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HomeMy WebLinkAbout2009/06/09 Item 7 CITY COUNCIL AGENDA STATEMENT ~ ('f:.. CITY OF ~~ (HULA VISTA June 9, 2009, Item~ ITEM TITLE: PUBLIC HEARING: CITY COUNCIL CONSIDERATION OF THE ISSUANCE OF TAX EXEMPT OBLIGATIONS WITH RESPECT TO THE PROPOSED LANDINGS II AFFORDABLE HOUSING APARTMENTS RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE ISSUANCE, SALE Al'\lD DELIVERY OF MULTIFAMILY HOUSING REVENUE BONDS OF THE HOUSING AUTHORITY OF THE CITY OF CHULA VISTA FOR THE LANDINGS II AFFORDABLE APARTMENTS COUNCIL RESOLUTION AUTHORIZING THE CITY MANAGER TO EXECUTE A LOAN AGREEMENT BY AND BETWEEN THE CITY OF CHULA VISTA, AND CIC LANDINGS, L.P. FOR THE HOME FINANCING OF THE LANDINGS II AFFORDABLE APARTMENTS REVIEWED BY: DEVELOP~ENIf. RVICES DIRECTOR / DEPUTY CITY MANAGE :.JcJ.- CITY MANAG "'u 4/STHS VOTE: YES D NO ~ SUBMITTED BY: SUMMARY Chelsea Investment Corporation (CIC) and Brookfield Shea have proposed the development and construction of a 1'43-unit affordable housing development for low income households, known as The Landings II. Tbe Project is located at the northwest corner of Discovery Falls Drive and Crossroads Street within the Winding Walk master planned community. To fmance the Project, crc is requesting that City Council consider the issuance of a maximum of $39 million in ta, exempt obligations by its Housing Authority and execution of a loan agreement for $2.4 million of HOME funds. ENVIRONMENTAL REVIEW The Environmental Review Coordinator has reviewed the proposed project for compliance with the California Environmental Quality Act (CEQA) and has determined that the proposed project was adequately covered in previously adopted Final Second 7-1 JUNE 9, 2009, Item--1- Page 2 of6 Tier Environmental Impact Report, EIR 01-02. Thus, no further CEQA review or documentation is necessary. Additionally, due to the use of federal funds the Environmental Review Coordinator will review the proposed project for compliance with the National Environmental Policy Act (NEP A) prior to commencement of construction of the project. RECOMMEI'mATION The City Council hold the public hearing and adopt the resolutions. BOARDS/COJ\iIMISSION RECOMMENDATION On January 28, 2009, the Housing Advisory Commission voted to recommend the development of The Landings II at Winding Walk as an affordable rental community and the conditional approval of HOME funds to assist in its financing. On August 1, 2005, the Design Review Committee (DRC) reviewed and approved the proposed site plans and architectural elevations for the Project. DISCUSSION Back...crround Brookfield Shea Otay, LLC, master developer for Otay Ranch Village II (aka Winding Walk), is required to provide 207 total affordable units (92 low-income and 115 moderate-income) within its Neighborhood R-19 in satisfaction of its obligations under the City's Balanced Communities Policy of the Housing Element. The Landings apartment development, located on the northeast corner of Eastlake Parkway and Discovery Falls Road, was completed by Chelsea Investment Corporation and provides 92 affordable rental units for lower income households. The remaining balance of the affordable housing obligation (115 units) was contemplated as affordable housing for moderate income households. Due to the current fmancial climate, the project is infeasible for moderate income households. In order to satisfY the moderate income obligation and to obtain necessary fmancing for a project, Brookfield Shea has alternatively proposed the construction of a l43-unit rental development affordable for lower income households, known as The Landings II (the "Project"). They are proposing to partner with Chelsea Investment Corporation ("CIC") to construct and operate the Project. It will be located on the adjoining lot to the 92-unit Landings I Affordable Apartments constructed and completed in November 2008. For purposes of this report Landings I will refer to the 92-unit affordable rental development completed in 2008 and Landings II will refer to the proposed 143-unit development which is the subject of the requested actions. CIC is currently in the process of securing fmancing for the Project and has requested direct financial assistance from the City and that the Housing Authority consider the issuance of ta'\ exempt obligations. On February 3, 2009, the City Council adopted Resolution No. 2009-019 conditionally approving financial assistance in the amount of 7-2 JUNE 9, 2009, Item-L Page 3 of 6 $2,400,000 from the HOME Investment Partnership Program to Chelsea Investment Corporation for the development of the Project. To substantially fInance the development and construction of the Project, CIC subrnitted an application to California Debt Limit Allocation Committee (CDLAC) on May 22, 2009 for an aggregate amount not to exceed $39 million from the 2009 state ceiling on private activity bonds for multi-family projects. On May 12,2009, the Housing Authority adopted Resolution 2009-019, expressing its preliminary intention to issue bonds for the Project. At this time, the City Council is asked to hold a public hearing on the question of whether the Housing Authority should issue tax exempt bonds for the fInancing of the project and to approve the issuance, sale, and delivery of multi-family housing revenue bonds by the Housing Authority at the time a bond allocation is received. The requested actions are preliminary and do not commit the Authority to issue the bonds. Such preliminary actions are requirements for application to the State bonding authority and to allow CIC to receive reimbursement out of bond proceeds for costs it incurs leading up to the actual sale of bonds. If successful in obtaining a bond commitment from CDLAC, CIC will come back to the Authority to request fmal approval for the issuance of the bonds. The Applicant The Chelsea Investment Corporation has developed several projects in Chula Vista, primarily in eastern Chula Vista, to satisfy developer inclusionary housing requirements (Teresina Apartments, Rancho Buena Vista Apartments, Villa Serena and The Landings I). CIC has over 5,100 housing units in its portfolio. The company has a strong and experienced team of professionals. CIC has successfully managed low income housing units for over 20 years. The PropertY The Landings II development will be built within the Winding Walk subdivision of eastern Chula Vista. The low-income units will satisfy the requirements of the City's Program for the provision of affordable housing within the Village 11 community. The development will be located at the northwest comer of Discovery Falls Drive and Crossroads Street. The Project is a continuation of design and development of the adjacent Landings I development and "ill provide a total of 143-townhome style units, with all units beilig 3-bedroom and affordable to very low and low income households. Project amenities "ill be shared with Landings I and include a pool, spa, clubhouse, and a tot lot. The Proposal All 143' units will be rented on a rent restricted basis to households whose income is at or below 50-60 percent (%) of the Area Median Income as determined by HUD. This project will provide a balance of housing opportunities and fulfIll a need in Chula Vista 7-3 JUNE 9, 2009, Item~ Page 4 of6 for large family rental housing, particularly in the neighborhoods east ofInterstate 805, as outlined in the City ofChula Vista 2005-2010 Housing Element. Income and Rent Restrictions F or the bond funding, Section 142 (d) of the Internal Revenue Services Code requires either a minimum of twenty percent of the rental units in the Project to be available for occupancy by persons or families whose income does not exceed 50 percent of the area median income (AMI) for the San Diego Primary Metropolitan Statistical Area, or alternatively, at least 40 percent of the rental units are required to be available for occupancy by persons or families whose income does not exceed 60 percent of the AMI. In each case, the units are to be made available at affordable rents established by the applicable State law. Per the Affordable Housing Agreement for the inclusionary obligation, a minimum of 115 units must be affordable to moderate income households. Due to the financing CIC is pursuing, the Project will exceed these minimum requirements and provide 28 more units and deeper affordability. 3 Bd/2 Ba 3 Bd/2 Ba MGR Total 143 CIC proposes to maintain the income and rent restrictions for The Landings II for a period not less than fifty-five years, exceeding the 30-year term of the bonds. The income and rent restrictions outlined above are to be incorporated into the Regulatory Agreement for the bonds, which will be recorded against the property. Compliance with the income and rent restrictions will be subject annually to a regulatory audit and annual tax credit certification. Compliance with strict property management policies and procedures will ensure that income and rent restrictions will be maintained for the full 55-year compliance period, and will bind all subsequent owners of The Landings II, so that the commitment remains in force regardless of ownership. Proposed Financin2: of Proiect Financing and development of The Landings is proposed as a Jomt private-public partnership. CIC will be using Tax Exempt Multi-Family Revenue Bonds and Low Income Housing Tax Credit fmancing to support the majority of the estimated $48.3 million ($337,245 per unit) cost of constructing the project (see Attachment 2). Chelsea Investment Corporation has requested that the Housing Authority of the City of Chula Vista consider the issuance of up to $39 million in private placement bonds, which is the projected maximum construction loan. The permanent bond loan is estimated at 7-4 if --; JUN 9, 2009, Item~ Page 5 of 6 approximately $15.7 million. Chelsea Investment Corporation will apply for approximately $15.3 million in Low Income Housing Tax Credits. The permanent bonds and Tax Credits would cover over 65 percent of the estimated cost. The balance is expected to be provided by the City subsidy, other contributions and a deferred developer fee. The required documents ",ill be presented to the City/Housing Authority for approval at such time as fmal approval of the issuance of the bonds and the related bond/loan documents are requested. Form of City Assistance - HOME Funds The City Council adopted Resolution 2009-019 conditionally approving $2,400,000 in financial assistance from HOME Investment Partnership funds, to assist 11 units at the very low and/or'low income range. Assistance will be in the form of a loan (see Attachment 3) and secured by a note and deed of trust recorded against the property. The principal and interest on the loan will be amortized over fifty-five years and repaid from cash surplus in annual installments. The City is required to use its HOME funds solely for the purpose of providing affordable housing for low-income persons. Federal requirements outline timeframes in which HOME dollars must be allocated and actually expended. By June 30, 2009, the City must commit $944,184 to eligible activities. With no current plans for the expenditure of HOME funds and looming expenditure deadlines, the funding of this project will assist the City in meeting the allocation and expenditure requirements. DECISION MAKER CONFLICT Staff has reviewed the property holdings of the City Council and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. CURRENT YEAR FISCAL IMP ACT Bond fmancing is a self-supporting program with the owner responsible for the payment of all costs of issuance and other costs and repayment of the bonds. All costs related to the issuance of the bonds will be paid from bond proceeds or profits. The bonds will be secured by the project and will not constitute a liability to or obligation of the City or Housing Authority. The City of Chula Vista Housing Authority will receive compensation for its services in preparing the bond issuance by charging an origination fee of 1/8 of 1 % of the bond loan, approximately $48,125. The fmancial assistance of $2,400,000 is available from the City's allocation of HOME Investment Partnership grant funds. The loan amount of $2,400,000 will be used towards a loan for CIC, Landings L.P. for costs related to the development ofthe Landings. The HOME grant funds could also provide additional funds specifically for project management costs; which will offset staff time and overhead costs related to loan underwriting, legal services, and environmental review. 7-5 JUNE 9, 2009, Item-L Page 6 of6 ONGOING FISCAL IMPACT Staff costs associated with monitoring compliance of the regulatory restrictions and administration of the outstanding bonds will be reimbursed from an annual administrative fee of approximately $19,625 (based upon 1/8 of 1% of the permanent bond loan) paid to the Housing Authority by the owner. ATTACHMENTS I. Locator Map 2. Swnmary of Sources and Uses 3. Construction and Permanent Financing Loan Agreement 4. Disclosure Statement Prepared by: Leilani Hines, Principal Project Coordinator, Development Services Department 7-6 Attachment 1 The Landings II at Winding Walk 7-7 , , 5 "- , , " 5 C o , , R , mRa; The landings I & II 2122 Burdoclc Way , Project Cost Sources of Funds Subsidies TOTAL The Landings at Wmding Walk PROFORMA SUBSIDY At~AL YSIS Cost Funds Attachment 2 Financing Gap Acquisition Construction DesignlEngineering Contingency Permits & Fees Interest/Fees, Financing Costs Reserves, Legal, Other Developer Fees Tax Credit Equity Permanent Loan (Bond) Shea Loan (Bond) Subtotal $ City Loan Other Contribution Deferred Developer Fee Cost per Unit @ 143 Units) City/Agency Subsidy per Unit @ 11 Units $280,000 $31,540,000 $1,300,000 $1,116,000 $7,105,000 $2,950,000 $1,435,000 $2,500,000 $15,300,000 $15,700,000 $11,550,000 48,226,000 $ 42,550,000 $ $ 48,226,000 $ 7-8 $2,400,000 $2,000,000 $1,276,000 48,226,000 $ 5,140,000 $ $ 337,245 218,182 ATTACHMENT 3 CONSTRUCTION AL~D PER.I\1A.l'iENT FI1"lANCING LO..c\J.~ AGREEMENT By and Between THE CITY OF CHULA VISTA a public body, corporate and politic and CIC Landings 2, L.P., a California Limited Partnership 7-9 ATTACHMENT 4 Disclosure Statement Pursuant to Council Polley 101-01, prior to any action upon matters that will require discretionary action by the Council, Planning Commission and aU other official bodies of the City, a statement of disclosure of certain ownership or financial interests, payments. or campaign contributions for a City of Chula Vista election must be filect The folbwing information must be disclosed: 1. List the names of aU persons haYing a financial interest In the property that Is the subject of the application or the contract, e.g., owner, applicant, contractor, subcontractor, material supplier. Applicant Chelsea Investment Corporatlof't Owner: Landinqs 2. LP.. Cle landinQ:s 2. LLC (Admin. GP), Pacific Southwest Community Oe.~lotment (GP} Contractor: None selected 2. If any person' idenlified pursuant to (1) above is a corporation or partnership, list the names of all indMduals witl1 a $2000 investment in the business (corporation/partnership) enlily. James J. Schmid 3. If any person' identified pursuant to (1) above is a non-profit organization or tNst, list the names of any person serving as director of the non-profit organization or as trustee or beneficiary or trustor of the trust. Robert W. LainQ Michael Walsh Mario Antonio Reves Kimberly Collins 4. Please identify every person, including any agents, employees, consultants, or independent contractors you have assigned to represent you before the City in this matter. Wallace Dieckmann 5. Has any person" associated witn this contract had any financial dealings with an offrciar" of the City of Otula Vista as it relates to this contract within the past 12 months. YesL- No_ James J. Schmid is a member of tho managing member of lhe Adm.,istrative Gen<<a.l Partner of the Umiled Partnership which owns The landings 1 and II Apartment complexes, the affordable ho.Jslng projects meeting the i1cIusionary requirements 01 the Windngwalk subdIVisiOn. These projects received City financial assiStance. Additionally, James J. Schmid and WaJlCe C. Oiodmann have given donations to the poItIcli campaig1s fot City Council members Pamela 6ensouBSan and SteV'l Castaneda.. If Y os, briefly describe the nature of the fi nancial interest the official" may have in this contract. None 6. Have you made a contribulion of more than $250 wijhin the past twelve (12) months to a current member of the Chuia VISta City Council? No _ Yes ~ If yes, which Council member? Donation to pofitical campaigns for City CoLndI members Pamela Bensoussan and Steve Castaneda 7-10 7. Have you provided more than $340 (or an item of equivalent value) to an official" of the City of Chula Vista In the past twelve (12) months? (This includes being a source of income, money to retire a legal debt, gift, loon, etc,) Yes -L. No If Yes, which official" and what was the natura of item provided? Donation 10 political campai n for Ci Coc.rd Membec Steve Castaneda. Date: June 4, 2009 James J. Schmid Print or type narne of Contractor/Applicant Person is defined as: any indiVidual, firm, Q;partnersnip. joint \lenturs, association, sociaJ cJub, fraternal organization, corporation. estate. trust. receiver. syndicate, any other county, city, municipality, dIstrict, or other political subdivision. -or any other group or combination acting as a unit. .. Official includes, but is not Iim~ed to: Mayor, Cooncil member, Chula Vista Redevelopment Corporation member, PlannIng Commissioner. member of a ooard. commission. or committee of the City, employee. or staff members. September 8, 2006 7-11 RESOLUTION NO. 2009- RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE ISSUAJ."ICE, SALE AND DELIVERY OF MULTIFAMILY HOUSING REVENUE BONDS OF THE HOUSING AUTHORITY OF THE CITY OF CHULA VISTA FOR THE LANDINGS II AFFORDABLE APARTMENTS WHEREAS, the Housing Authority of the City of Chula Vista (the "Authority") intends to issue not to exceed $39,000,000 aggregate principal amount of multifamily housing revenue bonds (the "Bonds") to finance the acquisition and construction of a 1 43-unit multifamily rental housing project (the "Project") located at the northwest comer of Discovery Falls Drive and Crossroads Street in the City of Chula Vista; and WHEREAS, the Project will be owned and/or operated by a limited partnership of which Chelsea Investment Corporation ("CIC"), or an affiliate thereof, will be the administrative general partner (the "Owner"); and WHEREAS, pursuant to Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"), the Bonds are required to be approved, following a public hearing, by an elected representative of the governmental unit having jurisdiction over the area in which the Project is located; and WHEREAS, the Project is located wholly within the geographic jurisdiction of the City ofChula Vista (the "City"); and WHEREAS, the City Council (the "City Council") is the elected legislative body of the City; and WHEREAS, the City has caused a notice to appear in the Star News, which is a newspaper of general circulation in the City, on May 22, 2009 to the effect that a public hearing would be held by the City Council on June 9, 2009, regarding the issuance of the Bonds by the Authority; and WHEREAS, On June 9, 2009, the City Council held said public hearing, at which time an opportunity was provided to present arguments both for and against the issuance of the Bonds; NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Chula Vista, as follows: Section I. The City Council does hereby find and declare that the above recitals are true and correct. Section 2. Pursuant to Section 147(f) of the Code, the City Council hereby approves the issuance of the Bonds by the Authority in one or more series, in an aggregate principal amount not to exceed $39,000,000 and with a final maturity not later than forty-five (45) years DOCSOCI134194 7v2/024036-003 8 7-12 from the date of issuance to [mance the acquisition, construction and equipping of the Project. It is the purpose and intent of the City Council that this Resolution constitute approval of the issuance of the Bonds by the applicable elected representative of the governmental unit having jurisdiction over the area in which the Project is located, in accordance with said Section l47(f). Section 3. This Resolution shall take effect from and after its adoption. Presented by Approved as to form by Gary Halbert Deputy City Manager! Development Services Director e .....