MEMORANDUM ECONOMIC DEVELOPMENT REVENUE BONDS. AGENDA ITEM #SB June 12, 2018 Action. June 8, 2018 TO: County Council FROM:

Transcription

1 AGENDA ITEM #SB June 12, 2018 Action MEMORANDUM June 8, 2018 TO: FROM: SUBJECT: PURPOSE: County Council Jacob Sesker, Senior Legislative Analyst '>{"f Resolution to approve the sale by the County of economic development revenue bonds for Friends House Retirement Community, Inc. in an amount not to exceed $35,000,000 Action on Resolution - Roll call vote required Staff Recommendation: Council Staff recommends approval of the sale of economic development revenue bonds for Friends House Retirement Community, Inc. in an amount not to exceed $35,000,000. ECONOMIC DEVELOPMENT REVENUE BONDS Under Federal law, certain non-profit 501(c)(3) organizations can borrow on a tax-exempt basis only by involving a unit of state or local government. When a local government enters into such an arrangement with a non-profit, the debt is referred to as a "conduit debt" because the issuer (in this case, the County) acts as a conduit or intermediary between the purchaser of the bonds, usually a bank or institutional investor, and the non-profit borrower. 1 "Conduit bonds" are unlike other municipal bonds insofar as they are not backed by the taxing authority of the jurisdiction but rather are backed by the project itself.2 The obligation to repay the conduit bonds is an unconditional obligation of the borrower and not of the governmental entity. The principal advantage of this financing method for the borrower is the lower interest cost in comparison to the interest costs associated with conventional debt. Investors in tax-exempt bonds do not pay Federal income tax on interest payments received on the bonds and therefore are willing to accept lower interest rates. For the governmental entity, the advantage 3 of these issuances is that the projects further governmental/public purposes (as established in Federal law), including the construction of airports, hospitals, recreational and cultural facilities, schools, water infrastructure, and road improvements, as well as facilities and equipment used in providing police, fire, and rescue services. 1 A district court in Tennessee provided a helpful explanation in Steele v. Indus. Dev. Bd: "In reality, the government Authority issuing the bonds does not involve itself in all the financial details of the transaction. Instead, the Authority arranges to borrow the bond proceed amount from a bank at the time of the bond issuance. The Authority names the bank as the trustee of the bond issue, and the bank disperses (sic) the money 'borrowed' by the Authority to the entity. In return, the Authority assigns its interest in the loan to the Entity to the bank, so that the Entity is repaying the bank directly." Steele, 117 F. Supp. 2d 693, 717 (M.D. Tenn. 2000). 2 The borrowers in such transactions borrow based on their own credit, not the credit of the jurisdiction. 3 To act as a conduit, the County charges a $5,000 application fee, as well as 10 basis points on the debt.

2 The County Council routinely approves the issuance of economic development revenue bonds to facilitate certain qualified 50J(c)(3) organizations to borrow money on a tax-exempt basis, to finance projects that advance certain statutorily-defined public purposes. 4 The volume of transactions depends on the interest rate environment- as the benefit of financing projects with conduit financing increases, so too does the volume of such transactions. Staff anticipates that as interest rates rise, the volume of activity will be higher than it has been over the past two years. PROPOSED ISSUANCE FOR FRIENDS HOUSE RETIREMENT COMMUNITY, INC. The borrower in this instance, Friends House Retirement Community, Inc., is a 50!(c)(3) tax-exempt, non-profit organization under 150(a) of the Internal Revenue Code (IRC) (see 16). The attached resolution states that all or a portion of the bonds will be "qualified 501( c)(3) bonds" within the meaning of 145 of the IRC (see 10). The Department of Finance has reviewed the request by Friends House Retirement Center, Inc. and has found it to be consistent with the County's tax-exempt financing policies and criteria (see 5). See also Montgomery County Economic Development Revenue Bond Policy, The Executive requests that the Council approve the resolution authorizing the issuance of economic development revenue bonds in an amount not to exceed $35,000,000. As stated by the Executive (see 3), 'The proposed bonds do not constitute indebtedness to which the full faith and credit of Montgomery County or any other public body is pledged. The bonds will be issued and sold without direct or indirect cost to the County." Friends House will be responsible for using the proceeds in accordance with its Letter of Intent and for making all loan payments and paying all expenses connected to the bond issuance. The attached memoranda and letter of intent include descriptions of the source of payment for principal and interest, as well as security for the debts, which include pledging revenues, a mortgage, and liens on real property. PROCESS AND TESTIMONY The Council's rules of procedure permit approving a resolution without its having been introduced at a prior meeting if the resolution has already been the subject ofa public hearing. Under 147(f) of the Internal Revenue Code, the government unit issuing private activity bonds-including qualified 50l(c)(3) bonds-must approve the bonds and must hold a public hearing ("TEFRA hearing"). The Department of Finance held the TEFRA hearing on May 15, 2018 (the hearing was advertised in the Washington Post). The Executive's memorandum states that there were no testimony and no written comments for the hearing (see 6). RECOMMENDATION Council Staff recommends approval of the attached resolution. Attachments: County Executive's Memorandum Resolution Borrower's Letter of Intent TEFRA Hearing Report & Public Notice Montgomery County Economic Development Revenue Bond Policy F:\Sesker\finance & debt\bonds\friends House Retirement Community\Friends House Retirement Community Rev Bond Action.docm 4 As an example, in 2015 alone the County Council approved issuing up to $200,000,000 in economic development revenue bonds for Trinity Health (Holy Cross Hospital), up to $105,000,000 for Riderwood Village, and up to $23,000,000 each for St. Andrew's Episcopal School and Holton-Arms School. 2

