SR - AGR-6369 - ORANGE SENIOR HOUSING AGREEMENT TRIANGE TERRACE APARTMENTS1. SUBJECT
Agreement by and between the City of Orange ( "City ") and Orange Senior Housing, Inc.
( "OSH ") Relating to the Commitment and Reinvestment of Triangle Terrace Sale Proceeds
2. SUMMARY
OSH currently owns Triangle Terrace (the "Project "), a 75 -unit, senior, federally- subsidized
housing project located on City -owned land. OSH has entered into a Purchase and Sale
Agreement with Triangle Terrace Affordable, L.P. to sell the Project.
OSH will receive net proceeds of approximately $7.4 million from the sale. The attached
Agreement commits OSH to reinvest the proceeds for rental housing that is affordable to Low
Income seniors (62 +) and sets forth the City's requirements for the use of funds.
13. RECOMMENDATION
(1) Approve the attached Agreement.
(2) Authorize the City Manager to execute the Agreement on behalf of the City.
4. FISCAL IMPACT
There will be no cost or revenue to the City for this transaction.
S STRATEGIC PLAN GOAL(S) I
Goal 3: Enhance and promote quality of life in the community.
Strategy c.: Support and enhance attractive, diverse living environments.
City -OSH Agreement Relating Triangle Terrace Sale Proceeds
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6. GENERAL PLAN IMPLEMENTATION
Housing Goal 2.0 Assist in the development of adequate housing to meet the needs of Low and
Moderate Income households.
17. DISCUSSION and BACKGROUND J
OSH has entered into a partnership with Reiner Communities, Triangle Terrace Affordable, L.P.,
which plans to acquire and rehabilitate the Project. Reiner Communities has experience with the
acquisition and rehabilitation of senior rental housing.
OSH has also entered into a Purchase and Sale Agreement with Triangle Terrace Affordable, L.P.
to sell the Project to the new partnership. OSH will receive net proceeds of approximately $7.4
million from the sale.
The City and OSH have agreed that the proceeds should be used for rental housing that is
affordable to Low Income seniors (62 +). The attached Agreement sets forth the City's
requirements for the use of funds. Key provisions follow:
• Proceeds must be used within the incorporated boundaries of the City for five years from
the sale date.
• Proceeds may be used in the City or in any other city that shares a border with the City
after the five -year period.
• Use of the proceeds within or outside of the City is subject to the City's approval.
Council action is being requested to approve and authorize the execution of the Agreement. The
proposed new Ground Lease with Triangle Terrace Affordable, L.P. and bond issuance for the
Project are discussed under separate staff reports.
18. ATTACHMENTS
Agreement by and between the City of Orange ( "City ") and Orange Senior Housing, Inc.
( "OSH ") Relating to the Commitment and Reinvestment of Triangle Terrace Sale
Proceeds
AGREEMENT
THIS AGREEMENT ( "Agreement ") is made effective as of July 1 -, 2016, by and
between the CITY OF ORANGE, a municipal corporation (the "City "), and ORANGE
SENIOR HOUSING, INC., a California nonprofit public benefit corporation ( "OSH ").
RECITALS
A. WHEREAS, the City is the owner of a fee interest in certain real property
located at 555 S. Shaffer Street in the City of Orange, California (the "Property ").
B. WHEREAS, pursuant to that certain ground lease, dated as of May 8,
1985, between OSH and the City (the "Original Ground Lease "), OSH is the owner of
leasehold interest in the Property and fee owner to certain apartment buildings and
ancillary community buildings located upon the Property in use as senior affordable
housing and commonly known as Triangle Terrace (the "Project ").
C. WHEREAS, OSH and the City have determined that the Project requires
substantial renovation and wish to rehabilitate the Project in order to, among other
things, (i) access federal rent subsidies, (ii) improve the operational efficiency of the
Project, and (iii) better meet the needs of its tenants (the "Rehabilitation ").
D. WHEREAS, in order to implement and finance the Rehabilitation, OSH
intends to (i) sell all of its right, title and interest in and to the Project to a single - purpose
limited partnership in which OSH will act as managing general partner with an investor
providing equity as the investor limited partner (the "Partnership ") for an aggregate
purchase price of $13,500,000 (the "Purchase Price "), (ii) repay existing debt on the
Project, (iii) terminate the Original Ground Lease and cause the Partnership to enter into
a new ground lease with the City which will include a capitalized lease payment and
annual rents, and (iv) obtain permanent financing to fund the Rehabilitation.
