HomeMy WebLinkAbout2021-12-09; La Costa Paloma Bond Redemption and Reissuance (District 3); Barberio, GaryTo the members of the:
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Dec.9,2021
To:
From:
Via:
Council Memorandum
Honorable Mayor Hall and Members of the City Council
Gary Barberio, Deputy City Manager, Community Services
Laura Rocha, Deputy City Manager, Administrative Services
Mandy Mills, Housing and Homeless Services Director
Ryan Green, Finance Director
Geoff Patnoe, Assistant City Manager @
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Carlsbad
Memo ID #2021222
Re: La Costa Paloma Bond Redemption and Reissuance (District 3)
Background
In 2002 the City Council approved a financing package for the La Costa Paloma affordable
housing project (project). The project consists of 180 apartment units affordable to households
between 30% and 70% of the area median income. The project, located at the northwest corner
of Alga Road and Estrella de Mar Road, satisfied the inclusionary housing requirement for the
first phase of the Villages of La Costa Master Plan.
As part of the financing package the City Council approved two loans. One for over $2 million
was funded from the Housing Trust Fund and has since been fully repaid. One was funded
through the issuance of $20 million in tax exempt bonds by the City of Carlsbad and remains
outstanding.
Discussion
The project owner, Dove Family Housing Associates, is pursuing a refinance of the project. The
new financing will replace the existing loan that was funded by the tax exempt bonds. This will
result in a prepayment or redemption of the outstanding bonds. The city is not being asked to
be a party to the new loan, but, as the Issuer of the bonds, has a role related to the bond
redemption.
In addition, the project is subject to two regulatory agreements, one for each loan. The
regulatory agreements require the project to meet minimum affordability requirements and
remain in effect notwithstanding a repayment of their associated loans. The regulatory
agreement for the Housing Trust Fund loan will remain in effect for another 37 years. As is
customary, this agreement is currently subordinate to the existing senior lender's lien and it is
required to be subordinate to the new senior lender's lien. However, the subordination
agreement will include provisions allowing the city an opportunity to protect its interests
should there be a loan default.
Community Services Branch
Housing & Homeless Services Department
1200 Carlsbad Village Drive I Carlsbad, CA 92008 I 760-434-2810 t
Council Memo -La Costa Paloma Bond Redemption and Reissuance 2021 (District 3)
Dec. 9, 2021
Page 2
The regulatory agreement for the loan funded by the bond issuance will remain in effect for
another 37 years. It is not subordinate to a senior lender's lien. After reviewing the terms of
the regulatory agreements and the proposed new subordination agreement, staff do not
believe the loan refinancing will affect the project's existing affordability requirements.
The possibility of subordination, early loan repayment, and bond redemption were
contemplated by the package of documents approved by the City Council when the existing
financing was approved. The resolution approving the documents and the documents
themselves provide the City Manager with authority to handle these matters on behalf of the
city. Accordingly, staff do not anticipate the need for City Council action to complete the
refinancing transaction.
· Fiscal Analysis
The initial sale of the bonds did not impose a fiscal obligation on the City of Carlsbad, nor was
the city obligated in any way to repay the bonds because the loan was secured by the property.
Similarly, the proposed redemption does not impose any additional finanicial risks to the city,
and necessary financial advisor and bond counsel costs associated with the refinancing will be
reimbursed to the city.
The city's Affordable Housing Trust Fund receives an annual fee equal to one eighth of one
percent (.125%) ofthe total bond issuance, or $25,000, to recover staff costs associated with
project monitoring. Upon bond redemption, the city has the option to continue to receive
annual payments or to receive a one-time, lump-sum payment equal to the net present value of
all remaining fees. With the low interest rate market and in an effort to reduce the risk of
nonpayment, the city has opted to receive the one-time lump-sum payment.
Next Steps ,
City staff, including the City Attorney's Office, and the city's outside advisors are reviewing
documents, calculating the present value of the administrative fee prepayment, and
participating in meetings. Staff will present a package of documents to the City Manager for
execution later in December for an anticipated loan closing date of Dec. 30, 2021, and a loan
repayment date of Jan. 3, 2022.
cc: Scott Chadwick, City Manager
Celia Brewer, City Attorney
Cindie McMahon, Assistant City Attorney