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Transmittal - 7/21/2023 SALT LAKE CITY CORPORATION 451 SOUTH STATE STREET, ROOM 118 WWW.SLC.GOV · WWW.SLCRDA.COM P.O. BOX 145518, SALT LAKE CITY, UTAH 84114-5518 TEL 801-535-7240 · FAX 801-535-7245 MAYOR ERIN MENDENHALL Executive Director DANNY WALZ Director REDEVELOPMENT AGENCY of SALT LAKE CITY STAFF MEMO DATE: July 21, 2023 PREPARED BY: Danny Walz, Director RE: Redevelopment Agency of Salt Lake City Tenant Wealth Building Initiative led by the Perpetual Housing Fund of Utah, LLC (PHF) REQUESTED ACTION: Review, and consider approving via resolution, the proposed Term Sheet POLICY ITEM: Affordable housing BUDGET IMPACTS: $10 million in American Rescue Plan Act funds (Rescue Plan Funds) EXECUTIVE SUMMARY When the City first received notice of the significant Rescue Plan Funds that it would receive, the Administration set out to identify the principles by which it would propose this money be allocated. In addition to taking care of the City’s most urgent needs (revenue replacement, public safety, and emergency shelter), the Administration’s goal is to allocate a large portion of Rescue Plan Funds in a way that leverages private investment and creates lasting, generational changes for families in Salt Lake City. This proposal, to be carried out in partnership with the Perpetual Housing Fund of Utah, LLC (PHF), provides funding for an affordable housing development with a unique tenant wealth building program. The City’s funds are anticipated to be used as transformational seed funds for development costs, including the cost for PHF to acquire existing structures to construct affordable units. With the help of other partners and the leveraging of City funds, PHF’s ultimate organizational goal is to provide approximately 1,000 safe, stable, and affordable homes in Salt Lake City that benefit individuals and families by helping them build income. Over the next 20 years, PHF anticipates that this investment will translate into $50 million in the hands of lower- and middle-income City residents. 1 On June 6, 2023, Salt Lake City Council adopted an ordinance to amend the final budget of Salt Lake City, which included the approval of a $10 million contribution in Rescue Plan Funds to PHF, contingent on the Council’s approval of an associated term sheet. This memo reviews PHF’s proposal and the terms or conditions upon which the approved funding would be released to the organization. The $10 million in Rescue Plan Funds would be provided to PHF of Utah to acquire a condominiumized portion of the larger project located at 515 East 100 South. These funds would be committed to acquiring and developing 60+ units that will be affordable to those earning 25% to 50% of the area median income (AMI) along with participation in PHF’s tenant wealth building initiative. As part of this agreement, PHF plans to develop over 1,000 affordable units within the next 20 years. The purchase of the 515 East 100 South property is currently under contract by 515 Tower LLC, an entity owned by PHF of Utah and Rocky Mountain Homes Fund (RMHF). Once the property has been condominiumized, and all other conditions precedent have been met, the Rescue Plan Funds will be used to buy the condominiumized portion of the building and RMHF will fully exit the 515 Tower LLC. RMHF’s primary interest will be in a second phase of development – future new construction on a portion of the property, which will be owned by a separate entity. None of the City’s Rescue Plan Funds will be spent on this second phase. BACKGROUND/DISCUSSION About the Perpetual Housing Fund of Utah PHF is a Utah non-profit affordable housing organization whose mission is to reimagine existing housing programs to share profits with PHF project residents. PHF exists to help remove financial barriers that keep a rapidly expanding portion of population from building wealth where they live. Unlike other non-profit affordable housing development entities that use profits to build more affordable units, PHF will share their profits with residents in a variety of ways, as detailed in the next section. PHF plans to develop projects in Salt Lake City that provide rent and income restricted affordable units. PHF anticipates breaking ground on two affordable housing projects in Salt Lake City in 2024 that will serve those at 25-120% AMI. From there, they plan to develop over 1,000 affordable units over the next two decades. PHF’s first two projects will be located in Salt Lake City, with a priority to acquire additional land in the City for subsequent projects. Through this investment from the City, PHF will be able to develop wealth-building affordable housing units at the 515 East 100 South location, and ensure that future PHF projects are not driven by maximizing return to financial investors but rather remain committed to sharing wealth with PHF project residents. 