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HomeMy WebLinkAboutPromissory Note PROMISSORY NOTE SECURED BY DEED OF TRUST March 28, 2013 ("Note Date") FOR VALUE RECEIVED, the undersigned, COURTLAND STREET APARTMENTS, L.P., a California limited partnership ("Borrower"), promises to pay to the CITY OF ARROYO GRANDE, a California municipal corporation ("City"), the sum of Nine Hundred Thirty Thousand Dollars ($930,000.00), together with interest, plus such other costs, charges, and fees which may be owing from time to time, all subject to the terms, conditions, and provisions hereinafter set forth in this Promissory Note Secured by Deed of Trust("Note"). Reference is made to the following (which, together with this Note are sometimes collectively referred to as the"Loan Documents"): (i) The Affordable Housing and Loan Agreement, with all Attachments thereto, by and between the former Arroyo Grande Redevelopment Agency ("Agency") and Borrower, dated March 8, 2011, as may be amended from time to time ("Loan Agreement"), which sets forth terms and conditions for Borrower's redevelopment of that certain real property located in Arroyo Grande, California, more particularly described in the legal description attached as Attachment No. 1 to the Loan Agreement ("Site"). Capitalized terms used herein and not otherwise defined shall have the same meaning as set forth in the Loan Agreement. (ii) The Regulatory Agreement and Declaration of Covenants and Restrictions by and between City and Borrower, in the form attached as Attachment No. 5 to the Loan Agreement, and recorded against the Site on or about the date of this Note, as may be amended from time to time ("Regulatory Agreement"). (iii) The Deed of Trust With Assignment of Rents that shall be executed by Borrower for the benefit of City securing the City Loan, and recorded against the Site on or about the date of this Note in the Official Records of San Luis Obispo County, California, as may be amended from time to time("Deed of Trust"). Pursuant to Assembly Bill 26 from the 2011-12 First Extraordinary Session of the California Legislature, which was signed by the Governor on June 28, 2011 ("ABx1 26"), all redevelopment agency activities, except continued performance of "enforceable obligations," were immediately suspended. A lawsuit was filed, challenging the constitutionality of ABx1 26 and companion bill ABxI 27 (which would have allowed redevelopment agencies to remain in existence and continue redevelopment, if the legislative bodies that established the agencies elected to participate in a "voluntary alternative redevelopment program" and make certain remittance payments). The California Supreme Court upheld the constitutionality of ABxI 26, revising the effective dates of certain provisions, and struck down as unconstitutional ABxI 27. (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231 (the "CRA Case"). ABxI 882/029456-0003 5185283.2 a03128/13 26 is chapter 5, Statutes 2011, First Extraordinary Session, which added Part 1.8 (suspension provisions) and Part 1.85 (dissolution provisions) ("Part 1.85") of Division 24 of the Health and Safety Code. Under the CRA Case, all redevelopment agencies dissolved February 1, 2012. On June 27, 2012, the California Legislature passed, and the Governor signed, Assembly Bill 1484 ("AB 1484"), which, among other things, made certain revisions to certain of the statutes added by ABxl 26,and added Chapter 9 to Part 1.85. Pursuant to Health and Safety Code section 34176(a), added by Part 1.85 and amended by AB 1484, the City Council of the City adopted its Resolution No. 4421 on January 10, 2012, electing to retain the housing assets and functions previously performed by the Agency. Pursuant to said resolution, all housing assets of the Agency were transferred to City on February I, 2012. Pursuant to subdivision (e)(2) of Health and Safety Code section 34176, which subdivision was added by AB 1484, the "City Loan" (as that term is defined in Section 1 below) proceeds are one of the "housing assets"of the Agency that was so transferred to City. 1. Loan Amount; Interest. The principal amount of the City's loan to Borrower is Nine Hundred Thirty Thousand Dollars ($930,000.00) ("City Loan"). Simple interest shall accrue on the outstanding principal balance at the rate of three percent (3%) per annum, or the maximum legal limit, whichever is less, from the date first written above until accrued interest and unpaid principal are paid in full. The City Loan shall be disbursed to Borrower in accordance with the terms set forth in the Loan Agreement. 