25C - AGMT - INCREASE PERM LOAD DEPOT AT SANTIAGO

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Request for Consent by C&C Development and Orange Housing Development Corporation October 2, 2018 Page 2 increase the amount of the permanent loan. The Developer is not requesting the City to increase our financial assistance for the project. The reason for the requested consent from the Developer is that over the course of the construction period, the development costs for the project increased by approximately $753,000. The Developer states that the cost increases are primarily due to the following: • Increases in construction costs which have affected the construction industry throughout Southern California; • Increases in indirect costs such as architecture, engineering, and permits and fees costs; and • Increases in financing costs due to extending the construction loan for six additional months due to extensive rain and flooding in Orange County during the Winter months between December 2016 and February 2017. However, the project's current net operating income is able to support a $6.42 million permanent loan, which is $993,000 higher than previously estimated. This increased permanent loan amount is due to increases in the Orange County Area Median Income, which allowed for the 2018 affordable rents to be higher than the affordable rents used to estimate the initial permanent loan amount. The additional permanent loan proceeds would be used to cover the increase in construction costs and/or pay down the deferred Developer Fee amount. Therefore, the Developer is requesting that the City approve a permanent loan amount of up to $6.42 million. To analyze the impact of this request on the City's subordinate $3.0 million loan, the City requested an analysis by Keyser Marston Associates (KMA) (Exhibit 2). To evaluate the Developer's request, KMA analyzed two cash flow scenarios. The first cash flow scenario utilizes the assumptions from the Developer's 2016 pro forma (2016 Financing Assumptions). The second cash flow scenario utilizes current assumptions from the Developer's 2018 pro forma (2018 Financing Assumptions). The following summarizes the pertinent conclusions of the KMA cash flow analyses: 2016 Financing Assumptions The cash flow analysis based on the 2016 financing assumptions can be summarized as follows: • The Deferred Developer Fee is set at $693,000 and is estimated to be repaid by Year 10. • It is estimated that the City will begin to receive residual receipts payments in Year 13. • The residual receipts payments to the City over the 55 -year loan term are estimated as follows: o $4.26 million in nominal dollars; and o $164,000 in net present value dollars. 2018 Financing Assumptions The cash flow analysis based on the 2018 financing assumptions can be summarized as follows: 25C-2