3 Isiah Leggett County Executive OFFICES OF THE COUNTY EXECUTIVE Rockville, Maryland MEMORANDUM June 5, 2018 TO: Hans Riemer, Council President SUBJECT: Economic Development Revenue Bonds for Friends House Retirement Community Inc. BACKGROUND AND FINANCING REQUEST Friends House Retirement Community Inc., a nonstock Maryland corporation (the "Institution" or "Friends House"), has requested per the attached Letter oflntent, that Montgomery County authorize, issue and sell tax-exempt Economic Development Revenue bonds in an amount not to exceed $35,000,000 (the "Bonds"). The proceeds from the sale of the Bonds will be loaned by the County to the Institution to finance, refinance or reimburse the costs of improvements to the Institution's facilities as described below. The proceeds may also be used to fund a debt service reserve fund and ce1tain other funds to be established under the indenture for the Bonds, to pay certain costs of issuance, interest during construction, capitalized interest, and other related costs. Founded in 1967, Friends House, a nonprofit, full-service, continuing care retirement community, provides housing, healthcare and related services to seniors in Montgomery County (the "Community''). The Community is located on an approximately 62-acre site at Quaker Lane, Sandy Spring, Maryland Although operating under the care of Religious Society of Friends and founded on Quaker values, the Community welcomes senior adults regardless of religious affiliation. Friends House is the successor entity to the merger of Friends House Inc., a District of Columbia corporation, into Friends House Nursing Home Inc, a Maryland corporation. The merger was completed in September 22, The combined companies previously operated as Friends House Retirement Community. (j)

4 Hans Riemer, Council President June 5, 2018 Page2 Friends House cunently consists of 32 independent living units and 75 low-income units that were previously pa.it of a 100-unit U.S Department of Housing and Urban Development (I-IUD) apartment building which had been operated by Friends House Inc. The hcjd apartment building is being replaced with a new 80-unit lowincome housing tax credit financed apartment building through a partnership with Homes for America. The building, which is not part of this financing request, will house 8 market rate and 72 low-income apartments. The Community also includes 21 assisted living units and 82 nursing beds. Upon completion of the Project defined below, the Community is expected to include 195 living units consisting of 72 independent living cottages or apartments, 20 rental apartments, 21 assisted living units, 82 beds in a skilled nursing hall and other common facilities that serve the entire Community. The existing zoning approvals for the Community include the approval of 46 low income apartments, 195 independent living units, 48 assisted living units and 82 skilled nursing beds. The Project comprises only a portion of the approved facilities. Subject to compliance with certain financial covenants to be specified in the bond documents, Friends House may seek subsequent bond financing for alt or a portion of the balance of the approved facilities. PROJECT DESCRIPTION The bonds will finance, refinance or reimburse the costs of improvements including, but not limited to, (a) the renovation and expairsion of the Institution's existing commons building, (b) the demolition and removal of two vacai1t cottages, (c) the construction, furnishing and equipping of approximately 14 new residential cottage units and approximately 33 residential apartment units to be located in approximately three buildings, and (d) other associated site work and development (collectively, the "Project"). A separate low- income tax credit building consisting of 80 units to be operated by Homes for America Inc. will be located on the Community site but will not be pa.it of the Project and none of the proceeds of the Bonds will be used to finance the building or its site improvements. following purposes: The not-to-exceed amount of $35 million is estimated to be issued for the

5 Hans Riemer, Council President June 5, 2018 Page3 Use of Funds: Design and Construction Furniture & Fixtures Capitalized Interest Debt Service Reserve Cost of Issuance Contingency Total Use of Funds $ 28,754, ,000 1,630,000 1,640, , $ ~5 000,000 BENEFITS TO MONTGOMERY COUNTY Friends House wishes to provide for growth and ongoing service to its senior-aged residents and the surrounding community, by renewing, renovation and expanding its existing structures and by creating new facilities to serve various levels of care needs and income levels. The Project is consistent with goals of generally promoting the health, welfare and safety of County residents. Friends House's financing application states that presently I 15 of the I 70 employees currently on tl1eir payroll, reside in Montgomery County. An increase in 5 full-time employee equivalents is anticipated from the expansion resulting from various services. Friends House asserts that they will endeavor to hire Montgomery County residents to fill vacant positions as they become available. Approximately 35% of the depositors for the new independent living units are from individuals currently residing outside of Montgomery County. Those residents would increase the tax base for the County. Also, increasing the residential capacity of the Community will benefit local retailers. Friends House combines aspects of market-rate senior living communities with low-income housing for seniors. By engaging in this campus expansion and redevelopment, Friends House is positioning itself to continue to provide an affordable retirement community option to seniors in Montgomery County. The proposed Bonds do not constitute indebtedness to which the full faith and credit of Montgomery County or any other public body is pledged. The Bonds will be issued and sold without direct or indirect cost to the County. Friends House will be responsible for using the proceeds for the purposes outlined in its Letter of Intent and paying all loan payments and expenses in connection with the bond issuance.

