Staff Report
PREPARED BY: JOEL PAULSON
Community Development Director
Reviewed by: Town Manager, Town Attorney, and Finance Director
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 02/21/2017
ITEM NO: 5
DATE: FEBRUARY 16, 2017
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: ADOPT A RESOLUTION FORGIVING DEBT PURSUANT TO AN AGREEMENT
TO CANCEL DEBT IN EXCHANGE FOR SOLE NON-PROFIT OWNERSHIP
RECOMMENDATION:
Adopt a Resolution (Attachment 1) forgiving debt pursuant to an Agreement to Cancel Debt in
Exchange for Sole Non-Profit Ownership (Attachment 2).
BACKGROUND:
On December 31, 1990, the Town entered into an Agreement with Mid-Peninsula Housing
Coalition (MPHC) and West Valley Open Doors (WVOD) to provide a 64-unit low income
housing development.
On November 11, 1991, the Town executed a First Amendment to the Original Agreement with
MPHC and WVOD to substitute the original parcel for development on Knowles Drive with a
parcel on West Parr Avenue.
On March 2, 1992, the Town executed a Second Amendment to the Original Agreement with
MPHC and WVOD to allow MPHC to assign its rights and obligations under the Original
Agreement, as amended by the First Amendment, to Open Doors Associates (ODA). The
Second Amendment included terms and conditions requiring the Town to loan $339,250.00 to
ODA to pay development fees rather than waiving the development fees for the project.
On April 21, 1992, the Town executed an Agreement to Cancel Debt in Exchange for Sole Non-
Profit Ownership with Mid-Peninsula Open Doors Corporation (MPODC).
PAGE 2 OF 4
SUBJECT: OPEN DOORS LOAN FORGIVENESS
FEBRUARY 16, 2017
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BACKGROUND (Continued):
In 1993, pursuant to these agreements, 64 units of low income housing were completed on the
property located at 630 W. Parr Avenue. The fees incurred as a result of the development
totaled $269,612.00. CDBG funds in the amount of $26,191.20 were used to pay some of the
fees and the resulting fees paid by Town, pursuant to the agreements, was $243,420.80.
DISCUSSION:
The Law Offices of Gubb & Barshay LLP submitted a letter (Attachment 3) on behalf of MPODC
and MPHC requesting that the Town forgive the debt pursuant to the Agreement to Cancel
Debt in Exchange for Sole Non-profit Ownership. The letter illustrates that in 2011 a buyout of
the for-profit tax credit investor was completed and the tax credit investor transferred all of its
interest in the development to an affiliate of MHPC. This action complies with the
requirements of the Agreement to Cancel Debt in Exchange for Sole Non-Profit Ownership for
forgiveness of the debt. The letter also provides additional background information regarding
their request.
CONCLUSION:
Staff has reviewed the request and determined that it complies with the terms of the
Agreement to Cancel Debt in Exchange for Sole Non-Profit Ownership. Therefore, staff
recommends that the Town Council adopt the Resolution in Attachment 1 forgiving the debt
pursuant to the Agreement to Cancel Debt in Exchange for Sole Non -profit Ownership.
FISCAL IMPACT:
The loan has a current balance due to the Town of $984,638.58 (original Town loan amount of
$243,420.80 plus deferred accrued interest through 2/21/2017 of $741,217.78). The
Community Development Block Grant (CDBG) Fund loan has a current balance due of
$129,778.01 (original CDBG loan amount of $26,191.20 plus deferred interest of $103,586.81).
As both of these loans were long term receivables with interest being deferred until maturity or
such time as Mid-Peninsula/Open Doors became sole non-profit owner of the project, the loan
receivable and interest due were recorded with offsetting liability amounts for principal and the
deferred interest. As a result, the loan forgiveness will have no impact to Town or CDBG fund
balances.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
PAGE 3 OF 4
SUBJECT: OPEN DOORS LOAN FORGIVENESS
FEBRUARY 16, 2017
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Attachments:
1. Draft Resolution
2. Agreement to Cancel Debt in Exchange for Sole Non -profit Ownership
3. Letter from Gubb & Barshay LLP, dated October 3, 2016
Distribution:
Law Offices of Gubb &Barshay LLP, Attn: Evan Gross, 505 14th St., Ste. 1050, Oakland, CA 94612
MidPen Housing Corporation, Attn: Kyle Attenhofer, 303 Vintage Park Drive, Suite 250, Foster
City, CA 94404
MidPen Housing Corporation, Attn: Sarah Etheredge, 303 Vintage Park Drive, Suite 250, Foster
City, CA 94404
PAGE 4 OF 4
SUBJECT: OPEN DOORS LOAN FORGIVENESS
FEBRUARY 16, 2017
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ATTACHMENT 1
RESOLUTION 2017-
RESOLUTION OF THE TOWN COUNCIL
OF THE TOWN OF LOS GATOS
FORGIVING DEBT PURSUANT TO AN AGREEMENT TO CANCEL DEBT IN EXCHANGE
FOR SOLE NON-PROFIT OWNERSHIP
‘
WHEREAS, on December 31, 1990, the Town entered into an Agreement with Mid-
Peninsula Housing Coalition (MPHC) and West Valley Open Doors (WVOD) to provide a 64-unit
low income housing development.