2. Term of Note; Repayment of Loan Amount. Commencing upon the completion of the Project, but in no event later than the date that is one year after the Note Date, Borrower shall make annual payments to City in an amount equal to fifty percent (50%) of the Project Cash Flow for the calendar year (or partial calendar year in the case of the first and last year). Payments for each year shall be made on March 1 of the subsequent year. Any unpaid principal and accrued interest shall be due and payable in a single lump-sum payment on the date that is fifty-five(55)years after the Note Date. Notwithstanding the foregoing, if all of the Funding Conditions are not satisfied by the Outside Funding Conditions Satisfaction Date and the Loan Agreement is terminated pursuant to Section 2.3 of the Loan Agreement, the City Loan and all other amounts owing hereunder and all indebtedness secured by the Deed of Trust shall be due by Borrower to City within thirty (30) days after the date of such termination. As used herein,the following terms shall have the meanings set forth below: "Gross Income" shall mean the total rental income and all other revenues or income received by the Borrower or its successors or assigns in connection with the Project or any portion thereof, and for services provided thereon, whether or not denominated rent, including without limitation, rent, cost reimbursements, parking charges and amounts received by, payable to, or payable to the order of Borrower, but excluding security deposits, loan proceeds, capital contributions and similar advances. "Operating Expenses" shall mean, subject to the limitations set forth below, actual, reasonable and customary costs, fees and expenses directly incurred and for which payment has 882/0294560003 5185283.2 a03/28/13 -2- been made and which are attributable to the operation, maintenance, and management of the Project, except expenses reimbursed by insurance, to the extent so reimbursed, and federal and state taxes on net income, consisting of only the following (and such additional items, if any, as to which the prior written approval of the Executive Director is first obtained, with such approval to be granted, granted subject to conditions, or refused in the reasonable discretion of the Executive Director): (I) all insurance premiums, including, without limitation, premiums for fire, extended coverage, earthquake and flood insurance, liability insurance, boiler and machinery insurance and business interruption and loss of rents insurance and any other insurance required by any third party institutional lender that has made a loan to Borrower and who holds a lien upon any portion of the Site as security for such loan ("Mortgagee"); (II) all special assessments, levies and charges on the Site made by any governmental entity, political subdivision, maintenance district, and any like entity, payable by Borrower, and all real and personal property taxes, fees, assessments and charges, water and sewer rates and charges, and other similar governmental charges and impositions, whether general or special, ordinary or extraordinary, which may be levied, assessed, charged or imposed, or may become a lien or charge upon the Site or any part or parts thereof, or upon Borrower's interest in the Site; (Ill) all costs and expenses of ownership, operation, management, maintenance and repair of the Project (including walkways, parking areas and landscaped areas), including, but not limited to, the following costs by way of illustration: (i) utility expenses (including heating, ventilating, and air conditioning); (ii) labor costs, costs of materials, and contractors' fees incurred in the management, maintenance, repair and/or operation of the Project; (iii) maintenance, repair and component replacement of mechanical, plumbing, heating and air conditioning systems and elevators (whether considered an operating or capitalized expense); (iv) property management fees not to exceed each calendar year a cumulative total of Fifty-Six Dollars ($56.00) per restricted unit (which may increase by three percent (3%) annually); (v) accounting; (vi)janitorial; (vii) security; (viii) any partnership management fee paid to a general partner in Borrower not to exceed Ten Thousand Dollars ($10,000) per calendar year (which limit may increase annually by three percent (3%)); (ix) any asset management fee paid to a limited partner in Borrower not to exceed Three Thousand Dollars ($3,000) per calendar year (which limit may increase annually by three percent (3%)); (x) a social services fee payable to the general partner of Borrower (or an affiliate of the general partner of Borrower) in the amount of Seventeen Thousand Four Hundred Sixty Dollars ($17,460) per calendar year (which limit may increase annually by three percent (3%)); and (xi) payments of a developer fee not to exceed One Million One Hundred Thirty-Three Thousand Four Hundred Thirty-Two Dollars ($1,133,432) in the aggregate, to the extent such developer fee is not paid from capital contributions to Borrower or from financing proceeds; (IV) debt service on indebtedness secured by a mortgage or deed of trust(other than the indebtedness payable from Project Cash Flow) securing a loan the proceeds of 88210294560003 5185287.2 803/28113 -3- 1 which are used to repair, restore, maintain, improve or alter the improvements on the Site, if City has have approved the amount