6 Hans Riemer, Council President June 5, 2018 Page4 DESCRIPTION, REPAYMENT TERMS AND SECURITY Description and Repayment Terms Friends House is seeking financing through a combination of tax-exempt, directly placed bank bonds and tax-exempt, publicly offered fixed rate bonds in an aggregate principal amount of approximately $35 million. Herbert J. Sims & Co., Inc. has been retained by Friends House to act a~ underwriter of the fixed rate bond issuance. BBVa Compass Bank has been selected by Friends House to purchase the bank-held bonds. The County is requested to issue two series of tax-exempt revenue bonds: Economic Development Revenue Bonds (Friends House Retirement Community Project) Series 2018A (the "Bank Bonds") and Economic Development Revenue Bonds (Friends House Retirement Community Project) Series 2018B (the "Fixed Rate Bonds" and together with the Bank Bonds, the "Series 2018 Bonds"). The Fixed Rate Bonds will be issued pursuant to a Bond Trust Indenture (the "Bond Indenture") between the County and a trustee to be identified through an RFP process. The Fixed Rate Bonds will be issued in an aggregate amount of approximately $21,800,000 and with a final maturity not to exceed 30 years. Friends House intends to pay the principal of and interest on the Fixed Rate Bonds from its general revenues. The Bank Bonds will be issued as direct bank purchased draw-down bonds in an amount currently estimated at $13,200,000 and with a final maturity not to exceed 11 years. The Bank Bonds will bear interest at an annual vru-iable rate equal to 79% of the 30-day LIBOR rate, plus 1.28%, reset monthly. Interest only on the Bank Bonds will be repayable for the first three years, and then the Bank Bonds will be amortized over the remaining 8-year term of the loan. The Bank Bonds are expected to be repaid with entrance fee deposits to be paid by residents in the new facilities being financed with the Series 2018 Bonds. The obligation to repay the Bonds is an unconditional obligation of Friends House and is not an obligation of the County. Security The source of payment for principal, interest and premium with respect to both series of bonds will come from a pledge of the gross revenues of Friends House under a master trust indenture. As noted above, entrance fee deposits vvill be specifically

7 Hans Riemer, Council President June 5, 2018 Page 5 set aside to pay down the Bank Bonds. Obligations under the master trust indenture will also be secured by a mortgage. Friends House will grant in favor of the Master Trustee a first lien and security interest (the "Mortgage") on land, buildings, fixtures, furnishings and equipment that comprise the Project and the existing community; provided, however, that the Mortgage lien is not intended to cover an approximately 1.6-acre parcel on which certain affordable rental units will be built. Friends House has submitted an application to subdivide its property, so the 1.6 acre-parcel can be separated from the rest of its property. Friends House does not plan initially to seek ratings on either the publicly offered Fixed Rate Bonds or the Bank Bonds. However, friends House will covenant to seek a rating on the Fixed Rate Bonds ifit determines that an investment grade rating is reasonably obtainable. RECOMMENDATION The Department of Finance has reviewed this request and found it consistent with the County's tax-exempt policies and criteria. Also, the County's Bond Counsel, Venable LLP has advised that the proposed Bonds qualify as tax-exempt bonds under Sections 103 and 145 of the Internal Revenue Code of 1986, as amended. In connection with Bond Cow1sel's review, the nature and extent of the Community's affiliation with the Sandy Spring Monthly Meeting of the Religious Society of Friends was considered. The Community has specifically represented that there is no chapel or other religious worship area being financed as part of the proposed bond-financed Project. Further, Bond Counsel has confirmed that the "sectarian benefit, if any, to the Sandy Spring Monthly Meeting of the Religious Society of Friends from the use of the facilities that are to be bond financed is not in violation of state or federal constitutional limits on the separation of church and state such as to preclude the issuance of tax exempt bonds under state or federal law." Friends House continues to seek various permits, approvals and reports that will be required for the Project to move forward, including a financial feasibility study from a nationally-recognized feasibility consultant, certain approvals from the Department of Aging, and construction permits. The subdivision of the property discussed above is also pending. Approval of the issuance of the Series 20 I 8 Bonds will not constitute approval or disapproval of any other application to the County for permits, approvals or other considerations.

