582-2012 RDA Reso RESOLUTION NO.
582-2012
A RESOLUTION OF THE CHAIRPERSON AND MEMBERS OF THE MIAMI
BEACH REDEVELOPMENT AGENCY(RDA)APPROVING THE MODIFICATION
OF THE TERMS OF THAT CERTAIN MORTGAGE AND PROMISSORY NOTE,
IN THE AMOUNT OF $1,500,000, DATED FEBRUARY 5, 2007, GIVEN BY
MBCDC: MERIDIAN PLACE, LLC, A FLORIDA LIMITED LIABILITY
CORPORATION,AS MORTGAGOR, FOR FUNDS ADVANCED TO MBCDC BY
THE RDA FOR THE ACQUISITION OF MERIDIAN PLACE, 530 MERIDIAN
AVENUE, MIAMI BEACH, FLORIDA; SAID MODIFICATION RESTRUCTURING
THE REPAYMENT TERMS TO BE CONSISTENT WITH OTHER AFFORDABLE
HOUSING LOANS FROM THE CITY, WHICH DEFER THE REPAYMENT OF
THE DEBT DURING THE DOCUMENTED AFFORDABILITY PERIOD; FURTHER
APPROVING A SUBORDINATION OF SAID RDA NOTE AND MORTGAGE, IN
FAVOR OF A COMMERCIAL LENDER,TO BE DETERMINED BY MBCDC, FOR
AN AMOUNT NOT TO EXCEED$980,000; AND FURTHER AUTHORIZING THE
EXECUTIVE DIRECTOR TO EXECUTE ALL APPLICABLE DOCUMENTATION.
WHEREAS, in order for MBCDC to be able to acquire the property known as Meridian Place,
located at 530 Meridian Avenue (the Property), it was necessary for MBCDC to request a loan, in
the amount of$1,500,000, from the RDA; and
WHEREAS, on October 11, 2006, the RDA approved Resolution No. 538-2006, authorizing
an appropriation of South Pointe Redevelopment Area funds, in the amount of$1,500,000, to be
utilized by MBCDC for the purpose of the acquisition and rehabilitation of the Property to provide 34
units of affordable rental housing; and
WHEREAS, on February 5, 2007, a Mortgage and Security Agreement and a Promissory
Note were executed by MBCDC: Meridian Place, LLC, a Florida limited liability corporation,
committing to a repayment schedule, in the annual amount of$150,000, commencing December 31,
2011, and continuing on each December 31, thereafter until paid in full (the RDA Mortgage); and
WHEREAS, in order to complete the total rehabilitation of the property and to meet HUD's
national objective, MBCDC obtained funding directly from U.S. HUD, the State of Florida, Miami-
Dade County, and the City of Miami Beach to cover the costs of construction; and
WHEREAS, on July 5, 2011 a Mortgage and Security Agreement, in the amount of
$2,864,642, was executed by MBCDC: Meridian Place, LLC, as mortgagor, securing the City's
HOME and CDBG funds (the City's Mortgage); and
WHEREAS, commercial bank financing will be necessary to cover a budget funding gap and
to provide financing until some of the other funding sources are received; and
WHEREAS,the project is not complete, and therefore does not generate cashflow to make
the current payment due under the RDA Mortgage; nor does the projected cashflow provide for
enough funds to service the debt while maintaining rent levels as required by the grant program; and
WHEREAS, the Administration recommended that the RDA loan repayment terms be
restructured to be consistent with other affordable housing grants(loans)from the City,which defer
the repayment of funding as long as a property is kept "affordable" in accordance with HUD
guidelines; and
WHEREAS,the Property's"affordability period"is currently thirty(30)years, commencing at
the issuance of the Final Certificate of Completion; and
WHEREAS, the Administration also recommended, that at the expiration of the 30-year
affordability period, the City may be given the option to either forgive the loan payment, consistent
with typical affordable housing loans; extend the affordability period (e.g. another thirty years);or call
in the note; and
WHEREAS, the Administration also recommended that if at any time during the initial
deferral period the Property fails to comply with HUD's affordability requirements,title to the Property
reverts back to the City; and
WHEREAS,the Administration also recommended that should MBCDC receive GOB funds
from Miami-Dade County, District 5, then those funds shall be required to be used to reduce the
private bank loan debt, and affordable rents reduced accordingly; and
WHEREAS, the Administration is further recommending a subordination of the RDA
Mortgage, in favor of a commercial lender, to be determined by MBCDC, for an amount not to
exceed $980,000.