~\ ,) '"---.J mart Miesfi ' ,\"CltYi\ttorney 2 DOCSOC/1341947v2l024036-0038 7-13 RESOLUTION NO. 2009- - COUNCIL RESOLUTION AUTHORIZING THE CITY MANAGER TO EXECUTE A LOAl'\[ AGREEi\fENT BY AND BETWEEN THE CITY OF CHULA VISTA, AND CIC LANDINGS, L.P. FOR THE HOME FINANCING OF THE LANDINGS II AFFORDABLE APARTMENTS WHEREAS, the City ofChula Vista ("City") has been allocated fimds from the United States Department of Housing and Urban Development ("HUD") pursuant to the federal government's HOME Investment Partnerships Program (42 U.S.C. Section 1274, et seq.) which can be used to provide subsidies to or for the benefit of very low income and lower income households in accordance with HOME regulations (24 C.F.R. Section 92, et seq.); WHEREAS, City has adopted a Housing Element to the City General Plan which sets forth the objective of providing housing to satisfy the needs and desires of various age, income and ethnic groups of the community, and which specifically provides for the development of rental housing units through City assistance; WHEREAS, Chelsea Investment Corporation ("Developer") proposes to construct a 143 -unit multifamily rental development, with units affordable to very low households at 50 percent of the Area Median Income (Al\1I) and to low households at 60 percent of the Area Median Income (Al\l1I) within the Winding Walk master planned community on a vacant site (LotI of Map No. 15479) located east of Eastlake Parkway south of Birch Road and north of Crossroads Street in the City of Chula Vista ("Project"); WHEREAS, Developer is applying for an allocation of Multifamily Housing Revenue Bonds from the California Debt Lirnit Allocation Committee (CD LAC) and four percent (4%) tax credits from the Tax Credit Allocation Committee (TCAC) to support the majority of the development and construction costs of the Project; WHEREAS, additional financing is still necessary in order to make the Project feasible; and WHEREAS, on February 3, 2009, pursuant to Resolution No. 2009-019, City conditionally approved fmancial assistance, subject to future appropriation, in an amount not to exceed $2,400,000 from the City's HOME Investment Partnership Program (HOME) funds to assist in the development of the Landings Affordable Apartments and the direct financing of eleven (11) HOME units subject to the City's approval of a Construction and Permanent Financing Agreement (the "Loan Agreement") and certain minimum conditions; 7-14 WHEREAS, in order to implement the requirements of the HOME funds, City shall enter into a Loan Agreement with the Developer, pursuant to which the City would provide a loan not to exceed Two Million Four Hundred Thousand and 00/100 Dollars ($2,400,000.00) to the Developer, and the Developer shall develop, construct, and operate the Project, restricting the occupancy of 11 HOME-assisted units in the Project to very low income, and rent those units at an affordable rent in compliance with the HOME regulations; and WHEREAS, the City has duly considered all terms and conditions of the Loan Agreement and believes that the Agreement is in the best interest ofthe City and the health, safety, and welfare of the residents of the City, and in accord with the public purposes and provisions of applicable Federal, State and local law requirements; WHEREAS, the City's provision of $2,400,000 for the eleven (11) HOME assisted units ($218,182 per unit subsidy) does not exceed the HOME Program's Section 221 (d)(3) maximum per unit subsidy limits ($228,780 per HOME assisted 3-bedroom unit) effective January 1, 2009; WHEREAS, the City's provision of funds to the Project will directly improve the City's supply of very low and low income housing and is consistent with and called for by the City's General Plan Housing Element and Consolidated Plan; WHEREAS, the City's Housing Advisory Commission did, on the 28th day ofJanuary, 2009, hold a public meeting to consider said request for financial assistance; WHEREAS, the Housing Advisory Commission, upon hearing and considering all testimony, if any, of all persons desiring to be heard, and considering all factors relating to the request for financial assistance, has recommended to the City Council that the conditional fmancial assistance be approved because the Commission believes that the City's fmancial participation in the development of the Project will be a sound investment based upon Developer's ability to effectively serve the City's housing needs and priorities as expressed in the Housing Element and the Consolidated Plan and the cost effectiveness of the City's fmancial assistance based upon the leveraging of such resources; WHEREAS, in accordance with the requirements of CEQA, the Environmental Review Coordinator has determined that the proposed project has had adequate prior review and is in compliance with the previously adopted Final Second Tier Environmental Impact Report, EIR 0 1-02 and no further action by the City Council is necessary. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City ofChula Vista as follows: 1. The City Council hereby approves the Loan Agreement in substantially the form presented. The City Manager and his designee are hereby authorized to sign all documents, to make all approvals and take all actions necessary or appropriate to carry out and implement the Loan Agreement and to administer the obligations, responsibilities and duties of the City to be performed under the Loan Agreement, and related documents. 7-15 2. The City Attorney, on behalf of the City, is hereby authorized to make revisions to the Loan Agreement which do not materially or substantially increase the obligations of the City thereunder or materially or substantially change the uses or development permitted on the Site. Presented by Approved as to form by Gary Halbert Deputy City Manager/ Development Services Director _.~ Ntf'. \ /,/ '... ....--..../ [ --.. i I \c</~ 1.:\ ' r B~MiJ:~ .. 0' i(!LLVd .~,&ty Attorney 7-16 CONSTRUCTION Al"lD PER1\1ANENT FINANCING LOAN AGREElVIENT THIS CONSTRUCTION A-1'fD PER1\'IANENT FINAL~CING LOAN AGREElVIENT, (the "Agreement") is entered into as of this _ day of June, 2009, by and between THE CITY OF CHULA VISTA, a public body, corporate and politic ("City"), and CIe Landings 2, L.P., a California limited partnership ("Borrower"), and/or its successors or assignees as follows: RECITALS A. Authority: City is a municipal corporation, organized under the laws of the State of California, City is authorized to enter into binding agreements for the purpose of protecting public health, safety, and welfare. B. Available Funds: City has been allocated funds from the United States Department of Housing and Urban Development ("BUD") pursuant to the federal government's HOJ\;fE Investment Partnership Act Program (42 U.S.C. 1274, et seq) which can be used, subject to final BUD approval, for the purposes of funding certain City obligations under this Agreement in accordance with HOME Program regulations (24 C.F.R. 92 et seq). C. The Property: Borrower is or will become the legal owner of the fee title to the real property located on the corner of Discovery Falls Road and Crossroads Street within Otay Ranch Village II in the City of Chula Vista, also known as Lot 1 of Chula Vista Tract No. 01-11, as described in the attached Exhibit A, which is incorporated herein (the "Property"). D. Proiect: Borrower proposes to construct and permanently finance 142 affordable housing units, one (I) manager's unit and a community room (collectively, the "Improvements") on the Property. The majority of the residential units will be restricted as affordable units tolow income households through an Affordable Housing Agreement for Village Eleven's (aka Winding Walk) Inclusionary Housing Requirement. Units will be further restricted though other funding sources under the terms of a separate Affordable Housing Agreement. The financial contribution from the City, in the form of HOME Program Funds, will restrict II units to very low income households at or below 50 percent of AMI (the "Project"). The Project will be subject to certain affordable housing obligations pursuant to a Declaration of Covenants, Conditions and Restrictions by and among the Borrower and the City (the "Declaration"). E. City Financial Assistance to Borrower: Through the development and operation of the Project, City and Borrower desire to provide very low and low income households with affordable housing opportunities within the City in accordance with the City's Consolidated Plan and the Housing Element of the City General Plan, specifically Housing Element Policy 5.1.1. In order to accomplish this goal, the City desires to make a loan to Borrower from its HOJ\;fE funds to Borrower for a portion of the costs of the construction of the Project, subject to certain conditions designed to assure the implementation of the Project in accordance with the General Plan, state and federal law, HOJ\;fE Program regulations and as otherwise provided herein. Landings II Loan Agreement 1 7-17 F. Interests of the City and the Public: The development of the Property pursuant to this Agreement, the fulfillment generally of this Agreement and the construction of the lmprovements pursuant to the terms of this Agreement, are in the vital and best interest of the City of Chula Vista and the health, safety, morals and welfare of its residents, and in accord with the public purposes and provisions of applicable state and local laws and requirements under which the development of the Project has been undertaken. G. The City of Chula Vista by Resolution No. 2009-019, adopted on February 3, 2009, conditionally approved the funding by the City of the City Loan. H. The City of Chula Vista by Resolution No. 2009-_, adopted on June 9, 2009, authorized the execution of this Loan Agreement by and between City and Borrower. NOW THEREFORE, in furtherance of the recitals stated above, the mutual and prospective covenants set forth below, the Parties agree, promise and declare as follows: Definitions The following terms as used in this Agreement shall have the meanings given unless expressly provided to the contrary: "Affordable Housing Agreement" means that certain agreement, between the Borrower and the City, which sets forth Borrower's obligations to 'maintain the Project as an affordable multifamily housing project for lower income households in satisfaction of requirements to provide affordable housing within the Winding Walk master planned community consistent with Housing Element Policy 5.1. Said Affordable Housing Agreement is not attached to this Agreement. "Bonds" means the Multifamily Housing Revenue Bonds issued by the Housing Authority of the City of Chula Vista in the aggregate principal amount not to exceed of $38.5 million and Noll 00 Dollars ($38,000,000.00). "Borrower" means CIC Landings 2, L.P., a California limited partnership. The term "Borrower" includes any legally permissible assignee or successor to the rights, powers, and responsibilities of Borrower hereunder, following such assignment and succession, in accordance with Section 7.10 of this Agreement. "Borrower's Limited Partner" means the limited partner referenced in the Borrower's Partnership Agreement, as approved by the City, in its reasonable discretion, and its successors and assigns. "Certificate of Occupancy" shall have the meaning ascribed in Section 5.9 of this Agreement. The form of the Certificate of Occupancy shall be as approved by the City Attomey, in his/her reasonable discretion. "City" means the City of Chula Vista, a municipal corporation, organized under the laws of the State of California and having its offices at 276 Fourth Avenue, Chula Vista, California 91910. 2 7-18 Landings II Loan Agreement "City Deed of Trust" means that certain deed of trust which secures the Borrower's obligations pursuant to the City Note and which shall be recorded in the order of priority set forth in this Agreement), in a form and format as approved by the City Attorney, in hislher reasonable discretion. "City Loan" means the loan from the City to Borrower as provided in this Agreement in an original principal amount not to exceed Two Million Four Hundred Thousand and NollOa Dollars ($2,400,000.00), and as further defined in this Agreement. "City Note" means the promissory note evidencing the City Loan, in a form and format as approved by the City Attorney, in hislher reasonable discretion. "Declaration" means the Declaration of Covenants, Conditions and Restrictions between the Borrower and the City. "Developer" means Chelsea Investment Corporation, a California corporation, and its successors and assigns, as approved by the City, in hislher reasonable discretion. "Development Fee" and "Deferred Development Fee" shall have the meaning ascribed in Section 4.1. "Effective Date" means the date first appearing in this Agreement above. "Gross Revenue" shall have the meaning ascribed in Section 2.6 (b)(I). "HOME Units" means the eleven (II) dwelling units to be constructed by Borrower on the Property, that are restricted pursuant to the HOME Program for a period of twenty (20) years by the Declaration, which includes restrictions related to the maximwn rents which may be charged, and to the tenants that are eligible to reside in such units, all of which are in furtherance of the City's goals of making available homes, either for rent or for sale, to that section of population who cannot afford to buy or rent locally on the open market. "Housing Manager" means the Housing Manager of the Development Services Department of the City Of Chula Vista. "Partnership Agreement" means the Limited Partnership, for the Borrower, as such may be amended or supplemented from time to time, and as approved by the City, in its reasonable discretion. "Project" shall have the meaning ascribed in Section D of this Agreement. "Property" means that certain real property legally described in Exhibit A which is attached hereto and incorporated herein. '.Property Manager" means the property management company managing the Project, whether or not the Project is managed by Borrower. The term Property Manager shall not mean the on-site property manager. .b Landings II Loan Agreement 3 7-19 "Reasonable Operating Expenses" shall have the meaning ascribed in Section 2.6 (b)(l). "Regulatory Agreement" or "Bond Regulatory Agreement", the terms being synonymous, means the Regulatory Agreement by and among the Borrower, the Bond Issuer. "Residual Receipts" shall have the meaning as ascribed in Section 2.6 (b). "Restricted Units" means the residential units in the Project whose rent levels and occupancy are to be restricted as set forth in this Agreement. "TCAC Regulatory Agreement" means that regulatory agreement entered into by and between the Borrower and the TCAC, as that term is hereinafter defmed, concerning the Project. 'Title Insurer" means the title insurance company chosen by the Borrower for the Project, as reasonably approved by the City. ARTICLE 1. Financing of the Project Section 1.1 Summary of Financing: Borrower contemplates a total project budget of approximately $49.3 million. Borrower intends to finance the Property and Improvements using: (i) a construction and permanent loan financing funded by the Chula Vista Housing Authority ("Bond IssuerlLender"), in a maximum aggregate principal amount of $38.5 million and Noll 00 Dollars, which are plmed to be issued by the Bond IssuerlLender (the "Bond Loan"); (ii) approximately fifteen million three hundred thousand and NoI100 Dollars ($15,300,000.00) of four percent (4%) tax credit equity (the "Tax Credits"); (iii) financial contribution in the approximate amount of two million and Noll 00 Dollars ($2,000,000.00) from the Eastlake Company, LLC in satisfaction of its affordable housing obligations as specified in the Eastlake III Section Planning Area plan consistent with Housing Element Policy No. 5.1; (iv) deferral of one million two hundred seventy six thousand and Noll 00 Dollars ($1,276,000.00) of the developer fee (the "Deferred Developer Fee"); and (v) the City Loan. This Agreement is being executed in connection with and City's obligation to make the City Loan and is contingent upon the Borrower obtaining the Tax Credits and Construction Loan, obtaining a commitment for the Permanent Loan and deferring the Deferred Developer Fee. Section 1.2 City acknowledges that the foregoing amounts (other than the amount of the City Loan) are approximations and may change, provided, however, the maximum amount of debt senior to the City Loan shall not increase by more than 10% in aggregate. In no event shall the City Loan fund, if the amount of debt senior to the City Deed of Trust exceeds the limit referenced above, without the further written consent of the City. ARTICLE 2. City Loan Section 2.1 Construction and Permanent Financing Loan and Authorization. City will fund the City Loan to Borrower according to and upon the terms and conditions set forth below. The proceeds of the City Loan shall be used by Borrower solely tor the purposes of constructing and permanently fmancing the HOlvfE Units. This Agreement and the City Loan are in furtherance of and authorized by the provisions of the federal government's HOME Investment Partnership Act Program (42U.S.C. 12741 et seq) hereinafter referred to as "the HOME Program", pursuant 4 7-20 Landings II Loan Agreement ~ to which: (i) the City has designated the construction of housing affordable to very low and low income households as a program of its Aillnual Plan; (ii) the City has found that the construction and use of the Property and the Improvements pursuant to this Agreement will be consistent with the Annual Plan and provide benefit to the City; and (iii) out of the total of one hundred forty three (143) units in the Project, eleven (II) three-bedroom units are being assisted \Vith HOME funds (the "HOME units") and used exclusively to provide housing for "very low income and lower income families" as defined in the Sections 50105 and 50079.5 of the California Health & Safety Code, respectively, at "affordable rents" as defIned by Section 50053(a) of the California Health & Safety Code. All HOME units must meet all of the HOME requirements for the term of the affordability restrictions on the units. The specific units to be designated HOME units may change from time to time in Borrower's sole discretion, kno\VTI as "floating units", provided that the aggregate number and category of said units remains the same. Section 2.2 Loan Amount and Funding. (a) Loan Amount. The original principal amount of the City Loan shall not exceed Two Million Four Hundred Thousand and Noll 00 Dollars ($2,400,000). The City Loan shall be disbursed as set forth in Section 2.5, below. (b) Funding. City's obligation to fund the City Loan shall be and is specifIcally conditioned upon Borrower obtaining the Tax Credits and Construction Loan and deferring the Deferred Developer Fee, City approving the preliminary title reports concerning the Property, payment of all taxes now due and payable on the Property, issuance of an AL T A Lender's policy insuring the City Loan satisfactory to the City Manager, satisfaction of all conditions precedent to City's obligation to make the City Loan, and satisfaction of those conditions set forth in Section 2.12 of this Agreement. Section 2.3 Declaration of Covenants and Restrictions. The obligation of City to make and fund the City Loan hereunder is subject to the execution and recordation of the Declaration. The Declaration shall contain the housing payment and income level restrictions for the one hundred forty two (142) Affordable Units for a period of fIfty-five (55) years. Rents will provide affordable housing to households earning between fifty percent (50%) and sixty percent (60%) of area median income as referenced in the Declaration. The monthly rental rate shall be as set forth in the Declaration. The rents may be subject to modification annually as set forth in the Declaration. Except as otherwise provided in this Agreement, the Declaration shall be recorded in a position superior and prior to all encumbrances on the Property. Section 2.4 PromissorY Note & Deed of Trust. (a) PromissorY Note. (1) The City Loan shall be evidenced by a promissory note executed by Borrower, in favor of City, in the amount of the City Loan and incorporated herein by reference (the "City Note"), and shall be subject to the terms and conditions contained therein. Landings II Loan Agreement 5 7-21 (2) The City Note shall bear interest at three percent (3%) simple interest per annum. For purposes of this Section, Year I means the period of time that begins on the date the Improvements are Placed in Service and ends on December 31 of the same calendar year. Subsequent "Years.' during the term of the City Loan shall mean each calendar year immediately following the end of the immediately preceding Year and shall be numbered consecutively thereafter. Interest shall accrue and payments of principal and interest shall be due and payable as defined in Section 2.6 hereof. (3) Upon completion of construction of all one hundred forty three (143) dwelling units at the Property and issuance of the certificate of occupancy in connection therewith, nothing herein contained shall be deemed to cause Borrower (or any of its partners, or any of their respective directors, officers, employees, partners, principals or members) personally to be liable to payor perform any of its obligations evidenced hereby, and the City shall not seek any personal or deficiency judgment on such obligations, and the sole remedy of the City with respect to the repayment of the City Loan shall be against the Property; provided, however, that the foregoing shall not in any way affect any rights the City may have (as a secured party or otherwise) hereunder or under the City Note, City Deed o(Trust, or any other rights the City may have to: (a) recover directly from the Borrower any funds, damages or costs (including, without limitation, reasonable attorneys' fees and costs) incurred by the City as a result of fraud, intentional misrepresentation or intentional waste by Borrower; or (b) recover directly from the Borrower any condemnation or insurance proceeds, or other similar funds or payments attributable to the Property which under the terms of the City Deed of Trust should have been paid to the City, and any costs and expenses incurred by the City in connection therewith (including, without limitation, reasonable attorneys' fees and costs). (4) Should Borrower agree to or actually sell, convey, transfer, further encumber or dispose of the Property or any interest in it (except as provided in the City Note), without first obtaining the written consent of the holder of the City Note (i.e., the City) as required by Section 7.1 0, then all obligations secured by the City Note may be declared due and payable at the option of City. The consent to one transaction of this type will not constitute a waiver of the right to require consent to future or successive transactions. The resident tenant restrictions set forth in the Declaration and referenced in Section 2.3of this Agreement shall remain in place whether or not City approves or disapproves a successor-in-interest for the term of fifty-five (55) years. (5) The parties acknowledge that the City Loan is not a purchase money mortgage as defined in Code of Civil Procedure Section 580b. (b) Deed of Trust. The City Note shall be secured by the City Deed of Trust encumbering the Property, which shall be junior and subordinate to the liens securing the Bond Loan, the TCAC Regulatory Agreement, the Bond Regulatory Agreement and the Affordable Housing Agreement. The City Deed of Trust shall further provide that the occurrence of any default pursuant to Section 8.1 of this Agreement shall constitute a "default" or "event of default" under such Deed of Trust. 