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HomeMy WebLinkAbout2007-03-20; Housing & Redevelopment Commission; 397; Glen Ridge Affordable Houseing ProjectHOUSING AND REDEVELOPMENT COMMISSION - AGENDA BILL 1 397AB# MTG. DEPT. HRED 3-20-07 APPROVAL OF COMMISSION FINANCIAL ASSISTANCE AND RELATED DOCUMENTS FOR THE GLEN RIDGE AFFORDABLE HOUSING PROJECT DEPT. HEAD, CITY ATTY. CITY MGR. 435 RECOMMENDED ACTION: That the Housing and Redevelopment Commission adopt Resolution No. APPROVING a request to provide financial assistance to Chelsea Investment Corporation in the form of a residual receipts loan of $1,014, 000 from the Redevelopment Agency Housing Set-Aside Fund and to approve the related loan documents for construction of seventy-eight (78) affordable apartment units within the Robertson Ranch Master Plan Development. ITEM EXPLANATION: Affordable Housing Project Description On March 6, 2007, the City Council approved a Site Development Plan (SDP 06-04) allowing for the development of seventy-eight (78) affordable apartment units within the Robertson Ranch Master Plan development. This project, the Glen Ridge Apartments, will be located on a 4.74 acre parcel that is currently referred to as Planning Area 15 in the East Village of Robertson Ranch. It is located on the north side of Cannon Road, east of future Wind Trail Road and south of future Glen Avenue. This project will represent Phase I of the affordable housing development required for the Robertson Ranch Master Plan development. The Glen Ridge Apartments will be developed by Chelsea Investment Corporation. This will represent the third affordable housing development to be constructed and operated by Chelsea Investment Corporation within the City of Carlsbad. They also own and operate the Mariposa Apartments (within Calavera Hills) and the Hunter's Point Apartments (under construction within the Villages of La Costa). The Glen Ridge Apartments will consist of three, three-story apartment buildings, a one-story leasing office, and a 3,860 square foot recreation area. The development includes 17 one- bedroom (22%), 29 two-bedroom (37%) and 32 three-bedroom (41%) apartment units. Units will range in size from 697 square feet for the one-bedroom units, 959 square feet for a two- bedroom unit, and 1,041 square feet for a three-bedroom unit. The 1,047 square foot leasing office will include 700 square feet of interior recreation area in the form of a community room and computer room for the residents. DEPARTMENT CONTACT: Debbie Fountain 760-434-2815 dfoun@ci.carlsbad.ca.us FOR CITY CLERKS USE ONLY. COMMISSION APPROVED ACTION: DENIED CONTINUED WITHDRAWN AMENDED D D D D CONTINUED TO DATE SPECIFIC CONTINUED TO DATE UNKNOWN RETURNED TO STAFF OTHER - SEE MINUTES D. D D D Page 2 One significant feature of this project is the proposed utilization of State of California Multifamily Housing Program Funding (MHP). The MHP program is a competitive statewide loan program that provides funding for affordable housing developments. In exchange for the loan, the MHP program requires the Developer to rent 27 units at levels affordable to households earning 35% of the State Median Income (SMI). SMI is approximately 1% higher than the San Diego County Area Median Income. The remainder of the project, 51 units, will be affordable to households earning 50 to 55% of the San Diego County Area Median Income. The initial net monthly rents will range from approximately $420 for a one bedroom unit to $936 for a three bedroom unit. Thus, this project will provide 67% of its units affordable to households at some of the very lowest incomes in Carlsbad. Financial Assistance As part of the project financing, the Developer is requesting that the City provide a residual receipts loan in the amount of $1,014,000, or $13,000 per unit, from the Redevelopment Agency Low and Moderate Income Housing Set-Aside Fund. 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. Uses and Sources of Funds The total cost of the Glen Ridge Apartments is estimated to be $25 million, inclusive of the value of the land. Based on a detailed review of the costs, staff has found that the costs are reasonable and the total per unit cost of $320,933 is generally consistent with more recent affordable multi-family developments within the City. The following chart provides a breakdown of the project costs, or uses of funds U$ESn0FPIJNDS^ -:- '* '^- v r/'5-W!IR^:" \ v'^' '• ''iHlS^W".:- 7*5 Expense Land (incl. escrow costs, etc.) Consultants Local Permits & Fees Construction - Hard Costs Development (incl. reserve & contingency) Developer Fee Lender Fees, Interest & Costs Total Uses of Funds • Total Amount $4,556,000 $964,405 $1,623,015 $12,755,472 $1,238,964 $2,500,000 $1,394,931 $25,032,787 Per Unit Cost $58,410 $12,364 $20,808 $163,532 $15,884 $32,051 $17,884 $320,933 The following chart provides a breakdown of the permanent sources of funds for the proposed development. The three primary sources of funding for the proposed project are 1) proceeds from the sale of tax credits to a limited partnership; 2) proceeds from tax-exempt multi-family revenue bonds; and 3) proceeds from the State of California Multifamily Housing Program. The Master Developer of Robertson Ranch East Village (McMilin Development) will contribute the land (valued at $4.5 million) and cash in the amount of $1,000,000 to the project, for a total contribution of $5,446,000. The Affordable Housing Developer is requesting that the City contribute a total of $1,014,000 to the project. The City's proposed contribution of $13,000 per unit will be repaid through future surplus cash generated from project operations. Page 3 •; . •'•:?•' "••','• •>•:&. 't-'3i*eRi^EN^si»iitiiS^irWNDt''; ;•-••' •-•* •-/ • • • -.- • Source Tax Credit Investor Equity Tax-Exempt Bonds/Permanent Loan MHP Loan City Contribution Deferred Developer Fee Master Developer Contribution Total Sources of Funds Total Amount $8,768,000 $3,487,000 $5,921,777 $1,014,000 $396,010 $5,446,000 ;$25,032,787 Per Unit $112,410 $44,705 $75,920 $13,000 $5,077 $69,821 '?>;••>''' • ' ' ' $320,933 Financial Assistance Documents As proposed, the City assistance ($1,014,000) will be provided in the form of a residual receipts loan secured by a note and deed of trust. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from surplus cash 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 terms of the City assistance is the same loan structure that was utilized for each previous affordable housing project developed in the City of Carlsbad. In order for the project to receive the $1,014,000 loan, the Developer is required to enter into loan and regulatory agreements with the City of Carlsbad. These agreements and related documents are 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 and Regulatory Agreement that are all attached as Exhibit 4 for review. These documents are explained below: 1. Loan Agreement states the terms and conditions relating to the City's loan. 2. Regulatory Agreement records the terms of affordability and the 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. It is important to also note that the City will ultimately be required to subordinate the subject documents to the senior lien holder. If approved, the attached resolution authorizes the City Manager, or his designee, to execute subsequent subordination agreements. While the subordination documents will not return to the City Council for review, Staff will take the necessary steps to insure 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, acting as legal counsel for the Housing and Redevelopment Commission and Carlsbad Redevelopment Agency. Page 4 HOUSING COMMISSION RECOMMENDATION ON FINANCIAL ASSISTANCE At their meeting on January 11, 2007, the Housing Commission reviewed the request from the Developer for financial assistance in the amount of $1,014,000. The Commission recommended (4-0) that the City Council approve the loan in the amount of $1,014,000 from the Redevelopment Agency's Low and Moderate Income Housing Set-Aside Fund. STAFF RECOMMENDATION The proposed request for financial assistance was reviewed by the Housing Policy Team (staff). The Team also recommends that the City Council adopt the attached resolution to authorize financial assistance for the Glen Ridge Affordable Apartment Project, as recommended by the Housing Commission. ENVIRONMENTAL REVIEW The Glen Ridge affordable apartment project was reviewed pursuant to the California Environmental Quality Act (CEQA). Staff analyzed the project and has concluded that no potentially significant impacts would result with the implementation of the project that were not previously examined and evaluated in the certified Final Program Environmental Impact Report for the Robertson Ranch Master Plan (EIR 03-03), dated April 2006, BRG Consulting Inc. EIR 03-03 evaluates the potential environmental effects of the development and operation of the "Robertson Ranch Master Plan" and associated actions inclusive of the proposed affordable housing project. The City Council certified EIR 03-03 on November 14, 2006. At that time CEQA Findings of Fact, a Statement of Overriding Considerations, and a Mitigation Monitoring and Reporting Program were approved. The EIR 03-03 "Findings of Fact and Statement of Overriding Considerations" applies to all subsequent projects covered by the Robertson Ranch Master Plan Final Program EIR. All mitigation measures contained in the adopted Mitigation Monitoring and Reporting Program that were applicable to the subject project have been completed, incorporated into the project design or were required as conditions of approval for the project or for the previously approved Master Tentative Map for the East Village (CT 02- 16). Mitigation measures for the affordable housing project required preparation of a supplemental acoustical analysis. The analysis identifies that a 5-foot high noise barrier is required along Cannon Road, as we anticipated in the Program EIR, and identifies that interior noise mitigation will be required for units in Building 3 within the line of sight of Cannon Road. The proposed project will have no effects beyond those analyzed in the program EIR, as they are a part of the program analyzed earlier. This project is within the scope of Final Program EIR 03-03 and no further CEQA compliance is required. FISCAL IMPACT: The financial assistance in the form of a $1,014,000 residual receipts loan will be provided from the Village Redevelopment Low and Moderate Income Housing Set-Aside Fund, which has a current undesignated fund balance of approximately $3 million. It is important to note that this Fund currently has an excess surplus balance of $ 948,486 which, according to PageS Redevelopment Law, must be encumbered as soon as possible and expended within the next two years in order to prevent financial penalties to the Redevelopment Agency. By encumbering the recommended funding and ultimately expending the subject funds for the Glen Ridge Apartments, the excess surplus concern will be addressed and the Agency will remain in compliance with applicable redevelopment regulations. EXHIBITS: 1. Housing and Redevelopment Commission Resolution No. 435 , to approve financial assistance for the Glen Ridge Affordable Apartment Development 2. Project Location Map 3. Project Financial Proforma 4. Summary comparison of costs and revenue for affordable rental developments in Carlsbad. 5. Housing Commission Staff Report dated January 11, 2007. 6. Draft Housing Commission Minutes of January 11, 2007. 7. Draft Loan Documents. 5 1 RESOLUTION NO. 435 2 A RESOLUTION OF THE HOUSING AND REDEVELOPMENT COMMISSION OF THE CITY OF CARLSBAD, CALIFORNIA, TO 3 APPROPRIATE REDEVELOPMENT AGENCY HOUSING SET- 4 ASIDE FUNDING IN THE AMOUNT OF $1,014,000 TO ASSIST IN PROVIDING FINANCIAL ASSISTANCE TO CHELSEA 5 INVESTMENT CORPORATION FOR CONSTRUCTION OF SEVENTY EIGHT (78) AFFORDABLE APARTMENT UNITS WITHIN 6 THE NORTHEAST QUADRANT OF THE CITY OF CARLSBAD AND OUTSIDE THE REDEVELOPMENT PROJECT AREA(S). 7 APPLICANT: CHELSEA INVESTMENT CORPORATION 8 CASE NO: SDP 06-04 9 10 WHEREAS, Chelsea Investment Corporation has proposed to construct 78 apartment units 11 affordable to lower and moderate income households on Cannon Road in the Northeast Quadrant of the 12 City of Carlsbad, which is located outside the boundaries of the Redevelopment Plan areas (Village and 13 South Carlsbad Coastal Redevelopment Project Areas); and 14 WHEREAS, Chelsea Investment Corporation has requested that the Carlsbad Redevelopment 15 Agency provide financial assistance in the form of a construction and/or permanent loan to assist in the 16 construction of said apartment units; and 17 WHEREAS, the Redevelopment Agency of the City of Carlsbad, hereinafter referred to as 18 "Agency", is a Community Redevelopment Agency organized and existing under the Community 19 Redevelopment Law, Health and Safety Code Section 33000, etc.seq., hereinafter referred to as the "Act", 20 and desires to assist in the financing of said project to be developed by Chelsea Investment Corporation; 21 and 22 WHEREAS, the Agency is authorized to implement the Redevelopment Plan for the Carlsbad 23 Village Redevelopment and South Carlsbad Coastal Redevelopment Project Areas; and 24 WHEREAS, Section 33334.2 of the Act requires that not less than twenty percent (20%) of all 25 taxes which are allocated to the Agency be used for purposes of increasing and improving the *** community's supply of low and moderate income housing; and 27 28 1 WHEREAS, pursuant to Section 33334.2 of the Act, the Legislature declares its intent that the 2 Low and Moderate Income Housing Set-Aside Fund shall be used to improve and increase the supply of 3 affordable housing within the community; and 4 WHEREAS, to carry out the purposes of increasing and improving the community's supply of 5 low and moderate income housing, Section 33334.2(e) of the Act states that the Agency may exercise any 6 or all of its powers, including without limitations, acquiring land or building sites, improving land or 7 building sites with onsite or offsite improvements, donating land to private or public persons or entities, 8 constructing buildings or structures, acquiring buildings or structures, providing subsidies to, or for the 9 benefit of, very low income households, lower income households, or persons or families of low and 10 moderate income, or other powers to carry out the purposes of the Act; and 11 WHEREAS, pursuant to Section 33334.2(g) (1) of the Act, the Agency may use said funds 12 outside the project area(s) upon a resolution of the Agency and the Legislative body that the use will be of 13 benefit to the project area(s); and 14 WHEREAS, on the 11th day of January, 2007, City of Carlsbad Housing Commission did hold a l-> public meeting to consider a request for Agency financial assistance for the construction of said 78 " affordable housing apartment units by the affordable housing developer, Chelsea Investment Corporation, 17' and subsequently recommended approval of the request for assistance; and 1 O WHEREAS, the Housing and Redevelopment Commission did hold, on the date of this 19 resolution, a public meeting to consider said request for Agency financial assistance for the construction 20 of said 78 affordable housing apartment units by the affordable housing developer, Chelsea Investment 21 Corporation; and, 22 WHEREAS, at said public meeting, upon hearing and considering all testimony, if any, of all 23 persons desiring to be heard, said Housing and Redevelopment Commission considered all factors 24 relating to the application and request for financial assistance; and, 25 WHEREAS, the Housing and Redevelopment Commission approved the appropriation and 9'f\ expenditure of $1,014,000 from the Low and Moderate Income Housing Set-Aside Fund outside the 27 28 7 1 Redevelopment Project Areas for the purposes of providing loan proceeds to assist in the financing of 2 construction of 78 units of rental housing for very low, low and moderate income persons/families to 3 Chelsea Investment Corporation. 4 NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing and Redevelopment 5 Commission of the City of Carlsbad, California, as follows: 6 1. The above recitations are true and correct. 7 2. The request for Agency financial assistance is consistent with the goals and objectives of the City of Carlsbad's Housing Element and Consolidated Plan, the Carlsbad General 8 Plan, and the Redevelopment Plans for the Village Area and South Carlsbad Coastal Redevelopment Project Areas. 9 3. The request for Agency financial assistance will assist the affordable housing developer 10 to construct a total of 78, one, two and three bedroom affordable apartment units. The project, therefore, has the ability to effectively serve the City's housing needs and 11 priorities as expressed in the Housing Element and the Consolidated Plan as well as meet the housing needs for the Redevelopment Proj ect Areas in the City of Carlsbad. 12 4. That the expenditure of monies from the Low and Moderate Income Housing Fund for 13 the purposes of funding a construction and/or permanent loan to Chelsea Investment Corporation, for an affordable housing project containing 78 rental units outside the *4 Redevelopment Project Area(s), in which such funds are generated, are and will be of benefit to the respective Project Area(s) based on the following findings: , , a. The Village Redevelopment Area currently consists of a number of restaurants, hotels, time-share projects and small retail operations which depend on and offer , 7 employment at low to moderate income wages. The proposed housing project offers affordable housing opportunities with restricted rents affordable to moderate, low and 1 ^ very low income households. These type of restricted rental housing units will be beneficial to the employees working within the Village Redevelopment Area. 19 20 b. The South Carlsbad Coastal Redevelopment Area is proposed to have several new restaurants, hotels, time-share projects and small retail operations which will also 21 depend on and offer employment at low to moderate income wages. The proposed housing project will assist in providing affordable housing opportunities for those 22 employees and ultimately benefit the project area by providing an employee pool which is located in close proximity to the project area. 23 24 c. The proposed project is located on bus routes and connects to major transportation corridors which will allow direct access to the Village and South Carlsbad Coastal 25 Redevelopment Project Areas. The households residing within the proposed project will be able to take advantage of the public transportation systems which will allow 26 them to work and shop in the Village Redevelopment Area and ultimately in the South Carlsbad Coastal Redevelopment Area as well. This will have a significant 27 28 1 impact on the Redevelopment Agency's efforts to revitalize the both the Village and South Carlsbad Coastal Redevelopment Project Areas. 2 5. That the Low and Moderate Income Housing Set-Aside Funds will promote the City of 3 Carlsbad's housing goals and satisfies specific requirements of the Community Redevelopment Law to expend a portion of its tax increment to produce affordable housing opportunities for low 4 and moderate income persons. 6. That the expenditure of the subject Low and Moderate Income Housing Set-Aside Funds to provide financial assistance to the subject project in the form of a residual receipts loan in the total amount of $1,014,000 is consistent with the Village and South Carlsbad Coastal Redevelopment Areas Low and Moderate Income Housing Set-Aside Spending Strategy/Plans. _ 7. That the Housing and Redevelopment Commission authorizes the Agency's Executive Director or his/her designee to execute all documents related to provision of the Agency assistance to fund the subject residual receipts construction/permanent loan to Chelsea Investment Corporation for development of the subject affordable housing project. 10 8. That the Housing and Redevelopment Commission authorizes the Agency's Executive Director or his/her designee to execute subsequent subordination agreement(s) subordinating the Agency's Regulatory Agreement and Deed of Trust to the Deed of Trust for construction and permanent 12 lenders, as required, subject to review and approval by the Agency's General Counsel and/or Special Legal Counsel, and subject to the Executive Director's finding that no other financing 13 that does not require subordination is reasonably available. 14 9. That the Housing and Redevelopment Commission authorizes the Finance Director to appropriate and expend the funds set forth within this approval to provide the proceeds ($1,014,000) for the 15 residual receipts construction/permanent loan to Chelsea Investment Corporation for the subject affordable housing project, and as set forth in the approved loan documents. 16 17 //// 18 //// 19 //// 20 //// 21 //// 22 //// 23 //// 24 //// 25 //// 26 //// 27 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PASSED, APPROVED AND ADOPTED at a Regular Meeting of the Housing and Redevelopment Commission of the City of Carlsbad on the 20th day of March, 2007, by the following vote: AYES: Commission Members Lewis, Hall, Packard NOES: None. ABSENT: Commission Member Kulchin A LEWIS, Chairman ATTEST: RAYMOND R. PATCHETT, Secretary (SEAL) x^tu """/,, r <T/ESTABUSHED'\^i — —: : 5 — = o\ 1970 :J?£ ^•*\ .--l*^',f * ' • +J? 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RECOMMENDATION That the Housing Commission ADOPT Resolution No. 2007-01, recommending APPROVAL to the City Council to provide up to $1,014,000 in financial assistance from the City of Carlsbad's Housing Trust Fund to Chelsea Investment Corporation for construction of seventy-eight (78) affordable apartment units in the Robertson Ranch Development. II. PROJECT BACKGROUND The Meadowlark Affordable Apartments development is a seventy-eight (78) unit housing project which will be affordable to lower income households (30% to 55% of AMI). This project represents Phase I of the affordable housing requirement for the Robertson Ranch development. The project will be completed by Chelsea Investment Corporation. Chelsea is requesting financial assistance from the City. III. PROJECT DESCRIPTION The subject project will be located on a 3.5 acre parcel that is currently referred to as Robertson Ranch Planning Area 15. The site is directly north of Cannon Road and approximately one quarter mile northeast of El Camino Real. Directly to the west of the site will be a park. To the north of the site, there will be single family residences and to the east courtyard homes. The proposed 78-unit affordable apartment project will consist of three residential three- story buildings with surface level parking. There will be 17 one bedroom (697sf), 29 two bedroom (959sf) and 32 three bedroom (l,041sf) units. A total of 41% of the units will be provided with 3 bedrooms. The project will include a BBQ picnic area, a tot lot, and a 1400 square foot community building. The community building will include a lobby, a Meadowlark Apts HC Report January 11,2007 Page 2 community room and kitchen, a computer/homework room, bathrooms, and an office for the management/leasing staff. Laundry facilities will be incorporated into the residential buildings. Meadowlark Apartments design will follow a Spanish Colonial Style prevalent throughout the proposed Robertson Ranch development and will make extensive use of a variety of window treatments with shutters and tile roofs. The tenants of the Meadowlark Apartments will have full use of the Robertson Ranch HOA-owned Recreation Center. The Center will include a community swimming pool, lap pool, children's wading pool and spa. Access will be allowed at no additional cost to the tenants or the project. IV. DEVELOPMENT TEAM Chelsea Investment Corporation will develop, own, and operate the affordable housing project. Chelsea is a for-profit corporation based in Encinitas. The corporation has developed several affordable housing projects in the cities of San Diego and Chula Vista, and also has experience in Imperial County and Yuma County, Arizona. Their developments also include the Mariposa affordable housing development (106 units) in Calavera Hills of Carlsbad and the Hunters Pointe Apartments (178 units) which is currently under construction in the Villages of La Costa. The development team has extensive experience in all major areas of residential development. V. FINANCIAL ASSISTANCE A. Cost Reasonableness The developer has provided a detailed development proforma for review by staff and the Housing Commission (See Attachment 2). Since development costs are one of the key variables determining the need for subsidies, it is important that those costs be reasonable. At approximately $25.5 million, including the cost of the land, the average unit cost of $327,153 is reasonable with consideration of the requirement to pay prevailing wage rates, the current costs of construction and the greater affordability of the development (30% to 55% of AMI). In staffs review of the various requests for financial assistance for affordable housing developments, we compare the project costs and financing to other affordable housing projects developed in Carlsbad. Attached is a copy of the comparison uses and sources summaries that we use in our review. These summaries include all of the affordable rental projects assisted (or pending assistance) by the City to date. As demonstrated in the attached spreadsheets, Meadowlark Apartments is comparable to other recently proposed projects in terms of development costs. Therefore, staff believes that the projected costs are reasonable and acceptable. Meadowlark Apts HC Report January 11,2007 Page 3 B. Undue Gain It is important that any financial assistance have the effect of making the units more affordable and not creating undue gain for any party. The Developer will receive a "Developer Fee" of $2.5 million, or approximately 10% of total project costs (including land). The Developer is proposing to defer 20% ($492,104) of their fee to a later date to assist with financing for the project. The developer fee is appropriate for the size of the project and level of complexity of the financing for, or development of, the project. It is also the maximum fee permitted under the tax credit financing program. C. Subsidy Analysis The total projected cost for the project is $25,517,938. The Developer is proposing to finance the project with loans from the Multi Family Housing State Funding Program (MHP) and Cal HFA (permanent loan) in the total amount of $9,787,834. They also will provide equity to the project through the low income housing tax credit program in the amount of $7,828,000. The Master Plan Developer, McMillin Homes, will donate the land (estimated at $6,396,000). Staff is recommending that the City of Carlsbad provide a total of $1,014,000. The City Assistance will amount to $13,000 per unit. This is consistent with previous contributions to affordable housing projects in Carlsbad and the City's funding is being well leveraged with other outside sources including the private master plan developer. 