THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA M E M O R A N D U M DATE: FEBRUARY 17, 2005 HW1220 AGENCY COMMISSIONERS

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1 THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA M E M O R A N D U M 10 DATE: FEBRUARY 17, 2005 HW1220 TO: FROM: RESPONSIBLE PARTY: SUBJECT: AGENCY COMMISSIONERS ROBERT R. OVROM, CHIEF EXECUTIVE OFFICER HELMI HISSERICH, REGIONAL ADMINISTRATOR CAREY K. JENKINS, SENIOR FINANCE OFFICER VARIOUS ACTIONS RELATED TO THE SUPPLEMENTAL ISSUANCE OF TAX-EXEMPT MULTI-FAMILY HOUSING REVENUE BONDS IN AN AMOUNT NOT TO EXCEED $1,000,000 FOR THE VIEWS AT 270 PROJECT HOLLYWOOD REDEVELOPMENT PROJECT AREA (CD 13) CENTRAL REGION RECOMMENDATIONS That the Agency, subject to City Council review and approval: 1. Adopt the attached Resolution (Attachment A ) authorizing the issuance of Tax-Exempt Multi-Family Housing Revenue Bonds in an amount not to exceed $1,000,000 and completion and execution of specific amended documents, including all exhibits, appendices and attachments thereto, for the Views At 270 mixed-use project, formerly the Sunset Western project (the Project ): (a) First Supplemental Indenture; (b) First Amendment to the Loan Agreement; (c) Bond Purchase Contract; (d) Official Statement Supplement; (e) various other related collateral documents, any organizational and condition precedent documents, legal opinions and other closing documents. 2. Authorize the reassignment of the previous bond finance team to this proposed supplemental issuance which would include Nossaman, Guthner, Knox & Elliott, LLP as Bond Counsel, E.J. De La Rosa & Co., LLP As Underwriter, and The Bank of New York Trust Company, N.A. as Trustee; and 3. Consent to the legal representation by the Bond Counsel for the Project and acknowledge disclosure of potential conflicts of interest related to said law firm s prior representation of the Los Angeles Metropolitan Transportation Authority in the Grand Central Square refinancing. SUMMARY The Views at 270 Project is a mixed-use development located at the northeast corner of Sunset Boulevard and Western Avenue in Hollywood. Please see the site map identifying the Project location (Attachment B ). The Project will consist of a 12,665 sq. ft. Walgreens Pharmacy and, 1,000 sq. ft. of additional retail space to be separately owned and financed. There will also be

2 VIEWS AT 270 SUPPLEMENTAL BOND ISSUANCE 2 55 units of affordable housing and one unit for the resident manager to be developed in air rights above the retail component. There will be 96 parking spaces of which 36 are devoted to the commercial component, and are at-grade, 4 are for guest parking and are subterranean and 56 subterranean spaces will be reserved for the residential component of the Project. Eight of the housing units, will be restricted to tenants with incomes no greater than 30% of the Area Median Income, 16 units to households at not more than 40% of the State Median Income, and 31 units to households with incomes that do not exceed 60% of area median income. This is detailed in the following table: Unit Type 30% of Area Median 40% of State Median 60% of Area Median 1-Bedroom Rent $335 $13,550 (2 people) 5 units $446 $ (2 people) 2 units 2-Bedroom Rent $536 $22,535 (4people) 14 units $804 $33,800 (4 people) 12 units 3-Bedroom Rent $463 $ (6 people) 3 units $927 $39,240 (6 people) 19 units Hollywood Community Housing Corporation (the Developer ) is acting as the master developer for both the residential and commercial components, and will sell the completed commercial component to Village Properties, a commercial development entity. Village Properties acquired the site of the proposed project in January 2003 to construct a freestanding Walgreens Pharmacy. Upon learning of the proposed project, the Council Office and the Mayor s Office of Economic Development approached Village Properties and requested that they enter into an agreement with the Developer to create a mixed-use project with a significant affordable housing element. Village Properties agreed, with the proviso that the terms and timeframes of the development not adversely affect their ability to deliver a completed store to Walgreens on a basis that provided them with the same financial return. The Agency was then requested to provide the requisite financial assistance to the Developer PROJECT FINANCING Due to the initial uncertainty regarding the tax implications of the original bond structure, the Developer issued less tax-exempt bonds than the maximum threshold allowed under the Project pro forma. The intent of all development partners was to issue additional bonds after the initial transaction had been completed and if the Project would benefit from doing so. The tax attorneys for both the General Partner (Hollywood Community Housing Corporation) and the Limited Partner (Alliant Capital) were originally concerned about the allocation of costs between the residential and commercial portions of the Project. Ultimately it was decided that because the commercial structures serve as a foundation for the residential, the Project team became comfortable with allocating certain additional costs to the residential portion of the Project. This, in turn, has allowed for the application of the additional $1 million in tax-exempt

