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Judson Brown, City of Santa Ana March 1, 2017 Santa Ana Arts Collective: Financial Gap Analysis Page 4 AHSC Loan Limits In October 2016, the Developer was awarded $7.80 million in capital funds from the AHSC Program. However, AHSC Program Loan Limits are primarily based on the type of Tax Credits utilized, and 9% Tax Credit projects must utilize lower loan limits than 4% Tax Credit projects. When the Project was awarded 9% Tax Credits in November 2016, the AHSC award was reduced by approximately $3 million —from $7.80 million to $4.90 million. POTENTIAL FUNDING SOURCES FOR THE UNFUNDED FINANCIAL GAP Additional Funding Sources The Developer is pursing two options to obtain additional funding from outside funding sources. If the Developer is successful with either of the two outside funding options, it is anticipated that the Project will not exhibit an unfunded financial gap. As such, the Developer would not request additional funds from the City. The two options being pursued are as follows: 9% Tax Credit /4% Tax Credit Hybrid structure The volatility in the Tax Credit markets, and the subsequent drop in Tax Credit equity rates, have created additional financial gaps for many Tax Credit projects. To mitigate this loss, TCAC is proposing to create a 99,6/4% Hybrid Structure to help fund a portion of impacted projects' financial gaps. This structure requires the developer to subdivide or legally separate a project into two separate projects with one project receiving the awarded 9% Tax Credits and the other project receiving a new award of 4% Tax Credits. The creation of a separate 4% Tax Credit project generates additional Tax Credit equity. However, this structure has never been undertaken before, and thus, there are many uncertainties regarding its viability. The AHSC award also creates potential impediments to using this proposed hybrid Tax Credit structure. The Developer is corresponding with HCD regarding the following issues: 1. Given that the Project would need to be legally separated into two projects, the AHSC award would also need to be separated. HCD has no programmatic process to accomplish this, and is uncertain if they have the flexibility to implement a new process. 2. HCD will require separate deeds of trust for the 9% project and the 4% project. The Developer's legal counsel advised that it may be difficult to obtain approval of this structure from HCD's legal counsel. The Developer has not yet obtained a definitive answer from HCD as to whether this is a viable option. If the Developer can pursue this structure, it is likely that it will produce sufficient 1703001:SNA:TRB 19090.014.007 80A-22