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 pro forma is attached as Exhibit 2: SUMMARY PRQFORMA SOURCES Master Developer (land donation) MHP Loan LIH Tax Credits Cal HFA Permanent Loan Deferred Developer Fee City Contribution (cash assistance) Total Sources USES Land Consultants Permit Fees Construction Development Financing (incl, contingency & reserves) Developer Fee , Total Sources TOTAL $6,396,000 $6,239,834 $7,828,000 $3,548,000 $ 492,104 $1,014,000 $25,517,938 TOTAL $6,396,000 $910,910 $1,654,512 $11,680,095 $ 402,219 $1,974,202 $2,500,000 $25,517,938 PER UNIT $82,000 $79,998 $100,359 $45,487 $6,309 $13,000 $327,153 PER UNIT $82,000 $11,678 $21,212 $149,745 $5,157 $25,310 $32,051 $327,153 Meadowlark Apts HC Report January 11, 2007 Page 4 D. Form of Assistance City cash assistance will be in the form of a residual receipts loan secured by a note and deed of trust. The loan will begin accruing after the completion of construction of the improvements. The outstanding principal and accrued interest on the City loan will be amortized over fifty-five years and repaid from cash surplus, as cash is available or becomes available. In the event that there is not adequate cash surplus to repay the City loan, the outstanding balance shall accrue with simple interest at 3% per annum. The financial assistance will be provided in its entirety from the Carlsbad Redevelopment Agency's Low/Moderate Income Housing Set-Aside Fund. E. Security The Developer will be required to provide completion bonds to both the City and the permanent lender to insure that construction is completed. F. Risk hi 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 and has been successful to date in all of its efforts to construct and operate those projects in a financially sound manner. The reasonable terms of the City loan allow the developer to lower its financing costs which help to ensure that expenses will not exceed revenues generated by the project. The developer will partner with a contractor with a proven history of success. Both the City and the developer will closely monitor the costs of the project and work with the contractor to address project issues in a timely manner to reduce cost impacts. The financial assistance from the City helps the developer to obtain the other funding sources set forth above. VI. FINANCIAL ASSISTANCE AGREEMENT With a recommendation from the Housing Commission and approval of the City Council, appropriate documents, including a Financial Assistance Agreement, Regulatory Agreement, Promissory Note and Deed of Trust, will be prepared and executed to set forth the terms of the financial assistance and its repayment. Meadowlark Apts HC Report January 11,2007 Page5 VII SUMMARY AND STAFF RECOMMENDATION It is the role of the Housing Commission to make financial assistance recommendations to the City Council based on several considerations with respect to affordable housing projects. These are: o The proposal's effectiveness in serving the City's needs and priorities as expressed in the Housing Element of the General Plan and the Consolidated Plan. o The proposal's consistency with the City's affordable housing policies and ordinances as expressed in the Housing Element and Inclusionary Housing Ordinance. o The proposal's development and operating feasibility, emphasizing the development team capacity, financing sources and the role of the City in providing financial assistance or incentives. The Meadowlark Affordable Apartment development is proposed by a capable development team that is committed to affordable housing. The proposed City assistance meets the City's three key underwriting goals of a strong borrower, reasonable project costs based on the project size and requirements and an acceptable level of leveraging. The project will have quality design and is in a good location. City housing goals are supported by the project's affordability, specifically low, very low and extremely low income households will be assisted with the project.. It is the Affordable Housing Policy Team's (staff) recommendation that the Housing Commission approve the resolution of support recommending to the City Council that the City, via the Carlsbad Redevelopment Agency, provide a total of $1,014,000 ($13,00 per unit) in financial cash assistance to Chelsea Investment Corporation Housing for the Meadowlark Affordable Apartment development. VIII. EXHIBITS 1. Housing Commission Resolution No. 2007-01 2. Project Proforma - Chelsea Investment Corporation 3. Affordable Housing Costs Comparison Chart 4. Affordable Housing Revenue Comparison Chart 5. Affordable Housing Production Summary EXHIBIT 6 HOUSING COMMISSION DRAFT MINUTES DATED JANUARY 11, 2007 Minutes of: HOUSING COMMISSION Time of Meeting: 6:00 P.M. Date of Meeting: January 11, 2007 Place of Meeting: CITY COUNCIL CHAMBERS CALL TO ORDER Chairperson Scarpelli called the Meeting to order at 6:04 p.m. PLEDGE OF ALLEGIANCE Chairperson Scarpelli asked Chairperson Smith to lead in the Pledge of Allegiance. ROLL CALL Present: Commissioners: Sondra Boddy Doris Ritchie Edward Scarpelli Bobbie Smith Staff Present: Housing and Redevelopment Director: Debbie Fountain APPROVAL OF MINUTES Minutes of March 9, 2006, were approved with fixing two typographical errors on Page 8 and page 15. VOTE: 4-0 AYES: Boddy, Ritchie, Scarpelli, and Smith NOES: None ABSTAIN: 0 NEW BUSINESS Debbie Fountain, Director of Housing and Redevelopment, presented the item for approval of financial assistance related to a 78 unit affordable housing development. This is phase 1 of the Robertson Ranch which is now being called the Windmill. Robertson Ranch has been divided into two villages, the East Village and the West Village. At a later date, another project will be coming forward. I will ask Brian Milich with McMilllan if he would come up and give an overview of the project itself before I go into the financial assistance request so you have an understanding of what the project is and what you would be approving assistance for. Brian Milich is with the Corky McMillan Companies which also built the Calavera Hills Project. In that project there was an affordable project known as the Mariposa Apartments, 106 apartments. We did that project with Chelsea Investment Company and we are proposing to do this project, Meadowlark, 78 units, with Chelsea Investment Company as well. It will be our fourth project working with Chelsea and we found them to be both highly efficient in terms of building the project and also in obtaining the necessary financing. As we did at the Mariposa Project in Calavera Hills, it is likely that McMillan Companies will also be the general contractor to Chelsea Investment Corporation to actually build the apartments. We do that because it helps us control more of our destiny since our market rate units are tied to the construction of the apartments. It is a way of us remaining involved in the project. As you may know, the master plan for the Robertson Ranch Project was approved, and Josh Gates with our company has put together a short power point with the master plan approved in November by the City Council. It is broken into two Villages; the East Village, which McMillan Companies and our partner, Brookfield Homes, is the owner of; and the West Village, which remains under the ownership of the Robertson family. Because the timing of the two villages are different, we will be building our affordable housing project on planning area 15 and the Robertson's will be building their affordable housing project on either planning area 7 and/or planning area 8. The total number HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 2 of 9 of units, 1,122 units in Robertson Ranch, will generate a requirement for 168 affordable units of which 78 will be built by McMillan on our portion of the property, and the balance will be built on the West Village at the time the Robertson family either develops the West Village or someone else will develop the project. Chairperson Scarpelli asked Mr. Milich to point out where the East Village is. Mr. Milich said planning area 15 is on the East Village and that is where we will be building this 78 units that is before you tonight. The Robertson's will be building their affordable units in either planning area 7 or 8, which is right next to the commercial center. Robertson Ranch will consist of two villages, and there will be 1,122 units. This assumes the school district builds an elementary school on Robertson Ranch. If they don't, then the number of units in Robertson Ranch goes up to 1,154 units. Our 78 units is designed to accommodate those additional units. We are actually over building the units. It will also include a community park of 13.5 acres. The city is planning to build three ball fields on that park so it will be an active park. There will also be a commercial center of 8 acres and community facilities of 5 acres, which may be a church, daycare or other similar uses. So it is a full master planned community. In addition, just fewer than 50% of the project will be devoted to open space; trails, the park, other active recreational facilities, but a substantial part of the project will also be left as open space. Chairperson Scarpelli asked Mr. Milich to point out the commercial areas. Mr. Milich said it is the blue area. That is where both the 8 acres of commercial, which would be a shopping center of some type, as well as 5 acres of community facility type uses. Both affordable housing will be easily accessible to the commercial center as well as Cannon Road and public transportation. In addition, our affordable housing project will be easily accessible to Cannon Road; there will be a bus line on Cannon Road. It will be accessible to the community park and also the elementary school site. There will be trails that will connect the East and West Villages so people can walk to the commercial center. One of the things the Planning Department wanted to ensure was that it was a walkable community and that it had access to public transportation. That is the reason for the location of our affordable housing project. Chairperson Scarpelli asked if Cannon Road was on the site. Mr. Milich said it bisects, it runs on the easterly side. It actually exists today. It is in a two-lane configuration. We will be adding two more lanes with the construction of this project. We will be completing College Blvd and Cannon Road with the development of Robertson Ranch. Again, there will be public transportation; bus routes, bus stops along Cannon Road. They will be immediately accessible to the affordable housing project. The floor plans range from 650 square feet to 1,040 square feet. They are one, two and three-bedrooms. I will let Wally Dieckmann, from Chelsea, go into more detail on the financing and exactly what they are proposing. There will be three separate buildings; 78 units, 17 one-bedroom, 29 two-bedroom, and 32 three-bedroom units. There are a 142 parking spaces, two recreational facilities, and these units will also have access to the common recreation facility. In addition to a recreational facility in the center of the project and a separate tot lot, the project will also have accessibility to the common recreational facility which will be available to all the homeowners in the project. We will be working with the Department of Real Estate to determine how the apartment project can, in fact, have access to that and if there will be any charges associated with that. We think if there are charges, it will be minimal. Chairperson Scarpelli commented that he read in the report there wasn't going to be a fee. Wally Dieckmann with Chelsea Investment Corporation said this is our third affordable housing project in Carlsbad. We developed the Mariposa Project, 106 units, in Calavera Hills, as Brian mentioned, for McMillan, and we currently have under construction on Rancho Santa Fe Road 168 units just south of San Ellijo on the very eastern border of Carlsbad. We are doing that project with Morrow Development Company, the developers of La Costa. HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 3 of 9 The financing we proposed for this project is a similar financing model that we used for the two previous projects. The key component of that financing is a multifamily housing program loan from the State of California. This is a program that started about four or five years ago, which is funded under proposition 46 and has been refunded under proposition 1C that just passed this past election in November 2006. It is a competitive financing. We have to compete against other projects in California, and we have a fairly decent track record of acquiring this financing, particularly for a project as attractive as this one. The reason we go after that financing is because it is very reasonably priced. It is a 3% interest rate for a period of 55 years, and it allows us to offer rents as low as 35% of AMI. One third of the units in this project will be at 35% of AMI and the balance will be at roughly half at 50% AMI and the balance at 55% AMI. This is a very nice rent mix, and we can service tenants of a broad range of incomes that way. We will also be adding a bond allocation from the state for construction financing as well as a permanent loan. We will also have 4% low income housing tax credits and a loan from the City of Carlsbad. Robert Harrington, the head of our management company is here, if you have any questions about the management aspects of our project. Based on Mariposa, he has done analysis on the types of people we are serving, what kind of jobs they have in the community, and Robert is prepared to present that information if you are interested. Board Member Boddy asked Mr. Dieckmann, how does this project compare in terms of size to the other projects that you have done, as far as the number of units? Mr. Dieckmann answered as a company, we have done projects as small as 26 units and as large as 440 units. All those projects were here in San Diego County. Of the projects we have done in Carlsbad, we have done the Mariposa Project, 106 units, and then the Hunter's Pointe Project, 146 units. This would be the smallest of the three we have done in Carlsbad. Chairperson Scarpelli said the report says it shows 168. Did that get reduced to 146? Mr. Dieckmann said no it is 168. Board Member Boddy said there was some comment earlier that the 78 units in this project is actually over the requirement. I would like to understand the basis for that. Mr. Dieckmann said that was a decision that the McMillan Companies made, but I think I can answer that. The 78 units are keyed off of the total number of units to be built assuming the school does not build the elementary school and therefore, the number of units built out in the project is higher. It is a contingency they may need the 78 units. If the school is built, then they won't need that many, they will only need 70 units. Chairperson Scarpelli added that one of the first projects, originally called Villa Loma, was far in excess of the number of units the master developer was required to make available, and I think we still have some of those units still available. Ms. Fountain said the inclusionary housing ordinance requires that 15% of the total number of housing units in a project have to be affordable to low income. That is what Brian was sharing with you, that the two villages are separated in terms of development; McMillan is developing the East Village portion. Their total requirement would be 78, if all their properties develop according to what the Council would allow them to do. What the Council approved for them to do if the school is developed, then they will have fewer residential units so they would only have to do 70 units. I think the total number of affordable in Robertson Ranch was 224. They are going to do some low income and some moderate income, 56 affordable to moderate. Board Member Boddy asked are we depending on the Robertson family to develop the remaining 90 units? Ms. Fountain said they will have to do their share on their property, correct, when they come forward. I think McMillan is ahead of the Robertson Family in development so they will do that separately. They will have their own affordable housing agreement and all of their own requirements. HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 4 of 9 Chairperson Scarpelli said then that would be in the PC7 area that is set aside for that purpose. The sale of the credits of the units is something we have been doing almost since the outset of this Commission. Is it four or less to meet the 15% requirement? I know we have some kind of a formula that we use. Ms. Fountain said if you are six units or less, you don't have to produce a unit on site. You pay an in-lieu fee. If you are 7 units or more, you are going to have to build a unit. Typically when we are working with developers, we will say if your requirement is 10 units or less, we typically let you buy into another project or build second dwelling units or something like that. If your requirement is larger than that, we will typically look at it a little bit closer to determine whether they should do it on site or not. With the affordable housing component, they do have the ability to change. Sometimes with these projects, the affordable housing project is way out in front of the market rate units coming through. That is smart for the master developer because then they don't get held up on release of building permits for their market units. Sometimes they predict what they think they are going to build and the affordable housing gets built and sometimes they might have extra units they don't need so we build in the opportunity for them to sell those to other developers within their quadrant of the City. For this one we won't know yet whether or not they will have extra credits to sell or not, but the minimum they would have to do is 70 units. Board Member Smith asked what is the maximum income for a single person for a one-bedroom? Ms. Fountain said it will depend on their household size and Mr. Dieckmann can probably explain. Their project will have different income levels based on the financing sources they are using. Hopefully, Mr. Dieckmann can give you that information. Mr. Dieckmann said he doesn't have that information with him. He said he can tell you what the rents are but not the information Board Member Smith was asking for. Ms. Fountain said we can get that information. It depends on household size and what regulations they are working off of for their income levels. From a financial standpoint, you received information on the project itself but you don't actually review projects for permits, so that was basically for information purposes. But you do look at their financial assistance request, which is why they are before you tonight. We have provided you a report that outlines what the financial situation is for this project. One of the things I did want to share is though, when we are doing these proforma for these projects, they do get adjusted as we move along in the process. Once we determine what our financial contribution to a project is, it gets set at that point. Just so you are understanding, sometimes those numbers do get adjusted, like how much is coming from one fund or another, what they actually qualify for, and what they compete for in terms of financing. Sometimes those numbers may change, but what we are looking at as our number is set tonight with your recommendation on what we are able to provide. Based on the proforma you have in your packet, the total cost of this project is estimated at $25.5 million. That does include the land cost, but the land is donated by the master developer so that cost is included in your proforma, but that is one of the contributions of the master developer as well as cash assistance to the project. In this particular case for this project, your average per unit cost is $327,153. One of the documents that I gave you as an exhibit is a comparison to other affordable housing projects in Carlsbad that have received financial assistance so you can see how the cost of producing affordable housing has increased over the years. When we started out with Villa Loma, which was our very first project, you were looking at a total per unit cost of about $90,000. Now we are up to over $300,000. That is with the cost of construction going up, land cost that may go up, and for a number of reasons project costs will be higher including if they have to pay prevailing wage. This particular project will have to pay prevailing wage because of the financing sources they are bringing into the project. So all of those work together to start increasing your per unit cost. Also, the greater affordability of the development reduces some of the income that would be coming in so that is going to increase your cost. As Mr. Dieckmann mentioned, the rents range from 35% of AMI to 55%, and sometimes those numbers do change. It is still in that very low to low income category so this is a much more affordable project than what is required by the inclusionary ordinance which says they have to HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 5 of 9 set them at 70% of AMI. Some of that is directly related to the financing sources they are looking at to fund this project. We always take a look at the developer fee to see what the developer fee is for every project because we want to make sure if we are putting money into it, there isn't any undue profit that we would rather capture. As we noted in the report, the developer fee that is proposed is $2.5 million, which is approximately 10% of the total project cost including the land, and we have determined in the past that 10% is a reasonable developer fee. The developer is proposing to defer 20% of that and that could get adjusted depending on how these financing sources work out. The important point is they are deferring some of that and are not going to get the entire amount at construction. When we look at this fee, we want to determine, is it reasonable and we have determined it is reasonable. It is also the maximum that is permitted per the tax credit regulations. As Mr. Dieckmann mentioned earlier, the project is going to be financed with multifamily housing state funding, a permanent loan, tax credits, developer equity and the city assistance. Specifically what they are asking for from the city is $1,014,000 which equates to $13,000 per unit. If you go back to the charts in the packet that show the comparison, you can see it is a little bit higher then some that we have done and a little bit lower, but for the most part it is a little bit more then we have done in the past. It does seem reasonable when you consider how the costs of construction have been increasing. At some point, we need to bump up the amount of money we are giving to the developer to help them out with the project. There is a chart that summarizes the uses and sources of funding. We have been keeping this ever since we did Villa Loma so we can keep looking at those and see what the costs are and how they compare against each other in the different areas. It is not a full proof system because all the projects are a little different so they are going to require different services based on the uniqueness of their project. It is hard to completely compare apples to apples, but we try to give some general feel if they are all in the same ballpark, which we felt this project is. As we do all of our assistance, the city cash assistance will be provided in the form of a residual receipts loan. It is secured by a note and a deed of trust. The loan begins accruing at the completion of construction of the improvements. The outstanding principal and accrued interest on the city loan is amortized over a 55 year period, and it is repaid from cash surplus. That is money left over after they have paid all their expenses, paid off their other types of loans, because we are always going to be taking a subordinate position to their permanent loan. Chairperson Scarpelli suggested that we review that proforma. He had a question as to where there was a break even point. On the October date, it is referring to a cash flow after debt service of $24,000. Would that be the residual that would be used to pay back the city loan? Mr. Dieckmann said yes this would be after debt service. Chairperson Scarpelli commented then that is available for other expenses. Mr. Dieckmann said that would be residual cash flow. There are two recipients of the residual cash flow; one is the city loan and the other one is the MHP loan, which is the state. Ms. Fountain said we share a portion of it. Chairperson Scarpelli said you are showing it at full occupancy. Mr. Dieckmann said that would be after the deferred developer fee that is paid. The deferred developer fee is 20%; $500,000 is paid out of this. Chairperson Scarpelli asked if that would also be prior to the city and the state? Mr. Dieckmann said yes. HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 6 of 9 Ms. Fountain said the state and the city are in similar positions as to what is remaining. Then we split that and then there is a percentage basis that it is split on. We worked that out with the state on the last project. Ms. Fountain continued, the next step is if the Housing and Redevelopment Commission, which is the City Council, acts on this, then we would move forward and do all of the regulatory documents and the loan documents. We actually have attorneys that are working on that right now. Staff is recommending that the Housing Commission make a recommendation to the Housing and Redevelopment Commission, which is the City Council, to approve the loan request. We are actually, in this case, recommending the funding source be the Redevelopment Agency's Housing set-aside monies. The reason we are recommending that is we have over $2,000,000 in that fund that we need to spend before we get penalized for not spending it. We are eager to get that money spent. It doesn't change anything in terms of conditions. It is just the funding source that we use. The interesting thing about redevelopment agency housing money is it can actually be used anywhere in the city. You don't have to use it just in your redevelopment areas. You have to make certain findings of benefit to the redevelopment area, but generally there has already been a finding that housing benefits redevelopment areas. So we are recommending that all the money come from that housing fund. We actually have more then $2,000,000 in that fund, but $2,000,000 is about what we need to spend so we don't get penalized. We will be looking at other projects to spend the rest of it that we are not spending on this project. We do have some of those already in the works. Board Member Boddy asked if the project has to be in a redevelopment area? Ms. Fountain answered no, it can actually be anywhere within the boundaries of the city limits. You just have to make findings of benefit to your redevelopment area, and generally the state has already recognized that if you are building housing and you are building affordable housing, there is a benefit to your redevelopment area. It is almost an automatic finding of benefit. We always look at our risks that are involved whenever we provide funding to any organization, and since we are providing funding for a construction project, you have your typical risks that are involved in that. You have a predevelopment risk; our money goes in early into a project so there could be concern that maybe the project doesn't end up getting funded for whatever reason, but in this particular case, we aren't providing predevelopment loan money. We are actually providing money that would ultimately help with construction so that is not as much of a risk. Your construction risk is that your project doesn't get completed, it has funding problems, or whatever, but with all of our affordable housing projects, we have low risk because we keep the master developer involved in the project and they can't get their building permits for market units until their affordable housing moves forward. So we typically haven't had too much risk in that area. Some risk is at operation, but all of those are mitigated if you have a strong development team, you have reasonable terms of your loan, and you have some proven history of a contractor as McMillan stated they most likely will be involved as the contractor for this and they have a lot of experience. The monitoring of costs goes on between the city and the developer. In this particular case, you have not only Chelsea watching those, but you will also have McMillan watching those. Those are all mitigating factors. Also when we provide money, it helps the developer, Chelsea, to get other financing that has more reasonable terms. So you start mitigating your risk that somehow your money will get lost, but it