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HomeMy WebLinkAboutCourtland Street Apartments LP (4) • Ci • • PROMISSORY NOTE Loan Amount: $400,000 August 13, 2013 Arroyo Grande, California FOR VALUE RECEIVED, COURTLAND STREET APARTMENTS, L.P., a California limited partnership ("Borrower") promises to pay to C ITY OF ARROYO GRANDE, a California municipal corporation ("City"), the principal sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000), or so much of such principal as may be disbursed pursuant hereto and in accordance with that certain Amendment No. 1 to Affordable Housing and Loan Agreement between City and Borrower dated on or about the same date hereof (the "Amendment"), plus interest on the outstanding principal balance, in accordance with the terms and conditions set forth herein. This Note evidences the obligation of Borrower to City for the repayment of certain funds (the "City Loan") loaned to Borrower by City pursuant to the Amendment. Reference is also made to the following additional agreements and documents involving City and Borrower and/or pertaining to the Property: (i) Affordable Housing and Loan Agreement by and between Borrower as Developer, and City ("Original Agreement"), pursuant to which Developer has agreed to develop on real property located at 150 Courtland Street, in the City of Arroyo Grande (the "Property") an affordable apartment development (the "Project"). The Original Agreement, as modified by the Amendment, is hereinafter referred to as the "Agreement" All capitalized terms unless otherwise defined herein shall have the same meaning as set forth in the Agreement, which is incorporated herein by this reference. (ii) Promissory Note Secured by Deed of Trust securing repayment of a loan in the amount of Nine Hundred Thirty Thousand Dollars ($930,000) provided to Borrower pursuant to the Agreement (the "First City Loan Note"). (iii) Deed of Trust with Assignment of Rents by and between Borrower as Trustor, City as beneficiary, and First American Title Insurance Company as Trustee, and recorded in the Office of the San Luis Obispo County Recorder on April 3, 2013, as Instrument No. 2013-018879 ("First City Loan Deed of Trust"). The First City Loan Deed of Trust secures repayment of the First City Loan Note and performance under the Agreement and City Regulatory Agreement. (iv) Regulatory Agreement and Declaration of Covenants and Restrictions, by and between Borrower and City, for the benefit of City, and recorded in the Office of the San Luis Obispo County Recorder on April 3, 2013, as Instrument No. 2013- 018875 ("("City Regulatory Agreement"). (v) Deed of Trust with Assignment of Rents by and between Borrower as Trustor, City as beneficiary, and First American Title Insurance Company as Trustee, and recorded in the Office of the San Luis Obispo County Recorder on or about the 882/0194560003 57758142 011•07/13 • • same date hereof ("City Deed of Trust"). The City Deed of Trust secures repayment of this Note and performance under the Agreement, City Regulatory Agreement, and Amendment. 1. Interest. Except as provided in section 3 below, the disbursed and unpaid principal balance of the City Loan shall bear interest at the simple rate of three percent (3%) per year (the `Basic Interest Rate"). As used herein, the term "disbursed" shall mean and refer to the time when City has disbursed such funds to Borrower, pursuant to the Amendment. 2. Repayment. Subject to the provisions of Section 4 herein, which provide for acceleration of the then outstanding principal and accrued interest and immediate payment thereof in the event of a default by Borrower, the outstanding principal balance of this Note, together with any outstanding interest and other amounts payable hereunder, shall be due and payable upon the earlier of(i) the fifty-fifth (55th) anniversary of the date the City issues a Release of Construction Covenants for the Project pursuant to Section 3.10 of the Agreement, or (ii) the date the City Regulatory Agreement terminates. 3 Default Rate. Any amounts (including but not limited to amounts of principal and interest on the City Loan) which Borrower does not pay when otherwise due under the terms of this Note, shall bear interest at the rate of the lesser of ten percent (10%) or the maximum rate allowed per law per annum ("Default Rate"), simple interest, from the date which is ten (10) days after such amount would otherwise be due until the date paid. 4. Acceleration. The entire outstanding principal balance of this Note, together with any outstanding interest and other amounts payable hereunder, shall, at the election of City and upon notice to Borrower thereof, become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower: (a) Upon the occurrence of any "Event of Default" as set forth in Section 11 below; or (b) If Borrower sells or transfers the Property, including, without limitation, lease (other than leases of individual Project units to income-qualified residential tenants in the ordinary course of business in compliance with the City Regulatory Agreement), exchange or other disposition of the Property or any interest therein, whether voluntary or involuntary, except a sale or transfer which under federal law would not, by itself, permit the Borrower to exercise a due on sale or due on encumbrance clause, and except as permitted by the Agreement. 