2 How the profit-sharing model works PHF projects are anticipated to be financed with traditional affordable housing resources and may include Low Income Housing Tax Credits (LIHTCs). Under PHF’s model, PHF will share with PHF project residents the majority of profits generated from annual cash flow, long-term equity generation, and future refinance and sale proceeds. The amount of cash flow and profit (which will translate into payouts to the tenants) will largely depend on annual rent increases and the paydown of the project’s mortgage. Over the past several years, area median incomes (AMIs) have been increasing much faster than is projected when development projects are underwritten and financed. With LIHTC-funded projects, rental rates are tied to AMIs and, as such, rents have been increasing faster than projected. Traditional developers and their investors have been receiving the financial benefits of these rapidly escalating rents that increase annual cash flow of the project. Instead of reaping these benefits for the developer and investors, PHF would share these financial benefits with PHF project residents. PHF has established a nonprofit tenant entity that will have a permanent interest in the development and the contractual obligation to ensure PHF project residents will receive profits from the project. The ownership and profits-interest structure will vary slightly, depending on if the project utilizes LIHTCs and has a tax credit investor in the ownership structure during the first years after a PHF project is placed into service. The ownership structure and profits-interest will generally be as follows: LIHTC PROJECTS: YEAR 1 – 15 OWNERSHIP % PROFIT % LIHTC INVESTOR 99.99% 10% PHF & FUND INVESTORS 0.01% 15% RESIDENTS/TENANT NPO 0.00% 75% NON LIHTC PROJECTS & LIHTC PROJECTS: YEAR 16 + OWNERSHIP % PROFIT % PHF & FUND INVESTORS 99.99% 25.00% RESIDENTS/TENANT NPO 0.00% 75.00% The profits-interest not otherwise allocated to the PHF project residents will offset costs associated with developing and managing the units. PHF project residents will not have 3 ownership or shares in the real estate itself. Rather, there will be an agreement between the tenant nonprofit entity and the PHF project residents to distribute proceeds in the following ways. • Annual rent rebate – A portion of the project’s annual cash flow (profit after collecting all rent and other income, paying all operating expenses, paying debt service, and setting aside cash reserves for future repairs) that would typically be received by the developer will be allocated to current PHF project residents as a rent rebate via cash payment to be distributed on an annual basis. • Profit payout – When there is an event that generates profit, or further cashflow (refinance, exit of the limited partner, etc.), all the cumulative residents over time will receive a payment that represents a proportionate share of the available profit. The proportion of the profit a household receives will depend on the length of time they lived in a PHF unit. With projects that involve LIHTCs, the profit generating event will often happen 15 years after the project is placed into service because that's when the tax credits end and the LIHTC investor exits the ownership structure. • Profit advance – PHF will set aside a portion of its initial developer fee for the project to fund a 0%, zero payment revolving fund to help PHF project residents access a portion of their anticipated profits early in the event of an emergency or major life event (medical, educational, entrepreneurial, etc.). These funds are replenished from the PHF project resident’s share of profit whenever a profit payout would naturally happen. • Profit tradeup – PHF will be co-developing hundreds of units with the Rocky Mountain Homes Fund (RMHF), an entity that provides a missing-middle home ownership option for households making 60-120% AMI (and occasionally less). Subject to availability, PHF tenants will be able to transfer their accruals from a PHF project for a 1:1 reduction in purchase price on a RMHF home. PROJECT DETAILS 515 East 100 South • Adaptive reuse of an existing office building and new construction of an additional building, to occur in phases. • This property will have multiple social-equity based future uses and is slated to be acquired by Fall 2023. The floors on which affordable units are constructed will be condominiumized and separated and then sold to PHF prior to Rescue Plan Funds being utilized on the project. The $10 million in Rescue Plan Funds would be used by PHF to purchase the condominiumized portion of the overall building. o Phase 1: Adaptive reuse.  Estimated to begin construction Q2 2024 and be completed by the end of 2024. 4  60 or more units with a mix of studios, 3-Bedrooms, and 4-Bedrooms located on floors 3-11 of the existing office tower.  All 60+ residential units will be affordable to incomes at 25-50% of AMI.  Currently slated to also include profit-sharing coworking/office model similar to PHF in other floors. o Phase 2: New building. (Note: Depending on PHF’s pipeline, PHF may choose to begin a different project in Salt Lake City with more units prior to beginning this project which could delay or alter the amount of units in this project.)  Estimated to begin construction Q3 2024 and be completed in 2026.  