WHEREAS, on November 11, 1991, the Town executed a First Amendment to the
Original Agreement with MPHC and WVOD to substitute the original parcel for development on
Knowles Drive with a parcel on West Parr Avenue.
WHEREAS, on March 2, 1992, the Town executed a Second Amendment to the Original
Agreement with MPHC and WVOD to allow MPHC to assign its rights and obligations under the
Original Agreement, as amended by the First Amendment, to Open Doors Associates (ODA).
WHEREAS, the Second Amendment included terms and conditions requiring the Town
to loan $339,250.00 to ODA to pay development fees rather than waiving the development fees
for the project.
WHEREAS, on April 21, 1992, the Town executed an Agreement to Cancel Debt in
Exchange for Sole Non-Profit Ownership with Mid-Peninsula Open Doors Corporation (MPODC).
WHEREAS, in 1993, pursuant to these agreements, 64 units of low income housing were
completed on the property located at 630 W. Parr Avenue.
Draft Resolution to be
modified by Town
Council deliberations
and direction.
ATTACHMENT 10
WHEREAS, the fees incurred as a result of the development totaled $269,612.00. CDBG
funds in the amount of $26,191.20 were used to pay some of the fees and the resulting fees
paid by Town, pursuant to the agreements, was $243,420.80.
WHEREAS, the Law Offices of Gubb & Barshay LLP on behalf of MPODC and MPHC is
requesting that the Town forgive the debt pursuant to the Agreement to Cancel Debt in
Exchange for Sole Non-profit Ownership.
WHEREAS, in 2011, a buyout of the for-profit tax credit investor was completed and the
tax credit investor transferred all of its interest in the development to an affiliate of MHPC.
WHEREAS, this action complies with the requirements of the Agreement to Cancel Debt
in Exchange for Sole Non-Profit Ownership for forgiveness of the debt.
WHEREAS, Council finds that the 2011 buyout of the for-profit tax credit investor meets
the required terms of the Agreement to Cancel Debt in Exchange for Sole Non-Profit Ownership
for forgiveness of the debt.
NOW, THEREFORE, BE IT RESOLVED:
1. The debt is forgiven pursuant to the terms of the Agreement to Cancel Debt in
Exchange for Sole Non-Profit Ownership.
2. The decision constitutes a final administrative decision pursuant to Code of Civil
Procedure section 1094.6 as adopted by section 1.10.085 of the Town Code of the Town of Los
Gatos. Any application for judicial relief from this decision must be sought within the time
limits and pursuant to the procedures established by Code of Civil Procedure section 1094.6, or
such shorter time as required by state and federal Law.
ATTACHMENT 10
PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los
Gatos, California, held on the 21st day of February, 2017, by the following vote:
COUNCIL MEMBERS:
AYES:
NAYS:
ABSENT:
ABSTAIN:
SIGNED:
MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
ATTEST:
CLERK ADMINISTRATOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
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ATTACHMENT 10
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... •.
'· : : .
AGREEMENT TO CANCEL DEBT IN EXCHANGE
FOR SOLE NONPROFIT OWNERSHIP
THIS AGREEMENT TO CANCEL DEBT IN EXCHANGE FOR SOLE
N_?~f~FIT OWNX~SHIPl (the "Agreement••) is entered into as ot the
~day ot ___:____ , 1992 by and amonq Mid-Peninsula Open
Doors corporati n, a California nonprofit public benetit
corporation ("MPODC 0 ) and the Town of Los Gatos, a municipal
corporation (the HTown").
A. MPODC is a non-profit affiliate of Mid-Peninsula .
Housing coalition ("MPHC") and is involved in the development and
ownership or 64 units ot attordable housing located on certain
real property in the Town of Los GatC!a (the "Project").
