HomeMy WebLinkAboutItem 03 - Crossroads at Washington Affordable Housing Project Housing Authority
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Item # 3
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
August 17, 2021
TOPIC: Crossroads at Washington Affordable Housing Project
AGENDA TITLE:
Approve a Second Amendment to the Option Agreement with Washington Santa Ana
Housing Partners, L.P. for the development of the Crossroads at Washington for up to
$300,000 in backstop funding; approve an additional award of $333,742 of Neighborhood
Stabilization Program funds and Seven Project-Based Vouchers to the existing Pre-Loan
Commitment Letter for $3,971,440, for a total of $4,305,182, to the Related Companies
of California, LLC and A Community of Friends for the development of the Crossroads at
Washington
RECOMMENDED ACTION
1. Authorize the Executive Director of the Housing Authority to execute a Second
Amendment to Option Agreement with Washington Santa Ana Housing Partners, L.P.,
a California limited partnership for the development of the Crossroads at Washington
affordable housing project located at 1126 and 1146 E. Washington Avenue, Santa
Ana, CA 92701, (APNs 398-092-13 and 398-092-14) to include an environmental
remediation backstop amount not to exceed $300,000 (if required), subject to non-
substantive changes approved by the Executive Director and Housing Authority
General Counsel.
2. Approve an award of up to seven project-based vouchers and authorize the Executive
Director of the Housing Authority to execute an Agreement to enter into a Project-
Based Vouchers Housing Assistance Payments Contract with Washington Santa Ana
Housing Partners, L.P., a California limited partnership for the development of the
Crossroads at Washington affordable housing project located at 1126 and 1146 E.
Washington Avenue, Santa Ana, CA 92701, (APNs 398-092-13 and 398-092-14),
subject to non-substantive changes approved by the Executive Director of the Housing
Authority and Authority General Counsel.
DISCUSSION
On February 18, 2020, the City Council approved a Joint Powers Agreement with the
County of Orange to mutually develop the Crossroads at Washington affordable housing
project located at 1126 and 1146 E. Washington Avenue, Santa Ana, CA 92701 as joint
property owners. The City Council also approved an Option Agreement and 65-year
Ground Lease with the Related Companies of California for the development of the
combined property. Since that date, the developer has conducted various environmental
Crossroads at Washington Affordable Housing Project
August 17, 2021
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assessments on behalf of the City and County as joint owners. The environmental
assessments have determined that the combined property owned by the Housing
Authority and County is environmentally contaminated. Due to this unforeseen
circumstance, the developer sought a reimbursement agreement to pay a portion of the
predevelopment and environmental assessment costs they have incurred so far on behalf
of the Housing Authority and County, only if they are unable to proceed with the project.
Approved at the December 15, 2020 Housing Authority meeting, the First Amendment to
the Option Agreement commited the Housing Authority and County to pay $314,772,
payable equally in a 50-50 split, if the developer elects not to proceed with the project and
declines the Housing Authority and County’s award of affordable housing funds and the
65-year Ground Lease of the environmentally contaminated property for the development
of the project. This Second Amendment to the Option Agreement will commit the Housing
Authority and County to pay up to $300,000 for an environmental remediation, payable
equally in a 50-50 split, if the Developer, Housing Authority, and County are not able to
secure remediation and cleanup funding from the California Department of Toxic
Substances Control (“DTSC”).
Specifically, the Crossroads at Washington (the “Project”) is a proposed multifamily
affordable housing development at 1126 and 1146 E. Washington Avenue, Santa Ana,
CA 92701. The approximately 2.286 acre site includes two parcels (identified in Table 1)
owned by the County of Orange (the “County”) and the Housing Authority of the City of
Santa Ana (the “Housing Authority”). Both parcels are currently vacant and free of
building structures or occupants.
Table 1 – Property Ownership
Property Owner Assessor’s Parcel
Number Acres
Housing Authority of the City of Santa Ana 398-092-14 1.456
County of Orange 398-092-13 0.830
Total 2.286
Washington Santa Ana Housing Partners, L.P. (the “Developer”), a California limited
partnership formed by The Related Companies of California LLC and A Community of
Friends, the County of Orange, and the Housing Authority entered into an Option
Agreement on February 25, 2020, which provided site control for the Developer to apply
for the funding needed to develop the Project.
Since receiving the City and County’s financial commitments in July 2019, the Developer
has invested significant staff time and financial resources in this Project to secure funding
and compete for Low-Income Housing Tax Credits from the California Tax Credit
Allocation Committee (“TCAC”) while conducting comprehensive environmental due
diligence. To date, the Developer has incurred over $764,000 in third-party
predevelopment expenses and over $550,000 in staff overhead costs specific to the
Project. This includes environmental assessments and $214,772 of non-refundable
Crossroads at Washington Affordable Housing Project
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payments for the required TCAC Allocation Fee ($107,386) and TCAC Performance
Deposit ($107,386). The Developer is committed to investing more staff time to develop
the Project.
The First Amendment to the Option Agreement provided for reimbursement to the
Developer for a portion of the costs should the Project not move forward (Exhibit 1). In
partnership with the California Department of Toxic Substances Control (“DTSC”), the
Housing Authority, and the County, the Developer is coordinating additional site
investigations and testing through DTSC’s Targeted Site Investigation Plus (“TSI+”)
program. DTSC and their environmental consultant are currently preparing preliminary
lab results and cleanup options based on field investigations of both properties. These
findings and recommendations will inform updates to the Project’s overall financial
feasibility.
The Second Amendment to the Option Agreement will provide for an environmental
remediation backstop to support project feasibility if the Developer, Housing Authority,
and County are not able to secure additional funding for the cost of remediation and
cleanup through a separate DTSC remediation program. The Second Amendment to the
Option Agreement will commit the Housing Authority and County to pay up to $300,000
for an environmental remediation, payable equally in a 50-50 split. This remediation
backstop will serve as a de facto insurance policy for the Developer in case they are
unable to secure funding for the cleanup in order to meet their tax credit reservation
deadline to complete the project.
Environmental Assessments
The Developer retained Altec Testing & Engineering, Inc. (“Altec”) during the due
diligence period to conduct environmental investigations for the sites. An initial Phase I
environmental investigation was conducted on October 19, 2019, indicating the likely
presence of hydrocarbon contamination on the site in view of past uses that would require
some offsite disposal of soil, a manageable mitigation. A Phase II Environmental Site
Assessment (“Phase II ESA”) Report was warranted based on the Phase I findings and
was prepared by Altec on February 19, 2020. The Phase II ESA Report identified
unexpected contaminants (e.g., Tetrachloroethylene, also known as PCE) and
recommended additional environmental investigations to determine the vertical and
horizontal extent of the soil contamination on the County and Housing Authority
properties. The source of this environmental contamination is currently unknown so the
County and City are unable to pursue the contaminator for damages at this time.
Subsequently, 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 site, for the benefit of both the County and the Housing Authority.
Additional environmental assessments in May and September 2020 concluded that the
levels of contaminants might warrant environmental oversight by a public agency. As a
preemptive measure, all parties agreed to reach out to the Orange County Health Care
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Agency (“OCHCA”) to serve as the oversight agency under its voluntary environmental
oversight program. The involvement of an oversight agency provides regulatory direction
on further assessments and mitigation/remediation options for the site. The May and
September 2020 investigations warranted additional assessments to determine the full
extent of contamination before mitigation measures can be pursued. As a result on
December 18, 2020, OCHCA advised to transfer their environmental oversight
responsibilities to the DTSC.
On April 27, 2021, the County and City staff submitted a Request for Agency Oversight
Application to the Department of Toxic Substances Control (“DTSC”). The application was
reviewed and accepted by DTSC. A Standard Voluntary Agreement allows DTSC to act
as the oversight agency with 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. These activities are necessary for the
development of the site. After DTSC approves the remediation measures/documents,
DTSC will remain as the oversight agency during the remedial activities. On July 20,
2021, City Council authorized the Executive Director of the Housing Authority to execute
the Standard Voluntary Agreement up to an amount not to exceed $40,000 with the
County and DTSC for the Project.