Approximately 40 new units (depending on final construction estimates/cost constraints) with a planned mix of 5% Studios, 25% 3- Bedroom, and 70% 2-Bedroom (depending on final construction estimates/cost constraints)  All ~40 units will be PHF affordable to (25-50% AMI)  Affordable daycare on bottom floor, available to building users and community members of all incomes. CONDITIONS FOR FUNDING The Administration (acting through the RDA) and PHF must execute a funding agreement with conditions to ensure that Rescue Plan Funds are deployed in accordance with federal regulations and in a manner that brings the greatest public benefit for City residents and prospective residents. These conditions have been outlined on the Term Sheet under Attachment A for the Board’s review. As a condition of the $10 million budget allocation, the Board must review and approve the Term Sheet. The Term Sheet will also serve as a Concerted Community Revitalization Plan (CCRP), which demonstrates a commitment from a local government and community based organization to develop affordable housing but also to further invest in the communities where the affordable housing is developed. By utilizing the Term Sheet as CCRP, PHF will likely garner additional points for their upcoming LIHTC application and help ensure an accelerated delivery of their affordable units. NEXT STEPS The Board should review the Term Sheet included under Attachment A to determine if adequate for future approval. ATTACHMENTS A. Redlined Term Sheet B. Resolution: Funding Agreement Term Sheet – Perpetual Housing Fund 5 ATTACHMENT A: REDLINED TERM SHEET 6 ATTACHMENT A DRAFT EXHIBIT A: FUNDING AGREEMENT TERM SHEET Redevelopment Agency of Salt Lake City Tenant Wealth Building Initiative A Concerted Community Revitalization Plan between the Redevelopment Agency of Salt Lake City and The Perpetual Housing Fund of Utah, LLC Funding Agreement Term Sheet Perpetual Housing Fund Purpose The purpose of this Tenant Wealth Building Initiative is to address the diminishing opportunities for homeownership and historically unequal access to real estate wealth and equity within Utah’s capital city. This initiative’s cooperation between the Redevelopment Agency of Salt Lake City (RDA) and The Perpetual Housing Fund of Utah, LLC (PHF) seeks to foster the creation of affordable, missing middle, and entry-level housing that aides in creating meaningful wealth and financial equity for city residents. Parties The Perpetual Housing Fund of Utah, LLC, a Utah limited liability company (PHF), and the Redevelopment Agency of Salt Lake City (RDA). Property 515 East 100 South, Salt Lake City, Utah 84102 Project Description and Affordability PHF will use the Rescue Plan Funds by June 30, 2024 to acquire real property that will have been converted into large condominiums that will be subsequently subdivided into 60 or more residential units in the existing building at 515 eastEast 100 southSouth (515 Project). These units will be converted from office spaces to residential apartments and will be affordable to those at 25-55% of the area median income (AMI). The 515 Project tenants will participate in the tenant wealth building initiative, which shares the profits of the residential project through rent rebates, profit payouts, profit advances, and profit trade-ups. Proposed Funding Terms •• Amount: $10 million in America Rescue Plan Act funds (Rescue Plan Funds). •• Term: Concurrently with the distribution of the Rescue Plan Funds, PHF shall record a restriction against the condominiumized portion of the building that obligates PHF to develop 60 or more rent andrestricted apartments at 25-50% AMI that will be income restricted apartments for those at 25-55% AMI for 50 years. The restriction will also require the wealth building initiative to be maintained for a term of 50 years (the Restrictive Covenant). •• Disbursement: One lump sum upon meeting the conditions for funding, as detailed below. PHF will not be required to repay the funds like a traditional loan. Style Definition: Body Text Style Definition ... 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Formatted ... 7 •• Return on Investment: As permitted by the American Rescue Plan Act (ARPA), as a transformational seed funder, the RDA will be treated like an equity investor in PHF and receive a 2-6% return paid annually every year. •• Use of Funds: PHF must deploy 100% of the funds by June 30, 2024 on ARPA eligible uses. • Additional Projects: For non-monetary consideration in addition to the $10 million investment, PHF will commit to developing additional affordable housing projects in Salt Lake City. More specifically, by year 20, PHF or its affiliates and subsidiaries will have Formatted ... Formatted ... Formatted ... 