For City Council and Rialto Housing Authority Meeting February 11, 2025
TO: Honorable Mayor and City Council and Rialto Housing Authority
FROM: Tanya Williams, Acting City Manager
AUTHOR: Colby Cataldi, Director of Community Development
Title
City Council/Rialto Housing Authority to adopt RHA Resolution No. 01-25 to consider the loan modification for the Citrus Grove Renovation Project.
(ACTION)
Body
RECOMMENDATION
For Rialto Housing Authority to consider the loan modification for the Citrus Grove Apartments project and adopt RHA Resolution No. 01-25 authorizing modifications to the Citrus Grove residual receipts loan and approving certain documents in connection therewith.
BACKGROUND
1432 North Willow Drive - Citrus Grove Apartments (formerly known as Willow-Winchester Condominiums)
In 2005, the Rialto Housing Authority (RHA) entered into an Affordable Housing Agreement with the Southern California Housing Development Corporation to acquire, renovate, and convert a 152-unit condominium complex into affordable rental units. The property is located on Winchester Drive, Clifford Street, and Millard Avenue, west of Willow Avenue. The project received $14,754,722 in funding at a 3% interest rate. Loan repayment was structured through a residual receipts mechanism, which allocated a share of the developer’s net cash flow in proportion to other loans financing the project. The investment aimed at removing a crime-ridden condominium complex overrun by local gangs, violent crime, boarded-up and abandoned units, blighted conditions, and to create affordable housing units in the City, with the understanding that loan repayment would be nominal.
Under the agreement, the developer committed to leasing at least fifty percent (50%) of the units to very low-income (30% of area median income (AMI)) households and the remaining units to lower-income (50% of AMI) households, all at affordable rent levels. The affordability period was set at a minimum fifty-five (55) years from the date the Certificate of Completion was issued. The project provided residents onsite amenities, such as community center, learning center, laundry facilities, computer lab, outdoor community area, and property management and maintenance services.
ANALYSIS/DISCUSSION
Fifteen years have passed since the last renovation of Citrus Grove, and the property now requires significant repairs due to aging infrastructure and deferred maintenance. The cost of these repairs exceeds the property’s operational cash flow.
In 2023, National CORE applied for four percent (4%) credits from California Tax Credit Allocation Committee to fund a complete rehabilitation of the property, with an estimated cost of $70,000 per unit, totaling approximately $10,640,000. On December 6, 2023, National CORE was awarded the funding. All required documents must be submitted by March 12, 2025. Planned upgrades include the construction of ADA-compliant units and path-of-travel, replacement of appliances and HVAC equipment, energy efficiency improvements, stairs safety upgrades, new flooring, window replacements, balcony and carport repairs, and other necessary improvements. These updates will significantly enhance the quality-of-life for current and future low-income residents and extend the property’s long-term sustainability.
Due to the impact of tax implications with the appraised value, the property was reappraised, resulting in a reduced valuation. This depreciation in property value subsequently decreased the eligible acquisition credits, increasing the property’s outstanding debt to an estimated $40,000,000 versus the appraised value of $26,600,000. Given the critical role the RHA debt plays in the project’s financial structure, National CORE is requesting that the RHA forgive $13,913,212 of the current loan balance of $21,978,163 (inclusive of both principal and accrued interest). Furthermore, the deal structured necessitates the remaining balance of approximately $8,064,951 to be paid off and proceeds converted into a long-term debt, supported by a new residual receipt loan post-construction completion. Payments on this new loan will be made from the project’s cash flow, and the loan will carry a market interest rate estimated to be 4.86%. Based on project’s projected cash flow, year one’s net cash flow after expenses is estimated to be $90,877, and the annual payment to the RHA would be $12,467, or less based on the expected repayment percentage.
During the 18-month construction period, the $8,064,951 balance will be converted into a construction bridge loan, held by JMP Chase Bank for use following completion of the project to fund the permanent new note. All interest earned will remain within the project. Additionally, National CORE will make a one-time payment of $500,000 to the City. The affordability period will be extended to a new minimum fifty-five (55) years from the completion date, ensuring that 50% of the units remain reserved for very low-income (30% of AMI) households, with the remaining units allocated to lower-income (50% of AMI) households of AMI, all at affordable rents.