On February 11, 2021, DTSC selected the Project to be included in their TSI+ program,
estimating that approximately $100,000 of additional site assessment services (not
retroactive to previously incurred costs) would be provided to conduct a Supplemental
Site Investigation with a Human Risk Assessment, and prepare a Cleanup Plan. Funding
and associated activities will be assessed and adjusted throughout the duration of the
TSI+ program activities. Through this program, DTSC retained GSI Environmental Inc. to
evaluate both properties as well as provide findings, cleanup options, and estimated costs
for those remediation and cleanup options. TSI+ does not include funding for the
remediation, cleanup, or ongoing monitoring; therefore, the Developer will apply for
additional funding to cover these additional costs.
The findings and recommendations produced through the TSI+ program will allow the
Developer to determine the Project’s financial feasibility prior to the September 1, 2021
deadline to accept or return tax credits as further detailed in the section below.
Tax Credit Reservation
Due to the highly competitive nature of receiving tax credit allocations in California (e.g.,
competitions are typically oversubscribed by 300%), the Developer was unsuccessful in
securing a tax credit reservation in its initial TCAC application submittal during the 2020
First Competitive Application Funding Round in March 2020. The Developer resubmitted
a tax credit application in TCAC’s Second Competitive Application Funding Round in July
2020 and was successful in securing a reservation of special, one-time Further
Consolidated Appropriations Act, 2020 (“FCAA”) federal credits.
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As prescribed by the TCAC regulations, if the Developer chooses to accept the
reservation of the FCAA credits, the Developer would be subject to $214,772 of non-
refundable payments for the required TCAC Allocation Fee ($107,386) and TCAC
Performance Deposit ($107,386). If the Developer returns the credits, TCAC will not
return the fees. Additionally, the TCAC regulations allow the Developer to return the
FCAA credits no later than September 1, 2021 to avoid being assessed negative points
for future TCAC applications.
Unlike typical 9% TCAC projects which require competitive 9% projects to start
construction within 180/194 days of the tax credit award, TCAC’s September 1, 2021
deadline to return FCAA credits for the Project allows flexibility for the Developer to start
construction whenever feasible, as long as the Project is completed by December 31,
2023. If the Developer does not complete the Project by December 31, 2023, TCAC will
assess the Developer with negative points that could adversely impact their ability to
pursue future affordable development anywhere the Developer does business.
Second Amendment to the Option Agreement
With the understanding of this context and background, the Second Amendment to the
Option Agreement provides for an environmental remediation backstop to the Developer
if the Developer accepts the FCAA Credits, but the Developer, Housing Authority, and
County are not able to secure additional remediation and cleanup funding from DTSC
(Exhibit 2). This backstop will commit the the Housing Authority and County to pay up to
$300,000 for an environmental remediation, payable equally in a 50-50 split.
The Developer would be eligible for the environmental remediation only in the event that
the following conditions are met:
(a) On or before August 31, 2021, the Developer determines that it can complete
the Project by December 31, 2023 and chooses not to return the FCAA Credits
to TCAC; and
(b) The Developer, Housing Authority, and County are unsuccessful in securing
additional remediation and cleanup funding from DTSC is not awarded to the
Project.
Additionally, if the Developer does not move forward with the Project, the Housing
Authority would still be responsible for the terms pursuant to the First Amendment to the
Option Agreement.
First Amended and Restated Pre-Loan Commitment
In July 2019, the Housing Authority and City committed $3,971,440 in affordable housing
funds consisting of $963,951 in Neighborhood Stabilization Program funds and
$3,007,489 in HOME Investment Partnerships Program funds, for the development of the
Project. To date, the existing Neighborhood Stabilization Program (“NSP”) funds account
has accrued an additional $333,742 in interest and repayments. In order to provide
additional financial support for the development of the Project because the site is
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environmentally contaminated, staff is recommending to allocate the remaining balance
of NSP funds. The origin of the City’s NSP funds is from the American Recovery and
Reinvestment Act of 2009 and HUD will rescind these funds if the City does not use them.
In addition, staff did not discover the Housing Authority’s property is environmentally
contaminated until after the original Pre-Loan Commitment was approved by the City
Council in July 2019.
In addition, the Developer’s costs have increased since their initial award in July 2019.
The main changes to their proforma are as follows:
- Operating expenses: John Stewart Management provided an updated operating
budget which includes increased material, utility, and vendor prices.
- Construction costs: As part of the Developer’s due diligence for updating the
proforma, they solicited construction estimates from three general contractors and
used the median estimate for their proforma. As has been well documented,
construction costs (e.g., lumber, concrete, steel, drywall, labor, etc.) have
continued to increase at a rapid pace since staff’s last update due to production
and supply chain issues.
The Developer’s proforma assumes the City/County backstop of the remediation funding
but does not include their conditional $1,145,188 Orange County Housing Finance Trust
(OCHFT) loan. As such, the Developer has a $2,207,846 financing gap (of which
$1,145,188 could be covered by the OCHFT contingent loan) which needs to be
addressed. This financing gap was confirmed by Keyser Marston Associates. Due to
their financing gap and the September 1, 2021 tax credit deadline, staff is recommending
an award of up to seven project-based vouchers (PBVs) to address this financing gap,
contingent upon a review of the Developer’s proforma prior to closing to determine if a full
award of seven PBVs is necessary. If the Developer does not need the full award of
seven PBVs, staff will reduce the PBVs according to their need to close.
The First Amended and Restated Pre-Loan Commitment Letter will provide a new
commitment of $4,305,182 and seven PBVs to the Developer for the development of the
Project (Exhibit 3).
Next Steps
If this item is not approved, the Developer will decline the FCAA tax credits before their
September 1, 2021 deadline and it will take at least another year for the Developer to
secure their other sources of financing to develop the Project. If approved, staff will
support the Developer to secure funding for the environmental remediation. If the
Developer is not successful and the Second Amendment to Option Agreement is
triggered, staff will return to the City Council to request approval of an appropriation
adjustment to pay for the backstop from the Housing Successor Agency funds or another
source of eligible funding.
FISCAL IMPACT
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If the conditions in the Second Amendment to the Option Agreement are met and the
Project does proceed, then an environmental remediation backstop shall be available in
an amount not to exceed $300,000, payable equally in a 50-50 split between the Housing
Authority and County, if the Developer, Housing Authority, and County are not able to
receive remediation and cleanup funding from DTSC. The backstop will be made
available for expenditure in FY 2021-22 from the Low and Moderate Income Housing
Asset Fund, Contract Services account (no. 60718810-62300). Upon final determination
of the amount to be paid by the Housing Authority, staff will seek approval to appropriate
a portion of fund balance for the expenditure.
The First Amended and Restated Pre-Loan Commitment Letter commits an additional
$333,742 of NSP funds. Upon future approval of the loan agreements, the additional
funds will be budgeted and appropriated (as necessary) as follows:
Fiscal
Year
Accounting Unit –
Account #Fund Description
Accounting
Unit, Account
Description
Amount
FY 21-22
14218760-69152
14218761-69152
14218762-69152
Neighborhood
Stabilization
Program 1, 2, and 3
Loans & Grants $ 333,742
Each project-based voucher is estimated to be valued at $1,233 monthly or $14,796
annually, based on HUD’s renewal funding of vouchers from March 30, 2021. The
approximate value of the 7 project-based vouchers on an annual basis totals $103,572.
The actual annual expenditure for the 7 project-based vouchers may be different based
on when the development of the project is completed and the units are leased. Funds will
be budgeted in future fiscal years in the Housing Choice Voucher Program, Project Based
Vouchers account (no. 13618760-69171).