is something we take a look at to make sure we are comfortable with that risk we are taking. The considerations of the Housing Commission that you should be looking at are: Does the proposal before you affectively serve this City's needs and priorities in terms of housing? Is the proposal consistent with our affordable housing policies and ordinances? Does this proposal appear feasible to you? Are you comfortable with the capacity of the developer to carry out this project? When staff is looking at the request, we look to make sure it meets our three key underwriting goals. We look at the developer, is it a strong, experienced borrower that is asking for your money? We have determined that Chelsea is. We also look at the project costs and if they are reasonable, based on the size and requirements. We have gone over that, and we felt they are reasonable. Is there an acceptable level of leveraging, which means, are they getting other money other then just the city's money, and are they bringing what you think is acceptable leverage in terms of the HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 7 of 9 ratio of your money to their money? Since the majority of their money is coming from other places and we are only a small component of that, staff would say that they are more than adequately leveraging our money. With the considerations of the Housing Commission and of the City staffs review, we believe you do have a project of high quality design. You have seen the renderings before you tonight. They did an exceptional job with a nice design on their project and site layout. The project obviously meets our affordability needs in that it is meeting the inclusionary housing ordinance and it is going even further than that and hitting some of those very low and extremely low income households, which is a big need within our community. The Affordable Housing Policy Team, which is made up of staff members, reviews this and then makes a recommendation to you. As a reminder, the staff team includes myself, the Community Development Director, Sandy Holder, the Assistant City Attorney, Jane Mobaldi, the Finance Director, Lisa Irvine, the Planning Director, which right now in acting capacity is Don Neu, and the Economic Development and Property Management Manger, Cynthia Haas. We all look at these proformas and ask questions, and then we make a recommendation to you which is to approve the request for the $1,014,000 for this Meadowlark affordable apartment development. As I mentioned, our next step if the Housing Commission does make a recommendation, we would finish working on all of the loan documents, and the item would be scheduled for City Council approval. They will be moving quickly into an application process with the state for MHP money. That application is due April 3rd so they have to get their site development plan, their site development approval, as well as our commitment of financial assistance before they make that application. So they are moving forward to get their site development plan approved, which is the project they reviewed for you tonight. It will go to Planning Commission and then it will have to go to City Council. So they have a tight time frame they are working on. I did want Robert to share with you the information he compiled on the types of people that are living in Mariposa in terms of professions. It is interesting to hear about it, even though we don't have anybody objecting to it tonight. Robert Harrington, with Chelsea Investments Management Division, said today they took a look at some of the tenant files at Mariposa and found some interesting facts. There are three different varying income levels there. In the property we have 60%, 30% and 20% income level. The big gap between 30% and 60% means anyone above 30%, they could be at a 45% level or a 36% level, and they could be living in a 60% unit. They just have to pay more even though they do not make as much. In the 60% level, we have emergency medical technicians, two pediatric nurses, two special needs teachers that teach in the City of Carlsbad, a former police officer, three medical assistants, home health aids, two bank tellers that work in the City of Carlsbad, two medical group coordinators, office supervisors, and customer service assistance mangers of telecom companies. In the 30% level we have two courtesy patrol officers that work at Carlsbad mall, customer service people that work at Costco, waitresses, and customer service people that work at retail stores. At the 20% level you usually have people who are on SSI. We have three people there who are disabled, that is their main source of income, disability, and all three of them volunteer. One volunteers with the deaf, one volunteers with the burn association, and one volunteers with wheelchair bound people. That is the type of tenant we have at Mariposa. Currently, we have a 300 person wait list. Board Member Smith said she is impressed they screen their tenants. Mr. Harrington said every tenant in every unit that is over 18 years of age, even if it is an adult child, gets screened for both credit and criminal background. Board Member Smith asked when this project will begin. Mr. Milich answered they are anticipating starting the grading of the East Village in March. We think we will have all the approvals and be ready to begin construction sometime toward the end of this year and have the project built within a 9 to 10 month period; sometime in the middle to third quarter of 2008. As Ms. Fountain said, our goal is to start it as soon as possible and to go right through the project so that way we have no restrictions on our market rate HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 8 of 9 units. We can just build those as the market dictates. The first project you will see at Robertson Ranch will probably be this affordable apartment project. Board Member Ritchie asked if the Board could have an idea on where we stand on our 5-year plan? Ms. Fountain asked if she is talking about the construction of units? Board Member Ritchie said, yes, the construction of units. Ms. Fountain said one of the items in the packet is the affordable housing accomplishments. It is the very last exhibit. Because we are working on the Housing Element, which actually will be coming fairly soon to the Housing Commission, we wanted to get a good summary of where we are at on producing affordable housing. This chart divides the affordable housing up by periods of time in terms of the housing element. If you look about three quarters down the page and it says 1993 to 2006, that shows you we have a total of about 1,747 units that have been produced so far. You can look by category as to how many of those were produced from 1993 to 1999, 1999 to 2004, and then what was produced in 2005. To date we have 1,747 units. At the very bottom we divided those up into product types so you can see a majority of them are being provided in terms of apartments. We do have some that have been in condominiums and town homes and some in second dwelling units, which is what SDU stands for. I also gave you an indication of how they are divided up by quadrant, because a lot of times we get asked about who is providing more than their fair share in their quadrant. As you can see, as market rate gets develops, the affordable is getting developed, so whichever quadrant at the time is going gang busters on building market rate, that is the one you are going to see the affordable housing coming into. The ones that are pending are what is under construction now or will be under construction soon. Board Member Ritchie asked if these units we were talking about tonight are included in that. Ms. Fountain said they are not in the 1,747 that we have in the chart, but when you look at the bottom two boxes where we said "with future" underneath, that does include those that are pending and in the planning process. What we have on the ground now as of December 2005, which was when these numbers were completed, is 1,747 units. Chairperson Scarpelli congratulated staff on working on an excellent housing project. In particular, I would like to address the fact that in this particular project and why I can support it whole heartedly is that we have done a good job of dealing with the low income households, those within the 30 to 55 AMI. That is something we have been struggling with because those are the hardest ones to produce. We thank you and congratulate you for accomplishing that monumental task. The project is a beautiful project. It is certainly going to be an enhancement to the City of Carlsbad and it appears as though you have taken everything into consideration regarding the future tenants, with providing them with beautiful units and the recreation areas. I also want to congratulate the management companies that have been managing not only your project, but those of the other 1,747 units that Ms. Fountain just mentioned. I have served on this Commission for many, many years. One of the concerns has always been whether or not this was going to be an attribute to a community or something that the community would wish they had never said yes to. I think due to the excellent management and planning that has gone on, we could look at every project we have done in affordable housing within the city as being an excellent example of how things can be done and done right. I also appreciate the fact that we are constantly reminded that when talking about affordable housing, we are talking about the professionals and those folks you just described that are currently tenants at Mariposa. I think here in the City of Carlsbad we can be proud in everything that has been done so far in the way of affordable housing. Again, congratulations to the developers for working so cooperatively with the city and congratulations to the staff to make sure it happens the way it should. Chairperson Scarpelli called for a motion to approve the Meadowlark apartments. Board Member Smith made a motion that we approve the Housing Commission recommendation of approval to the Housing and Redevelopment Commission and City Council of $1,014,000 in financial cash assistance from the HOUSING COMMISSION MINUTES JANUARY 11, 2007 PAGE 9 of 9 Carlsbad Redevelopment Agency Housing set aside funds to Chelsea Investment Corporation for construction of 78 affordable apartment units in the northeast quadrant of the City of Carlsbad on property located on Cannon Road and within Planning Area of 15 of the Robertson Ranch development. Board Member Ritchie seconded the motion. VOTE: 4-0 AYES: Boddy, Ritchie, Scarpelli, and Smith NOES: None ABSTAIN: None DIRECTOR'S REPORT The Director has no report to make. There will be a Development Standards Workshop for the Village area on January 25, 2007, so if you are interested in what is going on in the village, you are definitely invited to attend one of the workshops. We will probably be bringing the Housing Element within the next couple of months. We are still working out some final details on it. CHAIRPERSON'S REPORT The Chairperson has no report to make. ADJOURNMENT By proper motion, the meeting of January 11, 2007, was adjourned at 7:03 p.m. Respectfully submitted, Debbie Fountain Housing and Redevelopment Director PATRICIA CRESCENTI Minutes Clerk MINUTES ARE ALSO TAPED AND KEPT ON FILE UNTIL THE WRITTEN MINUTES ARE APPROVED. EXHIBIT 7 DRAFT LOAN DOCUMENTS LOAN AGREEMENT by and between CARLSBAD REDEVELOPMENT AGENCY, a public body, corporate, and politic and a California limited partnership (Glen Ridge Apartments) 1010\20\406819.1 TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND EXHIBITS 2 Section 1.1 Definitions 2 Section 1.2 Exhibits 4 ARTICLE 2 LOAN PROVISIONS 5 Section 2.1 Loan; Excess Proceeds of Permanent Financing 5 Section 2.2 Interest 5 Section 2.3 Use of Funds 5 Section 2.4 Security 6 Section 2.5 Loan Disbursement 6 Section 2.6 Repayment of the Loan 7 Section 2.7 Reports and Accounting of Residual Receipts 9 Section 2.8 Non-Recourse 10 Section 2.9 Subordination 11 ARTICLE 3 CONSTRUCTION AND OPERATION OF THE DEVELOPMENT 11 Section 3.1 Permits and Approvals 11 Section 3.2 Plans and Specifications 11 Section 3.3 Commencement of Construction 12 Section 3.4 Completion of Construction 12 Section 3.5 Construction Pursuant to Plans and Laws; Prevailing Wages 12 Section 3.6 Marketing Plan 13 Section 3.7 Relocation 14 Section 3.8 Equal Opportunity 14 Section 3.9 Progress Reports 14 Section 3.10 Construction Responsibilities 14 Section 3.11 Inspections 15 Section 3.12 Approved Development Budget; Revisions to Budget 15 Section 3.13 Information 15 Section 3.14 Records 15 Section 3.15 Audits 16 Section 3.16 Hazardous Materials 16 Section 3.17 Fees and Taxes 18 Section 3.18 Notice of Litigation 18 Section 3.19 Operation of Development as Affordable Housing 18 Section 3.20 Non-Discrimination 19 Section 3.21 Mandatory Language in All Subsequent Deeds, Leases and Contracts 19 Section 3.22 Insurance Requirements 20 Section 3.23 Developer Fee 21 ARTICLE 4 ASSIGNMENT AND TRANSFERS 21 1010\20\406819.1 TABLE OF CONTENTS (continued) Page Section 4.1 Definitions 21 Section 4.2 Purpose of Restrictions on Transfer 22 Section 4.3 Prohibited Transfers 22 Section 4.4 Permitted Transfers Without Prior Agency Approval 23 Section 4.5 Permitted Transfers With Prior Approval; Agency Pre-Approved Transfers 23 Section 4.6 Release of the Borrower 24 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BORROWER 24 Section 5.1 Representations and Warranties 24 ARTICLE 6 DEFAULT AND REMEDIES 25 Section 6.1 Events of Default 25 Section 6.2 Remedies 27 Section 6.3 Assignment of Plans, Data and Approvals 28 Section 6.4 Remedies Cumulative 28 ARTICLE 7 GENERAL PROVISIONS 29 Section 7.1 Relationship of Parties 29 Section 7.2 No Claims 29 Section 7.3 Amendments 29 Section 7.4 Entire Understanding of the Parties 29 Section 7.5 Indemnification 29 Section 7.6 Non-Liability of Agency and City Officials, Employees and Agents 30 Section 7.7 No Third Party Beneficiaries 30 Section 7.8 Action by the Agency 30 Section 7.9 Waivers 30 Section 7.10 Notices, Demands and Communications 30 Section 7.11 Applicable Law and Venue 31 Section 7.12 Parties Bound 32 Section 7.13 Severability 32 Section 7.14 Force Majeure 32 Section 7.15 Attorneys Fees 32 Section 7.16 Title of Parts and Sections 32 Section 7.17 Multiple Originals; Counterpart 32 Exhibit A Legal Description Exhibit B Development Budget 1010\20\406819.1 LOAN AGREEMENT (Glen Ridge Apartments) This Loan Agreement (the "Agreement") is entered into as of , 2007, by and between the Carlsbad Redevelopment Agency, a public body, corporate, and politic (the "Agency") and , a California limited partnership (the "Borrower"), with reference to the following facts, purposes and intentions. RECITALS A. These Recitals refer to and utilize certain capitalized terms which are defined in Article 1 of this Agreement. The Parties intend to refer to those definitions in connection with the use of capitalized terms in these Recitals. B. The Agency has established a Low and Moderate Income Housing Fund pursuant to Health and Safety Code Sections 33334.6 and 33334.2, which must be utilized in accordance with the requirements of the Community Redevelopment Law (Health and Safety Code Section 33000 et seq.V C. Pursuant to Resolution Number , adopted by the Agency on , 2007, the Agency committed to make a loan of Low and Moderate Income Housing Funds to the Borrower in an amount not to exceed One Million Fourteen Thousand Dollars ($1,014,000) for the permanent financing of the Development. D. As a condition to providing the Loan, the Agency is imposing occupancy and affordability restrictions on the Development, pursuant to the Regulatory Agreement, ensuring that certain units remain affordable to specified income categories of occupants for a specified period of time. E. The Agency intends to utilize the Development to obtain affordable housing production credit pursuant to Health and Safety Code Section 33413(b)(2)(A) as newly constructed located outside of the Project Area and available at affordable housing cost to very low, lower, and moderate income households. Such units are required to remain affordable to such households for fifty-five (55) years. This Agreement and the accompanying Regulatory Agreement are also intended to implement this requirement. F. The Property is located outside of the Project Area. In accordance with Health and Safety Code Section 33334.2(g), the Agency Board, by resolution , and the City Council, by resolution , made findings that the expenditure of monies deposited in the Housing Fund to fund the Loan will serve the purposes of Health and Safety Code Section 33334.2, as well as the goals and objectives of.the redevelopment plan for the Project Area, by improving and increasing the supply of affordable housing in the community surrounding the Project Area. G. [CEQA] 1010\20\406819.1 NOW, THEREFORE, in consideration of the recitals hereof and the mutual promises and covenants set forth in this Agreement, the Parties agree as follows: ARTICLE 1 DEFINITIONS AND EXHIBITS Section 1.1 Definitions. The following capitalized terms have the meanings set forth in this Section 1.1 wherever used in this Agreement, unless otherwise provided: (a) " Agency" means the Carlsbad Redevelopment Agency, a public body, corporate and politic. (b) "Agency Board" means the Board of Directors of the Agency. (c) "Agreement" means this Loan Agreement. (d) "Approved Development Budget" means the proforma development budget, including sources and uses of funds, as approved by the Agency, and attached hereto and incorporated herein as Exhibit B, but which may be amended with the approval of the Agency as set forth in this Agreement. (e) "Approved Financing" means all of the following funds acquired by the Borrower, or intended to be acquired by the Borrower, and approved by the Agency for the purpose of financing the Development, in addition to the Loan: (1) Tax credit equity contribution from the Tax Credit Investor in the approximate amount of Seven Million Eight Hundred Twenty-Eight Thousand Dollars ($7,828,000) (the "Tax Credit Equity Funds"); (2) State of California Multifamily Housing Program ("MHP") loan funds in the approximate amount of Six Million Two Hundred Thirty-Nine Thousand Eight Hundred Thirty-Four Dollars ($6,239,834) (the "MHP Loan") from HCD; (3) Multifamily housing revenue bonds issued by the California Municipal Finance Authority in the approximate amount of Ten Million Nine Hundred Nine Thousand Nine Hundred Ninety Dollars ($10,909,990) (the "Bond Financing"); and (4) Deferred payment of developer fee to Borrower or its affiliate in the approximate amount of Four Hundred Ninety-Two Thousand One Hundred Four Dollars ($492,104) (the "Deferred Developer Fee Funds"). (f) "Borrower" means , a California limited partnership. 1010\20\406819.1 (g) "Certificate of Occupancy" means the final certificate of occupancy for the Improvements issued by the City. (h) "City" means the City of Carlsbad, a municipal corporation, (i) "City Council" means the City Council of the City. (j) "Control" means (i) direct or indirect management or control of the managing member or members in the case of a limited liability company; (ii) direct or indirect management or control of the managing general partner or general partners in the case of a partnership and (iii) (a) boards of directors that overlap by fifty percent (50%) or more of their directors, or (b) direct or indirect control of a majority of the directors in the case of a corporation. (k) "Deed of Trust" means the deed of trust that will encumber the Development to secure repayment of the Loan. The form of the Deed of Trust shall be provided by the Agency. (1) "Default" has the meaning set forth in Section 6.1 below, (m) "Development" means the Property and the Improvements. (n) "Excess Proceeds of Permanent Financing" shall mean the portion of the Approved Financing funds that are not required to pay the costs of acquisition and development of the Development (including but not limited to the funding of reserves). Excess Proceeds of Permanent Financing, if any, shall be determined pursuant to the procedure set forth in Section (o) "Hazardous Materials" has the meaning set forth in Section 3.20 below. (p) "Hazardous Materials Claim" has the meaning set forth in Section 3.20 below. (q) "Hazardous Materials Law" has the meaning set forth in Section 3.20 below. (r) "HCD" means the State of California Department of Housing and Community Development. (s) "Improvements" means the approximately seventy-eight (78)-unit residential rental facility, to be constructed on the Property, plus appurtenant landscaping and improvements. (t) "Loan" means the amount not to exceed One Million Fourteen Thousand Dollars ($1,014,000) to be provided by the Agency to the Borrower pursuant to the Loan Documents. The Loan is more particularly described in Section 2.1. 1010\20\406819.1 (u) "Loan Documents" means this Agreement, the Note, the Regulatory Agreement, and the Deed of Trust. (v) "Note" means the promissory note that will evidence the Borrower's obligation to repay the Loan. The form of the Note shall be provided by the Agency. (w) "Parties" means the Agency and the Borrower. (x) "Project Area" means, collectively, the Carlsbad Village Redevelopment Project Area, as amended from time to time, and the South Carlsbad Coastal Redevelopment Project Area, as amended from time to time. (y) "Property" means the real property located in the City of Carlsbad, County of San Diego, State of California, more particularly described in the attached Exhibit A. (z) "Regulatory Agreement" means the Regulatory Agreement and Declaration of Restrictive Covenants between the Agency and the Borrower associated with the Loan and recorded against the Property. (aa) "Regulatory Term" means the term of the Regulatory Agreement. (bb) "Tax Credits" means the low income housing tax credits established pursuant to Section 42 of the Internal Revenue Code of 1986, as amended, and allocated by TCAC to be obtained by the Borrower to finance the development of the Development. (cc) "Tax Credit Investor" means , or an entity under the Control of [MMA Financial, LLC], to be admitted to the Borrower as a limited partner, and which shall provide the Tax Credit Equity Funds. (dd) "TCAC" means the California Tax Credit Allocation Committee. (ee) "Term" means the term of the Loan, which commences on the date of this Agreement and terminates fifty-five (55) years thereafter. (ff) "Transfer" has the meaning set forth in Section 4.1 below. (gg) "Unit" means one of the approximately seventy-eight (78) apartment units to be constructed on the Property. Section 1.2 Exhibits. The following exhibits are attached to this Agreement and incorporated into this Agreement by this reference: EXHIBIT A: Legal Description of the Property 1010\20\406819.1 EXHIBIT B: Approved Development Budget ARTICLE 2 LOAN PROVISIONS Section 2.1 Loan: Excess Proceeds of Permanent Financing. (a) Subject to satisfaction of the conditions set forth in Section 2.5, the Agency shall lend to the Borrower the Loan in the principal sum not to exceed One Million Fourteen Thousand Dollars ($1,014,000); provided, however in the event the Agency reasonably determines that the funding of the full amount of One Million Fourteen Thousand Dollars ($1,014,000) will result in Excess Proceeds of Permanent Financing, the Agency shall reduce the amount of the Loan to the extent necessary to eliminate any Excess Proceeds of Permanent Financing. The Borrower's obligation to repay the Loan shall be evidenced by the Note. (b) Excess Proceeds of Permanent Financing. The amount of the Excess Proceeds of Permanent Financing, if any, shall be determined by the Borrower and submitted to the Agency for approval on the date the Borrower submits the final cost audit for the Development to TCAC. The amount of the Excess Proceeds of Permanent Financing shall be calculated assuming the full funding of all of the Approved Financing set forth in Section 1.1 (d). In the event that any Approved Financing lender (including but not limited to HCD) reduces the amount of the Approved Financing to eliminate Excess Proceeds of Permanent Financing, then the Agency shall cooperate, in good faith, with the Borrower and such Approved Financing lender(s) to determine the amount of the Loan and the Approved Financing to eliminate any Excess Proceeds of Permanent Financing. The Borrower shall also submit to the Agency any additional documentation sufficient to verify the amount of the Excess Proceeds of Permanent Financing. The Agency shall approve or disapprove Borrower's determination of the amount of the Excess Proceeds of Permanent Financing in writing within thirty (30) days of the receipt of Borrower's cost audit and supplemental documentation. If Borrower's determination is disapproved by the Agency, Borrower shall re-submit documentation to the Agency until Agency approval is obtained. Section 2.2 Interest. (a) Subject to the provisions of Section 2.2(b) below, the outstanding principal balance of the Loan shall accrue simple interest at the rate of three percent (3%). (b) In the event of a Default, interest on the Loan shall begin to accrue, as of the date of Default and continue until such time as the Loan funds are repaid in full or the Default is cured, at the default rate of the lesser often percent (10%), compounded annually, or the highest rate permitted by law. Section 2.3 Use of Funds. 1010\20\406819.1 (a) The Loan shall be used for permanent financing for the development of the Property. (b) The Borrower shall not use the Loan for any other purpose without the prior written consent of the Agency. Section 2.4 Security. The Borrower shall secure its obligation to repay the Loan, as evidenced by the Note, by executing the Deed of Trust, and recording it as a lien against the Borrower's fee interest in the Property in a lien position reasonably acceptable to the Agency. Section 2.5 Loan Disbursement. The Agency shall not be obligated to fund any portion of the Loan or take any other action under the Loan Documents unless all of the following conditions precedent are satisfied: (a) There exists no Default nor any act, failure, omission or condition that would constitute or cause a Default; (b) The Borrower has delivered to the Agency a copy of a duly adopted resolution authorizing the Borrower's execution of the Loan Documents and the transactions contemplated by the Loan Documents; (c) The Borrower has furnished the Agency with evidence of the insurance coverage meeting the requirements of Section 3.22 below; (d) The Borrower holds fee interest to the Property; (e) The Borrower has executed and delivered to the Agency this Agreement, the Note, the Deed of Trust and the Regulatory Agreement, and the Deed of Trust and the Regulatory Agreement have been recorded against the Property in the Office of the Recorder of the County of San Diego in a lien position acceptable to the Agency; (f) The Borrower has executed and delivered to the Agency all documents, instruments, and policies required under the Loan Documents; (g) A title insurer reasonably acceptable to the Agency is unconditionally and irrevocably committed to issuing an ALTA Lender's Policy of insurance insuring the priority of the Deed of Trust in the amount of the Loan, subject only to such exceptions and exclusions as may be reasonably acceptable to the Agency, and containing such endorsements as the Agency may reasonably require; (h) The Agency has received and approved the final plans and specifications for construction of the Development pursuant to Section 3.2, below; 1010\20\406819.1 (i) The Borrower has obtained the Certificate of Occupancy for the Improvements; (j) The Borrower has obtained lien releases and/or mechanics' lien title insurance endorsements, reasonably acceptable to the Agency, insuring the Agency that there are no liens against the Property (other than the liens for the Approved Financing and other easements and encumbrances necessary for the development and operation of the Development as reasonably acceptable to the Agency); (k) The process to determine if the Agency funding the amount of One Million Fourteen Thousand Dollars ($1,014,000) will result in Excess Proceeds of Permanent Financing (as more particularly described in Section 2.1(b), above) has been completed, and the Agency has determined the exact amount of the Loan to be disbursed to the Borrower; and (1) The Borrower has closed all permanent financing described as Approved Financing in Section 1.1 (d) above. Section 2.6 Repayment of the Loan. The Loan shall be repaid as follows: (a) Term. The Term of the Loan shall commence as of the date of this Agreement and shall expire on the date that is fifty-five (55) years after the date of this Agreement. (b) Annual Repayments. Commencing on May 1 st first occurring after the fiscal year in which the Improvements are completed pursuant to this Agreement, and on each May 1st thereafter throughout the Term of the Loan, the Borrower shall make repayments of the Loan equal to the Agency Prorata Percentage of the Lender's Share of Residual Receipts calculated for the previous year. The Borrower shall provide the Agency, by each May 1st following each fiscal year, a report showing the actual income and expenditures with respect to the Development for the immediately preceding fiscal year, the calculation of Annual Operating Expenses, Gross Revenue, and Residual Receipts (including, the Borrower's Share of Residual Receipts, the total Lenders' Share of Residual Receipts, the Agency Prorata Percentage, and the MHP Prorata Percentage), the status of all reserve funds, including without limitation, an annual audited financial statement for the Development prepared by a certified public accountant approved by the Agency. Payments made shall be credited first against accrued interest and then against outstanding principal. (c) Payment in Full. All principal and interest, if any, on the Loan shall, at the option of the Agency, be due and payable upon the earliest of: (i) a Transfer other than a Transfer permitted or approved by the Agency as provided in Article 4 below; (ii) the occurrence of a Default for which the Agency exercises its right to cause the Loan indebtedness to become immediately due and payable; or (iii) the expiration of the Term specified in (a) above. 