and terms of such loan in the exercise of its reasonable discretion and the lender is not an affiliate of Borrower or related party; and (V) payments into operating and replacement reserves otherwise required by a Mortgagee or investor limited partner. Notwithstanding anything to the contrary in the foregoing, Operating Expenses shall not exceed the reasonable cost thereof as measured by fees paid to third parties rendering similar services, Operating Expenses shall not include any items paid from any of the reserves described in subsection (V) above, and Operating Expenses shall not include non-cash expenses, including without limitation, depreciation. Legal and accounting fees shall only be included in Operating Expenses to the extent directly related to the operation, maintenance, improvement or leasing of the Project, drafting and negotiating leases and construction contracts and financing and/or partnership documents, calculating tenant reimbursements, prosecuting unlawful detainer actions, preparation of tax returns, accounting reports and audits, reports and studies required by any Mortgagee or any governmental City, appeals in respect of taxes, assessments, or income and franchise taxes, and the like; provided, however, that costs associated with appeals of real property taxes and assessments shall be included in Operating Expenses only if City and any other party with approval rights have approved Borrower's undertaking the applicable appeal in writing in advance (such approval not to unreasonably withheld, conditioned or delayed). "Project Cash Flow" shall mean, with respect to any calendar year, the amount of Gross Income for such calendar year reduced by the Operating Expenses for such calendar year, determined on a basis consistent with prior periods in accordance with the cash method of accounting, and otherwise in accordance with generally accepted business and accounting principles. 3. Records. For the purposes of ascertaining the amount of Project Cash Flow, Borrower shall prepare and keep or cause to be prepared and kept on the Site or at Borrower's principal place of business if located in Arroyo Grande, California (or at such other location approved by City, which approval shall not be unreasonably withheld) for a period of not less than twenty-four (24) months following the end of each calendar year, adequate records for the computation of Gross Income and Operating Expenses. 4. Reports. Borrower shall submit to City on or before March 1 of each year, together with the remittance of the Project Cash Flow payment due, a written audit report prepared and certified by an independent professional accountant of Borrower's choosing, and acknowledged and signed by Borrower (or if Borrower is a corporation or a partnership, by a duly authorized corporate officer or general partner of Borrower) to be true and correct, showing in reasonable, accurate detail the amount of Project Cash Flow for the immediately preceding calendar year. The reports and certificates referred to herein shall be in such form and style and contain such details and breakdown as City may deem reasonably acceptable. The acceptance by City of payments shall be without prejudice to City's right to an examination of the books and records of Borrower in order to verify the amount of Project Cash Flow. If Borrower fails to prepare and deliver promptly any required audit report, City shall have the right, at Borrower's expense, to make an audit of all books and records of Borrower, including its respective bank 882)0294560003 5185283.2 a0328/13 4- accounts, which in any way pertain to or show Project Cash Flow, and to prepare the report or reports which Borrower has failed to prepare and deliver. Borrower shall give City access to such books and records at all reasonable times upon at least 24 hours notice for purposes of preparing any such report. 5. Audit. From time to time and at any time, City or City's representative may examine any records required to be maintained under Section 3 during regular business hours upon not less than seventy-two (72) hours written notice for the purpose of investigating and verifying the accuracy of any statement of Project Cash Flow. City may from time to time and at any time, upon reasonable notice, cause an audit of Borrower's books and records to be made by a person or persons of City's selection and, if any statements of Project Cash Flow made to City shall be found to be inaccurate, one party shall pay to the other on demand such sums as may be necessary to settle in full the actual payment that should have been paid to City for the calendar years covered by such inaccurate statement or statements. If said audit shall disclose an inaccuracy which resulted in an underpayment to City greater than five percent (5%) for the applicable period, then Borrower shall immediately pay to City the cost of such audit; otherwise, the cost of such audit shall be paid by City. 6. Additional Terms of Payment. (a) Late Charge. If