25A - AGMT SUBORDINATION THE DEPOT

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Subordination Agreement for the Depot at Santiago May 7, 2019 Page 3 (b) The Department's lien(s) shall not be subordinated to the liens of a local governmental entity unless either: (1) the total local governmental assistance to the Project is more than twice the amount of the Department's total assistance to the Project (including both loans and grants) In this case, the total HCD assistance to the Depot is $5,925,000 (including both the IIG and AHSC grant and loan funds), while the City's loan is $3,000,000. Regarding the subordination, HCD's policy is to include the total amount of HCD's financial assistance in the project when determining whether a locality has at least twice as much money invested in the project and thus permitting them to take a senior position. The amount of financial assistance includes both loans and grants. In this case, while the HCD loan is only $425,000, there was also an additional $5,500,000 in grant funds invested in the project. As a result, the total amount of HCD financial assistance is $5,925,000, which is why HCD is requesting to be senior to the City's loan. HCD is not making the distinction between construction and permanent financing when considering all of HCD's assistance to the project. Accordingly, HCD is requesting the City to subordinate to HCD's $425,000 AHSC Permanent Loan. In regards to the timing, HCD was not in a position to fund their AHSC Permanent Loan of $425,000 at the time of the conversion from the construction to the permanent loan. Therefore, the request to subordinate the AHSC Permanent Loan is occurring now. 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). FISCAL IMPACT The developer assumed at the start of the financial closing of the project that the City's loan would have to be subordinate to the $425,000 Permanent Loan from the State of California Department of Housing and Community Development (HCD) in order for HCD to provide their financing. Therefore, there is no anticipated impact to the residual receipt repayment schedule of the City's loan over the 55 -year repayment period. &V--� Steven A. Mendoza Executive Director Community Development Agency Exhibit: 1. Subordination Agreement with HCD 25A-3