8 • developed 1,000 additional units in Salt Lake City that will be affordable for those between 25% and 65% AMI. These additional projects shall also include the tenant wealth building initiative and, if new construction, will achieve an energy star score of 90 or higher, participate in the City’s Elevate Buildings Program, and be designed to operate without onsite fossil fuel combustion. •• Waiver of Sustainable Development Policy: PHF’s is obligations to comply with the RDA’s Sustainable Development Policy may be waived, if necessary, in part due to the adaptive reuse element of the 515 Project as well as PHF’s commitment to incorporate these standards into the new construction of the additional projects, even though such incorporation is not required under the policy. Conditions for RDA to Distribute Funds Prior to dispersing the Rescue Plan Funds, the PHF will complete the following: •• PHF will be ready to close on the acquisition of the condominium spaces within which to build 60 or more affordable apartments on or before June 30, 2024. Implied in this requirement is that PHF’s predecessor-in-interest will have acquired the Property and condominiumized the Property so the portions within which the residential apartments will be constructed can be acquired by PHF. •• PHF and RDA will agree on the form of the Restrictive Covenant to be recorded against the Property concurrently with funding. The Restrictive Covenant will require PHF to maintain, for a term of 50 years, 60 or more affordable housing units at 25-55% AMI, maintain a mix of unit sizes, and the following wealth building opportunities for tenants: o Annual rent rebate – A portion of the project’s annual cash flow (profit after collecting all rent and other income, paying all operating expenses, paying debt service, and setting aside cash reserves for future operations and repairs) that would typically be received by the owner will be allocated to current PHF project residents as a rent rebate via cash payment to be distributed on an annual basis. o Profit payout – When there is a capital transaction event that generates profit, or further cashflow (refinance, exit of the limited partner, etc.), all the cumulative residents over time will receive a payment that represents a proportionate share of the available profit. The proportion of the profit a household receives will depend on the length of time they lived in a 515 Project unit. With projects that involve Low Income Housing Tax Credits (LIHTC), the profit generating event will often happen at the end of the LIHTC compliance period, which is typically 15 years after the project is placed into service. o Profit advance – PHF will set aside a portion of its initial developer fee for the project to fund a 0%, zero payment revolving fund to help PHF project residents access a portion of their anticipated profits early in the event of an emergency or major life event (medical, educational, entrepreneurial, etc.). Disbursements Formatted: List Paragraph, Right: 0", Space Before: 0 pt, Line spacing: Multiple 1.07 li, Bulleted + Level: 1 + Aligned at: 0.25" + Indent at: 0.5" Formatted ... Formatted ... Formatted: Normal, Line spacing: Multiple 1.07 li Formatted: Font: 12 pt Formatted: Font: Bold Formatted: Normal, Space Before: 0 pt, Line spacing: Multiple 1.07 li Formatted ... Formatted: Normal, Indent: Left: 0", Space Before: 0 pt, Line spacing: Multiple 1.07 li Formatted ... Formatted: Font: Times New Roman Formatted: Right: 0", Space Before: 0 pt, Line spacing: Multiple 1.07 li, Bulleted + Level: 1 + Aligned at: 0.25" + Indent at: 0.5", Tab stops: Not at 0.96" Formatted ... Formatted ... Formatted ... Formatted ... Formatted ... 9 o made to a PHF project resident from this revolving fund will be replenished from the PHF project resident’s share of profit whenever a profit payout would naturally happen. o Profit tradeup – PHF will be co-developing hundreds of units with other impact partners that target missing middle home ownership opportunities for households making 60%- 120% AMI (and occasionally less). Subject to availability, PHF tenants will be able to transfer their accruals from a PHF project for a 1:1 reduction in purchase price on these homes. •• PHF shall establish all required legal entities to fulfill the profit-sharing obligations and demonstrate such establishment to RDA’s satisfaction. •• Receive approval from the RDA and the City Attorney’s Office on all matters pertaining to title, legality of the funding agreement, and the legality, sufficiency, and form and substance of all other documents that are deemed reasonably necessary for the funding transaction. •• Provide evidence of insurance in such amounts and with such coverage as deemed necessary by the RDA. PHF’s Obligations after the Funds are Distributed •• Prior to the Rescue Plan Funds being distributed, PHF and RDA will agree on the form of a funding agreement. The funding agreement will require PHF to do the following after the funds are distributed: o PHF shall demonstrate to RDA’s satisfaction, sufficient sources of project financing for the 515 Project. Sources of financing must equal the total project cost. o PHF shall disclose identity of interest relationships within the 515 Project. o PHF will have applied for Low Income Housing Tax Credits for the 515 Project by June 30, 2024. o PHF shall obtain all required city approvals to convert the 515 Project office spaces to residential units, including all necessary approvals from the City’s Planning and building services’ division. Additionally, PHF will commit to commencing and diligently pursing