Fiscal Impact Verified By: Kathryn Downs, CPA, Executive Director – Finance and
Management Services Agency
EXHIBIT(S)
1. Staff Report from December 15, 2020
2. Second Amendment to Option Agreement
3. First Amended and Restated Pre-Loan Commitment Letter
Submitted By:
Steven A. Mendoza, Assistant City Manager
REQUEST FOR HOUSING
AUTHORITY ACTION
MEETING DATE:
DECEMBER 15, 2020
TITLE:
APPROVE A FIRST AMENDMENT TO
THE OPTION AGREEMENT WITH
WASHINGTON SANTA ANA HOUSING
PARTNERS, L.P. FOR THE
DEVELOPMENT OF THE CROSSROADS
AT WASHINGTON UP TO $157,386 IN
REIMBURSEMENTS
EXECUTIVE DIRECTOR
RECOMMENDED ACTION
RECORDING SECRETARY USE ONLY:
APPROVED
0 As Recommended0 As Amended
CONTINUED TO
Authorize the Executive Director of the Housing Authority to execute a First Amendment to Option
Agreement with Washington Santa Ana Housing Partners, L.P., a California limited partnership for
the development of the Crossroads at Washington affordable housing project located at 1126 and
1146 E. Washington Avenue, Santa Ana, CA 92701, (APNs 398-092-13 and 398-092-14)
including a maximum reimbursement amount not to exceed $157 ,386 (if required), subject to non
substantive changes approved by the Executive Director and Housing Authority General Counsel.
EXECUTIVE SUMMARY
On February 18, 2020, City Council approved a Joint Powers Agreement with the County of
Orange to mutually develop the Crossroads at Washington project located at 1126 and 1146 E.
Washington Avenue, Santa Ana, CA 92701 as joint property owners. City Council also approved
an Option Agreement and 65-year Ground Lease for the development of the combined property
(Exhibit 1 ). Since that date, the developer has conducted various environmental assessments on
behalf of the City and County as joint owners. The environmental assessments have determined
that the combined property owned by the City and County is environmentally contaminated. Due
to this unforeseen circumstance, the developer is seeking a reimbursement agreement to pay a
portion of the predevelopment and environmental assessment costs they have incurred so far on
behalf of the City and County, only if they are unable to proceed with the project. The First
Amendment to the Option Agreement commits the City and County to pay $314,772, payable
equally in a 50-50 split, if the developer elects not to proceed with the project and declines the City
and County's award of affordable housing funds and the 65-year Ground Lease of the
environmentally contaminated property for the development of the project.
DISCUSSION
The Crossroads at Washington (the "Project") is a proposed multifamily affordable housing
development at 1126 and 1146 E. Washington Avenue, Santa Ana, CA 92701. The approximately
2.286-acre site includes two parcels (identified in Table 1) owned by the County of Orange (the
2-1
EXHIBIT 1
First Amendment to the Option Agreement for the Crossroads at Washington
December 15, 2020
Page 2
"County") and the Housing Authority of the City of Santa Ana (the "Authority"). Both parcels are
currently vacant and free of building structures or occupants. However, the sites were previously
used for agriculture, industrial storage and vehicular services. Various contractors and
businesses, including transit agencies, auto repair services, and trucking companies, occupied the
Authority parcel from 1966 to 1991. The County parcel was developed with a materials/equipment
storage area between 1972 and 1989. The northwestern portion of the entire site was primarily
occupied by vehicle service facilities that used onsite gasoline, diesel fuel underground storage
tanks and fuel dispensers. Between 2007 and 2019, various contractors and services leased both
parcels (e.g., ARB Underground, Christiansen Amusement, etc.).
T bl 1 P a e -rt 0 rope tY h" wners Ip
Property Owner Assessor's Parcel Acres Number
Housinq Authority of the City of Santa Ana 398-092-14 1.456
County of OranQe 398-092-13 0.83
Total 2.286
Washington Santa Ana Housing Partners, L.P. (the "Developer''), a California limited partnership
formed by The Related Companies of California LLC and A Community of Friends, the County and
the Authority entered into an Option Agreement on February 25, 2020, which provided site control
for the Developer to apply for funding.
The Developer has invested significant staff time and financial resources in this Project to secure
funding and compete for Low-Income Housing Tax Credits from the California Tax Credit
Allocation Committee ("TCAC") while conducting comprehensive environmental due diligence. To
date, the Developer has incurred over $695,000 in third-party predevelopment expenses and over
$500,000 in staff overhead costs specific to this project. This includes environmental
assessments and $214,772 of non-refundable payments for the required TCAC Allocation Fee
($107,386) and TCAC Performance Deposit ($107,386). The Developer is committed to investing
more staff time to the Project.
The First Amendment to the Option Agreement provides for reimbursement to the Developer for a
portion of the costs should the Project not move forward in the future. While additional
investigations are warranted with outside environmental health agency involvement, the Developer
will need to request additional reimbursement in the future once further environmental assessment
costs have been identified. These costs will be documented in a future Second Amendment to the
Option Agreement.
Environmental Assessments
The Developer retained Altec Testing & Engineering, Inc. ("Altec") during the due diligence period
to conduct environmental investigations for the sites. An initial Phase I environmental investigation
was conducted on October 19, 2019, indicating the likely presence of hydrocarbon contamination
on the site in view of past uses that would require some offsite disposal of soil, a manageable
mitiga tion. A Phase II Environmental Site Assessment ("Phase II ESA") Report was warranted
based on the Phase I findings and was prepared by Altec on February 19, 2020. The Phase II
ESA Report identified unexpected contaminants (e.g., Tetrachloroethylene, also known as PCE)
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EXHIBIT 1
First Amendment to the Option Agreement for the Crossroads at Washington
December 15, 2020
Page3
and recommended additional environmental investigations to determine the vertical and horizontal
extent of the soil contamination on the County and Authority properties. Subsequently, 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 site, for the benefit of both the
County and the Authority.
Additional environmental assessments in May and September concluded that the levels of
contaminants might warrant environmental oversight by a public agency. As a preemptive
measure, all parties agreed to reach out to the Orange County Health Care Agency ("OCHCA") to
serve as the oversight agency under its voluntary environmental oversight program. The
involvement of an oversight agency provides regulatory direction on further assessments and
mitigation/remediation options for the site. The May and September, investigations warrant
additional assessments to determine the full extent of contamination before mitigation measures
can be pursued.
To date, the Developer has incurred over $100,000 of additional environmental assessment
expenses beyond the original Phase II ESA Report. A project timeline is provided with more details
regarding the environmental assessments and testing (Exhibit 2). Table 2 summarizes cost for
subsequent site assessment since issuance of the original Phase II ESA Report on February 19,
2020.
T bl 2 S a e -ummary o f s·t A le t B d t ssessmen u 1ge s
Additional Assessments beyond Originally Issued Phase II ESA Amount
Additional Scope and Cost approved by staff on May 13, 2020 $59,700
Additional Scope and Cost approved by staff on May 22, 2020 $6,255
Additional Scope and Cost approved by staff on June 2, 2020 $1,750
Additional Scope and Cost approved by staff on August 12, 2020 $50,210
Additional Scope and Cost approved by staff on September 23, 2020 $11,104
Total $129,019
Tax Credit Reservation
Due to the highly competitive nature of receiving tax credit allocations in California (e.g.,
competitions are typically oversubscribed by 300%), the Developer was unsuccessful in securing a
tax credit reservation in its initial California Tax Credit Allocation Committee {"TCAC") application
submittal during the 2020 First Competitive Application Funding Round in March 2020. The
Developer resubmitted a tax credit application in TCAC's Second Competitive Application Funding
Round in July 2020 and was successful in securing a reservation of special, one-time Further
Consolidated Appropriations Act, 2020 ("FCAA") federal credits.
As prescribed by the TCAC regulations, if the Developer chooses to accept the reservation of the
FCM credits, the Developer would be subject to $214,772 of non-refundable payments for the
required TCAC Allocation Fee ($107,386) and TCAC Performance Deposit ($107,386). If the
Developer returns the credits, TCAC would not return the fees. Additionally, the TCAC regulations
allow the Developer to return the FCAA credits no later than September 1, 2021 to avoid being
assessed negative points for future TCAC applications.