3 VIEWS AT 270 SUPPLEMENTAL BOND ISSUANCE 3 bonds and the receipt of corresponding 4% tax credits. The net effect will ultimately generate approximately $445,000 in additional equity. The new financing will be needed to cover the costs incurred during the original negotiations with the commercial parties and unanticipated commercial upgrades to an OSHPOD (or hospital) standard demanded by the commercial developer rather than the typical mixed-use building code standard to which the buildings were originally designed. Please find attached a spreadsheet that details the additional costs associated with the Project (Attachment C ) In addition, the tax-exempt debt allows the Developer to meet another important tax related matter. Due to the additional construction costs incurred, the Developer currently will not meet the IRS Tax Code imposed 50% test upon completion. The current bond allocation of $8,006,869 will only cover 48.4% of their total project costs. The additional allocation of Bonds would put the Project at 54.2% of total project costs, giving the Developer a comfortable cushion with which to meet the bond test. The Developer has obtained a tax-exempt bond allocation from the California Debt Limit Allocation Committee ( CDLAC ) and will receive corresponding 4% Tax Credits from the California Tax Credit Allocation Committee for the construction and permanent financing of the Project. On December 15, 2004, the Agency received authorization to serve as issuer of the supplemental bonds and to finance the construction of the Project. As issuer of the Bonds, the Agency is required to approve certain amended documents as follows: (a) First Supplemental Indenture; (b) First Amendment to the Loan Agreement; (c) Bond Purchase Contract; (d) Official Statement Supplement; (e) various other related collateral documents, any organizational and condition precedent documents, legal opinions and other closing documents. Those documents that require the Agency Board s approval are attached (Attachment D ). Due to the complexity of the Project, the tax implications of the financing, the nature of this issue as a supplemental to the original bond issuance in 2003, and the desire to maintain continuity under a short financing period it is requested that the original bond finance team be retained for the proposed bond issuance. Key members of the finance team include: Developer Hollywood Community Housing Corp. Bond Counsel Nossaman, Guthner, Knox & Elliott, LLP Underwriter E. J. De La Rosa & Co., Inc. Credit Enhancer/Permanent Lender - Citibank Trustee BNY Western Trust The proposed sources of funds during construction and after completion are: Sources of Funds Construction Period Permanent Citibank Loan $7,277,056 Tax Exempt Bond Proceeds (Citibank) 9,006,869 $1,685,900 Agency Gap Loan 7,700,000 5,900,000 State MHP 0 2,671,400 Capital Contributions 405,600 6,389,937 Deferred Developer Fee 1,110, ,000 Accrued/Deferred Costs 331, ,600 Total Mixed-use Project $25,831,205 Cost of Housing $17,386,837