the completion of construction. o PHF will provide RDA biannual progress reports on the construction and operation of the units. o PHF will agree to implement an equitable process for tenant selection and as permitted by law, potentially prioritize certain applications. o PHF agrees to commit an additional $500,000.00 in additional funds to the 515 Project for assets beneficial to the greater neighborhood such as retail services, childcare services, and/or impact-focused office space that directly increases jobs in the area. PHF agrees that it will make a financial investment into community assets in each of its future projects that address a need of the greater community. o PHF will commit to develop additional affordable housing projects in Salt Lake City to meet the following terms and conditions: ▪ Within 20 years, PHF or its affiliates and subsidiaries will have developed 1,000 affordable housing units inwithin Salt Lake City for those at 65% AMI and below. Formatted: List Paragraph, Right: 0", Space Before: 0 pt, Line spacing: single, Outline numbered + Level: 2 + Numbering Style: Bullet + Aligned at: 0.75" + Tab after: 1" + Indent at: 1" Formatted ... Formatted ... Formatted ... Formatted ... Formatted ... Formatted: Normal, Line spacing: Multiple 1.07 li Formatted: Font: 12 pt Formatted: Font: Bold Formatted: Normal, Space Before: 0 pt, Line spacing: Multiple 1.07 li Formatted ... 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Formatted ... 10 ▪These additional housing units must also participate in the tenant wealth building initiative as detailed above. ▪All newly constructed PHF projects shall achieve an energy star score of 90 or higher, participate in the City’s Elevate Buildings Program, and be designed to operate without onsite fossil fuel combustion. ▪All PHF developed projects above $10M in total cost shall build community retail, workspace, community centers, childcare facilities, or other catalytic neighborhood amenities within their developments, and especially along their main floor public frontages. ▪Economic Development Impact: Over the course of 20 years, this initiative will generate hundreds of millions of dollars in development activity within Salt Lake City and invest tens of millions of dollars directly into low and moderate income households that reside in the City’s neighborhoods. Defaults and Remedies Events of default under the restrictive use or funding agreements may include, but are not limited to: ••PHF fails to construct the 515 Project within the timeframe provided in the funding agreement. ••PHF fails to maintain the affordability (as required under the Restrictive Covenant) of the 515 Project units or the tenant wealth building initiative in the 515 Project. ••PHF fails to provide regular development reports. ••PHF fails to develop and maintain the additional affordable housing/tenant wealth building projects in Salt Lake City. ••PHF fails to comply with any other city, state, or federal requirements. Remedies if PHF fails to cure in the event of a default may include, but are not limited to: ••If PHF does not meet the initial conditions for funding, the RDA will not distribute the funds. ••Once funds are distributed and upon an event of default, the RDA may: o File a breach of contract claim, which may include claims for: ▪Liquidated damages, ▪Injunctive relief, and/or ▪Specific performance. o File a direct action against PHF to comply with their obligations. o Any other remedies available at law or equity. Formatted: Font: Times New Roman Formatted: Left, Right: 0", Space Before: 0 pt, Line spacing: Multiple 1.07 li, Bulleted + Level: 3 + Aligned at: 1.25" + Indent at: 1.5", Tab stops: Not at 1.96" Formatted ... Formatted ... Formatted ... Formatted: Font: 12 pt, Bold Formatted ... Formatted: Font: Bold Formatted: Normal, Line spacing: Multiple 1.07 li Formatted ... Formatted ... Formatted ... Formatted: Font: Times New Roman Formatted ... Formatted ... Formatted ... 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Formatted ... 11 ATTACHMENT B: RESOLUTION 12 REDEVELOPMENT AGENCY OF SALT LAKE CITY RESOLUTION NO. _______________ Adopting Term Sheet and Waiver of the Sustainable Development Policy for The Perpetual Housing Fund of Utah, LLC at the 515 Project RESOLUTION OF THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF SALT LAKE CITY APPROVING TERM SHEET AND WAIVING THE SUSTAINABLE DEVELOPMENT POLICY FOR THE PERPETUAL HOUSING FUND OF UTAH, LLC AT THE 515 EAST PROJECT WHEREAS, the Redevelopment Agency of Salt Lake City (RDA) was created to transact the business and exercise the powers provided for in the Utah Community Reinvestment Agency Act, including the development of affordable housing. WHEREAS, on April 11, 2023, the RDA’s Board of Director’s (Board) approved resolution R-8-2023 adopting housing funding priorities, which among other things, prioritized funding for housing projects that facilitate the ability for low to moderate income households to build wealth. WHEREAS, The Perpetual Housing Fund of Utah, LLC (PHF) is an affordable housing developer whose mission is to reimagine existing affordable housing programs to