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EXHIBIT 1
First Amendment to the Option Agreement for the Crossroads at Washington
December 15, 2020
Page 4
Unlike typical 9% TCAC projects which require competitive 9% projects to start construction within
180/194 days of the tax credit award, TCAC's September 1, 2021 deadline to return FCAA credits
for the Project allows flexibility for the Developer to start construction whenever feasible as long as
the Project is completed by December 31, 2023.
First Amendment to the Option Agreement
With the understanding of this context and background, the First Amendment to the Option
Agreement provides for reimbursement to the Developer for a portion of these predevelopment
and environmental assessment costs should the Project not move forward in the future (Exhibit 3).
Specifically, the Developer is seeking reimbursement for the non-refundable TCAC deposits and
the incurred environmental assessments after the initial Phase 11 ESA Report issuance on
February 19, 2020 totaling $314,772, payable 50-50 by the County and the Authority.
The Developer would be reimbursed the non-refundable deposits and environmental assessments
only in the event that the following conditions are met:
(a)On or before August 31, 2021, the Pa rtnership determines that it cannot complete the
Project by December 31, 2023 and returns the FCAA Credits to TCAC; and
(b)(i) The Partnership determines the Crossroads project is not financially feasible and
intends to decline the funding commitment of the County and Authority, ill
(ii)The County or Authority terminate its funding commitment for the project pursuant to
the terms and conditions of the existing funding commitment.
If the Developer does not move forward with the Project, the Authority would be responsible for
$157,386 of the $314,772 in reimbursement funds allowed under this First Amendment.
FISCAL IMPACT
If the conditions in the First Amendment to the Option Agreement are met and the project does not
proceed, $157,386 will be made available for expenditure in FY 2020-21 from the Low and
Moderate Income Housing Asset Fund, Contract Services account (no. 60718810-62300).
Fiscal Impact Verified By: Kathryn Downs, CPA, Executive Director -Finance and Management
Services Agency
Submitted By: Judson Brown, Housing Division Manager-Community Development Agency
Exhibits: 1.Staff Report from February 18, 2020
2.Project Timeline
3.First Amendment to Option Agreement
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EXHIBIT 1
Exhibit 1: Staff Report from February 18, 2020 Click here
http://clerk/WebLink/DocView.aspx?dbid =1 &id =116458&page =1 &cr=1
2-5
EXHIBIT 1
PROJECT TIMELINE
Major milestones are highlighted in black.
Date
September 24, 2019
October 30, 2019
December 16, 2019
January 9-15, 2020
February 19, 2020
March 9, 2020
Milestone
County and Developer Sign License Agreement for Site
Access -The Developer and County sign a Short Term
License Agreement to allow the Developer to access the
County's property for environmental assessment over sixty
60 da s.
Phase I Environmental Site Assessment ("Phase I ESA")
Report -The Phase I ESA prepared by Altec identified site
use history, previous underground storage tank removals, pre-
2019 soil assessment activities, and Recognized
Environmental Conditions ("RECs") throughout the site. It
recommended additional soil sampling, geophysical
assessment and excavation to verify soil conditions and
evaluate risks.
County and Developer Sign License Agreement for Site
Access -Due to the expiration of the original License
Agreement for site access, the Developer and County sign a
new Short Term License Agreement to allow the Developer to
access the County's property for environmental assessment
over sevent -five 75 da s.
Phase II ESA Field Work -Altec's initial soil assessment
based on findings and recommendations from the Phase I
ESA.
Phase II ESA Report-The Phase 11 ESA prepared by Altec
identified the potential location of an underground storage
tank that may not have been removed in 1988 with other
underground storage tanks and equipment. The report also
verified the existence of soil substances at various depths -
some of which exceed the screening levels for occupied
residential structures. This includes Arsenic, Lead, Total
Petroleum Hydrocarbons (diesel and oil), Tetrachloroethylene
(PCE), and Total Recoverable Petroleum Hydrocarbon
(TRPH). Specifically, PCE was an unexpected contaminant
found at the site and the Phase II ESA Report recommended
additional environmental investigations to determine the
extent of the vertical and horizontal soil contamination on the
Count and Authorit roperties.
Option Agreement -Option Agreement executed between
the County, the Authority, and Developer (Washington Santa
Ana Hou sin Partners, L. P.
TCAC Financing Application -Developer submitted a tax
credit a lication to TCAC First Com etitive A lication
2-6
EXHIBIT 1
April 29, 2020
June 18, 2020
Funding Round) and was unsuccessful in securing an award
of tax credits.
Additional Environmental Assessments -Altec provided a
proposal for additional site assessment based on findings and
recommendations from the Phase 11 ESA Report dated
February 19, 2020. This proposal included three (3) options
that range in scope and cost.
•Option 1: Limited Screening Investigation (not to
exceed $23,050).
•Option 2: Limited Assessment to Maximum Depth of 35
feet below ground (not to exceed $59,700).
•Option 3: Comprehensive Assessment to a Maximum
De th of 55 feet below round not to exceed $84, 175 .
Reimbursement Acknowledgement Letter -County and
Authority staff authorized further investigations through
acknowledging reimbursement to Developer for additional
assessment costs on a 50-50 basis not to exceed an
aggregate cost of $100,000 should the Project terminate. At
the time of this letter, the County, Authority, and Developer
agreed to proceed with Option 2: Limited Assessment to
Maximum Depth of 35 feet below ground (not to exceed
$59,700 .
County Recommended Additional Testing Locations -
The additional site assessment scope was expanded to
include one (1) additional boring location and sixteen (16)
methane gas samples based on recommendations from the
County's environmental consultant, GeoSyntec. This
increased the total "Option 2" scope by $6,255 from $59,700
to $65,955. The County and Authority approved the additional
sco e and cost on Ma 22, 2020.
Developer Recommended Additional Testing based on
Preliminary Results -The Developer and its environmental
consultant, Altec, recommended additional testing to further
analyze soils samples at various depths to better define the
vertical and horizontal soil conditions. This included fourteen
(14)additional collected samples and increased the total
"Option 2" scope by $1,750 from $65,955 to $67,705. The
County and Authority approved the additional scope on June
2, 2020.
Findings from Additional Phase II Environmental Site
Assessment -Developer shared findings from the May
Phase 11 assessment with the County and Authority. The
Developer, County staff, and Authority staff discussed results
on June 25, 2020 and identified next steps:
•The County and its environmental consultant,
GeoS ntec, a ree to contact the Oran e Count Health
2-7
EXHIBIT 1
Care Agency as a potential oversight agency for future
site assessment. The absence of agency oversight
could create issues down the road such as additional
work, duplication of previously completed
assessments, and potentially additional liability.
TCAC Financing Application -Developer submitted an
application to the California Tax Credit Allocation Committee
for the Second Competitive Application Funding Round. This
competitive application round included a one-time allotment of
July 1, 2020 additional 9% federal tax credits through the Further
Consolidated Appropriations Act, 2020 ("FCAA") for
multifamily housing projects in designated areas affected by
the 2017 and 2018 wildfire disasters throughout California.
FCAA credits would not be available in subsequent financing
rounds.
Orange County Health Care Agency provided Remedial
Action Supervision ("RAS") Form to begin Voluntary
Oversight Process -Under direction from County staff and
July 9, 2020 Authority staff, the Developer submitted the RAS form to
OCHCA.
Developer and its environmental consultant, Altec, began
preparing the Site Assessment Work Plan.
Developer Shared Proposal for Additional Site
Assessment with County and City and the County
Recommends Additional Testing -This site assessment
proposal included five (5) additional PCE borings, twenty (20)
additional TPH borings, assumed agency involvement, and
included an option for expedited sampling results. If
approved, this scope would increase the total Phase II ESA
costs from $67,705 to $131,611 which exceeded the
previously agreed upon $100,000 reimbursement limit and did
not include OCHCA oversight agency fees.
