) then the City, in addition to whatever other remedy it may have at law or in equity, shall have the right to enter upon the Property and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, the City shall be permitted (but is not required) to enter upon the Property and perform all acts and work necessary to protect, maintain, and preserve the improvements and Aoril30.2002 9 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 ten percent (10%) of such expenditures, which amount shall be promptly paid by the Owner to the City upon demand. ARTICLE 6 MISCELLANEOUS 6.1 a. 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. 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 and the 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 expressly release such conveyed portion of the Property from the requirements of this Agreement. 6.3 Enforcement by the City. If Owner fails to perform any obligation under this Agreement, and fails to cure the default within 30 days after the City 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 to completion within ninety (90) days (and subject also to the notice and cure rights of the limited partner of Owner set forth in Section 7.1(1) of the Loan Agreement), the City shall have the right to enforce this Agreement by any or all of the following actions, or any other remedy provided by law: (a) Calling the 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 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. Aoril30,2002 10 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 1717 and judicial decisions interpreting that statute. 6.5 Recording and Filing. The City and the 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 Governing Law. This Agreement shall be governed by the laws of the State of California. 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. IN WITNESS WHEREOF, the City and the Owner have executed this Agreement by duly authorized representatives, all on the date first written above. BORROWER CITY Dove Family Housing Associates, a City of Carlsbad, a municipal corporation California Limited Partnership By: Community Housing of North By: County, a California Non Profit Public Raymond R. Patchett, City Manager Benefit Corporation, General Partner By: Attest: Susan M. Reynolds, Executive Director Lorraine M. Wood, City Clerk By: Mercy Properties Inc., A Colorado Approved as to Form Nonprofit Corporation, General Partner Ronald R. Ball, City Attorney Aoril30,ZOOZ 11 By: By: Jane Graf, Assistant Vice President Jane Mobaldi, Assistant City Attorney Aoril30,2002 12 70 EXHIBIT A Property Description A- 1 I\ EXHIBIT 4 I I BOND ASSUMPTIONS LnB"Amantb.*dBul. mmmm kul m @.tiad) I 70% I LOAN TO VALUE ANALYSIS -2OcB3 Ompd(n*p) horn 50% dWa TAX CREDITSYNDICATION ASSUMPTIONS ICAL ASSUMPTIONS 73 - 0 BR 2 BR 1 BR 35 JUN-27-2002 THU 09:41 AM COMMUNITY HSING NC FAX NO. 760 740 6866 _. .. . - . .. . .. - .. . . . . . .. P. 02 0 W JUN-27-2002 THU 09:42 AM COMMUNITY HSING NC .. FAX NO, 760 740 6866 P. 03 .+ -1 JUN-27-2002 THU 09:42 AM COMMUNITY HSING NC ~-~ . . . FAX NO. 760 740 6866 i i. - P. 04 I rum mo. 1 DATE: MAY 9,2002 SUBJECT: SDP 01-17 - VILLAGES OF LA COSTA AFFORDABLE HOUSING PROJECT - RECOMMENDATION OF APPROVAL TO THE CITY COUNCIL TO PROVIDE $2,070,000 IN FINANCIAL ASSISTANCE, TO ISSUE TAX EXEMPT BONDS IN AN AMOUNT NOT TO EXCEED $17,050,000, AND APPROVAL OF THE FINANCIAL, ASSISTANCE AGREEMENT AND RELATED DOCUMENTS FOR CONSTRUCTION OF ONE HUNDRED EIGHTY AFFORDABLE APARTMENT UNITS TO SATISFY THE REQUIREMENTS OF THE INCLUSIONARY HOUSING ORDINANCE FOR THE VILLAGES OF LA COSTA MASTER PLAN. I. RECOMMENDATION That the Housing Commission ADOPT Resolution No. 2002-002, recommending APPROVAL to the City Council to provide $2,070,000 in financial assistance from the Housing Trust Fund, to issue tax exempt bonds in the amount not to exceed $17,050,000, and approval of the Financial Assistance Agreement and related documents with Dove Family Housing Associates, L.P. for construction of one hundred eighty (180) affordable apartment units to satisfy the inclusionary housing ordinance requirement for the Villages of La Costa Master Plan. II. PROJECT BACKGROUND On October 23,2001, the City Council approved the Villages of La Costa Master Plan. The Master Plan allows for the development three Planning Areas known as The Oaks, The Greens and The Ridge. The Master Plan area encompasses nearly all of the vacant land in the La Costa area of Carlsbad. The build-out of this project will allow for the development of 2,390 units, 359 of which will be affordable to low-income households. The affordable units will be constructed in two separate projects, the 180-unit project that is currently before the Housing Commission, and a 179-unit project that will be developed at a later date. III. PROJECT DESCRJPTION The