CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 3 of 5 • Maximum rents are set at 60% AMI for the first 55 years, and at 80% AMI thereafter. The current affordability restrictions will transition, upon vacancy, to the new tax credit restrictions. This is explained in more detail under the Regulatory Agreement section below. • Establishes a residual receipts ground lease payment, payable from annual project surplus cash to be allocated between the Ground Lease and the City loans. In the aggregate, a capitalized ground rent payment to the City, in the amount of $5 million, will be payable over the life of the Ground Lease, subject to availability of surplus cash. Promissory Note and Leasehold Deed of Trust • The two existing City loans in the amount of $4 million and $2.475 million will be consolidated, amended, and restated to reflect the current outstanding principal balances and accrued interest. The projected assumption of the two City loans at $10,908,538.06 ($4 million in principal plus $6,908,538.06 current/projected interest) and $5,715,845.30 ($2.475 million in principal plus $3,240,845.30 in current/projected interest) will be recast into a single promissory note that will accrue interest at the Applicable Federal Rate. Repayment of the amended and restated note will be secured by a Leasehold Deed of Trust. The Promissory Note will be payable from project residual receipts (i.e., net cash flow after all approved project expenses and payments to reserves). During the first 15 years, 33% of annual project residual receipts will be allocated toward payment of the City loan and Ground Lease rent; thereafter, the City share will increase to 50% of residual receipts. • The entire outstanding balance of principal and interest will be due and payable to the City 55 years from the date that project rehabilitation is completed. • Future transfers of the project are subject to City review and approval. • Projections show an annual net cash flow of approximately $30,000 to the City that could be applied toward either the City loan or the ground lease rent. In addition, it is estimated the City would receive approximately $300,000, subject to a completed auditor's cost certification at the end of construction, which would be applied to repaying the City loan. The start of the renovation date is established as approximately June 1, 2024, with a completion date of approximately September 30, 2025. Regulatory Agreement The Regulatory Agreement establishes the required project affordability, occupancy, use and property management requirements, including the following key terms: • Sets affordable unit levels that will, upon vacancy, transition from the existing 25%, 33%, 50%, and 60% AMI levels to correspond to the new tax credit restrictions -- 30%, 50%, 60%, and 80% AMI income and rent levels. Note that the 80% AMI level is required in order to generate tax credits on units where existing tenants are currently over-income. Per these terms, no existing tenant will have rents raised other than by the annual allowable increase (see below). Any adjustments to new AMI income levels will be made only when units are vacated and re-tenanted. Page 71 of 720