WHEREAS,at the January 19,2012, Finance and Citywide Projects Committee meeting,the
Committee recommended that the item be brought to the RDA and that the funding chart be
presented as part of the discussion of the item during the RDA meeting on February 8, 2012.
NOW,THEREFORE, BE IT DULY RESOLVED BY THE CHAIRPERSON AND MEMBERS
OF THE REDEVELOPMENT AGENCY OF THE CITY OF MIAMI BEACH, FLORIDA, that the
Chairperson and Members of the RDA hereby approve the modification of the terms of that certain
Mortgage and Promissory Note, in the amount of $1,500,000, dated February 5, 2007, given by
MBCDC: Meridian Place, LLC, a Florida limited liability corporation, as mortgagor, for funds
advanced to MBCDC by the RDA for the acquisition of Meridian Place, 530 Meridian Avenue, Miami
Beach, Florida; said modification restructuring the repayment terms to be consistent with other
affordable housing loans from the City, which defer the repayment of the debt during the
documented affordability period; further approving a subordination of saidRDA Note and Mortgage,
in favor of a commercial lender,to be determined by MBCDC; and further authorizing the Executive
Director to execute all applicable documentation.
PASSED and ADOPTED this Yltl� day ofbruor 2012
ATTEST:
SECRETARY CHAT ER APPROVE[3ASM
FORM&LANGUAGE
R CUTION
T:IAGENDA120121FEBRUARY MRDAIMERIDIAN RDA LOAN AMENDMENT RESO.DOC &FO
C Date
I
MIAMI BEACH REDEVELOPMENT AGENCY ITEM SUMMARY
Condensed Title:
A resolution of the Chairperson and Members of the Board of Directors of the Miami Beach Redevelopment Agency(RDA)
approving the modification of the terms of the Promissory Note in the amount of$1,500,000, dated February 5, 2007,
between MBCDC: Meridian Place, LLC,a Florida limited liability corporation,and the RDA;approving a subordination of the
RDA's mortgage in favor of a commercial lender; and further authorizing the Executive Director to execute all applicable
documentation.
Key Intended Outcome Supported:
1. Increase access to workforce or affordable housing. 2. Improve the lives of elderly residents.
Supporting Data (Surveys, Environmental Scan, etc.): Based on the 2009 Customer Satisfaction Survey:
17.5% of businesses feel that lack of workforce housing is one of their most important challenges; 80% of
residents 65 or older rated City response to expectations as good or excellent;
Issue:
Shall the RDA authorize a modification of the repayment terms of the $1,500,000 Promissory Note, and authorize a
subordination of the debt to a commercial bank lender.
Item Summa /Recommendation:
Based on current rental income projected for this affordable housing project and the RDA debt service which was scheduled
to commence on December 31, 2011, MBCDC has been unable to obtain a commitment for private bank financing to fill a
current funding gap or access other sources of potential funding. A draft of the HUD-required independent third-party
Subsidy Layering Review recently requested by the Administration indicated that the development's cash flow, which is
limited by HUD rents, does not support annual principal payments in the amount of$150,000 to the RDA.
Based on cash flow projections outlined in MBCDC's Meridian Place Proforma, the annual RDA debt payments would
create negative cashflow of more than $100,000 in each of the next ten years. However, if the RDA Promissory Note is
modified to reflect a deferred or forgivable status,then the project will be provided with a modest net cash flow average of
approximately$20,000 for each of the next ten years; with the exception of the first year of operation.
It is recommended that the RDA loan repayment terms be restructured to be consistent with other affordable housing grants
and mortgage documents provided by the City, which defer the repayment of the funding as long as the project is kept
"affordable"in accordance with HUD guidelines. Additionally,a reverter clause is recommended which will require that, in
the event the project fails to comply with HUD's affordability requirements at any time during the affordability period, then
the title to the property will revert to the City. Also, it is recommended that MBCDC be required to apply any proceeds of
GOB funding from the County to reduce the private bank financing, and rents be reduced to reflect the debt service
cashflow savings. Finally, in light of MBCDC's need for upfront funding of HUD approved gap financing and the private bank
gap financing, it is recommended that the RDA subordinate its secured debt position in the maximum amount of$980,000 to
a commercial lending institution, consistent with prior practice.