1010\20\406819.1 (d) Prepayment. The Borrower shall have the right to prepay the Loan at any time without premium or penalty. However, this Agreement, the Deed of Trust, and the Regulatory Agreement shall remain in effect for the entire Term, regardless of any prepayment. (e) Special Definitions. The following definitions shall apply for purposes of this Section 2.6: (1) "Annual Operating Expenses" with respect to a particular fiscal year shall mean the following costs reasonably and actually incurred for operation and maintenance of the Development to the extent that they are consistent with the annual budget for the Development, approved by the Agency pursuant to the Regulatory Agreement and with an annual independent audit performed by a certified public accountant, reasonably acceptable to the Agency, using generally accepted accounting principles: property taxes and assessments imposed on the Development; debt service (including required escrow and reserve deposits and trustee and servicing fees) currently due on a non-optional basis (excluding debt service due from residual receipts or surplus cash of the Development) on loans associated with development of the Development and approved by the Agency in the Financing Plan pursuant to Section 2.5; an annual asset management fee in the amount of Five Thousand Dollars ($5,000) paid to the Tax Credit Investor which amount shall be adjusted for inflation as provided in the Borrower's partnership agreement, and as reasonably acceptable to the Agency; property management fees and reimbursements, not to exceed fees and reimbursements which are standard in the industry and pursuant to a management contract approved by the Agency as set forth in the Regulatory Agreement; premiums for property damage and liability insurance; utility services not paid for directly by tenants, including water, sewer, and trash collection; maintenance and repair; any annual license or certificate of occupancy fees required for operation of the Development; security services; advertising and marketing; cash deposited into reserves for capital replacements of the Development in an amount not to exceed the amount required in connection with the permanent financing approved by the Agency pursuant to Section 2.5, or by the Agency if no other lender or investor requires approvals of such amount; payment of any previously unpaid portion of the Developer Fee due (with interest) not exceeding a cumulative amount of the Developer Fee as set forth in Section 3.23; extraordinary operating costs specifically approved in writing by the Agency as part of the annual budget approval process pursuant to the Regulatory Agreement; payments of deductibles in connection with casualty insurance claims not normally paid from reserves; the amount of uninsured losses actually replaced, repaired or restored, and not normally paid from reserves; and other ordinary and reasonable operating expenses approved in writing by the Agency and not listed above. Annual Operating Expenses shall not include the following: depreciation, amortization, depletion or other non-cash expenses; any amount expended from a reserve account; and any capital cost with respect to the Development, as determined by the accountant for the Development. (f) "Borrower's Share of Residual Receipts" shall mean [twenty eight percent (28%)] of Residual Receipts. (g) "Gross Revenue" with respect to a particular fiscal 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 1010\20\406819.1 dwelling units, deposits forfeited by tenants, all cancellation fees, price index adjustments and any other rental adjustments to leases or rental agreements; net proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance and not paid to senior lenders; the proceeds of casualty insurance not used to rebuild the Development and not paid to senior lenders; and condemnation awards for a taking of part or all of the Development for a temporary period not paid to senior lenders. Gross Revenue shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances. (h) "Lenders' Share of Residual Receipts" shall mean [seventy-two percent (72%)] of Residual Receipts which shall be shared among HCD and the Agency to repay the MHP Loan and the Loan, respectively. (i) "Prorata Percentage" shall mean, for the Agency, the proportion of Loan funds disbursed to the Borrower in accordance with this Agreement over the sum of the Loan funds and the MHP Loan funds disbursed to the Borrower. The term "Prorata Percentage" shall mean, for the MHP Loan, the proportion of the MHP Loan funds disbursed to the Borrower over the sum of the Loan funds and the MHP Loan funds disbursed to the Borrower. In calculating the Prorata Percentages, the Loan funds and the MHP Loan funds that have been repaid shall be deemed to not to have ever been disbursed. If all anticipated Loan and MHP Loan funds are disbursed the Prorata Percentages will be fourteen percent (14%) to the Agency (the "Agency Prorata Percentage") and eighty-six percent (86%) to HCD (the "MHP Prorata Percentage"). (j) "Residual Receipts" in a particular calendar year shall mean the amount by which Gross Revenue (as defined above) exceeds Annual Operating Expenses (as defined above). Section 2.7 Reports and Accounting of Residual Receipts. (a) Audited Financial Statement. In connection with the annual payments set forth in Section 2.6(b), within sixty (60) days of the end of the Borrower's fiscal year, the Borrower shall furnish to the Agency an audited statement duly certified by an independent firm of certified public accountants approved by the Agency, setting forth in reasonable detail the computation and amount of Residual Receipts during the preceding calendar year. (b) Books and Records. The Borrower shall keep and maintain on the Property, or at its principal place of business, or elsewhere with the Agency's written consent, full, complete and appropriate books, records and accounts relating to the Development, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail the Borrower's calculation of Residual Receipts. Books, records and accounts relating to the Borrower's compliance with the terms, provisions, covenants and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Agreement which provide for the calculation of Residual Receipts on a cash basis. All such books, records, and accounts shall be open to and available for inspection by the Agency, its auditors or other Agency authorized representatives at reasonable intervals during normal business hours. Copies of all tax returns and other reports that the Borrower may be required to furnish any governmental agency shall at all reasonable times be open for inspection by the Agency at the 1010\20\406819.1 place that the books, records and accounts of the Borrower are kept. The Borrower shall preserve records on which any statement of Residual Receipts is based for a period of not less than five (5) years after such statement is rendered, and for any period during which there is an audit undertaken pursuant to subsection (c) below then pending. (c) Audits. The receipt by the Agency of any statement pursuant to subsection (a) above or any payment by the Borrower or acceptance by the Agency of any Loan repayment shall not bind the Agency as to the correctness of such statement or such payment. Within three (3) years after the receipt of any such statement, the Agency or any designated agent or employee of the Agency at any time shall be entitled to audit the Residual Receipts and all books, records, and accounts pertaining thereto. Such audit shall be conducted during normal business hours at the principal place of business of the Borrower and other places where records are kept. Immediately after the completion of an audit, the Agency shall deliver a copy of the results of such audit to the Borrower and the Tax Credit Investor. If it shall be determined as a result of such audit that there has been a deficiency in a Loan repayment to the Agency, then such deficiency shall become immediately due and payable with interest at the default rate set forth in this Agreement, determined as of and accruing from the date that said payment should have been made. In addition, if the Borrower's auditor's statement for any Development fiscal year shall be found to have understated Residual Receipts by more than five percent (5%) and at least Five Thousand Dollars ($5,000), and the Agency is entitled to any additional Loan repayment as a result of said understatement, then the Borrower shall pay, in addition to the interest charges referenced hereinabove, all of the Agency's reasonable costs and expenses connected with any audit or review of the Borrower's accounts and records. (d) Maximization of Residual Receipts: Compliance with MHP. The Borrower agrees at all times during the Term to continue its operations of the Development and to use its skills and diligence to produce the maximum Residual Receipts, subject to the rent and occupancy requirements of the Regulatory Agreement and the MHP regulations. Section 2.8 Non-Recourse. Except as provided below, the Borrower shall not have any direct or indirect personal liability for payment of the principal of, or interest on, the Loan or the performance of the covenants of the Borrower under the Deed of Trust. The sole recourse of the Agency with respect to the principal of, or interest on, the Note and defaults by the Borrower in the performance of its covenants under the Deed of Trust shall be to the Property described in the 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 Note of all the rights and remedies of the Agency thereunder, or (b) be deemed in any way to impair the right of the Agency to assert the unpaid principal amount of the Note as demand for money within the meaning and intendment of Section 431.70 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 the Borrower's obligations under the Deed of Trust, except as hereafter set forth; nothing contained herein is intended to relieve the Borrower of its obligation to indemnify the Agency under Sections 3.5, 3.7, 3.16, and 7.5 of this Agreement; or liability for (i) fraud or 1010\20\406819.1 willful misrepresentation; (ii) the failure to pay taxes, assessments or other charges which may create liens on the Property that are payable or applicable prior to any foreclosure under the Deed of Trust (to the full extent of such taxes, assessments or other charges); (iii) the fair market value of any personal property or fixtures removed or disposed of by the Borrower other than in accordance with the Deed of 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. Section 2.9 Subordination. (a) Deed of Trust. The Agency agrees to subordinate the Deed of Trust to the liens of the deeds of trust securing the Bond Financing and the MHP Loan provided the subordination documents provide the Agency with reasonably adequate notice and cure rights to enable the Agency to avoid foreclosure of the deeds of trust securing the Bond Financing and the MHP Loan. (b) Regulatory Agreement. The Agency agrees that the Agency's Executive Director shall have the authority to agree to the subordination of the Regulatory Agreement to the lien of the deeds of trust securing the Bond Financing upon the finding that (i) an economically feasible loan is not reasonably available on comparable terms and conditions without subordination, and (ii) the lien to which the Regulatory Agreement is being subordinated contains provisions meeting the requirements of Health and Safety Code Section 33334.14(a) reasonably designed to protect the Agency's interests in the event of default under such lien. The Agency agrees that the Regulatory Agreement shall be subordinated to any federal or state governmental agency regulating the Development which requires that the Regulatory Agreement be subordinate to such government agency's documents and liens. The Agency will execute subordination agreements in a form reasonably acceptable to the Agency and the lending entity or government agency requesting subordination of the Regulatory Agreement as provided in this Section. ARTICLE 3 CONSTRUCTION AND OPERATION OF THE DEVELOPMENT Section 3.1 Permits and Approvals. (a) As of the date of this Agreement, the Borrower has obtained all permits and approvals necessary for the development of the Development on the Property, other than the building permit for the construction of the Improvements. (b) No later than , 2007, the Borrower shall obtain the building permit for the construction of the Improvements on the Property, or the Agency, at its option, and with thirty (30) days' prior written notice to the Borrower and opportunity to cure, may declare the Borrower in default hereunder. Section 3.2 Plans and Specifications. 1010\20\406819.1 (a) Simultaneously with submission to the City building department, the Borrower shall submit to the Agency a copy of the Construction Plans for the Development. As used in this Agreement, "Construction Plans" shall mean all construction documentation upon which the Borrower and the Borrower's contractor shall rely in constructing all the improvements on the Property (including the Units, landscaping, parking, and common areas) and shall include, but not necessarily be limited to, final architectural drawings, landscaping plans and specifications, final elevations, building plans and specifications (also known as "working drawings"). (b) The Agency shall, if the Construction Plans submitted conform to the provisions of this Agreement, approve in writing such Construction Plans. Unless rejected by the Agency for their failure to comply with the foregoing requirements within fifteen (15) days following submission by the Borrower, said Construction Plans shall be deemed accepted. Such approval of the Agency shall not relieve Borrower's obligation to obtain any and all approvals required by the City building department. (c) If rejected by the Agency in whole or in part, the Borrower shall submit new or corrected Construction Plans within thirty (30) days after notification of the Agency's rejection and the reasons therefor. The Agency shall then have fifteen (15) days to review and approve the Borrower's new or corrected Construction Plans. The provisions of this Section relating to time periods for approval, rejection, or resubmission of new or corrected Construction Plans shall continue to apply until the Construction Plans have been approved by the Agency. Section 3.3 Commencement of Construction. The Borrower shall cause the commencement of construction of the Development no later than , 2007. For the purposes of this Agreement, the term "commencement of construction" shall mean the date the Borrower commences, or causes the commencement of, physical work on the Property pursuant to a building permit. Section 3.4 Completion of Construction. The Borrower shall diligently prosecute construction of the Development to completion, and shall cause the completion of the construction of the Development no later than , 200 . For the purposes of this Agreement, the term "completion of construction" shall mean the date the City issues the Certificate of Occupancy for the Improvements. Section 3.5 Construction Pursuant to Plans and Laws; Prevailing Wages. (a) The Borrower shall construct the Development in conformance with the Construction Plans approved by the Agency. The Borrower shall notify the Agency in a timely manner of any changes in the work required to be performed under this Agreement, including any additions, changes, or deletions to the Construction Plans approved by the Agency. A written change order authorized by the Agency must be obtained before any of the following changes, additions, or deletions in work for the Development may be performed: (1) any change 1010\20\406819.1 12 in the work the cost of which exceeds Ten Thousand Dollars ($10,000); or (2) any set of changes in the work the cost of which cumulatively exceeds Twenty-Five Thousand Dollars ($25,000); or (3) any material change in building materials or equipment, specifications, or the structural or architectural design or appearance of the Development as provided for in the Construction Plans approved by the Agency. Consent to any additions, changes, or deletions to the work shall not relieve or release the Borrower from any other obligations under this Agreement, or relieve or release the Borrower or its surety from any surety bond. The Agency shall utilize best efforts to approve or disapprove change orders within five (5) working days of receipt of a request for approval. (b) The Borrower shall cause all work performed in connection with the Development to be performed in compliance with (i) all applicable laws, ordinances, rules and regulations of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, and (ii) all directions, rules and regulations of any fire marshal, health officer, building inspector, or other officer of every governmental agency now having or hereafter acquiring jurisdiction. The work shall proceed only after 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 Agency for the procurement and maintenance thereof, as may be required of the Borrower and all entities engaged in work on the Development. (c) Borrower shall and shall cause the contractor and subcontractors to pay prevailing wages in the construction of the Improvements as those wages are determined pursuant to Labor Code Sections 1720 et seq.. and the implementing regulations of the Department of Industrial Relations (the "DIR") and comply with the other applicable provisions of Labor Code Sections 1720 et seq.. including but not limited to the hiring of apprentices as required by Labor Code Sections 1775 et seq.. and the implementing regulations of the DIR. The Borrower shall and shall cause the contractor and subcontractors to keep and retain such records as are necessary to determine if such prevailing wages have been paid as required pursuant to Labor Code Sections 1720 et seq. The Borrower shall indemnify, hold harmless and defend (with counsel reasonably selected by the Agency) the Agency, the City, and their agents, official, and employees, and members of the Agency Board and City Council against any claim for damages, compensation, fines, penalties or other amounts arising out of the failure or alleged failure of any person or entity (including Borrower, its contractor and subcontractors) to pay prevailing wages as determined pursuant to Labor Code Sections 1720 et seq., to hire apprentices in accordance with Labor Code Sections 1777.5 et seq.. and the implementing regulations of the DIR or comply with the other applicable provisions of Labor Code Sections 1720 et seq.. and the implementing regulations of the DIR in connection with construction of the Improvements or any other work undertaken or in connection with the Property. Section 3.6 Marketing Plan. (a) No later than six (6) months prior to the projected date of the completion of the construction of the Development, the Borrower shall submit to the Agency for approval its plan for marketing the Development to income-eligible households as required pursuant to the 1010\20\406819.1 13 Regulatory Agreement, including information on affirmative marketing efforts and compliance with fair housing laws (the "Marketing Plan"). (b) Upon receipt of the Marketing Plan, the Agency shall promptly review the Marketing Plan and shall approve or disapprove it within thirty (30) days after submission. If the Marketing Plan is not approved, the Borrower shall submit a revised Marketing Plan within thirty (30) days following the Borrower's receipt of the Agency's written disapproval. If the Agency does not approve the revised Marketing Plan because the Borrower fails to make specific revisions requested by the Agency, the Borrower shall be in default hereunder. Section 3.7 Relocation. If and to the extent that acquisition of the Property or construction of the Development results in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then the Borrower shall comply with all applicable local, state, and federal statutes and regulations, (including without limitation the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended, California Government Code Section 7260 et seq.. and accompanying regulations, as amended) with respect to relocation planning, advisory assistance, and payment of monetary benefits. The Borrower shall be solely responsible for payment of any relocation benefits to any displaced persons and any other obligations associated with complying with such relocation laws. The Borrower shall defend (with counsel reasonably acceptable to the Agency), the Agency against any claim for damages, compensation, fines, penalties, relocation payments or other amounts arising out of the failure or alleged failure of any person or entity (including the Borrower or the Agency) to satisfy relocation obligations related to the development of the Development. This obligation to indemnify shall survive termination of this Agreement. Section 3.8 Equal Opportunity. During the construction of the Development there shall be no discrimination on the basis of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin, ancestry, or disability in the hiring, firing, promoting, or demoting of any person engaged in the construction work. Section 3.9 Progress Reports. Until such time as the Borrower has completed construction of the Property, as evidenced by a certificate of occupancy issued by the City, the Borrower shall provide the Agency with quarterly progress reports regarding the status of the construction of the Development, including a certification that the actual construction costs to date conform to the Approved Development Budget, as it may be amended from time to time pursuant to Section 3.15 below. Section 3.10 Construction Responsibilities. 1010\20\406819.1 14 (a) It shall be the responsibility of the Borrower to coordinate and schedule the work to be performed so that commencement and completion of construction will take place in accordance with this Agreement. (b) The Borrower shall be solely responsible for all aspects of the Borrower's conduct in connection with the Development, including (but not limited to) the quality and suitability of the Construction Plans, the supervision of construction work, and the qualifications, financial condition, and performance of all architects, engineers, contractors, subcontractors, suppliers, consultants, and property managers. Any review or inspection undertaken by the Agency with reference to the Development is solely for the purpose of determining whether the Borrower is properly discharging its obligations to the Agency, and should not be relied upon by the Borrower or by any third parties as a warranty or representation by the Agency as to the quality of the design or construction of the Development. Section 3.11 Inspections. The Borrower shall permit and facilitate, and shall require its contractors to permit and facilitate, observation and inspection at the Development by the Agency and by public authorities during reasonable business hours for the purposes of determining compliance with this Agreement. Section 3.12 Approved Development Budget: Revisions to Budget. As of the date of this Agreement, the Agency has approved the Approved Development Budget set forth in Exhibit B. The Borrower shall submit any required amendments to the Approved Development Budget to the Agency for approval within fifteen (15) days of the date the Borrower receives information indicating that actual costs of the Development vary or will vary from the costs shown on the Approved Development Budget. Written consent of the Agency shall be required to amend the Approved Development Budget. The Agency shall utilize best efforts to approve or disapprove requested amendments to the Development Budget within five (5) working days of receipt of a request for approval. Section 3.13 Information. The Borrower shall provide any information reasonably requested by the Agency in connection with the Development. Section 3.14 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 Agency to inspect and copy records. Such records shall include all invoices, receipts, and other documents related to expenditures from the Loan funds. Records must be kept accurate and current. 1010\20\406819.1 15 (b) The Agency shall notify the Borrower of any records it deems insufficient. The Borrower shall have twenty-one (21) calendar days after the receipt of such a notice to correct any deficiency in the records specified by the Agency in such notice, or if a period longer than twenty-one (21) days is reasonably necessary to correct the deficiency, then the Borrower shall begin to correct the deficiency within twenty-one (21) days and correct the deficiency as soon as reasonably possible. Section 3.15 Audits. The Borrower shall make available for examination at reasonable intervals and during normal business hours to Agency all books, accounts, reports, files, and other papers or property with respect to all matters covered by this Agreement, and shall permit Agency to audit, examine, and make excerpts or transcripts from such records. Agency may make audits of any conditions relating to this Agreement. Section 3.16 Hazardous Materials. (a) The Borrower shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. The Borrower shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as may be used in construction of the Development or customarily kept and used in and about residential property of this type. (b) The Borrower shall immediately advise the Agency 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 Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against the Borrower or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above are hereinafter referred to as "Hazardous Materials Claims"); and (iii) the Borrower's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" under the provision of California Health and Safety Code, Sections 25220 et seq.. or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. 