Item 05 - Crossroads at Washington Affordable Housing Project at 1126, 1136, & 1146 East Washington Ave.

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Crossroads at Washington Affordable Housing Project at 1126, 1136, & 1146 East Washington Avenue June 21, 2022 Page 9 2 8 1 5 ownership of the adjacent properties located at 1126 and 1146 E Washington Avenue. At that same meeting, City Council also authorized the Executive Director of the Housing Authority to execute a joint sixty- five (65) year Ground Lease and an Option Agreement with Washington Santa Ana Housing Partners, L. P., a California limited partnership formed by the Developer. The Staff Report from February 18, 2020, is attached as Exhibit 10. Since that date and during the option term, the Developer conducted a site assessment of the Project area and identified a number of unexpected environmental contaminants. This issue was communicated to City Council on December 15, 2020 and August 17, 2021. To summarize the environmental contamination issue, the Developer retained Altec Testing & Engineering, Inc. (“Altec”) during their due diligence period to conduct environmental investigations for the sites. An initial Phase I environmental investigation was conducted on October 19, 2019. A Phase II Environmental Site Assessment (“Phase II”) Report was warranted based on the Phase I findings and was prepared by Altec on February 19, 2020. The Phase II identified unexpected contaminants and recommended additional environmental investigations to determine the extent of the soil contamination on the County and Housing Authority-owned properties. In addition, the County retained Geosyntec Consultants, Inc. to provide environmental peer review services and to act as the County’s consultant with respect to environmental issues on the property (the City retained services from a City consultant only as needed). Thereafter, and following approval by the Board of Supervisor on August 21, 2021, the County entered into a voluntary oversight agreement with the State of California Department of Toxic Substances Control (“DTSC”) that authorized DTSC to serve as the oversight agency for the Project. The Agreement allowed DTSC the ability to facilitate and help coordinate further inspections and investigations, review and approve appropriate remediation measures and documents, and engage the public, as necessary. Since the Developer did not contribute to the existing on-site environmental contaminants, the Developer has requested to amend the indemnity obligations in the Ground Lease to reflect the preexisting condition of the property related to the existing contaminants. As a result, the County and the Housing Authority staff have negotiated a revised Ground Lease to eliminate the Developer’s indemnity obligations associated only with these existing hazardous materials in Section 4.4.4 of the Ground Lease, but to maintain all prior indemnity provisions. With the DTSC approved remediation plan, this should not result in any additional obligations or liability to the Housing Authority or City. In addition, U.S. Bank as the senior lender for the Project, requested revisions to the Ground Lease as part of their due diligence in order to approve their senior loan. In general, U.S. Bank’s revisions seek to protect and enhance their rights as a senior lender. Specifically, U.S. Bank requested revisions throughout the Ground Lease in the following Sections: Annual Operating Expenses, Effective Date, Net Refinancing Proceeds, Net Syndication Proceeds, Preconditions, Ownership of Improvements, contributions to the