affordable housing apartments will be located on the north side of Alga Road, and east of El Camino Real, in what is known as Village 1.15 of The Greens Planning 77 SDP 01-17 - VILLAGES OF LA COSTA AFFORDABLE HOUSING PROJECT MAY 9,2002 PAGE 2 Area. The affordable project will be developed through a partnership known as Dove Family Housing Associates, L.P. The partnership is comprised of Community Housing of North County and Mercy Housing (Developer). The proposed 180-unit affordable apartment project consists of seven residential structures and a 5,200 square foot recreation and community building. The proposed development includes 32 one bedroom (18%), 39 two bedroom (22%); 79 three bedroom (44%), and 30 four bedroom units (16%). Of the 180 units, 54 units (30% of the project) will be affordable to households earning 50% of the San Diego County Area Median Income (AMI) while 126 units (70%) will be affordable to households earning 60% of AMI. The project will also feature laundry facilities, a “tot-lot” with playground equipment, outdoor recreation area, and 192 parking spaces. Iv. V. DEVELOPMENT TEAM The Master Developer for the Specific Plan has retained Community Housing of North County (CHNC) and Mercy Housing (Mercy) to develop the affordable housing project. CHNC, which is based in Escondido, has developed approximately 750 affordable units throughout San Diego County and has over 400 affordable units in various stages of development. Mercy is based in San Francisco and has over 40 years experience in the development and management of affordable housing. Mercy has developed 3,800 affordable apartment units throughout California. The architect for the project is Carlos Rodriguez of Rodriguez + Simon Design Associates. To date, Mr. Rodriguez has designed three affordable apartments projects in the City of Carlsbad (Rancho Carrillo, Laurel Tree and Vista Las Flores). 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 $25 million, not including the cost of the land, the average unit cost of $140,000 is generally consistent with typical affordable multi-family development withii the City. 8. Undue Gain It is important that any fmancial 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 $1,200,000, or approximately 5% of total project costs. The Developer is proposing that they receive 75% of the developer fee ($900,000) during the construction of the project. The remainder of the fee, $300,000, would be repaid over the first ten years from income derived from the operation of the project. Staff feels that the 0 SDP 01-17 -VILLAGES OF LA COSTA AFFORDABLE HOUSING PROJECT MAY 9,2002 PAGE 3 developer fee is within acceptable limits for a project of this size and affordability. Further, the deferral of 25% of the developer fee is consistent with previous recommendations adopted by the Housing Commission for similar projects. 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 $17 million from the bond issuance and will raise $7.5 million through the sale of the tax credits. Under this scenario, staff is recommending the City provide $2,070,000 in financial assistance with the understanding that the Master Developer will provide $4.3 million in financial assistance and $8.1 million in land contribution. Under this option, the City’s $2,070,000 million assistance equates to $11,500 per affordable unit. The $11,500 per unit is larger than what has been previously approved for similar projects. In general, the City has provided $10,000 per unit for similar projects. However, staff believes that the greater amount of assistance is warranted for two reasons. First, the Inclusionary Housing Ordinance requires that 10% of the project contain three bedroom units. With over 60% of project containing large bedroom units, the project far exceeds this requirement. According to the City’s Consolidated Plan, large bedroom rental units (3 or more bedrooms) are the City’s greatest need. Second, because of the large number of three and four bedroom units, the cost of constructing this project is greater than it would be if the project contained primarily one and two bedroom units. The higher assistance amount recognizes these increased costs. The following is a summary of the sources and uses of funds based on the estimated development costs and the proposed financing structure. The developer’s detailed proforma is attached as Exhibit 2: As noted previously, the initial amount of the bond issuance will not exceed $1 7,050,000. When the project is constructed, the Developer will utilize bond proceeds, a construction loan, Master SDP 01 - 17 - VILLAGES OF LA COSTA AFFORDABLE HOUSING PROJECT MAY 9,2002 PAGE 4 Developer Contributions and the City Contribution to fund the construction of the improvements. When the improvements are completed and the project is occupied, funds from the tax credit investor will be paid to the Developer. Those funds will be utilized to pay off a portion of the bonds. The principal amount of the bonds will be reduced to approximately $10.6 million and will be repaid during the first 30 years of the operation of the development. 