1010\20\406819.1 16 (c) The Agency shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by the Borrower. The Borrower shall indemnify and hold harmless the Agency and the City, and their council members, board members, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by the Agency in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees. This obligation to indemnify shall survive termination of this Agreement, but shall not apply to the extent of the Agency's gross negligence or willful misconduct. (d) Without the Agency's prior written consent, which shall not be unreasonably withheld, the Borrower shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in the Agency's reasonable judgment, impair the value of the Agency's security hereunder; provided, however, that the Agency's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain the Agency's consent before taking such action, provided that in such event the Borrower shall notify the Agency as soon as practicable of any action so taken. The Agency 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 Agency that there is no reasonable alternative to such remedial action which would result in less impairment of the Agency's security hereunder; or (iv) the action has been agreed to by the Agency. (e) The Borrower hereby acknowledges and agrees that (i) this Section is intended as the Agency's written request for information (and the Borrower's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Agreement (together with any indemnity obligation applicable to a breach of any such representation and warranty) with respect to the environmental condition of the Property is intended by the Parties to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. (i) In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(l)), then, without otherwise limiting or in any way affecting the 1010\20\406819.1 Agency's or the trustee's rights and remedies under the Deed of Trust, the Agency may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Borrower to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Agency's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Borrower shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code of Civil Procedure Section 726.5(d)(l), if the release or threatened release of Hazardous Materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Borrower knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Agency in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the rate specified in the Note until paid, shall be added to the indebtedness secured by the Deed of Trust and shall be due and payable to the Agency upon its demand made at any time following the conclusion of such action. Section 3.17 Fees and Taxes. The Borrower shall be solely responsible for payment of all fees, assessments, taxes, charges, and levies imposed by any public authority or utility company with respect to the Property or the Development to the extent owned by the Borrower, and shall pay such charges prior to delinquency. However, the Borrower shall not be required to pay and discharge any such charge so long as (a) the legality thereof is being contested diligently and in good faith and by appropriate proceedings, and (b) if requested by the Agency, the Borrower deposits with the Agency any funds or other forms of assurance that the Agency in good faith from time to time determines appropriate to protect the Agency from the consequences of the contest being unsuccessful. Section 3.18 Notice of Litigation. The Borrower shall promptly notify the Agency in writing of any litigation affecting the Borrower or the Property and of any claims or disputes that involve a material risk of litigation. Section 3.19 Operation of Development as Affordable Housing. (a) Promptly following the completion of construction of the Improvements, the Borrower shall continuously operate and maintain the Development as multifamily housing rented to eligible occupants at rent levels in conformity with the Regulatory Agreement and this Agreement. (b) Before leasing any Unit in the Development, the Borrower shall submit its proposed form of lease agreement for the Agency's review and approval. 1010\20\406819.1 (c) Before leasing any Unit in the Development, the Borrower must provide the Agency, for its review and approval, with the Borrower's written tenant selection plan. (d) The Borrower must determine the income eligibility of each tenant household occupying a Unit pursuant to the Agency's approved tenant certification procedures no later than sixty (60) days before the household's expected occupancy. The Borrower shall certify each tenant household's income on an annual basis. (e) The maximum household income of a household occupying a Unit, and the total charges for rent, utilities, and related services to each household occupying a Unit, shall be maintained as provided in the Regulatory Agreement. Section 3.20 Non-Discrimination. The Borrower covenants by and for itself and its successors and assigns that there shall be no discrimination against or segregation of a person or of a group of persons on account of race, color, religion, creed, sex, sexual orientation, marital status, familial status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment 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. Section 3.21 Mandatory Language in All Subsequent Deeds. Leases and Contracts. All deeds, leases or contracts made or entered into by the Borrower, its successors or assigns, as to any portion of the Development shall contain therein 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, familial status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property herein conveyed nor shall the grantee or any person claiming under or through the grantee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the property herein conveyed. The foregoing covenant shall run with the land." (b) 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 1010\20\406819.1 19 Term: 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, familial 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." (c) In Contracts: "There shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, familial status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the property nor shall the transferee or any person claiming under or through the transferee establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the land." Section 3.22 Insurance Requirements. The Borrower shall maintain the following insurance coverage throughout the Loan (a) Workers' Compensation insurance to the extent required by law, including Employer's Liability coverage, with limits not less than One Million Dollars ($1,000,000) each accident. (b) Commercial General Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverage for Contractual Liability, Personal Injury, Broadform Property Damage, and Products and Completed Operations. (c) Comprehensive Automobile Liability insurance with limits not less than One Million Dollars ($1,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverage for owned, non-owned and hired vehicles, as applicable; provided, however, that if the Borrower does not own or lease vehicles for purposes of this Agreement, then no automobile insurance shall be required. (d) Property insurance, including builder's risk insurance during the course of construction, covering the Development, in form appropriate for the nature of such property, covering all risks of loss, excluding earthquake, for one hundred percent (100%) of the replacement value, with deductible, if any, acceptable to the Agency, naming the Agency as a 1010\20\406819.1 20 (,1 Loss Payee, as its interests may appear. Flood insurance shall be obtained if required by applicable federal regulations. (e) The Borrower shall cause any general contractor or agent working on the Development under direct contract with the Borrower to maintain insurance of the types and in at least the minimum amounts described in subsections (a), (b), and (c) above, except that the limit of liability for commercial general liability insurance for subcontractors shall be One Million Dollars ($1,000,000), and shall require that such insurance shall meet all of the general requirements of subsections (e), (f), and (g) below, including, without limitation, the requirement of subsection (f). Subcontractors working on the Development under indirect contract with the Borrower shall be required to maintain the insurance described in subsections (a), (b), and (c) above. Liability and Comprehensive Automobile Liability insurance to be maintained by such contractors and agents pursuant to this subsection shall name as additional insureds the City, the Agency, their officers, agents, employees and board members, and members of the City Council. (f) The required insurance shall be provided under an occurrence form, and the Borrower shall maintain such coverage continuously so long as the Note is outstanding. Should any of the required insurance be provided under a form of coverage that includes an annual aggregate limit or provides that claims investigation or legal defense costs be included in such annual aggregate limit, such annual aggregate limit shall be three times the occurrence limits specified above. (g) Commercial General Liability and Property insurance policies shall be endorsed to name as an additional insured the City, the Agency, and their officers, agents, employees and members of the City Council and Agency Board. (h) All policies and bonds shall contain (a) the agreement of the insurer to give the Agency at least thirty (30) days' notice prior to cancellation (including, without limitation, for non payment of premium) or any material change in said policies; (b) an agreement that such policies are primary and non contributing with any insurance that may be carried by the Agency; (c) a provision that no act or omission of the Borrower shall affect or limit the obligation of the insurance carrier to pay the amount of any loss sustained; and (d) a waiver by the insurer of all rights of subrogation against the Agency and its authorized parties in connection with any loss or damage thereby insured against. Section 3.23 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, shall not exceed Two Million Five Hundred Thousand Dollars ($2,500,000). ARTICLE 4 ASSIGNMENT AND TRANSFERS Section 4.1 Definitions. 1010\20\406819.1 21 As used in this Article Four, the term "Transfer" means: (a) Any total or partial sale, lease, assignment, or other conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to this Agreement or of any part of or interest in the Development, or any agreement to do any of the foregoing; or (b) Any total or partial sale, assignment, or other conveyance, or any trust or power, or any transfer in any other mode or form, of or with respect to any ownership interest in the Borrower or any agreement to do any of the foregoing. Section 4.2 Purpose of Restrictions on Transfer. This Agreement is entered into solely for the purpose of the Borrower's construction and operation of the Development in accordance with the terms of this Agreement and the Regulatory Agreement. The qualifications and identity of the Borrower are of particular concern to the Agency, in view of: (a) The importance of the development of the Property to the general welfare of the community; (b) The public aids that have been made available by law and by the government for the purpose of making such development possible; (c) The reliance by the Agency upon the unique qualifications and ability of the Borrower to serve as the catalyst for development of the Property and upon the continuing interest which the Borrower will have in the Property to assure the quality of the use, operation, and maintenance deemed critical by the Agency in the development of the Property; (d) The fact that a change in ownership or control of the owner of the Property, or of a substantial part thereof, or any other act or transaction involving or resulting in a significant change in ownership or with respect to the identity of the parties in control of the Borrower or the degree thereof, is for practical purposes a transfer or disposition of the Property; and (e) The importance to the Agency of the standards of use, operation, and maintenance of the Property. It is because of the qualifications and identity of the Borrower that the Agency is entering into this Agreement and that Transfers are permitted only as provided in this Agreement. Section 4.3 Prohibited Transfers. The limitations on Transfers set forth in this Article Four shall apply throughout the Term. Except as expressly permitted in this Agreement, the Borrower represents that it has not made or created, and agrees that it will not make or create or suffer to be made or created, any 1010\20\406819.1 22 Transfer, either voluntarily or by operation of law, without the prior written approval of the Agency. Any Transfer made in contravention of this Section 4.3 shall at the Agency's discretion be void and shall be deemed to be a default under this Agreement, whether or not the Borrower knew of or participated in such Transfer. Section 4.4 Permitted Transfers Without Prior Agency Approval. The only Transfer permitted at any time without the prior approval of the Agency is the rental of a Unit by the Borrower in the ordinary course of business and in compliance with the Regulatory Agreement. Section 4.5 Permitted Transfers With Prior Approval; Agency Pre-Approved Transfers. (a) Except as permitted under Section 4.4, any Transfer shall be permitted only after (a) the Agency, in its sole discretion, has delivered to the Borrower its prior written approval of such Transfer, and (b) the transferee has assumed the Borrower's obligations under this Agreement by signing an assignment and assumption agreement, in a form prepared by the Agency, and such other reasonable documentation as the Agency may reasonably require to evidence such transferee's assumption of the Borrower's duties and obligations under the Loan Documents. (b) The Borrower anticipates syndicating the Tax Credits that will be generated by the Development, which syndication will require the admission of the Tax Credit Investor as a limited partner in the Borrower. The Agency hereby approves the admission of the Tax Credit Investor to the Borrower, provided that: (i) the partnership agreement of the Borrower provides for capital contributions consistent with Section 1.1 (d) above and is first approved by the Agency in its reasonable discretion; and (ii) all documents associated with the Tax Credit syndication of the Development are submitted to the Agency for approval prior to execution, which approval shall not be unreasonably withheld; (c) The Agency hereby approves Transfer of the limited partner interest in the Borrower by the Tax Credit Investor provided that: (i) such transfers do not affect the timing and amount of the remaining limited partner capital contributions provided for in and subject to the terms of the partnership agreement agreed to by the Agency; (ii) in subsequent transfers, an entity under the Control of [MMA Financial, LLC] retains a membership interest and serves as a managing member or general partner of the successor limited partner; and (iii) in subsequent transfers the Tax Credit Investor remains liable for all unpaid capital contributions payable in accordance with the terms of the Borrower's partnership agreement. (d) In the event the general partner of the Borrower is removed by the limited partner of the Borrower following default under the Borrower's partnership agreement, the Agency hereby approves the transfer of the general partner interest to an entity under the Control of [MMA Financial, LLC]. 1010\20\406819.1 23 Section 4.6 Release of the Borrower. Upon all of the terms of this Article Four being satisfied for a permitted Transfer to be effective, the Borrower or the successor transferor party, as applicable, shall be released from all liability under this Agreement so transferred arising subsequent to the effectiveness of such Transfer. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BORROWER Section 5.1 Representations and Warranties. (a) The Borrower hereby represents to the Agency as follows: (1) Organization. The Borrower is a duly organized, validly existing California limited partnership and is in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. (2) Authority of the Borrower. The Borrower has full power and authority to execute and deliver this Agreement and to make and accept the borrowings contemplated hereunder, to execute and deliver the Loan Documents and all other documents or 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. (3) Authority of Persons Executing Documents. This Agreement and the Loan Documents and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of the Borrower, and all actions required under the Borrower's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Agreement and the Loan Documents and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement, have been duly taken. (4) Valid Binding Agreements. This Agreement and the Loan Documents and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Agreement constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of the Borrower enforceable against it in accordance with their respective terms. (5) No Breach of Law or Agreement. Neither the execution nor delivery of this Agreement and the Loan Documents or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Agreement, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on the Borrower, or any provision 1010\20\406819.1 24 of the organizational documents of the Borrower, or will conflict with or constitute a breach of or a default under any agreement to which the Borrower is a party, or will result in the creation or imposition of any lien upon any assets or property of the Borrower, other than liens established pursuant hereto. (6) Pending Proceedings. The Borrower is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Property, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to the Borrower, materially affect the Borrower's ability to repay .the Loan or impair the security to be given to the Agency pursuant hereto. (b) The Borrower hereby warrants to the Agency as follows: (1) Compliance With Laws: Consents and Approvals. The construction of the Development will comply with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. The Development shall be constructed substantially in accordance with the Construction Plans approved by the Agency pursuant to Section 3.2. (2) Title to Land. At the time of recordation of the Deed of Trust and the Regulatory Agreement, the Borrower will have good and marketable fee title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than liens for current real property taxes and assessments not yet due and payable, and liens in favor of the Agency or approved in writing by the Agency. (3) Financial Statements. The financial statements of the Borrower and other financial data and information furnished by the Borrower to the Agency fairly present the information contained therein. As of the date of this Agreement, there has not been any adverse, material change in the financial condition of the Borrower from that shown by such financial statements and other data and information. (4) Sufficient Funds. The Borrower holds sufficient funds and/or binding commitments for sufficient funds to complete the acquisition of the Property and the construction of the Development in accordance with the plans and specifications approved by the Agency. ARTICLE 6 DEFAULT AND REMEDIES Section 6.1 Events of Default. 1010\20\406819.1 25 Each of the following shall constitute a "Default" by the Borrower under this Agreement: (a) Failure to Obtain Approvals. Failure of the Borrower to obtain all planning approvals and building permits necessary to construct the Development within the time set forth in Article 3. (b) Failure to Make Payment. Failure to repay the principal and any interest on the Loan that is due and payable to the Agency pursuant to the Loan Documents following written notice by the Agency to the Borrower and the Tax Credit Investor of such failure and ten (10) days opportunity to cure. (c) Failure to Construct. Failure of the Borrower to commence and complete construction of the Development within the time frames set forth in Article 3 above. (d) Breach of Covenants. Failure by the 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 and the Tax Credit Investor from Agency or, if the breach cannot be cured within thirty (30) days, the Borrower shall not be in breach so long as the Borrower is diligently undertaking to cure such breach and such breach is cured within ninety (90) days from the date of the Agency's written notice to the Borrower and the Tax Credit Investor; provided, however, that if a different period or notice requirement is specified under any other section of this Article 6, the specific provisions shall control. (e) Default Under Other Loans. A default is declared under the Approved Financing or any other financing secured against the Property by the lender of such financing, following the expiration of any applicable grace or cure period. (f) Insolvency. A court having jurisdiction shall have made or entered any decree or order (i) adjudging the Borrower to be bankrupt or insolvent, (ii) approving as properly filed a petition seeking reorganization of the Borrower or seeking any arrangement for the 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 the Borrower in bankruptcy or insolvency or for any of their properties, (iv) directing the winding up or liquidation of the Borrower, if any such decree or order described in clauses (i) to (iv), inclusive, shall have continued unstayed or undischarged for a period of ninety (90) days; or (v) the Borrower shall have admitted in writing its inability to pay its debts as they fall due or shall have voluntarily submitted to or filed a petition seeking any decree or order 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 Agency, the indebtedness evidenced by the Note. (g) Assignment: Attachment. The Borrower shall have assigned its assets for the benefit of its creditors or suffered a sequestration or attachment of or execution on any substantial part of its property, unless the properly so assigned, sequestered, attached or executed upon shall have been returned or released within ninety (90) days after such event or, if sooner, 1010\20\406819.1 26 prior to sale pursuant to such sequestration, attachment, or execution. The occurrence of any of the events of default in this paragraph shall act to accelerate automatically, without the need for any action by the Agency, the indebtedness evidenced by the Note. (h) Suspension; Dissolution. The Borrower shall have voluntarily suspended its business or the dissolution of the Borrower. (i) Liens on Property and the Development. There shall be filed any claim of lien (other than liens approved in writing by the Agency) against the Development, the Property, or any part thereof, or any interest or right made appurtenant thereto, or the service of any notice to withhold proceeds of the Loan and the continued maintenance of said claim of lien or notice to withhold for a period of twenty (20) days without discharge or satisfaction thereof or provision therefore (including, without limitation, the posting of bonds) satisfactory to the Agency. (j) Condemnation. The condemnation, seizure, or appropriation of all or the substantial part of the Property and the Development, except that condemnation by the Agency shall cause the Loan to accelerate but shall not be a Default. (k) Unauthorized Transfer. Any Transfer other than as permitted by Article 4 or approved by the Agency in writing. (1) Representation or Warranty Incorrect. Any representation or warranty of the Borrower contained in this Agreement, or in any application, financial statement, certificate, or report submitted to the Agency in connection with any of the Loan Documents, proves to have been incorrect in any material and adverse respect when made. (m) Insufficient Funds. The Borrower fails to obtain funds, or commitment of funds, sufficient to acquire the Property and develop the Development, as determined by the Agency in the Agency's reasonable discretion. (n) Applicability to General Partner. In the event the Borrower is a partnership, the occurrence of any of the events set forth in subsection (f), subsection (g), or subsection (h) in relation to the general partner of Borrower. Section 6.2 Remedies. The Agency agrees that any cure of a Default by the Tax Credit Investor, or other limited partners of the Borrower shall be deemed to be a cure by the Borrower, and shall be accepted or rejected on the same basis as if made or tendered by the Borrower. The occurrence of any Default hereunder following the expiration of all applicable notice and cure periods will, either at the option of the Agency or automatically where so specified, relieve the Agency of any obligation to make or continue the Loan and shall give the Agency 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: 1010\20\406819.1 27 / (a) Acceleration of Note. Subject to the provisions of Section 2.8, the Agency shall have the right to cause all indebtedness of the Borrower to the Agency under this Agreement and the 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 Agency may proceed to enforce payment of the indebtedness and to exercise any or all rights afforded to the Agency as a creditor and secured party under the law including the Uniform Commercial Code, and including foreclosure under the Deed of Trust. The Borrower shall be liable to pay the Agency on demand all reasonable expenses, costs and fees (including, without limitation, reasonable attorney's fees and expenses) paid or incurred by the Agency 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 Agency shall have the right to mandamus or other suit, action or proceeding at law or in equity to require the Borrower to perform its obligations and covenants under the Loan Documents or to enjoin acts on things which may be unlawful or in violation of the provisions of the Loan Documents. (c) Right to Cure at the Borrower's Expense. The Agency shall have the right (but not the obligation) to cure any monetary default by the Borrower under a loan other than the Loan. The Borrower agrees to reimburse the Agency for any funds advanced by the Agency to cure a monetary default by the Borrower upon demand therefore, together with interest thereon at the lesser of the maximum rate permitted by law or ten percent (10%) per annum from the date of expenditure until the date of reimbursement. Section 6.3 Assignment of Plans, Data and Approvals. If this Agreement is terminated pursuant to Section 6.2, then the Borrower shall promptly assign and deliver to the Agency, copies of all plans, studies, reports, data and specifications for the Development, all permits and approvals obtained in connection with the Development, and all applications for permits and approvals not yet obtained but needed in connection with the Improvements (collectively, the "Planning Documents"). The Planning Documents shall be delivered by the Borrower without any warranties or representations of any type or kind, express or implied, including whether the Planning Documents have been completed in final form. The Agency agrees and acknowledges that all such Planning Documents will be delivered subject to the rights of any copyright holders. Section 6.4 Remedies Cumulative. Subject to the non-recourse provisions contained in the Note, no right, power, or remedy given to the Agency 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 Agency by the terms of any such instrument, or by any statute or otherwise against the Borrower and any other person. Neither the failure nor any delay on the part of the Agency to exercise any such rights and remedies shall operate as a waiver thereof, nor shall any single or partial exercise by the Agency of any such right or remedy preclude any other or further exercise of such right or remedy, or any other right or remedy. 