AgdaPkt 2009-11-23 clsd and jnt Meeting with Planning

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REPORT 6.11 Page 1 To the Honorable Mayor and City Council From the Ci Mana er November 23, 2009 SUBJECT Subordination of City HOME Loan to HIP Housing for Redwood Oaks Apartments RECOMMENDATION Authorize, by motion, approval of Subordination Agreement with California Housing Finance Agency BACKGROUND On January 5, 2002, the City entered into an agreement with Housing Association for the Needy and Dispossessed, Inc. (HAND) to provide a federal Housing and Urban Development (HUD) sponsored HOME loan in the amount of $241,400.22. HAND subsequently conveyed the Deed of Trust to Redwood Oaks Associates. The loan was used to rehabilitate the property which contained 36 units of low income rental housing located at 330-340 Redwood Avenue (Redwood Oaks Apartments). Redwood Oaks Associates is substantially in compliance with the requirements under the terms of the HOME agreement with the exception of being maintained in good physical condition. The property is in need of structural improvements to stairs, railings and decks. Human Investment Project (HIP), the non-profit parent affiliate organization that owns the property and provides housing services to Redwood City residents, has received approval for an equity loan of $162,191 from California Housing Finance Authority (CaIHFA) to be used to make the required repairs. The City was asked to subordinate its loan to CalHFA's new loan which would record in second position. The subordination request was taken to the Home Improvement Loan Committee (HILC) because, pursuant to the City's Loan Subordination Policy, subordination requests that place the City below second position of all indebtedness on a property and greatly increases the City's risk of recovering the loan is to be presented to HILC for review and recommendation. In August 2009, staff presented HIP's loan subordination request to the Redwood City Home Improvement Loan Committee (HILC). The City and County of San Mateo jointly hold third position with loans of $250,000 and $241,000 respectively. The proposed subordination would move City and County loans to fourth position. The primary concern of being placed in fourth position of indebtedness was an issue of risk to be evaluated and resolved by the HILC. The HILC voted to not approve the Subordination request, but to request that HIP look into taking out enough equity to payoff the City's loan before further action was taken by the Committee. Current financing on the project exceeds the standard city subordination requirement to maintain an 80:20 loan to value ratio. A review of property sales of comparable multifamily units showed the property value to be approximately $4,500,000, with a loan to value ratio of 74:26 based on secured encumbrances and 105%) in total loans against the property. Affordable housing projects are typically highly financed; the Redwood