share profits with, and consequently build wealth for, PHF tenant residents. WHEREAS, PHF is developing an affordable housing project at 515 East 100 South (515 Project) in which existing office spaces will be converted to residential apartments and will be affordable to those at 25-55% of the area median income. Additionally, the 515 Project tenants will participate in a tenant wealth building initiative, which shares the profits of the residential project through rent rebates, profit payouts, profit advances, and profit trade-ups. PHF has also committed to developing over 1,000 affordable units in Salt Lake City over the next 20 years. WHEREAS, on June 6, 2023, the Salt Lake City Council amended the City’s final budget for fiscal year 2023 and set aside $10 million of the City’s American Rescue Plan Act funds to be distributed by the RDA to PHF on the condition that the Board approve the final Fundin g Agreement Term Sheet. WHEREAS, the RDA staff recommends the Board approve the attached Term Sheet for the funding agreement for PHF and the 515 Project. Additionally, the RDA staff recommends approving a waiver of the Sustainable Development Policy for the 515 Project as this project is an adaptive reuse of an existing building and PHF has committed to incorporate the Sustainable Development Policy standards into new construction of additional affordable housing projects. 13 NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Redevelopment Agency of Salt Lake City that it approves the distribution of the funds pursuant to the terms outlined in the Term Sheet attached hereto, subject to revisions that do not materially affect the rights and obligations of the RDA hereunder. Further, the Board authorizes the waiver of the Sustainable Development Policy for the 515 Project. The Board authorizes the Executive Director to negotiate and execute the Funding Agreement and any other relevant documents consistent with the Term Sheet and incorporating such other terms and agreements as recommended by the City Attorney’s office. Passed by the Board of Directors of the Redevelopment Agency of Salt Lake City, this ____ day of August, 2023. _________________________________ Alejandro Puy, Chair Approved as to form: __________________________________ Salt Lake City Attorney’s Office Allison Parks Date:_______________________ The Executive Director: ____ does not request reconsideration ____ requests reconsideration at the next regular Agency meeting. ________________________________ Erin Mendenhall, Executive Director Attest: ________________________ City Recorder July 21, 2023 14 EXHIBIT A: FUNDING AGREEMENT TERM SHEET Redevelopment Agency of Salt Lake City Tenant Wealth Building Initiative A Concerted Community Revitalization Plan between the Redevelopment Agency of Salt Lake City and The Perpetual Housing Fund of Utah, LLC Funding Agreement Term Sheet Purpose The purpose of this Tenant Wealth Building Initiative is to address the diminishing opportunities for homeownership and historically unequal access to real estate wealth and equity within Utah’s capital city. This initiative’s cooperation between the Redevelopment Agency of Salt Lake City (RDA) and The Perpetual Housing Fund of Utah, LLC (PHF) seeks to foster the creation of affordable, missing middle, and entry-level housing that aides in creating meaningful wealth and financial equity for city residents. Parties The Perpetual Housing Fund of Utah, LLC, a Utah limited liability company (PHF), and the Redevelopment Agency of Salt Lake City (RDA). Property 515 East 100 South, Salt Lake City, Utah 84102 Project Description and Affordability PHF will use the Rescue Plan Funds by June 30, 2024 to acquire real property that will have been converted into large condominiums that will be subsequently subdivided into 60 or more residential units in the existing building at 515 East 100 South (515 Project). These units will be converted from office spaces to residential apartments and will be affordable to those at 25-55% of the area median income (AMI). The 515 Project tenants will participate in the tenant wealth building initiative, which shares the profits of the residential project through rent rebates, profit payouts, profit advances, and profit trade-ups. Proposed Funding Terms •Amount: $10 million in America Rescue Plan Act funds (Rescue Plan Funds). •Term: Concurrently with the distribution of the Rescue Plan Funds, PHF shall record a restriction against the condominiumized portion of the building that obligates PHF to develop 60 or more rent restricted apartments at 25-50% AMI that will be income restricted for those at 25-55% AMI for 50 years. The restriction will also require the 15 wealth building initiative to be maintained for a term of 50 years (the Restrictive Covenant). •Disbursement: One lump sum upon meeting the conditions for funding, as detailed below. PHF will not be required to repay the funds like a traditional loan. •Return on Investment: As permitted by the American Rescue Plan Act (ARPA), as a transformational seed funder, the RDA will be treated like an equity investor in PHF and receive a 2-6% return paid annually