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EXHIBIT 1 Judson Brown, City of Santa Ana March 1, 2017 Santa Ana Arts Collective: Financial Gap Analysis page 14 The Developer is requesting $3.49 million in additional fin anclal assistance from the City, which is $40,000 more than the unfunded financial gap Identified in the KMA financial analysis. This less than 1% differential can be considered inconsequential. As such, KMA concludes that the Developer's request for $3.49 million In financial assistance is warranted by the Project economics under the following assumptions: 1. No additional financial assistance from outside funding sources Is available, and 2. The City does not require the Developer to defer any of the Developer Fee Included in the Project's budget. Deferred Developer Fee Under the TCAC regulations, the proposed Project can include a Developer Fee of up to $2.0 million in the Project's budget. However, for 9% Tax Credit projects, TCAC only allows up to $1.40 million of the Developer Fee to be included in the Project's eligible Tax Credit basis, As such, any amount of Developer Fee above $1.40 million does not generate Tax Credit equity for the project, and unless this portion of the Developer Fee Is deferred, it directly adds to the Project's financial gap, Given the Developer's request for additional financial assistance from the City, KMA recommends that the $600,000 of the total $2.0 million Developer Fee (the amount above $1.40 million) be deferred and repaid out of the Project's cash flow, or be given up by the Developer. This requirement would decrease the unfunded financial gap to approximately $2.90 million, which Is approximately $600,000 less than the Developers additional financial assistance request. It should be noted that the IAS requires the deferred Developer Fee to be repaid within 15 years. If the total deferred Developer Fee is not repaid within 15 years, there will be tax ramifications for the limited partnership that purchased the Tax Credits. KMA estimates that the Project's cash flow supports the repayment of approximately $198,000 during the first 15 years. Thus, the Developer may decide to do one of the following: 1. Set the Developer Fee at $2.0 million, and defer $600,000 of that Fee. In this case the Developer and limited partner would be taking the risk that the full amount of the deferral will not be able to be paid from the Project's cash flow within 15 years, That will trigger tax consequences unless the Tax Credit Investor and/or the Developer stepin to fund the shortfall. 1703001u5NAMO 19090.014.007 FOODIMFOO