Loading...
Transmittal - 8/22/2022 REDEVELOPMENT AGENCY of SALT LAKE CITY MAYOR ERIN MENDENHALL Executive Director DANNY WALZ Director DATE: August 22, 2022 PREPARED BY: Corinne Piazza and Kate Werrett, Project Managers RE: 1500 W. North Temple redevelopment project with Brinshore Development REQUESTED ACTION: Approval of terms for a Seller’s Note as part of the land disposition and consideration of a $4,000,000 gap loan request to Brinshore Development for a mixed-use, affordable housing project located at 1500 W. North Temple in the North Temple Project Area. POLICY ITEM: Land Disposition & Affordable Housing BUDGET IMPACTS: Land Disposition: $4M Seller’s Note, paid back plus interest, does not require the Agency to use any upfront funds. Gap Loan: $4M Agency gap loan, paid back plus interest (specific funding sources to be determined). EXECUTIVE SUMMARY: The Redevelopment Agency of Salt Lake City (“Agency”) selected Brinshore Development (“Brinshore”) through a Request for Proposals (“RFP”) process in 2018 to redevelop the Agency’s property located at 1500 W. North Temple (“Property”), formerly the location of the Overniter Motel. The Property is designated as an RDA Tier I Property due to it being over 2 acres (at 2.07 acres) and identified in a City adopted master plan, specifically as an “ideal spot for a signature transit- oriented development” in the Cornell Station Area Plan. Please see Attachment A: Parcel Location Maps for reference. Brinshore’s concept for the project, known as Spark (“Project”) implements the Agency’s vision for the Property based on the goals and objectives outlined in the North Temple Project Area Plan, the North Temple Boulevard Plan, city priorities, and as outlined in the RFP. The Project is designed to deliver a total of 200 units of workforce and family-size affordable housing, including 63 family-sized units ranging from 20-80% AMI and two, three, and four-bedroom units. Additionally, the Project includes neighborhood serving commercial space, structured parking, a mid-block walkway that connects Cornell Street and 1460 West (to be publicly accessible and privately owned and maintained), a high level of concern for architectural and urban design principles, transit-oriented design, maximized density, sustainable construction and building design practices, as well meeting Davis Bacon fair wage requirements for construction. The Project began in 2018 and is now in the final due diligence stage with Brinshore finalizing their capital stack in anticipation of closing by the end of the year. The Project received Low Income Housing Tax Credits (“LIHTC”) and as such, has a closing deadline of March 1, 2023. The Project is anticipated to begin construction in Spring 2023 with Project completion in 2024. The proposed capital stack includes the following requests from the developer: • The Agency finance the $4,000,000 sale’s price of the Property (“Seller’s Note”). The purchase price was determined in the RFP and 2018 Purchase and Sale Agreement between Brinshore and the Agency. The Seller’s Note will be paid back in full plus interest. • The Agency provide an additional $4,000,000 in loan proceeds (“Gap Loan”) to cover the remaining financing gap that has occurred due to escalating construction costs and remains even after the developer secured additional funding sources and implemented cost saving measures to reduce Project costs. These requests are in addition to the $2,500,000 the Agency awarded Brinshore as part of the 2018 Notice of Funding Availability (“NOFA”) for affordable housing and the $3,956,000 the Agency awarded Brinshore in the 2019 NOFA. RDA FINANCE COMMITTEE RECOMMENDATION: On August 15, 2022 the Finance Committee (“Committee”) convened to review the Seller’s Note terms, the $4,000,000 Gap Loan request, and Gap Loan terms. The Committee unanimously recommends approval of the funding request and the terms as outlined in the following: Attachment B: 1500 W. North Temple - Seller’s Note Term Sheet and Resolution and Attachment C: 1500 W. North Temple – Gap Loan Term Sheet. ANALYSIS & ISSUES: Since entering into a Purchase and Sale Agreement with the Agency in 2018, Brinshore has been actively pursuing financing for the Project, which is estimated at ~$93 million. To date, Brinshore has secured funding through 4% Low Income Housing Tax Credits and received ~$42.5 million in the competitive application process. Additionally, Brinshore has secured the following*: Source Amount 4% Low Income Housing Tax Credits (LIHTC) ~$42,540,000 State Tax Credits ~$1,280,000 Permanent Loan ~$26,700,000 Seller’s Note Financing ~$4,000,000 RDA Loan (Including Gap Financing Request) ~$10,456,000 SLC HOME Funds (SLC Housing Sustainability) ~$1,000,000 State Olene Walker HOME Funds ~$1,000,000 State Olene Walker HTF Funds ~$1,000,000 Salt Lake County HOME Funds ~$700,000 Philanthropic Money ~$1,500,000 Rocky Mountain Power Rebate ~$100,000 Deferred Developer Fee ~$3,000,000 Total ~$93,276,000 *Please note that the financing information is high level and represents only general commitments or estimates at this time and is subject to change as Project financing progresses. SELLER’S