Between 2004 and 2012, the City provided financial assistance to Tamerlane Associates, LLC, (“Prior Owner”) to acquire and operate 15 multifamily properties with a total of 78 apartments (“Tamerlane Properties”). Pursuant to 15 separate loan agreements, regulatory agreements, option agreements, and subsequent amendments (together, “Original Tamerlane Agreements”), the City made 15 residual receipts loans to the Prior Owner. Of the 78 units, 60 units were restricted for occupancy by households earning between 50% and 65% of the Orange County area median-income (“AMI”) at an affordable rent. The funding sources for the 15 City loans (in whole or part) included CDBG, HOME, HOME Match from the City’s General Fund, and Former Agency low to moderate income housing funds.

On October 27, 2022, the Prior Owner sold all of the Tamerlane Properties to the Developer, New Tamerlane, LLC, and the Prior Owner assigned, and Developer assumed, all rights and obligations under all of the Original Tamerlane Agreements. Prior to that sale, the City loans on eight properties had matured and the affordability covenants for 49 of 78 units had expired, so those properties were “at-risk” of conversion to market rate housing. In connection with that sale, on October 11, 2022, the Housing Authority and City approved an “Amendment” affecting all of Original Tamerlane Agreements by which the maturity dates of those eight City loans and the expired affordability covenants were extended for those 49 of 78 units to December 31, 2025. Further, under the Amendment, Developer and Garden Grove agreed to negotiate in good faith toward the restructure of the City Loans, the scope of the substantial rehabilitation of all properties and improvements, the reset of the affordability period for 55 years, and other terms and conditions for a “New Tamerlane Project”.

As stated in the Amendment, Garden Grove has a primary objective to preserve existing affordable housing at-risk of conversion to market rate, and thereby achieve the local, state and federal goals to preserve affordable housing in the community. The Preliminary Award Letter presented to the City Council and Housing Authority board for consideration and recommended approval would provide Garden Grove’s “enforceable financial commitment” in connection with Developer’s application to the California Tax Credit Allocation Committee (TCAC) for reservations of state and federal Tax Credits. This TCAC funding reservation, plus investor equity, construction and permanent financing, and Garden Grove’s refinancing and additional subsidy will facilitate successful implementation of the New Tamerlane Project.

Developer submitted a proposal to Garden Grove detailing the request for an enforceable financial commitment to apply for the Tax Credits and, if awarded, undertake the New Tamerlane Project. This Preliminary Award Letter is required by the Tax Credit Rules and will commit Garden Grove to provide to Developer the new “Garden Grove Loan” comprised of: (a) up to Three Million Six Hundred Forty-Six Thousand Dollars ($3,646,000) of additional funds sourced (i) fifty percent (50%) from the Low and Moderate Income Housing Asset Fund (“LMIHAF) and (ii) fifty percent (50%) from the City’s Permanent Local Housing Allocation funds (“PLHA”), and/or (b) up to eight (8) Section 8 project-based housing vouchers (“PBVs”), and (c) the restructure of the 15 City Loans in the reset principal amount of $8,879,321, which Garden Grove Loan cumulatively will be in a principal amount of Twelve Million Five Hundred Nineteen Three Hundred Twenty-One Dollars ($12,519,321). The new Garden Grove Loan will be a residual receipts loan, subordinate to construction and permanent financing, accrue three percent (3%) simple interest, and have a term up to 58 years. (See Exhibit B.)