Borrower fails to timely make a required payment within ten (10)days following the due date of such payment, interest at the rate of ten percent(10%)per annum or the maximum legal rate then applicable, whichever is less, shall accrue on the outstanding amount due commencing from the date payment was due. (b) Prepayment. Borrower shall have the right to prepay all or any portion of this Note at any time without penalty. (c) Application of Payment. All payments shall be first credited to costs, charges, and fees which may be owing from time to time, and then to accrued interest and then to reduction of the principal. Payment shall be made in lawful money of the United States. (d) Place of Payment. Payments shall be made to City at 300 East Branch Street, Arroyo Grande, California 93421 or at such other address as City or the holder of this Note may direct pursuant to written notice delivered to Borrower. 7. Default. Borrower shall be deemed in default of this Note in the event (a) Borrower fails to timely make a required payment within ten (10)days following the due date of any payment due hereunder, or (b) Borrower is in default of any of the other terms of this Note and such default is not cured within thirty (30) days after Borrower's receipt of written notice from City specifying the event constituting the default, provided, however, that if the default cannot be corrected within thirty (30) days, it shall not constitute a default if corrective action is instituted by Borrower within such period and diligently pursued until the default is corrected, and provided further that any such default is cured within ninety (90) days of receipt of written notice of such default, or(c) Borrower is in default of the Loan Agreement, the Deed of Trust, or the Regulatory Agreement, and fails to cure such default under the terms of the applicable agreement, within the notice and cure periods set forth therein, it being understood and agreed by 882/029456-0003 5185283 2 80328/13 -5- Borrower that a default of any of the foregoing agreements shall be a default of this Note, or (d)Borrower is in default on any obligations under any documents relating to any other financing that is secured by the Site and the default is not cured within any cure period set forth in the applicable document. During any period in which there is a tax credit investor admitted as a limited partner of Borrower, in the event Borrower fails to cure a default within the applicable cure period set forth above, or if such breach is of a nature that it cannot be cured within the cure period set forth above and Borrower fails to commence to cure within said cure period and diligently complete such cure within a reasonable time thereafter but in no event later than ninety (90) days, Borrower's limited partner may itself tender a cure and/or remove and replace the general partner(s) of Borrower with a substitute general partner, as permitted in the Deed of Trust,which substitute general partner shall effect a cure within a reasonable time thereafter. 8. Right of Acceleration. City has the right to accelerate payment of the City Loan and all other amounts payable hereunder and the indebtedness secured by the Deed of Trust upon the occurrence of any of the following: (a) directly or indirectly, voluntarily or involuntarily, sell, assign, transfer, dispose of, alienate, encumber, lease, or agree to sell, assign, transfer, dispose of, alienate, encumber, or lease all or any portion of any interest in the Site (excluding the lease of the units on the Site in accordance with the Regulatory Agreement, the lien of the Permitted Encumbrances, a Permitted Transfer, and any other assignment, transfer, or encumbrance approved in writing by City); or (b) refinance any lien or encumbrance for a loan amount in excess of the then outstanding sum secured by such lien or encumbrance or extend the term of any loan secured by any such lien or further encumber the Site; or (c) default on this Note as set forth in Section 7 which is not cured within any applicable cure period as set forth therein. 9. Collection Costs; Litigation. If this Note is not paid when due, whether at maturity or by acceleration, Borrower promises to pay all costs of collection, including, but not limited to, reasonable attorneys' fees and all expenses incurred in connection with the protection or realization of the collateral securing the payment hereof or enforcement of any guarantee, incurred by City on account of such collection, whether or not suit is filed hereon. In any litigation between the parties arising out of this Note, the Superior Court of the State of California in and for the County of San Luis Obispo shall have exclusive jurisdiction. 