Attachment 3505 I fh Street, Suite 1050
Oakland, California 94612
Town of Los Gatos
ATTN: Robert Schultz
110 E . Main St.
Los Gatos, CA 95030
Law Offices of
GUBB & BARSHAY LLP
October 3, 2016
Telephone: (415) 781 -6600
Facsimile: (415) 781 -6967
egross@gubbandbarshay.com
Re: $339,250 loan from the Town of Los Gatos to Open Doors Associates (the "Loan")
Dear Mr. Schultz:
I am writing to you to request that you alJow for forgiveness of the above referenced debt
pursuant to Section 1 of the Agreement to Cancel Debt in Exchange for Sole Nonprofit
Ownership (the "Agreement") attached hereto between Mid-Peninsula Open Doors Corporation
("MPODC") (an affiliate of Mid.Pen Housing Corporation ("MPHC")) and the Town of Los
Gatos ("Town").
The Agreement's intent was to forgive the loan once the tax credit investor's interest in
the project terminated and MidPen Housing Corporation (or a wholly controlled affiliate thereof)
became the sole owner of the project. Although Section 1 refers specifically to MPODC, the
recitals provide necessary context. Recital D, E and F describe how the project was financed
using the federal low income housing tax. credit program. To utilize the benefits of the tax credits
for development of the project, MPHC formed a limited partnership entity to own the project,
with its affiliate MPODC as general partner and a for-profit tax credit investor as the limited
partner. The Town approved of this stmcture, and indeed, helped facilitate the use of the tax
credits by agreeing to assign over various related agreements (Recitals F' and H). Recital J
describes the source and use of the Loan: Town funds used to pay for Town fees that the Town
had otherwise already agreed to waive for the project. The sole reason this was structured as a
loan rather than just a waiver of the fees was because of the involvement of the tax credit
investor; had the fees been waived, it would have likely been treated as income to the limited
partnership, which would have resulted in a reduction in the amount of money provided by the
tax credit investor to develop the project. This is further supported by the provisions of the
Second Amendment to Cooperation Agreement, which acknowledge that: a) the tax credits were
an integral part of the project's financing; b) MPODC was an affiliate of MPHC; and c) no funds
were actually provided by the Town, but rather the "loan'' was really just a credit for fees due to
be paid by the project. So, in other words, in order to help facilitate the feasibility of the
ATTACHME NT 3
project, the Town structured this as a Loan, even though it was never intended to be a loan at all,
and the funds were used simply to pay itself for fees that the Town was otherwise prepared to
waive . Once the tax credit investor was no longer part of the project, there would be no need to
maintain the loan structure.
As you know, in 2011, the tax credit investor transferred all of its interest in the project to
an affiliate of MPHC. The transfer was structured as a buyout of the tax credit investor's
limited partner interest, rather than a sale of the real property to MPHC or one of its affiliates .
This is the typical structure used when buying out an investor, because it avoids the need for
assigning various property and project documents and the legal and title costs associated with
transferring real property. In fact, Recital L of the Agreement acknowledges that in 15-20
years, MPODC would purchase the limited partner's interest (rather than transfer the property),
and that the Town understood and supported that structure.
Upon transfer, the tax credit investor's interest in the project terminated, and the project
was now owned and controlled entirely by MPHC and its wholly controlled affiliates.
TechnicalJy, the project continues to be owned by the limited partnership, but the limited
partnership's general partner and limited partner (who, together own 100% of the limited
partnership and therefore 100% of the property) are affiliates of MHPC and share the same
Board of Directors as MHPC. If the MHPC Board of Directors decided tomorrow that the
property should be transferred to MPODC, MPHC, or any affiliate thereof, it could do so.
The intent of the Agreement was to forgive the Loan once the tax credit investor's
interest te1minated and MPHC had sole control of the project. Under the current ownership
structure, MPHC does indeed have sole control of the project. The Agreement's recitals
demonstrate that the Town understood that the tax credit program required certain unique
structural elements, and that the Town supported the twin goals of making the project financing
feasible while also eventually getting the tax credit investor's interest in the project back under
MPHC' s control. While the form may be technically different from what is referenced in
Section 1 of the Agreement, the substance is the same. We hope that you will reconsider your
interpretation of Section 1 of the Agreement in light of these facts.
Please feel free to contact me if you would like to discuss further.
Very truly yours,
EVAN GROSS
Partner
Encl. Agreement to Cancel Debt in Exchange for Sole Nonprofit Ownership
Cc: Stephen Conway, Town Manager, Town of Los Gatos
Kyle Attenhofer, Director of Asset Management, MidPen Housing Corporation
Arthur Fatum, Chief Financial Officer, MidPen Housing Corporation
Matthew Franklin, President, MidPen Housing Corporation
.·
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AGREEMENT TO CANCEL DEBT IN EXCHANGE
FOR SOLE NONPROFIT OWNERSHIP
THIS AGREEMENT TO CANCEL DEBT IN EXCHANGE FOR SOLE
N~Of'lf¥9FIT OWNERSHIP l (the "Agreement") is entered into as ot the ~ day of ~y , 1.992 by and among Mid-Peninsula Open
Doors Corporation, a California nonprofit public benefit
corporation ("MPODC") and the Town of Los Gatos, a municipal
corporation (the "Town").
