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Home My WebLink AboutS22 - Lower Bayview Landing Senior Affordable HousingE CITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 24 2 November 23. 2004 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Manager's Office Sharon Wood, Assistant City Manager 644 -3222, swood @city.newport- beach.ca.us SUBJECT: Second Amendment to Development Loan Agreement with Newport Housing Partners, L.P. and Budget Amendment Transferring $250,000 from General Fund Affordable Housing Reserve to Lower Bayview Landing Senior Affordable Housing Account ISSUE: Should the City agree to increase its loan by $250,000 to assist the developer with the increase in construction costs that has occurred during Coastal Commission review and subsequent litigation? RECOMMENDATIONS: • 1. Approve, and authorize the Mayor and City Clerk to execute, the attached Second Amendment to Development Loan Agreement Between the City of Newport Beach and Newport Housing Partners, L. P. 2. Approve budget amendment to appropriate $250,000 to Bayview Senior Affordable Housing Project (Account 7026- C2700798) from the General Fund's Affordable Housing Reserve. DISCUSSION: Background: The City Council approved the Development Loan Agreement with Newport Housing Partners, L. P. on February 25, 2003. The loan amount established in the agreement was $1,500,000, with the provision that no more than $1,000,000 would be disbursed unless the project was subject to prevailing wages. The First Amendment, approved on August 4, 2004, reduced the number of units from 150 to 120 and increased the age restriction from 55 to 62 years, to comply with the Coastal Commission's approval of the project. As can be seen from the dates of the original Agreement and the First Amendment, review and approval by the Coastal Commission was time consuming. Subsequent to that approval, litigation was filed by Wetlands Action Network, which was settled only recently. While the litigation was pending, the developer was unable to close the construction loan, and closing is scheduled for the week of November 29. In the nearly two years since The Related Companies • (the parent and financial partner to Newport Housing Partners) and the City Council Affordable Housing Task Force reached tentative agreement on the terms of the City loan, construction Second Amendment to Development Loan Agreement and Budget Amendment November 23, 2004 Page 2 • costs have increased. Therefore, the City's loan no longer closes the project's financial gap as originally intended. Analysis: As explained in the attached correspondence from The Related Companies and Cobalt Construction Co., construction costs for the project have increased by approximately $490,000. The Irvine Company has reviewed the revised construction costs and found them to be similar to what they are experiencing in other projects. The Irvine Company has agreed to increase its contribution to the project by $250,000, and Related is requesting that the City increase its loan by the same amount. Related will absorb its share of litigation costs, approximately $260,000. The City Council was willing to include the potential for $500,000 of affordable housing in -lieu funds to be applied to the project to cover a portion of the cost increase if prevailing wages were required. The project should not be subject to prevailing wages, because Related received a bond allocation for the project in 2003 and the bonds have been issued and committed to the project. As a result, it is highly unlikely that the City will need to disburse the $500,000 included in the original Loan Agreement for that purpose. Staff believes that the current request to share construction cost increases is similar to the prevailing wage issue, and it is appropriate to use affordable housing in -lieu funds to close this gap. Environmental Review The City Council approved a Mitigated Negative Declaration when the project was approved on • February 25, 2003. Funding Availability: The current balance in the Affordable Housing Reserve is $1,665,823. Submitted by: Sharon Wood Assistant City Manager Attachments: 1. Letter from The Related Companies of California 2. Letter from Cobalt Construction 3. Second Amendment to Development Loan Agreement 4. Budget Amendment CJ The Related Companies of California • 18201 Von Karrnan Avenue • Suite 900 .J Irvine, California 92612 (949) 660 -7272 Fax (949) 660 -7273 ow.frn. n.haa eomn.w.. November 16, 2004 Ms. Sharon Wood Assistant City Manager City of Newport Beach 3300 Newport Blvd Newport Beach, CA 92658 Re: Newport Senior Apartments City of Newport Beach Loan Amount Dear Sharon: As you are aware, over the last several weeks since the environmental litigation was settled, we have been working on finalizing the financing for the Newport Senior Apartment project. As we have discussed, in trying to accomplish this, we have encountered some budget increases that have created a gap in the project financing of approximately $750,000. It has been nearly two years since we underwrote and received approval from City Council for the • original City loan of $1,000,000. Since that time, the project has encountered unforeseen delays and costs related to the California Coastal Commission approval process and the ensuing litigation brought by the Wetlands Action Network Over this time period, construction costs for development projects of this nature have increased dramatically. Approximately $490,000 of the financing gap is related to increased construction costs, particularly in framing, plumbing, concrete and steel. The remainder of the gap, approximately $260,000, represents the litigation and settlement costs associated with the lawsuit filed by the Wetlands Action Network. As you may recall, these are the cost issues that we discussed during our all -bands meeting on October 1st We have been working with The hvine Company over the last month in an attempt to fill the gap and proceed with the closing of the construction loan. Of the $750,000 gap, we are requesting that the City of Newport Beach increase its loan by $250,000 to cover a portion of the increased construction costs. The remaining gap, including all costs associated with the environmental litigation, will be covered by the partnership, including The Irvine Company increasing the amount of their equity contribution. Combined, these would allow the project to proceed with the closing of the construction loan and the commencement of construction, maintaining our schedule for completion by next year. Thank you for your continued cooperation with this challenging project. Please let me know if you need any additional information to process this request. Sincerely, C 0, al* tl i A. Witte President • cc: Daniel Trimble — City of Newport Beach Lower Bayview Landing - Newport Parwenft 11/1712OD4 10:OOAM Budget Comparison Report Adjusted • ftid Corts Bat Rwtsad To To To -Stellp — -------- Dud.G --- ............. ... . ...... ----- ------ --------- ....... -------- 2 jotalMerA�WsWwCh I TOTAL ACOUISRION COSTS .. ...... . ...... 3 MWIAMNteaboalkEnginearkla . ....... ... ------- 993JW.DD -is�jmoo Iit4n,'pa awe;73.00-1 .... ... 88.00.76 i 7' 71.IDD.DD 71.1w00 :36" n 314MAD 10A10.1133 :TOTAL PROFFSSIO MAIL FEES V4,06f.DD MAM 60 ......_.._-.!-....._ l.._ ---------- --------- ...... jotal Fees and Pannits 784,341M 1 T04A41200• 4/1017.66 49A1TAS TM.923444 ;TOTAL FEES MD PERMITS �TM,141 Ta". 46 017 7"Sn� t I Total Gemal Contatdo, Cmb2ct ........... 228.001.07 229,ODI.07 9,379.26299 t T :To1aICH,wCo,,*ud*nGnats "2,518.00 0.232 all 901.700.00 TOTAL CONSTRUCTION COSTS 1D.D51.492.0 485,28BM 10A25.7n10 2n.m.07. 229,1101.07 11.8n,18003 .. ...... . ...... .. ..... 11 jTotal Low Loan Case ........ . . .... ............ 222 oataPounost TG ------- o."m t .. .... . ..... ... .. .. ID .........1- ..... . . .......... ......... . U.WD.CD II :Total CaMtUdo, Loan Foes 9 1,000.DD (M.00D.00); OJDOD.W WIADD,0 ItO t ...... ...... ......... ....... . ...2b t 5 DD .. ... ... .. 388.306.001 342000.00 13 ;Toal rd�pRosmo to .. IDO.DDO,DD i IOD,000.00 ........... jtTotot,Poaaon;M-Loan Costs ...... ... ............ ............... ; - ..... 10 8011.00 . 10.ODD.OD 15 ;Total Peanamnt La, F08s .. ...... ... ...... .... ..... 138 SO.DD ..... ........... .... 138A8000 ... t . ......... 117ACOM ._ -- ------- I ITADD.OD 20.790.DD. Bond Issiance Costs -A ;Total . - ... I .� .......... ..' ; u- iT T� I ivc � M .......... . 66,173.DD: 251DD 56AW.i� W.M.00: ....... ........ ............. i :TOTAL FtNANCLNG COSTS 94AAD Z 1544D AG l 2s"M 33 1414 2.(0 i L! .... .......... ------- --- - ........ ...... .. 11.10DOR . . 9.100.00 18D 0OX0 2299 20 -Total Ma*eting Lost ....-......_...1.... ...._-_--- -.-_ + .......... ...... .. ....... ?D.01)) . I ... ZU , .......... 16.0w.00 i. ........ z ..... ............. 15,0DOOD 21 Tota!Loga)F� IWIDD�.(TDI 200.WD.W "D.000.00 I., 0202 . . . . . . . . .... .. .. . . . .. .. . .. . . . .. _- .- ......._t._...._ . . . . . . . 6.0,0.D.DV.0; ........ .... ......... . ... . ............. . .. ......... 23 jTo4oIW Cost Co,.6ngeny . . . ......... ....... . ---- -- -- 100.0W.00 ..... 01929.68: - - ----------------- - -- - 24 TDWJRW0ca0o0ExpDce ......... . .... ..... ..... .... ... .......... .4 ------ ----- - ...............2 22......,- ..-.....-.......,.... ZSD.DOQ.DD 1 26 ............. $26'aw" ... .. .... ............. i j_21 ToWIDvWo,,aFvo .04 RTL ?� 975.DW 09 p'- .__.__......_ 29 tTVtW QUIT Cv5I51Raa4ftas • C� November 17, 2004 Ms. Sharon Wood CONSTRUCTION CO. Assistant City Manager City of Newport Beach 3300 Newport Blvd Newport Beach, CA 92658 Re: Newport Senior Apartments Increase in Construction Costs Dear Sharon: Per the request of the Related Companies of California, the following are the trade line items that have increased, along with the approximate amount of those increases, during • the last year due to project delays and general material increases in the construction industry on the Newport Senior Apartment Project: • Framing $175,000 Concrete (Foundation & Flatwork) $150,000 Plumbing $60,000 Steel (Rebar, Railings & Hardware) $45,000 Total $430,000 Please let me know if you need any additional information. Larry Pergons Director