CITY COUNCIL REGULAR METING AGENDA PACKET 1-20-26

Page 2 of 4 management staff. The City owns the underlying real property at 5300 Case Avenue, subject to a Ground Lease, dated April 1, 1996, that includes the requirement for 68 of the 146 units to be affordable, among other terms. In accordance with the Ground Lease, the City owns the land and AF Evans Company, Inc. (AF Evans) owns the buildings and improvements on the site, with ownership assigned to two Limited Partnership entities fully controlled by AF Evans, Case Avenue Associates (Case) and Promenade Housing Associates (Promenade). Case and Promenade respectively developed the two portions of the Property: Case developed and owns the affordable multifamily rental residential project (Affordable Project) while Promenade developed and owns the market-rate portion of the Property (Market Rate Project). The existing ground lease expires in 2051. The Property's construction financing included City loans as well as federal low-income housing tax credit construction funding. Consequently, the Property has additional affordability requirements based on these and other programs, including the federal HOME Investment Partnership (HOME) Program. The California Tax Credit Allocation Committee (CTCAC) regulatory agreements, which restrict 13 units at 30 percent AMI, as previously noted, expire in 2027. On January 27, 2011, the City consented to the substitution of Bayside Communities, LLC (Bayside) for A.F. Evans Company, Inc. as the General Partner of Case Avenue Associates and the General Partner of Promenade Housing Associates. Bayside became the new owner of Promenade Apartments. In August 2024, the City approved the sale of Promenade Apartments from Bayside to Promenades LP (OAHS Promenades) and assignment of the existing ground lease to OAHS Promenades. OAHS Promenades repaid all outstanding City loans that totaled $1,011,328 ($998,062 principal loan balances plus $13,266 in accrued interest). DISCUSSION Ground Lease Amendment Upon acquiring the Property in August 2024, OAHS Promenades intended to pursue a 4 percent Low-Income Housing Tax Credit (LIHTC) resyndication to secure an allocation of LIHTC funding. The LIHTC allocation would have financed the substantial rehabilitation of the Property and converted the property into a 100 percent affordable housing project, by converting the 65 non-restricted market rate units to affordable, and subjecting the Property to a regulatory agreement that would have resulted in all 146 units being restricted as affordable, tax credit-restricted units. However, in June 2025, OAHS Promenades notified the City that they were not in a position to apply for LIHTC financing as originally planned and instead had qualified for a HUD-secured Section 223(f) loan in the amount of approximately $26 million. This new HUD financing will allow OAHS Promenades to pay off its current loan, which is a short-term bridge loan at 7.25 percent interest that is due in less than 8 months, and refinance with the HUD-insured loan with an estimated interest rate of 5.75 percent. The reduction in interest-related payments would stabilize the Property. The new HUD loan would also allow for $1.18 million for the rehabilitation of the Property in the next 12 months, with the completion of the rehabilitation projected for the first quarter of 2027. There will also be a $675,000 ($4,623 per unit) initial deposit into the reserve for replacement fund to further stabilize the Property. The remainder of the HUD loan covers other transactional costs, including acquisition costs (~$21.3 million) and Page 26 of 683