10. Waivers. To the extent permitted by law, Borrower and all endorsers, guarantors, and persons liable or to become liable on this Note waive presentment, protest, and demand, notice of protest, demand, and dishonor and nonpayment of this Note and any and all other notices or matters of a like nature, and consent to any and all renewals and extensions near the time of payment hereof and agree further that at any time and from time to time without notice, the terms of payment herein may be modified or the security described in any documents securing this Note released in whole or in part or increased,changed, or exchanged by agreement between City and any owner of the premises affected by said documents securing this Note, without in any way affecting the liability of any party to this Note or any persons liable or to become liable with respect to any indebtedness evidenced hereby. 11. No Waiver by City. No waiver of any breach, default, or failure of condition under the terms of this Note or the Deed of Trust or the obligations secured thereby shall be implied from any failure of City to take, or any delay be implied from any failure by City in 887N29456-0003 51852831 e03/28/13 -6- taking action with respect to such breach, default, or failure from any prior waiver of any similar or unrelated breach, default,or failure. 12. Usury. Notwithstanding any provision in this Note, the Deed of Trust, or other document securing same, the total liability for payment of any interest shall not exceed the limit now imposed by applicable laws of the State of California. 13. Not Assignable. This Note shall not be assignable or assumable without the express written consent of City, which may be given or withheld in City's sole and absolute discretion. 14. Severability; Governing Law; Amendment. The unenforceability or invalidity of any provision or provisions of this Note as to any persons or circumstances shall not render that provision or those provisions unenforceable or invalid as to any other provisions or circumstances, and all provisions hereof, in all other respects, shall remain valid and enforceable. This Note has been executed and delivered by Borrower in the State of California and is to be governed and construed in accordance with the laws thereof. Neither this Note nor any term hereof may be waived, amended, discharged, modified, changed, or terminated orally; nor shall any amendment of any provision hereof be effective except by an instrument in writing signed by Borrower and City. 15. Joint and Several Obligations. If the Borrower under this Note is comprised of one or more persons or entities, the obligations and liabilities of the Borrower hereunder shall be joint and several. 16. Nonrecourse Obligation. The City Loan shall constitute a nonrecourse obligation of Borrower, and neither Borrower nor any partner, member, or shareholder thereof shall have any personal liability for repayment; provided, however, that nothing contained in the foregoing limitation of liability shall (a) limit or impair the enforcement against all such security for this Note of all the rights and remedies of City, or (b) be deemed in any way to impair the right of City to assert the unpaid principal amount of this Note as a demand for money within the meaning and intendment of Section 431.70 of the California Code of Civil Procedure or any successor provision thereto. The foregoing limitation of liability is intended to apply only to the obligation for the repayment of the principal of, and payment of interest on this Note; nothing contained therein is intended to relieve Borrower and, if Borrower is a partnership, limited liability company, or corporation, any general partner, member, or shareholder of Borrower of liability for damages caused to City as a result of(i) fraud or willful misrepresentation; (ii) the failure to pay taxes, assessments or other charges which may create liens on the real property described in the Loan Agreement and other City Loan documents that are payable or applicable prior to any foreclosure under the Deed of Trust (to the full extent of such taxes, assessments or other charges); (iii)the retention of any rental income or other income arising with respect to the Project collected by Borrower after the occurrence of a default that has not been cured after notice and the expiration of any applicable cure period, to the full extent of the rental income or other income retained and collected by Borrower after the giving of any such notice, and not used to pay Operating Expenses of the Project; (iv)the misapplication of any proceeds under any insurance policies or awards resulting from condemnation or the exercise of the power of eminent domain or by reason of damage, loss or destruction to any portion of the Project; and (v) 882/0294560003 5185283 2 40328/13 -7- breach of any environmental covenant or representation made by Borrower relating to the Project. IN WITNESS WHEREOF, Borrower has executed this Note as of the date first above written. "BORROWER" COURTLAND STREET APARTMENTS, L.P., a California limited partnership By: People's Self-Help Housing Corporation, a California nonprofit public benefit corporation, its General Part -r , By: Name: SeHt k taAA Title: pry a-s 882/0294560007 5185287,2 a07Re/17 -8- k