August 5-6, 2020 In addition to the five (5) additional PCE borings on the City's
property (North Parcel), the County recommended adding two
(2)additional PCE borings on the County's property (South
Parcel) to help address the extent of the vertical and
horizontal contamination.
To keep costs as close to the $100,000 reimbursement limit
but still provide the necessary information to allow the
Developer to evaluate the opportunity to accept the FCAA
credits and under advisement from Altec and Geosyntec, the
Developer submitted a reduced scope for a total cost of
2-8
EXHIBIT 1
August 19, 2020
September 1, 2020
September 2, 2020
September 9, 2020
$50,210 and resubmitted to the County and City on August
10, 2020 for consideration.
County and Authority Staff Approved Additional Site
Assessment and Sign Environmental indemnification
Letters -The County and City approved the revised scope of
work in amount of $50,210 that increased the Developer's
ESA Phase II costs from $67,705 to $117,915; however, the
County and City did not approve an increase to the
$100,000 reimbursement limit. The County and City
subsequently signed Environmental Indemnification Letters for
the project in order to involve a third party oversight agency
on next ste s.
OCHCA Confirmed Role as Oversight Agency -Developer
submitted RAS Forms to OCHCA on August 14, 2020 to begin
the agency oversight process. OCHCA confirmed on August
19, 2020 that it would serve as the oversight agency and
provided the RAS Letter so that the Developer may begin
sharin environmental re arts for review.
Developer Submitted Previous Assessment Data to
OCHCA -The following items were shared with OCH CA on
September 1, 2020 to begin their review:
•Excel workbook with summary tables of the analytical
results.
•Set of figures to show where the referenced samples
were collected
•Summary of lab results Altec generated in January
2020 and May 2020.
OCHCA began review of Site Assessment Work Plan on
September 2, 2020 and authorized the development team to
conduct the additional investigations prior to their complete
review of the Site Assessment Work Plan. This timeframe
allowed the Developer to evaluate the opportunity to accept
the FCAA credits b TCAC deadline.
Site Assessment Work Plan submitted to OCHCA -Altec
provided the Site Assessment Work Plan and Developer
submits to OCHCA for review.
OCHCA approved Site Assessment Work Plan and
requires additional scope -OCHCA approved the Site
Assessment Work Plan with a requirement for additional
scope of work on September 9, 2020. Altec quantified
OCHCA's additional scope at $14,053 and Developer
requests approval from County and City on September 15,
2020 (this scope was revised and approved on September 23,
2020 .
2-9
EXHIBIT 1
County and Authority Staff Approved Additional Scope
Required by OCHCA -Based on County and City review, the
Developer was able to reduce the cost for OCHCA's required
additional scope to $11,104 on September 22, 2020. The
County and City approved this scope on September 23, 2020
that increased the Developer's total ESA Phase II costs from
$117,915 to $129,019.
Site work for borings, probe installations and gas sampling
occurred between Se tember 30, 2020 and October 6, 2020.
Lab Results from Site Assessment Provided to County
and Authority staff -Altec provided lab results, findings and
October 27, 2020 summary narrative to the County and City for review in
preparation for a decision on whether or not to accept the
FCAA tax credits reservation.
Developer Accepted Preliminary Reservation of Tax
Credits -Developer Submitted Preliminary Reservation
Letter, Carryover Allocation Agreement, and the two non
refundable payments for TCAC Allocation Fee ($107,386) and
TCAC Performance De osit $107,386 .
Developer and County Discuss Next Steps prior to First
Amendment to Option Agreement -Developer, County and
November 16, 2020 both of their environmental consultants discussed next steps
and estimated budgets for the next phase of recommended
site assessment.
2-10
EXHIBIT 1
FIRST AMENDMENT
TO
OPTION AGREEMENT
THIS FIRST AMENDMENT TO OPTION AGREEMENT ("Amendment") is made November
_, 2020, ("Effective Date") by and between the COUNTY OF ORANGE, a political subdivision
of the State of California, the HOUSING AUTHORITY OF THE CITY OF SANTA ANA, a
public body, corporate and politic, (respectively, the "County" and the "Agency," and collectively
"Optionor") and WASHINGTON SANTA ANA HOUSING PARTNERS, L.P., a California
limited partnership (hereinafter called "Optionee"). Optionor and Optionee may sometimes
hereinafter individually be referred to as "Party" or jointly as "Parties."
Recitals
A.Optionor and Optionee are parties to that certain Option Agreement dated February 25,
2020 ("Option Agreement"), wherein the Optionor granted Optionee an option to
ground lease the Premises, consisting of the Agency Property and the County Property.
B.Optionee is actively pursuing its due diligence to assess the feasibility of cons�cting
an affordable housing project on the Premises known as Crossroads at Washington
("Project"). The Agency and County have made certain commitments to fund and
support the Project.
C.Optionor and Optionee are cooperatively engaged in the ongoing environmental
assessment of the Premises to determine the nature and extent of contamination located
on the Premises and steps necessary to mitigate or remediate such contamination.
D.Optionee has applied for financing for the proposed Project and has received a
reservation of Further Consolidated Appropriations Act, 2020 ("FCAA") Credits from
the California Tax Credit Allocation Committee for the Project. The reservation of
FCAA Credits required non-refundable deposits, comprised of a Performance Deposit
in the amount of$107,386 and an Allocation Fee of$107,386 for a total of $214,772,
which have been made by Optionee.
E.Optionor and Optionee desire to amend the Option Agreement to provide for (i) the
reimbursement to Optionee of the non-refundable deposits made by Optionee to reserve
the FCAA Credits, and (ii) the funding of a portion of the environmental assessments
costs incurred in the investigation of the Premises, both on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein
and in the Option Agreement, and other good and valuable consideration the receipt of which is
hereby acknowledged, the Parties agree to amend the Option Agreement as follows:
1
2-11
EXHIBIT 1
1.All terms not specifically defined herein shall have the meaning set forth in the Option
Agreement.
2.Reimbursement of FCAA Credit Deposits. The County and Agency hereby agree to
reimburse Optionee for the FCAA Credit deposits by each making a payment of
$107,386 to Optionee, if each of the following two conditions occur:
(a)On or before August 31, 2021, Optionee determines it cannot complete the
Project by December 31, 2023, and Optionee returns the FCAA Credits to
the California Tax Credit Allocation Committee; and
(b)(i) Optionee determines the Project is not financially feasible and
intends to decline the funding commitments made by the Agency and
County m:.;_
(ii)The Agency or County terminate their respective funding
commitments in accordance with the applicable terms and conditions of
such funding commitments.
Optionee shall provide written notice to the Agency and County of the occurrence
of the conditions in (a) and (b) above with appropriate supporting documentation.
The Agency and County shall make their respective reimbursements to Optionee
within sixty (60) days following receipt of such written notice.
3.Funding of Environmental Assessment Costs. Provided the condition set forth in
Section 2 (b) above occurs, Optionor agrees to reimburse Optionee for environmental
assessment costs in an amount not to exceed $100,000, and which amount shall be paid
equally (i.e., 50/50) by Agency and County. Prior to the payment of such costs by
Optionor, Optionee shall provide Optionor any and all records or reports generated as
a part of the environmental assessment of the Agency Property and the County
Property. The Agency and County shall make their respective reimbursements to
Optionee within sixty (60) days following receipt of written notice that the condition
set forth in Section 2 (b) has occurred and after County and City's receipt of the
environmental assessment reports and documents.
4.Successors and Assigns. The terms, covenants, and conditions contained herein shall
apply to and bind the heirs, successors, executors, administrators, and assigns of the
Parties hereto.
5.Authority. The Parties to this Amendment represent and warrant that it has been duly
authorized and, once executed, will constitute the legally binding obligation of their
respective organization or entity, enforceable in accordance with its terms.
6.Ratification. Except as specifically set forth in this Amendment, all terms andprovisions of the Option Agreement shall be and remain in full force and effect. To the2 2-12
EXHIBIT 1
extent there are conflicts between the Option Agreement and this First Amendment,
this First Amendment shall control.
