June 30, 2021
By Kyle Westra, Analyst
The Murrieta Housing Authority retained RSG to evaluate a developer’s request to refinance the conventional loan originally secured to finance Monte Vista I, a 64-unit affordable housing project located in the City of Murrieta (“Project”). The Housing Authority ground leases the land on which the Project is situated and contributed financial assistance to the Project in the form of a permanent financing loan (“City Loan”). As such, the refinance required the Housing Authority to amend the ground lease and subordinate the City Loan to the Refinanced Loan. RSG’s evaluation included the following activities:
- Evaluating the terms of the Refinanced Loan.
- Reviewing existing controlling documents including the original Ground Lease, Promissory Note, Regulatory Agreement, Affordable Housing Agreement, and Deed of Trust.
- Evaluating the proposed amendments to the Ground Lease.
- Identifying the pros and cons of subordinating the City Loan and amending the ground lease. Key components of the analysis included:
- The short- and long-term financial impact to the Housing Authority.
- The implications if the Housing Authority did not to agree to subordinate the City Loan.
- Summarizing findings in a memorandum detailing the feasibility analysis and providing a recommendation that the Housing Authority agree to subordinate the City Loan and amend the Ground Lease so that the Developer could refinance the conventional loan.
The Housing Authority applied RSG’s recommendations, which resulted in the Housing Authority receiving a one-time payment of over $200,000 from the Developer and increased residual receipt payments annually. In addition, the refinance allowed the Developer to avoid default and foreclosure and maintain adequate operating cash flows and reserves, securing the Housing Authority’s interest in the Project and ensuring the Project units remain affordable.