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 after the completion of construction of the improvements. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from cash surplus 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 $4.7 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. 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. Finally, the position of City and other subordinated financing is a feature that helps attract the necessary private financing. VI. L A copy of the draft Financial Assistance Agreement and related documents are provided as exhibits (Exhibit 3) to this report for review by the Housing Commission. The %% SDP 01-1 7 - VILLAGES OF LA COSTA AFFORDABLE HOUSING PROJECT MAY 9,2002 PAGE 5 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. WI SUMMARY AND STAFF RECOMMENDATION It is the role of the Housing Commission to make financial assistance recommendations to the City Council based on several considerations with respect to affordable housing projects. These are: 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. The proposal's consistency with the City's affordable housing policies and ordinances as expressed in the Housing Element and Inclusionary Housing Ordinance. The proposal's development and operating feasibility, emphasizing the development team capacity, financing sources and the role of the City in providing fmancial assistance or incentives. The Villages of La Costa 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 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 (staflJ recommendation that the Housing Commission approve the resolution of support recommending to the City Council the following: 1) fmancial assistance in the amount of $2,070,000; 2) approval of the Financial Assistance Agreement and related documents in substantially the form presented and subject to approval by'the City Attorney; 3) that the City of Carlsbad issue tax-exempt bonds in an amount not to exceed $17,050,000. Vm. EXHIBITS 1. Housing Commission Resolution No. 2002-002 2. Proforma 3. Draft Financial Assistance Agreement, Loan Agreement, Deed of Trust, and Regulatory Agreement. DRAFT EXHIBIT 6 Minutes of: HOUSING COMMISSION Time of Meeting: 6:OO P.M. Date of meeting: May 9.2002 Piace of Meeting: HOUSING AND REDEVELOPMENT DEPARTMENT OFFICE CALL TO ORDER Vice-chairman Scarpelli called the Regular Meeting to order at 6:lO p.m. PLEDGE OF ALLEGIANCE Board Member Ritchie led the pledge of allegiance. ROLL CALL Present: Absent Commissioners: C. Charles Grimn Renee Huston Doris Ritchie Edward Scarpelli Chairperson: Roy Latas Staff Present: Housing and Redevelopment Director: Debbie Fountain Management Analyst: Craig Ruiz APPROVAL OF MINUTES Minutes not available for last meeting. COMMENTS FROM THE AUDIENCE ON ITEMS NOT LISTED ON THE AGENDA There was no audience in attendance, which wished to speak at this time. NEW BUSINESS Vice-chairman Scarpelli announced the agenda item on Villages of La Costa and requested the staff presentation. Mr. Ruiz stated that the project before the Commission is the Villages of La Costa Affordable Project, and more specifically the city’s financial assistance for the project. Mr. Ruiz described the location of the proposed project with use of a map as part of staffs slide presentation. Mr. Ruiz continued that this project is going to consist of 180 units, 32 one-bedrooms, 39 two- bedrooms, 79 three-bedrooms and 30 four-bedroom units. The inclusionary housing ordinance requires that 10% of the project have at least three-bedrooms units that would be 18 units in the project. The project clearly exceeds that requirement, over 60% of the project being large bedroom units, which is the greatest need of the city. It exceeds it by roughly six times. The rent levels in this project: 30% of the project is going to be 50% of the area median or 54 of the units and 126 or 70% of the project is going to be at 60% of the area median. For example: a one- at 60% of AMI would be about $820; a three-bedroom unit at 50% would be about $800 a month bedroom unit at 50% of median income is going to be roughly $535.00 a month; the two-bedroom and then the four-bedroom at 60% would be about $1 100 a month. This is based on the 2002 income limits. They have about an 18-month construction schedule so this project will be complete in July 2004. He stated that the income figures will be higher at that time, therefore, the rents will probably be anywhere from 3 to 5 percent higher, based on what has happened in the past. This is just