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Approve Commitment to Resubordinate Loans for Cornerstone Apartments November 20, 2018 Page 4 flow. Current cash flow projections indicate that insufficient funds will be generated to cover the Project's existing physical needs. If the commitment to resubordinate the City Loans is approved, staff will return at a later date with various Subordination Agreements for consideration by City Council and the Housing Authority prior to the issuance of the Bonds and Jamboree's application for the non-competitive 4% tax credits required for the rehabilitation. At that time, the City and Housing Authority will have the exact dollar amount of the Bonds, and the then outstanding balance of the City Loans. In addition, a new TEFRA hearing will also need to be held prior to closing in mid -2019, as the current TEFRA will expire in December 2018. Commitment to Increase Rents If the commitment to resubordinate the City Loans is approved staff will also need to return at a later date with various Amendments to the Loan Agreements for consideration by City Council and the Housing Authority to increase the rents at the project to 50% Area Median Income TCAC rents. These amendments are necessary in order for Jamboree to create an additional $800,000 in appraised value which in turn will yield rehabilitation credits as well as sale proceeds for the City repayment. The increased Bond funds would be used to make an upfront payment of $500,000 on the City Loans, with the balance dedicated to rehabilitation costs. An analysis of the current rent roll (dated October 25, 2018) reveals that the effective increase to 91 % of residents will be about $25 per month or $300 per year. This will generate approximately $34,000 in additional revenue per year for Jamboree. Six percent (or equivalent of eight units) have been residents onsite less than 12 months, and at their one year anniversary will have their rents gross up to a level where they would see the same $25 per month effective increase. The remaining three percent (4 units) of the tenants would see rent increases of $31/month. Staff supports the request for a rent increase due to the level of rehabilitation needed and the value of increasing sustainability onsite and protecting residents from potential spikes in the cost of electricity due to the large photovoltaic system. Prior to the levying of any rent increase, Jamboree has also agreed to provide a minimum 60 day notice instead of the statutory 30 day notice. STRATEGIC PLAN ALIGNMENT Approval of this item supports the City's efforts to meet Goal # 4 Fiscal Sustainability, Objective # 1 (maintain a stable, efficient and transparent financial environment) and Goal # 5 - Community Health, Livability, Engagement & Sustainability, Objective # 3 (Facilitate diverse housing opportunities and support efforts to preserve and improve the livability of Santa Ana neighborhoods).