6 7-22 Landings II Loan Agreement (c) Execution and Recordation. Prior to the close of escrow for the Borrower's acquisition of the Property, Borrower shall execute, acknowledge, and deliver to City the City Note and the City Deed of Trust. The City Deed of Trust shall be recorded with the Office of the San Diego County Recorder in accordance with City's instructions to escro,v. Borrower shall be responsible for any and all of City's escrow, title and recording costs arising in connection with the City Loan, such costs to be paid by Borrower through escrow. (d) Additional Security. Borrower shall execute and deliver to City such separate security agreements, UCC-l fmancing statements, consents or certificates, assignments and other documents or instruments as City may require (the "Security Agreement") and reflecting security interests in the personalty used in connection with the operation of the Property as City may require. In addition thereto, Borrower shall execute and deliver such security agreements, and the like, as required by City in connection with the Deed of Trust. Specifically, Borrower agrees that any notice of default and/or copy of any notice of sale ",ill be mailed to City in compliance with Section 2924b of the California Civil Code. Section 2.5 Disbursement. (a) Disbursement at Closing. Upon the removal and approval of all contingencies by the City, as required under the terms of Section 2.12 of this Agreement and upon the acquisition of the Property, the City shall deposit ninety percent (90%) of the principal amount of the City Loan with Construction Lender, which shall be held and disbursed in accordance with the Construction Loan documents approved by the City. (b) Submission of Draw Requests. During construction, Borrower shall submit to Construction Lender written draw requests supported by such back up documentation as Construction Lender and/or the Construction Loan documents require and Borrower shall provide a copy of the same to the City. (d), Approval of Draw Requests. Construction Lender shall inspect the work to determine its completion and shall thereafter approve, approve in part, or disapprove such draw request in accordance with the written requirements of the Construction Loan documents. Construction Lender and/or Borrower shall provide copies of any and all construction inspector's reports and copies of all wire transfer confirmations with respect to Construction Loan and/or City Loan disbursements. (e) Limit on Effect of Approval. Review and/or approval of any work by the Construction Lender, disbursement or monies pursuant to a draw request, or any City review and/or approval of the Construction Loan documents and/or work shall be understood to be general review and/or approval only, and shall not relieve Borrower of the responsibility to design, engineer, and construct the Improvements in accordance with all applicable laws, codes, regulations, and good design, construction, and engineering practice. Any deficiencies or defects shall be corrected at Borrower's cost and expense and without any cost to the City. (f) Disbursements Conditioned on Lien Releases. Disbursements of approved draws by Construction Lender shall be conditioned upon Construction Lender's receipt of evidence of Landings II Loan Agreement 7. 7-23 Borrower's use of a lien release as required by the Construction Loan documents for payments or disbursements. (g) Final 10%. Ten percent (10%) of the City Loan, $240,000.00, shall be withheld and shall not be funded, regardless of expenditures and draw requests, unless and until a certificate of occupancy for all one hundred forty three (143) dwelling units to be constructed at the Property has been issued. Section 2.6 Repavment. (a) Payments under the City Loan shall be made as follows: Commencing on the Initial Payment Date (defined below), payment of principal and interest on the City Note shall be made, on an annual basis, in an amount equal to the City's proportionate share of the Residual Receipts (defined below) for the previous calendar year. Residual Receipts shall be calculated by Borrower each and every year commencing with the first anniversary of the issuance of the final Certificate of Occupancy by the City. The fifty percent (50%) Residual Receipts payments, if any, shall be made on or before thirty (30) days after the later of (i) the first year anniversary of the issuance of the Certificate of Occupancy by the City or (ii) the first year anniversary of the date on which the Deferred Development Fee, if any, has been paid in full (the "Initial Payment Date"), and on or before 30 days after each subsequent yearly anniversary of the Initial Payment Date. (b) "Residual Receipts" is specifically defined as the "Gross Revenue" (as detmed below) from the Project minus the "Reasonable Operating Expenses" (as defined below) for the same period. (1) "Gross Revenue" shall mean all revenue, income, receipts, and other consideration actually received from operation and leasing of the Project. Gross Revenue shall include, but not be limited to: all rents, fees and charges paid by tenants, Section 8 payments or other rental subsidy payments received for the dwelling units, all cancellation fees; proceeds from vending and laundry room machines; the proceeds of business interruption or similar insurance to the extent not applied to the Bond Loan; the proceeds of casualty insurance to the extent not utilized to repair or rebuild the Project or applied to the Bond Loan; and condemnation awards for a taking of part or all of the Project for a temporary period to the extent not applied to the Bond Loan or used to repair or restore the Project. Gross Revenue shall not include tenants' security deposits, loan proceeds, capital contributions or similar advances or payments from reserve funds. (2) "Reasonable Operating Expenses" shall include any and all reasonable and actually incurred costs associated with the ownership, operation, use or maintenance of the Property, calculated in accordance with generally accepted accounting principles. Such expenses may include, without limitation, property and other ta.xes and assessments imposed on the Project; premiums for property damage, liability and business interruption insurance; utilities not directly paid for by the tenants including, without limitation, water, sewer, trash collection, gas and electricity, maintenance and repairs including, \Vithout limitation, pest control, landscaping and grounds maintenance, painting and decorating, cleaning, general repairs, and supplies; tenant relocation costs and expenses; license fees or certificate of occupancy fees required for operation 8 7-24 Landings II Loan Agreement of the Project; general administrative expenses directly attributable to the Property including, without limitation, advenising and marketing, security services and systems, and professional fees for legal, audit and accounting; property management fees and reimbursements including on-site manager and assistance manager expenses; any fees and distributions payable to Borrower's Investor Limited Partner pursuant to thy Partnership Agreement, including but not limited to the Cumulative Priority Distribution, as such terms are defined in the Partnership Agreement, debt service on any loan made to the Borrower by any partner of the Borrower to cover operating expenses; a reasonable property management fee, cash deposited into a reserve for capital replacements of the Project improvements and an operating reserve (and such other reserve accounts required with respect to the Bond Loan) in such amounts as are required by the Bond Issuer/Lender and as may be reasonably required by Project equity investors; tenant services costs; debt service payments on all senior debt (excluding debt service due to City from Residual Receipts of the Project) on fmancing for the Project; reasonable supplemental management fees; and payment of the Deferred Development Fee. In no event shall expenditures, including attorneys' fees or litigation costs, normally required to be paid out of the Replacement Reserve, be treated as Reasonable Operating Expenses unless specifically approved in writing by the City. For purposes of the foregoing definition of "Reasonable Operating Expenses," any propeny management fee or partnership management fee which is paid to Borrower or an affiliate of Borrower shall at no time exceed an amount as is customary and standard for affordable housing projects similar in size, scope and character to the Project. Nomithstanding the foregoing, for purposes of this calculation, Reasonable Operating Expenses shall not include the following: principal and interest payments on any debt subordinate to the City Note (except debt service on loans made to the Borrower by a partner to cover operating expenses, as provided above), depreciation, amortization, depletion or other non-cash expenses, incentive partnership asset management fees payable to the Borrower or its affiliate (other than the supplemental management fee described above), or any amount expended from a reserve account. In the event that any of the above costs is incurred partially with respect to the Project, the parties shall mutually agree upon an allocable portion of such costs which shall be deemed Reasonable Operating Expenses of the Project for the purposes of this Agreement. (c) The fifty percent (50%) of Residual Receipts remaining after the annual Residual Receipts payments on the City Note may be retained and used by Borrower in Borrower's sole discretion. (d) Except as otherwise expressly provided hereunder, Borrower's obligation to repay the City Loan shall be limited to Borrower's annual payment, until the City Loan is repaid in full, of fifty percent (50%) of the Residual Receipts as described above, to be applied to the payment of the City Loan for a period from the completion of the Project until the date which is fifty-five (55) years following the date of the City's issuance of the final Certificate of Occupancy for the Project (but in no event later than sixty (60) years from the date of execution of the City Note) (the "Conditional Maturity Date"). Upon the Conditional Maturity Date, City shall have the option, at any time, in its sole discretion, but after good faith discussions with Borrower as to available options, upon ninety (90) days' written notice to Borrower, to (a) declare the remaining balance of all amounts owed under the City Note immediately due and payable, or (b) to require installment payments under the City Note based upon (i) a restated principal balance comprised, in the aggregate, of any and all outstanding principal and interest Landings IT Loan Agreement 9 7-25 under the City Note existing as of the date of its election, (ii) a prospective fIxed interest rate per annum equal to the prime rate then in effect for Bank of America, San Diego offIce, or such other rate mutually agreed to by the City and Borrower, and (iii) monthly installments of principal and interest paid over the course of an amortization schedule to be determined by the City in its sole discretion, not to be less than ten (10) years. In the event that City elects repayment approach (b), Borrower agrees to execute an amendment to the Note in favor of City reflecting the amended repayment terms described above. ee) Notwithstanding the foregoing, in the event that Borrower, or any successors thereto, is in default under this Agreement pursuant to Section 8.1 hereof, the City shall have the right in its sole discretion, to declare immediately due and payable all outstanding principal, interest and other sums due under the City Note, or to pursue any and all other remedies provided herein, under the City Note, City Deed of Trust, or the Affordable Housing Agreement, or as otherwise provided at law or in equity. Section 2.7 Prepavrnent: Borrower may prepay the principal and interest due under the City Note in whole or in part at any time and from time to time, without notice or penalty. Any prepayment shall be allocated fIrst to unpaid interest and then to principal. Borrower acknowledges that prepayment of the City Loan shall not in any manner affect any obligation or restriction related to maintaining the units as "Affordable Units" during the fIfty-five (55) year term. Section 2.8 Assumption: In the event the Project is sold or transferred as approved by the City or otherwise permitted pursuant to Section 7.10 hereof, the City Loan shall be fully assumable by the approved or permitted transferee. Section 2.9 Unsecured Environmental Indemnitv. Borrower shall enter into an Unsecured Environmental Indemnity Agreement, as approved by City, in favor of City and shall name City and its Redevelopment Agency as named additional insureds on its insurance policies. Said policies shall be acceptable to the City's Director of Development Services and shall insure against any and all losses which may occur as a result of problems, claims, work, and the like associated with the construction of the Improvements. Section 2.10 Lien Priority. Title Insurance. As a condition to the obligations of City to fund the City Loan, there shall be no liens or encumbrances upon the Property having priority over the City Deed of Trust, other than: (a) the deed of trust securing the Bond Loan (b) the Affordable Housing Agreement; (c) the Bond Regulatory Agreement; Cd) the TCAC Regulatory Agreement and (e) those existing non-monetary encumbrances which are disclosed in title reports delivered to City and which have not been objected to by the City in writing. Such priority shall be evidenced by an AL T A lender's insurance policy, including title endorsements reasonably requested by the City with liability equal to the amount of the City Loan, or such other amount as may be mutually agreed to by the parties (the "Lender's Policy") to be issued to City by Borrower to Title Insurer at the close of escrow for the Borrower's acquisition of the Property. Borrower shall be responsible for the cost of the Lender's Policy, which may be paid for from the proceeds of the City Loan. Landings II Loan Agreement 10 7-26 Section 2.11 Subordination: Refinancing. City agrees to take such actions as may be necessary to subordinate the City Deed of Trust to the Bond Loan or any future refmancing(s) thereof; provided, however, that any such subordination to the Bond Loan shall be evidenced by a recorded subordination agreement containing such notice, cure, loan purchase or assumption and Project purchase rights as may be reasonably required by the City in a form to be approved by the City Attorney, which approval shall not be unreasonably withheld or delayed. In no event, shall the City be required to subordinate to debt in excess of that referenced within this Agreement as being senior to the City Deed of Trust. Section 2.12 Conditions to City Obligation. The obligation of City to make and fund the City Loan is subject to the following conditions: (a) This Agreement, the City Note, Deed of Trust, the Declaration, and this Agreement, fully executed by Borrower, shall have been delivered to City and/or its designee along with all other fully executed security documents and instruments provided for herein and/or as required by City and shall have submitted the same into the escrow established for the Borrower's acquisition of the Property. The City Deed of Trust and the Declaration shall be ready to be recorded concurrently with the recording of the grant deed conveying title to the Property to the Borrower as an encumbrance to the Property, subordinate only to the liens securing the Bonds, the Bond Regulatory Agreement and other non monetary encumbrances approved by the City. (b) Borrower shall have acquired fee title to the Property concurrently with the first disbursement of the City Loan. ( c) Borrower has provided and delivered to City at Borrower's sole expense a standard Form AL T A, Lender's Policy of Title Insurance, insuring City's security interest in the Property under the Deed of Trust and in an amount equal to the loan amount set forth in Section 2.2; (d) Legal counsel representing Borrower shall have delivered to City a legal opinion satisfactory in all respects to the City Manager in his/her sole discretion, opining that this Agreement, the City Note, the Declaration, the Deed of Trust and the Security Agreement represent obligations which are valid, binding upon and enforceable against Borrower (subject to (D bankruptcy, insolvency or other laws affecting creditors' rights generally, (ii) application of principles of equity generally, and (iii) laws of the State of California governing obligations secured by a deed of trust or mortgage); ( e) Borrower's certification at the close of escrow that: (i) the City Loan is wholly for the benefit of Borrower, (ii) Borrower is responsible for all obligations created by the City Loan including, without limitation, the repayment of all principal and interest now due and payable or which may become due and payable on the terms and conditions of this Agreement, the City Note, the Deed of Trust, and any other security documents and instruments provided for herein; Landings II Loan Agreement 11 7-27 (f) Borrower's certification at the close of escrow that Borrower shall use the City Loan funds solely for and in connection with the construction and permanent fmancing of the Property and Improvements; (g) Borrower shall have strictly complied with, and performed, all terms and conditions of the documents executed by Borrower in connection with the City Loan; (h) Borrower shall have obtained final funding commitments for the funding of the funds referenced in the Recitals, necessary to complete the Improvements, to the satisfaction of the City; (i) City's approval ofloan documentation for the City Loan; (j) City's approval of Borrower's partnership agreement; (k) City's approval of an ALTA survey of the Property; (I) Borrower has paid or caused to be funded an amount into escrow, which is sufficient to pay for all costs associated with such escrow, including without limitation title fees, escrow fees and closing costs; (m) City's review and approval, in its reasonable discretion, any and all fmancing documents, to be executed by or otherwise to be binding upon City or Borrower in connection with its acquisition of the Property, its construction and operation of the Project and/or its financing thereof including without limitation the Construction Loan and Permanent Loan documents; (n) A construction contract for a stipulated sum for the work at the Property, acceptable to the City's Development Services Director, shall have been executed by the Borrower and the general contractor who has been selected to do the work; (0) To the best of Borrower's knowledge, there are no actions, suits, material claims, legal proceedings, or any other proceedings affecting the Borrower or any parties affiliated ""ith the Borrower, at law or in equity before any court, tribunal, government entity, domestic or foreign, which, if adversely determined, would materially impair the right or ability of Borrower to execute or perform its obligations under this Agreement or any documents required hereby to be executed by Borrower, or which would materially adversely affect the financial condition of the Borrower or any parties affiliated with the Borrower. (P) To the best of Borrower's knowledge, Borrower's execution, delivery, and performance of its obligations under this Agreement will not constitute a default or breach of any contract, agreement, or order to which Borrower or any parties affiliated with Borrower is a party or by which it is bound. (q) No attachment, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization, receivership or other proceedings have been filed or are 12 7-28 Landings II Loan Agreement pending or threatened against the Borrower or any parties affiliated with Borrower, nor are any of such proceedings contemplated by Borrower or any parties affiliated with Borrower. (r) Borrower shall, upon learning of any fact or condition, which would cause any warranties or representations herein not to be true in any material respect, immediately give written notice of such fact or condition to City; and (s) Such other conditions as City shall reasonably request. Section 2.13 Reports and Accounting of Residual Receipts. (a) In connection "vith the annual repayment of the City Loan, commencing upon the Initial Payment Date, the Borrower shall furnish the City with an audited statement duly certified by an independent firm of certified public accountants approved by the City, setting forth in reasonable detail the 'computation, as may be defmed in the City Note, and amount of Residual Receipts