to give you an idea of what the rents are going to be in this project. Commissioner Ritchie asked Mr. Ruiz: What median income are we looking at? HOUSING COMMISSION MINUTES MAY 9,2002 PAGE 2 of 7 Mr. Ruiz answered, we use the San Diego county median so if you take the one-bedroom example, then the household there is going to earn half the county median or 50% of the area median. dollars, and that doesn’t include the cost of the land. The bonds for the project are going to Mr. Ruiz continued, in terms of the project financing, this project is going to cost about $25 million provide 10.6 million roughly. Tax credit financing is going to be about 7 X million dollars. The developer is contributing the land and that has an estimated value of approximately 8 million dollars. There is going to be a cash contribution of 4.3 million dollars from the Master Developer. City staff is recommending that the City’s contribution be $2,070,000. The bond amount, as you noticed in your staff report, says it is going to be in an amount not to exceed $17,000,000. Initially, the bond amount will be somewhere less then $17,000,000. It won’t exceed that amount, and that amount will be outstanding for maybe 18 months during the period of construction. Depending on what type of construction financing, that number could come down even lower. As the project completes construction, there will be an infusion of cash into this project so the permanent loan amount, which will be over 30 years outstanding, will start out at 10.6 million. As far as the city’s contribution, the 2 million dollars works out to $11,500 a unit. For those commissioners who have been on the Commission for a while, what we have seen in the past is about $10,000 a unit, so this will be a little bit higher then we have recommended in the past. The reason we are recommending the higher amount is based on the fact that they are putting in so many large bedroom units. As we said, 60% of the project is going to be three- and four-bedroom units. We feel the higher amount is warranted based on the project. the project cost. $300,000 of that is going to be deferred during construction. The developer will Mr. Ruiz continued, the developer fee is going to be 1.2 million dollars. That is going to be 5% of actually receive that money back during the first ten years in operation of the project. The 1.2 million works out to roughly 5% of the project cost. In previous projects, we have seen the can receive through the tax credit program and is acceptable to the City. developer’s fee set at about 7 to 8% of the total project cost. 1.2 million is the maximum that they Commissioner Huston asked what the point of the developer fee is Mr. Ruiz answered that he’ll let the applicant answer that, but generally it is the profit they (the what the proforma says. developer) make. The fee also covers any cost overruns or anything like that over and above Vice-chairman Scarpelli stated he thinks it‘s more overhead and supervision then it is profit. Mr. Ruiz continued his presentation by indicating that the City’s assistance will be provided in the form of a residual receipts loan. What that means is that the City’s loan will be paid with net cash flow from the project. When the revenues exceed the expenses, there is net cash flow. Per the terms of the loan, 70% of the net cash flow money is going to pay the city back and 30% will go to the development team. That is standard with what we’ve done with all of the previous projects. The security will be in the form of a note and a deed of trust. Mr. Ruiz explained that there are actually four documents that the commission is going to be recommending on: 1) the loan agreement, 2) the note, 3) the deed of trust, and 4) the regulatory agreement. Just for a quick review: The loan agreement, as you see in the packet, spells out the term of the loan. The note is the developer’s pledge to repay the loan. The deed of trust is recording our security against the improvement in the property. Then the regulatory agreement ensures the affordability requirements are maintained for the required 55-year period of the project. HOUSING COMMISSION MINUTES PAGE 3 of1 MAY 9,2002 Mr. Ruiz continued, our recommendation to you tonight is that you recommend to the City Council three things. The financial assistance in the amount of $2,070,000, Recommend approval of the loan documents, specifically the loan agreement, the note, the deed of trust and the regulatory agreement. Lastly, recommend approval for the City to issue tax-exempt bonds in an amount not to exceed $17,050,000. The applicant is here and is going to do a presentation and talk more about the development team and their history and experience as well as go into a little more of the design. That concludes my portion. Do you have any questions? Vice-chairman