Agenda

Return

C.6

To:	Contra Costa County Housing Authority Board of Commissioners
From:	Joseph Villarreal, Housing Authority
Date:	March 8, 2022

Contra

Costa

County

Subject:

Adopt Resolution No. 5243 authorizing the Housing Authority to become a limited partner in the DeAnza Gardens, L.P. limited partnership

Action of Board On: 03/08/2022

APPROVED AS RECOMMENDED

OTHER

Clerks Notes:

VOTE OF SUPERVISORS

AYE:

John Gioia, Commissioner
Candace Andersen, Commissioner
Diane Burgis, Commissioner
Karen Mitchoff, Commissioner
Federal D. Glover, Commissioner
Cynthia Jordan, Commissioner

ABSENT:

Joanne Segura, Commissioner

Contact:

925-957-8028

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.
ATTESTED: March 8, 2022
,

BY:	, Deputy

RECOMMENDATIONS

ADOPT Resolution No. 5243 authorizing the Housing Authority to become a limited partner in the DeAnza Gardens, L.P. limited partnership and to pay a disposition fee of $1,000.

BACKGROUND

DeAnza Gardens is comprised of 180 units constructed in 2004 – 2005 ("Project") and funded by a number of resources including Low Income Housing Tax Credits ("LIHTC"). DeAnza Garden, L.P., a California limited partnership ("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"). BCP/DeAnza Gardens, LLC, a Delaware limited liability company (“BCP”) and BCCC, Inc., a Massachusetts corporation (“BCC”), are the investor limited partner and the special limited partner of the Partnership, respectively (collectively, the "Limited Partners"), and contributed the LIHTC equity to, and received the tax credits from, the Project.

BACKGROUND (CONT'D)

The Project was placed in service in 2005 and 2006. The compliance period for the LIHTC is fifty-five (55) years from the place-in-service date. The Federal tax credit recapture (“Compliance Period”) period expired on December 31, 2019. During the 24 months after the expiration of the Compliance Period, HACCC has a Purchase Option (the "Purchase Option") and Right of First Refusal to buy the Project from the Partnership.

I. PURCHASE OPTION AND RIGHT OF FIRST REFUSAL

The purchase price for the Property pursuant to the Purchase Option shall be the greater of the following amounts, subject to the provisions set forth below:

(a) Debt and Taxes. An amount sufficient (i) to pay all debts, liabilities and obligations of the Partnership upon its termination and liquidation as projected to occur immediately following the sale pursuant to the Option, including, but not limited to, fees and debts to Partners of the Partnership (or their Affiliates), and (ii) to distribute to the Partners cash proceeds equal to the taxes projected by the Auditors to be imposed on the Partners of the Partnership as a result of the sale pursuant to the Option; or

(b) Fair Market Value. The fair market value of the Property, appraised as low-income housing taking into account the effect on the projected income of the Property as a result of all Use Restrictions to the extent continuation of such use is required under the Use Restrictions, taking into consideration any repairs, improvements or deferred maintenance deemed necessary by a capital needs assessment conducted by a third party inspector selected by the Partnership's regular Auditors, who is experienced in determining capital needs for similar projects in Northern California.

HACCC has determined that the existing mortgage debt plus the long-term outstanding capital needs for the Project exceed the fair market value of the property and, as such, the Project has nominal value to the existing investor. HACCC has engaged the services of an industry professional to negotiate a purchase price of the Limited Partners' interests in the Partnership instead of purchasing the Project itself. The Partnership will continue to own the Project, but the Limited Partners will be replaced. HACCC will replace the Limited Partner’s interests in the Partnership as the new limited partner and will withdraw as a general partner. DeAnza Housing Corporation will remain as the general partner. HACCC plans to refinance the mortgage loan on the Project in the near future. At that time, staff anticipates that a new limited liability corporation will be created as the owner of the property, with HACCC Casa Del Rio, Inc., as its sole member, and the Limited Partnership will be dissolved. This will ensure that there are minimal tax implications for HACCC under the new management structure. Although the purchase price increased from $10 to $1,000 since the approval in May 2021, there was flexibility with the amount of the accrued asset management fee already paid such that no additional funds were required to be paid by the Partnership or HACCC.

On May 6, 2021, the Board of Directors for DeAnza Housing Corporation approved a similar resolution authorizing the replacement of the Limited Partner interest in the Partnership and removing HACCC from its role as general partner so that it could be placed in the role of Limited Partner and DeAnza Housing Corporation would remain as the sole general partner in the Partnership.

FISCAL IMPACT

HACCC’s Board of Commissioners authorized staff to the purchase the Limited Partners' interest in the Partnership for a $10 disposition fee plus any additional distributions or costs required at its May 18, 2021 meeting pursuant to Resolution No. 5234. The Limited Partners adjusted the final disposition fee for the Limited Partners' interests from a total of $2 to a total of $1,000. HACCC has paid the Limited Partners $2 plus $13,460.07 in accrued asset management fees for 2021 the Partnership paid to BCP (the "Supplemental Payment") under the initial documentation. In response to the adjusted final disposition fee, the outstanding balance of $998.00 will be deducted from the $13,460.07 Supplemental Payment. The change in the disposition fee and asset management fees will be reflected in revised documentation and no additional funds are needed for the purchase of the Limited Partners’ interest.

CONSEQUENCE OF NEGATIVE ACTION

If the actions to revise the agreed upon disposition fee amount from $10 to $1000 and for it to be from the Housing Authority ("Revised Disposition Fee"), and the transfer of $998 from the Supplemental Payment already paid to the Limited Partners as the source of the Revised Disposition Fee are not approved, then the Partnership, the Withdrawing Limited Partners and the Housing Authority may need to unwind the transaction and the HACCC will lose the rights to purchase the Limited Partnership interests for $1000 and will be forced to purchase the property under the Purchase Option and Right of First Refusal for a much greater amount.