8 Hans Riemer, Council President June 5, 2018 Page 6 The Department of Finance held the required County Executive, TEFRA hearing on May 15, 2018 at which no members of the public appeared to give testimony, and for which no written testimony was received from members of the public. Therefore, I recommend that the County Council approve the attached resolution. IL/jdc Attachn1ents ee: Timothy L. Firestine, Chief Administrative Officer Alexandre A. Espinosa, Director, Department of Finance Diane Jones, Director, Department of Permitting Services Clarence Snuggs, Director, Department of Housing and Community Affairs

9 Resolution No.: Introduced: June 12, 2018 Adopted: June 12, 2018 COUNTY COUNCIL FOR MONTGOMERY COUNTY, MARYLAND Lead Sponsor: County Council SUBJECT: Economic Development Revenue Bonds for Friends House Retirement Community, Inc. Background This resolution will authorize Montgomery County, Maryland, pursuant to and in accordance with the Maryland Economic Development Revenue Bond Act, to issue and sell, at one time or from time to time, as limited obligations and not upon the faith and credit of the County, its economic development revenue bonds in the aggregate principal amount not to exceed $35,000,000, and to loan the proceeds from the sale of such bonds to Friends House Retirement Community, Inc., a Maryland nonstock corporation (the "Facility Applicant"), to be used for the purpose of financing, refinancing and reimbursing the costs of the acquisition and improvement of certain facilities, within the meaning of such Act, in Montgomery County, Maryland, consisting primarily of (i) financing, refinancing or reimbursing the costs of improvements to the Facility Applicant's existing continuing care retirement community located on an approximately 62 acre site at Quaker Lane, Sandy Spring, Maryland 20860, all in Montgomery County, Maryland, including (a) the renovation and expansion of the Facility Applicant's existing commons building, (b) the demolition and removal of two vacant cottages, ( c) the construction, furnishing and equipping of approximately fourteen new residential cottage units and approximately thirty-three residential apartment units to be located in approximately three buildings, and ( d) other associated site work and development ( collectively, the "Facilities"), and (ii) financing all or a portion of the costs ofissuance, costs to fund reserves, and other related costs of the transaction; will authorize the County Executive to specify, prescribe, determine, provide for, approve, execute and deliver any and all matters, details, forms, documents or procedures necessary or appropriate to effectuate the authorization, sale, security, issuance, delivery and payment of and for such bonds and the lending of the proceeds thereof; reserving certain rights in the County; and will generally provide for and determine various matters in connection with such bonds and the lending of the proceeds of the sale thereof.

10 Page No. 2 Resolution No.: I. The Maryland Economic Development Revenue Bond Act, Sections through , inclusive, of the Economic Development Article of the Annotated Code of Maryland, as amended (the "Act"), empowers any public body (as defined in the Act) to issue and sell bonds (as defined in the Act), as its limited obligations and not upon its faith and credit or pledge of its taxing power, and to loan the proceeds of the sale of such bonds to one or more facility users ( as defined in the Act), to finance or refinance any costs of the acquisition (as used in the Act) or the improvement (as defined in the Act) of a facility (as defined in the Act) for use by one or more facility users. 2. The Act states the declared legislative purposes of the General Assembly of Maryland to be to (i) relieve conditions of unemployment in the State of Maryland (the "State"); (ii) encourage the increase of industry and commerce and a balanced economy in the State; (iii) assist in the retention of existing industry and commerce in, and the attraction of new industry and commerce to, the State through, among other things, the development of ports, the control or abatement of environmental pollution and the use and disposal of waste; (iv) promote economic development; (v) protect natural resources and encourage resource recovery; and (vi) promote the health, welfare and safety of the residents of the State. 3. Montgomery County, Maryland (the "County"), has received a letter from Friends House Retirement Community, Inc., a Maryland nonstock corporation and a facility applicant as defined in the Act (the "Facility Applicant"), dated May 24, 2018, a copy of which is attached hereto as Exhibit A and made a part hereof (the "Letter oflntent"), requesting the County to issue and sell its bonds pursuant to the Act and to loan the proceeds of the sale thereof to the Facility Applicant for the purpose of financing and refinancing the costs of the acquisition and improvement of certain facilities within Montgomery County, as hereinafter described. The Facility Applicant is a facility user as defined in the Act. The Facility Applicant acknowledges in the Letter of Intent that the County reserves certain rights concerning the issuance of the bonds as provided in Section 5 of this Resolution. 4. A public hearing concerning the issuance of such bonds and the location and nature of such facilities has been held following reasonable public notice (within the meaning of Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code")). 5. The facilities which the Facility Applicant has requested to be so financed and refinanced shall consist generally of: (i) financing, refinancing or reimbursing the costs of improvements to the Facility Applicant's existing continuing care retirement community located on an approximately 62 acre site at Quaker Lane, Sandy

