Report to Housing Authority
Tuesday, September 03, 2024
Consent
SUBJECT:
Title
CONSIDER 1ST AMENDMENT TO SECOND AMENDED AND RESTATED PROMISSORY NOTES FOR VILLAGGIO 1 AND VILLAGGIO 2 PROJECTS LOCATED AT 535 EAST CARSON STREET AND 555 EAST CARSON STREET, WITH GRACE HOUSING RESIDENTIAL PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP, AND CARSON HOUSING LIMITED PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP, RESPECTIVELY (HOUSING AUTHORITY)
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I. SUMMARY
In December, 2023 the Housing Authority approved a number of amendments with Grace Housing Residential Partnership, LP and Carson Housing Limited Partnership, LP (the “Borrowers”) to allow for the properties’ financing to be resyndicated and provide cash to be available for substantial improvements to the properties. Authority staff and the Borrowers have collaborated since the January 2024 closing to increase the interest rate from 3% simple (as provided for in the Second Amended and Restated Promissory Notes) to 6.5% simple for the benefit of the Housing Authority. In order to ensure the modified debt is treated as new debt under the tax code, and so the new debt is exchanged for the old debt, the parties would need to agree to increase the interest rate. Rising interest rates since conception of the refinances make the new rate closer to “market” conditions vs. the now below-market 3%. This benefits the Housing Authority and the Board had inquired about this while taking action on the previous amendments as well.
II. RECOMMENDATION
Recommendation
1. APPROVE the 1st Amendment to Second Amended and Restated Promissory Note with Grace Housing Residential Partnership, LP (Villaggio I), increasing the interest rate on the Note from 3% simple interest to 6.5% simple interest, and clarifying the project name to “Villaggio I - formerly Grace Residential Partnership” in project documents; and
2. APPROVE the 1st Amendment to Second Amended and Restated Promissory Note with Carson Housing Limited Partnership, LP (Villaggio II), increasing the interest rate on the Note from 3% simple interest to 6.5% simple interest; and
3. AUTHORIZE the Executive Director to execute the Amendments in a form acceptable to the Authority Counsel.
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III. ALTERNATIVES
1. TAKE another action the Board deems appropriate.
IV. BACKGROUND
The former Carson Redevelopment Agency (“RDA”) first entered into agreements with the Borrowers to develop the Villaggio project in 1997, and such loans were amended in 2001, 2013, and again in 2023. The original project financing had matured enough to allow for a refinancing and resyndication that generated funds to be able to undertake upgrades to the property, necessary for a project over 20 years old. Villaggio I is 84 units and Villaggio II is 65 units.
In 2012, upon dissolution of all redevelopment agencies by the State of California, the Carson Housing Authority was created to receive and administer all the affordable housing assets of the former RDA and currently holds the notes in these properties.
The notes were amended as of January 29, 2024, and currently carry original principal balances of $4,123,756.00 for Villaggio I and $3,361,587.00 for Villaggio II. The new 1St Amendment applies an interest rate of 6.5% simple interest on the loans under the amendment, and stipulates that prior to the amendment the rate was 3.0% simple interest on the balance. In order to ensure the modified debt is treated as new debt under the tax code, and so the new debt is exchanged for the old debt, the interest rate needs to be modified to reflect the rise in interest rates since we began discussing the refinancing more than two years ago.
V. FISCAL IMPACT
The impact of the rate increase will mean a slightly higher payment on the loans in future years. There is no cost impact to the Authority.
VI. EXHIBITS
1. 1st Amendment to Second Amended and Restated Promissory Note with Grace Housing Residential Partnership, LP (Villaggio I)(pgs. 3-5)
2. 1st Amendment to Second Amended and Restated Promissory Note with Carson Housing Limited Partnership, LP (Villaggio II)(pgs. 6-8)
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Prepared by: John S. Raymond, Assistant City Manager, Economic Development