during the preceding calendar year. (b) The Borrower shall keep and maintain, in accordance with Section 9.4 hereof, full, complete and appropriate books, records and accounts necessary or prudent to evidence and substantiate in full detail Borrower's calculation of Residual Receipts. All such books, records, and accounts shall be open to and available for inspection by the City, and its auditors or other authorized representatives in accordance with Section 9.4 hereof. (c) Such other and further records and documentation as may be required by the City in its reasonable discretion to verify the amount of the Residual Receipts. ARTICLE 3. HOME Requirements Section 3.1 Requirements. Because the source of the City Loan is funds to be obtained by City from HUD pursuant to the federal government's HOi'vIE Program, Borrower is required to construct and operate the entire Project in compliance with all requirements of the HONIE Program and the HONIE Regulations (24 C.F.R. 92 et seq.) as said regulations may be amended or suspended from time to time, whether or not such requirements are set forth in this Agreement. Section 3.2 Not by way of limitation the foregoing, in compliance with 24 C.F.R 92.504(c), from the Effective Date of this Agreement through the end of the term that the HOi'vIE-assisted units are required to remain affordable pursuant to the HONIE Regulations, Borrower and Developer, as the general partner of the Borrower, shall comply with all of the following requirements: (a) Use of the HOME Funds. HOtvIE funds shall be used only for eligible costs (see, e.g., 24 C.F.R. 92.20, 92.214); all pre-construction and construction activities shall be completed within times referenced in the Schedule of Performance attached hereto, as said times may be extended in accordance \';ith HUD Regulations. Landings II Loan Agreement 13 7-29 (b) Affordabilitv. The HOME-assisted units shall meet the affordability requirements of the HO!'vIE Regulations (24 C.F.R. 92.252), the TCAC Regulatory Agreement (as defined below) or this Agreement or the Bond Regulatory Agreement, whichever is more restrictive. (c) Proiect Requirements. Borrower shall comply with all project requirements set forth in CFR 92. (the HOME Regulations), as applicable in accordance with the type of project assisted, or with the provision of this Agreement, whichever requirements are most restrictive. (d) Housing Oualitv Standard. Borrower shall maintain HOME-assisted units in compliance with applicable Housing Quality Standards and local housing code requirements or the provisions of this Agreement, whichever requirements are more restrictive. (e) Affirmative Marketing. Borrower shall perform those affirmative marketing responsibilities set forth in 24 C.F.R. 92.351 or in the marketing plan described in this Agreement, whichever are more restrictive. (f) Records and Reoorts. In addition to the other provisions of this Agreement, including without limitation Section 2.13 (b )hereof, Borrower shall provide to City all records and reports relating to the Project that may be reasonably requested by City in order to enable it to perform its record keeping and reporting obligations pursuant to Section 92.508 and 92.509 of the HOME Regulations. (g) Enforcement Agreement. In addition to the other provisions set forth herein, City shall have the authority to enforce Borrower's obligation to comply with the HOME Investment Partnership Act Program and the HOME regulations as set forth in this Agreement. (h) Duration of Covenants Regarding HOME-Assisted Units. In accordance with the applicable requirements of 24 Part 92, concerning the term of affordability, the HOME Regulations shall remain in full force and effect for a term of twenty (20) years measured from the effective date of the Declaration, which shall commence upon the timely completion of the Project and timely lease up of the Project as required under the provisions of the TCAC Regulatory Agreement. As used herein, the term of this Agreement shall be the twenty-year term of the affordability restrictions. (i) Housing Oualitv Standards. Borrower represents and warrants that, to the extent the Project assists eligible tenants, that said housing shall be maintained, at all times during the term of the Agreement, in complete compliance with all housing quality standards contained within 24 CFR 92.251. Further, in any housing that is newly constructed or substantially rehabilitated as a result of this Project, Borrower warrants that all construction shall meet or exceed the applicable local codes and construction standards, including zoning and building codes of the City of Chula Vista as well as the provisions of the Model Energy Code published by the County of American Building Officials. Borrower hereby consents to periodic inspection by City's designated inspectors and/or designees during regular business hours, including the Code Enforcement Agents of the City of Chula Vista, to assure compliance with said zoning, building codes, regulations, and housing quality standards. Borrower agrees to comply with the provisions of 24 CFR 92.251, whether or not contained in this Section. 14 7-30 Landings II Loan Agreement G) Limitation of Use of Funds for Religious Purposes. Borrower represents and warrants that it will fully comply with any and all requirements and limitations contained in 24 CFR 92.257, as amended, from time to time. Borrower further represents, warrants and agrees that Project funds will not be used for any purpose proscribed in 24 CFR 92.257, as amended. (k) AnDroval of City Disclosure Statement. This Agreement is subject to approval by the Housing Manager of an executed disclosure statement of Borrower showing the absence of any prohibited conflicts of interest as required by federal law. City's Housing Manager may, in hislher sole discretion, disapprove of said disclosure statement on or before recordation of the Deed of Trust. In the event of such disapproval, this Agreement shall be terminated and of no further force and effect. (I) Administrative Requirements. Borrower shall strictly comply with the administrative requirements contained within 24 CFR Section 92.505, including, but not limited to, the requirements of OMB Circular No. A-87 and the requirements of24 CFR Part 85, Section 85.6, 85.12, 85.20, 85.22, 85.26, 85.32, 85.33, 85.34, 85.36, 85.44, 85.51, and 85.52. Further, Borrower covenants (if it is a nonprofit organization) to comply with the OMB Circular No. A- 122 and the applicable provisions of OMB Circular No. A-110. Copies of said OMB Circulars are on file in the offices of City and are available for inspection and copying by Borrower. Borrower further agrees that should the administrative requirements contained in Section 92.505 be amended and/or changed from time to time by BUD, that Borrower will comply with the terms and conditions of such changed and/or amended administrative requirements. (m) Records and Reports. Borrower shall supply City, annually, on July 1st of each year during the term of this Agreement, v.ith such records and reports as are required and are requested by City to aid it in complying with the reports and record keeping provisions, terms and conditions of 24 CFR 92.508 and 92.509, as amended from time to time, and any and all other requirements of this Agreement. The records and reports include, but are not lin1ited to the following: (1) Amount of funds expended pursuant to this Agreement; (2) Eligible Tenant information, including yearly income verifications; (3) Housing payments charged to resident tenants, to the extent applicable; (4) On-site inspection results; (5) Affirmative marketing records; (6) Insurance policies and notices; (7) Equal Employment Opportunity and Fair Housing records; (8) Labor costs and records; (9) An audited income and expense statement and balance sheets for Borrower; (10) An audited income and expense statement and balance sheets for the Proj ect; (11) A Management Plan for the calendar year in which the report is prepared showing anticipated rental income, other income, expenses, anticipated repairs and replacements Landiilgs II Loan Agreement 15 7-31 to the Project, timing of such repairs and replacements, insurance maintained on behalf of the Project, and such other matters as City shall require, in its sole discretion; (12) Federal and State income tax returns for the calendar year, ending on the preceding December 31 st; (13) Annual analysis of reserves for repair and replacement; (14) Annual certification and representation regarding status of all loans, encumbrances and taxes; (15) Annual statement regarding condition of the Property and disclosing any known defects; (16) An OMB A-133 financial audit; (17) A report or reports, certifying compliance with the terms and provisions of the Section 3 requirements, as set forth in this Agreement and certifying compliance with the provisions of federal law as it relates to Section 3, whether or not specifically set forth herein; and, (18) Such other and further information and records as City andlor HuD shall request in writing from Borrower. [NOTE: As to items (12), (13), and (14), drafts may be initially submitted if the final documents are not available at the stated deadline(s). However, final documents must be submitted when available.] Time is of the essence in supplying each and every report required to be supplied to City. The parties agree that a fee of $25.00 per day shall be paid by Borrower to City for each day that each report is delinquent. The parties agree that multiple fees may be charged at anyone time, depending upon the number of report(s) andlor information that is delinquent. The parties agree that a fee of $25.00 per day, per report andlor information is a reasonable estimation of the damages that will accrue to City as a result of the failure of Borrower to timely submit the required information andlor reports and that said fees shall be treated as liquidated damages by the parties, in anticipation of the damages that will be incurred by City as a result of a breach by Borrower. The parties further agree that it would be difficult, if not impossible, to determine the exact actual amount of damages suffered by City in the event of a breach by Borrower in the reporting requirements of this Agreement. Notwithstanding the foregoing or anything to the contrary contained herein, City shall give Borrower prior written notice of any report andlor information that Borrower has failed to provide City pursuant to this Section and Borrower shall have thirty (30) days to provide such report andlor information to City prior to the assessment of any liquidated damages. (n) Monitoring of Proiect Activities. Borrower agrees to allow City, upon such prior INritten notice and during regular business hours, such reasonable access to review and inspect Borrower's activities under this Agreement as City shall require to perform its monitoring duties under the provisions of 24 CFR Part 92, as amended, from time to time. City shall monitor Borrower's activities without liability for said inspection and review. (0) Federal and State Requirements. Borrower represents, warrants and agrees that it will fully comply, during the term of this Agreement, with any and all HOME requirements 16 7-32 Landings II Loan Agreement including, but not limited to the requirements of 24 CFR Part 92, 24 CFR Section 92.351 (AJnrmative Marketing), 92.352 (Environmental Review), 92.353 (Displacement, Relocation and Acquisition Residential, Antidisplacement and Relocation Plan), 92.354 (Labor), 92.356 (Conflict of Interest), and 92.358 (Flood Insurance). Borrower further warrants, represents and agrees that should said Program requirements be changed by HlJD, from time to time, that Borrower will comply with said changed and amended regulations. Borrower, the general contractor, and any and all subcontractors, shall pay prevailing wages for all work done ",ith respect to the Project to the extent required by Federal and California law. (P) Affirmative Marketing. Borrower shall, at all times during the term of this Agreement, comply ",ith all of the provisions of Section 24 CFR 92.351 and the affmative marketing procedures adopted by City, including, but not limited to, all requirements and procedures referenced in said Section 24 CFR Q2.35 1 (b), amended from time to time. Borrower shall maintain records to verify compliance with the applicable affmative marketing procedures and compliance. Such records are subject to fuspection by City during regular business hours upon written notice from the City to Borrower. (q) Equal Opportunity and Fair Housing Programs. During the term of this Agreement, Borrower agrees as follows: (1) Borrower will not discriminate against any employee, person, or applicant for employment and/or housing because of race, age, sexual orientation, marital status, color, religion, sex, handicap, or national origin. Borrower ,vill take affirmative action to ensure that applicants are employed and/or are housed, and that employees or applicants are treated during employment and/or housing, without regard to their race, age, sexual orientation, marital status, color, religion, sex, handicap, or national origin. Such action shall include, but is not limited to the following: employment, upgrading, demotion, or termination; rates of payor other forms of compensation; and selection for training, including apprenticeship. Borrower agrees to post in conspicuous places, available to employees and applicants for employment, notices to be provided by City setting forth the provisions of this nondiscrimination clause. (2) Borrower will, in all solicitations or advertisements for employees and housing placed by on or behalf of Borrower, state. that all qualified applicants ",ill receive consideration for employment without regard to race, age, sexual orientation, marital status, color, religion, sex, handicap, or national origin. (3) Borrower will cause the foregoing prOVISIOns to be inserted in all subcontracts for any work covered by this Agreement so that such provisions ",ill be binding upon each subcontractor, provided that the foregoing provision shall not apply to contracts or subcontracts for standard commercial supplies of raw materials. (4) Borrower hereby agrees to comply with the Title VII of the Civil Rights Act of 1964, as amended, the California Fair Employment Practices Act, and any other applicable Federal and State laws and regulations. City will provide technical assistance and copies of the referenced programs upon request. 24 CFR Section 92.350. Landings II Loan Agreement 17 7-33 (5) All activities carried out by Borrower and/or agents of Borrower shall be in accordance with the requirements of the Federal Fair Housing Act. The Fair Housing Amendments Act of 1988 became effective on March 12, 1989. The Fair Housing Amendments Act of 1988 and Title VIII of the Civil Rights Act of 1968, taken together, constitute The Fair Housing Act. The Act provides protection against the following discriminatory housing practices if they are based on race, sex, religion, color, handicap, familial status, or national origin: denying or refusing to rent housing, denying or refusing to sell housing, treating differently applicants for housing, treating residents differently in connection with terms and conditions, advertising a discriminatory housing preference or limitation, providing false information about the availability of housing, harassing, coercing or intimidating people from enjoying or exercising their rights under the Act, blockbusting for profit, persuading owner to sell or rent housing by telling them that people of a particular race, religion, etc. are moving into the neighborhood, imposing different terms for loans for purchasing, constructing, improving, repairing, or maintaining a home, or loans secured by housing; denying use or participation in real estate services, e.g., brokers' organizations, multiple listing services, etc. (6) The Fair Housing Act gives HUD the authority to hold administrative hearings unless one of the parties elects to have the case heard in U.S. District Court and to issue subpoenas. Both civil and criminal penalties are provided. The Act also provides protection for people with disabilities, and proscribes those conditions under which senior citizen housing is exempt from the prohibitions based on familial status. All activities carried out by the Borrower and/or agents of Borrower shall be in accordance with the following provisions of Califomia Law: Fair Employment and Housing Act, Unruh Civil Rights Act of 1959, Ralph Civil Rights Act of 1976, and Civil Code Section 54.1. (r) Labor Requirements. Borrower represents and warrants that during the term of this Agreement it will comply with each and every provision and requirement contained within CFR 92.354, as amended from time to time, to the extent applicable, and will pay not less than the wages prevailing in the locality, as predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act (40 U.S.C. 276a-276a-5), to all laborers and mechanics employed in the development of any part of the Project in accordance with the terms and provisions of CFR 92.354 and will comply with the overtime provisions, as applicable, of the Contract Work Hours and Safety Standards Act (40 U.S.C. 327-332). Prevailing wages need not be paid to "Volunteers" or for "Sweat Equity" as defined in 24 CFR 92.354(b) and (c). Furthermore, Borrower. the general contractor, and any and all subcontractors, shall pay prevailing wages for all work done with respect to the Project to the extent required by Federal and California law. (s) Lead Based Paint. Borrower represents and warrants that during the term of the Agreement that it will comply with each and every provision and requirement contained within CFR 92.355, as amended from time to time, to the extent applicable. (t) Certification Concerning Debarment and Suspension. Borrower represents, warrants and hereby certifies, pursuant to 24 CFR 92.357, that it will not use a contractor that has 18 7-34 Landings II Loan Agreement been debarred and or suspended, nor that is proposed for debaTInent, declared ineligible or voluntarily excluded from participation in the Project, which is the subject matter of this Agreement. Borrower agrees to execute such further certification(s) required by City and/or BUD including, if necessary, that certification included as Appendix B of CFR Part 24, to verify the certification made in this Section. (u) Flood Insurance. Borrower represents, warrants, and certifies, pursuant to 24 CFR 92.358, that no Real Property which is the subject of this Agreement, is located within a Flood Plain or Flood Hazard Zone or Area, as indicated on a FEMA Map; or that the Real Property is located within a community participating in the National Flood Insurance Program and Borrower agrees to purchase and maintain flood insurance for the duration of the term of this Agreement concerning such Real Property. (v) Fire Protection and Safety Guards. Borrower represents and warrants that it will comply with all requirements and regulations of the Fire Administration Act of 1992 and the Federal Fire and Prevention Control Act. Borrower will use and install all fire and safety related equipment pursuant to the National Fire Protection Association standards. (w) Accessibility Standards. Borrower represents and warrants that it v,ill comply with all federal, state and local requirements and regulations concerning access to the units by the disabled and handicapped persons, including, but not limited to, those requirements of the HOME Program. (x) Section 3 Requirements. Borrower shall comply with the following requirements during the term of the City Loan: (l) The work to be performed under this Agreement is subj ect to the requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.c. Sl701u (Section 3). The purpose of Section 3 is to ensure that employment and other economic opportunities generated by HUD assistance or BUD-assisted projects covered by Section 3, shall, to the greatest extent feasible, be directed to low- and very low-income persons, particularly persons who are recipients of HUD assistance for housing. (2) The parties to this Agreement agree to comply with BUD's regulations in 24 CFR part 135, which implement Section 3. As evidenced by their execution of this Agreement, the parties to this Agreement certify that they are under no contractual or other impediment that would prevent them from complying with the part 135 regulations. (3) Borrower agrees to send to each labor organization or representative of workers with which Borrower has a collective bargaining agreement or other understanding, if any, a notice advising the labor organization or workers' representative of Borrower's commitments under this Section 3 clause, and will post copies of the notice in conspicuous places at the work site where both employees and applicants for training and employment positions can see the notice. The notice shall describe the Section 3 preference, shall set forth minimum number and job titles subject to hire, availability of apprenticeship and training Landings II Loan Agreement 19 7-35 posltIOns, and qualifications for each; and the name and location of the person(s) taking applications for each of the positions; and the anticipated date the work shall begin. (4) Borrower agrees to include this Section 3 clause in every subcontract subject to compliance with regulations in 24 CFR part 135, and agrees to take appropriate action, as provided in an applicable provision of the subcontract or in this Section 3 clause, upon a finding that the subcontractor is in violation of the regulations in 24 CFR