every year. •Use of Funds: PHF must deploy 100% of the funds by June 30, 2024 on ARPA eligible uses. •Additional Projects: For non-monetary consideration in addition to the $10 million investment, PHF will commit to developing additional affordable housing projects in Salt Lake City. More specifically, by year 20, PHF or its affiliates and subsidiaries will have developed 1,000 additional units in Salt Lake City that will be affordable for those between 25% and 65% AMI. These additional projects shall also include the tenant wealth building initiative and, if new construction, will achieve an energy star score of 90 or higher, participate in the City’s Elevate Buildings Program, and be designed to operate without onsite fossil fuel combustion. •Waiver of Sustainable Development Policy: PHF’s obligations to comply with the RDA’s Sustainable Development Policy may be waived, if necessary, in part due to the adaptive reuse element of the 515 Project as well as PHF’s commitment to incorporate these standards into the new construction of the additional projects, even though such incorporation is not required under the policy. Conditions for RDA to Distribute Funds Prior to dispersing the Rescue Plan Funds, the PHF will complete the following: •PHF will be ready to close on the acquisition of the condominium spaces within which to build 60 or more affordable apartments on or before June 30, 2024. Implied in this requirement is that PHF’s predecessor-in-interest will have acquired the Property and condominiumized the Property so the portions within which the residential apartments will be constructed can be acquired by PHF. •PHF and RDA will agree on the form of the Restrictive Covenant to be recorded against the Property concurrently with funding. The Restrictive Covenant will require PHF to maintain, for a term of 50 years, 60 or more affordable housing units at 25-55% AMI, maintain a mix of unit sizes, and the following wealth building opportunities for tenants: o Annual rent rebate – A portion of the project’s annual cash flow (profit after collecting all rent and other income, paying all operating expenses, paying debt service, and setting aside cash reserves for future operations and repairs) that would typically be received by the owner will be allocated to current PHF project residents as a rent rebate via cash payment to be distributed on an annual basis. 16 o Profit payout – When there is a capital transaction event that generates profit, or further cashflow (refinance, exit of the limited partner, etc.), all the cumulative residents over time will receive a payment that represents a proportionate share of the available profit. The proportion of the profit a household receives will depend on the length of time they lived in a 515 Project unit. With projects that involve Low Income Housing Tax Credits (LIHTC), the profit generating event will often happen at the end of the LIHTC compliance period, which is typically 15 years after the project is placed into service. o Profit advance – PHF will set aside a portion of its initial developer fee for the project to fund a 0%, zero payment revolving fund to help PHF project residents access a portion of their anticipated profits early in the event of an emergency or major life event (medical, educational, entrepreneurial, etc.). Disbursements made to a PHF project resident from this revolving fund will be replenished from the PHF project resident’s share of profit whenever a profit payout would naturally happen. o Profit tradeup – PHF will be co-developing hundreds of units with other impact partners that target missing middle home ownership opportunities for households making 60%-120% AMI (and occasionally less). Subject to availability, PHF tenants will be able to transfer their accruals from a PHF project for a 1:1 reduction in purchase price on these homes. •PHF shall establish all required legal entities to fulfill the profit-sharing obligations and demonstrate such establishment to RDA’s satisfaction. •Receive approval from the RDA and the City Attorney’s Office on all matters pertaining to title, legality of the funding agreement, and the legality, sufficiency, and form and substance of all other documents that are deemed reasonably necessary for the funding transaction. •Provide evidence of insurance in such amounts and with such coverage as deemed necessary by the RDA. PHF’s Obligations after the Funds are Distributed •Prior to the Rescue Plan Funds being distributed, PHF and RDA will agree on the form of a funding agreement. The funding agreement will require PHF to do the following after the funds are distributed: o PHF shall demonstrate to RDA’s satisfaction, sufficient sources of project financing for the 515 Project. Sources of financing must equal the total project cost. o PHF shall disclose identity of interest relationships within the 515 Project. o PHF will have applied for Low Income Housing Tax Credits for the 515 Project by June 30, 2024. 