COMMUNITY CORPORATION of SANTA MONICA 1423 SECOND STREET, SUITE B, SANTA MONICA, CA (310)

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1 COMMUNITY CORPORATION of SANTA MONICA 1423 SECOND STREET, SUITE B, SANTA MONICA, CA (310) September 24, 2012 Mr. Andy Agle Director of Housing & Economic Development City of Santa Monica 1901 Main Street, 2nd floor Santa Monica, CA Subject: Impact on CCSM if contracts with the City of Santa Monica are impaired Dear Andy: As you know, the Redevelopment Agency of the City of Santa Monica and/or the City of Santa Monica provided loans (collectively referred to as the "City Loans") to several affordable housing properties being developed by Community Corporation of Santa Monica (CCSM): 1) High Place West located at 2345 Virginia Avenue; 2) 2802 Pico Blvd.; and 3) 430 Pico Blvd. The City Loans were funded in part with proceeds from a line of credit obtained from Bank of America. The City Loans have closed for all three developments and construction is 90%, 45% and 37% complete, respectively. Additionally, High Place East, a to-be-constructed property consisting of 44 apartments for low income families, relied upon the City's commitment of $13,016,025 to obtain both a $12 million dollar tax exempt bond allocation and a $7,985,000 reservation of 4% low-income housing tax credits ("tax credits"). The site was purchased in 2002 and that is when CCSM closed on its first City Loan for this project. The City Loan was subsequently increased to $4.4 million by November 2009 to cover the cost of acquisition, design, permits and other predevelopment expenses. High Place East is ready to commence construction but we are unable to close our financing with Bank of America and Enterprise Community Partners because of the cloud of uncertainty surrounding the use of redevelopment funds. Should the City break its agreement to close on the construction-to-permanent loan, its initial $4.4 million dollar investment will have been wasted and the long-envisioned possibility of constructing 44 apartments for low income families will have been lost. EQUAL HOUSING OPPORTUNITY PROVIDER

2 With regards to the 4 properties in question, City Loans for acquisition were closed as early as 2002 in the case of High Place West and High Place East and 2009 for 2802 Pico and 430 Pico which is evidence that the City was committed to CCSM's development of these sites as affordable housing for many years before Redevelopment Agencies were dissolved. Furthermore, a key factor in the competitive process for obtaining allocations of 9% tax credits is the amount of public subsidy that has been committed to the project. CCSM, in reliance upon these City Loans, then entered into commitments with third parties including Citibank and Bank of America, tax credit equity investors, title companies and a general contractor. The four properties received tax credit allocations totaling $33 million which resulted in commitments for tax credit equity totaling almost $34 million. Additionally, we have executed over $24 million in construction loan agreements and over $34 million in construction contracts. If the City Loans do not continue to be funded, CCSM may be bankrupted because it does not have the over $14 million needed to honor the financial remedies stated in the tax credit equity partnership agreements, bank loan documents and construction contracts that would be triggered if the balance of the City Loans were not funded. If CCSM doesn't honor all of its financial obligations, our ability to attract financing for future projects would be severely damaged because we would be assigned "negative points" in the competitive tax credit allocation process and we would have a negative credit history in the banking and investment community. Furthermore, the neighborhoods will be left with dangerous conditions, such as partially constructed buildings in the case of High Place West, 2802 Pico and 430 Pico and a vacant lot in the case of High Place East. Ultimately, if the properties are not completed, 156 two- and three-bedroom apartments will never be made available to low-income families and millions in public funds will have been wasted. Financial Impact on CCSM, Tax Credit Partners, Banks and General Contractors If CCSM's contracts with the City are impaired, it would ultimately trigger CCSM's "Obligation to Purchase Interest of Limited Partner" (Section 5.17 of each Partnership Agreement for the properties under construction). CCSM would be required to return all capital contributed to date for each property plus interest which accrues at a rate of prime plus 2%. As of the date of this letter, $2.46 million has been contributed to the three properties and interest accrued on these equity contributions would result in CCSM owing about $2.5M to the limited partners. CCSM would also be financially harmed since tax-exempt bond debt for High Place West and conventional loans for 2802 Pico and 430 Pico would be in default. CCSM would not be able to cure the defaults caused by the loss of the City Loans and amounts drawn to date, totaling $8.77 million, would be due and payable to the banks. Page 2

3 The third financial blow to CCSM would be caused by termination of three contracts with our general contractor. Section of each contract states that if CCSM terminates the contracts - which we would have to do in the event funding of City Loans was terminated - we would owe the contractor for work performed to date plus reasonable costs related to a termination. Amounts owed total approximately $3M. It is also worth noting that each job site employs an average of 45 people per day. If the construction contracts are terminated, approximately 135 people would need to find other work. The financial consequences articulated above total $14 million for the three properties under construction. If the City Loans are terminated, the financial consequences could bankrupt CCSM a non-profit that has been serving hundreds of low-income households for 30 years. Dangerous conditions in neighborhoods If construction is stopped, unsafe conditions in the neighborhoods would persist indefinitely. High Place West (90% complete as depicted below) is across the street from Edison Elementary School. An abandoned construction site would be a magnet for trouble and create hazardous conditions for any child, teenager or adult who trespassed. HIGH PLACE WEST - CONSTRUCTION 90% COMPLETE AS OF Page 3

4 As you can see from the pictures below, the partially framed structure at 2802 Pico would create a serious hazard if CCSM could not proceed with construction. The remaining skeleton would be a symbol of wasted opportunity and scarce financial resources as lumber rots and steel rusts PICO - CONSTRUCTION IS 45% COMPLETE AS OF Page 4

5 430 Pico is across the street from Santa Monica High School. This partially framed structure would also create hazardous conditions if CCSM could not proceed with construction. 430 PICO - 37% COMPLETE AS OF High Place East is currently a vacant lot. If this urban infill site is never developed, it will be an eyesore to the adjacent High Place West property and a symbol of a wasted opportunity. Page 5

6 HIGH PLACE EAST - VACANT LOT AS OF The urgency of this situation to CCSM cannot be overstated -the life of the organization and our ability to continue serving low-income households depends upon the continued funding of the City Loans. More importantly the neighborhoods will be harmed if the projects are not completed. Finally, 156 low-income families will never have the opportunity to live in this desperately needed housing in Santa Monica. Please do not hesitate to contact me at x!33 if you have questions or need additional information. Sincerely, ^fe^- Sarah Letts, Executive Director Community Corporation of Santa Monica Page 6