SR 05:079 - Laserfiche WebLink

Now that the project has completed the building permit process, Bridge has been focusing its attention on finalizing construction and permanent financing. Due to the level of project affordability, securing financing has been challenging. However, staff met with Bridge recently and discussed a new financial plan that represents potential for meeting project needs. With a current project budget of approximately $27 million, Bridge is proposing to meet permanent financing through a City tax-exempt conduit revenue installment sale borrowing, a $2.5 million loan from the City, a deferred development fee from Bridge and a $2,000,000 HELP loan. While the current plan is generally consistent with the previous financing plan, the HELP loan is a new component required to lower the amount of tax-exempt debt required for the project. The final plan is dependent on an appraisal of the project and an updating of project construction costs both of which are underway. Bridge currently has a commitment letter from both the construction and permanent lender and is optimistic that the final plan along with the initial resolutions required to start the tax-exempt financing process will be before the Council within 90 days. Finally, the loan terms will need to be reviewed by the City to determine if they impact the draft Ground Lease reviewed by the Council previously and/or the amount of loan required by the City. Depending on the final property appraisal, construction costs and the amount of the HELP loan, the City may need to consider increasing the loan amount. In addition to the above reviews and process, the City needs to gain assurance that it does not have direct liability for the tax-exempt financing and that all principal and interest payments and costs are paid through the property management company from rental/service income received from the project. Not withstanding this requirement, with all conduit tax-exempt financing there is an indirect liability associated with the financing in that the City is the party normally responsible for payment of the tax-exempt debt, albeit solely from payments made by the conduit borrower. As a result, if there were any possibility that payment to tax-exempt investors was in doubt, the City would be involved in ensuring the developer came forward with an alternative plan for payment. In the past, the City has had to work with the developers of multifamily housing bonds to help restructure credit issues. In addition, staff spent considerable time working to avoid a default of a City-sponsored Single Family Mortgage Revenue bond, in partnership with the City of Newark. In that case, prepayments made by mortgage holders far exceeded the initial worst-case scenarios modeled by the underwriter, resulting in an impending default. Staff does not anticipate problems with this proposed financing, but Council should be aware that even though this will be a conduit borrowing, there is always some risk when the City issues debt, primarily concerning our good standing in the bond market. Nevertheless, this option is often times essential to project financing and the City retains legal counsel to assure documents are in order. SR 05:079 Page 3