Scarpelli indicated that there were no questions and to go ahead and proceed with developer presentation. Let me introduce myself, I am Ann Wilson, and I am the Director of Housing Development for Community Housing of North County. Behind me is Dave Ricker, the Project Manager, on this project in La Costa. I am here today to talk on behalf of the developerlfuture owner of the project. Ms. Wilson states the history of this development is that it started with the Villages at La Costa, which is a large master planned community. As required by Carlsbad's inclusionary housing ordinance, the master developer has set aside certain parcels of land for affordable housing. This developer selected a partnership, which consists of community housing of North County and is the first phase of their development and the first phase of the affordable housing. The Mercy Housing California as the affordable housing developer. The site is located at the corner just off of El Camino Real and Alga Road. partnership to build, own and operate this project. We have 54 years of combined development Ms. Wilson continues, Community Housing and Mercy Housing have come together as a experience. We are very experienced at obtaining tax credits, city and local and other funding, and in devising partnership structures to own and manage properties like these. Mercy Housing has it's own property management entity that is quite substantial and is going to manage the property. Both organizations have national and statewide reputations as amongst the top affordable housing developers in the State of California and have won many national and statewide awards for both our designs and our programming and the way we manage the property. Community housing itself has fourteen years of history. We are based in north county San Diego. Our offices are in Escondido. We have done developments from Oceanside, now Carlsbad, Fallbrook down to San Diego proper, Lakeside, so we developed and owned properties all over the county. We have over 700 units in our portfolio now, and 500 more units in what we call the development pipeline in some form of development right now. Vice-chairman Scarpelli asked if the noted unit counts are inclusive of these noted tonight? for our commitment to operate safe and high quality housing for lower income families and Ms. Wilson answered, yes. Both organizations are mission-based organizations. We are known working families. We have strong resident services components. We are well known for having programming in our developments, after school study groups, and other supports on our properties. Vice-chairman Scarpelli asked if that is anticipated in this particular project, Ms. Wilson said yes. Dave will speak more on that. She continued that to give a sense of some of the other developments they have done, she will show slides of various projects completed by Community Housing. Ms. Wilson proceeded with a slide show of projects and described each to the Commision. HOUSING COMMISSION MINUTES MAY 9,2002 PAGE 4 of 7 Ms. Wilson said Mercy Housing California is a California based portion of a national organization. Orange is where the partnership is coming from, and they own about 4,000 units of rental property It has four offices in the city of Orange, San Francisco, Santa Cruz. and Sacramento. The city of and they manage them throughout California. They’ve got 40 properties, about 2,000 units in their pipeline, and they have also done over 2,000 units of for sale homes for home ownership in orders of the sisters of mercy, which is a Catholic order of nuns and that order is based in northern California. Mercy is also a mission-based organization. They were formed by eight Colorado, and they decided that housing was just more and more a problem for the people that they served in their communities and they actually established quite a real estate division, so you’ve got to admire the sisters who founded Mercy Housing. It is a very well recognized and very solid organization. Ms. Wilson proceeded with a slide show of housing projects completed by Mercy Housing. over to Dave Ricker, the project manager who has been working with Fred Arbuckle and the other Ms. Wilson indicated that the slide show represented just some examples. I am going to turn it folks on this proposed project. asset to the City of Carlsbad. Mr. Ricker is a resident of the City of Carlsbad. and is very happy to Dave Ricker thanked the commissioners for the opportunity to present their project. This is a real see that this city is foresighted enough to have an inclusionary ordinance. As noted before, the project is located at El Camino and Alga, but it seems the best description is behind the Crazy neighborhood of 18 units per acre, 180 units altogether. Burro. It is a pad that will be 12.7 acres in size, so the density on the site is right in the We have got a mixture of sizes. There are 32 one-bedrooms, and as you can see, they are fairly good size units. 