part 135. Borrower will not subcontract ""ith any subcontractor where Borrower has notice or knowledge that the subcontractor has been found in violation of the regulations in 24 CFR part 135. (5) Borrower will certify that any vacant employment positions, including trammg positIOns, that are filled (1) after Borrower is selected but before the contract is executed, and (2) with persons other than those to whom the regulations of 24 CFR part 135 require employment opportunities to be directed, were not filled to circumvent Borrower's obligations under 24 CFR part 135. (6) Noncompliance ""ith BUD's regulations in 24 CFR part 135 may result in sanctions, termination of this Agreement for default, and debarment or suspension from future BUD assisted contracts. (y) Drug Free Workolace. Borrower shall comply with all applicable State and Federal rules, laws and regulations to ensure a drug free workplace at all times during the term of this Agreement. Further, Borrower shall incorporate such federal provisions as are required in each contract or subcontract that it enters into in connection with the Project. (z) Lobbving Prohibition. Borrower hereby certifies to City, under penalty of perjury, under the terms of applicable federal law, that at all applicable times before, during and after the term of the Agreement, that: (1) No Federal appropriated funds have been paid or will be paid, by or on behalf of it, to any person for influencing or attempting to influence an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan or cooperative agreement; (2) If any funds other than Federal appropriated funds have been paid to any person for influencing or attempting to influence an officer or employee of any City, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with this Federal contract, grant, loan or cooperative agreement, it will complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions; (3) Borrower will require that the above stated language be included in the award documents for all subawards at all tiers, including subcontracts, subgrants, loans, contracts, and cooperative agreements concerning the subject matter of this Agreement; and, Landings II Loan Agreement 20 7-36 (4) Further, Borrower and all subrecipients, at all times, shall certifY compliance with the provisions of 31 U.S.c. S 1352 and any and all terms and conditions of the Byrd Anti-Lobbying Amendment, as amended from time to time. ARTICLE 4. Development Fee Section 4.1 Development Fee. The Developer is entitled to a development fees which may include general overhead and profit, the amount of such development fee shall in no event be greater than the maximum amount permitted pursuant to the Low Income Housing Tax Credit statutes and regulations (the "Development Fee"). It is anticipated that a portion of the Development Fee shall be paid by Borrowet from additional capital contributions to be made by Borrower's Limited Partner pursuant to the terms of the Partnership Agreement, with the balance of the Development Fee (the "Deferred Development Fee") to be paid from the Gross Revenue of the Project and equity contributions to Borrower made after the closing. The Borrower's obligation to pay the Deferred Development Fee shall be evidenced by a promissory note (the "Deferred Development Fee Note") which shall be unsecured. In the event there are any cost savings realized in the construction of the Project, all available funds attributable to such cost savings shall also be applied to the Deferred Development Fee. Regular payments on the . Deferred Development Fee Note shall be made on an annual basis out of the Gross Revenues of the Project. Such amounts shall be paid to Developer on a priority basis to all other debt service on the Property except for the Bond Loan. Developer shall specifically be entitled to payment of the Deferred Development Fee before payment of the amounts due to City pursuant to the City Note. The Deferred Development Fee shall not be secured by any liens upon the property. ARTICLE 5. Development of the Project Section 5.1 Work to be Performed and Completion. Borrower, following recordation of the Deed of Trust and the consummation of the loan; will promptly commence construction of improvements to the Properry so that it consists of a multi-family residential project consisting of 143 units, and to operate the Project for occupancy by very low and low income households, subject to the terms of this Agreement and incorporated herein, the Bond Loan Documents, the . Affordable Housing Agreement, and the TCAC Regulatory Agreement. Construction will continue diligently and v.ithout delay, in a good and workmanlike manner. Borrower will complete such improvements in accordance with the plans and specifications approved by City in connection with issuance of the building permit(s) ("Plans and Specifications"), including any additional specifications prescribed by City, and in compliance v.ith all requirements of governmental authorities having or asserting jurisdiction. Said construction shall be completed on or before December 31, 2011, as referenced in Section 5.9 of this Agreement. Section 5.2 No Material Changes. Borrower shall not make any changes in the Plans and Specifications without City's prior written consent (which consent will not be unreasonably conditioned, delayed or withheld) if such change: (i) constitutes a material change in the building material or equipment specifications, or in the architectural or structural design, value or quality of the Project; or (ii) would adversely affect the structural integrity, quality of building materials, or overall efficiency of operating systems of the Project. Without limiting the above, City agrees that Borrower may make minor changes in the Plans and Specifications without City's prior Landings U Loan Agreement 21 7-37 written consent, provided that such changes do not violate any of the conditions specified herein. Borrower shall at all times maintain, for inspection by City, a full set of working drawings of the Improvements. Section 5.3 Submission of Documents Related to Chan2:es. Borrower shall submit any proposed change to the Plans and Specifications to the City at least ten (10) days prior to the commencement of construction relating to such proposed change whether or not such change is subject to City's consent. Requests for any change that requires consent shall be accompanied by working drawings and a written description of the proposed change, submitted on a change order form acceptable to City, signed by Borrower and, if required by City, also signed by the architect and the contractor. Section 5.4 Compliance with Permits and Laws. Borrower and its contractors shall carry out the development of the Project and operation of the Project in conformity with all applicable laws, regulations, and rules of the govemmental agencies having jurisdiction, including without limitation all legally applicable conditions and requirements of California Community Redevelopment Law (Health and Safety Code, Division 24); all legally applicable prevailing wage requirements, if any, the applicability of which is for Borrower to determine, pursuant to federal and state law, including California Labor Code S 1770 et seq.; all legally applicable conditions and requirements imposed by the Low Income Housing Tax Credit Program; all legally applicable labor standards; the legally applicable provisions of the City zoning and development standards, building, plumbing, mechanical and electrical codes, and all other provisions of the City Municipal Code, and all legally applicable disabled and handicapped access requirements, which may include, without limitation, the Americans With Disabilities Act, 42 U.S.c. Section 12101, et seq., Government Code Section 4450, et seq., Government Code Section 11135, et seq., the Unruh Civil Rights Act, Civil Code Section 51, et seq., and the California Building Standards Code, Health and Safety Code Section 18900, et seq., and City policies adopted pursuant to said federal standard regulations and requirements. The work shall proceed only after procurement of each permit, license, or other authorization that may be required under applicable law by any governmental City having jurisdiction, and the Borrower shall be responsible to the City for procurement and maintenance thereof, as may be required of the Borrower and all entities engaged in work on the Project. Section 5.5 Cessation of Work. Once construction has commenced, it shall be continuously and diligently pursued to completion, and shall not be abandoned for a period of fifteen (15) consecutive business days or more, except when due to causes beyond the control and without the fault of Borrower, as set forth in Section 9.3 of this Agreement. If this occurs, the City may, at its option and without notice, declare Borrower to be in default and exercise its rights hereunder. Section 5.6 Mechanics Liens. Stop Notices. and Notices of Completion. (a) Subject to Borrower's right to contest set forth in Section 7.4 of this Agreement, if any claim or lien is filed against the Project or a stop notice affecting the City Loan is served on the City or any other lender or other third party in connection with the Project, then the Borrower shall, within forty-five (45) days after such filing or service, either pay and fully discharge the 22 7-38 Landings II Loan Agreement lien or stop notice, effect the release of such lien or stop notice by delivering to the City a surety bond in sufficient form and amount, or provide the City with other assurance satisfactory to the City that the claim oflien or stop notice will be paid or discharged. (b) If Borrower fails to discharge any lien, encumbrance, charge, or claim in the manner required in Section 5.6 (a), subject to notice and an opportunity to cure as provided in Section 8.1 hereof, then in addition to any other right or remedy, the City may (but shall be under no obligation to) discharge such lien, encumbrance, charge, or claim at the Borrower's expense. Alternately, the City may require the Borrower to immediately deposit with the City or title company the amount necessary to satisfy such lien or claim and any costs pending resolution thereof. The City shall use such deposit to satisfy any claim or lien that is adversely determined against the Borrower. (c) The Borrower shall tile a valid notice of cessation or notice of completion upon cessation of construction on the Project for a continuous period of thirty (30) days or more, and take all other reasonable steps to forestall the assertion of claims of lien against the Project. The Borrower authorizes the City, but without any obligation, to record any notices of completion or cessation of labor, or any other appropriate notice that the City deems necessary or desirable to protect its interest in the Project. Section 5.7 Rirzht to Access. For the purpose of assuring compliance with this Agreement, during the course of the construction, and prior to the completion of the Project, upon 24 hours notice, except in the event of an emergency when no such notice shall be required, City or its agents shall have the right to enter upon said real property and the Improvements during the period of construction. City shall indemnify, defend, and hold harmless Borrower and Borrower's officers, employees, and agents from any damage caused or liability arising out of the sole negligence or willful misconduct of City or their officers, officials, employees, volunteers, agents, or representatives in their exercise of this right of access; provided that it is understood that City does not by this Section assume any responsibility or liability for a negligent inspection or failure to inspect. Any inspection by City pursuant to this section shall be conducted so as not to interfere or impede the construction or operations of the Project. Section 5.8 Progress Reports. Borrower shall keep City informed of the progress of the construction on the Property and, if requested, shall provide City with monthly written progress reports and meet with City staff as appropriate. If requested, Borrower shall fumish a construction schedule to City indicating completion dates for each portion of work showing progress toward completion of the Project. Section 5.9 Certificate ofOccupancv. All construction of the Improvements, as approved by City, shall be completed by Borrower to the satisfaction of City and "Placed in Service" as that term is used in the Internal Revenue Code, on or before December 31, 2011. Time is of the essence in the completion of the Improvements; failure to comply with these requirements shall constitute a material default under the terms of this Agreement. Completion of the Improvements shall occur upon the filing or the issuance by the building official of the City of Chula Vista of a temporary Certificate of Occupancy for all units at the Property. Landings n Loan Agreement 23 7-39 Section 5.10 Estoppels. At the request of Borrower or any holder of a mortgage or deed of trust, City shall, from time to time and upon the request of Borrower or such holder, timely execute and deliver to Borrower or such holder a written statement of City that no default or breach exists (or would exist with the passage of time, or giving of notice, or both) by Borrower under this Agreement, the City Note, the City Deed of Trust, and/or the Affordable Housing Agreement, if such be the case, and certifying as to whether or not Borrower has at the date of such certification complied with any obligation of Borrower hereunder or under such of those documents as to which such holder may inquire. The form of any estoppel letter shall be prepared by the holder or Borrower. ARTICLE 6. Uses of the Property Section 6.1 Summary. Borrower covenants and agrees for itself and its successors and assigns to its interest in the Property that Borrower and such successors and assigns shall devote the Property to uses consistent with California Community Redevelopment Law, the Bond Loan Documents, the Regulatory Agreement, The TCAC Regulatory Agreement, the Affordable Housing Agreement, the City Deed of Trust, and this Agreement, whichever is most restrictive, for a period ending fifty-five (55) years from the date of the City's issuance of the fmal Certificate of Occupancy for the Project, provided, however, the HOME affordability restrictions shall only be effective for a term of twenty years after their effective date as referenced in the Declaration. City shall be a third-party beneficiary under the Regulatory Agreement, the Bond Regulatory Agreement, and the TCAC Regulatory Agreement. ln addition, the Redevelopment City shall have the authority to enforce any and all of such agreements, in addition, to the right of the City to enforce said agreements, and shall have full authority to enforce any breach or default by Borrower under such agreement in the same marmer as though it were a breach or default hereunder. Without City's prior written consent, which consent shall not be unreasonably withheld, Borrower shall not consent to any amendment of or modification to the TCAC Regulatory Agreement or Bond Regulatory Agreement which (i) shortens the term of the affordability restrictions on the units in the Project to a term of less than fifty-five (55) years after the date of the City's issuance of the fmal Certificate of Occupancy for the Project or (ii) modifies the number of units required to be rented at affordable housing costs to persons of specified incomes; provided, however, that any such amendment shall not modify the Borrower's obligations under this Agreement or the Affordable Housing Agreement. Section 6.2 Affordable Housing. Borrower covenants and agrees for itself and its successors and assigns to its interest in the Property that commencing upon the completion of the Project and continuing thereafter for a period of fifty-five (55) years from the date of the City's issuance of the fmal Certificate of Occupancy for the Project, Borrower and such successors and assigns shall devote one hundred forty two (142) residential units on the Property (hereinafter the "Restricted Units") to its continuous use as affordable rental housing for very low and low income households in accordance with the terms of this Agreement, and one unit may be occupied by the on-site property manager, subject to the occupancy restrictions contained in this Section. Eleven (11) HOME Restricted Units shall be made available to very low income households at or below 50 percent of the Area Median Income ("AMI"), at affordable rents for the twenty (20)year term, as referenced within the Declaration, which shall be in a form and format as approved by the City Attorney, in hislher reasonable discretion. 24 7-40 Landings II Loan Agreement Section 6.3 Execution of Covenants. Conditions and Restrictions. Borrower agrees to execute the Declaration and to cause it to be recorded, assuring compliance \Vith the affordability provisions of this Agreement. Borrower agrees to obtain any and all subordination agreements, if any, necessary to insure that the Declaration is an encumbrance on the Property prior to all other encumbrances, liens and taxes. Such subordinations shall be on terms and conditions acceptable to the City's Director of Development Services in his/her sole discretion. The Declaration shall be binding and enforceable against all heirs, successors and assigns of Borrower. Section 6.4 Cross-Default With the Declaration. Borrower and its successors in interest to the Property shall strictly comply v"ith all of the terms and conditions of the Declaration. Any default under the Declaration shall be a default under this Agreement, the City Note and the Deed of Trust. Section 6.5 Reports. Borrower, at its expense, shall submit, or cause tt'1e Property Manager to submit, to the appropriate entities any and all reports required to be submitted pursuant to Federal Regulations. Section 6.6 Subordination of Affordabilitv Covenants. In the event that the City finds that an economically feasible method of fmancing for the construction and operation of the Project, without the subordination of the affordable housing covenants as may be set forth in this Agreement, is not reasonably available, the City shall make the affordable housing covenants set forth in this Agreement junior and subordinate to the deeds of trust and other documents required in connection with the construction and permanent financing for the Project approved pursuant to this Agreement. Any other subordination agreement entered into by the City shall contain written commitments which the City finds are reasonably designed to protect City's investment in the event of default, such as any of the following: (a) a right of City to cure a default on the loan prior to foreclosure, (b) a right of City to negotiate with the lender after notice of default from the lender and prior to foreclosure, (c) an agreement that if prior to foreclosure of the loan, City takes title to the property and cures the default on the loan, the lender will not exercise any right it may have to accelerate the loan by reason of the transfer of title to City, and (d) a right of City to reacquire the Property from the Borrower at any time after a material default on the loan. Section 6.7 No Conversion to Condominiums. Borrower agrees that Borrower shall not, and shall not allow any other person to, during the term of the Declaration, cause all or any portion of the Property to be converted to condominiums or to otheoose allow a condominium map or condominium plan to be recorded or filed against all or any portion of the Property. Borrower further agrees that the conversion of all or any portion of the Property to condominiums and/or the recordation or filing of a condominium map or condominium plan against all or any portion of the Property during the term of the Declaration, shall be a breach of this Agreement, the City Loan, the Declaration, the City Note and the Deed of Trust, entitling the City to immediately exercise any and all of its rights and remedies under this Agreement, the City Loan, the Declaration, the City Note and the Deed of Trust, including v.ithout limitation acceleration of the City Note and foreclosure under the Deed of Trust. Landings II Loan Agreement 25 7-41 Section 6.8 Condition of the Propertv. (a) Borrower hereby represents that to the best of its knowledge, except as otherwise disclosed to the City in writing, it is not aware of and has not received any notice or communication from any government entity having jurisdiction over the Property notifying Borrower of the presence of surface or subsurface zone Hazardous Materials in, on, or under the Property, or any portion thereof. "Best knowledge," as used herein, shall mean the actual knowledge of the Borrower and its officers, directors and employees, as based upon the documents and materials. in the possession of Borrower, and its officers, directors and employees, including the site investigation report or study referred to in Section 6.8 (b) herein. (b) In addition to the foregoing, the Borrower has, at its sole cost and expense, engaged its own environmental consultant to conduct a Phase I investigation of the Property and produce a report thereof, a copy of which has been provided to the City by Borrower. Such report concludes that no Hazardous Materials have been detected on the Property. (c) Borrower shall take all necessary precautions to prevent the release into the environment of any Hazardous Materials which may be located in, on or under the Property. Such precautions shall include compliance with all Governmental Requirements with respect to Hazardous Materials. In addition, Borrower shall