882/029456-0003 57758141 408107/13 -2- • • 5. Prepayment; Application of Payments. At any time after the disbursement of the City Loan proceeds, Borrower may prepay all or a portion of the unpaid principal amount of the City Loan and accrued interest and any other sums outstanding without penalty. All payments, including any prepayments or funds received upon acceleration pursuant to Section 4 above, shall be applied first toward any outstanding costs of collection or other amounts (excluding City Loan principal or interest thereon) due under this Note or the Agreement, then toward outstanding interest accrued at the Default Rate, if any, then toward outstanding interest accrued at the Basic Interest Rate, if any, and finally toward the remaining principal balance under the Note. 6. Security and Source of Payment. Borrower's obligations under this Note, the First City Loan Note, the Agreement, City Regulatory Agreement, and Amendment shall be secured by the City Deed of Trust. 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 However, 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 herein is intended to relieve the 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 Agreement and/or Deed of Trust 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 an Event of Default to the full extent of the rental income or other income retained and collected by Borrower after the giving of any such notice;; (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) breach of any environmental covenant or representation made by the Borrower relating to the Project. 7. Obligation of Borrower Unconditional. The obligation of Borrower to repay the City Loan and all accrued interest thereon shall be absolute and unconditional, and until such time as all of the outstanding principal of and interest on this Note shall have been fully paid or this Note shall have been cancelled pursuant to the terms of Section 2 above, Borrower agrees that it: (a) will use the funds solely for the 68210291560003 577561/1 a03707/13 -3- • • purposes set forth herein and in the Amendment; and (b) will not terminate or suspend any payment or obligations under this Note, the First City Loan Note, the Agreement, the Amendment, the First City Loan Deed of Trust, the City Regulatory Agreement, or any other document executed hereunder or in connection herewith for any cause, including without limitation, any acts or circumstances that may constitute failure of consideration, commercial frustration of purpose, or any duty, liability or obligation arising out of or in connection with this Note, the First City Loan Note, the Agreement, the Amendment, the First City Loan Deed of Trust, the City Regulatory Agreement, or any document executed hereunder or in connection herewith. 8. Purpose of City Loan. The City Loan proceeds shall be used by Borrower as provided in the Amendment and for such other uses previously approved in writing by City. In no event shall Borrower use or otherwise invest the proceeds of the City Loan except as expressly provided in this Note and in the Amendment. 9. Covenants of Borrower. As additional consideration for the making of the City Loan by City, Borrower covenants as follows: 9.1 Compliance with Agreement, City Regulatory Agreement, First City Loan Note, First City Loan Deed of Trust, and City Deed of Trust. Borrower shall comply with all of its obligations under the Agreement, the City Regulatory Agreement, the First City Loan Note, the First City Loan Deed of Trust, and the City Deed of Trust. Any amounts payable by Borrower under the Agreement, the City Regulatory Agreement, the First City Loan Note, the First City Loan Deed of Trust, or the City Deed of Trust (other than amounts also payable hereunder) shall be deemed added to the principal amount of the City Loan payable hereunder. 9.2 Other Loans. Borrower shall comply with all monetary and non-monetary covenants associated with any loan secured by an interest in the Property or the Project Borrower shall provide to City a copy of any notice of default within five business days after receiving any notice of a default or alleged default of such covenants by Borrower, and Borrower shall promptly cure any such default and cooperate in permitting City, to the extent City in its sole discretion elects to do so, to cure or assist in curing the default. Any cost or expenditure incurred by City in providing or assisting in such a cure shall be deemed added to the outstanding principal amount of the City Loan. 10. Assignment of this Note. This Note shall be assignable by Borrower pursuant to, and in compliance with, Section 7.5 of the Agreement Notwithstanding anything which may be or appear to be herein to the contrary, no purported assignment of this Note and/or the City Loan shall be effective if such assignment would violate the terms, conditions and restrictions of any applicable ordinances, laws, or regulations. City's consent to such assignment shall be expressly conditioned upon (a) the assignee's execution of such documents as required by City including, without limitation, any and all documents deemed necessary by City to provide for said assignee's assumption of all 882/029456-0003 57758142 608/07/13 -4- of the obligations of Borrower hereunder, under the City Regulatory Agreement, under the First City Loan Note, under the First City Loan Deed of Trust, under the City Deed of Trust, and under the Agreement, and (b) City's approval of the financial and credit worthiness of such proposed assignee. 11. Events of Default and Remedies. 