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Judson Brown, City of Santa Ana <br />1126-46 E. Washington Ave: Preliminary Financial Gap Analysis <br />EXHIBIT 2 <br />May 22, 2019 <br />Page 13 <br />As shown in the table above, KMA estimates that the Project exhibits a $3.94 million <br />financial gap. In contrast, the Developer is requesting $3.97 million in financial <br />assistance from the City. This represents a $30,000 differential, which is a less than 1% <br />difference. It is the KMA opinion that a difference of this magnitude can be considered <br />insignificant. <br />CONCLUSIONS / RECOMMENDATIONS <br />The following summarizes the conclusions of the KMA analysis: <br />1. Based on the currently available information, it is KMA's conclusion that the <br />Developer's request for $3.97 million in financial assistance is supported by the <br />Project economics. However, given the preliminary nature of the proposal, if the <br />scope of development or financing assumptions change, the KMA analysis may <br />need to be updated accordingly. <br />2. The Developer initially requested to ground lease the Housing Authority Parcel <br />for a 99-year ground lease term. At a minimum, the ground lease term must be <br />set at 57 years to comply with TCAC's requirements. However, based on the <br />KMA analysis and discussions with the Developer, it was determined that a <br />shorter ground lease term is sufficient to meet the requirements of most lenders <br />and Tax Credit investors. As such, KMA recommends that the Housing Authority <br />work with the Developer and the County to negotiate a ground lease term <br />between 57 — 75 years. Additionally, the Housing Authority, County and <br />Developer should work to negotiate the specific terms of the ground leases. <br />3. The City / Housing Authority should discuss the proposed residual receipts <br />distributions with the County and the Developer. <br />4. It is important to note that 100% of the affordable units will be restricted to <br />extremely low income households. As such, the only reason the Project is <br />operationally feasible is due to the 43 PBVs proposed to be provided by the <br />County. If the PBVs are terminated, the Project's net operating income will go <br />negative immediately, which could pose a risk of foreclosure if this occurs during <br />the permanent loan term. <br />1905019:SA:TRB <br />19090.017.019 <br />FO <br />