install and utilize such equipment and implement and adhere to such procedures as are consistent with commercially reasonable standards as respects the disclosure, storage, use, removal and disposal of Hazardous Materials. (d) Borrower shall indemnify, defend and hold City harmless from and against any claim, action, suit, proceeding, loss, cost, damage, liability, deficiency, fine, penalty, punitive damage, or expense (including, without limitation, reasonable attorneys' fees), resulting from, arising out of, or based upon (i) the release, use, generation, discharge, storage or disposal of any Hazardous Materials on, under, in or about, or the transportation of any such Hazardous Materials to or from, the Property, no matter when such claim, action, suit or proceeding is first asserted or begun and no matter how the Hazardous Materials came to be released, used, generated, discharged, stored or disposed of on, under, in or about, to or from the Property, or by whom or how they are discovered (except for such damages which arise after the transfer of the Property pursuant to foreclosure or deed in lieu of foreclosure), or (ii) the violation, or alleged violation, of any statute, ordinance, order, rule, regulation, permit, judgment or license relating to the use, generation, release, discharge, storage, disposal or transportation of Hazardous Materials on, under, in or about, to or from, the Property. This indemnity shall include, without limitation, any damage, liability, fme, penalty, parallel indemnity after closing, cost or expense arising from or out of any claim, action, suit or proceeding, including injunctive, mandamus, equity or action at law, for personal injury (including sickness, disease or death), tangible or intangible property damage, compensation for lost wages, business income, profits or other economic loss, damage to the natural resource or the environment, nuisance, contamination, leak, spill, release or other adverse effect on the environme'nt. (e) For purposes of this Agreement, "Hazardous Materials" means any substance, material, or waste which is or becomes regulated by any local governmental authority, San Diego County, the State of California, regional governmental authority, or the United States Landings U Loan Agreement 26 7-42 Government, including, but not limited to, any material or substance which is (i) defmed as a "hazardous waste," "extremely hazardous waste," or "restricted hazardous waste" under Section 25115, 25117 or 25122.7, or listed pursuant to Section 25130 of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law)), (ii) defmed as a "hazardous substance" under Section 25316 of the California Health and Safety Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance Account Act), (iii) defmed as a "hazardous material," "haiardous substance," or "hazardous waste" under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory), (iv) defined as a "hazardous substance" under Section 25281 of the California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (v) petroleum, (vi) friable asbestos, (vii) polychlorinated byphenyls, (viii) methyl tertiary butyl ether, (ix) listed under Article 9 or defmed as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of the California Code of Regulations, Division 4, Chapter 20, (x) designated as "hazardous substances" pursuant to Section 311 of the Clean Water Act (33 U.S.C. 91317), (xi) defmed as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. 96901, et seq. (42 U.S.c. 96903) or (xii) defined as "hazardous substances" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 99601, et seq. The term hazardous materials shall not include any material in such quantities as are commonly used in the development, construction, operation and/or occupancy of a multifamily housing project. Section 6.9 Maintenance of Propertv. Borrower agrees for itself and its successors in interest to all or any portion of the Property, to maintain the Improvements on the Property in conformity 'With applicable provisions of the City Municipal Code, and shall keep the Property free from any accumulation of debris or waste materials. During such period, the Borrower shall also maintain the landscaping planted on the Property in a healthy condition. If at any time Borrower fails to maintain the Property and such condition is not corrected within ten days after written notice from City 'With respect to graffiti, debris, waste material, and general maintenance, or thirty days after written notice from City 'With respect to landscaping and building improvements, then City, in addition to whatever remedy it may have at law or at equity, but subject to the rights of the Bond lssuer/Lender. shall have the right to enter upon the applicable portion of the Property and perform all acts and work necessary to protect, maintain, and preserve the Improvements and landscaped areas on the Property, and to attach a lien upon the Property, or to assess the Property, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by City and/or costs of such cure, including a fifteen percent (15%) administrative charge, which amount shall be treated as an additional loan hereunder payable pursuant to the terms of the Partnership Agreement. Section 6.10 Propertv Management. The parties acknowledge that the City is intere.sted in the long term management and operation of the Property and in the qualifications of any person or entity retained by the Borrower for that purpose (the "Property Manager"). Therefore, during the period of the effectiveness of the affordability covenants set forth herein, the City may from time to time review and evaluate the identity and performance of the Property Manager as it reasonably deems appropriate. At all times during the term of the Declaration, if the City serves a thirty (30) day written notice of deficiencies in the property management for the Property, or default under the Declaration or any document executed in conjunction here'With, - which deficiencies or default have not been rectified by Borrower, 'Within the thirty (30) day period Landings II Loan Agreement 27 7-43 (unless such deficiency or default is not capable of being cured within such thirty (30) day period, then such amount of time as City determines is needed, not to exceed ninety (90) days, provided Borrower commences cure within thirty (30) day period and continues to diligently pursue cure), then, City shall have the right, but not the duty, in its sole discretion and upon such thirty (30) days written notice: (i) to require the retention of a professional property management firm to manage the Property; (ii) to approve, in advance and in writing, the retention of any such property management firm, including the terms of the contract governing such retention; and (iii) to require Borrower to terminate any such property management firm, provided that such termination shall comply with the termination provisions of the management contract in question. Borrower shall cooperate with City to effectuate City's rights. In addition, the Borrower shall maintain a detailed "Management Plan" which sets forth in reasonable detail the duties of the Property Manager, the tenant selection process, a security system and crime prevention program, the procedures for the collection of rent, the procedures for monitoring of occupancy levels, the procedures for eviction of tenants, the rules and regulations of the Property and manner of enforcement, a standard lease form, and other matters relevant to the management of the Property subject, however, to any requirements of the Bond IssuerlLender pursuant to the Bond Loan Documents and reasonably approved by the City. The management plan shall require the Property Manager to adhere to a fair lease and grievance procedure and provide a plan for tenant participation in management decisions. The management of the Property shall be in compliance with the Management Plan. The Management Plan may be revised from time to time upon the approval of the City and the Borrower. Section 6.11 Affordable Housin~ Agreement. Certain requirements with respect to the affordable housing obligations and other operational and maintenance obligations of the Project are set forth in the Affordable Housing Agreement, as amended and as approved by the office of the City Attorney, in its reasonable discretion. The execution and recordation qf the Affordable Housing Agreement is a condition precedent to the disbursement of the City Loan, as set forth in Section 2.12 hereof. ARTICLE 7. Continuing Obligations of Borrower Section 7.1 Applicabilitv. For the entire term of the requirements set forth hereof, the Borrower shall comply 'With the provisions of this Article. Section 7.2 Insurance. Borrower, at its sole cost and expense, shall purchase and maintain public liability, auto liability and property damage insurance with limits of not less than a project specific $2,000,000.00 per occurrence, combined single limit with four million Dollar ($4,000,000) in the aggregate for injury to or death of one or more persons and/or property damage arising out of a single accident or occurrence, insuring against any and all liability of City, the City of Chula Vista, and their employees, Borrower, its contractors, employees, agents, subcontractors and its authorized representatives, arising out of or in connection with Borrower's activities at the Property. All public liability insurance and property damage insurance shall insure the performance of Borrower of the indemnity provisions set forth in this Agreement. Further, in all such insurance required to be purchased and maintained by Borrower, City, its City and its Housing Authority shall be named as an additional insured, Borrowers coverage to 28 7-44 Landings II Loan Agreement be primary; Liability Additional Insured Endorsement must not exclude Completed Operations and policy to provide ten year extended reporting period, and the policy shall contain cross- liability endorsements. Borrower further agrees to purchase and maintain in full force and affect such policies of worker's compensation insurance as may be required to cover all employees of Borrower during the term of this Agreement, in a form and amount acceptable to City. Further, Borrower shall maintain policies of insurance as referenced in Exhibit "B" to this Agreement throughout the term of the City Loan and for the duration of the Covenants, Conditions and Restrictions. Certificates of Insurance acceptable to City shall be filed with City prior to funding of the City Loan. These insurance requirements may be waived, in writing, in advance, by the City's Director of Development Services on a case by case basis. The insurance requirements contained in this section shall not be construed to limit the Borrower's obligations under this Agreement, including without limitation any indemnities. Section 7.3 Proceeds of Insurance. Should the Project be totally or partially destroyed or rendered wholly or partly uninhabitable by fire or other casualty required to be insured against by Borrower, Borrower shall promptly proceed to obtain insurance proceeds and take all steps necessary to promptly and diligently commence the repair or replacement of the Project to substantially the same condition as the Project is required to be maintained in pursuant to this Agreement if (i) the Borrower agrees in writing within ninety (90) days after payment of the proceeds that such repair or rebuilding is economically feasible, and (ii) the Bond Issuer/Lender permit such repair or rebuilding, provided that the extent of Borrower's obligation to restore the Project shall be limited to the amount of the insurance proceeds actually received by the Borrower. If the Borrower is unable or is not permitted to repair, replace, or restore the Project, Borrower must give notice to City (in which event Borrower will be entitled to all insurance proceeds, subject to any outstanding lien obligations, but Borrower shall be required to remove all debris from the Property) and Borrower may construct such other improvements on the Property as are consistent with applicable land use regulations approved by the City and the other governmental agencies with jurisdiction. Section 7.4 Taxes. Assessments. Encumbrances. and Liens. Borrower shall pay prior to delinquency all real estate ta.xes and assessments properly assessed and levied on the Property. Until the payment in full of all amounts ov.ing under the City Note, Borrower shall not place or allow to be placed thereon any mortgage, trust deed, encumbrance, or lien (except mechanic's liens prior to suit to foreclose the same being filed) not authorized by this Agreement, without the City's consent, which consent shall not unreasonably be withheld. Borrower shall remove or have removed any levy or attachment made on the Property, or assure the satisfaction thereof, within a reasonable time, but in any event prior to a sale thereunder. Nothing herein contained shall be deemed to prohibit Borrower from contesting the validity or amounts of any tax, assessment, encumbrance, or lien, nor to limit the remedies available to Borrower in respect thereto. Section 7.5 Hold Harmless. Borrower agrees to indemnify, protect, defend and hold harmless City, its Redevelopment Agency, and its Housing Authority, and its officers, agents, employees, representatives and successors, from and against any and all claims, damages, actions, costs, demands, expenses or liability, including without limitation, reasonable attorneys' fees and court Landings II Loan Agreement 29 7-45 costs, which may arise from the direct or indirect actions or inactions of the Borrower or those of its contractors, sub-contractors, agents, employees or other persons acting on Borrower's behalf which relate to the Property or Project; excluding, however, from Borrower's indemnity any such liability, losses, damages (including foreseeable or unforeseeable consequential damages), penalties, fmes, expenses (including out-of-pocket litigation costs and reasonable attorneys' fees) directly or indirectly arising out of the sole negligence or sole willful misconduct of City, its Redevelopment Agency, and its Housing Authority or its employees, contractors, subcontractors or agents. This hold harmless agreement applies, without limitation, to all damages and claims for damages suffered or alleged to have been suffered by reasons of the operations referred to in this paragraph, regardless of whether or not the City, its Redevelopment Agency, or its Housing Authority prepared, supplied or approved plans or specifications, or both, for the Property or Project. This indemnity by Borrower, and all other indemnities set forth herein shall survive any foreclosure of the Property by the City pursuant to the terms of the City Deed of Trus!. Section 7.6 Further Indemnification of City. It is understood and agreed that the parties hereto have entered this Agreement as a method of providing necessary assistance to Borrower in connection with the construction of low and moderate income housing and development of the Property pursuant to all applicable laws and that by contributing public funds to assist in the accomplishment of such development, or by otherwise contributing or assisting with the accomplishment of such development, the City assumes no responsibility for insuring that the same is adequately undertaken (including, without limitation, the existence and/or remediation of any hazardous or toxic substances on the Property) and as a material consideration to City for entering into this Agreement (and not by way of limiting the generality of Section 7.5 above) Borrower agrees to indemnify, protect, defend and hold hannless City, its Redevelopment Agency, and its Housing Authority and its representatives, officers, employees and their respective successors from and against any and all claims, damages, actions, demands, liabilities, obligations, expenses, losses or costs, including without limitation, reasonable attorneys' fees and court costs, which may arise out of or are in any manner connected with the development of the Project pursuant to this Agreement; excluding, however, from Borrower's indemnity any such liability, losses, damages (including foreseeable or unforeseeable consequential damages), penalties, fines, expenses (including out-of-pocket litigation costs and reasonable attorneys' fees) directly or indirectly arising out of the sole negligence or sole willful misconduct of City, its Redevelopment Agency, and its Housing Authority or its employees, contractors, subcontractors or agents. Section 7.7 Obligation to Refrain from Discrimination. There shall be no discrimination against, or segregation of, any persons, or group of persons, on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the enj oyment of the Property, nor shall Borrower itself, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, subtenants, sub lessees, or vendees of the Property or any portion thereof. Borrower shall further comply with all the requirements of the Americans with Disabilities Act. City acknowledges that, pursuant to the restrictions of the Farmworker Grant, Borrower is required to use status as an agricultural worker as a basis of tenant selection. 30 7-46 Landings II Loan Agreement - Section 7.8 Form of Nondiscrimination and Nonsegregation Clauses. Borrower shall refrain from restricting the rental, sale, or lease of any portion of the Property, or contracts relating to the Property, on the basis of race, color, creed, religion, sex, marital status, ancestry, or national origin of any person and shall comply with all the applicable requirements of the Americans with Disabilities Act of 1990. All such deeds, leases or contracts, shall contain or be subject to substantially the following nondiscrimination or nonsegregation clauses: (a) In deeds. "The grantee herein covenants by and. for himself or herself, his or her heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the land herein conveyed, nor shall the grantee himself, or any persons claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, subt~nants, sub lessees, or vendees in the land herein conveyed and further covenants that all such individuals and entities shall comply with all applicable requirements of the Americans with Disabilities Act of 1990, as the same may be amended from time to time (42 USe. S12101, et seq.). The foregoing covenants shall run with the land." (b) In leases. "The lessee herein covenants by and for himself or herself, his or her heirs, executors, administrators, and assigns, and all persons claiming under or through him, and this lease is made and accepted upon and subject to the following conditions: 'That there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of the land herein leased, nor shall the lessee himself, or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein lease and the lease shall be carried out in compliance with all applicable requirements of the Americans with Disabilities Act of 1990, as the same may be amended from time to time (42 U.S.C. S12101, et seq.)'" (c) In contracts: "There shall be no discrimination against or segregation of any persons or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the sale, lease, transfer, use, occupancy, tenure, or enjoyment of land, nor shall the transferee himself, or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees of land and all such activities shall be conducted in compliance with all applicable requirements of the Americans 'With Disabilities Act of 1990, as the same may be amended from time to time (42 U.S.C. S12101, et seq.)