11.1 Borrower Events of Default. The occurrence of any of the following shall, after the giving of any notice described therein, constitute an event of default by Borrower hereunder ("Event of Default"): (a) The failure of Borrower to pay or perform any monetary covenant or obligation under the terms of this Note or the First City Loan Note without curing such failure within ten (10) days after receipt of written notice of such default from City (or from any party authorized by City to deliver such notice as identified by City in writing to Borrower); (b) The failure of Borrower to perform any non-monetary covenant or obligation under this Note or the First City Loan Note without curing such failure within thirty (30) days after receipt of written notice of such default from City (or from any party authorized by City to deliver such notice as identified by City in writing to Borrower) specifying the nature of the event or deficiency giving rise to the default and the action required to cure such deficiency. Provided, however, that if any default with respect to a non-monetary obligation is such that it cannot be cured within a 30-day period, it shall be deemed cured if Borrower commences the cure within said 30-day period and diligently prosecutes such cure to completion thereafter. Notwithstanding anything herein to the contrary, the herein described notice requirements and cure periods shall not apply to any Event of Default described in Sections 11.1(e) or 11.1(f) below; (c) The failure of Borrower to perform any covenant or obligation under the Agreement, the City Deed of Trust, the First City Loan Note, the First City Loan Deed of Trust, or the City Regulatory Agreement, unless the default is cured within the applicable cure period Of any); (d) The material falsity of any representation or breach of any representation or warranty made by Borrower under the terms of this Note, the Agreement, the City Regulatory Agreement, the First City Loan Note, the First City Loan Deed of Trust, or the City Deed of Trust; (e) Borrower or any constituent member or general partner, or majority shareholder, of Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian or the like of its property, (ii) fail to pay or admit in writing its inability to pay its debts generally as they become due, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated bankrupt or insolvent or (v) commence a voluntary petition that is not withdrawn within ten (10) days of the filing thereof or answer seeking an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or file an answer admitting the material allegations of a petition filed against it in any bankruptcy or insolvency proceeding; 887A29456-0003 57758142.081U7/13 -5- • • (f) If without the application, approval or consent of Borrower, a proceeding shall be instituted in any court of competent jurisdiction, under any law relating to bankruptcy, in respect of Borrower or any constituent member or general partner or majority shareholder of Borrower, for an order for relief or an adjudication in bankruptcy, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of Borrower or of all or any substantial part of Borrower's assets, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by Borrower, in good faith, the same shall (i) result in the entry of an order for relief or any such adjudication or appointment, or (ii) continue undismissed, or pending and unstayed, for any period of ninety(90)consecutive days; (g) Voluntary cessation of the operation of the Project for a continuous period of more than thirty (30) days or the involuntary cessation of the operation of the Project for a continuous period of more than sixty(60) days; (h) A transfer in violation of Section 7.5 of the Agreement; or (i) Subject to the notice and cure provisions set forth in the Agreement, Borrower shall be in default under any of the terms of any other Project financing, or any other secured or unsecured obligation relating to the Project, unless the default is cured within the cure period, if any, applicable thereto under the terms and obligation which is in default. 11.2 City Remedies. Upon the occurrence and during the continuance of an Event of Default hereunder, City may, in its sole discretion, take any one or more of the following actions: (a) By notice to Borrower, except in the case of a default by Borrower under Section 11.1(e) or Section 11.1(f) in which event no notice pursuant to this Note shall be required, declare the entire then unpaid principal balance of the City Loan immediately due and payable, and the same shall become due and payable without further demand, protest or further notice of any kind, all of which are expressly waived. Upon such declaration, outstanding principal and (to the extent permitted by law) interest and any other sums outstanding in connection with the City Loan shall thereafter bear interest at the Default Rate, payable from the date of such declaration until paid in full; (b) Subject to the nonrecourse provisions of Section 6 above, take any and all actions and do any and all things which are allowed, permitted, or provided by law, in equity, or by statute, in the sole discretion of City, to collect the amounts then due and thereafter to become due hereunder, to exercise its rights under the City Deed of Trust, and to enforce performance and observance of any obligation, agreement or covenant of the Borrower under this Note, under the First City Loan Note, under the First City Loan Deed of Trust, under the City Regulatory Agreement or