750 to 850 square feet. 39 two-bedrooms that are 896 to over 1,000 square feet for a two-bedroom unit. 79 three-bedroom units that range from over 1,000 to nearly 1,100 square feet and 30 four-bedroom units at 1,354 square feet. Mr. Ricker continued, when we first started to plan this, we talked to Debbie and Craig and got their input that this was the biggest need in the community was for large bedroom rental units. We then went out and did a market study that proved it was the biggest need. There are no four- bedroom units on the market. The only four-bedroom units that are out there are in Laurel Tree and a few in some of the other affordable housing, but with huge waiting lists. He presented the elevations. All of these buildings are U-shaped. He showed different views. This will house all the three and four-bedroom units. They are three stories; they are not elevator serviced. They are all stairways. These are basically for young families. They bring to the facility they will have space for upwards to 16 computers for the learning center. Kids will come in communities a sense of community and a lot of resident services. In the community service there after school and get after school-enhanced programs to help them with their homework. There will be access to the internet for the kids and the adults. There will also be an exercise facility. This will look in all respects like a market rate project. The project is very close to schools; it is less then a half mile to Aviara Oaks and the Aviara Middle School, which right now are the school boundaries, but the tenants will sign an acknowledgement that the school district determines where their kids go to school. It is a good to shopping and very close to transportation. opportunity to go to a Carlsbad Unified School District school. Obviously the project is very close With the impact on the schools, are the students going to be going to other areas? Commissioner Ritchie asked about the schools. There are a lot of young families in these units. HOUSING COMMISSION MINUTES MAY 9,2002 PAGE 5 of 7 Mr. Ricker said they are working with the school facility director to assure that the school within the Villages of La Costa development will be on-line or will be on-line in a short period of time. Commission Ritchie asked if the two will come together. Mr. Ricker answered, yes the two are intended to come together. There is a new school being negotiated in the greens. Another elementary school so the attendance boundaries will change. There will be two solid years before there is an impact. The impact will start during the summer unless it is year-round school, and I don’t think we have year-round schools in Carlsbad. It will be that ready. As far as he knows, this is the only new development that is going to be coming on- actually the fall of the subsequent years, and there is almost three building years for them to get line in about this time. Vice-chairman Scarpelli said that the other concern would be the children crossing El Camino Real, which is quite broad at that point. Has that been addressed in any way? Mr. Ricker answered that it is a controlled intersection, and we would have to find some way to deal with the traffic folks on that, but it is a separate issue. Because of their closeness to the school, they do not warrant busing which would be the first choice. Vice-chairman Scarpelli said he was thinking the foot traffic specifically of the children. Wouldn’t they be crossing the light at El Camino and Alga? Mr. Richter said they would either be crossing there or up at El Carnino Real and Dove. Commission Scarpelli said okay. Mr. Ricker said that he appreciated Commission Scarpelli bringing that concern up because it is something that can be addressed in discussions with the school district. Mr. Ricker continued his slide show presentation. He showed the community facility. There is a huge green area space here about 15,000 square feet of open green space so it will facilitate a lot of internal activity. These two designs that you will see here are little courtyards that are in each one of the building sections that also act as small little ancillary places for people to gather and play. This is another view of the residential buildings. Mr. Ricker asked if anyone had any questions. Vice-Chairman Scarpelli asked about the density for building. Do you have any numbers on that as far as individual builldings? Mr. Ricker answered: Per building, no he doesn’t have that. There are a total of 467 bedrooms. Vice-chairman Scarpelli commented that they appear to be quite large size buildings. He was just wondering how many people were in there. Mr. Ricker