Advisory Board Recommendation:
On January 19, 2012, the Finance and Citywide Projects Committee discussed the Note modification and debt
subordination and recommended its referral to the City Commission for approval.
Financial Information:
Source of Amount Account
Funds:
OBPI Total
Financial Impact Summary: N/A
City Clerk's Office Legislative Tracking:
Anna Parekh, ext. 6471
Sign-Offs:
AP T�u I I r—,�Wv 1=
TA\AGENDA\2012\February 8\RDA\Meridian Loan Mod CC Summary.doc
AGENDA ITEM A
MIAMIBEACH 28-) -L-
DATE-
m MIAMI BEACH
City of Miami Beath, 1700 Convention Center Drive,Miami Beach, Florida 33139,www.miamibeachfl.aov
REDEVELOPMENT AGENCY MEMORANDUM
TO: Ch yirpersRn and lMembers o e Miami Beach Redevelopment Agency
FROM: J . Gonzalez, Executi
or v irector
DATE: February 8, 2012
SUBJECT: A RESOLUTION OF THE CHAIRPERSON AND MEMBERS OF THE MIAMI
BEACH REDEVELOPMENT AGENCY(RDA)APPROVING THE MODIFICATION
OF THE TERMS OF THAT CERTAIN MORTGAGE AND PROMISSORY NOTE,IN
THE AMOUNT OF$1,500,000, DATED FEBRUARY 5,2007,GIVEN BY MBCDC:
MERIDIAN PLACE, LLC,A FLORIDA LIMITED LIABILITY CORPORATION,AS
MORTGAGOR, FOR FUNDS ADVANCED TO MBCDC BY THE RDA FOR THE
ACQUISITION OF MERIDIAN PLACE, 530 MERIDIAN AVENUE, MIAMI BEACH,
FLORIDA; SAID MODIFICATION RESTRUCTURING THE REPAYMENT TERMS
TO BE CONSISTENT WITH OTHER AFFORDABLE HOUSING LOANS FROM
THE CITY, WHICH DEFER THE REPAYMENT OF THE DEBT DURING THE
DOCUMENTED AFFORDABILITY PERIOD; FURTHER APPROVING A
SUBORDINATION OF SAID RDA NOTE AND MORTGAGE, IN FAVOR OF A
COMMERCIAL LENDER,TO BE DETERMINED BY MBCDC, FOR AN AMOUNT
NOT TO EXCEED $980,000; AND FURTHER AUTHORIZING THE EXECUTIVE
DIRECTOR TO EXECUTE ALL APPLICABLE DOCUMENTATION.
ADMINISTRATION RECOMMENDATION
Adopt the resolution.
BACKGROUND
Meridian Place, located at 530 Meridian Avenue, was built in 1940 and operated as a 72-unit transient
hotel. The building was purchased for rehabilitation by Carrfour Supportive Housing in 2001. As a result
of ongoing issues with its funders, Carrfour Supportive Housing decided to not pursue completion of the
project, and Miami Beach Community Development Corporation(MBCDC)was approached regarding its
interest in acquiring the property to ensure its continued availability to the community as affordable
housing. In July 2006, Miami Beach Community Development Corporation (MBCDC) entered into a
purchase agreement with Carrfour Supportive Housing for the acquisition of the property. The "as-is"
purchase price in 2006 was$3,800,000, as supported by an August 22, 2006, appraisal by J.B.Alhale&
Associates, Inc., which determined the "as is"value to be$3,800,000. The appraiser also provided an
"upon completion"value of$6,525,000. However, this value was predicated upon the original build-out
as a 71-unit development.
To complete the transaction, MBCDC requested funding from the City to assist in the acquisition of the
property. An underwriting analysis performed by First Housing Finance Corporation on November 29,
2006, determined that, based upon the proposed financing structure, the rehabilitation and construction
completion,the principals' experience,the favorable financial support from the City of Miami Beach, and
considering the noted debt service coverage, the proposed transfer of ownership of the uninhabitable
development to MBCDC was considered favorable.At that time,there was no debt service contemplated
for the RDA's $1,500,000 contribution.