A. MPODC is a non-profit affiliate of Mid-Peninsula .
Housing coalition ("MPHC") and is involved in the development and
ownership ot 64 units of affordable housing located on certain
real property in the Town ot Los Gat~s (the "Project").
. ,
B. Town, MPHC and West Valley Open Doors, a Cali~ornia
nonprofit public benefit corporation ("WVOD") entered into that
certain cooperation Agreement Between the Town o! Los Gatos, Mid-
Pen_insula Housing Coal:_ition and West Valley Open Doors For the
Provision of a Low Income Housing Development dated December 31,
1990 (the "Original Agreement").
c . By a First Amendment to Cooperation Agreement Between
the Town o.f Los .Gatos, Mid-Peninsula Housing coalition, and west
Valley Open Doors tor the Provision ot a Low rncome Housing
Development dated Novembe~_ll, 1991 and executed by Town, MPHC
and wvoo (the "First Amendment"), the parties agreed to
substitute the site described in the Oriqinal Aqreement located
on Knowles Drive tor an adjacent site located on West · Parr Avenue
(the· "Site"). The Project will be developed on the Site.
D. The Federal Low Income Housing Tax credit Program (the
'Tax Credit:s"") ls an integral part of the --financirig fo.r the
Project.
E. To realize the economic benefit of the Tax Credits for
the Project, MPHC assigned its riqht to purchase the Sita to a
limited partnership, Open Doors Associates ("ODA"), ot which an
affiliate of MPHC, Mid-Peninsula Open Doors Corporation, a
·ca-1·1rorn1a·-·n.onprorrt···pwffic-oenefit: corporation --("MP-ODC-"T -is tlie
general partner. ODA will develop the Project. ·
F. Project feasibility is also dependent upon the
availability to the Project o.f the benefits obtained by MPHC and
wvoo in the original Agreement a• a.mended by the First Amendment.
G. MPHC therefore wished to assiqn its rights and
obligations under the Oriqinal Agreement, as amended by the First
Alllendment, to ODA .
191038.PSO
0 1/24/92 -1-
H. Pursuant to the Second Amendment to Cooperation
Agreement Between the Town of Los Gatos, Mid-Peninsula Housing
Coalition and West Valley Open Doors For the Provision of a Low
Income Housing Development (the "Second Amendment"), Town agreed
to the assignment of the Original Agreement, as amended by the
First.Amendment, to .ODA.
I. The Original Agreement as amended by the First
Amendment and the Second Amendment shall be called the
"Cooperation Agreement" in this Agreement.
J. The terms and conditions of the Second Amendment
included the requirement that certain fees not be waived for · the
Project but rather that the Town loan ODA the funds necessary to
pay such fees. This loan is evidenced by a promissory note in
the principal amount of p39 250 . Dollars
($ 339,250 ) dated Aprill, f992 , executed by.-ODA
for the benefit o! Town (the "Promissory Note").
K. , ... Pursuant to the Cooperation Agreement, the Town has
also loaned Three Hundred Thousand Dollars ($300,000) to the
Project. This amount was used for a pdrtion of the downpayment
for the acquisition of the Site. It is evidenced by a promissory
note in the amount ot Three Hundred Thousand Dollars ($300,00.0)
executed by MPHC and dated November ·6, , 1991 (the
"Acquisition Note"). With the Town's consent the obligations
under the Acquisition Note have been assigned to ODA.
L. It is MPODC's intention to become the sole owner Of the
Project by purcbasinq the limited partner's interest in ODA in
approximately 15-20 years and the Town supports this qoal. ·
NOW, THEREFORE, for valuable consideration the receipt and
sufficiency o~ which is hereby acknowledged, ·the parties agree as
~~~~~~-f-f~oi--i-uws:
1 ·. I:.n-the. event that MPODC becomes th• sole owner of the
Project, the Town will cancel all principal and interest due
under the terms o~ the Promissory Note.
2. At the time of the cancellation of the Note as provided
in ·thr~· -1g.eaQliian~;-t11a-TOt.m -an:a:rrmar-it-ffii -P-roiiiissory·-troea--··· -· · -
cancelled, and return the cancelled Promissory Note to MPODC.
J. Nothing in this Agreement shall affect the terms,
conditions or obligations contained in the Acqu~sition Note.
191038 PSO
01/24/92
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IN WITNESS WHEREOF, this Agreement is . executed by Town and
MPODC.
APPROVED AS TO FORM :
T
191 0 38.PSO
Ol/24/92
TOWN OF LOS GATOS ,
a municipal corporation
')lju)d(_.
Town Manager '{;\('
MIO-PENINSULA OPEN DOORS
CORPORATION, a Ca1ifornia
nonprotit public b e nefit
corpor ti ·
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