1010\20\406819.1 28 ARTICLE 7 GENERAL PROVISIONS Section 7.1 Relationship of Parties. Nothing contained in this Agreement shall be interpreted or understood by any of the parties, or by any third persons, as creating the relationship of employer and employee, principal and agent, limited or general partnership, or joint venture between the Agency and the Borrower or the Borrower's agents, employees or contractors, and the Borrower shall at all times be deemed an independent contractor and shall be wholly responsible for the manner in which it or its agents, or both, perform the services required of it by the terms of this Agreement for the development of the Development. In regards to the development of the Development, the Borrower shall be solely responsible for all matters relating to payment of its employees, including compliance with Social Security, withholding and all other laws and regulations governing such matters, and shall include requirements in each contract that contractors shall be solely responsible for similar matters relating to their employees. The Borrower agrees to be solely responsible for its own acts and those of its agents and employees. Section 7.2 No Claims. Nothing contained in this Agreement shall create or justify any claim against the Agency, by any person the Borrower may have employed or with whom the Borrower may have contracted relative to the purchase of materials, supplies or equipment, or the furnishing or the performance of any work or services with respect to the development of the Development, and the Borrower shall include similar requirements in any contracts entered into for the development of the Development. Section 7.3 Amendments. No alteration or variation of the terms of this Agreement shall be valid unless made in writing by the Parties. Section 7.4 Entire Understanding of the Parties. This Agreement constitutes the entire understanding and agreement of the Parties with respect to the Loan. Section 7.5 Indemnification. Except as directly caused by the Agency's gross negligence or willful misconduct, the Borrower agrees to indemnify, protect, hold harmless and defend (by counsel reasonably satisfactory to the Agency), the Agency and the City and their board members, council members, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of: (i) the Borrower's performance or non-performance of its 1010\20\406819.1 29 obligations under this Agreement; (ii) the Borrower's ownership of the Property; (iii) the development, marketing, rental and operation of the Development, or (iv), or any documents executed by the Borrower in connection with the Development. The provisions of this Section 7.5 shall survive termination of this Agreement. Section 7,6 Non-Liability of Agency and City Officials, Employees and Agents. No member, official, employee or agent of the Agency or the City shall be personally liable to the Borrower, or any successor in interest, in the event of any Default or breach by the Agency, or for any amount which may become due to the Borrower or its successor or on any obligation under the terms of this Agreement. Section 7.7 No Third Party Beneficiaries. Except for the City, there shall be no third party beneficiaries to this Agreement. Section 7.8 Action by the Agency. Except as may be otherwise specifically provided herein, whenever any approval, notice, direction, consent, request, extension of time, waiver of condition, termination, or other action by the Agency is required or permitted under this Agreement, such action may be given, made, or taken by the Agency Executive Director without further approval by the Agency Board, and any such action shall be in writing. The amount of the Loan may not be increased without approval of the Agency Board. Any consents or approvals required under this Agreement shall not be unreasonably withheld or made, except where it is specifically provided that a sole discretion standard applies. The Agency Executive Director is also hereby authorized to approve, on behalf of the Agency, requests by the Borrower for reasonable extensions of time deadlines set forth in this Agreement. The Agency shall not unreasonably delay in reviewing and approving or disapproving any proposal by the Borrower made in connection with this Agreement. Section 7.9 Waivers. Any waiver by the Agency of any obligation or condition in this Agreement must be in writing. No waiver will be implied from any delay or failure by the Agency to take action on any breach or default of the Borrower or to pursue any remedy allowed under this Agreement or applicable law. Any extension of time granted to the Borrower to perform any obligation under this Agreement shall not operate as a waiver or release from any of its obligations under this Agreement. Consent by the Agency to any act or omission by the Borrower shall not be construed to be a consent to any other or subsequent act or omission or to waive the requirement for the Agency's written consent to future waivers. Section 7.10 Notices. Demands and Communications. 1010\20\406819.1 30 Formal notices, demands, and communications between the Agency and the Borrower shall be sufficiently given if and shall not be deemed given unless dispatched by registered or certified mail, postage prepaid, return receipt requested, or delivered by reputable overnight delivery service, return receipt requested, or delivered personally, to the principal office of the Agency and the Borrower as follows: Agency: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director Borrower: c/o Chelsea Investment Corporation 725 South Cost Highway 101 Encinitas, CA 92024 Attn: [James J. Schmid] Tax Credit Investor: c/o MMA Financial TC Corporation 101 Arch Street Boston, MA 02110 Attn: Asset Management and Legal Department] with a copy to: [David E. Raderman, Esq. Gallagher, Evelius & Jones LLP 218 N. Charles Street, Suite 400 Baltimore, MD 21201] Such written notices, demands and communications may be sent in the same manner to such other addresses as the affected party may from time to time designate by mail as provided in this Section. Receipt shall be deemed to have occurred on the date shown on a written receipt for delivery or refusal of delivery. Section 7.11 Applicable Law and Venue. 1010\20\406819.1 31 This Agreement will be governed by California law. Any action brought claiming a breach of this Agreement or interpreting this Agreement shall be brought and venued in San Diego County, California. Section 7.12 Parties Bound. Except as otherwise limited herein, the provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, legal representatives, successors and assigns. This Agreement is intended to run with the land and shall bind the Borrower and its successors and assigns in the Property and the Development for the entire Term, and the benefit hereof shall inure to the benefit of the Agency and its successors and assigns. Section 7.13 Severability. If any term of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions shall continue in full force and effect unless the rights and obligations of the parties have been materially altered or abridged by such invalidation, voiding or unenforceability. Section 7.14 Force Majeure. In addition to specific provisions of this Agreement, performance by either Party shall not be deemed to be in default where delays or defaults are due to war; insurrection; strikes; lock- outs; riots; floods; earthquakes; fires; quarantine restrictions; freight embargoes; lack of transportation; or court order; or any other similar causes (other than lack of funds of the Borrower or the Borrower's inability to finance the construction of the Development) beyond the control or without the fault of the Party claiming an extension of time to perform. An extension of time for any cause will be deemed granted if notice by the Party claiming such extension is sent to the other within ten (10) days from the commencement of the cause and the Party granting the extension agrees to the extension in writing. In no event shall the Agency be required to agree to cumulative delays in excess of one hundred eighty (180) days. Section 7.15 Attorneys Fees. If any lawsuit is commenced to enforce any of the provisions of this Agreement, the prevailing party may recover its reasonable attorneys fees and costs of the suit. Section 7.16 Title of Parts and Sections. Any titles of the sections or subsections of this Agreement are inserted for convenience of reference only and shall be disregarded in interpreting any part of the Agreement's provisions. Section 7.17 Multiple Originals; Counterpart. 1010\20\406819.1 32 This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. Remainder of Page Left Intentionally Blank 1010\20\406819.1 33 WHEREFORE, this Agreement has been entered into by the undersigned as of the date first above written. BORROWER: a California limited partnership By: its Managing General Partner WED AS TO FORM: [Ronald Ball] Agency Counsel By: Name: Its: AGENCY: CARLSBAD REDEVELOPMENT AGENCY, a public body, corporate, and politic By: Name: Its: 1010\20\406819.1 34 EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY 1010\20\406819.1 EXHIBIT B APPROVED DEVELOPMENT BUDGET 1010\20\406819.1 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director No fee for recording pursuant to Government Code Section 27383 REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (Glen Ridge Apartments) This Regulatory Agreement and Declaration of Restrictive Covenants (the "Agreement") is made and entered into as of , 2007 (the "Agreement Date"), by and between the Carlsbad Redevelopment Agency, a public body, corporate and politic (the "Agency"), and , a California limited partnership (the "Developer"). RECITALS 1. The Agency and the Developer have entered into a Loan Agreement (the "Loan Agreement") under which the Agency agreed to loan up to One Million Fourteen Thousand Dollars ($1,014,000) (the "Loan") to the Developer to finance the development of a seventy- eight (78)-unit affordable apartment complex (the "Development") on certain real property in the City of Carlsbad owned by the Developer and more particularly described in Exhibit A attached to and incorporated herein (the "Property"). Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Loan Agreement. 2. The Loan consists of Low and Moderate Income Housing Fund monies, which must be utilized in accordance with the requirements of the Community Redevelopment Law (Health and Safety Code Section 33000 et seq.). 3. Through this Agreement, the Agency is imposing occupancy and affordability restrictions on the Development pursuant to Health and Safety Code Section 33334.3(f)(l)(A) and in order to meet replacement housing requirements applicable to the Redevelopment Area pursuant to Health and Safety Code Section 33413(a). 4. The Agency also intends to utilize the Development to obtain affordable housing production credits pursuant to Health and Safety Code Section 33413(b)(2)(A) as newly constructed units located outside of the Redevelopment Area and available at affordable housing cost to very low, lower, and moderate income households. Such units are required to remain 1010\20\406818.1 affordable to such households for fifty-five (55) years. This Agreement is also intended to implement this requirement. 5. In consideration of receipt of the Loan, the Developer has further agreed to observe all the terms and conditions set forth below. 6. In order to ensure that the entire Development will be used and operated in accordance with these conditions and restrictions, the Agency and the Developer wish to enter into this Agreement. THEREFORE, the Agency and the Developer hereby agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Definitions. When used in this Agreement, the following terms shall have the respective meanings assigned to them in this Article 1. (a) "Actual Household Size" shall mean the actual number of persons in the applicable household. (b) "Adjusted Income" shall mean the total anticipated annual income of all persons in a household, as calculated in accordance with 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 Agency shall provide the Owner with a reasonably similar method of calculation of adjusted income as provided in said Section 6914. (c) "Agency" shall mean the Carlsbad Redevelopment Agency, a public body, corporate and politic. (d) "Agreement" shall mean this Regulatory Agreement and Declaration of Restrictive Covenants. (e) "Agreement Date" shall mean the date of this Agreement as set forth above. (f) "Assumed Household Size" shall have the meaning set forth in Section 2.2(d). The definition is utilized to calculate affordable rent and is not intended to be a limit on the number of persons occupying a unit. (g) "City" shall mean the City of Carlsbad, a municipal corporation. 1010\20\406818.1 (h) "Loan" shall mean the funds loaned to the Developer by the Agency pursuant to the Loan Agreement. (i) "Deed of Trust" shall mean the deed of trust of even date herewith in favor of the Agency on the Developer's fee interest in the Property which secures repayment of the Loan and performance of this Agreement. (j) "Developer" shall mean , a California limited partnership, and its permitted successors and assigns. (k) "Development" shall mean the Property and the seventy-eight (78) residential units to be constructed on the Property, as well as any additional improvements, and all landscaping, roads and parking spaces existing thereon, as the same may from time to time exist. (1) "Loan Agreement" shall mean that certain Loan Agreement dated concurrently herewith by and between the Agency and the Developer. (m) "Lower Income Household" shall mean a household with an Adjusted Income that does not exceed the qualifying limits for lower 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 the State of California Department of Housing and Community Development. (n) "Lower Income Units" shall mean any of the Units which, pursuant to Section 2.1 below, are required to be occupied by Lower Income Households. (o) "Median Income" shall mean the median gross yearly income, adjusted for Actual Household Size or Assumed Household Size as specified herein, in the County of San Diego, California, as published from time to time by the United States Department of Housing and Urban Development ("HUD") and the State of California. 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 Agency shall provide the Developer with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by HUD and the State. (p) "Other Income Household" shall mean a household with an Adjusted Income which does not exceed ninety percent (90%) of Median Income, adjusted for Actual Household Size. (q) "Other Income Units" shall mean the Units which, pursuant to Section 2.1 below, are required to be occupied by Other Households. (r) "Property" shall mean the real property described in Exhibit A attached hereto and incorporated herein. 1010\20\406818.1 (s) "Redevelopment Area" shall mean, collectively, the Carlsbad Village Redevelopment Project Area and the South Carlsbad Coastal Redevelopment Area, as may be amended from time to time. (t) "Rent" shall mean the total of monthly payments by the Tenant of a Unit for the following: use and occupancy of the Unit and land and associated facilities, including parking; any separately charged fees or service charges assessed by the Developer which are required of all Tenants, other than security deposits; an allowance for the cost of an adequate level of service for utilities paid by the Tenant, including garbage collection, sewer, water, electricity, gas and other heating, cooking and refrigeration fuel, but not telephone service or cable TV; and any other interest, taxes, fees or charges for use of the land or associated facilities and assessed by a public or private entity other than the Developer, and paid by the Tenant. (u) "Tenant" shall mean a household legally occupying a Unit pursuant to a valid lease with the Developer. (v) "Term" shall mean the term of this Agreement, which shall commence on the Agreement Date and shall continue for fifty-five (55) years. (w) "Unit(s)" shall mean one (1) or all of the seventy-eight (78) rental units to be constructed on the Property. (x) "Very Low Income Household" shall mean a household with an Adjusted Income that does not exceed the qualifying limits for very low income households, as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, and as published by the State of California Department of Housing and Community Development. (y) "Very Low Income Rent" shall mean, the maximum allowable rent for a Very Low Income Unit pursuant to Section 2.2(a) below. (z) "Very Low Income Units" shall mean any of the Units which, pursuant to Section 2.1 below, are required to be occupied by Very Low Income Households. ARTICLE 2. AFFORDABILITY AND OCCUPANCY COVENANTS Section 2.1 Occupancy Requirements. The Developer shall regulate the use and occupancy of the Units in the following manner: 1010\20\406818.1 One Bedroom Two Bedroom Three Bedroom Total Very Low Lower Other Income 39 Total 17 29 32 78 Section 2.2 Allowable Rent. (a) Very Low Income Rent. Subject to the provisions of Section 2.3 below, the Rent charged to Tenants of the Very Low Income Units shall not exceed one-twelfth (1/12th) of thirty percent (30%) of fifty percent (50%) of Median Income, adjusted for Assumed Household Size. (b) Lower Income Rent. Subject to the provisions of Section 2.3 below, the Rent charged to Tenants of the Lower Income Units shall not exceed one-twelfth (1/12th) of thirty percent (30%) of sixty percent (60%) of Median Income, adjusted for Assumed Household Size. (c) Other Income Rent. Subject to the provisions of Section 2.3 below, the Rent charged to Tenants of the Other Income Units shall not exceed one-twelfth (1/12th) of thirty percent (30%) of ninety percent (90%) of Median Income, adjusted for Assumed Household Size. (d) Assumed Household Size. In calculating the allowable Rent for the Units, the following Assumed Household Sizes shall be utilized (except that if any federal statutes or regulations require use of alternate household size assumptions in calculating rents, such federally-mandated household size assumptions shall be used instead of the assumptions provided below): Number of Bedrooms One Two Three Assumed Household Size 2 3 4 (e) Approval of Rents for Units. Initial rents for all Units shall be approved by the Agency prior to occupancy. All rent increases for all Units shall also be submitted to the Agency for approval not less than thirty (30) days before notice is given to the affected Tenant and shall be imposed only if in compliance with this Agreement. The Agency shall provide the Developer with a schedule of maximum permissible rents for the Units annually. Section 2.3 Increased Income of Tenants. (a) Increased Income Over Very Low Income. In the event, upon recertification of a Tenant's household's income, the Developer determines that a former Very 1010\20\406818.1 Low Income Household has an Adjusted Income that exceeds the qualifying income for a Very Low Income Household, but has an Adjusted Income not exceeding the qualifying limit for a Lower Income Household, upon expiration of the Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth (l/12th) of thirty percent (30%) of sixty percent (60%) of Median Income, and the Owner shall rent the next available Unit to Very Low Income Household to comply with the requirements of Section 2.1 above. (b) Increased Income Over Lower Income. In the event that, following recertification of a Tenant's income, the Developer determines that a former Very Low Income Household, or Lower Income Household has an Adjusted Income that exceeds the qualifying limit for a Lower Income Household but does not exceed ninety percent (90%) of Median Income, adjusted for Actual Household Size, then, upon expiration of the Tenant's lease and sixty (60) days' written notice to the Tenant, such household's Unit shall be considered an Other Unit, and the Rent may be increased to one-twelfth (l/12th) of thirty percent (30%) of ninety percent (90%) of Median Income, and the Developer shall rent the next available Unit to or Very Low Income Household or Lower Income Household to comply with the requirements of Section 2.1 above. (c) Increased Income Over 90% of Median Income. If, upon recertification of a Tenant's income, the Developer determines that a Tenant has an Adjusted Income exceeding ninety percent (90%) of Median Income, adjusted for Actual Household Size, such Tenant shall be permitted to continue to occupy the Unit, and, upon expiration of the Tenant's lease, and sixty (60) days' written notice to the Tenant, the Rent may be increased to one-twelfth (1712th) of thirty percent (30%) of the Tenant's actual Adjusted Income, and the Unit shall continue to be classified as an Other Unit until the Tenant vacates the Unit at which time the Unit shall be re- rented to an income-eligible household to meet the requirements of Section 2.1. (d) Termination of Occupancy. Upon termination of occupancy of a Unit by a Tenant, such Unit shall be deemed to be continuously occupied by a household of the same income level (e.g., Very Low Income Household, Lower Income Household, or Other Income Household) as the income level of the vacating Tenant, until such Unit is reoccupied, at which time the income character of the Unit (e.g., Very Low Income Household, Lower Income Household, or Other Income Household) shall be redetermined. Section 2.4 Tax Credit Rules. To the extent the provisions of this Agreement, regarding Adjusted Income, assumed household size or increased income of Tenants, conflict with requirements applicable to any Units regulated by a low income housing tax credit regulatory agreement, such that the Developer cannot comply with both the tax credit requirements and the requirements of this Agreement, the Developer shall so notify the Agency and may comply with the tax credit requirements regarding Adjusted Income, assumed household size or increased income in lieu of the requirements of this Agreement provided that the Developer shall, at all times during the Term, comply with the requirements of Section 2.1 and Section 2.2. 1010\20\406818.1 ARTICLE 3. INCOME CERTIFICATION AND REPORTING Section 3.1 Income Certification. The Developer shall obtain, complete and maintain on file, immediately prior to initial occupancy and annually thereafter, income certifications from each Tenant renting any of the Units (excluding the manager's Unit). The Developer shall make a good faith effort to verify that the income provided by an applicant or occupying household in an income certification is accurate by taking one or more of the following steps as a part of the verification process: (1) obtain a pay stub for the most recent pay period; (2) obtain an income tax return for the most recent tax year; (3) conduct a credit agency or similar search; (4) obtain an income verification form from the applicant's current employer; (5) obtain an income verification form from the Social Security Administration and/or the California Department of Social Services if the applicant receives assistance from either of such agencies; or (6) if the applicant is unemployed and has no such tax return, obtain another form of independent verification. Copies of tenant income certifications shall be available to the Agency upon request. Section 3.2 Annual Report to the Agency. The Developer shall submit to the Agency (a) not later than the ninetieth (90th) day after the close of each calendar year, or such other date as may reasonably be requested by the Agency, a statistical report, including income and rent data for all Units covered by this Agreement, setting forth the information called for therein, and (b) within fifteen (15) days after receipt of a written request, any other information or completed forms requested by the Agency in order to comply with reporting requirements of the State of California, the City, and/or the Agency. Section 3.3 Additional Information. The Developer shall provide any additional information reasonably requested by the Agency. The Agency shall have the right to examine and make copies of all books, records or other documents of the Developer which pertain to the Development. Section 3.4 Records. The Developer shall maintain complete, accurate and current records pertaining to the Development, and shall permit any duly authorized representative of the Agency to inspect records, including records pertaining to income and household size of Tenants. All Tenant lists, applications and waiting lists relating to the Development shall at all times be kept separate and identifiable from any other business of the Developer and shall be maintained as required by the Agency, in a reasonable condition for proper audit and subject to examination during business hours by representatives of the Agency. The Developer shall retain copies of all materials obtained or produced with respect to occupancy of the Units for a period of at least five (5) years. 