." Section 7.9 Effect of Covenants. Unless sooner terminated by City as provided for herein, all covenants contained in this Article shall run with the land and shall be extinguished and of no further force and effect upon the fifty-fifth anniversary of the issuance of the first Certificate of Occupancy for the Project by the City, with the exception of the non-discrimination and non- Landings II Loan Agreement 31 7-47 segregation covenants which shall run in perpetuity. The covenants established herein shall, without regard to technical classification and designation, be binding on the part of Borrower and any successors and assigns to the Property or any part thereof, and the tenants, lessees, sub lessees and occupants of the Property, for the benefit of and in favor of the Property and the City, and its successors and assigns and any successor in interest thereto. City is deemed the beneficiary of such covenants for and in its O'-"TI right and for the purposes of protecting the interest of the community and other parties, public or private, in whose favor and for whose benefit of such covenants running with the land have been provided, without regard to whether City has been, remained, or is the owner of any particular land or interest therein. City shall have the right to unilaterally terminate the covenants at any time (subject to the TCAC Regulatory Agreement) or, if such covenants are breached. (subject to any cure rights provided herein) to exercise all rights and remedies and to maintain any actions or suits at law or in equity or other proper proceedings to enforce the curing of such breaches to which it or any other beneficiaries of this Agreement and the covenants may be entitled, including specific performance (it being recognized that the breach of such covenants cannot be adequately compensated by monetary damages), and any and all remedies provided in the City Deed of Trust and City Note, including, without limitation, foreclosure proceedings against the Property. Without limiting the generality of the foregoing, in the event that there is a breach of the terms of this Agreement or any covenants provided herein, the City shall have the right, but not the obligation, to take any and all actions the City deems necessary to cure such breach, including, without limitation, taking possession of the Property for management and/or repair purposes, and to obtain reimbursement from Borrower for any reasonable costs incurred by the City in the exercise of such remedy. Furthermore, Borrower hereby covenants by and for itself, its successors and assigns and every person acquiring an interest in the Property, or any part thereof, that City and other public agencies at their sole risk and expense, and subject to the rights of tenants in possession, shall have the right to enter the Property or any part thereof at all reasonable times and with as little interference as possible for the purposes of construction, reconstruction, maintenance, repair or service of any public improvements or public facilities located on the Property and to ensure compliance with the restrictions and covenants contained herein. Any such entry shall be made only after reasonable notice to Borrower and, any damage or injury to the Property resulting from such entry shall be promptly repaired at the sole expense of the public City responsible for the entry except to the extent any such damage or injury arises as a result of the negligence or willful misconduct of the Borrower or its officers, employees, agents, invitees or contractors. No violation or breach of the covenants, conditions, restrictions, provisions or limitations contained in this Agreement shall defeat or render invalid or in any way impair the lien or charge of any mortgage, deed of trust or other financing or security instrument; provided, however, that any successor of Borrower to the Property shall be bound by such remaining covenants, conditions, restrictions, limitations and provisions, whether such successor's title was acquired by foreclosure, deed in lieu of foreclosure, trustee's sale or otherwise. Failure to comply with the covenants, conditions, restrictions, provisions or the limitation contained in this Agreement within the time period required by Section 8.1 shall constitute a material default hereunder permitting the City to exercise any of its rights or obligations provided hereunder, including, without limitation, those provided under the City Note, City Deed of Trust, or otherwise provided at law or in equity. '0 ,- Landings II Loan Agreement 7-48 Section 7. I 0 Prohibition Against Assignment and Transfer. The qualifications and identity of Borrower are of particular concern to City. It is because of those qualifications and identity that City has entered into this Agreement with Borrower. Accordingly, for the term of the City Loan and Affordable Housing Agreement, Borrower, without City's prior written approval, shall not, whether voluntarily, involuntarily, or by operation of law, and except as permitted in this Section, (I) undergo any significant change in ownership (including the sale or conveyance of any of the general pannership interests in the Borrower, except as otherwise pennitted under the terms of the Partnership Agreement regarding the removal of the General Partner, provided that any replacement General Partner shall be subject to the reasonable approval of the City, or (2) assign all or any part of this Agreement or any rights hereunder, or (3) sell, lease, assign, further encumber or ref mance, or otherwise convey all or any part of the Property or Project, whether voluntarily, involuntarily, or by operation of law. Notwithstanding the foregoing, the following shall not be considered a significant change in ownership or an assignment or transfer and shall not require City approval for purposes of this Section 7.10: (a) Transfers to any entity or entities wholly owned and controlled by Borrower or all of its partners. (b) The conveyance or dedication of portions of the Property to the City or other appropriate governmental entity for the formation of an assessment district, or the granting of easements or pennits to facilitate the development of the Property. (c) Borrower. A sale or transfer of some or all of the limited partnership interests m the (d) business. The leasing of all or any apartment units to tenants in the ordinary course of (e) The leasing of furniture, fixtures or equipment in the ordinary course of business, including, without limitation, laundry equipment and facilities, cable television equipment and facilities, and vending machine equipment and facilities. (I) Transfers of property management responsibilities in accordance with Section 6. I 0 hereof, provided, however, that Borrower shall provide City thirty (30) days prior written notice of any such management change, and that this exception shall be limited to transfers to property managers with significant experience in managing projects similar to the Project. (g) The conveyance of the Property to the nonprofit general partner of ihe Borrower upon such general partner's exercise of its right of first refusal to acquire the Property at the end of the tax credit compliance period. (h) Any such assignee shall be subject to all terms and conditions of this Agreement, including, without limitation, all affordabiIity restrictions concerning the occupancy of the Property . Landings II Loan Agreement 33 7-49 (i) Borrower shall deliver written notice to City requesting approval of any assignment or transfer requiring City approval hereunder. Such notice shall be given prior to Borrower entering into a formal written agreement with the proposed assignee. (j) In considering whether it will grant approval to any assignment by Borrower of its interest in the Property or any portion thereof, which assignment requires City approval, City shall consider factors such as (i) the fmancial strength and capability of the proposed assignee to perform Borrower's obligations hereunder and (ii) the proposed assignee's experience and expertise in the planning, fmancing, construction, development, and operation of similar projects. (k) No assignment, including assignments which do not require City approval hereunder, but excluding assignments for ftnancing purposes, shall be effective unless and until the proposed assignee executes and delivers to City an agreement, in form satisfactory to the City's attorneys, assuming the obligations of the assignor which have been assigned. Thereafter, the assignor shall be relieved of all responsibility to City for performance of the obligations assumed by the assignee. (1) No lender approved by City shall be required to execute an assumption agreement and such lender's rights and obligations hereunder shall be as set forth in Section 7.10. Section 7.11 Secured Financing: Right of Holders. (a) Permitted Encumbrances. Mortgages, deeds of trust, conveyances, and leases- back or any other form of conveyance required for any fmancing permitted and/or approved by the City hereof are permitted before City's issuance of the Certiftcate of Occupancy. (b) Holder Not Obligated to Construct Improvements. The holder of any mortgage or deed of trust or other security interest authorized by this Agreement shall in no way be obligated by the provisions of this Agreement to construct or complete the Improvements or to guarantee such construction or completion; provided, however, that nothing in this Agreement shall be deemed or construed to permit or authorize any such holder (with the exception of the holder of any deed of trust securing the loan made from the proceeds of the Bonds) to devote the Property or any part thereof to any uses, or to construct any improvements thereon, other than those uses or improvements provided for or authorized by this Agreement. (c) Notice of Default to Mortgage. Deed of Trust or Other Secured Instrument Holders: Right to Cure. Whenever City shall deliver any notice or demand to Borrower with respect to any breach or default by Borrower hereof, the City shall at the same time deliver a copy of such notice or demand to Borrower's Limited Partner and each approved holder of record of any mortgage, deed of trust, or other security instrument which has previously requested such notice in writing. Each such holder shall (insofar as the rights of City are concerned) have the right, at its option ",ithin ninety (90) days after the receipt for the notice, to commence and thereafter to diligently proceed to cure or remedy such default and add the cost thereof to the security interest debt and the lien on its security interest. (d) Right of City to Cure Mortgage. Deed of Trust. or Other Security Instrument Default. In the event of a default or breach by Borrower of a mortgage, deed of trust, or other security instrument or lease-back or conveyance for fmancing prior to the issuance by City of the 34 7-50 Landings II Loan Agreement Certificate of Occupancy for the Project, City may cure the default prior to completion of any foreclosure. In such event, the City shall be entitled to reimbursement from Borrower of all costs and expenses it has reasonably incurred in curing the default, which right of reimbursement shall be secured by a lien upon the Property to the e>"tent of such costs and disbursements. Any such lien shall be subject to: (l) i\ny mortgage, deed of trust, or other security instrument or sale and lease- back or other conveyance for flllancing permined by this Agreement; or (2) Any rights or interests provided in this Agreement for the protection of the holders of such mortgages, deed of trust, or other security instruments, the lessor under a sale and lease-back, or the grantee under such other conveyance for financing; provided that nothing herein shall be deemed to impose upon City any affirmative obligations (by the payment of money, construction, or otherwise) with respect to the Property in the event of its enforcement of its lien. (e) Right of Citv to Satisfy Liens. Prior to the issuance by City of the Certificate of Occupancy for the Project, and after Borrower has had a reasonable time to challenge, cure, or satisfy any liens or encumbrances on the Property, City, after sixty (60) days prior written notice to Borrower, shall have the right, but not the obligation, to satisfy any liens or encumbrances on the Property; provided, however, that nothing in this Agreement shall require Borrower to payor make provision for the payment of any tax, assessment, lien, or charge so long as Borrower in good faith shall contest the validity or amount thereof, and so long as such delay in payment shall not subject the Property to forfeiture or sale. ARTICLE 8. Defaults, Remedies, And Termination Section 8.1 Defaults - General. Subject to all of the extensions of time available in Section 9.3, failure or delay by any party to perform any term or provision of this Agreement constitutes a default uD.der this Agreement; however, the party shall not be deemed to be in default if (i) such party cures, corrects, or remedies such default within thirty (30) days after receipt of a notice specifying such failure or delay, or (ii) for such defaults that cannot reasonably be cured, corrected, or remedied within thirty. (30) days, if such party commences to cure, correct, or remedy such failure or delay within thirty (30) days after receipt of a notice. specifying such failure or delay, and diligently prosecutes such cure, correction or remedy to completion. The injured party shall give written notice of default to the party in default, specifying the default complained of by the injured party. Copies of any notice of default given to Borrower shall also be delivered to the Bond Issuer/Lender, the Limited Partner of Borrower, and any other perrnined lender requesting such notice. Except as provided in Section 8.3 herein or as required to protect against further damages, the injured party may not institute proceedings against the party in default until thirty (30) days after giving such notice. Except as otherwise expressly provided in this Agreement, any failure or delay in giving such notice or in asserting any of its rights and remedies as to any default shall not constitute a waiver of any default, nor shall it change the time of default, nor shall it deprive either party of its rights to institute and maintain any actions or proceedings which it may deem necessary to protect, assert or enforce any such rights or remedies. Landings II Loan Agreement 35 7-51 Section 8.2 Termination. (a) Termination bv City. Notwithstanding any other provision of this Agreement to the contrary, in the event that the City is not in default under this Agreement, City shall have the right to terminate this Agreement prior to disbursement of the City Loan upon written notice to the Borrower if: (i) Borrower commits a material default hereunder and fails to cure said default within the time specified in Section 8.1 hereof; or (ii) Borrower fails to obtain the necessary approvals from the Tax Credit Allocation Committee for an allocation of "4%" Low Income Housing Tax Credits under terms that will restrict the residential units in the Project to the requirements set forth herein; (iii) Borrower fails to timely remove any and all other requirements of Section 2.12 of this Agreement; or (iv) Escrow has not closed on the conveyance of the Property to Borrower on or before December 31, 2009, as such date may be extended by agreement of all the parties hereto in their sole and absolute discretion; or (v) Subject to extensions of time made pursuant to Section 9.3 hereof, City shall have the right to terminate this Agreement with prior written notice Borrower, if Borrower shall have failed to commence construction of the Project pursuant to a valid building permit or permits and is not diligently proceeding with such construction as determined under the reasonable and sole discretion of City and does not timely cure such default. In addition, in the event of Borrower's uncured material default under this Agreement at the time City exercises its right under this Section 8.2 to terminate the Agreement, nothing in this Section 8.2 is intended or shall be interpreted as a limitation of any other legal or equitable rights to which City may be entitled. ' In addition to the right of the City to terminate this Agreement prior to disbursement of funds by the City, the City shall have the right to pursue any and all rights, at law or in equity, against the Borrower for breach of the Agreement, including without limitation, the recoupment of monies disbursed by the City together with any and all other damages incurred by the City as a result of the uncured breach by the Borrower, including attorney's fees, expert witnesses fees, consultant fees and other fees, costs, expenses and damages. (b) Termination bv Borrower. Notwithstanding any other prOVISIOn of this Agreement to the contrary, provided that Borrower is not in default under this Agreement, Borrower shall have the right to terminate this Agreement prior to disbursement of the City Loan, upon written notice to City, if: (i) City commits a material default hereunder and fails to cure said default within the time specified in Section 8.1; or (ii) Escrow has not closed on the conveyance of the Property to Borrower on or before December 31, 2009, as such date may be extended by agreement of all the parties hereto, in their sole and absolute discretion; or (iii) City fails to approve, after best efforts by Borrower to obtain such approval, such permits as are required to commence and complete construction of the Project on the Property. In addition, in the event of City's uncured material default under this Agreement at the time Borrower exercises its right under this Section 8.2 to terminate the Agreement, nothing in this Section 8.2 is intended or shall be interpreted as a limitation of any other legal or equitable rights to which Borrower mav be entitled. . 36 7-52 Landings II Loan Agreement Section 8.3 Leilal Actions. (a) Institution of Leilal Actions. In addition to any other rights or remedies, any party may institute legal action to cure, correct, or remedy any default, to recover damages for any default, or to obtain any other remedy consistent "vith the purposes of this Agreement. Such legal actions must be instituted and maintained in the Superior Court of the County of San Diego, State of California, or in any other appropriate court in that county. No suit or arbitration shall be brought arising out of this Agreement, against the City unless a claim has first been presented in ",riting and filed with the City and acted upon by the City in accordance with the procedures set forth in Chapter 1.34 of the Chula Vista Municipal Code, as same may from time to time be amended, the provisions of which are incorporated by this reference as if fully set forth herein, and such policies and procedures used by the City in the implementation of same. Upon request by City, Borrower shall meet and confer in good faith with City for the purpose of resolving any dispute over the terms of this Agreement. (b) Aoolicable Law. The laws of the State of California shall govern the interpretation and enforcement of this Agreement. (c) Acceotance of Service of Process. In the event that any legal action is commenced by Borrower against City, service of process on City shall be made by personal service upon the City's Housing Manager or City Clerk, or in such other manner as may be provided by law. In the event that any legal action is commenced by City against Borrower, service of process on Borrower shall be made in such manner as may be provided by law, and shall be valid whether made within or without the State of California. (d) Action for Soecific Performance. If either the Borrower or City defaults with regard to any of the provisions of this Agreement, the non-defaulting party shall serve written notice of such default upon the defaulting party. If the default does not commence to be cured by the defaulting party within thirty (30) days after service of the notice of default, the non- defaulting party at its option may thereafter commence an action for specific performance of the terms of this Agreement pertaining to such default, subject to the provisions of Sections 8.1 and 9.3 hereof. (e) Riilhts and Remedies are Cumulative. Except as otherwise expressly stated in this Agreement, the rights and remedies of the parties are cumulative, and the exercise by either party of one or more of its rights or remedies shall not preclude the exercise by it, at the same or different times, of any other rights or remedies for the same default or any other default by the other party. Landings II Loan Agreement 37 7-53 ARTICLE 9. General Provisions Section 9.1 Notices. Demands. and Communications Between the Parties. Formal notices, demands, and communications between City, and Borrower shall be given either by (i) personal service, (ii) delivery by reputable document delivery service such as Federal Express that provides a receipt shoINing date and time of delivery, or (iii) mailing in the United States mail, certified mail, postage prepaid, return receipt requested, to the address of the party as set forth below, or at any other address as that party may later designate by notice: To City: City of Chula Vista 276 Fourth Avenue Chula Vista, CA 91910 A ttn: Director of Development Services With a copy to: City of Chula Vista 276 Fourth Avenue Chula Vista, CA 91910 Attn: City Attorney 'To Borrower: CIC Landings 2, L.P. clo Chelsea Investment Corporation 5993 Avenida Encinas, Suite 101 Carlsbad, CA 92008 Attention: James J. Schmid Notices personally delivered or delivered by document delivery service shall be deemed effective upon receipt. Notices mailed shall be deemed effective on the second business day following deposit in the United States mail. Such written notices, demands, and communications shall be sent in the same manner to such other addresses as either party may from time to time designate by mail. Section 9.2 Nonliabilitv of City Officials and Emplovees: Conflicts of Interest. No member. official, employee, or contractor of City shall be personally liable to Borrower in the event of any default or breach by City or for any amount which may become due to Borrower or on any obligations under the terms of this Agreement. No member, official, employee, or agent of City shall have any direct or indirect interest in this Agreement nor participate in any decision relating to this Agreement which is prohibited by law. Section 9.3 Enforced Delav: Extension of Times of Performance. In addition to specific provisions of this Agreement, and except as expressly set forth in Section 8.2 and this Section 38 7-54 Landings II Loan Agreement 9.3, performance by either party hereunder shall not be deemed to be in default and such party shall be entitled to an extension of time to perform its obligations hereunder where delays in performance are due to causes beyond the control and without the fault of such party, including as applicable: war; insurrection; strikes; lock-outs; riots; floods; earthquakes; fIres; casualties; supernarural causes; acts of the public enemy; epidemics; quarantine restrictions; freight embargoes; lack of transportation; governmental restrictions or priority; litigation; unusually severe weather; inability to secure necessary labor, materials or tools; delays of any contractor, subcontractor or supplies; acts of the other party; acts or the failure to act of City or any other public or governmental City or entity (except that any act or failure to act of or by City shall not excuse timely performance by City). In addition, nothing in this Section 9.3 is intended or shall be interpreted to entitle Borrower to an extension of time to close