11 (j) Page No. 3 Resolution No.: Spring, Maryland 20860, all in Montgomery County, Maryland, including (a) the renovation and expansion of the Facility Applicant's existing commons building, (b) the demolition and removal of two vacant cottages, ( c) the construction, furnishing and equipping of approximately fourteen new residential cottage units and approximately thirty-three residential apartment units to be located in approximately three buildings, and (d) other associated site work and development (collectively, the "Facilities"), and (ii) financing all or a portion of the costs of issuance, costs to fund reserves, and other related costs of the transaction. 6. The County, based on the findings and determinations and subject to the reservation of certain rights as hereinafter set forth, has determined to issue and sell, in addition to any bonds authorized to be issued by any other act of the County, its bonds (within the meaning of the Act), at one time or from time to time, and in one or more series or subseries, in the aggregate principal amount not to exceed Thirty Five Million Dollars ($35,000,000), or such lesser amount as may be specified by the County Executive of the County (the "County Executive"), hereinafter designated "Montgomery County, Maryland Economic Development Revenue Bonds (Friends House Retirement Community Project)" (the "Bonds"), and to loan the proceeds of the Bonds (the "Loan") to the Facility Applicant on the terms and conditions as hereinafter provided in order to finance and refinance, in whole or in part, the costs of the Facilities, to encourage economic development and to protect the health, welfare and safety of the citizens of the State and of the County. Action The County Council for Montgomery County, Maryland, approves the following resolution: Section 1. Acting pursuant to the Act, it is hereby found and determined as follows: (a) As evidenced by the Letter oflntent, a "letter of intent" within the meaning of the Act, the issuance of the Bonds pursuant to the Act by the County, a "public body" and a "county" within the meaning of the Act, in order to loan the proceeds to the Facility Applicant, a "facility applicant" and a "facility user" within the meaning of the Act, for the sole and exclusive purpose of financing and refinancing the "acquisition" and "improvement," within the meaning of the Act, of the Facilities, "facilities" within the meaning of the Act, for use by the Facility Applicant, will facilitate and expedite the acquisition and improvement of the Facilities by the Facility Applicant. (b) The accomplishment of the transactions contemplated and authorized by this Resolution, including (without limitation) the acquisition and improvement of the Facilities by the Facility Applicant and the financing and refinancing thereof, will promote the declared legislative purposes of the Act by (i) creating and sustaining jobs and employment, thereby relieving conditions of unemployment in the State and in the County; (ii) encouraging the increase of industry and commerce and a balanced economy in the State and in the County; (iii) assisting in the retention of existing industry and commerce

12 Page No. 4 Resolution No.: in the State and in the County; (iv) promoting economic development; and (v) generally promoting the health, welfare and safety of the residents of the County and of the State. ( c) Neither the Bonds, nor the interest thereon, shall ever constitute an indebtedness or a charge against the general credit or taxing powers of the County within the meaning of any constitutional or charter provision or statutory limitation and neither shall ever constitute or give rise to any pecuniary liability of the County. The Bonds and the interest thereon shall be limited obligations of the County, payable by the County solely from the revenues derived from Loan repayments (both principal and interest) made to the County by the Facility Applicant on account of the Loan or from any other moneys made available to the County for such purposes. No such moneys will be commingled with the County's funds or will be subject to the absolute control of the County, but will be subject, only to such limited supervision and checks as are deemed necessary or desirable by the County to ensure that the proceeds of the Bonds are used to accomplish the public purposes of the Act and this Resolution. The transactions authorized hereby do not constitute any physical public betterment or improvement or the acquisition of property for public use or the purchase of equipment for public use. The public purposes expressed in the Act are to be achieved by facilitating and expediting the acquisition and improvement of the Facilities by the Facility Applicant. ( d) The County Executive of the County is the chief executive officer of the County within the meaning of the Act and shall undertake on behalf of the County certain responsibilities described in the Act and hereinafter specified. ( e) The Bonds may be sold at either private (negotiated) sale or at public sale, and at, above or below par, in any event in such manner and upon such terms as the County Executive, in his sole and absolute discretion, deems to be in the best interests of the County. (f) All or a portion of the Bonds may be issued as "qualified 50l(c)(3) bonds" within the meaning of Section 145 of the Code. Section 2. This Resolution is intended to be, and shall constitute, evidence of the present intent of the County to issue and deliver the Bonds authorized hereby in accordance with the terms and provisions hereof, for the purpose of materially inducing the Facility Applicant to acquire and improve the Facilities. Notwithstanding the foregoing, nothing in this Resolution shall be deemed to constitute (i) an undertaking by the County to expend any of its funds (other than the proceeds from the sale of the Bonds, revenues derived from Loan repayments made to the County on account of the Loan and any other moneys made available to the County for such purpose) to effect the transactions described herein or (ii) an assurance by the County as to the availability of one or more ready, willing and able purchasers for the Bonds to whom the Bonds may lawfully be sold under, among others, applicable federal and state securities and legal investment laws. The County and the Facility Applicant contemplate that the Facility Applicant may proceed with the acquisition and improvement of the Facilities prior to the issuance, sale and delivery of the Bonds; provided, however, that if the Facility Applicant proceeds with such acquisition and

