05 Staff Report.Dittos Lane. affordablehousingloan
PREPARED BY: Robert Schultz
Town Attorney
Reviewed by: Town Manager, Town Assistant Manager 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: 11/03/2020
ITEM NO: 5
DATE: October 27, 2020
TO: Mayor and Town Council
FROM: Robert Schultz, Town Attorney
SUBJECT: Approval of an Additional Affordable Housing Loan in the Amount of
$600,000 for the Total Amount of $1,200,000 to Develop Affordable Housing
on the Property Located on 20 Dittos Lane and Authorize the Town Manager
to Execute all Documents Needed to Complete the Transaction in a Form
Acceptable to the Town Attorney.
RECOMMENDATION:
Approve an additional Affordable Housing Loan in the amount of $600,000 (Attachment 1) for
the Total amount of $1,200,000 to develop affordable housing on the Property Located on 20
Dittos Lane and authorize the Town Manager to execute all documents needed to complete the
transaction in a form acceptable to the Town Attorney.
BACKGROUND:
On October 16, 2018, the Town Council approved an exclusive negotiating agreement with
Sarah Chaffin (“Developer”) for the development of affordable housing at 20 Dittos Lane.
On February 11, 2020, the Developer received approval for the Architectural and Site
application and Subdivision Application which included requests for a lot line adjustment,
subdivision of one lot into three, and construction of two single-family residences on property
zoned R1-D. In addition, the developer has submitted the grading permit application to the
Town.
On June 2, 2020, the Town Council adopted a resolution approving the land purchase
agreement and first amendment to the agreement for the sale of 20 Dittos Lane for the
development of affordable housing on the property. The property is currently in escrow.
SUBJECT: Affordable Housings Loan for 20 Dittos Lane Property
DATE: October 27, 2020
PAGE: 2 of 3
Discussion:
Section 2.6 of the First Amendment to the Purchase and Sale Agreement states the terms of the
first affordable loan agreement of $600,000 as follows:
Section 2.6 Loan Agreement. Prior to Closing, Town agrees to loan Buyer the
sum of $600,000.00, with zero interest, amortized over 55 Years from the
Inclusionary Fund. The Buyer’s obligation to pay the Town Loan shall be
evidenced by a Promissory Note and secured Deed of Trust, and shall be used
solely for construction and permanent financing of the Improvements. The Town
agrees to subordinate the Town’s Deed of Trust to Senior Liens,
The developer is seeking access to an additional zero-interest loan of $600,000 from the Town’s
Inclusionary (BMP) Fund. Due to restrictions associated with COVID-19 and the subsequent
economic disruptions, the developer wants to ensure that once construction begins, the project
will be completed regardless of the pace of fundraising.
Attachment 1 is a draft of the second Promissory Note for the additional amount of $600,000.
The second loan contains two key terms that are different than the first loan. This loan also has
a 55-year period for amortized payments, but the term of loan is only 10 years. The 10-year
term will ensure that regardless of the current or future fundraising environment, the
developer has an incentive to continue fundraising. Second, this loan will require the borrower
to pay to the Town all proceeds received from the sale of any Affordable unit to pay off the
loan.
CONCLUSION:
The additional affordable housing loan of $600,000 will ensure the development of four (4)
affordable housing units are built at 20 Dittos Lane.
COORDINATION:
This staff report was coordinated with the Town Manager and the Finance Department.
FISCAL IMPACT:
The proposed funding source for the loans has been identified as the General Fund Below
Market Housing Deposit account. The promissory notes will be recorded and tracked as loans
receivables in the Town General Fund balance sheet. The promissory notes do not provide for
annual or semi-annual interest payments on the total amount loaned. As a result, staff
anticipates lower interest earned on the Below Market Housing Deposit account.
ENVIRONMENTAL ASSESSMENT:
SUBJECT: Affordable Housings Loan for 20 Dittos Lane Property
DATE: October 27, 2020
PAGE: 3 of 3
This is not a project defined under CEQA, and no further action is required.
Attachment:
1. Promissory Note