NOTE FINANCING: Brinshore is requesting that the Agency finance the $4,000,000 sales price of the Property in the form of a Seller’s Note. In accordance with the Real Property Disposition Policy for Tier I properties, the Board was provided an update on the pre-disposition, developer selection, and developer agreement process. The proposed Seller’s Note of $4,000,000 is based on the appraised value when the property was purchased and was determined via the 2018 pre-disposition and RFP process and subsequent Purchase and Sale Agreement between the Agency and Brinshore. The Seller’s Note financing includes the following: • The full repayment to the Agency, plus interest to invest in new projects in the future. • The Agency does not use any current funds to finance the Seller’s Note. • The Agency will receive payments over time which helps offset upfront construction costs and makes the Agency’s public benefits requirements within the Project more feasible. The requested interest rate for the $4,000,000 Seller’s Note is 1.25%. Agency staff has negotiated this rate with Brinshore based on Project financials and full repayment of the Seller’s Note, plus interest, within a 30-year timeframe and cash flow repayment. Agency staff recommends approval of the Seller’s Note in accordance with the Agency’s existing contractual obligations and commitment to the Agency’s extensive public benefits requirements for the Project. For full terms and details of the Seller’s Note, please see: Attachment B: 1500 W. North Temple - Seller’s Note Term Sheet and Resolution. GAP FUNDING REQUEST: Due to escalating construction costs, the Project has seen a significant cost increase which has created a funding gap. In order to move forward with a financially feasible Project, Brinshore has addressed the funding gap in the following ways: Additional Funding Sources: Brinshore has applied for and received $500,000 in Utah Housing Corporation increased basis. They’ve also applied for philanthropic funds as well as an additional $1,400,000 from Olene Walker, neither of which have been finalized or awarded. Value Engineering: Brinshore has worked with their design, engineering, and construction team to identify approximately ~$6,100,000 in cost savings, while still preserving the overall goals for the Project. Modifications include the removal of a level of underground parking reducing spaces from 134 to 100, removing the balconies, reconfiguring a portion of the units, and reducing the green roof space. Developer Contribution: As the Agency’s selected private-sector partner, Brinshore brings extensive development expertise and borrowing capacity to invest into the Project and carries significant risk to complete the Project that the Agency does not have to assume. Brinshore’s equity contribution includes the following: • Funding predevelopment (~$1,600,000) • Deferred developer fee ($3,000,000) • Guarantees (construction completion, operating deficit, tax credit compliance) • Commercial Master Lease (~$70,000/year) After securing the additional sources of funds listed above and implementing cost saving measures, the Project still faces a $4,000,000 funding gap. Brinshore’s request for a Gap Loan allows the Project to continue toward a year-end closing. Agency staff has identified the following potential sources the Board may wish to consider reallocating for the Gap Loan request. The potential option(s) below aim to leave funding in each program so that reallocating funds to support the Project does not empty any one account. Fund Program Amount Available Project Gap Loan Amount Remaining Primary Housing Fund Property Acquisition $1,599,880 $1,500,000 $99,880 Multiple North Temple Strategic Intervention Funds $2,936,762 $1,500,000 $1,436,762 Housing Development Loan Fund (HDLP) Fall 2022 NOFA $7,000,000 $1,000,000 $6,000,000 Total for Project Gap Loan - - $4,000,000 - The requested interest rate for the Gap Loan is 2%. Agency staff has negotiated this rate with Brinshore based on Project financials and full repayment of the Gap Loan, with interest, within a 30-year timeframe and cash flow repayment. The Gap Loan terms also match those of the previously awarded NOFA funds allowing the Agency to combine the funds into one loan, reducing complication and allowing the Agency to issue and manage one loan total for efficiency. For full terms and details of the Gap Loan, please see: Attachment C: 1500 W. North Temple – Gap Loan Term Sheet. If the Gap Loan is approved, total Agency participation in the Project would be $14,456,000. The initial total development cost in August 2020 was ~$60 million and the Agency committed $6,456,000 in NOFA funds as well as the $4,000,000 Seller’s Note for a total of $10,456,000 putting Agency participation at 17.5% of the total development cost. Currently, with the total development cost at ~$93 million, and the Agency’s potential addition of the $4,000,000 Gap Loan, the Agency’s participation would be 15.5% of the total development cost. If the Board wishes to approve funding the Gap Loan, Agency staff will return to the Board with the applicable budget amendment in October and the subsequent potential Gap Loan