On October 11, 2006, the Miami Beach Redevelopment Agency (RDA) approved Resolution No. 538-
2006 authorizing an appropriation of South Pointe Redevelopment Area funds in the amount of
$1,500,000 to be utilized by MBCDC for the purpose of MBCDC's acquisition and rehabilitation of the
Miami Beach Redevelopment Agency Memorandum
February 8, 2012
Meridian Place Note Modification and Consent to Subordination
Page 2 of 4
building located at 530 Meridian Avenue to provide 34 units of affordable housing for elderly, formerly
homeless persons. The RDA approval provided for the funds to be allocated via a loan or other
instrument, to be determined by staff. On February 5, 2007, a Mortgage and Security Agreement and a
corresponding Promissory Note (the Note) were executed by MBCDC: Meridian Place, LLC, a Florida
limited liability corporation.
As typical for affordable housing projects, this loan included a required affordability period of thirty(30)
years. However, unlike the more typical loans provided for affordable housing projects that are either
forgivable or direct grants, the RDA loan to MBCDC included a repayment schedule in the amount of
$150,000, commencing December 31, 2011, and continuing each December 31 thereafter annually for
ten years. This provision was included to provide for the possibility of the project securing additional
funds,thus making repayment possible. MBCDC has a history of successfully leveraging multiple funding
sources for their affordable housing projects. Needless to say, affordable housing projects are, by their
nature, heavily subsidized to be able to reduce debt service and, as a result, provide rents to meet
affordable housing standards/requirements.
ANALYSIS
The project is now 70%complete. The total project costs, including acquisition, are currently projected at
$8,117,797. As expected, MBCDC has been successful in securing additional funds for the project.
However, potential sources of funding identified and tentatively approved to fill the remaining funding gap
for the project cannot be secured, and a construction loan to complete the project cannot be approved by
the lender, as a result of the required debt service payment for the RDA loan.
Total currently allocated grant and loans funds are $7,915,085, including the RDA contribution, and
including U.S. HUD vouchers secured by MBCDC for construction debt ($335,012). MBCDC also
secured a commitment of Miami Dade County District 5 General Obligation Bond funds(County GOB)for
$440,431. Until the HUD and County GOB funds are paid to MBCDC, and the City is able to release
retainers at project completion, the cash flow gap to complete the construction of the project is$977,975.
As such, in order to draw down the remaining funding sources and complete the project, MBCDC needs
to obtain commercial bank financing for an amount not to exceed $980,000. However, the debt service
required in the RDA Note has impeded the completion of satisfactory bank underwriting, as well as a
HUD-required Subsidy Layering Review, and will preclude any favorable underwriting report necessary
for the release of allocated County grant funds, as well as the balance of the State grant. Furthermore,
MBCDC applied for a HUD HOME/HOPWA grant in the amount of$300,000 from the City of Miami and
was informed that the current cash flow projections with an RDA debt repayment would render the
project unable to maintain the levels of rents required by the grant program.
RDA Debt Payment Impact
Based on cash flow projections outlined in MBCDC's Meridian Place Proforma dated 9/21/11,the annual
RDA debt payments would create negative cash flow of more than $100,000 in each of the next ten
years. This position is further compounded by an additional $1,000,000 in negative cash flow if the State
debt is repaid in the year 2020, as required.
A HUD-required Subsidy Layering Review was initiated by the Administration in August 2011 in order to
evaluate the sources and uses of funds and ensure that the necessary funds are invested in HOME-
funded affordable housing projects. The procured outside consultant, First Housing Development
Corporation, reviewed Meridian Place and determined in its "Draft" report that "It is First Housing's
opinion that the property will not be economically feasible with the uncertainty surrounding the proposed
first mortgage loan and the requirement of the RDA loan to begin principal payments of$150,000 on
December 31, 2011. If these two issues can be resolved satisfactorily then First Housing is of the opinion
that the property will be economically viable."
In short, the project does not have sufficient rental revenue cash flow to make the RDA loan payments.
Miami Beach Redevelopment Agency Memorandum
February 8, 2012
Meridian Place Note Modification and Consent to Subordination
Page 3 of 4
Options to address RDA Debt Payment Impact
Staff reviewed options to address the impact of the RDA debt service payments.These options included
forgiving the loan altogether, consistent with typical affordable housing project funding approaches;
deferring the loan payments to a later date; establishing an alternative payment schedule; or developing
an alternative that continues to ensure that the housing remains affordable for a longer period of time.