7.Counterparts. This Amendment may be executed in multiple counterparts, each of
which, when taken together shall constitute fully executed originals.
IN WITNESS WHEREOF, the Parties have executed this First Amendment on the day and year
first above written.
OPTIONEE:
WASHINGTON SANTA ANA HOUSING, L.P.,
a California limited partnership,
By: Related/Washington Santa Ana
Development Co., LLC, a California
limited liability company,
its Administrative General Partner
By: Frank Cardone, President
By: Supportive Housing LLC, a California
limited liability company, its Managing
General Partner
By: A Community of Friends, a
California nonprofit public benefit
corporation, its sole member/manager
By: ________ _ Dora Leong Gallo
President and CEO
[ signatures continue on following page]
3
2-13
EXHIBIT 1
APPROVED AS TO FORM:
COUNTY COUNSEL
County of Orange, California
By:---------Deputy
Date: _________ _ APPROVED AS TO FORM: SONlA CARAVALHO AUTHORITY GENERAL COUNSEL Date 11/24/2020
4
2-14
OPTIONOR
COUNTY OF ORANGE,
a political subdivision of the State of California
Thomas Miller, Chief Real Estate Officer
County of Orange, California
HOUSING AUTHORITY OF THE CITY OF
SANT A ANA ACTING AS THE HOUSING
SUCCESSOR AGENCY
a public body, corporate and politic
Steven A. Mendoza, Executive Director
EXHIBIT 1
1
SECOND AMENDMENT
TO
OPTION AGREEMENT
THIS SECOND AMENDMENT TO OPTION AGREEMENT (“Second Amendment”) is made
August ___, 2021, (“Effective Date”) by and between the COUNTY OF ORANGE, a political
subdivision of the State of California, the HOUSING AUTHORITY OF THE CITY OF SANTA
ANA, a public body, corporate and politic, (respectively, the “County” and the “Agency,” and
collectively “Optionor”) and WASHINGTON SANTA ANA HOUSING PARTNERS, L.P., a
California limited partnership (hereinafter called “Optionee”). Optionor and Optionee may
sometimes hereinafter individually be referred to as “Party” or jointly as “Parties.”
Recitals
A.Optionor and Optionee are parties to that certain Option Agreement dated February 25,
2020 (“Option Agreement”), as amended by the First Amendment dated December
15, 2020, wherein the Optionor granted Optionee an option to ground lease the
Premises, consisting of the Agency Property and the County Property, as defined in the
Option Agreement.
B.This Second Amendment is intended to and does amend the Option Agreement and the
First Amendment.
C.Optionee is actively pursuing its due diligence to assess the feasibility of constructing
an affordable housing project on the Premises known as Crossroads at Washington
(“Project”). The Agency and County have made certain commitments to fund and
support the Project.
D.Optionor and Optionee are cooperatively engaged in the ongoing environmental
assessment of the Premises to determine the nature and extent of contamination located
on the Premises and steps necessary to mitigate or remediate such contamination.
Environmental oversight for the Project and possible clean-up of the Property is
currently being provided by the California Department of Toxic Substances (“DTSC”).
E.Optionee has applied for financing for the proposed Project and has received and
accepted a reservation of Further Consolidated Appropriations Act 2020 federal credits
(“FCAA Credits”) from the California Tax Credit Allocation Committee for the
Project. The deadline to return these accepted FCAA Credits is September 1, 2021. In
accepting these FCAA Credits, Optionee has committed to complete the Project by
December 31, 2023. The failure of Optionee to complete the Project by December 31,
2023 or to return the FCAA Credits prior to September 1, 2021will result in the
assessment of negative points that could adversely impact Optionee’s ability to pursue
future affordable development.
EXHIBIT 2
2
F.The Project is nearing completion of the environmental assessment phase of work
under DTSC’s oversight, with environmental cleanup activity to commence upon
DTSC’s approval of a cleanup plan for the Project. DTSC previously approved the
Project to be included in its Targeted Site Investigation Plus (“TSI+”) grant program
to cover the environmental assessment phase. However, the TSI+ program does not
cover environmental remediation costs.
G.DTSC is currently working on the Equitable Community Revitalization Grants
(“ECRG”) program, which will provide environmental cleanup cost grant funding, and
anticipates release of its notice of availability of funding sometime in September 2021.
Optionee plans to apply for ECRG funding but it is anticipated that participation in this
program may not result in funding awards until at least January 2022.
H.Optionee would like assurances from Optionor that Optionor will continue to support
and fund the environmental cleanup phase of work in the event that Optionee is unable
to obtain the ECRG funding set forth above.
I.Optionor and Optionee desire to amend the Option Agreement to provide for the
funding of a portion of the environmental assessment and cleanup costs incurred in the
investigation and cleanup of the Premises in the event that ECRG funding is not
received, on the terms and conditions set forth below.
J.Environmental cleanup costs are currently estimated to be $300,000.00.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein
and in the Option Agreement, and other good and valuable consideration the receipt of which is
hereby acknowledged, the Parties agree to amend the Option Agreement by including the
following additional terms and conditions as follows:
1.All terms not specifically defined herein shall have the meaning set forth in the Option
Agreement.
2.Funding of Environmental Cleanup. The County and Agency hereby agree to fund the
environmental cleanup of the Project in an amount not to exceed $300,000.00, with the
County and Agency each responsible for funding one-half of this amount, if each of
the following conditions are met:
(a)On or before September 1, 2021, Optionee elects not to return the FCAA
Credits from the California Tax Credit Allocation Committee and to commence
the environmental cleanup of the Premises; and
(b)Optionee is unable to obtain the ECRG funding set forth above after award
of the ECRG funding, but in no case later than the end of February 2022,
which date may be modified in writing by the County (through the Chief
Real Estate Officer), Agency (through the Executive Director of the
EXHIBIT 2
3
Housing Authority), and Optionee; and Optionee is unable to obtain any
other applicable funding for the environmental cleanup of the Project by the
end of February 2022.
Optionee shall provide written notice to the Agency and County of the occurrence of
the conditions in (a) and (b) above with appropriate supporting documentation.
3.Funding of Environmental Cleanup Costs. Provided the conditions set forth in Section
2 above occurs, Optionor agrees to reimburse Optionee for actual environmental
cleanup costs in an amount not to exceed $300,000, and which amount shall be paid
equally (i.e., 50/50) by County and Agency on a monthly rolling basis upon submission
of environmental cleanup cost draw requests submitted by Optionee to the Optionor.
Prior to the payment of such costs by Optionor, Optionee shall provide Optionor any
and all necessary invoices, records or reports generated as a part of the environmental
cleanup effort and to properly substantiate costs associated with each environmental
cleanup draw request. The Agency and County shall make their respective
reimbursements to Optionee within forty-five (45) days following receipt of written
notice that the condition set forth in Section 2 has occurred and after County and
Agency’s receipt of each environmental cleanup draw request and documentation set
forth above to the satisfaction of the County and Agency in their reasonable discretion.
4.Optionee Right to Enter Premises for Environmental Cleanup. In addition to
Optionee’s right to enter the Premises as set forth in Section 8 of the Option Agreement,
Optionee and its Consultants (as defined in the Option Agreement) shall have the right
to enter the Premises for the purposes of this Second Amendment, including but not
limited to performing environmental cleanup and other services related thereto.
5.Construction Contract Documents. Notwithstanding anything to the contrary contained
in Section 5(D.) of the Option Agreement, Optionee shall submit to the Optionor the
Construction Contract Documents and cost estimates for development of the Premises
no later than eight (8) months from the date on which Optionee elects not to return the
FCAA Credits (May 1, 2022).
6.Cleanup Plan. Section 5.G. is hereby added to the Option Agreement as follows:
“G. Cleanup Plan.
No later than February 28, 2022, Optionee shall have delivered to Optionor a copy of the
Cleanup Plan associated with the DTSC Targeted Site Investigation Plus (TSI+) Program
(and approved by DTSC) for any environmental cleanup required in connection with
construction of the Project.”
