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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 .· ' .· . ' 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 .. .., -2- ·...__. '-:. \,! - 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 · -3- This Page Intentionally Left Blank .. ~~~· ·. ~. ,':!.:,· ·•