introduced Mr. Rodriguez, the architect for the project. Mr. Rodriguez said they are U-shaped buildings. Actually there are three buildings that are linked with a walkway system and a bridge system. So this building, even though we are calling it one together. This U-shaped building has 33 units. Then we have two smaller buildings here, and this building, is one structure and this is another structure, and then we have the bridge that ties them one has 7 units and this one has 6 units. HOUSING COMMISSION MINUTES MAY 9,2002 PAGE 6 of 7 Vice-chairman Scarpelli thanked Mr. Rodriguez. Vice-chairman Scarpelli asked the Commissioners if they had any questions that they would like to ask or anything to discuss in particular. all my questions. commissioner Ritchie commented that she felt the presentation was vety well done. It answered Vice-chairman Scarpelli said okay if there are no further questions, 1’11 ask for a motion on the resolution. ACTION: Motion by Commissioner Ritchie that the Housing Commission adopt resolution 2002-02 recommending approval to the City Council to provide $2, 070,000 in financial assistance from the Housing Trust Fund, to issue tax exempt bonds in the amount not to exceed $17,050,000 and approval of the financial assistance agreement and related documents with Dove Family Housing Associates LP for construction of 180 affordable apartment units to satisfy the inclusionary housing ordinance requirement for the Villages of La Costa master plan. VOTE: AYES: 4-0-0 Huston, Ritchie, Griffith and Scarpelli ABSTAIN: NOES: None None ABSENT: Latas DIRECTOR REPORT: coming forward that will have a financial assistance request. It is the Calavera Hills project. Not Debbie Fountain shared information on other affordable projects. We have another project too long ago there was a project approved by the City Council, the Thompson Tabata project which is going to be a for sale town home project. This project will probably be asking for financial assistance as well. There are quite a few projects in the planning stages. Sunny Creek was an apartment approved several years ago, and it is under construction right now, and they are expecting to be completed by this summer and start having people move in. That was a 50 apartment unit project. Commissioner Griffin inquired as to where it is located the east side of El Camino Real. Debbie Fountain answered it is right off of El Camino Real, just past College; the intersection on Commissioner Scarpelli stated that it is just south of Rancho Carlsbad. Debbie Fountain agreed. That project is moving forward which his pretty exciting. Actually, that project is not requesting any financial assistance so the commissioners will probably just be invited to the grand opening. Commissioner Scarpelli inquired as to who is managing the project. Debbie Fountain answered it is actually a partnership; we are not quite sure yet who the manager is going to be, but the developer of the Sunny Creek project is actually going to be the owner. HOUSING COMMISSION MINUTES MAY 9,2002 PAGE I of 7 Also Kelly Ranch project is moving forward, that is going to have affordable housing apartments in it as well Vice-chairman Scarpelli asked who the developer is. Debbie Fountain said it is Archstone Communities that is the owner of the property now. Shea Homes will actually be buying the single-family homes, but Archstone will be developing the apartment project and owning and managing it. Even though not as many projects are being brought to you, a lot of the past projects that have been already approved are moving forward, which is pretty exciting to see. Commissioner Ritchie said that is very exciting. Vice-chairman Scarpelli said the only issue of concern on this project again is the foot traffic of children crossing El Camino Real. Commissioner Huston said you know they will be using it with the activities with children. Vice-Chairperson Scarpelli agreed. Aviara Oaks and the middle school are both on the west side of El Camino Real, obviously, so that is something I’m sure will be addressed, but it is a concern of mine. That is such a wide intersection with all those turn lanes and everything. So I’m sure City Council will be looking into that as well as the school district. Commissioner Ritchie asked if the new school would be built by the time this opens? Vice-chairman Scarpelli said not for at least another couple of years. Commissioner Ritchie commented that maybe we won’t have to worry about that. Let‘s be optimistic. Vice-chairman Scarpelli commented he did not want to detract from the project. The safety issue may be a concern to those in power. The director has already made the report. ADJOURNMENT By proper motion, the Regular meeting of May 9,2002 was adjourned at 6:45 p.m. Respectfully submitted, Debbie Fountain Housing and