. ~
B. Town, MPHC and West Valley Open Doors, a California
nonprofit public benefit corporation ("WVOD 11 ) entered into that
certain cooperation Agreement Between 'the Town o! Los ·Gatos, Mid-
Pen.insula Housinq Coal_ition and West Valley Open Doors For the
Provision of a Low rncome Housing Development dated December 31,
1990 (the "Oriqina1 Aqreement").
c. By a First Amendment to Cooperation Aqreement Between
the Town of Los .Gatos, Mid-Peninsula Housing coalition, and West
Valley open Doors tor the Provision of a Low income Housing
Oeyelopment dated November-.11; 1991 and executed by Town, MPHC
and wvoo ·(the "First Amendment"), the parties agreed to
substitute the site described in the original Aqreement 1cx:ated
on Knowles Drive tor an adjacent site located on West · Parr Avenue
(~he · "Site")· The Project wtll be developed on the Site.
D·. The Federal Low I.neoae Housing Tax Credit Program jthe __ _
"Tl'lx · ci::1ta:!ts") is an inte-c;rral part ol the llnancin9 ~o.r the
Project.
E. To realize the economic benefit of the Tax Credits for
the Project, HPHC assigned its right to purchase the Site· to · a
limited partnership, Open Doors Associates c•oDA"), of which an
af!il~ate of MPHC, Mid-Peninsula open Doors Corporation, a
· · -ca-:t1:rorn111£-nl5?1pre5'f·re·--pu1>-i:1c-fieiiiif ItCoJ:Porat!on .. P'HPbllc-•1-is ... tlie .... _ .. ·
general partner. ODA will develop the Project. ·
F . Project .feasibility is also dependent upon the
availability to the Project o~ the benefits obtained by MPH~ and
wvoo in the original Agreement as amended by the First Amendment.
· G. MPHC therefore wished to assign its rights and
obligations under the Original Aqreement, as amended by the First
Alllend.m.ent, to ODA .
191038.PSO
011:!'4/92 -1-ATTAC.HMEN'!r 2
'.
H.. Pursuant to the Second Alllendment to Cooperation
Agreement Between the Town of Los Gatos, Mid-Peninsu.la Housing
Coalition and West Valley Open Doors For the Provision of a Low
Income Housing Deve1opment (the nsecond .Al11endment"), Town agreed
to the assiqnment of tha Original Agreement, as amended by the
First. ~endment, to. ODA. . . . .
I. The Original Agreement as amended by the First
Amendment and the Second Amendment shall be called the
ncooperation Agreement" in this Agreement.
J. The terms and conditions of the Second Amendment
included the requirement that certain tees not be valved for· the
Project hut rather that .the Tovn loan ODA the funds necessary to
pay such fees. This loan is evidenced by a promissory note in
the principal amount of ~339 250 . Dollars
($ 339,250 ) dated · AprHl 1 f992 / executed by.-ODA
for the benerit or Town ·cthe "PrOilssory Note").
K . --·---Pursuant to the CoQperation Agreement, the Town has
also 1oaned Three Hundred Thousand Dollars ($300,000) to the
Project. This amount was used for a portion of the downpayment
for the acquisition of the Site. It is evidenced by a pramissory
note in the amount ot Three Hundred Thousand Doll ars ($300,000)
executed by MPHC and dated . November -6, , 199 l (the
"Acquisition Note"). With the Town•s consent the obligations
under the Acquisition Note have .been assigned to ODA .
L •.. It is MPOD~'s intention to become the so1e owner o~ the
Project by .purchasinq 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 ot which is hereby acknowledged, ·the parties agree as
-----~f-o+-l:tow . -
1 -.. tri' ·ithe. event t:hat XPODC becom•• th• sole owner of th•
Project, the Town will cancel all principal and interest due
under the terms ot the Promissory Note.
-·
2. At the time of the cancellation or the Note as provided
tn· ·trts·-~·o-Uiiih~;t:neTOWn -cdiarr marlttlie-P-roiifiusoryffotil--··-_ .. -. . . -. --
cancelled, and return the cancelled Promissory Note to MPODC.
J. Notbinq in this Agreement shall affect the terms,
conditions or obl igations contained ·in the Acqu~sition Note.
191038 .PSO
0112-4/92
.~'
-2-
····.:~ •,
•r·· l! -
r-
. IN WITNESS WHEREOF, this Agreement is executed by Town and
MPOOC.
APPROVED AS TO FORM:
191038.PSO
01/24192
TOWN OF LOS GATOS,
a municipal corporation
';lJu)L .. ·
Town Manager '(;\("
MIO-·PENrNSDLA OPEN DOORS
.CORPORATrON', a Cali~ornia
nonprofit public benefit
corpor ti · -
-3-
-..
, .. ·.·
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505 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 ·
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