13 Page No. 5 Resolution No.: improvement prior to the determination of the County Executive as provided in Section 5 of this Resolution, it does so at its own risk. Furthermore, the authorization of the issuance of the Bonds pursuant to this Resolution is independent of any other County approval or permitting process. This Resolution does not constitute approval or disapproval of any other application to the County for permits, approvals or other considerations. Section 3. As described in the Letter of Intent, the County will not incur any liability, direct or indirect, or any cost, direct or indirect, in connection with the issuance and sale of the Bonds, the making of the Loan or the acquisition and improvement of the Facilities, and the Facilities will be acquired and improved so as to conform to the requirements of the Facility Applicant; accordingly, the Facility Applicant shall (i) negotiate and approve all financing arrangements in connection with the acquisition and improvement of the Facilities and (ii) pay all costs incurred by or on behalf of the County in connection with the issuance and sale of the Bonds, the making of the Loan, including the administration thereof, and the acquisition and improvement of the Facilities, including (without limitation) all costs incurred in connection with the development of the appropriate legal documents necessary to effectuate the proposed financing, refinancing, acquisition and improvement, including (without limitation) the fees of bond counsel and compensation to any other person ( other than full-time employees of the County) performing services by or on behalf of the County in connection with the transactions contemplated by this Resolution, whether or not the proposed financing, refinancing, acquisition and improvement are consummated. Section 4. In addition to any bonds authorized to be issued by any other act of the County, the issuance, sale and delivery by the County of the Bonds, at one time or from time to time, and in one or more series or subseries, in an aggregate principal amount not to exceed Thirty Five Million Dollars ($35,000,000), or such lesser amount as may be specified by the County Executive, are hereby authorized, subject to the provisions of the Act and this Resolution. The Bonds will be issued pursuant to the terms and provisions of a trust indenture (the "Indenture") to be entered into between the County and a corporate trustee (the "Trustee"). The proceeds of the Bonds will be loaned to the Facility Applicant, as permitted by the Act, pursuant to the terms and provisions of a loan agreement (the "Loan Agreement") to be entered into between the County and the Facility Applicant, to be used by the Facility Applicant for the sole and exclusive purpose of financing and refinancing the costs of the acquisition and improvement of the Facilities, within the meaning of the Act. The Bonds will be purchased by one or more underwriters or financial institutions pursuant to the terms and provisions of one or more bond purchase agreements (the "Bond Purchase Agreements") to be entered into between the County and such underwriters or financial institutions. The Bonds and the interest thereon shall be limited obligations of the County, repayable by the County solely from the revenue derived from Loan repayments (principal and interest) made to the County by the Facility Applicant and from any other moneys made available to the County for such purpose. The maximum principal amount of Bonds which may be issued, sold and delivered pursuant to this Resolution is Thirty-Five Million Dollars ($35,000,000), unless such amount shall be increased by a resolution supplemental hereto. Section 5. The County reserves the right, in its sole and absolute discretion, to take any actions which it may deem necessary in order to ensure that the County (i) complies with all

14 Page No. 6 Resolution No.: federal and State laws, whether proposed or enacted, which may restrict the issuance of its economic development revenue bonds and (ii) issues such bonds to finance facilities which the County determines, in its sole and absolute discretion, will provide the greatest benefit to the County. Specifically, the County reserves the right to choose to issue its economic development revenue bonds for facilities other than the Facilities and to issue or not to issue such bonds at such times and in order of priority which the County Executive, in his sole and absolute discretion, may determine. Section 6. The Bonds shall each be designated "Montgomery County, Maryland Economic Development Revenue Bond (Friends House Retirement Community Project)." The Bonds may be further identified by the year of issue or such other appropriate designation as the County Executive may approve. The Bonds shall be dated and shall bear interest at an annual rate or rates, payable at such times, all as approved by the County Executive. The Bonds shall mature on such date or dates as may be approved by the County Executive, but the last maturity of the Bonds shall in no event exceed a period of thirty (30) years from the date of issuance of the Bonds. Each of the Bonds shall be executed in the name of the County and on its behalf by the manual or facsimile signature of the County Executive and the manual or facsimile signature of the Director of Finance of the County. The seal of the County or a facsimile thereof shall be affixed to each of the Bonds, and attested by the manual or facsimile signature of the Clerk of the County Council. If deemed appropriate by the County Executive, each of the Bonds may also be authenticated by the manual or facsimile signature of a trustee, registrar or paying agent. At least one of such signatures on each Bond shall be a manual signature. Section 7. If deemed advisable by the County Executive, and pursuant to the Loan Agreement and the Indenture, the County will assign to the Trustee (among other things) all of the County's right, title and interest in and to the Loan Agreement, including (without limitation) the receipts and revenues of the County from the Loan ( excepting only certain reserved rights of the County to indemnification by the Facility Applicant, taxes paid by the Facility Applicant to the County, the obligation of the Facility Applicant to make certain payments required by the Code and payments to the County for the County's administrative fees and expenses and the like). Section 8. In connection with the transactions described herein, the County Executive is hereby authorized and empowered, by executive order or otherwise: (a) to accept the Letter of Intent, in order to further evidence the present intent of the County to participate in the financing and refinancing of the costs of the acquisition and improvement of the Facilities; (b) to approve the form and provisions of, execute and deliver the Bonds, the Indenture, the Loan Agreement and the Bond Purchase Agreements; ( c) to approve the form and provisions of any preliminary Official Statement, final Official Statement or other offering document with respect to the