1010\20\406818.1 Section 3.5 On-site Inspection. The Agency shall have the right to perform an on-site inspection of the Development at least one (1) time per year. The Developer agrees to cooperate in such inspection. If the Agency desires to inspect the interior of the Units, the Agency shall give Developer sufficient notice to allow the Developer to give seventy-two (72) hours notice to residents. Such right to annually inspect the Development shall be addition to the City's right to inspect the Development in accordance with the City's municipal code as may be amended from time to time. ARTICLE 4. OPERATION OF THE DEVELOPMENT Section 4.1 Residential Use. The Development shall be operated only for residential use. No part of the Development shall be operated as transient housing. Section 4.2 Compliance with Loan Agreement. The Developer shall comply with all the terms and provisions of the Loan Agreement. Section 4.3 Taxes and Assessments. The Developer shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property; provided, however, that Developer shall have the right to contest in good faith, any such taxes, assessments, or charges. In the event Developer exercises its right to contest any tax, assessment, or charge against it, Developer, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered against it, together with all costs, charges and interest. The Developer shall not apply for a property tax exemption for the Property under any provision of law, except pursuant to Revenue and Taxation Section 214(g), without the Agency's prior written consent. Section 4.4 Preference to Displacees. The Developer shall give a preference in the rental of any Units to eligible households displaced by activity of the Agency upon receiving a written request of the Agency regarding such displacement. ARTICLE 5. PROPERTY MANAGEMENT AND MAINTENANCE 1010\20\406818.1 Section 5.1 Management Responsibilities. The Developer is responsible for all management functions with respect to the Development, including without limitation the selection of Tenants, certification and recertification of household size and income, evictions, collection of rents and deposits, maintenance, landscaping, routine and extraordinary repairs, replacement of capital items, and security. The Agency shall not have any responsibility over management of the Development. The Developer shall retain a professional property management company approved by the Agency in its reasonable discretion to perform its management duties hereunder as set forth below. A resident manager shall also be required. Section 5.2 Management Agent. The Development shall at all times be managed by an experienced management agent reasonably acceptable to the Agency, 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 Agency hereby approves , as the initial Management Agent. The Developer shall submit for the Agency's approval the identity of any other proposed Management Agent. The Developer shall also submit such additional information about the background, experience and financial condition of any proposed Management Agent as is reasonably necessary for the Agency to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. If the proposed Management Agent meets the standard for a qualified Management Agent set forth above, the Agency shall approve the proposed Management Agent by notifying the Developer in writing. If the proposed Management Agent is disapproved by the Agency, the disapproval shall state with reasonable specificity the basis for disapproval. Thereafter, the Developer shall submit a different proposed Management Agent, and submit such additional information about the background, experience and financial condition of the proposed Management Agent as is reasonably necessary for the Agency to determine whether the proposed Management Agent meets the standard for a qualified Management Agent set forth above. Only upon the written approval of the Agency of the Developer's proposed Management Agent shall constitute the Developer's compliance with this Section. Section 5.3 Periodic Performance Review. The Agency reserves the right to conduct an annual (or more frequently, if deemed necessary by the Agency) review of the management practices and financial status of the Development, including the performance of the Management Agent. The purpose of each periodic review will be to enable the Agency to determine if the Development is being operated and managed in accordance with the requirements and standards of this Agreement. The Developer shall cooperate with the Agency in such reviews. Section 5.4 Replacement of Management Agent. If, as a result of a periodic review, the Agency determines in its reasonable judgment that the Development is not being operated and managed in accordance with any of the material 1010\20\406818.1 requirements and standards of this Agreement, the Agency shall deliver notice to Developer of its intention to cause replacement of the Management Agent, including the reasons therefor. Within fifteen (15) days after receipt by Developer of such written notice, Agency staff and the Developer shall meet in good faith to consider methods for improving the financial and operating status of the Development, including, without limitation, replacement of the Management Agent. If, after such meeting, Agency staff recommend in writing the replacement of the Management Agent, Developer shall promptly dismiss the then Management Agent, and shall appoint as the Management Agent a person or entity meeting the standards for a Management Agent set forth in Section 5.2 above and approved by the Agency pursuant to Section 5.2 above. Any contract for the operation or management of the Development entered into by Developer shall provide that the contract can be terminated as set forth above. Failure to remove the Management Agent in accordance with the provisions of this Section shall constitute default under this Agreement, and the Agency may enforce this provision through legal proceedings as specified in Section 6.8. Section 5.5 Approval of Management Policies. The Developer shall submit its written management policies with respect to the Development to the Agency for review, and shall amend such policies in any way necessary to ensure that such policies comply with the provisions of this Agreement. Section 5.6 Property Maintenance. The Developer agrees, for the entire Term of this Agreement, to maintain all interior and exterior improvements, including landscaping, on the Property in good condition and repair (and, as to landscaping, in a healthy condition) and in accordance with all applicable laws, 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 Agency places prime importance on quality maintenance to protect its investment and to ensure that all Agency-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 Agency assuming the Developer agrees to provide all necessary improvements to assure the Development is maintained in good condition. The Developer shall make all repairs and replacements necessary to keep the improvements in good condition and repair. In the event that the Developer breaches any of the covenants contained in this section and such default continues for a period often (10) days after written notice from the Agency 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 Agency, in addition to whatever other remedy it may have at law or in equity, shall have the right to enter upon the 1010\20\406818.1 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 Agency shall be permitted (but are not required) to enter upon the Property and perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Property, and to attach a lien on the Property, or to assess the Property, in the amount of the reasonable expenditures arising from such acts and work of protection, maintenance, and preservation by the Agency and/or costs of such cure, including an administrative charge equal to fifteen percent (15%) of such expenditures, which amount shall be promptly paid by the Developer to the Agency upon demand. ARTICLE 6. MISCELLANEOUS Section 6.1 Lease Provisions. The Developer shall use a form of Tenant lease approved by the Agency. The form of Tenant lease shall also comply with all requirements of this Agreement, and the Loan Agreement, and shall, among other matters: (a) provide for termination of the lease and consent by the Tenant to immediate eviction for failure: (1) to provide any information required under this Agreement or reasonably requested by the Developer to establish or recertify the Tenant's qualification, or the qualification of the Tenant's household, for occupancy in the Development in accordance with the standards set forth in this Agreement, or (2) to qualify as a Very Low Income Household, Lower Income Household, or Other Income Household as a result of any material misrepresentation made by such Tenant with respect to the income computation or certification; and (b) be for an initial term of not less than one (1) year, and provide for no Rent increase during such year. After the initial year of tenancy, the lease may be month to month by mutual agreement of the Developer and the Tenant, however the Rent may not be raised more often than once every twelve (12) months. The Developer will provide each Tenant with at least sixty (60) days' written notice of any increase in Rent applicable to such Tenant, and with such further notice as may be required by Section 2.3 above. Section 6.2 Nondiscrimination. All of the Units shall be available for occupancy on a continuous basis to members of the general public who are income eligible. The Developer shall not give preference to any particular class or group of persons in renting the Units, except to the extent that the Units are required to be leased to Very Low Income Households, Lower Income Households, and Other Income Households. There shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, source of income (e.g., SSI), age, ancestry, or disability, in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of any Unit nor shall the 1010\20\406818.1 Developer or any person claiming under or through the Developer, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy, of tenants, lessees, sublessees, subtenants, or vendees of any Unit or in connection with the employment of persons for the construction, operation and management of any Unit. All deeds, leases or contracts made or entered into by Developer as to the Units or the Development or portion thereof, shall contain covenants concerning discrimination as prescribed by the Loan Agreement. Section 6.3 Section 8 Certificate Holders. The Developer will accept as Tenants, on the same basis as all other prospective Tenants, persons who are recipients of federal certificates for rent subsidies pursuant to the existing housing program under Section 8 of the United States Housing Act of 1937, as amended, or its successor. The Developer shall not apply selection criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective Tenants, nor shall the Developer apply or permit the application of management policies or lease provisions with respect to the Development which have the effect of precluding occupancy of units by such prospective Tenants. Section 6.4 Term. The provisions of this Agreement shall apply to the Property for the entire Term. This Agreement shall bind any successor, heir or assign of the Developer, whether a change in interest occurs voluntarily or involuntarily, by operation of law or otherwise, except as expressly released by the Agency. The Agency makes the Loan on the condition, and in consideration of, this provision, and would not do so otherwise. Section 6.5 Compliance with Loan Agreement and Program Requirements. The Developer's actions with respect to the Property shall at all times be in full conformity with: (i) all requirements of the Loan Agreement; and (ii) all requirements imposed on projects assisted with the Agency monies under California Health and Safety Code Section 33334.2 et seq.. as may be amended from time to time. Section 6.6 Notice of Expiration of Term. At least six (6) months prior to the expiration of the Term the Developer shall provide by first-class mail, postage prepaid, a notice to all Tenants in the Units containing (a) the anticipated date of the expiration of the Term, (b) any anticipated Rent increase upon the expiration of the Term, (c) a statement that a copy of such notice will be sent to the Agency, and (d) a statement that a public hearing may be held by the Agency on the issue and that the Tenant will receive notice of the hearing at least fifteen (15) days in advance of any such hearing. The Developer shall also file a copy of the above-described notice with the Agency. Section 6.7 Covenants to Run With the Land. 121010\20\406818.1 -1 The Agency and the Developer 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 Agency expressly releases such conveyed portion of the Property from the requirements of this Agreement. Section 6.8 Default by the Developer; Enforcement by the Agency. If the Developer fails to perform any obligation under this Agreement (including but not limited to the failure to rent the Units as set forth in Article 2), and fails to cure the default within thirty (30) days after the Agency has notified the Developer, and the Developer's investor limited partner, in writing of the default or, if the default cannot be cured within thirty (30) days, fails to commence to cure within thirty (30) days and thereafter diligently pursue such cure and complete such cure within ninety (90) days, or such longer period as approved by the Agency in writing, the Agency shall have the right to enforce this Agreement by any or all of the following actions, or any other remedy provided by law: (a) Calling the Loan. The Agency may declare a default under the Loan Agreement, and declare the Loan due and payable and proceed with foreclosure under the Deed of Trust. (b) Action to Compel Performance or for Damages. The Agency may bring an action at law or in equity to compel the Developer's performance of its obligations under this Agreement, and/or for damages. (c) Remedies Provided Under Loan Agreement. The Agency may exercise any other remedy provided under the Loan Agreement. (d) Agency Sublease of Units. If and to the extent necessary to correct any Developer default, the Developer hereby grants to the Agency the option to lease, from time to time, Units in the Development for a rental of One Dollar ($1.00) per Unit per year for the purpose of subleasing such units to comply with Article 2 of this Agreement. Upon the request of the Agency following such default by the Developer, the Developer hereby agrees to execute such documents as reasonably requested by the Agency, including but not limited to, rental agreement(s) in a form prepared by the Agency, to implement the sublease of the Unit(s). Any rents received by the Agency under any such sublease shall be paid to the Developer after the Agency has been reimbursed for any expenses incurred in connection with such sublease. Section 6.9 Recording and Filing. The Agency and the Developer shall cause this Agreement, and all amendments and supplements to it, to be recorded in the Official Records of the County of San Diego. 131010\20\406818.1 Section 6.10 Governing Law. This Agreement shall be governed by the laws of the State of California. Section 6.11 Waiver of Requirements. Any of the requirements of this Agreement may be expressly waived by the Agency in writing, but no waiver by the Agency of any requirement of this Agreement shall, or shall be deemed to, extend to or affect any other provision of this Agreement. Section 6.12 Amendments. This Agreement may be amended only by a written 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. Section 6.13 Notices. Any notice requirement set forth herein shall be deemed to be satisfied one (1) day after mailing of the notice by reputable overnight delivery service or three (3) days after mailing of the notice by first-class United States certified mail, postage prepaid, addressed to the appropriate party as follows: Developer: c/o Chelsea Investment Corporation 725 South Coast Hwy 101 Encinitas, CA 92024 Attn: [James J. Schmid] and a copy to: c/o MMA Financial TC Corporation 101 Arch Street Boston, MA 02110 Attn: Asset Management and Legal Department] and a copy to: [David E. Raderman, Esq. Gallagher, Evelius & Jones LLP 218 N. Charles Street, Suite 400 Baltimore, MD 21201] Agency: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B 1010\20\406818.1 Carlsbad, CA 92008 Attn: Executive Director Such addresses may be changed by notice to the other party given in the same manner as provided above. Section 6.14 Severability. If any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions of this Agreement shall not in any way be affected or impaired thereby. Section 6.15 Multiple Originals; Counterparts. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 1010\20\406818.1 IN WITNESS WHEREOF, the Agency and the Developer have executed this Agreement by duly authorized representatives, as of the last date written below. Developer: a California limited partnership By: its Managing General Partner By: Name: Its: Signatures Continue on Following Page 1010\20\406818.1 APPROVED AS TO FORM: Ball], Agency Counsel Agency: CARLSBAD REDEVELOPMENT AGENCY, a public body corporate and politic By: Its: 1010\20\406818.1 17 STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On , 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(s) is/are 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 his/her/their 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. STATE OF CALIFORNIA ) ) ss. COUNTY OF SAN DIEGO ) On , 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(s) is/are 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 his/her/their 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. 1010\20\406818.1 EXHIBIT A (Legal Description) The land is situated in the State of California, County of San Diego, City of Carlsbad, and is described as follows: A-l 1010\20\406818.1 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director No fee for recording pursuant to Government Code Section 27383 DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (Glen Ridge Apartments) THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS AND SECURITY AGREEMENT ("Deed of Trust") is made as of , 2007, by and among , a California limited partnership ("Trustor"), _, a California corporation ("Trustee"), and the Carlsbad Redevelopment Agency, a public body, corporate, and politic ("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 fee interest in the property located in the City of Carlsbad, County of San Diego, State of California, that is described in the attached Exhibit A, incorporated herein by this reference (the "Property"). TOGETHER WITH all interest, estates or other claims, both in law and in equity which Trustor now has or may hereafter acquire in the Property and the rents; TOGETHER WITH all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, including (without limiting the generality of the foregoing) all tenements, hereditaments and appurtenances thereof and thereto; TOGETHER WITH any and all buildings and improvements of every kind and description now or hereafter erected thereon, and all property of the Trustor now or hereafter affixed to or placed upon the Property; TOGETHER WITH all building materials and equipment now or hereafter delivered to said property and intended to be installed therein; TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, adjoining the Property, and any and all sidewalks, alleys and strips and areas of land adjacent to or used in connection with the Property; 1010\20\406821.1 TOGETHER WITH all estate, interest, right, title, other claim or demand, of every nature, in and to such property, including the Property, both in law and in equity, including, but not limited to, all deposits made with or other security given by Trustor to utility companies, the proceeds from any or all of such property, including the Property, claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereafter acquire, any and all awards made for the taking by eminent domain or by any proceeding or purchase in lieu thereof of the whole or any part of such property, including without limitation, any awards resulting from a change of grade of streets and awards for severance damages to the extent Beneficiary has an interest in such awards for taking as provided in Paragraph 4.1 herein; TOGETHER WITH all of Trustor's interest in all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner; and TOGETHER WITH all of Trustor's interest in all building materials, fixtures, equipment, work in process and other personal property to be incorporated into the Property; all goods, materials, supplies, fixtures, equipment, machinery, furniture and furnishings, signs and other personal property now or hereafter appropriated for use on the Property, whether stored on the Property or elsewhere, and used or to be used in connection with the Property; all rents, issues and profits, and all inventory, accounts, accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, trade names, trademarks and service marks arising from or related to the Property and any business conducted thereon by Trustor; all replacements, additions, accessions and proceeds; and all books, records and files relating to any of the foregoing. All of the foregoing, together with the Property, is herein referred to as the "Security." To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever. FOR THE PURPOSE OF SECURING: (a) Payment of just indebtedness of Trustor to Beneficiary as set forth in the Note (defined in Article 1 below) until paid or cancelled. Said principal and other payments shall be due and payable as provided in the Note. Said Note and all its terms are incorporated herein by reference, and this conveyance shall secure any and all extensions thereof, however evidenced; and (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 1010\20\406821.1 advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; and (c) Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents (defined in Section 1.2 below). AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms shall have the following meanings in this Deed of Trust: Section 1.1 The term "Loan Agreement" means that certain Loan Agreement between Trustor and Beneficiary, dated of even date herewith providing for the Beneficiary to loan to the Trustor an amount not to exceed One Million Fourteen Thousand Dollars ($1,014,000) for the development of the Property. Section 1.2 The term "Loan Documents" means this Deed of Trust, the Note, the Loan Agreement, the Regulatory Agreement, and any other debt, loan or security instruments between Trustor and the Beneficiary relating to the Property. Section 1.3 The term "Note" means the promissory note in the principal amount of One Million Fourteen Thousand Dollars ($1,014,000) dated of even date herewith executed by the Trustor in favor of the Beneficiary, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.). Section 1.4 The term "Principal" means the amount required to be paid under the Note. Section 1.5 The term "Regulatory Agreement" means the regulatory agreement by and between the Beneficiary and the Trustor, dated and recorded in the official Records of San Diego County concurrently herewith. ARTICLE 2 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY Section 2.1 Maintenance and Modification of the Property by Trustor. The Trustor agrees that at all times prior to full payment of the sum owed under the Note, the Trustor will, at the Trustor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition. The Trustor will from time to 1010\20\406821.1 time make or cause to be made all repairs, replacements and renewals deemed proper and necessary by it. The Beneficiary shall have no responsibility in any of these matters or for the making of improvements or additions to the Security. Trustor agrees to pay fully and discharge (or cause to be paid fully and discharged) all claims for labor done and for material and services furnished in connection with the Security, diligently to file or procure the filing of a valid notice of cessation upon the event of a cessation of labor on the work or construction on the Security for a continuous period of thirty (30) days or more, and to take all other reasonable steps to forestall the assertion of claims of lien against the Security of any part thereof. Trustor irrevocably appoints, designates and authorizes Beneficiary as its agent (said agency being coupled with an interest) with the authority, but without any obligation, to file for record any notices of completion or cessation of labor or any other notice that Beneficiary deems necessary or desirable to protect its interest in and to the Security or the Loan Documents; provided, however, that Beneficiary shall exercise its rights as agent of Trustor only in the event that Trustor shall fail to take, or shall fail to diligently continue to take, those actions as hereinbefore provided. Upon demand by Beneficiary, Trustor shall make or cause to be made such demands or claims as Beneficiary shall specify upon laborers, materialmen, subcontractors or other persons who have furnished or claim to have furnished labor, services or materials in connection with the Security. Nothing herein contained shall require Trustor to pay any claims for labor, materials or services which Trustor in good faith disputes and is diligently contesting provided that Trustor, upon written request of the Beneficiary, shall, within thirty (30) days after the filing of any claim of lien, record in the Office of the Recorder of San Diego County, a surety bond in an amount 1 and 1/2 times the amount of such claim item to protect against a claim of lien. Section 2.2 Granting of Easements. Trustor may not grant easements, licenses, rights-of-way or other rights or privileges in the nature of easements with respect to any property or rights included in the Security except those required or desirable for installation and maintenance of public utilities including, without limitation, water, gas, electricity, sewer, telephone and telegraph, or those required by law and as approved, in writing, by Beneficiary. Section 2.3 Assignment of Rents. As part of the consideration for the indebtedness evidenced by the Note, Trustor hereby absolutely and unconditionally assigns and transfers to Beneficiary all the rents and revenues of the Property including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless of to whom the rents and revenues of the Property are payable. Trustor hereby authorizes Beneficiary or Beneficiary's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Beneficiary or Beneficiary's agents; provided, however, that prior to written notice given by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, Trustor shall collect and receive all rents and revenues of the Property as trustee for the benefit of Beneficiary and Trustor to apply the rents and revenues so collected to the sums secured by this Deed of Trust with the balance, so long as no such breach has occurred, to the account of Trustor, it being intended by Trustor and 1010\20\406821.1 Beneficiary that this assignment of rents constitutes an absolute assignment and not an assignment for additional security only. Upon delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, and without the necessity of Beneficiary entering upon and taking and maintaining full control of the Property in person, by agent or by a court-appointed receiver, Beneficiary shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 2.3 as the same becomes due and payable, including but not limited to rents then due and unpaid, and all such rents shall immediately upon delivery of such notice be held by Trustor as trustee for the benefit of Beneficiary only; provided, however, that the written notice by Beneficiary to Trustor of the breach by Trustor shall contain a statement that Beneficiary exercises its rights to such rents. Trustor agrees that commencing upon delivery of such written notice of Trustor's breach by Beneficiary to Trustor, each tenant of the Property shall make such rents payable to and pay such rents to Beneficiary or Beneficiary's agents on Beneficiary's written demand to each tenant therefor, delivered to each tenant personally, by mail or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire further as to the existence of a default by Trustor. Except as previously approved by the Beneficiary as set forth in the Loan Agreement, Trustor hereby covenants that Trustor has not executed any prior assignment of said rents, that Trustor has not performed, and will not perform, any acts or has not executed and will not execute, any instrument which would prevent Beneficiary from exercising its rights under this Section 2.3, and that at the time of execution of this Deed of Trust, there has been no anticipation or prepayment of any of the rents of the Property for more than two (2) months prior to the due dates of such rents. Trustor covenants that Trustor will not hereafter collect or accept payment of any rents of the Property more than two (2) months prior to the due dates of such rents. Trustor further covenant that Trustor will execute and deliver to Beneficiary such further assignments of rents and revenues of the Property as Beneficiary may from time to time request. Upon Trustor's breach of any covenant or agreement of Trustor in the Loan Documents, Beneficiary may in person, by agent or by a court-appointed receiver, regardless of the adequacy of Beneficiary's security, enter upon and take and maintain full control of the Property in order to perform all acts necessary and appropriate for the operation and maintenance thereof including, but not limited to, the execution, cancellation or modification of leases, the collection of all rents and revenues of the Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance of the Property, all on such terms as are deemed best to protect the security of this Deed of Trust. In the event Beneficiary elects to seek the appointment of a receiver for the Property upon Trustor's breach of any covenant or agreement of Trustor in this Deed of Trust, Trustor hereby expressly consents to the appointment of such receiver. Beneficiary or the receiver shall be entitled to receive a reasonable fee for so managing the Property. All rents and revenues collected subsequent to delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents shall be applied first to the costs, if any, of taking control of and managing the Property and collecting the rents, including, but not limited to, attorney's fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Trustor as lessor or landlord of the Property and then to the sums secured by this 1010\20\406821.1 Deed of Trust. Beneficiary or the receiver shall have access to the books and records used in the operation and maintenance of the Property and shall be liable to account only for those rents actually received. Beneficiary shall not be liable to Trustor, anyone claiming under or through Trustor or anyone having an interest in the Property by reason of anything done or left undone by Beneficiary under this Section 2.3. If the rents of the Property are not sufficient to meet the costs, if any, of taking control of and managing the Property and collecting the rents, any funds expended by Beneficiary for such purposes shall become indebtedness of Trustor to Beneficiary secured by this Deed of Trust pursuant to Section 3.3 hereof. Unless Beneficiary and Trustor agree in writing to other terms of payment, such amounts shall be payable upon notice from Beneficiary to Trustor requesting payment thereof and shall bear interest from the date of disbursement at the rate stated in Section 3.3. Any entering upon and taking and maintaining of control of the Property by Beneficiary or the receiver and any application of rents as provided herein shall not cure or waive any default hereunder or invalidate any other right or remedy of Beneficiary under applicable law or provided herein. This assignment of rents of the Property shall terminate at such time as this Deed of Trust ceases to secure indebtedness held by Beneficiary. The rights of the Beneficiary under this Section 2.3 are subject to the rights of any senior mortgage lender. ARTICLE 3 TAXES AND INSURANCE; ADVANCES Section 3.1 Taxes, Other Governmental Charges and Utility Charges. Trustor shall pay, or cause to be paid, at least fifteen (15) days prior to the date of delinquency, all taxes, assessments, charges and levies imposed by any public authority or utility company which are or may become a lien affecting the Security or any part thereof; provided, however, that Trustor shall not be required to pay and discharge any such tax, assessment, charge or levy so long as (a) the legality thereof shall be promptly and actively contested in good faith and by appropriate proceedings, and (b) Trustor maintains reserves adequate to pay any liabilities contested pursuant to this Section 3.1. With respect to taxes, special assessments or other similar governmental charges, Trustor shall pay such amount in full prior to the attachment of any lien therefor on any part of the Security; provided, however, if such taxes, assessments or charges may be paid in installments, Trustor may pay in such installments. Except as provided in clause (b) of the first sentence of this paragraph, the provisions of this Section 3.1 shall not be construed to require that Trustor maintain a reserve account, escrow account, impound account or other similar account for the payment of future taxes, assessments, charges and levies. In the event that Trustor shall fail to pay any of the foregoing items required by this Section to be paid by Trustor, Beneficiary may (but shall be under no obligation to) pay the same, after the Beneficiary has notified the Trustor of such failure to pay and the Trustor fails to fully pay such items within seven (7) business days after receipt of such notice. Any amount so advanced therefor by Beneficiary, together with interest thereon from the date of such advance at the maximum rate permitted by law, shall become an additional obligation of Trustor to the Beneficiary and shall be secured hereby, and Trustor agrees to pay all such amounts. 