MBCDC's cash flow analysis reflects that if the RDA Promissory Note is modified to reflect a deferred or
forgivable status, then the project will be provided with a modest net cash flow average of approximately
$20,000 for each of the next ten years, with the exception of the first year of operation. This also
presumes that MBCDC is successful in receiving its requested payment deferral and extended
amortization of the State debt.
If a modification of the loan terms is not made, then the project cannot be completed, putting the public
funds that have already been expended, at risk. The current funding sources,which are at potential risk if
this project fails to move forward, and which were discussed at the January 19, 2012, Finance&Citywide
Projects Committee meeting, are included in the following chart:
PROJECT FINANCING ACHIEVED
City of Miami Beach — RDA $1,500,000
State of Florida - Housing Demonstration Loan Funds 1,000,000
Miami-Dade County- Documentary Surtax Program 1,379,395
Miami-Dade County- US HUD - HOME Program 395,605
City of Miami Beach - US HUD - HOME Program 2,634,518
City of Miami Beach - US HUD - CDBG Program 230,124
US HUD SRO - Rehab Loan Commitment (Vouchers) 335,012
Miami-Dade District 5 General Obligation Bond 440,431
TOTAL PROJECT FUNDING $7,915,085
As noted above, and exclusive of any construction loan from a private lender, the project already has
almost 45% of its funding secured from NON-City sources.
MBCDC options to address Debt Service Payment
As a part of the City Commission's May 11, 2011 referral of this discussion to the Finance and Citywide
Projects Committee, Commissioner Libbin requested that MBCDC provide a spreadsheet of all the
buildings owned by MBCDC and when they will become cash flow positive. As was outlined in the
Committee Memorandum dated October 27, 2011, labeled "Attachment 1"and attached hereto for your
easy reference, any positive cash flow from any one building would most likely not be available to pay
debt service on a completely different building due to grant restrictions imposed upon each project.
Furthermore, each of the projects is organized as a separate limited liability corporation and therefore
cash flow cannot be moved between projects without legal agreements and justifications. As such, it is
necessary to address the funding issues relating to Meridian Place within the funding mechanisms that
exist for that project.
RECOMMENDATION
The City must ensure that federal, state, and local funds allocated to this affordable housing project for
formerly homeless elderly persons, are utilized in a feasible project. In light of the HUD subsidy layering
feasibility requirements, which include the current and future cash flow possibilities of the project, it is
recommended that the RDA loan repayment terms be restructured and the RDA loan be modified. This
proposed modification would make the terms of this loan consistent with other affordable housing
Miami Beach Redevelopment Agency Memorandum
February 8, 2012
Meridian Place Note Modification and Consent to Subordination
Page 4 of 4
allocations from the City by deferring any repayment of the funding for as long as the project is kept
"affordable"in accordance with HUD guidelines. This project's"affordability period"is currently thirty(30)
years, commencing at the issuance of the Final Certificate of Completion. Based on the proposed
modification terms, at the end of the affordability period, the City may:
• Forgive the loan payment, consistent with typical affordable housing loans;
• Extend the deferral period and further defer payments for an additional thirty (30) year
affordability period; or
• Require payment of the loan.
Should the RDA approve the deferral of the current loan payments during the initial 30-year affordability
period, it will be further required that if, at any time during the initial deferral period the project fails to
comply with HUD's affordability requirements, title to the property reverts to the City. Further, should
MBCDC receive any GOB funds from District 5, MBCDC shall be required to use those funds to reduce
the private loan debt, and rents be further reduced accordingly.
SUBORDINATION OF LOAN POSITION
As previously explained, in order to address the current cash flow gap, commercial bank financing has
been proposed. In order to qualify for the commercial bank financing, MBCDC must not only modify the
repayment terms of the February 5, 2007 Promissory Note, but it must also, as is customary with bank
financing, require that the City subordinate its secured debt position to the commercial lending institution.
As such, should the RDA approve the loan modification, as recommended, it is also recommended that
the RDA approve the necessary subordination of the RDA loan to allow for MBCDC to secure private
financing to complete the project. It should be noted that a companion item on the February 8, 2012
Commission agenda requests the subordination of City-issued HOME&CDBG loans to this project, as
well.