the escrow for acquisition of the Property or to delay commencement of construction of the Project. An extension of time for any cause permitted under this Section 9.3 shall be limited to the period of the enforced delay and shall commence to run from the time of the commencement of the cause, if notice by the party claiming such extension is sent to the other party within thirty (30) days of knowledge of the commencement of the cause, or if no written notice is sent within thirty (30) days, from the date written notice is sent by the other party. Times of performance under this Agreement may be extended by mutual written agreement of City and Borrower. Section 9.4 Inspection of Books and Records. The Borrower shall keep and maintain at the Project, or elsewhere within the County of San Diego, full, complete and appropriate books, records and accounts relating to the Project, including all such books, records and accounts necessary or prudent to evidence and substantiate in full detail Borrower's calculation of Residual Receipts and compliance with the affordable housing requirements herein. Books, records and accounts relating to Borrower's compliance \Yith the terms, provisions, covenants, and conditions of this Agreement shall be kept and maintained in accordance with generally accepted accounting principles consistently applied, and shall be consistent with requirements of this Agreement. All such books, records, and accounts shall be open to and available for inspection by the City, and its auditors or other authorized representatives at reasonable intervals during normal business hours upon reasonable prior notice to Borrower. Copies of all tax returns and other reports that Borrower may be required to furnish any governmental entity shall at all reasonable times, upon reasonable prior notice to Borrower, be open for inspection by the City at the place that the books, records, accounts of the Borrower are kept. The Borrower shall preserve records on which any statement of Residual Receipts is based for a period of not less than fIve (5) years after such statement is rendered. City shall have the right at all reasonable times to inspect the books and records of Borrower pertaining to the Property and the Proj ect as pertinent to the purposes of this Agreement. Borrower shall provide its books and records to City without reasonable delay upon no less than five (5) days prior written request by City. City shall not request inspection for Borrower's books and records more than once in any twelve (12) month period, unless City is required to obtain information in order to comply with reporting or other requirements of law herein. Landings IT Loan Agreement 39 7-55 City shall have the right at all reasonable times to inspect the books and records of Borrower pertaining 10 the Property and the Project as pertinent to the purposes of this Agreement. Section 9.5 lnteroretation. The terms of this Agreement shall be construed in accordance with the meaning of the language used and shall not be construed for or against any party by reason of the authorship of this Agreement or any other rule of construction which might otherwise apply. The section headings are for purposes of convenience only, and shall not be construed to limit or extend the meaning of this Agreement. Section 9.6 Entire Agreement. Waivers and Amendments. This Agreement, together with the Promissory Note, Deed of Trust, Affordable Housing Agreement and other documents executed pursuant to this Agreement, integrates all of the terms and conditions mentioned herein, or incidental hereto, and supersedes all negotiations and previous agreements between the parties with respect to all or any part of the subject matter hereof. All waivers of the provisions of this Agreement must be in writing and signed by the appropriate authorities of the party to be charged, and all amendments and modifications hereto must be in writing and signed by the appropriate authorities of City and Borrower. Section 9.7 ConsentlReasonableness. Except when this Agreement specifically authorizes a party to withhold its approval or consent in its sole and absolute discretion, when either City or Borrower shall require the consent or approval of another party in fulfilling any agreement, covenant, provision, or condition contained in this Agreement, such consent or approval shall not be unreasonably withheld, conditioned, or delayed by the party from whom such consent or approval is sought. Section 9.8 Severability. If any term, provision, covenant, or condition of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of this Agreement shall not be affected thereby to the extent such remaining provisions are not rendered impractical to perform taking into consideration the purposes of this Agreement. In the event that all or any portion of this Agreement is found to be unenforceable, this Agreement or that portion which is found to be unenforceable shall be deemed to be a statement of intention by the parties; and the parties further agree that in such event, and to the maximum extent permitted by law, they shall take all steps reasonably necessary to comply with such procedures or requirements as may be reasonably necessary in order to make valid this Agreement or that portion which is found to be unenforceable. Section 9.9 Third Party Beneficiaries. Notwithstanding any other prOVISIOn of this Agreement to the contrary nothing herein is intended to create any third party beneficiaries to this Agreement, and no person or entity other than City and Borrower, and the permitted successors and assigns of each of them, shall be authorized to enforce the provisions of this Agreement. Section 9.10 Representations and Warranties. Borrower represents and warrants that: (i) Borrower is a limited partnership organized and existing under the laws of the State of California, in good standing, and authorized to do business and doing business in the County of Landings II Loan Agreement 40 7-56 San Diego; (ii) Borrower has all requisite power and authority to carry out its business as now and whenever conducted and to enter into and perform its obligations under this Agreement; (iii) by proper action of Borrower, Borrower's signatories have been duly authorized to execute and deliver this Agreement; (iv) the execution of this Agreement by Borrower does not violate any provision of any other agreement to which Borrower is a party; (v) except as may be specifically set forth in this Agreement, and except for the approval of Borrower's investor limited partner, no approvals or consents not heretofore obtained by Borrower are necessary in connection with the execution of this Agreement by Borrower or with the performance by Borrower of its obligations hereunder, and (vi) no attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization, receivership or other proceedings are pending or threatened against the Borrower, or any partners of Borrower, nor are any of such proceedings contemplated by Borrower or any partners of Borrower. Section 9.11 Execution. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and such counterparts shall constitute one and the same instrument Section 9.12 Relationship of Parties. It is understood that the contractual relationship between the City and Borrower is such that Borrower is an independent entity and not an agent or partner of City. Nothing in this Agreement shall constitute Borrower as the agent or partner or representative of City for any purpose whatsoever. Section 9.13 Attornev's Fees. If either party to this Agreement is required to initiate or defend litigation in any way connected with this Agreement, the prevailing party in such litigation, in addition to any other relief which may be granted, whether legal or equitable, shall be entitled to its actual and reasonable attorney's fees. If either party to this Agreement is required to initiate or defend litigation with a third party because of the violation of any term or provision of this Agreement by the other party, then the party so litigating shall be entitled to its actual and reasonable attorney's fees from the other parry to this Agreement. Attorney's fees shall include attorney's fees on any appeal, and in addition a party entitled to attorney's fees shall be entitled to all other reasonable costs for investigating such action, retaining expert witnesses, taking depositions and discovery, and all other necessary costs incurred in such litigation. All such fees shall be deemed to have accrued on commencement of such action and shall be enforceable whether or not such action is prosecuted to judgment The parties hereto acknowledge and agree that each such party shall bear its own legal costs incurred in connection with the negotiation, approval, and execution of this Agreement. ARTICLE 10. Option and First Right of Refusal Section 10.1 City Option to Acquire the PropertY Upon Uncured Default. (a) Granting of the Option to Acquire Propertv Upon Uncured Default bv Borrower. Borrower grants to City an Option ("Option") to purchase the Property, including \Nithout limitation the Project, on the terms and conditions set forth in an Option and First Right of Refusal as approved by the office of the City Attorney, in its reasonable discretion, to be exercised upon the uncured default of the Borrower under the terms of this Agreement, the Bond Documents, the TCAC Regulatory Agreement, the Affordable Housing Agreement and any and all other loan documents and/or regulatory agreements affecting the Property and/or Project Landings II Loan Agreement 41 7-57 (b) Consideration for the Option. The execution of this Agreement and the making of. the City Loan by the City to the Borrower shall be the consideration for entering into the Option. Borrower hereby acknowledges that the City would not enter into this Agreement or make the City Loan without the Borrower granting the Option. (c) Memorandum of Option and First Right of Refusal. Borrower shall execute, acknowledge, deliver and' cause to be recorded upon the close of the Escrow for the City Loan, the Memorandum of Option and First Right of Refusal, in a form and format as reasonably approved by the office of the City Attorney. (d) The Option Price. The Option price shall be the amount of the senior debt to the City Loan as approved by the City in this Agreement. (e) Rights of Tax Credit Limited Partner. The tax credit limited partner of the Borrower shall have an option to acquire the Property, upon default, which is senior to that granted to the City herein. The City's option shall be junior and subordinate to that of the tax credit limited partner, as approved by the City. (f) Term of the Option. The option in favor of the City shall commence upon the acquisition of the Property by the Borrower and shall terminate fifty-five years thereafter. (g) Exercise of the Option. The City may exercise the option within thirty (30) days after the expiration of notice of an uncured event of default under the applicable agreements, in accordance with the provisions of Section 8.1 of this Agreement. (h) Escrow to Effectuate Option. An escrow shall be opened between the Borrower and the City upon the timely exercise of the option and shall close within ninety (90) days thereafter. Section 10.2 Citv First Right of Refusal to Acquire PropertY. (a) Grantin2: of First Ri2:ht of Refusal to Acquire PropertY. In addition to the Option referenced within Section 10.1 of this Agreement, the Borrower hereby grants the City a First Right of Refusal to purchase the property on the terms set forth in an Option and First Right of Refusal as approved by the office of the City Attorney, in its reasonable discretion. (b) Consideration for First Right of Refusal. The execution of this Agreement and the making of the City Loan by the City is the consideration for entering into this First Right of Refusal. (c) Term of First Ri2:ht of Refusal. The City's first right of refusal shall commence upon the acquisition of the Property by the Borrower and shall expire fifty-five years thereafter. [SIGNATURE PAGE TO FOLLOW] 42 7-58 Landings II Loan Agreement IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date specified herein, "CITY" CITY OF CHULA VISTA, a public body, corporate and politic By: James D. Sandoval, City Manager ATTEST: Donna Nords, City Clerk APPROVED AS TO FORM: Bart MiesfeId, City Attorney "BORROWER" crc Landings 2, L.P., a Cali fomialimited partnersh ip By: Chelsea Investment Corpo ion Califurnia tion, . s general partner By: 7-59 EXHIBIT A LEGAL DESCRIPTION Real property in the City of Chula Vista, County of San Diego, State of California, described as follows: LOT 1 OF CHULA VISTA TRACT NO. 01-011 OTAY RANCH- VILLAGE 11 PORTIONS OF NEIGHBORHOODS MU-l AND R-19, IN THE CITY OF CHULA VISTA, COUNTY OF SAi\[ DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEROF NO. 15640, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SA.N DIEGO COUNTY ON NOVEMBER 8, 2007. APN: 643-770-01-00 A-I 7-60 EXHIBIT B STATEMENT OF INSURANCE REOUIREMENTS (Including Ail Successors and Assigns of Borrower) Borrower acknowledges the receipt of these insurance requirements and agrees to maintain in full force and effect, the following policies during the term of the City of Chula Vista's ("City") loan at Borrower's sole cost and expense. Ail insurance policies shall contain a provision requiring thirty (30) days advance written notice to the City of cancellation. Borrower agrees to maintain the following insurance coverages: 1. Required Insurance. To at all times provide, maintain and keep in force at Borrower's sole expense the following policies of insurance: (a) Insurance against loss or damage to the Improvements by fire and any of the risks covered by insurance of the type now known as "fire and extended coverage" including endorsement designating City as a Loss Payee, in an amount no less than the original amount of the Note plus any senior liens or encumbrances or the full replacement cost of the Improvements, including the cost of debris removal (exclusive of the cost of excavations, foundations and footings below the lowest basement floor), whichever is greater, and with not more than One Thousand Dollars ($1,000.00) deductible from the loss payable for any casualty. Notwithstanding the foregoing or anything to the contrary contained in the Loan Agreement ("Agreement"), during the period of time from the loan closing through completion of construction of the Project, Borrower's obligation to provide the insurance described in this Section lea) may be satisfied by a builder's risk policy in the amount of not less than ($~, provided a certificate of insurance acceptable to City and naming the City of Chula Vista, its Redevelopment Agency, and its Housing Authority as additional insureds with primary coverage, is filed with City prior to closing of the City Loan. The policies of insurance carried in accordance \\lith this subparagraph (a) shall contain the "Replacement Cost Endorsements"; (b) Business interruption insurance and/or loss of "rental value" insurance in such amounts as are satisfactory to City; (c) Comprehensive general public liability insurance, including coverage for elevators and escalators, if any, on the Property, and coverage for non-owned automobiles, insuring against claims for "personal injUty", including, without limitation, bodily injury, death or property damage occurring on, in or about the Property and the adjoining streets, sidewalks and passageways, such insurance to afford immediate minimum protection to a limit of not less than a project specific Two Million Dollars ($2,000,000.00) Per Occurrence, Combined Single Limit with Four Million Dollar ($4,000,000) Aggregate Limit, with respect to personal injUty or death to anyone or more persons or damage to property (as that amount may be increased from time to time by City in its reasonable discretion). General Liability policy must endorse and B-1 7-61 designate City as an Additional Insured. Liability Additional Insured Endorsement must be primary, must not exclude Completed Operations, and must be endorsed to include a Ten (10) year extended reporting period; (d) Workers' compensation insurance (including employer's liability insurance, if requested by City) for all employees of Borrower engaged on or with respect to the Property in such amount as is reasonably satisfactoty to City, or if such limits are established by law, in such amounts; (e) During the course of any construction or repair of Improvements on the Property, builder's completed value risk insurance against "all risks of physical loss", including collapse and transit coverage, during construction of such Improvements, with deductibles not to exceed Ten Thousand Dollars ($10,000.00), in non-reporting form, covering the total value of work performed and equipment, supplies and materials furnished. City to be endorsed as a Loss Payee. Said policy of insurance shall contain the "permission to occupy upon completion of work or occupancy" endorsement; (t) Boiler and machinery insurance covering pressure vessels, air tanks, boilers, machinery, pressure piping, heating, air conditioning, and elevator equipment and escalator equipment provided the Improvements contain equipment of such nature, and insurance against loss of occupancy or use arising from breakdown of any of the items referred to in this subparagraph (t), in such amounts as are reasonably satisfactory to City; (g) Insurance against flood damage, including surface waters, if the Property is located in an area considered a flood risk by the United State Department of Housing and Urban Development; (h) Insurance against loss or damage to the Personal Property by fire and other risks covered by insurance of the type now known as "fire and extended coverage." Notwithstanding the foregoing, the insurance coverage described in this Section I(h) is not required to be a separate policy of insurance, provided such risks are insured by one or more policies of insurance obtained by Borrower; and (1) Such other insurance (including, but not limited to, earthquake insurance), and in such amounts, as may from time to time be required by City against the same or other hazards, provided such additional insurance is available at commercially reasonable rates. (j) Pollution Liability insurance - project specific limits (k) Excess Liability Insurance (1) Professional Liability I E&O (design professionals, etc) - project specific limits All policies of insurance required by the terms of the Deed of Trust shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the 8-2 7-62 terms of such policy, notwithstanding any act or negligence of Borrower which might otherwise result in forfeiture of said insurance, and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against Borrower. 2. Delivery of Policies. Pavment of Premiums. All policies of insurance shall be issued by companies admitted to issue insurance policies in the State of California, and rated A V or better by AJ'v! Best, and in amounts in each company satisfactory to City. All policies of insurance shall have attached thereto a lender's loss payable endorsement for the benefit of the holder of the first priority deeds of trust on the property and Improvements, and then for the benefit of City in form satisfactory to City. Borrower shall furnish City with an original copy of all policies of required insurance. At least thirty (30) days prior to the expiration of each such policy, Borrower shall furnish City with evidence satisfactory to City of the payment of premium and the re-issuance of a policy continuing insurance in force as required by the Deed of Trust. All such policies shall contain a provision that such policies will not be canceled or materially amended, which terms shall include any reduction in the scope of limits of coverage, without at least thirty (30) days prior ",Titten notice to City. In the event Borrower fails to provide the policies of insurance required by the Deed of Trust, City may procure such insurance or single- interest insurance for such risks covering City's interest, and Borrower will pay all premiums thereon promptly upon demand by City, and until such payment is made by Borrower the amount of all such premiums, together with interest thereon at the rate often percent (10%) per annum or the maximum rate allowed by law, whichever is less. In the event any lender, who has a secured interest in the Property, requires additional insurance and/or insurance with greater coverages than that required by this Statement of Insurance Requirements, Borrower agrees to provide to and name the City on such policies providing greater and additional coverages. Borrower, by execution of this Statement of Insurance Requirements, agrees to provide the required insurance during the term of the loan and to require all successors in interest to agree to provide such coverages for the benefit of the City. Borrower acknowledges that performance of the covenants contained herein are a material inducement to making the loan to Borrower. . 3. Si!!nature Authoritv. ..oJl individuals signing this Statement of Insurance Requirements for a party which is a corporation, lirnited liability company, partnership or other legal entity, or signing under a power of attorney, or as a trustee, guardian, conservator, or in any other legal capacity, covenant to the City that they have the necessary capacity and authority to act for, sign and bind the respective entity or principal on whose behalf they are signing. B-3 7-63 Executed this _ day of .2009. "BORROWER" CIC Landings 2, L.P., a California limited partnership By: Chelsea Investment Corporation A California corporation, i general partner . B-4 7-64