17 o PHF shall obtain all required city approvals to convert the 515 Project office spaces to residential units, including all necessary approvals from the City’s Planning and building services’ division. Additionally, PHF will commit to commencing and diligently pursing the completion of construction. o PHF will provide RDA biannual progress reports on the construction and operation of the units. o PHF will agree to implement an equitable process for tenant selection and as permitted by law, potentially prioritize certain applications. o PHF agrees to commit an additional $500,000.00 in additional funds to the 515 Project for assets beneficial to the greater neighborhood such as retail services, childcare services, and/or impact-focused office space that directly increases jobs in the area. PHF agrees that it will make a financial investment into community assets in each of its future projects that address a need of the greater community. o PHF will commit to develop additional affordable housing projects in Salt Lake City to meet the following terms and conditions: ▪Within 20 years, PHF or its affiliates and subsidiaries will have developed 1,000 affordable housing units within Salt Lake City for those at 65% AMI and below. ▪These additional housing units must also participate in the tenant wealth building initiative as detailed above. ▪All newly constructed PHF projects shall achieve an energy star score of 90 or higher, participate in the City’s Elevate Buildings Program, and be designed to operate without onsite fossil fuel combustion. ▪All PHF developed projects above $10M in total cost shall build community retail, workspace, community centers, childcare facilities, or other catalytic neighborhood amenities within their developments, and especially along their main floor public frontages. ▪Economic Development Impact: Over the course of 20 years, this initiative will generate hundreds of millions of dollars in development activity within Salt Lake City and invest tens of millions of dollars directly into low and moderate income households that reside in the City’s neighborhoods. Defaults and Remedies Events of default under the restrictive use or funding agreements may include, but are not limited to: •PHF fails to construct the 515 Project within the timeframe provided in the funding agreement. 18 •PHF fails to maintain the affordability (as required under the Restrictive Covenant) of the 515 Project units or the tenant wealth building initiative in the 515 Project. •PHF fails to provide regular development reports. •PHF fails to develop and maintain the additional affordable housing/tenant wealth building projects in Salt Lake City. •PHF fails to comply with any other city, state, or federal requirements. Remedies if PHF fails to cure in the event of a default may include, but are not limited to: •If PHF does not meet the initial conditions for funding, the RDA will not distribute the funds. •Once funds are distributed and upon an event of default, the RDA may: o File a breach of contract claim, which may include claims for: ▪Liquidated damages, ▪Injunctive relief, and/or ▪Specific performance. o File a direct action against PHF to comply with their obligations. o Any other remedies available at law or equity. 19 REDEVELOPMENT AGENCY OF SLC PERPETUAL HOUSING FUND RDA BOARD OF DIRECTORS MEETING – AUGUST 8, 2023 PERPETUAL HOUSING FUND OF UTAH (PHF) Utah non-profit affordable housing organization with mission of reimagining housing programs to share profits with project residents. •RENT-RESTRICTED UNITS – serve those at 25% to 125% AMI •ANNUAL RENT REBATES – from project's cashflow •PROFIT PAYOUTS – at time of refinancing or exit of partner •PROFIT ADVANCE – funds available for major life events •PROFIT TRADEUP – funds applied to home purchase GOALS & OBJECTIVES – 515 EAST 100 SOUTH •$10M in ARPA Funds for acquisition and development of affordable housing •Adaptive reuse of existing office building will include 60+ housing units •All 60 units affordable between 25%-50% Area Median Income (AMI) •Overall project will also include additional housing, co-working, retail, and daycare space •Family housing with 3-4 bedroom units •Significant opportunity to promote wealth building for Salt Lake City residents PROPOSED TERMS PARTIES: Perpetual Housing Fund of Utah, LLC and RDA AMOUNT: $10,000,000 in American Rescue Plan Act funds TERM: 50-year deed-restriction recorded against portion of property that obligates PHF to develop 60 or more rent and income restricted units at 25-50% AMI DISBURSEMENT: One lump sum to be paid as part of acquisition of units subject to recording of restrictive covenant on the property and associated subdivision plat process. USE OF FUNDS: PHF must deploy 100% of funds by June 30, 2024 for ARPA eligible uses SUSTAINABILITY: PHF will work to comply with RDA's sustainability policy, but may be waived if necessary due to the adaptive reuse element of the 515 project RETURN:RDA to receive 2-6% return paid annually every year ADDITIONAL PROJECTS: Develop 1,000 additional units in Salt Lake City that will be affordable for those between 25% and 65% AMI TERM SHEET UPDATES ADDITIONAL COMMITMENTS FROM PHF: $500,000 to fund assets beneficial to the greater neighborhood such as retail services, childcare services, and/or impact focused office space