7.Successors and Assigns. The terms, covenants, and conditions contained herein shall
apply to and bind the heirs, successors, executors, administrators, and assigns of the
Parties hereto.
EXHIBIT 2
4
8.Authority. The Parties to this Amendment represent and warrant that it has been duly
authorized and, once executed, will constitute the legally binding obligation of their
respective organization or entity, enforceable in accordance with its terms.
9.Ratification. Except as specifically set forth in this Amendment, all terms and
provisions of the Option Agreement shall be and remain in full force and effect. To the
extent there are conflicts between the Option Agreement and this Second Amendment,
this Second Amendment shall control. The Option Agreement, as amended by the First
Amendment and this Second Amendment, is in full force and effect.
10.Counterparts. This Amendment may be executed in multiple counterparts, each of
which, when taken together shall constitute fully executed originals.
[document continues on following page]
EXHIBIT 2
5
IN WITNESS WHEREOF, the Parties have executed this Second Amendment on the day and
year first above written.
OPTIONEE:
WASHINGTON SANTA ANA HOUSING, L.P.,
a California limited partnership,
By: Related/Washington Santa Ana
Development Co., LLC, a California
limited liability company,
its Administrative General Partner
By:
Frank Cardone, President
By: Supportive Housing LLC, a California
limited liability company, its Managing
General Partner
By: A Community of Friends, a
California nonprofit public benefit
corporation, its sole
member/manager
By: _____
Dora Leong Gallo
President and CEO
[signatures continue on following page]
EXHIBIT 2
6
APPROVED AS TO FORM:
COUNTY COUNSEL
County of Orange, California
By:
Deputy
Date:
APPROVED AS TO FORM:
SONIA CARAVALHO
AUTHORITY GENERAL COUNSEL
By: ________________________
Ryan O. Hodge, Assistant City Attorney
Date _______________________
OPTIONOR
COUNTY OF ORANGE,
a political subdivision of the State of California
Thomas Miller, Chief Real Estate Officer
County of Orange, California
HOUSING AUTHORITY OF THE CITY OF
SANTA ANA ACTING AS THE HOUSING
SUCCESSOR AGENCY
a public body, corporate and politic
________________________________
Steven A. Mendoza, Executive Director August 12, 2021
EXHIBIT 2
SANTA ANA CITY COUNCIL
Vicente Sarmiento
Mayor
vsarmiento@santa-ana.org
David Penaloza
Mayor Pro Tem, Ward 2
dpenaloza@santa-ana.org
Thai Viet Phan
Ward 1
tphan@santa-ana.org
Jessie Lopez
Ward 3
jessielopez@santa-ana.org
Phil Bacerra
Ward 4
pbacerra@santa-ana.org
Johnathan Ryan Hernandez
Ward 5
jryanhernandez@santa-ana.org
Nelida Mendoza
Ward 6
nmendoza@santa-ana.org
MAYOR
Vicente Sarmiento
MAYOR PRO TEM
David Penaloza
COUNCILMEMBERS
Phil Bacerra
Johnathan Ryan Hernandez
Jessie Lopez
Nelida Mendoza
Thai Viet Phan CITY OF SANTA ANA
COMMUNITY DEVELOPMENT AGENCY
20 Civic Center Plaza ● P.O. Box 1988
Santa Ana, California 92702
(714) 647-5360
www.santa-ana.org
CITY MANAGER
Kristine Ridge
CITY ATTORNEY
Sonia R. Carvalho
CLERK OF THE COUNCIL
Daisy Gomez
August 17, 2021
Liane Takano
Southern California Director
The Related Companies of California
18201 Von Karman Avenue, Suite 900
Irvine, CA 92612
Dora Leong Gallo
Chief Executive Officer
A Community of Friends
3701 Wilshire Blvd., Suite 700
Los Angeles, CA 90010
Re: Crossroads at Washington
1126 and 1146 E. Washington Avenue, Santa Ana, CA 92701
First Amended and Restated Pre-Commitment Letter for: NSP Loan, HOME Loan,
Lease Agreement, and Seven (7) Project-Based Vouchers
Dear Ms. Takano and Ms. Gallo,
The Related Companies of California and A Community of Friends (collectively referred to
as the “Developer”) requested financial assistance in connection with the proposed
development of an eighty-six (86) unit affordable housing complex, with eighty-five (85) units
restricted to extremely-low income households, to be located at 1126 and 1146 E.
Washington Avenue, Santa Ana, CA 92701 (APNs 398-092-13 and 398-092-14) (“Project”).
The site consists of two adjacent parcels. The Housing Authority of the City of Santa Ana
(“Housing Authority”) owns one parcel at 1126 E. Washington Ave. (APN 398-092-14)
totaling approximately 1.43 acres of land area (“Housing Authority Parcel”). The County of
Orange (“County”) owns an adjacent parcel (APN 398-092-13) totaling approximately .85
acres of land area (“County Parcel”). The Housing Authority and County have merged their
respective parcels with joint ownership for purposes of master leasing the parcels to the
Developer to construct the Project over a single parcel (“Property”).
EXHIBIT 3
The City of Santa Ana (“City”) and the Housing Authority have reviewed the Developer's
request for assistance, and at the City Council/Housing Authority meeting on July 2, 2019,
the City Council and Housing Authority Board authorized and approved issuance of this pre-
commitment letter evidencing the preliminary award of (collectively, the “City Assistance”):
- A loan in the maximum amount of $963,951.00 from the Neighborhood
Stabilization Program (“NSP”) held by the City for the Project (“NSP Loan”);
- A loan in the maximum amount of $3,007,489.00 from the HOME Investment
Partnerships Program (“HOME”) held by the City for the Project (“HOME Loan”);
and,
- A 62-year ground lease for the Housing Authority portion of the Property located
at 1126 and 1146 E. Washington Avenue, Santa Ana, CA 92701 (APNs: 398-
092-13 and 398-092-14); to be used for development of an eighty-six (86) unit
affordable housing complex, with eighty-five (85) units restricted to extremely-low
income households (“Ground Lease”).
On August 17, 2021, the City Council and the Housing Authority Board authorized and
approved issuance of this amended and restated pre-commitment letter evidencing an
additional award of:
- $333,742 of NSP funds to the existing preliminary award of $963,951 for a total
of $1,297,693 in NSP funds; and,
- Seven (7) Project-Based Vouchers (PBVs).
This amended and restated letter shall evidence the City’s pre-commitment of the City
Assistance to the Developer for the Project subject to the conditions described below.
NSP and HOME Loans:
The amount of the proposed NSP and HOME Loans has been determined based upon the
City’s review of the Developer's request for the receipt of the City Assistance and the
development proforma and projected cash flows for the Project submitted by the Developer
to the City (“Proforma”). The City Manager has authority to approve revised development
proformas and projected cash flows for the Project; provided, however, that the City
Assistance is not increased or extended.
The NSP and HOME Loans shall include the following terms:
The NSP Loan shall be for a maximum principal amount of $1,297,693.00, or as
much thereof as is disbursed for hard and soft costs in constructing the Project,
provided from NSP funds.
The HOME Loan shall be for a maximum principal amount of $3,007,489.00, or as
much thereof as is disbursed for hard and soft costs in constructing the Project,
provided from HOME funds.
EXHIBIT 3
3% simple interest per annum.
Repayment from 33.3% of Residual Receipts (pro-rata with payments due in
connection with other financing provided by other public agencies) (after payment of
operating expenses including social services expenses and monitoring fees, debt
service, any deferred developer fee, and partnership fees to be described in the
Agreement), with 33.4% to the County, and the remaining 33.3% to be disbursed to
the Developer.
Remaining principal and accrued interest due upon the 55th anniversary of the
issuance of Certificate of Occupancy or earlier upon sale, refinancing or default. On
that date, the City and Housing Authority agree to review the performance of the
Property and consider in good faith any reasonable request by Developer to modify
the terms or extend the term of the City Promissory Notes. Additionally, the City will
receive 33.3% of the net proceeds received from any sale or refinancing of the
Project in order to repay any outstanding principal or interest due on the City
Promissory Notes, after payment of outstanding conventional debt and payment in
full of any deferred developer fee and establishment of any reserves and transaction
costs.