under any other document executed in connection herewith; (c) Subject to the nonrecourse provision of Section 6 ,above, upon the occurrence of an Event of Default which is occasioned by Borrower's failure to pay money, City may, but shall not be obligated to, make such payment. If such payment is made by City, Borrower shall deposit with City, upon written demand therefor, such sum plus interest at the Default Rate. In either case, the Event of Default with respect to which any such payment has 882N294560003 57758141 t&07/13 -6- been made by City shall not be deemed cured until such repayment(as the case may be) has been made by Borrower. Until repaid, such amounts shall have the security afforded the amounts evidenced by this Note; or (d) Subject to the nonrecourse provisions of Section 6 above, upon the occurrence of an Event of Default described in Section 11.1(e) or 11.1(0 hereof, City shall be entitled and empowered by intervention in such proceedings or otherwise to file and prove a claim for the whole amount owing and unpaid on the City Loan and, in the case of commencement of any judicial proceedings, to file such proof of claim and other papers or documents as may be necessary or advisable in the judgment of City and its counsel to protect the interests of City and to collect and receive any monies or other property in satisfaction of its claim. 11.3 No Remedy Exclusive. No remedy herein conferred upon or reserved to City is intended to be exclusive of any other available remedy or remedies, but each such remedy shall be cumulative and shall be in addition to every other remedy given under this Note or now existing at law or in equity or by statute; and may be exercised in such number, at such times and in such order as City may determine in its sole discretion. No delay or omission to exercise any right or power upon the occurrence of any Event of Default hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient by City. In order to entitle City to exercise any right or remedy reserved to it under this Note, no notice shall be required except as expressly provided herein. 12. Agreement to Pay Attorneys' Fees and Expenses. In the event that City brings any action or files any proceeding in connection with the enforcement of its rights under this Note or the City Deed of Trust, as a consequence of any breach by Borrower of its obligations hereunder or thereunder, the prevailing party in such action or proceeding shall be entitled to have its reasonable attorneys' fees and out-of-pocket expenditures paid by the losing party. The attorneys' fees so recovered shall include fees for prosecuting or defending any appeal and shall be awarded for any supplemental proceedings until the final judgment is satisfied in full. In addition to the foregoing award of attorneys' fees, the prevailing party in any lawsuit on this Note or the City Deed of Trust shall also be entitled to its reasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce the judgment. In addition to the foregoing, Borrower agrees to pay or reimburse City, upon demand by City, for all costs incurred by City in connection with enforcement of this Note or the City Deed of Trust, including without limitation, reasonable attorneys' fees and costs, if there shall be filed by or against Borrower any proceedings under any federal or state bankruptcy or insolvency laws, whether City is a creditor in such proceedings or otherwise. 13. Notices. MI notices, demands, requests, elections, approvals, disapprovals, consents or other communications given under this Note shall be in writing and shall be given by personal delivery, first class mail certified or registered, return receipt requested, or reputable overnight 882/029456-0003 5775814.2 808.07/13 -7- • • delivery service that provides a receipt with the time and date of delivery and addressed as follows: To City City of Arroyo Grande 300 East Branch Street Arroyo Grande, CA 93420 Attn: City Manager With a copy to: Rutan &Tucker, LLP 611 Anton Boulevard, 14th Floor Costa Mesa, CA 92626 Attn: Dan Slater, Esq. To Borrower: Courtland Street Apartments, L.P. 3533 Empleo Street San Luis Obispo, CA 93401 Attn: Executive Director Merritt Community Capital Fund XV, L.P. With a copy to: 1970 Broadway, Suite 250 Oakland, California 94612 Attn: Bernard Deasy Any Notice shall be deemed received immediately if delivered by hand and shall be deemed received on the third day from the date it is postmarked if delivered by registered or certified mail. 14. Severability. The invalidity or unenforceability of any one or more provisions of this Note will in no way affect any other provisions. 15. Interpretation. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender. The captions of the paragraphs of this Note are for convenience only and do not define or limit any terms or provisions. Time is of the essence in the performance of this Note by Borrower. Borrower has been represented by counsel in the negotiation of this Note, and it shall not be interpreted in favor of or against any party on account of relative responsibilities in drafting. Notwithstanding any other provision of this Note, nothing herein or in this Note shall be deemed to require Borrower to pay interest in an amount in excess of any applicable usury law or other legal limitation on interest, and the terms of this Note shall be interpreted to require in each instance the lesser of(a) the amount stated in this Note, and (b) the maximum applicable legal limit. 