final approval in the November Board meeting. PROJECT OVERVIEW & PUBLIC BENEFITS: The proposed Spark mixed-use Project will include 200 residential units including affordable workforce and family-size housing, structured parking, a mid-block walkway that connects Cornell Street and 1460 West (to be publicly accessible and privately owned and maintained), a high level of concern for architectural and urban design principles, transit-oriented design, maximized density, sustainable construction and building design practices, as well meeting Davis Bacon fair wage requirements for construction. Timeline: • Brinshore is currently finalizing the Project’s financing and is progressing towards a year-end closing with construction anticipated to begin in Spring 2023 and Project completion in 2024. At the latest, the Project must close by March 1, 2023 per LIHTC requirements, or it will forfeit the ~$42.5 million LIHTC allocation, making it no longer financially feasible. Developer Experience: • Brinshore is an Illinois-based developer founded in 1995 with a focus on strengthening neighborhoods and a development track record of over 7,000 units over the last 27 years. Brinshore is one of the largest developers of affordable housing in the United States and specializes in creating authentic projects that encourage an active, healthy lifestyle and serve as a catalyst for other development. Housing Affordability: • The Project has 200 units including 63 family-sized units that range from 20-80% AMI and two, three, and four-bedroom units. Per the 2017 Board resolution, 50% of the units are affordable to households at or below 60% AMI. Additionally, 50% of the units are affordable to households at 70-80% AMI per LIHTC standards, which are currently market rate rents for the North Temple area. • The unit mix allows the Project to generate as much LIHTC equity as possible, lowering the financing gap as all 200 units are income and rent restricted. However, due to the naturally occurring lower rents in the North Temple Area, the 70 and 80% restricted units are above current market rate rents for the neighborhood. This allows the Project mix to have all restricted units to maximize LIHTC equity, meet the Board’s goals that 50% of the units be in market rate range, while also restricting the 70 and 80% units to ensure affordability over the long term as the North Temple Project Area continues to grow. Neighborhood Serving Commercial Space: • As currently designed, there is a proposed ~4,000 square foot daycare facility which will serve Spark residents and low-income members of the community at a sliding scale cost. There is also a ~5,000 square foot retail space and Brinshore is currently working with local organizations to lease the commercial space, including reaching out to the Economic Development department to connect with potential local tenants. Structured Parking: • The Project includes 100 structured parking spaces that are free to low-income residents per LIHTC requirements and are designed to be safe, functional, and attractive for residents and visitors. Mid-Block Walkway: • The mid-block walkway that connects Cornell Street and 1460 West is consistent with the North Temple Boulevard Plan and will be publicly accessible and privately owned and maintained. Architecture, Sustainable Construction, and Building Design Practices: • The Project incorporates a high level of concern for architectural and urban design principles including a transit-oriented design and maximized density. It also incorporates sustainable construction practices and building design including Enterprise Green Communities and ENERGY STAR Multifamily New Construction, ~24 bicycle parking spaces, ~10 EV charging stations, as well as Davis Bacon fair wages for construction. ATTACHMENTS: • Attachment A: Parcel Map • Attachment B: 1500 W. North Temple - Seller’s Note Term Sheet & Resolution • Attachment C: 1500 W. North Temple - Gap Loan Term Sheet • Attachment D: Spark Project Conceptual Renderings ATTACHMENT A: Parcel Location Maps ATTACHMENT B: 1500 W. North Temple - Seller’s Note Term Sheet & Resolution ATTACHMENT C: 1500 W. North Temple - Gap Loan Term Sheet TERM SHEET FOR LOAN TO BRINSHORE DEVELOPMENT, LLC 1500 W. North Temple The terms described on this Term Sheet represent the terms for an RDA Loan and together with the Seller’s Note, represent the RDA’s maximum contribution to the financing of the Project. Following receipt of the senior lender and tax credit investor final commitments to the Project, and final proformas for the Project, the RDA and Borrower will verify and adjust the terms of the loan listed below consistent with the respective requirements of the RDA. LOAN TERMS Borrower: Brinshore Development, LLC Property: 1500 West North Temple Amount: Not to exceed $10,456,000* Sources of funds include: - $2,500,000 the RDA Board of Directors set aside for the Project as part of the 2018 Notice of Funding Availability (NOFA) for affordable housing through the Housing Development Loan Program (HDLP). The terms for the $2,500,000 NOFA funding will match the terms shown here. - $3,956,000 the RDA Board of Directors set aside for the