E. WHEREAS, OSH anticipates that the Purchase Price, net of certain
expenses to be incurred by OSH in connection with the sale of the Project to the
Partnership (including, without limitation, repayment of existing debt associated with the
Project and payment of ground rent) will generate net sales proceeds which it will use
toward the development of additional affordable senior housing pursuant to the terms of
this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Determination of Proceeds. OSH estimates that the net sales proceeds
available to OSH from the Purchase Price, after payment of costs associated with the
transfer and sale of the Project to the Partnership (the "Net Sales Proceeds "), will be
approximately $7,429,000, as estimated on Exhibit A attached hereto. The actual Net
Sales Proceeds will be determined as follows:
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Recapitalization Proceeds Agreement (Triangle Terrace)
50138810.1
(a) Within five (5) business days following OSH's receipt of the initial
installment of the Purchase Price from the Partnership, OSH will deliver to the City
written confirmation setting forth the Net Sales Proceeds available upon receipt of such
installment.
(b) Within ten (10) days following OSH's receipt of the final installment
of the Purchase Price (the "Final Purchase Price Payment Date "), OSH will deliver
written notice to the City summarizing the aggregate Net Sales Proceeds generated by
the Purchase Price.
2. Use of Proceeds.
(a) OSH will use the Net Sales Proceeds only for acquisition,
development and /or operation of affordable rental housing for seniors (age 62 or older)
with household income at or below 60% of Area Median Income for Orange County,
California (each, an "Affordable Housing Development ").
(b) For a period of five (5) years from the date of the Final Purchase
Price Payment Date (the "Initial Period "), OSH may use the Net Sales Proceeds solely
for Affordable Housing Developments located within the incorporated boundaries of the
City.
(c) Following the Initial Period, OSH may use the Net Sales Proceeds
for Affordable Housing Developments either in the City or in any other city which shares
a border with the City (each, an "Adjacent Area ").
(d) If OSH uses the Net Sales Proceeds for development in an
Adjacent Area, subject to all applicable federal, state and local fair housing laws such
Affordable Housing Development(s) shall have a preference for residents that live or
work in the City.
3. City Approval.
(a) During the Initial Period, OSH shall be required to obtain the prior
written approval of the City (which shall not be unreasonably withheld, conditioned or
delayed) to use of all or any portion of the Net Sales Proceeds. In order to obtain such
prior written approval of the City, OSH shall send written notice to the City (a
"Development Notice ") at least sixty (60) days prior to OSH's proposed use of all or any
portion of the Net Sales Proceeds. OSH's Development Notice shall include a
description of the proposed Affordable Housing Development in which OSH proposes to
use the Net Sales Proceeds, including the number of units and bedroom types, location
of the Affordable Housing Development and affordability limits. OSH shall not use the
Net Sales Proceeds to undertake the proposed Affordable Housing Development unless
and until the City approves the Development Notice in writing. The City shall approve or
disapprove the Development Notice within such sixty (60) day period. Any disapproval
of the Development Notice by the City shall be in writing and shall specifically state the
reasons for such disapproval.
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Recapitalization Proceeds Agreement (Triangle Terrace)
50138810.1
(b) After the expiration of the Initial Period, OSH shall be required to
obtain the prior written approval of the City (which shall not be unreasonably withheld,
conditioned or delayed) to any use of all or any portion of the Net Sales Proceeds for
development outside the incorporated boundaries of City. In order to obtain such prior
written approval of the City, OSH shall send a Development Notice at least sixty (60)
days prior to OSH's proposed use of the Net Sales Proceeds. The City shall approve or
disapprove the Development Notice within such sixty (60) day period. Any disapproval
of the Development Notice by the City shall be in writing and shall specifically state the
reasons for such disapproval. If the City fails to approve or disapprove the
Development Notice within such sixty (60) day period, the City shall be deemed to have
approved the Development Notice and OSH may thereafter use the Net Sales Proceeds
for the Affordable Housing Development described in the applicable Development
Notice.
4. Remedies. Any party seeking enforcement of this Agreement shall be
entitled to pursue all remedies available at law or in equity, including, without limitation,
injunctive relief.
5. Notice. All notices to be sent pursuant to this Agreement shall be made in
writing, and sent to the parties at their respective addresses specified below or to such
other address as a party may designate by written notice delivered to the other parties
in accordance with this Section. All such notices shall be sent by (i) personal delivery,
in which case notice is effective upon delivery; (ii) certified or registered mail, return
receipt requested, in which case notice shall be deemed delivered on receipt if delivery
is confirmed by a return receipt; or (iii) nationally recognized overnight courier, with
charges prepaid or charged to the sender's account, in which case notice is effective on
delivery if delivery is confirmed by the delivery service.
CITY: City of Orange
300 E. Chapman Ave.
Orange, CA 92866
Attn: City Manager
OSH: Orange Senior Housing, Inc.
555 S. Shaffer St.
Orange, CA 92866
Attn: President
6. Attorney's Fees. In the event any legal action is commenced to interpret
or to enforce the terms of this Agreement or to collect damages as a result of any
breach thereof, the party prevailing in any such action shall be entitled to recover
against the other party all reasonable attorneys' fees and costs incurred in such action.