Developer retained the services of Partner Engineering to conduct and prepare a Physical Needs Assessment (PNA) of all existing improvements; the PNA report describes the conditions of, and necessary and recommended improvements. Therefore, as a part of the New Tamerlane Project, the substantial rehabilitation will include extensive renovation, interiors and exteriors, of all 15 buildings and all 78 apartments. The scope of work will include, but will not be limited to; interior renovations of every apartment with new kitchen and bathroom upgrades and renovations, interior paint, new flooring, new doors, electrical upgrades, new lighting, HVAC replacement, new electrical and plumbing fixtures and other interior amenities. Major system upgrades will include unit electric subpanels and plumbing re-pipe of all units with new water distribution systems along with hot appliance replacement. Exterior and additional renovations and improvements will include, but not be limited to, re-imagined facades, new roof systems, wood replacement, new windows, exterior paint and stucco, demolition of exiting non-conforming garages and carports, new and reconfigured concrete and paver parking, construction of two ADA compliant laundry rooms, construction of a management office and community room, reconfiguration of drive aisle for ingress and egress, modification of eight (8) existing units to conform to Uniform Federal Accessibility Standards (“UFAS”) for accessibility and mobility, and four (4) units designated as communication accessible. Developer’s goal is to harmonize the site to create a single, contiguous community by eliminating division between buildings, tying the site together with new ADA-compliant paths of travel, landscape renovation, new patio fencing, reconstructed staircases and landings. At the end of Tamerlane Drive, which is a cul-de-sac street, Developer intends to install a playground that will also serve as an artistic expression embracing the vision of community buildings in addition to various forms or sculpture or mural art.  A new reciprocal easement agreement and joint use of amenities agreement will be entered into at the time of closing of construction financing presuming an award of Tax Credits, which ensure the 15 properties operate as a single affordable housing development for the reset 55-year Affordability Period.

Developer intends to preserve and covenant all 78 units as affordable housing for tenant households of Extremely Low, Very Low and Low Income at an Affordable Rent, including the Manager’s Unit for a 100% AMI household.  Exhibit B to the Preliminary Award Letter has a full-explanation with tables of the “Prescribed Unit Mix” for the New Tamerlane Project.  This is an increase of 18 covenanted units as compared to 60 under the Original Tamerlane Agreements; the 55-year Affordability Period will implement the Amendment and mutual objective to achieve a long-term affordable housing development. Specifically, the Prescribed Unit Mix, Exhibit B, shows income and affordable rent among the 78 units as follows: (a) eight (8) Extremely Low Income units that will comply with LMIHAF requirements; (b) 41 Low Income units (at 60% AMI) per PLHA requirements; and (c) 29 Low Income units (at 65% AMI) with High HOME rent per the applicable Original Regulatory Agreements that will expire during the reset Affordability Period. When those current 65% AMI covenants expire, the units would continue to be restricted as affordable under the TCAC regulatory agreement. (See Exhibit B.) If not for this Preliminary Award Letter and reset 55-year Affordability Period as required by the Tax Credit Rules, LMIHAF and PLHA, many units could convert to market rate as early as December 31, 2025, and other covenants will expire in 2027, 2032, and 2065.

As required by Tax Credit Rules, Developer will assign this Preliminary Award Letter to New Garden Grove Community, LP, of which Affordable Housing Access, Inc., and Kingdom Development, Inc., as co-general partners, to undertake, complete and operate the New Tamerlane Project. Affordable Housing Access, Inc., (“AHANP”) is a non-profit public benefit corporation founded in 1999 with a mission to create and preserve quality affordable housing and to empower low income individuals and communities through social services and community building. AHANP and its development partners have constructed, or acquired and rehabilitated over 20,000 affordable housing apartments and homes throughout the West. Kingdom Development, Inc., is a nonprofit public benefit corporation (“Kingdom”) founded in 2015 with a mission to enrich the lives of disadvantaged youth through the strengthening of families and the development of housing. Kingdom carries out its exempt purpose, to improve the welfare of people by developing affordable housing, expediting the development process and by providing policy makers and industry practitioners insightful analysis to amplify the impacts they make for low-income families.

Approval of the Preliminary Award Letter includes a new restructured Garden Grove Loan of: (1) a subsidy of new funds of up $3,646,000 sourced equally from LMIHAF and PLHA funds, and/or (2) up to eight (8) PBVs, and (3) restructure of the 15 City Loans in a reset principal amount of $8,879,321; this totals to a new Garden Grove Loan of $12,519,321. Funds are available presently and this Preliminary Award Letter will commit and encumber such funds pursuant to applicable laws and regulations.

It is recommended that Housing Authority and City Council:

• Approve the Preliminary Award Letter and authorize the Director/City Manager to make minor modifications as needed, and sign the Award Letter on behalf of the Housing Authority and City; and
• Authorize the Director/City Manager on behalf of the Housing Authority and the City to execute the Affordable Housing Agreement, and any pertinent related documents, including all exhibits, instruments, implementing agreements, and to make minor modifications as needed on behalf of the Housing Authority and City.

By: Monica Covarrubias, Sr. Project Manager