1010\20\406821.1 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. Trustee is aware that California Civil Code Section 2955.5(a) provides as follows: No lender shall require a borrower, as a condition of receiving or maintaining a loan secured by real property, to provide hazard insurance coverage against risks to the improvements on that real property in an amount exceeding the replacement value of the improvements on the property. Section 3.3 Advances. In the event the Trustor shall fail to maintain the full insurance coverage required by this Deed of Trust or shall fail to keep the Security in accordance with the Loan Documents, the Beneficiary, after at least seven (7) days prior notice to Beneficiary, may (but shall be under no obligation to) take out the required policies of insurance and pay the premiums on the same or may make such repairs or replacements as are necessary and provide for payment thereof; and all amounts so advanced therefor by the Beneficiary shall become an additional obligation of the Trustor to the Beneficiary (together with interest as set forth below) and shall be secured hereby, which amounts the Trustor agrees to pay on the demand of the Beneficiary, and if not so paid, shall bear interest from the date of the advance at the lesser of eight percent (8%) per annum or the maximum rate permitted by law. ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. All judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or in any part thereof by insured casualty, and (3) any other injury or damage to all or any part of the Property ("Funds") are hereby assigned to and shall be paid to the Beneficiary by a check made payable to the Beneficiary. The Beneficiary is authorized and empowered (but not required) to collect and receive any funds and is authorized to apply them in whole or in part upon any indebtedness or obligation secured hereby, in such order and manner as the Beneficiary shall determine at its sole option. The Beneficiary shall be entitled to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain from the proceeds of such insurance the amount of all expenses incurred by it in connection with any such settlement or adjustment. All or any part of the amounts so collected and recovered by the Beneficiary may be released to Trustor upon such conditions as the Beneficiary may impose for 1010\20\406821.1 its disposition, and Beneficiary agrees to release Funds to Trustor to rebuild the Project on the Property provided Trustor demonstrates to Beneficiary that such rebuilding is economically feasible. Application of all or any part of the Funds collected and received by the Beneficiary or the release thereof shall not cure or waive any default under this Deed of Trust. 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 often percent (10%) per annum or the maximum rate permitted by law. Section 5.3 Payment of the Principal. The Trustor shall pay to the Beneficiary the Principal and any other payments as set forth in the Note in the amounts and by the times set out therein. Section 5.4 Personal Property. To the maximum extent permitted by law, the personal property subject to this Deed of Trust shall be deemed to be fixtures and part of the real property and this Deed of Trust shall constitute a fixtures filing under the California Commercial Code. As to any personal property not deemed or permitted to be fixtures, this Deed of Trust shall constitute a security agreement under the California Commercial Code. Section 5.5 Financing Statement. The Trustor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instruments as are required to convey to the Beneficiary a valid perfected security interest in the Security. The Trustor agrees to perform all acts which the Beneficiary may reasonably request so as to enable the Beneficiary to maintain such valid perfected security interest in the Security in order to secure the payment of 1010\20\406821.I the Note in accordance with their terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it shall deem appropriate from time to time in order to protect the security interest established pursuant to this instrument. Section 5.6 Operation of the Security. The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in full compliance with the Loan Documents. Section 5.7 Inspection of the Security. At any and all reasonable times upon seventy-two (72) hours' notice, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, shall have the right, without payment of charges or fees, to inspect the Security. Section 5.8 Nondiscrimination. The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Security, nor shall the Trustor itself or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Security. The foregoing covenants shall run with the land. ARTICLE 6 HAZARDOUS WASTE Trustor shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Trustor shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily kept and used in and about multifamily residential property. Trustor shall immediately advise Beneficiary in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Trustor or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous 1010\20\406821.1 Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against Trustor or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above hereinafter referred to a "Hazardous Materials Claims"); and (iii) Trustor's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" under the provision of California Health and Safety Code, Sections 25220 et seq.. or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. Beneficiary shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Trustor. Trustor shall indemnify and hold harmless Beneficiary and its boardmembers, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Beneficiary in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees. Without Beneficiary's prior written consent, which shall not be unreasonably withheld, Trustor shall not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in Beneficiary's reasonable judgement, impair the value of the Beneficiary's security hereunder; provided, however, that Beneficiary's prior consent shall not be necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain Beneficiary's consent before taking such action, provided that in such event Trustor shall notify Beneficiary as soon as practicable of any action so taken. Beneficiary agrees not to withhold its consent, where such consent is required hereunder, if either (i) a particular remedial action is ordered by a court of competent jurisdiction, (ii) Trustor will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action; (iii) Trustor establishes to the reasonable satisfaction of Beneficiary that there is no reasonable alternative to such remedial action which would result in less impairment of Beneficiary's security hereunder; or (iv) the action has been agreed to by Beneficiary. The Trustor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Trustor's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Trust or any of the other Loan Documents (together with any indemnity applicable to a breach of any such representation and warranty) with respect to the environmental condition of the property is intended by the 1010\20\406821.1 Beneficiary and the Trustor to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(l)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Trustee's rights and remedies under this Deed of Trust, the Beneficiary may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Trustor to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Beneficiary's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Trustor shall be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code of Civil Procedure Section 726.5(d)(l), if the release or threatened release of hazardous materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Trustor knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Beneficiary in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the rate specified in the Note until paid, shall be added to the indebtedness secured by this Deed of Trust and shall be due and payable to the Beneficiary upon its demand made at any time following the conclusion of such action. ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default. The following shall constitute Events of Default following the expiration of any applicable notice and cure periods: (1) failure to make any payment to be paid by Trustor under the Loan Documents; (2) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents, including, without limitation, the provisions concerning discrimination; or (3) failure to make any payment or perform any of Trustor's other covenants, agreements, or obligations under any other debt instruments or regulatory agreement secured by the Property, which default shall not be cured within the times and in the manner provided therein. Section 7.2 Acceleration of Maturity. If an Event of Default shall have occurred and be continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and the unpaid Principal of the Note shall immediately become due and payable, upon written notice by the Beneficiary to the Trustor (or automatically where so specified in the Loan Documents), and no omission on the 1010\20\406821.1 1*7 part of the Beneficiary to exercise such option when entitled to do so shall be construed as a waiver of such right. Section 7.3 The Beneficiary's Right to Enter and Take Possession. If an Event of Default shall have occurred and be continuing, the Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof. The entering upon and taking possession of the Security shall not cure or waive any Event of Default or Notice of Default (as defined below) hereunder or invalidate any act done in response to such Default or pursuant to such Notice of Default and, notwithstanding the continuance in possession of the Security, Beneficiary shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Default and Election to Sell"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of San Diego County; or (d) Exercise all other rights and remedies provided herein, in the instruments by which the Trustor acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing all or any portion of the obligations secured hereby, or provided by law. Section 7.4 Foreclosure By Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained, the Beneficiary shall give notice to the Trustee (the "Notice of Sale") and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which shall be deemed to constitute evidence that the unpaid principal amount of the Note is immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. (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 1010\20\406821.1 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 7.5 Receiver. If an Event of Default shall have occurred and be continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of entry as provided herein, and shall continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. Section 7.6 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 7.7 No Waiver. (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy, or shall be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. Beneficiary 's expressed or implied consent to a breach by Trustor, or a waiver of any obligation 1010\20\406821.1 to of Trustor hereunder shall not be deemed or construed to be a consent to any subsequent breach, or further waiver, of such obligation or of any other obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor. (b) If the Beneficiary (i) grants forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or (iv) makes or consents to any agreement subordinating the lien hereof, any such act or omission shall not release, discharge, modify, change or affect the original liability under this Deed of Trust, or any other obligation of the Trustor or any subsequent purchaser of the Security or any part thereof, or any maker, co- signer, endorser, surety or guarantor (unless expressly released); nor shall any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary shall the lien of this Deed of Trust be altered thereby. Section 7.8 Suits to Protect the Security. The Beneficiary shall have power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. Section 7.9 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 Trustee, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount which may become due and payable by the Trustor hereunder after such date. Section 7.10 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any sums owing under the Note or in proceedings against the 1010\20\406821.1 Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. ARTICLE 8 MISCELLANEOUS Section 8.1 Amendments. This instrument cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor. Section 8.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all sums secured hereby have been paid or forgiven, that all obligations to be performed by the Trustee under the Loan Documents (including, but not limited to, the operation of the Property in accordance with, and for the entire term of, the Regulatory Agreement), and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment by Trustor of Trustee's reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto. Section 8.3 Notices. If at any time after the execution of this Deed of Trust it shall become necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication shall be in writing and shall be served personally, by reputable overnight delivery service, or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary shall be addressed to: Carlsbad Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attn: Executive Director and (2) if intended for Trustor shall be addressed to: c/o Chelsea Investment Corporation 725 South Coast Highway 101 Encinitas, CA 92024 Attn: [James J. Schmid] 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 1010\20\406821.1 or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective. Section 8.4 Successors and Joint Trustors. Where an obligation is created herein binding upon Trustor, the obligation shall also apply to and bind any transferee or successors in interest. Where the terms of the Deed of Trust have the effect of creating an obligation of the Trustor and a transferee, such obligation shall be deemed to be a joint and several obligation of the Trustor and such transferee. Where Trustor is more than one entity or person, all obligations of Trustor shall be deemed to be a joint and several obligation of each and every entity and person comprising Trustor. Section 8.5 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. Section 8.6 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid or applied to the full payment of that portion of the debt which is not secured or partially secured by the lien of this Deed of Trust. Section 8.7 Governing Law. This Deed of Trust shall be governed by and construed in accordance with the laws of the State of California. Section 8.8 Gender and Number. In this Deed of Trust the singular shall include the plural and the masculine shall include the feminine and neuter and vice versa, if the context so requires. Section 8.9 Deed of Trust, Mortgage. Any reference in this Deed of Trust to a mortgage shall also refer to a deed of trust and any reference to a deed of trust shall also refer to a mortgage. Section 8.10 Actions. Trustor agrees to appear in and defend any action or proceeding purporting to affect the Security. 1010\20\406821.1 Section 8.11 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 8.12 Statute of Limitations. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law. Section 8.13 Subordination. The rights and remedies of the Beneficiary under this Deed of Trust shall be subject in all respects to the terms and conditions of that certain subordination agreement by and among the Beneficiary, the Trustor and The Bank of New York, as trustee, recorded concurrently herewith. Section 8.14 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. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 1010\20\406821.1 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR: a California limited partnership By: its Managing General Partner By: Name: Its: 181010\20\406821.1 STATE OF CALIFORNIA ) ) ss. COUNTY OF ) On , before me, , personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are 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 his/her/their 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. 1010\20\406821.t EXHIBIT A (Legal Description) The land is situated in the City of Carlsbad, County of San Diego, State of California, and is described as follows: A-l1010\20\406821.1 PROMISSORY NOTE (Glen Ridge Apartments) $ 1,014,000 Carlsbad, California , 200_ FOR VALUE RECEIVED, , a California limited partnership ("Borrower"), promises to pay to the Carlsbad Redevelopment Agency, a public body, corporate, and politic (the "Agency"), or order, the principal sum of up to One Million Fourteen Thousand Dollars ($1,014,000), or so much as is disbursed to Borrower, plus interest thereon pursuant to Section 2 below. 1. Borrower's Obligation. This promissory note (the "Note") evidences the Borrower's obligation to pay the Agency the principal amount of up to One Million Fourteen Thousand Dollars ($1,014,000), or so much as is disbursed, for the funds loaned to the Borrower by Agency to finance the development of the Property pursuant to the Loan Agreement between the Borrower and the Agency, dated , 2007 (the "Agreement"). All capitalized terms not otherwise defined in this Note shall have the meanings set forth in the Agreement. 2. Interest. The outstanding principal balance of this Note shall bear simple interest at the rate of three percent (3%) per annum from the date of disbursement until paid; provided, however, if a Default occurs, interest on the principal balance shall begin to accrue, as of the date of Default (following expiration of applicable notice and cure periods), and continuing until such time as the Loan funds are repaid in full or the Default is cured, at the default rate of the lesser often percent (10%), compounded annually, or the highest rate permitted by law. 3. Term and Repayment Requirements. The term of this Note shall commence with the date of this Note and shall expire fifty-five (55) years thereafter. This Note shall be due and payable as set forth in Section 2.6 of the Agreement. Repayment of this Note shall be nonrecourse to the Borrower pursuant to Section 2.8 of the Agreement, and subject to the exceptions set forth therein. 4. No Assumption. This Note shall not be assumable by the successors and assigns of Borrower without the prior written consent of the Agency, or as set forth in Article 4 of the Agreement. 5. Security. This Note is secured by a Deed of Trust with Assignment of Rents and Security Agreement (the "Deed of Trust") of even date herewith, wherein the Borrower is Trustor and the Agency is the Beneficiary, covering the Borrower's fee interest in the Property. 1010\20\406820.1 117 6. Terms of Payment. (a) All payments due under this Note shall be paid in currency of the United States of America, which at the time of payment is lawful for the payment of public and private debts. (b) All payments on this Note shall be paid to the Agency at Carlsbad Redevelopment Agency, 2965 Roosevelt Street, Suite B, Carlsbad, CA 92008 or to such other place as the Agency may from time to time designate in writing. (c) All payments on this Note shall be without expense to the Agency, and the Borrower agrees to pay all costs and expenses, including re-conveyance fees and reasonable attorney's fees of the Agency, incurred in connection with the payment of this Note and the release of any security hereof. (d) Notwithstanding any other provision of this Note, or any instrument securing the obligations of the Borrower under this Note, if, for any reason whatsoever, the payment of any sums by the Borrower pursuant to the terms of this Note would result in the payment of interest which would exceed the amount that the Agency may legally charge under the laws of the State of California, then the amount by which payments exceeds the lawful interest rate shall automatically be deducted from the principal balance owing on this Note, so that in no event shall the Borrower be obligated under the terms of this Note to pay any interest which would exceed the lawful rate. 7. Default. (a) Any of the following shall constitute an Event of Default under this Note: (i) Any failure to pay, in full, any payment required under this Note when due following written notice by the Agency of such failure and thirty (30) days opportunity to cure; (ii) Any failure in the performance by the Borrower of any term, condition, provision or covenant set forth in this Note subject to the notice and cure period set forth in Section 8.4 of the Agreement; and (iii) The occurrence of any Default under the Agreement, the Deed of Trust or the Regulatory Agreement (the "Loan Documents"), or other instrument securing the obligations of the Borrower under this Note or under any other promissory notes hereafter issued by the Borrower to the Agency pursuant to the Agreement or the Deed of Trust, subject to notice and cure periods, if any, set forth therein. (b) Upon the occurrence of such an Event of Default, the entire unpaid principal balance, together with all interest thereon, and together with all other sums then payable under this Note and the Deed of Trust shall at the option of the Agency become 1010\20\406820.1 immediately due and payable upon written notice by the Agency to the Borrower without further demand. (c) The failure to exercise the remedy set forth in Subsection 7(b) above or any other remedy provided by law upon the occurrence of one or more of the foregoing events of default shall not constitute a waiver of the right to exercise any remedy at any subsequent time in respect to the same or any other default. The acceptance by Agency hereof of any payment which is less than the total of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or at any subsequent time, or nullify any prior exercise of any such remedy or option, without the express consent of the Agency, except as and to the extent otherwise provided by law. 8. Waivers. (a) The Borrower hereby waives diligence, presentment, protest and demand, and notice of protest, notice of demand, and notice of dishonor of this Note. The Borrower expressly agrees that this Note or any payment hereunder may be extended from time to time, and that the Agency may accept further security or release any security for this Note, all without in any way affecting the liability of the Borrower. (b) No extension of time for payment of this Note or any installment hereof made by agreement by the Agency with any person now or hereafter liable for payment of this Note shall operate to release, discharge, modify, change or affect the original liability of the Borrower under this Note, either in whole or in part. (c) The obligations of the Borrower under this Note shall be absolute and the Borrower waives any and all rights to offset, deduct or withhold any payments or charges due under this Note for any reason whatsoever. 9. Miscellaneous Provisions. (a) All notices to the Agency or the Borrower shall be given in the manner and at the addresses set forth in the Agreement, or to such addresses as the Agency and the Borrower may hereinafter designate. (b) The Borrower promises to pay all costs and expenses, including reasonable attorney's fees, incurred by the Agency in the enforcement of the provision of this Note, regardless of whether suit is filed to seek enforcement. (c) This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (d) This Note shall be governed by and construed in accordance with the laws of the State of California. 1010\20\406820.1 (e) The times for the performance of any obligations hereunder shall be strictly construed, time being of the essence. (f) This document, together with the Loan Documents, contains the entire agreement between the parties as to the Loan. It may not be modified except upon written consent of the parties. a California limited partnership By: , its Managing General Partner By: Name: Its: 1010\20\406820.1