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Recapitalization Proceeds Agreement (Triangle Terrace)
50138810.1
7. Relationship of Parties. Nothing contained in this Agreement shall be
deemed or construed by the parties or any third party to create the relationship of
partners or joint venturers between OSH and the City. Nothing in this Agreement shall
be deemed to provide any right of the City to participate in the solicitation, negotiation,
or financial benefit of the investment(s) of the Net Sales Proceeds by OSH.
8. Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any other
jurisdiction.
9. Applicable Law. This Agreement, and the application or interpretation
hereof, shall be governed by the laws of the State of California applicable to
agreements made and to be performed entirely therein.
10. Reliance. No person other than the parties to this Agreement may directly
or indirectly rely upon or enforce the provisions of this Agreement, whether as a third
party beneficiary or otherwise.
11. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original and all of which together shall constitute one and the
same instrument.
[SIGNATURES ON FOLLOWING PAGE]
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Recapitalization Proceeds Agreement (Triangle Terrace)
50138810.1
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
CITY:
CITY OF ORANGE,
a California municipal corporation
•tto, City Manager
By: ,/:,----.. --‘ -
- W. fn- Winthers, City Attorney
OSH:
ORANGE SENIOR HOUSING, INC.,
a Californi. • • •rofit corporation
I
By: x,11
1:e S'"rer, President
S -1
Recapitalization Proceeds Agreement (Triangle Terrace)
50138810.1
EXHIBIT A
Estimate of Net Sales Proceeds
Purchase Price $13,500,000 (Target Dates)
Less estimated costs to OSH:
Seller carry Note $7,700,000
Payoff HUD 202 Loan 2,250,000
Seller's closing costs 25,000
Brokerage Fee 516,000
Prepaid ground rent 600,000
Ground rent reserve 180,000
Total costs of first closing $11,271,000
Estimated cash proceeds to OSH from first closing $2,229,000 (August 2016)
Second Closing
Reduction of Seller Note ($7,700,000 to 5,200,000 (September 2016)
$1,500,000
Net Proceeds (cash) of recapitalization to OSH $7,429,000
Completion of Renovation (May 2017)
Closing of Permanent Financing
(OSH's guarantee obligations may erode the Net Proceeds) (October 2017)
OSH's final report of Net Proceeds to the City of Orange (November 2017)
Exhibit - A
Recapitalization Proceeds Agreement (Triangle Terrace)
50138810.1 (52-
CITY COUNCIL MINUTES JULY 12, 2016
5. REPORTS FROM COUNCILMEMBERS — None
6. REPORTS FROM BOARDS, COMMITTEES, AND COMMISSIONS — None
7. ADMINISTRATIVE REPORTS
NOTE: Items 7.1 and 7.2 were re- ordered to be heard after Item 11.3.
7.1 Ground Lease by and between City of Orange and Triangle Terrace Affordable, L.P.
for Triangle Terrace Apartments. (A2100.0; Agr -6368)
NOTE: Mayor Smith recorded an abstention on Items 7.1, 7.2, and 11.4 due to a potential
conflict with her employer and left the dais at 8:21 p.m.
City Manager Rick Otto introduced the item and Senior Housing Manager Mary Ellen
Laster provided a staff report. During discussion, City Attorney Winthers clarified that the
Mayor is still authorized to sign the agreements related to this project even though she has
recused from all three items. The applicant briefly thanked Council and staff for their
support on this project.
MOTION — Whitaker
SECOND — Alvarez
AYES — Alvarez, Whitaker, Murphy
ABSENT (RECUSED) — Smith
ABSENT — Nichols
Moved to: 1) Approve the Ground Lease with Triangle Terrace Affordable, L.P.; 2)
Authorize the Mayor to execute the Ground Lease with Triangle Terrace Affordable, L.P.
and all related documents on behalf of the City; and 3) Authorize the Mayor to terminate
the existing Ground Lease with Orange Senior Housing, Inc. (OSH, Inc.) on behalf of the
City.
7.2 Agreement by and between the City of Orange ( "City ") and Orange Senior Housing,
Inc. ( "OSH ") Relating to the Commitment and Reinvestment of Triangle Terrace
Sale Proceeds. (A2100.0; Agr -6369)
NOTE: Mayor Smith recorded an abstention on Items 7.1, 7.2, and 11.4 due to a potential
conflict with her employer. She left the dais prior to Item 7.1 being heard.
MOTION — Alvarez
SECOND — Whitaker
AYES — Alvarez, Whitaker, Murphy
ABSENT (RECUSED) — Smith
ABSENT — Nichols
Moved to approve the agreement with OSH and authorize the City Manager and City Clerk
to execute the agreement on behalf of the City.
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