15 @ Page No. 7 Resolution No.: (d) to appoint the Trustee and, if necessary, a bond registrar and paying agent or agents for the Bonds; ( e) to provide for the direct payment by the Facility Applicant of all costs, fees and expenses incurred by or on behalf of the County in connection with the issuance, sale and delivery of the Bonds, including (without limitation) costs of printing (if any) and issuing the Bonds, legal expenses (including the fees of bond counsel) and compensation to any person (other than full-time employees of the County) performing services by or on behalf of the County in connection therewith; and (f) to specify, prescribe, determine, provide for, approve, execute and deliver (where applicable) such other matters, details, forms, documents or procedures, including (without limitation) trust indentures, bond purchase agreements, placement agreements, letters of credit, letter of credit agreements, remarketing agreements, deeds of trust, assignments and financing statements, as are necessary or appropriate to consummate the authorization, sale, security, issuance, delivery or payment of or for the Bonds and the making of the Loan. Section 9. Before or after the issuance, sale and delivery of the Bonds of any series, regardless of the date on which such Bonds are issued, the County Executive is hereby authorized and empowered, by executive order or otherwise, to supplement the executive order provided for by Section 8 of this Resolution and thereby approve on behalf of the County any amendments or supplements to or substitutes for the forms and provisions of the Bonds, the Loan Agreement, the Indenture, and all other documents executed and delivered on behalf of the County in connection with the issuance, sale and delivery of the Bonds pursuant to the provisions of such documents, provided that (1) each such supplemental executive order or orders and each amendment, supplement or substitute to such document shall be in accordance with the provisions of the Act, this Resolution, and the documents executed and delivered in connection with the Bonds and then in effect and (2) all of the foregoing shall be subject to any approval by the County Council as may be required pursuant to federal tax law. Section 10. The terms, provisions, form and substance of any and all documents and instruments to be executed or entered into by or for the benefit of the County in connection with the transactions authorized by this Resolution, including all customary closing certificates and documents, shall also be subject to the approval of the County Attorney or the County Attorney's designee prior to the execution and delivery thereof by the appropriate official of the County. Section 11. In satisfaction of the requirements of Section 147( ) of the Code, the County hereby approves the Facilities and the Bonds. Section 12. The members of the County Council, the County Executive, the Chief Administrative Officer of the County, the County Attorney, the Director of Finance of the County and the Clerk of the County Council, for and on behalf of the County, are hereby authorized and empowered to do all things, execute all instruments and otherwise take all such actions as the County Executive may determine by executive order or otherwise to be necessary, proper or expedient to carry out the authority conferred by this Resolution, including (without limitation)

16 Page No. 8 Resolution No.: the execution of a Certificate of the County pursuant to Section 148 of the Code and the U.S. Treasury Regulations prescribed thereunder, subject to the limitations set forth in the Act and this Resolution. Section 13. Unless previously exercised, the authority to issue the Bonds contained in this Resolution shall expire on the date which is one (1) year from the effective date of this Resolution, unless such authority shall have been extended by a resolution supplemental hereto approved by the County Executive. Section 14. In accordance with the Act, this Resolution shall take effect upon approval by the County Council. This is a correct copy of Council action. Megan Davey Limarzi, Esq. Clerk of the Council

17 ... ~1- l~ii Friends House community through caring May 24, 2018 The Honorable Isiah Leggett County Executive Montgomery County, Maryland Executive Office Building l O l Monroe Street Rockville, Maryland Re: Proposed Montgomery County, Maryland Economic Development Revenue Bonds (Friends House Retirement Community, Inc. Facility) Dear Mr. Leggett: The undersigned Friends House Retirement Community, Inc. (the "Borrower"), respectfully requests that Montgomery County, Maryland (the "Public Body") authorize, issue, and sell its economic development revenue bonds, in a principal amount not to exceed $(35,000,000] (the "Bonds") pursuant to the provisions of the Maryland Economic Development Revenue Bond Act (codified at Title 12 of the Economic Development Article of the Annotated Code of Maryland, as amended) (the "Act'), or such other statutory authority as may exist when the Bonds are issued. This letter is intended as a "letter of intent" under the Act. The Borrower proposes that the Public Body lend the proceeds of the sale of the Bonds to the Borrower under a loan agreement (within the meaning of the Act). The Borrower will use the proceeds of the Bonds to (1) finance and refinance the costs of certain capital improvements to its facility located at Quaker Lane, Sandy Spring, Montgomery County, Maryland, 20860, including, but not limited to, (i) the renovation and expansion of the existing commons building, (ii) the removal and demolition of two vacant cottages, (iii) the construction of approximately 14 new cottage units and approximately 33 apartment units to be located in approximately 3 small buildings to be known as "Lodge" units and (iv) other associated site work and development ( collectively, the "Facilities"), (2) fimd certain reserves, if any, (3) pay capitalized interest on the Bonds during construction, and ( 4) pay the costs of issuing the Bonds. The Borrower will own, within the meaning of 145( a) of the Internal Revenue Quaker Lane t Sandy Spring MD ( Under the care of the Baltimore Yearly Meeting of the Religious Society offricnds (Quaker,;)

