19990803 CC SR Loan to Portuguese Bend Club Homeowners Assoc to Finance Installation of Sewers 0
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MEMORANDUM RANCHO PALOS VERDES
TO: HONORABLE MAYOR & CITY COUNCIL
FROM: CITY MANAGER
DATE: AUGUST 3, 1999
SUBJECT: LOAN TO THE PORTUGUESE BEND CLUB HOMEOWNERS ASSOCIATION
TO FINANCE THE INSTALLATION OF SEWERS
RECOMMENDATION:
1. Approve the attached Construction Loan Agreement and authorize the
Chairman to execute the agreement on behalf of the Agency. In addition, authorize the
Executive Director to make changes to this Agreement as reasonably necessary to
implement the intent of the Agreement, provided that such changes do not increase the
loan amount, the terms of repayment, or the other material terms of the Agreement, and
empower the Agency's Executive Director to grant the various approvals anticipated by
this Agreement (such as approval of the forms of the promissory note and the deed of
trust, and the construction contract).
2. Authorize the Executive Director to accept another entity as the intermediary,
if for some reason Bay Cities National Bank cannot perform. The bank will be involved
in the transaction only for an instant, and the identity of the entity has little relevance to
the overall transaction.
U3. Approve the loan agreement that is attached to this report whereby the City
i"--- will loan an additional $250,000 to the Portuguese Bend fund of the Redevelopment
4. Rescind approval of the prior agreement with the Association so that there is
no confusion regarding which agreement is effective.
BACKGROUND:
Last year, the Redevelopment Agency approved a loan in the amount of $500,000 to
the Portuguese Bend Club Homeowners Association ("Association") so that the
Association would be able to install a sewer system. The Agency determined that this
project furthers the purposes of the Redevelopment Plan because it will reduce the
amount of water which reaches the landslide and by so doing, should increase the
stability of the area.
(()
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LOAN TO THE PORTUGUESE BEND CLUB HOMEOWNERASSOCIATION
TO FINANCE THE INSTALLATION OF SEWERS
AUGUST 3, 1999
PAGE 2
Since this matter was last before the Board, the Association has gone out to bid and
has attempted to secure the services of a contractor. Because of the improving
economy, the Association was not able to find a contractor who would construct the
project within the amount that previously was budgeted. The Association recently has
secured a contractor who will perform the work, and is requesting that the Agency
increase the amount of financial assistance to $750,000. It is proposed that like the
prior agreement, the term of the loan shall be interest free, and shall require equal
monthly payments of principal over a 15 year term, which will commence one year after
the completion of construction.
DISCUSSION:
To this end, we have prepared the Construction Loan Agreement which is attached to
this agenda report. The State Redevelopment Law permits a redevelopment agency to
acquire any interest in real or personal property, including a mortgage and the
indebtedness secured by a mortgage. Therefore, this transaction has been structured
in a fashion that provides for an independent third party (Bay Cities National Bank) to
originate the loan, which will be secured by a deed of trust encumbering the
Association easement interest in the sewer line, and for the Bank to immediately assign
the loan to the Agency (and for the Agency to immediately acquire the loan from the
Bank). Thus, the Bank will be involved in this transaction for only an instant. For all
practical purposes, the Agency shall be the Lender and shall be responsible for
administering the loan.
The Construction Loan Agreement provides that, as a condition to originating the loan
to the Association, the Lender (i.e., the Agency, as assignee of the Bank), will require,
among other things, that the Association sign a promissory note and deed of trust
satisfactory to the Lender, and provide the Lender with: (i) plans and specifications; (ii)
a construction budget; (iii) a construction contract, and (iv) a proposed disbursement
schedule, all subject to the approval of the Lender. If, in the Agencyos opinion, the
funds to be loaned by the Agency are insufficient to complete the project, the
Association is required to deposit additional funds with the Agency. The Agency also
will require the Association to hire a disbursement service (approved by the Agency) to
review all loan draw requests to make sure that the project is on budget and that all
mechanics lien releases are in hand, prior to the disbursement of funds.
The Association's attorneys have reviewed the attached agreement and have approved
its content and the form of the transaction.
ALTERNATIVES:
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LOAN TO THE PORTU UESE BEND CLUB HOMEOWNER SSOCIATION
TO FINANCE THE INSTALLATION OF SEWERS
AUGUST 3, 1999
PAGE 3
The Agency could decline to approve the attached agreements; however, this would
preclude the Association from installing the sewer system, which will assist the Agency
in stabilizing property in the area by reducing the amount of water which reaches the
landslide.
Respectfully Submitted,
Les Evans
Executive Director
Attachments:
Agreements