882/029456-0003 57758141 A3R07/13 -8- • • 16. No Waiver; Consents. Any waiver by City must be in writing and will not be construed as a continuing waiver. No waiver will be implied from any delay or failure by City to take action on account of any default of Borrower. Consent by City to any act or omission by Borrower will not be construed to be a consent to any other or subsequent act or omission or to waive the requirements for City's consent to be obtained in any future or other instance. 17. Governing Law. This Note shall be governed by the internal laws of the State of California without regard to conflict of law principles. 18. Representations and Warranties of Borrower. Borrower hereby warrants and represents to City that: 18.1 Organization and Standing. Borrower is a California legal entity as described in the Agreement, duly organized, qualified to operate in California and validly existing and in good standing under all applicable laws, and has all requisite power and authority to enter into and perform its obligations under this Note, the Agreement, the First City Loan Note, the First City Loan Deed of Trust, the City Deed of Trust, the City Regulatory Agreement and all other documents executed in connection with any of the foregoing. 18.2 Enforceability. This Note and all other instruments to be executed by Borrower in connection with the City Loan constitute the legal, valid and binding obligation of Borrower, without joinder of any other party. 18.3 Authorization and Consents. The execution, delivery and performance of this Note and all other instruments to be executed in connection herewith is consistent with any articles and bylaws governing Borrower and have been duly authorized by all necessary action of Borrower's members,partners, directors, officers and shareholders. 18.4 Due and Valid Execution. This Note and all other instruments to be executed in connection herewith, will, as of the date of their execution, have been duly and validly executed by Borrower. 18.5 Licenses. Borrower will obtain and maintain all material licenses, permits, consents and approvals required by all applicable governmental authorities to own and operate the Project. 18.6 Litigation and Compliance. To the best of Borrower's knowledge, there are no suits, other proceedings or investigations pending or threatened against, or affecting the business or the properties of Borrower (other than those as have been previously disclosed in writing to City) which could materially impair its ability to perform its obligations under this Note, nor is Borrower in violation of any laws or ordinances which could materially impair Borrower's ability to perform its obligations under this Note. 882/029456-0003 57758142 a08A7/13 -9- • • 18.7 Default. To Borrower's current actual knowledge, there are no facts now in existence which would, with the giving of notice or the lapse of time, or both, constitute an "Event of Default" hereunder, as described in Section 11. 18.8 No Violations. To the best of Borrower's knowledge, the execution and delivery of this Note, the Agreement and all other documents executed or given hereunder or thereunder, and the performances hereunder and thereunder by Borrower, as applicable, will not constitute a breach of or default under any instrument or agreement to which Borrower may be a party nor, to the best of Borrower's knowledge, will the same constitute a breach of or violate any law or governmental regulation. - 19. Approvals. Any review or approval of any matter by City or any City official or employee under this Note shall be solely for the benefit of City, and neither Borrower nor any other person shall rely upon such review or approval as an indication of the wisdom, soundness, safety, appropriateness, or presence or absence of any matter. Without limiting the generality of the foregoing, Borrower and not City shall be solely responsible for assuring compliance with laws, the suitability of the Property for the Project, the adequacy of the plans, and the safety of the Project construction site, the completed Project, and the operation thereof. 20. Waiver. Subject to Section 2 above, Borrower agrees that it will still be liable for repayment of this Note, even if the holder hereof does not follow the procedures of presentment, protest, demand, diligence, notice of dishonor and of nonpayment, which requirements are hereby waived. Failure of City or other holder hereof to exercise any right or remedy hereunder shall not constitute a waiver of any future or other default. No acceptance of a past due installment or indulgence granted from time to time shall be construed to be a waiver of, or to preclude the exercise of, the right to insist upon prompt payment thereafter or to impose late charges retroactively or prospectively, or to waive or preclude the exercise of, the right to insist upon prompt payment thereafter or to impose late charges retroactively or prospectively, or to waive or preclude the exercise of any other rights which City may have. [End—Signature page follows] U21029456-0003 57758141 e08107/13 -10- • • IN WITNESS WHEREOF, Borrower has executed this Note as of the date and year first above written. COURTLAND STREET APARTMENTS, L.P., a California limited partnership Dated: )--3/ 2013 By: People's Self-Help Housing Corporation, a California nonprofit public benefit corporation, its General Parini BY: A : /, �i Name: _`El 4 , 7 • Wl e/ Title: p 7 Ce10 /V7 882/029456.0003 57758142 a08/07/13 -1 1-