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hearings by the Planning and Housing Commissions before coming to the City Council in the spring for a decision. Mr. Bocian discussed the Disposition, Development and Loan Agreement (DDA) that memorializes the relationship between and sets forth the expectations of the city, the Housing Authority and MidPen. It also clarifies MidPen's role as the project developer, future owner of the site improvements and project operator. The DDA obligates MidPen to work through the project financing, obtain HUD approval for the demolition and disposition of Kottinger Place, and prepare and implement a tenant relocation plan. The DDA also obligates the city to provide up to $10 million in financial assistance, of which $2.8 million is a predevelopment loan and $7.2 million is to offset the overall cost of the project. The city is also obligated to work with Pleasanton Gardens to secure its site, enter into a ground lease for the site with a limited partnership controlled by MidPen for the purpose of owning and operating the improvements on the land, and to process the PUD. He noted that the latter is an agreement only to process, and not necessarily to approve, the PUD He reviewed the $2.8 million predevelopment loan, which is broken out into several components. The first disbursement of $408,000 is for work already completed and to be completed through the PUD process. Disbursement of the remaining funds is spread across critical points throughout the project. Once the project is funded, the ground lease in place and development process under the predevelopment loan will be transitioned into a new loan agreement for the full amount of up to $10 million. The loan note and DDA stipulate repayment terms at 3% interest, with the loan to be paid back through available cash flow. There are provisions that if there is not sufficient cash flow at the expiration of the ground lease then the loan would be forgiven. He noted that the city's contribution has been increased from $8 million to $10 million, though not due to an increase in project or construction costs. The conventional loan component of project financing generally ties the approval amount to projected cash flow, which relates to the amount of reimbursement expected from Section 8 vouchers. Those amounts have decreased since the original projection, which in turn reduces MidPen's ability to borrow on the project. Staff feels that reimbursement amounts may return to previous levels before the point at which a loan is secured, but is recommending that the Council approve the full $10 million to be safe. There is some financial risk related to predevelopment loan funds paid prior to approval of the PUD and demolition by HUD. In the event that the Council would not approve the PUD it would lose approximately $408,000. However, the city would receive all work done to date which could be re- bundled into another project. As part of the demolition and disposition approval, they are also asking HUD to approve a financing plan that utilizes project-based Section 8. While the DDA obligates all parties to look at alternative financing means if HUD should deny the applicant, there is a potential for funding loss. There is also the long term potential that the larger development loan, which is subject to cash flow, may not be repaid in full. Mr. Bocian discussed the MOU with Pleasanton Gardens, which memorializes the effort and intent to move forward cooperatively. Under the MOU, the city assumes all predevelopment and construction costs. Once the PUD and financing are approved, Pleasanton Gardens will enter into a separate agreement with the city to transfer its site and all improvements, including the Section 8 contract for 31 units and available financial reserves. The city, in return, agrees to house Pleasanton Gardens' residents in the new development through a process that gives them first priority to transfer into similar units. Under the MOU, the city also indicates its intention to have the development be smoke free. He reviewed the list of recommended action items, noting that by increasing the city's contribution to $10 million the Council will be appropriating that amount in Lower Income Housing Funds to a specific account reserved for the Kottinger Place project. Mayor Thorne stressed that the actions requested by staff relate more to establishing the city's role in the development partnership rather than a detailed review of the project itself. City Council Minutes Page 9 of 13 November 5, 2013