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City of San Leandro Notes to Basic Financial Statements For the year ended June 30, 2012 83 NOTE 13 - COMMITMENTS AND CONTINGENCIES A. Alameda at San Leandro Crossing Financing The Alameda at San Leandro Crossings, a 100-unit affordable rental housing project which will be developed by the nonprofit BRIDGE Housing Corporation, is part of the proposed 300 unit Phase I proposal in the San Leandro Crossings development. Westlake Development Partners LLC will develop the remainder of Phase 1. The City Redevelopment Agency approved a development loan of $9.1 million in Set -Aside Funds in April 2009. Due to unforeseen factors beyond the developers’ control, the Alameda was delayed in April 2011. The RDA will be assisting in financing $6.9 million (of the $9.1 million loan) through the future bond financing. The RDA designated the remaining $2.2 million for eligible pre-development costs for BRIDGE. BRIDGE is expected to apply for low income rental housing tax credits from the State in early 2012 and the Agency will then proceed with bond issuance/financing process. Effective January 31, 2012, the Redevelopment Agency was dissolved. Certain assets of the Redevelopment Agency Low and Moderate Income Housing Fund were distributed to a Housing Successor; and all remaining Redevelopment Agency assets and liabilities were distributed to a Successor Agency. Additional information regarding the dissolution of the Redevelopment Agency is discussed in Note 18. B. Bayfair Mall Contract Dispute Bayfair Mall was included within the San Leandro Redevelopment Agency Joint Project Area in 1993. A series of agreements between the Redevelopment Agency, developers, Mall tenancies and property owners (Kings) were entered into to facilitate the development and improvements of the Mall. The Kings are owners of real property located within the footprint of the Mall that is being used for parking pursuant to a 1989 ground lease with the developer, as amended. Amendments to the lease and other agreements have been entered into that purportedly require the Redevelopment Agency to guarantee lease payments to the Kings in the event of default. The developers (Bayfair 580, LLC c/o M & J Wilkow of California, Ltd) gave notice to the parties on July 12, 2011 that Bayfair Sublessee LLC would not be making any further payments of rent to the Kings under the Sublease. The Kings have demanded payment from the parties, including the Redevelopment Agency, as a guarantor of the lease and payments there under. (Note: the validity of the lease is in dispute). If the former Redevelopment Agency (which is no longer in existence), is ultimately responsible to guarantee the lease and make the payments, the potential liability could be in approximately $800,000 + a year, for a total liability of $46,000,000 during the life of the lease. The San Leandro Redevelopment Agency is no longer in existence pursuant to state law, effective February 1, 2012 and the Successor Agency does not have the financial capacity to make such a payment. The San Leandro Oversight Board would have to approve any payment or settlement from tax increment funds, and that would have to be approved by the State Department of Finance. The San Leandro successor Agency and the City have filed multiple demurrers to the Complaints based on various legal theories; including dissolution of redevelopment precludes recovery. The parties are in discussions and negotiations to attempt to resolve the issues, without litigation. C. Former Redevelopment Agency The activities of the former Redevelopment Agency and the Successor Agency are subject to further examin ation by the State of California and the amount, if any, of expenditures which may be disallowed by the State cannot be determined at this time. The City expects such amounts, if any, to be immaterial.