FINANCE AND CITYWIDE PROJECTS COMMITTEE MEETING
At the January 19, 2012, FCWPC meeting,the Committee recommended that the item be brought to the
full Commission and that the funding chart be included as part of the memo. The Administration
recommended that the RDA loan repayment terms be restructured to be consistent with other affordable
housing grants (loan) from the City, which defer the repayment of the funding as long as the project is
kept"affordable"in accordance with HUD guidelines. This project's"affordability period"is currently thirty
(30)years, commencing at the issuance of the Final Certificate of Completion. It was also recommended
that at the expiration of the 30-year affordability period, the City may be given the option to either call in
the note, extend the affordability period (e.g. another thirty years), or otherwise modify the note.
CONCLUSION
Based on the project's inability to service the RDA debt from projected affordable rent cash flow, as well
as MBCDC's inability to secure additional funds based on the feasibility of the project with the current
RDA loan repayment schedule, it is recommended that the RDA approve a modification of the terms of
the Promissory Note in the amount of$1,500,000, dated February 5, 2007,with MBCDC: Meridian Place,
LLC, for the RDA to restructure the repayment terms to be consistent with other affordable housing loans
from the City which defer the repayment of the debt during the thirty(30)year affordability period. At the
expiration of the thirty (30) year period, the City will have the option to forgive the loan, extend the
affordability period, or require payment. It is further recommended that approval be granted for the
subordination of the referenced RDA Note and Mortgage in favor of a commercial lender to be
determined by MBCDC, for an amount not to exceed $980,000, require MBCDC to apply any County
GOB proceeds to reduce private financing and reduce rents; and further authorize the executive director
to execute all applicable documentation.
JMG/HF/AP/ARB
Attachments:
ATTACHMENT 1
/
City of Miami Beach, 1700 Convention Center Drive,Miami Beach, Florioo 33139,vvwW.miomibe0chf1.9ov
COMMITTEE MEMORANDUM
TO: Fi nc a d CityNde Projects Committee Chairperson and Committee Members
FROM: J r e M. Gonzalez, City Man r
DATE: October 27, 2011
SUBJECT: A DISCUSSION OF A PROPOSED MODIFICATION OF THE PROMISSORY NOTE
DATED FEBRUARY 5, 2007, BETWEEN MBCDC: MERIDIAN PLACE, LLC, A
FLORIDA LIMITED LIABILITY CORPORATION, TO THE MIAMI BEACH
REDEVELOPMENT AGENCY; AND TO DISCUSS A SUBORDINATION OF THE
CITY'S MORTGAGES IN FAVOR OF A MORTGAGE MADE BY A COMMERCIAL
LENDING INSTITUTION,
BACKGROUND
Meridian Place was built in 1940 and had been operating as a 72-unit transient hotel, located at
530 Meridian Avenue, which was purchased for rehabilitation by Carrfour Supportive Housing in
2001. The "as-is" purchase price in 20D6 was $3,800,000, as supported by an August 22, 2006
appraisal by J.B. Alhale &Associates, Inc., which determined the "as is"value to be $3,800,000.
The appraiser also provided an "upon completion" value of $6,525,000. However; this value
was predicated upon the original build-out as a 71-unit development. As a result of ongoing
issues with its funders, Carrfour Supportive Housing indicated that it would no longer pursue
completion of the re-named "Sunsouth Place Apartments" project.
Miami Beach Community Development Corporation. (MBCDC) was approached regarding its
interest in acquiring the property to -ensure its continued availability to the community as
affordable housing. To complete the transaction, MBCDC requested funding from the City to
assist in the acquisition of the property. In July 2006, Miami Beach Community Development
Corporation (MBCD.C) entered into a purchase agreement with Carrfour Supportive Housing for
the acquisition of the property. An underwriting analysis performed by First Housing Finance
Corporation on November 29, 2006, determined that based upon the proposed financing
structure, the rehabilitation and construction completion, the principals' experience, the
favorable financial support from the City of Miami Beach, and considering the noted debt service
coverage, the proposed transfer of ownership of the uninhabitable development to MBCDC was
considered favorable. At that time, there was no debt service contemplated for the RDA's
$1,500,000 contribution.