Cost savings from the Project, if any, will be applied first to pay down the NSP and
HOME Loans, subject to compliance with the Tax Credit Allocation Committee
(“TCAC”) Regulations and California Health and Safety Code, as applicable.
After all other funding sources have been secured through enforceable funding
commitments, a HOME Subsidy Layering Review is required in order to confirm
the amount of HOME funds committed to the Project.
The HOME Loan shall also require specific HOME designated units in the Project.
Based on a preliminary HOME Cost Allocation Analysis, the City must designate at least
sixteen (16) units in the Project as HOME assisted-units per the following preliminary
unit mix:
Three (3) studio units;
Five (5) one-bedroom units;
Four (4) two-bedroom units;
Three (3) three-bedroom units; and,
One (1) four-bedroom unit.
As least 20% of the HOME designated units must be designated as Low HOME units.
This equates to four (4) Low HOME units based on a sixteen (16) unit HOME
requirement. The remainder of the HOME designated units can be restricted as High
HOME units. This is subject to change based on a final HOME Cost Allocation Analysis
to be completed after the HOME Subsidy Layering Review has been performed.
EXHIBIT 3
Ground Lease:
The Project will be located on the Property at 1126 and 1146 E. Washington Avenue,
currently owned by the Housing Authority, as well as the adjacent parcel owned by the
County (APNs: 398-092-13 and 398-092-14). The Housing Authority will be working with
the County to draft and negotiate the necessary documents to join ownership so that the
Project may be constructed over the combined Property under a master lease with the
Housing Authority and County, as joint owners.
The ground lease payment will be structured as capitalized ground rent payment based
on the appraised fair market value of the Property. The Developer estimates the current
value of the Property at $5,580,000. This figure will need to be con firmed through an
appraisal, but based on the Developer’s assessment, the capitalized ground rent
payments are estimated as follows:
The capitalized ground rent payment for the County parcel is estimated at
$2,500,000; and,
The capitalized ground rent payments for the Housing Authority parcel is estimated
at $3,080,000.
These amounts will be paid at closing with funds provided by loans made by the City and
County which will be secured by promissory notes on the Property and be repaid through
a share of the Project’s Residual Receipts as noted above (i.e., 33.4% to the County and
33.3% to the Housing Authority). This will not be a cash transaction; the closing escrow
statement will show a credit and debit of $3,080,000.
Based on the above, the Housing Authority Board authorized a preliminary award of a 62-
year lease of the Housing Authority portion of the Property to the Developer for the
Project. After Developer secures a commitment from the County for a 62 -year lease of
the County portion of the Property, staff will return to the Housing Authority for
consideration of a 62-year Ground Lease Agreement. There will only be one Ground
Lease Agreement that will have all three parties: the County, City (as tenants in common)
and the Developer. The Ground Lease Agreement will require the successful
development of the Project by the Developer.
Project-Based Vouchers:
Funding Source: The seven (7) PBVs will be funded out of the Housing Choice
Voucher Program annual budget authority received by the Housing Authority from
HUD.
Rents: The Project-Based Voucher Housing Assistance Payments (HAP) Contract
rents below are preliminary and contingent upon a reasonable rent determination to
be conducted by the Housing Authority at the time of execution of the HAP Contract:
o Two PBVs for the 3-bedroom Units: $2,937
o Five PBVs for the 4-bedroom Units: $3,382
EXHIBIT 3
In accordance with HUD regulations and SAHA’s Administrative Plan, these rents
are subject to review prior to the execution of a HAP contract.
Annual Amount: The Project will receive PBVs for seven (7) units:
Unit Size 30% AMI
No. Units Proposed Rent
Three-Bedroom 2 $2,937
Four-Bedroom 5 $3,382
Total 7
Term: The HAP Contract will have a term of twenty (20) years. Any time before the
expiration of the HAP Contract, the Developer may request an additional twenty (20)
years, subject to a determination by the Housing Authority that it is appropriate to
continue providing affordable housing for low-income families or to expand housing
opportunities and HUD funding. Subsequent extensions are subject to the same
requirements.
Units Receiving Assistance: The maximum number of units receiving assistance
from the Housing Authority will be seven (7).
General Provisions:
The City's obligation to provide the City Assistance to the Project is subject to each of the
following conditions:
Developer must provide proof that it has secured all of its remaining financing for
the development of the Project in the form of enforceable funding commitments,
which may include 9% or 4% Federal Low Income Housing Tax Credits, State
Housing Tax Credits, a loan of affordable housing funds from the County of
Orange, Section 8 project-based vouchers from the Orange County Housing
Authority, or any other funding sources necessary in the Project’s capital stack to
close on their financing, before staff will return to the City Council for consideration
of the NSP and HOME Loan Agreements.
Developer must provide proof that the County has approved or committed to approve
a 62-year ground lease for the County portion of the Property located at 1126 and
1146 E. Washington Avenue, Santa Ana, CA 92701 (APNs: 398-092-13 and 398-
092-14) before staff will return to the Housing Authority for consideration of the
Ground Lease Agreement.
All of the affordable units (less 1 manager’s unit) in the Project will be restricted to
extremely low-income households.
EXHIBIT 3
The rent standards for the Project must be in compliance with the strictest of the
standards imposed by TCAC and HOME Program regulations, or other funding
sources contributed to the Project, as applicable.
All provided funding and Project requirements shall conform to the City’s adopted
Affordable Housing Funds Policies and Procedures, unless alternative
requirements are expressly provided in the executed NSP and HOME Loan
Agreements, Ground Lease Agreement, or any other documents related to the
development of the Project.
Approval of all required entitlements and discretionary actions, to allow the
construction of an 86-unit affordable housing complex to be located at 1126 and 1146
E. Washington Avenue, Santa Ana, CA 92701.
The City's obligation to provide the NSP Loan and HOME Loan is and shall remain
subject to all covenants, conditions, and restrictions set forth in the Loan Agreements,
and in particular City's analysis of the available funding sources and development
and operating costs of the Project and the overall economic feasibility of the Project.
Review and approval of the documents evidencing the NSP Loan and HOME Loan
by the City Council.
Review and approval of the documents evidencing the Ground Lease by the Housing
Authority and the County.
The Housing Authority’s obligation to provide the seven (7) PBVs is and shall remain
subject to the City's analysis of the available funding sources and development and
operating costs of the Project and the overall economic feasibility of the Project.
Project funding is contingent on the successful execution of a 62-year Ground
Lease Agreement by the Developer with the Housing Authority and County.
Compliance with California Health and Safety Code and applicable regulations set
forth in Section 34176.
Developer, at its sole cost and expense, will be responsible for securing any and all
permits and discretionary approvals that may be required for the Project by the City,
Housing Authority, County, or any other federal, state, or local governmental entity having
or claiming jurisdiction over the Property or Project. Notably, this first amended and
restated pre-commitment letter shall not obligate the City or any department thereof to
approve any application or request for or take any other action in conne ction with any
planning approval, permit or other action necessary for the construction, rehabilitation,
installation or operation of the Project.
This first amended and restated pre-commitment letter for the project will expire on
August 17, 2023.
EXHIBIT 3
If you have any questions or require any additional information regarding this pre-
commitment letter, please contact Judson Brown, Housing Division Manager, by
telephone at (714) 667-2241 or by e-mail at jbrown@santa-ana.org.
Sincerely,
On behalf of the City of Santa Ana:
_________________________________
Kristine Ridge
City Manager
Attest:
_________________________________
Daisy Gomez
Clerk of the Council
On behalf of the Housing Authority of the City of Santa Ana:
_________________________________
Steven A. Mendoza
Housing Authority Executive Director
Attest:
_________________________________
Daisy Gomez
Recording Secretary
EXHIBIT 3