To: Contra Costa County Housing Authority Board of Commissioners
From: Joseph Villarreal, Executive Director
Date: September 12, 2023
Report Title: AUTHORIZE THE EXECUTIVE DIRECTOR TO APPROVE THE SALE OF DEANZA GARDENS TO DEANZA HOUSING CORPORATION, APPROVE THE ASSIGNMENT OF THE GROUND LEASE AND HAP CONTRACT TO DEANZA HOUSING CORPORATION AND THE DISSOLUTION OF THE LIMITED PARTNERSHIP AT DEANZA GARDENS
RECOMMENDATIONS:
AUTHORIZE and ADOPT Resolution No. 5253 for the Executive Director to approve the sale of DeAnza Gardens to DeAnza Housing Corporation (DHC), a California non-profit public benefit corporation, approve the assignment of the ground lease and HAP Contract to DeAnza Housing Corporation and the dissolution of the limited partnership at DeAnza Gardens.
BACKGROUND:
DeAnza Gardens (the "Project") is comprised of 180 units constructed in 2004 - 2005 and funded by several resources including Low Income Housing Tax Credits ("LIHTC"). As part of the transaction, DeAnza Garden, L.P., a California limited partnership (the "Partnership") was formed for the purpose of owning, constructing, and operating the Project. DeAnza Housing Corporation was formed as a California nonprofit public benefit corporation to serve as a general partner in the Partnership along with the Housing Authority of the County of Contra Costa ("HACCC"). On May 18, 2021, this Board approved the transfer of the limited partner interest from BCP/DeAnza Gardens, LLC, a Delaware limited liability company and BCCC, Inc., a Massachusetts corporation, are the investor limited partner and the special limited partner of the Partnership, respectively (collectively, the "Limited Partners") to HACCC and removed HACCC as a co-General Partner of the Partnership.
Since then, HACCC has been working to refinance the debt on DeAnza Gardens because the initial funding included a balloon mortgage payment that would be due on October 1, 2023, for approximately $6.5 million. HACCC procured a new lender, PNC Bank, to handle the consolidation of existing debt into a $13 million loan that would sunset previous debt and fund operating reserves for short and long-term capital needs. In addition to refinancing the debt, HACCC is dissolving the Partnership as it is no longer needed to administer the tax credits since the fifteen-year compliance period expired in 2019. However, there will remain a tax credit obligation on the property until 2083 to ensure the property remains affordable.
Moreover, at its inception, the Partnership executed a Ground Lease with HACCC so that the land owned by HACCC could be encumbered by the Partnership under the Tax Credit Program. On June 1, 2022, the Partnership further executed a Housing Assistance Payments (HAP) Contract to layer Project-Based Voucher rental assistance on the units at DeAnza Gardens. The ground lease and the HAP Contract are now being amended to reflect that the parties of record will be HACCC and the DeAnza Housing Corporation, HACCC’s non-profit affiliate, because the Partnership is being dissolved. The terms of the ground lease and the HAP Contract will remain in effect. This resolution authorizes the Board to assign the ground lease and the HAP Contract to the DeAnza Housing Corporation.
Lastly, this resolution takes formal action to dissolve the Limited Partnership formed in 2002 and as amended in subsequent periods to receive the tax credits for DeAnza Gardens. With the compliance period over and HACCC substituted as the limited partner in 2021, there no longer is the need to have the Partnership in place. Accordingly, DeAnza Housing Corporation, as the buyer of DeAnza Gardens, will assume all assets, liabilities, and contractual obligations of the Partnership.
On September 11, 2023, the Board of Directors for DeAnza Housing Corporation approved a similar resolution authorizing the DeAnza Housing Corporation to acquire DeAnza Gardens and assume the ground lease and HAP Contract responsibilities of the Partnership as well as the encumbrance of a new loan of $13 million.
This resolution seeks to have HACCC’s Board of Commissioners concur with the actions being proposed and permit HACCC to transfer ownership of DeAnza Gardens to its non-profit affiliate, DeAnza Housing Corporation.
All relevant documents are available for review at HACCC’s main office.
FISCAL IMPACT:
DeAnza Associates currently owes approximately $1 million to HACCC’s Central Office Cost Center for a construction loan and $2 million to public housing for a land lease that includes accrued interest. These will both be repaid to HACCC at closing. Additionally, going forward, DeAnza will be able to pay its land lease of $72,000/yr. as opposed to accruing that cost.
CONSEQUENCE OF NEGATIVE ACTION:
If the actions to permit the Executive Director to approve the sale of DeAnza Gardens to DeAnza Housing Corporation, approve the assignment of the ground lease and HAP Contract to DeAnza Housing Corporation and the dissolution of the limited partnership at DeAnza Gardens are not approved by the Board, HACCC will have to establish a refinancing agreement with the current lender at a significantly higher interest rate than is being offered by PNC and completely restructure the deal to transfer ownership of DeAnza Gardens. It is also possible that DeAnza Gardens would not fall under the control of HACCC and could be lost as affordable housing in the future.
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I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. |
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ATTESTED: |
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Joseph Villarreal, Executive Director |
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By: |