On October 11, 2006, the Miami Beach Redevelopment Agency (RDA) approved Resolution
No. 538-2006 authorizing an appropriation of South Pointe Redevelopment Area funds in the
amount of $1,500,000 to be utilized by MBCDC for the purpose of MBCDC's acquisition and
rehabilitation of the building located at 530 Meridian Avenue to provide 34 units of affordable
housing for elderly, formerly homeless persons. On February 5,'2007, a Mortgage and Security
Agreement and a corresponding Promissory Note were executed by MBCDC: Meridian Place,
LLC, a Florida limited liability corporation (the Promissory Note), committing to a repayment
schedule in the amount of $150,000, commencing December 31, 2011, and continuing each
Finance & Cit}nvide Projects Committee.
I 14odification of Meridian Place Promissofy Note
October 27, 2011
i
December 31 thereafter annually.
In order to complete the total renovation of the project and meet HUD's national objective,
MBCDC also obtained funding directly from U.S. HUD, the State of Florida, and Miami-Dade
I County to cover the construction costs. However, commercial bank financing will be necessary
to cover a budget gap and to provide gap financing until some other funding sources are
received_ In order to qualify for the commercial bank financing, MBCDC must modify the
repayment terms of the February 5, 2007, Promissory Note and is also, as is customary with
bank financing, requesting that the City subordinate its secured debt position to the commercial
lending institution. The rehabilitation of the property (now known as Meridian Place) is
underway and the project is approximately 60% complete, with completion anticipated in
February 2012, assuming the necessary cash flow is secured.
ANALYSIS
At the time of MBCDC's acquisition of Meridian Place, total project costs were estimated at
$6,629,000, including acquisition. Since that time, the City's regulatory processes, which _
included Board of Adjustment and Historic Preservation hearings, as well as HUD's regulations
concerning the size of the units, necessitated significant modifications to the plans, including the
complete reconfiguration of the floor plans to reduce the number of units to 34, the addition of
an elevator, and the reconfiguration of the lobby for ADA compliance. The total costs are
currently projected at $8,117,797, including the $3,800,000 acquisition cost_ Total currently
i allocated grant and loans funds are $7,139,822, including the RDA contribution. In addition,
' U.S. HUD vouchers for construction debt will be available ($335,012), and MBCDC has secured
a commitment of Miami Dade County General Obligation Bond funds (County GOB) in the
amount of $440,431. Until the HUD and County GOB funds are paid to MBCDC, the funding
gap to complete the construction of the project is$977,975.
Currently, the County has $440,431 of District 5 funds allocated to "Miami Beach Community
Development Corporation to finance development of certain affordable housing units" While
commercial bank financing is currently being sought in the amount of $977,975, once the
County GOB funds are released, MBCDC anticipates paying down the commercial bank loan
with the $440,431. MBCDC's preliminary approval of $440,431 in County GOB funds is still
subject to official project allocation to Meridian Place, but also to successful underwriting review
by the County. Successful underwriting is critical to the allocation of the County GOB funds to
Meridian Place. if MBCDC is ultimately successful in securing the County GOB funds for
Meridian Place, the savings in cash flow from the reduced debt service will be utilized to reduce
rents to make the units more affordable.
Based on current rental income projected for this_affordable housing project, and in light of the
RDA debt service which is scheduled to commence this December and the current market value
of the property, MBCDC has been unable to obtain a commitment for private bank financing to
fill the current funding gap. MBCDC recently applied for a HUD HOME/HOPWA grant in the
amount of $300,000 from the City of Miami and was informed that the current cash flow
projections with an RDA repayment beginning this year would- render the project unable to
maintain the levels of rents required by the grant program. Furthermore, a draft of the HUD-
required independent- third-party Subsidy Layering Review recently requested by the
Administration indicated that the development's cash flow, which is limited by-HUD rents, does
not support annual principal payments in the amount of$150,000 to the RDA.
