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Estabrook Senior Housing Amendment February 17, 2009 2 of 3 DISCUSSION In February 2009, Estabrook formally notified the Agency that it was requesting a reduction in the interest rate on the Agency loan from 3% to 0.75% due to the current financial crisis which has resulted in a sudden decline in low income housing tax credit equity investment (or capital account) from investors/limited partners (LP). The purpose of lowering the interest rate on the Agency loan is to reduce the tax losses for the LP, thereby offsetting the decline in the tax credit equity investment for the project and ensuring that the capital account stays positive during the period when the LP utilize the tax benefits of the tax credits. If the capital account become negative (whereby tax losses exceed equity invested), then the LP is liable for taxes on the negative balance. The LP is then allowed to add any additional tax liability on to the future sale price which would make it more expensive for Eden Housing, Inc., which is the general partner, to buyout the LP and retain long-term control of the property. Under the Low Income Housing Tax Credit Program, it is typical for the general partner to buyout the LP to gain sole ownership of the development once the tax credit compliance period expires after 15 years. There will be no financial impact to the Agency by lowering its interest rate for Estabrook because the project will primarily break even given the deep affordability (very low income seniors) levels being subsidized and~all project financing sources such as the Agency loan must subordinate to the HUD Section 202 financing for 40 years. Alameda County, which is also funding this project, has also agreed to reduce the interest rate on its loan to Estabrook. Current City Council Policy Not applicable. Previous City Council Action City Council and Redevelopment Agency Board approved $4 million in funding for Estabrook Senior Housing, L.P., to acquire and construct 51 units of affordable senior rental housing in July 2007. City Council Committee Review and Action On February 4, 2009, Agency staff provided the Business and Housing Development Committee with an update on the request by Estabrook Senior Housing, L.P., for the Agency to reduce the interest rate on its loan. Auplicable General Plan Policy The Housing Element of the General Plan includes the following policies applicable to this proposed project. Goal 3: New Housing Opportunities, Policy 3.06 - Housing by Non-profit Developers Promote the participation of non-profit housing organizations in the construction of new affordable housing in San Leandro, with particular emphasis on housing for seniors and working families.