18 Code of 1986, as amended (the "Code"), all of the property which is to be financed by the net proceeds of the Bonds. The Borrower is a "50l(c)(3) organization", within the meaning of 150(a) of the Code. The Borrower provides housing and other related services as a full-service retirement community, including long-term healthcare services, with operations located in Sandy Spring, Montgomery County, Maryland. Located on approximately 62 acres in Sandy Spring, Maryland and just north of Silver Spring and east of Olney, the campus is close to medical care, shopping and museums. Operating under the care ofreligiou.s Society of Friends, the Borrower welcomes senior adults regardless of race, color, disability, gender identity, age, sexual orientation, religious affiliation, national origin or familial status. The Borrower was founded on Quaker values and has a mission to build a community through caring. The Borrower's facility currently consists of32 independent living units and 75 low-income units that were previously HUD units. It is also licensed and equipped for 82 comprehensive care beds and 21 assisted-living beds. Until recently, the Borrower operated a 100 HUD unit apartment building, which was reduced to 75 units, as 25 units were removed from service. The Borrower plans to replace the apartment building, as a separate project and not part of this financing, with a new 80-unit low-income housing tax credit :financed apartment building through a partnership with Homes for America. It is currently estimated that the "total costs" to acquire the Facilities will be $[35,000,000] of which up to $[35,000,000] would be provided by the Bonds. Included in the "total costs" are reserves, capitalized interest and the fees for construction, architectural, engineering, construction of utilities, financial and certain legal services, and other costs of issuing the Bonds. Acknowledgment by the Borrower The Borrower acknowledges that federal legislation may be enacted which may limit the ability of the Public Body to issue the Bonds and similar obligations. The Borrower hereby acknowledges that the Public Body reserves the right, in it sole and absolute discretion, to talce any actions which the Public Body may deem necessary in order to ensure that the Public Body (1) complies with all federal and state laws, whether proposed or enacted, which may restrict the issuance of its economic development revenue bonds, and (2) issues such bonds to finance facilities which the Public Body determines, in its sole and absolute discretion, will provide the greatest benefits to the Public Body. Specifically, the Public Body reserves the right to choose to issue its economic development revenue bonds for facilities other than the Facilities, and to issue or not issue such bonds in the order of priority which the County Executive, in his sole and absolute discretion, may determine. Compliance with Act The acquisition (within the meaning of the Act) of the Facilities will benefit the Public Body and the State of Maryland in accordance with the stated purposes of the Act by (i) sustaining jobs and employment, thereby relieving conditions of unemployment in Quaker Lane t Sandy Spring MD ( t Under the care of the Baltimore Yearly Mcding of the Religious Society of Friends (Quaken)

19 the State and in the County; (ii) encourage the increase of industry and commerce and a balanced economy in the State and in the County; (iii) assist in the retention of existing industry and conunerce in the State and in the County; (iv) promote economic development; and (v) generally promote the health, welfare and safety of the residents of the County. The Bonds will be limited obligations of the Public Body, the principal of, premium, if any, and interest on which shall be payable solely from the revenue derived from loan repayments (both principal and interest) made to the Public Body by the Borrower pursuant to the terms and provisions of the Loan Agreement (hereinafter defined) and from any other moneys made available to the Public Body for such purposes. The Borrower proposes that the Public Body lend the proceeds of the Bonds (the "Loan'') pursuant to the terms and provisions of a Loan Agreement to be entered into by and between the Public Body and the Borrower (the "Loan Agreement"). The Loan Agreement will require the Borrower to use the proceeds of the Loan for the sole and exclusive purposes set forth above in this Jetter of intent. The Loan Agreement will require the Borrower to make loan payments (both principal and interest) sufficient to pay (1) the principal of and interest and redemption premium, if any, on the Bonds and (2) all reasonable expenses incurred by the Public Body in connection with issuance and sale of the Bonds and the malting and administration of the Loan, as the same become due and payable. The Borrower agrees that all costs of the acquisition of the Facilities in excess of the proceeds of the Loan will be paid by the Borrower. The Loan Agreement will contain such other provisions as may be required by law or as may be agreed to by the Borrower and the Public Body. Financial considerations have been a factor leading to the Borrower's decision to undertake the acquisition of the Facilities, and that decision has been influenced materially by the availability of economic development revenue bond financing from the Public Body. The Act empowers all the counties and municipalities of the State to borrow money by issuing negotiable economic development revenue bonds and to lend the proceeds of the sale thereof to a Facility Applicant ( as defined in the Act). The Borrower is a "facility applicant" and "facility user" within the meaning of the Act. The Facilities constitute a "facility" or "facilities" as defined by the Act. It is expressly understood and agreed that (1) the Public Body will not incur any liability, direct or indirect, or any cost, direct or indirect, in connection with the issuance or sale of the Bonds, the making of the Loan or the acquisition of the Facilities, and (2) the use of the proceeds of the Loan to acquire the Facilities will conform to the requirements of the Borrower. Accordingly, the Borrower shall (I) negotiate and approve all financing arrangements in connection with the acquisition of the Facilities, and (2) pay all reasonable costs incurred by or on behalf of the Public Body in connection with acquisition of the Facilities. The Borrower shall also pay all reasonable costs incurred in connection with the development of the appropriate legal documents necessary to effectuate the proposed acquisition of the Facilities, including (without limitation) the reasonable fees ofbond counsel to the Public Body and compensation to I7340QuakerLane asandyspringmd20860 ( Under the care of the Baltimore Yearly Meeting of the Rdigious Society of Friends