Project as part of the 2019 Notice of Funding Availability for affordable housing through the HDLP. The terms for the $3,956,000 NOFA funding will match the terms shown here. - Up to $4,000,000 of Agency funding shall be classified as gap financing and shall only be used if the Project has a funding gap at the time of closing, after the Agency has determined all other sources of primary and subordinate financing have been maximized. This financing has not formally been allocated by the Board. *Please note this Project will utilize RDA funding both in connection with this loan and in the form of a Seller’s Note financing the Borrower’s acquisition of the Property. The full RDA financing amount with the Seller’s Note included is not to exceed $14,456,000. Project Description: The overall project consists of the new construction of a mixed- income, mixed-use project with approximately: 200 housing units, ~100 parking spaces, ~24 bicycle parking spaces, a ~4,000 SF daycare, and approximately ~5,000 SF of neighborhood scale commercial space. The estimated total project cost is ~$93,000,000. 100% of the 200 units will be deed restricted affordable housing. Affordability Restrictions: All units will be deed restricted for 50 years at 80% AMI or less. A minimum of 50% of the units will be at 60% AMI or less. Term: 30 years Amortization: 30 years, cash flow repayment Interest Rate: 2% Interest Rate Interest shall accrue during construction, beginning upon the first disbursement of funds. Accrued interest during construction to be added to the loan balance. Repayment Payments commence upon conversion of the senior construction loan to permanent financing. Repayment shall be based on available annual cash flow after senior lender payments and any required tax credit investor fees. The RDA will receive 40% of available cash flow and the Developer will receive 60% of available cash flow until the deferred developer fee is fully repaid. The RDA will have discretion on how its share of cash flow is allocated towards repayment of the RDA Loan and Seller’s Note, which will be defined in the loan documents. Once the deferred developer fee is fully repaid, the RDA will receive 60% of available cash flow. The RDA will have discretion on how its share of cash flow is allocated towards repayment of the RDA Loan and Seller’s Note, which will be defined in the loan documents. A balloon payment of any outstanding balance shall be due upon maturity. Collateral: A mortgage lien on the Property that may be subordinated to the senior lender but will be superior to other subordinate financing sources. The RDA’s two sources of funding for the Project, the RDA Loan and Seller’s Note, will be in a shared second position. Guarantors: Corporate guarantee from Brinshore Development, LLC Deferred Fee: At the RDA’s sole discretion, Applicant will maximize deferred developer fee and / or equity contributed as a source to fund the Project. Deferred developer fee and / or equity will be at least $3,000,000. Disbursement: Loan proceeds shall be disbursed as determined in the loan documents. Fees: Closing costs and legal fees shall be paid by the Borrower including, but not limited to, the cost of title search and insurance, credit reports, and attorney fees. Fees will be payable at loan closing. Use of Funds: Funds shall be used for construction and development of 1500 W. North Temple, including, but not limited to: groundwork, infrastructure, construction, site mitigation, and any similar uses. CONDITIONS FOR LOAN CLOSING Prior to loan closing, the Applicant will complete the following: • RDA approves all terms of the loan. • Close on the purchase of the Property, meeting all the requirements of the Real Estate Purchase Agreement. • Secure sufficient sources of financing for the Project. Borrower will maximize available conventional financing from senior lender, tax credit equity, and funding from subordinate lenders. Borrower will provide evidence of seeking and maximizing all available financing opportunities for the Project, including but not limited to State Olene Walker Housing Trust Fund, Salt Lake County HOME and Salt Lake City HOME funds. • RDA approves final schedule of sources and uses and the project proforma. • Execute loan documents (e.g. promissory notes, loan agreements, security documents, and guarantees) as deemed necessary by the RDA and its legal counsel. • Record land use restriction agreements for affordable housing in the Project. • Record easement for public access to the mid-block walkway connecting Cornell Street and 1460 West. • Receive all necessary approvals from the City, as further defined in the loan agreement. • Receive approval from the RDA and its legal counsel of all matters pertaining to title, legality of the loan, and the legality, sufficiency, and the form and substance of all documents that are deemed reasonably necessary for the loan transaction. • Provide evidence of insurance in such amounts and with such coverage as deemed necessary by the RDA for the Property. • Such other terms as recommended by the RDA’s legal counsel and staff. ATTACHMENT D: Spark Project Conceptual Renderings (Subject to Change)