CITY COUNCIL REGULAR METING AGENDA PACKET 1-20-26

Page 3 of 4 closing costs. OAHS Promenades will also receive approximately $2 million in cash. OAHS Promenades has also indicated they intend to apply for LIHTC funding in 2028 after the two-year lockout for prepayment under the new HUD loan. Once OAHS Promenades is able to obtain tax credit allocation in 2028, it would undertake further rehabilitation of the Property and also pay off this HUD-insured loan. The Property's rehabilitation would be accompanied by the same previously-planned conversion of market-rate to affordable units, based on the terms of the tax-credit financing. As a condition of issuing the HUD Section 223(f) loan for this project, HUD is requiring the ground lease to include a fixed rent, a term extension, and the incorporation of HUD’s Ground Lease Addendum. Accordingly, the following specific amendments to the current ground lease are proposed: • The Ground Lease will be amended to modify the Ground Lease Rent to a fixed amount of $220,000 annually, without a reappraisal of the Property. The current ground lease stipulates the Ground Lease Rent at sixty percent (60 percent) of the annual surplus cash, resulting in a variable ground lease amount from year to year. The ground lease rent amount is required by HUD to be a fixed amount in order for HUD to underwrite the loan. • The term of the Ground Lease will be extended from April 1, 2051 to April 1, 2077, 81 years from the original ground lease commencement date. The existing affordability restrictions for the 68 City-restricted units are also extended through April 1, 2077. • A HUD Ground Lease Addendum (Attachment B to the Resolution) will be incorporated into the existing Ground Lease. The City will also consent to a HUD Regulatory Agreement (Attachment 2), which will be recorded against the Property. City staff has reviewed the proposed terms and amendments in consultation with legal counsel, and supports the Ground Lease amendment, which will allow OAHS Promenades to secure the HUD Section 223(f) loan, which is a cost-effective option for preserving and making the most urgent improvements at the Property until OAHS Promenades is able to obtain tax credit financing. The amendments would also secure the long-term affordability of the Property by extending the term of the ground lease and the associated City affordability restrictions through 2077. EQUITY AND SUSTAINABILITY The action directly implements the Housing Element that serves as the City’s strategy for addressing its housing needs for all residents at all income levels. Housing Element Policy 3.3 is to preserve the affordability of restricted units affordable to extremely low-, very low- and low-income households for the longest term feasible, including requiring units to be deed- restricted in perpetuity whenever allowable, to minimize the risk of affordable units being converted to market-rate housing over time. OUTREACH No outreach was conducted, as this item is a routine matter of City business. Page 27 of 683