Below is a summary table:
|
DESCRIPTION |
ORIGINAL AGREEMENT |
PROPOSED AGREEMENT |
DIFFERENCE and/or COMMENTS |
|
UNIT INFORMATION |
|
|
|
|
Total Number of Units |
152 |
152 |
0 |
|
Very Low Income (30% of AMI) |
75 |
75 |
0 |
|
Low Income (50% of AMI) |
75 |
75 |
0 |
|
Two Bedrooms |
99 |
99 |
0 |
|
Three Bedrooms |
53 |
53 |
0 |
|
|
|
|
|
|
AFFORDABILTIY |
|
|
|
|
Minimum 55-Year Expiration |
2061 |
2081 |
20 Years (added) |
|
|
|
|
|
|
INTEREST RATE |
|
|
|
|
Percentage |
3% |
4.86% |
1.86% (increased) *current rate |
|
|
|
|
|
|
FINANCING SUMMARY |
|
|
|
|
Permanent Loan - US Bank |
$2,591,000 |
$0 |
Paid-off |
|
California HCD |
$8,362,659 |
$11,765,324 |
Loan Modification (Principal & Interest) |
|
Rialto Housing Authority |
$14,754,722 |
$8,064,951 |
(-$13,913,212) Forgiven w/Loan Modification |
|
County of San Bernardino |
$3,000,00 |
$4,773,912 |
Loan Modification (Principal & Interest) |
|
Federal Home Loan Bank |
$1,000,000 |
|
(-$1,000,000), Forgiven |
|
|
|
|
|
|
HISTORICAL PAYMENTS |
|
|
|
|
10-Year Residual Comparison |
- |
- |
$28,421.46 City received residual |
|
PROPOSED PAYMENTS |
|
|
|
|
10-Year Residual Comparison |
- |
- |
$116,592 projection, reduces each year. $500,000 to City of Rialto upfront |
ENVIRONMENTAL IMPACT
The loan modification is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15378(b) (5) of the CEQA Guidelines because the action is a governmental administrative activity that will not result in direct or indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY
The loan modification for the proposed project is consistent with Goal 6-2 of the Housing Element of the Rialto General Plan:
Goal 6-2 Promote and encourage housing development that adequately meets the needs of all socioeconomic segments of the community and region.
Policy 6-2.1 Establish incentives and regulatory concessions to promote the development of housing for very low-, low and moderate-income persons, and especially those with special needs.
LEGAL REVIEW
The City Attorney's Office has reviewed the deed of trust, promissory note, the affordable housing loan agreement and approved them as to form. The instruments and deal structure have also been analyzed by special counsel Norton Rose Fulbright US LLP as reflected in that “Analysis of Citrus Grove Apartments Loan Modification Proposal” attached hereto.
FINANCIAL IMPACT
The City of Rialto would receive a one-time payment of $500,000, payable to the general fund, in consideration for the loan modification processing undertaken pursuant to this transaction. The Rialto Housing Authority will receive annual residual payments as estimated in the attached cash flow projections with the first 10 years estimated at $116,592. The new loan is anticipated to earn over $600,000 in the first 10 years versus the existing loan estimated to earn RHA less than $30,000. There are no new funds requested from the City or RHA. The Rialto Housing Authority would forgive $13,913,212 of the existing loan. The existing loan would be retired early with payment proceeds being used for the conversion to fund the new residual receipt loan amount of $8,064,951 on the same terms which will be executed in favor of the Rialto Housing Authority.
ATTACHMENTS
1) Resolution RHA Loan Modification and Certain Documents
2) Analysis of Citrus Grove Apartments Loan Modification Proposal
3) Property Condition Assessment Report
4) Pro Forma and Cash Flow Report
5) Loan Modification Agreement
6) Assignment of Deposit Account with Housing Authority
7) Subordination Agreement
8) Affordable Housing Agreement
9) Deed of Trust
10) Promissory Note
11) Second Amendment to Regulatory Agreement