4 VIEWS AT 270 SUPPLEMENTAL BOND ISSUANCE 4 Reconciliation of Construction and Permanent Costs Total Mixed Use Project Cost $25,831,205 Sale of Commercial Component (6,644,369) Return of Completion Guarantee (1,800,000) Cost of Housing $17,386,836 To fund the bond proceeds portion, the Agency originally issued $8,006,869 in aggregate principal amount of variable rate multi-family housing revenue bonds. The supplemental issue will bring the total bond proceeds to $9,006,869. A portion of the bonds, approximately $7.3 million, will be redeemed after the completion of the construction phase, which is expected to end by January Citibank has issued and delivered to the Trustee an irrevocable directpay letter of credit pursuant to a Reimbursement Agreement between Citibank, the Underwriter and the Developer. Citibank will amend this letter of credit to incorporate the supplemental bond issuance. In addition to selling the Bonds, the Underwriter will serve as the remarketing agent. The Bonds should be dated and delivered on or before March 10, The final maturity of the Bonds is expected to be 30 years after the date of issuance. The interest rate will be reset every seven days and the purchasers will have the right to put the Bonds (sell the Bonds back to the remarketing agent at par) with seven days notice. The additional bond allocation of $1,000,000 will be redeemed at some point after the completion of the construction phase which is expected to be May of 2005 but in no event no later then January RE October 9, 2003 The Agency approved various actions, including a permanent gap loan in the amount of $7.7 million and the issuance of up to $8.1 million in tax-exempt multi-family housing revenue bonds. October 24, 2003 The City Council concurred with the Agency action. SOURCE OF FUNDS Tax-exempt multi-family housing revenue bonds and State of California Tax Credit Allocation Committee (TCAC) approved 4% tax credits. PROGRAM AND BUDGET IMPACT The proposed Project falls within the HW1220 Work Objective. As the issuer of the Bonds, the Agency will receive a one-time cost of issuance fee equal to $25,000. Additionally, the Agency will charge an annual administrative fee equal to ten basis points (1/10 th of 1 percent) on bond proceeds outstanding. There is no out-of-pocket cost to the Agency or impact on the City s General Fund. ENVIRONMENTAL REVIEW On September 4, 2003, the Agency adopted the Mitigated Negative Declaration, ENV MND, prepared by the City Planning Department in compliance with the California Environmental Quality Act.

5 VIEWS AT 270 SUPPLEMENTAL BOND ISSUANCE 5 BACKGROUND The Bond Counsel has requested the Agency s consent and waiver of a potential conflict due to its prior representation of the Los Angeles Metropolitan Transportation Authority (the MTA ) in connection with the refinancing of the Grand Central Square project. None of the matters in which the Bond Counsel represented the MTA involve the Project. The Bond Counsel has stated that it will prevent its attorneys who have worked on the MTA Grand Central Square refinancing from being involved or consulted with in connection with the Project. The Project design separates the residential units from the commercial uses by setting the residential component on a podium above the commercial use. The main residential building is set back 45 from the edge of the commercial portion of the Project. The resulting podium terrace contains approximately 4,300 sq. ft. (Approximately 3,600 sq. ft. of this open space will be accessible by Project residents. Use of the remaining area requires City approval of a variance from the City s Station Neighborhood Area Specific Plan.) The podium terrace will be landscaped to provide both visually private entrance areas to the units accessed from the terrace and communal seating areas for resident interaction. The terrace will contain a water feature that will help mask traffic noise below. There will be 1,176 sq. ft. of balconies and other private open space serving individual units. The Project will provide 1,370 sq. ft. of community room space. The Developer will continue to ensure that the appropriate prevailing wage rates are paid for construction, and all other Agency requirements are adhered to, including but not limited to Affirmative Action, Living Wage, Responsible Contractor, and Equal Benefits. Robert R. Ovrom Chief Executive Officer By Richard L. Benbow Chief Operating Officer There is no conflict of interest known to me that exists with regard to any Agency officer or employee concerning this action. Attachments: A CRALA Resolution B Site Map C Additional Project Costs D Related Bond Documents