of Construction cc: Gino Canori —The Related Companies of Califomia 3738 FOOTHILL BOULEVARD, LA CRESCENTA, CALIFORNIA 91214 (818) 249 -7555 FAX (818) 249 -7599 SECOND AMENDMENT TO DEVELOPMENT LOAN AGREEMENT • This Second Amendment to Development Loan Agreement (this "Amendment ") is entered into this _ day of November, 2004, by and between NEWPORT HOUSING PARTNERS, L.P., a California limited partnership ( "Developer ") and the CITY OF NEWPORT BEACH, a California municipal corporation ( "City "). RECITALS A. City and Developer are parties to that certain Development Loan Agreement dated June 17, 2003, as amended by that certain First Amendment to Development Loan and Development Loan Documents dated August 4, 2004 (collectively, the "Development Loan Agreement "), pursuant to the terms of which City agreed to make a development loan (the "Loan ") to Developer for the development of the real properly referred to therein (the "Property ") and upon the terms and conditions set forth therein. B. City and Developer desire to amend the terms of the Development Loan Agreement as provided below. C. Unless expressly defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Development Loan Agreement. AGREEMENT • Now, therefore, in consideration of Developer's agreement to obtain the Loan and develop the Property as provided in the Loan Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, City and Developer hereby agree as follows: 1. City Loan. Notwithstanding anything stated to the contrary in the Development Loan Agreement, City and Developer acknowledge and agree that (a) the maximum amount of the Loan that may be disbursed by the City under the Development Loan Agreement shall be $1,750,000 (instead of $1,500,000), subject to the conditions set forth in Section 2.01 (a) of the Development Loan Agreement, (b) the amount of the Loan to be disbursed by the City as provided in the last sentence appearing in Section 2.01 (a) of the Development Loan Agreement shall be increased to $1,250,000 (which is an increase of $250,000), (c) the original face amount of the Note shall be $1,250,000, (d) if the amount of the Loan disbursed by the City in the future exceeds $1,250,000 the Developer and the City shall amend the Note to reflect such increase, and (e) all of the provisions set forth in the Development Loan Agreement shall be, and hereby are, amended to reflect the agreements set forth in clauses (a), (b), (c), and (d) above. 2. No Other Amendments; This Amendment Governs and Controls. Except as expressly modified hereby, the Development Loan Agreement shall remain unmodified and in full force and effect. To the extent any of the provisions of this Amendment are inconsistent with any of the provisions set forth in the Development Loan Agreement, the provisions of this Amendment shall govern and control. • I- IR/407605.2 3. Counterparts. This Amendment may be executed in any number of • counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. Each counterpart may be delivered by facsimile transmission. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto. • L J IN WITNESS WHEREOF, City and Developer have executed this Amendment as of the day and year first above written. I- IR/407605.2 [SIGNATURES ON NEXT PAGE] CITY OF NEWPORT BEACH, a California Municipal corporation • By: S APPROVED AS TO FORM: [SIGNATURES CONTINUED ON NEXT PAGE] C� • I- IR/407605.2 S -I NEWPORT HOUSING PARTNERS, L.P., • a California limited partnership • • BY: RELATED/NEWPORT DEVELOPMENT CO., LLC, a California limited liability company, general partner BY: THE NICHOLAS COMPANY, INC., a Delaware corporation, general manager S WILLIAM A. WITTE, President BY: LAS PALMAS FOUNDATION, a California non -profit public benefit corporation, general partner S Joseph M. Michaels President i aw407605.2 S -2 City of Newport Beach NO. BA- 029 BUDGET AMENDMENT 2004 -05 EFFECT ON BUDGETARY FUND BALANCE: Increase Revenue Estimates X Increase Expenditure Appropriations AND Transfer Budget Appropriations SOURCE: from existing budget appropriations from additional estimated revenues PX from unappropriated Affordable Housing Reserve EXPLANATION: AMOUNT: $250,000.00 �Increase in Budgetary Fund Balance-* X Decrease in Budgetary Fund Balance No effect on Budgetary Fund Balance This budget amendment is requested to provide for the following: To appropriate $250,000 for unforseen construction costs related to the Bayview Landing Sr. Housing Project. This amendment will be funded from the General Fund's Affordable Housing reserve. ACCOUNTING ENTRY: BUDGETARY FUND BALANCE Fund Account 010 3605 REVENUE ESTIMATES (3601) Fund /Division Account EXPENDITURE APPROPRIATIONS (3603) Description General Fund - Affordable Housing Rsv. Description Description Division Number 7026 Affordable Housing Reserve Account Number C2700798 Bayview Landing Sr. Housing Project Division Number Account Number Division Number Account Number Division Number Account Number Signed: Signed: Signed: Approval: Administrative Manager City Council Approval: City Clerk Director Amount Debit Credit $250,000.00 • Automatic //- /y -oy Date 0 Dat Date