Page 2
i
Finance & City vide Projects Committee
/+;odification of Meridian Place Promissory Note
Ociober 27, 2011
The value of the property was recently appraised in conjunction with the HUD-required Subsidy
Layering Review. On April 21, 2011, J. Alhale Appraisals, Inc. updated the previous appraisal
and determined market values utilizing various different approaches,to be as follows:
Prospective Market Value Upon Completion of Renovation;
In a 34-unit affordable rental housing use
Without the favorable loan/grant package
(Not economically feasible)
$1,990,000
Estimated investment value in a 34-unit affordable housing
Use upon completion of remaining rehabilitation
Subject to the favorable loan/grant package
1�
$4,760,000
Based on cash flow projections outlined in MBCDC's Meridian Place Proforma dated 9121/11,
which is attached and labeled Exhibit A, the annual RDA debt payments would create negative
cashflow flf more than $100,000 in each of the next ten years. This position is further ,
I compounded by an additional $1,000,000 in negative cashflow if the State debt is repaid in the
I year 2020, as required.
MBCDC states that if the RDA Promissory Note is modified to reflect a deferred or forgivable
status, then the project will be provided with a modest net cash flow average of approximately
$20,000 for each of the next ten years; with the exception of the first year of operation. This also
presumes that MBCDC is successful in receiving its requested payment deferral and extended
amortization of the State debt.
ADDITIONAL INFORMATION
As a part of the City Commission's May 11, 2011 referral of this discussion to the Finance and
Citywide Projects Committee, Commissioner Libbin requested that MBCDC provide a
spreadsheet of all the buildings owned by MBCDC and when they will become cashflow
positive. Commissioner Libbin asked which buildings are going to have free cash and when it
comes available. MBCDC's Consolidated Revenue and Expense by Sequence Report Period:
9/1/2010 — 8/31/2011 is attached as Exhibit B ( Exhibit 131 is a summary of the revenues and
expenses; Exhibit B2 is the full back-up information). It is important to note that if there were
any positive cashflow, from any one building, most, if not all of MBCDC's buildings are highly
leveraged by a variety of grants, and any positive cashflow from one building would most likely
not be available to pay debt service on a completely different building. Furthermore, each of the
projects is organized as a separate limited liability corporation and therefore cashflow cannot be
moved between projects without legal agreements and justification.
RECOMMENDATION
I
Notwithstanding these considerations, a responsibility exists to ensure that HUD HOME and
CDBG funds allocated to this affordable housing project for formerly homeless elderly persons,
are utilized in a feasible project. In light of the HUD subsidy layering feasibility requirements, it
is recommended that the RDA loan repayment terms be restructured to be consistent with other
affordable housing grants (loans) from the City which defer the repayment of the funding as long
as the project is kept "affordable" in accordance with HUD guidelines. This project's
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Finance 6: Citywide Projects Committee
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Modification of liberidian Place Promissory mote
i October 27. 2017
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"affordability period" is currently thirty (30) years, commencing at the issuance of the Final
Certificate of Completion. Should the deferral be approved, it is recommended that at the
expiration of the 30-year affordability period, the City may be given the option to either call in the
' note, extend the affordability period (e.g. another thirty years), or otherwise modify the note.
Furthermore, consistent with other recently approved grants and loan documents to AABCDC, a
provision may be added to the terms of a modified loan which requires that, in the event the
project fails to comply with HUD's affordability requirements, title to the property reverts to the
City and the RDA loan repayment is accelerated and is immediately due and payable.
CONCLUSION
Based on the project's inability to service the RDA debt from projected affordable rent cashfiow,
it is recommended that the RDA loan repayment ternis be restructured to be consistent with
other affordable housing grants and mortgage documents provided by the City, which defer the
repayment of the funding as long as the project is kept "affordable' in accordance with HUD
guidelines. Additionally, a reverter clause is recommended which will require that, in the event
the project fails to comply with HUD's affordability requirements at any time during the
affordability period, then the title to the property will revert to the City and the RDA loan
repayment will be accelerated and immediately due and payable to the City. Also, it is
recommended that MBCDC be required to apply the proceeds of the GOB funding from the
County to the reduction of the private bank financing, and rents be reduced to reflect the debt
service cashfiow savings. Finally, in light of MBCDC's need for upfront funding of the HUD
approved gap financing and the additional private bank gap financing, it is recommended that
the City subordinate its secured debt position in the maximum amount of $980,000 to a
commercial lending institution, if bank financing is secured, consistent with prior practice.
JMG/HMFIAP/ARB
Attachments
HAReal Est,Hsng&Comm Dev\Community Development\Meridian Finance Memo October 27 2011 10-21-11.docx
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