HomeMy WebLinkAboutAgenda Statement 1985/04/23 Item 9 COUNCIL AGENDA STATEMENT
9
Item
Meeting Date 4/23/85
ITEM TITLE: Resolution 42403 Amending Resolution 11602 authorizing the issuance of
revenue bonds for the purpose of providing financing for multi-family
rental housing development by Morgan-Gardner Subdivision
SUBMITTED BY: Community Development Director ' (4/5ths Vote: YES NOX )
REVIEWED BY: City Manager'
On April 24, 1984, the City Council approved an inducement resolution for the
Eucalyptus Grove Apartment Project at E Street and Flower Street in the amount of
$13 million in Multi-Family Mortgage Revenue Bonds. Refinement of financial data
and financing structuring for the project has lead the developer to request a sub-
stantially higher inducement resolution increasing that bond amount. The City' s
special Housing Consultant has evaluated the request.
RECOMMENDATION: That the Council adopt the resolution amending the inducement resolution
for Eucalyptus Grove to allow a bond amount not to exceed $23 million.
BOARDS/COMMISSIONS RECOMMENDATION: Not applicable.
DISCUSSION:
The $13 million inducement amount was requested by the developer in April of last year
based on estimated project costs and revenues and on a financing structure proposed by
the developer' s underwriter at that time. On February 22 of this year, with a new
financial partner, a new underwriter, and a different financing structure, the devel-
oper asked for an increase in the induced amount to $24 million. The developer's
consultant characterizes the original inducement amount as totally inadequate to
finance the project in any of its iterations and as a probable error.
The City' s special Housing Consultant, Mr. Grady, has met with staff and the developers
regarding the request and has evaluated the cost and income figures and the financing
structure provided by the developer. Based on Mr. Grady' s evaluation of that data,
particularly his estimation of a shortfall between project income and project debt
service at the amount of inducement requested by the developer, he has recommended
an increase in the inducement amount to $23 million, rather than the requested
$24 million. Mr. Grady will be in attendance to elaborate on his evaluation and
recommendation. The developer continues to ask for the amendment to be for $24 million.
Based on Mr. Grady' s evaluation, it is recommended that the originally induced amount
be amended to $23 million.
FISCAL IMPACT: The City would have no financial liability for the project financing,
regardless of the level of inducement or the level of ultimate bond financing. The
financial securities for the bonds are the project itself and certain credit enhance-
ments provided by the lender. The Cit ' s li .e . ,.:414n the event of default would be
one of credibility.
DKG:as
RA-4 (Rev. 1/80) Data - -=3
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MON FRIC, INC. 1915 Morena Boulevard,San Diego,California 92110-3891 Phone(619)276-6271
Mailing:P.O.Box 81901,San Diego,California 92138-1901
April 16, 1985
The City of Chula Vista
Community Development Department
276 Fourth Avenue
Chula Vista, CA 92010
Attn: Dave Gustafson
Dear Dave,
In answer to your request of February 28, 1985, I am pleased to
forward herewith our recommendations for an inducement resolution
for Eucalyptus Grove Apartments.
An inducement resolution establishes the maximum amount of bonds
which may be sold for a project covered by such resolution.
The underwriters or the lenders will not necessarily sell the
full amount indicated in the resolution. They will determine
the amount to be sold as that which can be serviced based on
complete underwriting of the project, and prevailing interest
rate at time of sale.
You have asked us to advise the City on what would be a
reasonable maximum amount to be incorporated in an inducement
resolution for this project.
The developer proposed to use an innovative financing concept
which combines a debt service reserve, zero coupons bonds,
a guaranty from a Triple A rated insurance company, to lower
the mortgage interest rate.
Our study indicates that if a bond interest rate and a mortgage
interest rate of 8.5% can be achieved, a bond issue of
$22,685,000 could be supported.
. . ./. . .
MONFRIC, INC.
The City of Chula Vista
April 16, 1985
Page 2.
We therefore recommend that the City approve a resolution
in an amount of 22,750,000 and monitor the underwriting
closely before authorizing the Trustee to sell the bonds.
Sincerely,
C19124„ed it ,
Daniel B. ' -:y
President
DBG/mcv
enc.
•
MONFRIC, INC.
EUCALYPTUS GROVE
PRO FORMA OPERATING STATEMENT
Based on sustaining occupancy - January 1987
I. Low income units:
10 STUDIO @ 321 3,210
39 1BR/1BA @ 365 14,235
27 2BR/1BA @ 458 12,366
II. Market Rent Units:
38 STUDIO @ 464 17,632
154 1BR/1BA @ 552 85,008
45 2BR/1BA @ 633 28,485
64 2BR/1BA @ • 695 44,480
Gross potential Rent/Month 205,416
Less vacancies 4% 8,217
Net scheduled Rent/Month 197, 199
Net scheduled annual Rents 2,366,388
li
MONFRIC, INC.
Page 2.
OTHER INCOME:
By Developer By Consultant
per unit/Month Total/Month per unit/Month Total/Month
172 Garages 40 6,880 25 4,300
172 Storages 40 6,880 20 3,440
13,760 7,740
Laundry and vending Machines
7.75 2,906 4.5 1,692
Misc. charges 870
Total other Income 17,536 9,432
Annual 210,432 113, 184
Less allowance for vacancy 4% 4,527
108,657
Net scheduled Rental Income: 2,366,388
Net scheduled other Income: , 108,657
2,475,045
MONFRIC, INC.
Page 3.
EXPENSES:
STUDIOS 48 x 1,650 = 79,200
1BR/1BA 192 x 1,750 = 336,000
2BR/1BA 136 x 1,800 = 244,800
Total expenses: 660,000
Net operating Income: 1,815,045
This income will support the following mortgage amounts
If Mortgage interest is Mortgage amount
8.50 19,506,000
8.75 19,068,400
9.0 18,647, 100
9.25 18,241,400
9.50 17,850,400
9.75 17,473,600
10.00 17, 110,200
In addition to proposed Mortgage amount the following amounts will be
needed and the developer seeks to include them in the Bond request:
Cost of Issuance Account 1,650,000
Debt Service Reserve 2,350,000
4,000,000
The debt Service Reserve could be invested in Treasury securities and
generate an income (provided it is not drawn) of 270,250.
At 8.50% Bond Rate this additional income will be sufficient to service
$3,179,000 of Bonds. At 10% this could only service $2,702,500 of Bonds.
This amount could be added to the Mortgage amount at the respective
interest rates.
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