Redevelopment Director PATRICIA CRESCENT1 Minutes Clerk MINUTES ARE ALSO TAPED AND KEPT ON FILE UNTIL THE WRITTEN MINUTES ARE APPROVED. b : z 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 2 2: 2: 2d 2t 2.5 27 28 EXHIBIT 7 HOUSING COMMISSION RESOLUTION NO. 2002-002 THAT THE HOUSING COMMISSION RECOMMEND APPROVAL TO THE CITY COUNCIL OF $2,070,000 IN FINANCIAL ASSISTANCE FROM THE HOUSING TRUST FUND, TO ISSUE TAX EXEMPT BONDS IN AN AMOUNT NOT TO EXCEED $17,050,000, AND APPROVAL OF THE FINANCIAL ASSISTANCE AGREEMENT AND RELATED DOCUMENTS WITH DOVE FAMILY HOUSING ASSOCIATES, L.P. FOR CONSTRUCTION OF ONE HUNDRED EIGHTY (180) AFFORDABLE APARTMENT UNITS TO SATISFY THE INCLUSIONARY HOUSING ORDINANCE REQUIREMENT FOR THE VILLAGES OF LA COSTA MASTER PLAN. APPLICANT: DOVE FAMILY HOUSING ASSOCIATES, L.P. CASE NO: SDP 01-17 WHEREAS, the Master Developer of the Villages of La Costa Master Plan, al Estate Collateral Management Company, has proposed to construct 180 Iartment units affordable to lower income households as a means to satisfy a xtion of their affordable housing obligation as permitted by Carlsbad Municipal ode Section 21.85 of the City’s Inclusionary Housing Ordinance; and WHEREAS, the proposal to construct said units has been submitted to the ity of Carlsbad’s Housing Commission for review and consideration; and WHEREAS, said Housing Commission did, on the 9* day of May, 2002, hold public meeting to consider the request for City financial assistance for the 1 construction of said 180 affordable housing apartment units by the affordable housing developer, Dove Family Housing Associates, L.P.; and WHEREAS, upon healing and considering all testimony, if any, of all persons desiring to be heard, said Commission considered all factors relating to the proposal to construct said affordable housing units. NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing Commission of the City of Carlsbad, California, as follows: 1. The above recitations are true and correct. 1 1 1: 1: 1, 1: 1( 1: 11 15 2( 21 22 23 24 25 26 21 28 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 5 7 % P I II HC RESOLUTION NO. 2002-002 PAGE 2 2. 3. 4. The request for City financial assistance is consistent with the goals and objectives of the City of Carlsbad’s Housing Element, Consolidated Plan, the Inclusionary Housing Ordinance, and the Carlsbad General Plan. The request for City financial assistance will assist the affordable housing developer to construct a total of 180, one, two, three, and four bedroom affordable apartment units which will be affordable to households at 50% and 60% of area median income. The project, therefore, has the ability to effectively serve the City’s housing needs and priorities as expressed in the Housing Element and the consolidated Plan. That based on the information provided within the Housing Commission Staff Report and testimony presented during the public meeting of the Housing Commission on May 9, 2002, the Housing Commission hereby ADOPTS Resolution No. 2002-002, recommending APPROVAL to the City Council to provide up $2,070,0000 in financial assistance f?rom the City of Carlsbad’s Housing Trust Fund to Dove Family Housing Associates, L.P., and for the City to issue tax-exempt bonds in an amount not to exceed $17,050,000 for the construction of one hundred eighty (180) affordable apartment units to help satisfy the requirements of the Inclusionary Housing Ordinance for the Villages of La Costa Master Plan. *.*.*.*.* I ! I( 1: 1: 1: 1' If It 1; 11 IS 2c 21 22 23 24 25 26 27 28 5. That the Housing Commission recommends that the City Manager or his or her designee be authorized by the 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 the form presented to the Housing Commission on May 9, 2002, and subject to review and approval by the City Attorney. PASSED, APPROVED, AND ADOPTED at a meeting of the Housing Commission of the City of Carlsbad, California, held on the 9" of May, 2002, by the following vote, to wit: AYES: Vice-Chairperson Scarpelli, Commissioners Huston, Griffin and Ritchie NOES: ABSENT ABSTAIN: n DEBORAH K. FOUNTAIN HOUSING AND REDEVELOPMENT DIRECTOR HC RESOLUTION NO. 2002-002 PAGE 3 EXHIBIT 8 L- LA COSTA GREENS AFFORDABLE SITE SDP 01 -1 7 TELEPHONE MESSAGE July 9, 2002 TO: MAYOR CITY COUNCIL FROM: JACK HENTHORNE PHONE: 438-4090 ext. 101 RE: AGENDA ITEM #9 Jack called on behalf of Fred Arbuckle who is out of the country and will not be at the Council Meeting tonight. Fred asked him to contact the Council to see if you have any questions on Agenda Item #9 (Approval of City Financial Assistance for the Villages of La Costa Affordable Housing Project). Jack indicated that if you do, to please call him. He will also be at the Council Meeting this evening, but is not planning to speak. mhs c: City Manager City Attorney City Clerk