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6.A. - Page 2 of 24 <br />The Owner was insured by an A -rated company at the time of the fire as required by all mortgage/note <br />holders, including the City (for its loan and the Agency loan). Immediately after the fire the insurer <br />approved funds for a contractor to secure the site and remove hazardous and damaged materials from <br />the building. Since that time the Owner and their insurer reached a settlement regarding the cost of <br />reconstruction and their limited partner recently reached an agreement for a buyout. The property owner <br />is currently in the process of building permit review, and is expected to start construction in 2019. <br />ANALYSIS <br />KDF Hallmark reports they have reached an agreement with their limited partner (Alden Torch) to buy <br />them out of the partnership in order to access necessary financing to commence with the rebuild. In order <br />to finance the rebuild, KDF Hallmark will be requesting an allocation of tax exempt bonds and tax credits <br />in the first quarter of 2019. The City currently has a loan of $650,000 on the property and KDF requests <br />that the City allow this loan to remain in place and become subordinate to a new construction/permanent <br />loan, which means the construction/permanent loan will be paid before the City -issued loan is paid in the <br />event of a default by KDF. They expect to close financing in March 2019 and begin construction <br />immediately thereafter. In the meantime, they have a deadline of Dec 15, 2018 to buy out their limited <br />partner. In order to buy out their partner, they need a bridge loan of $2,900,000 which will be provided <br />by Citibank. This bridge loan will then be paid off through the new bond/tax credit financing. Since Citibank <br />will require that it has a first trust deed on the property, the City's loan will need to be subordinated to <br />this bridge loan. This means that, as with the construction/permanent loan, the bridge loan will be paid <br />before the City is paid in the event of a default by KDF <br />FISCAL IMPACT <br />There will not be any fiscal impact to the City by subordinating to the new financing. <br />ENVIRONMENTAL REVIEW <br />This activity is not a project under California Environmental Quality Act (CEQA) as defined in CEQA <br />Guidelines, section 15378, because it has no potential for resulting in either a direct or reasonably <br />foreseeable indirect physical change in the environment. <br />PUBLIC NOTICE <br />Public Notification was achieved by posting the agenda, with the agenda items being listed, at least 72 <br />hours prior to the meeting <br />ALTERNATIVES <br />The City could deny the request to subordinate which would jeopardize the project financing necessary <br />to complete the rebuild of these affordable housing units. <br />City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore <br />8 <br />