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HomeMy WebLinkAboutLetters of SupportAPPENDIX E Permanent Lender Letter of Intent (Private Financing) Attn: Low-Income Housing Tax Credit Program The undersigned (Lender) hereby makes the following representations to induce the N.C. Housing Finance Agency to reserve to Blue Ridge Atlantic Development (Applicant) Low-Income Housing Tax Credits for the development located at or to be located at 217 Middle Sound Loop Road, Wilmington, New Hanover County, North Carolina, known as or to be known as Residence at Canopy Pointe, and consisting of or to consist of 72 units (Development): 1. The Lender has issued a letter of intent (Letter) to Applicant to provide permanent financing in the amount not to exceed $2,850,000 (the Loan amount). 2. The Letter does not contain any conditions which are not customary and reasonable for loans of this nature and amount and which are not reasonably expected by the Lender to be met at the time of loan funding. 3. The loan, if made, shall have a term of at least 17 years, at a fixed interest rate of 5.70%. There shall be no balloon payments due for at least 15 years. 4. The amortization period of the loan shall be 35 years. 5. The anticipated security interest of the Lender shall be fee simple and a first lien position. 6. This Letter of intent shall be valid until 12/31/2021. 7. The total amount of fees associated with permanent financing (i.e. origination) are $50,000. The Lender understands that the Agency needs this information to determine the Development’s eligible basis. Lument Capital, Suzanne Cope Managing Director RBC Community Investments 3800 Glenwood Ave, Suite 400 Raleigh, NC 27612 Telephone: (919) 571-6258 May 12, 2021 BRAD Residence at Canopy Pointe, LLC 2018 Eastwood Rd Wilmington, NC 28403 Re: Residence at Canopy Pointe 205 Middle Sound Loop Rd Wilmington, North Carolina Dear Chris: Thank you for providing us the opportunity to submit this commitment Letter (the “Letter”) on the above reference community. This Letter serves as our mutual understanding of the business terms regarding the acquisition of an ownership interests in BRAD Residence at Canopy Pointe, LLC (the “Company”). RBC Community Investments, LLC, its successors and assigns (“RBC”) will acquire a 99.99% interest, and RBC Tax Credit Manager II, Inc. (“RBC Manager”) will acquire a .001% interest (collectively, the “Interest”) in the Company. 1. Project and Parties Involved. (a) The “Project” will consist of 72 senior (55+) units occupied in compliance with the low-income housing tax credit (“LIHTC”) requirements of Section 42 of the Internal Revenue Code. (b) The parties involved with the Project are as follows: (i) Managing Member. The Managing Member is BRAD Residence at Canopy Pointe GP, LLC, which is owned 51% by Better Homes for North Carolina and 49% by Blue Ridge Atlantic Development. (ii) Developers. The Developer is Residence at Canopy Pointe Developer, LLC. (iii) Guarantors. The Guarantors are Len Brannen, Blue Ridge Atlantic, and Better Homes for North Carolina. 2. Purchase Price. RBC will use best efforts to acquire its Interest in the Company for a total capital contribution of $8,425,677. RBCs investment assumes 100% of residential depreciation being taken over 30.0 years, 100% of depreciation on site improvements being taken over 15 years, 100% of depreciation on personal property being taken over 5 years. 3. LIHTC. The Project is applying for a reservation of 2021 LIHTC from North Carolina Housing Finance Agency (“NCHFA”). 4. Debt Sources. As a condition to Company closing, the Managing Member will deliver loan commitments acceptable to RBC. 5. Tax Credit Adjusters. (a) Downward Capital Adjustment. The amount of LIHTC to be allocated to RBC during the credit period (“Certified LIHTC”) will be determined promptly following receipt of cost certification from the accountant and Form 8609. If the Certified LIHTC is less than Projected LIHTC, RBC’s capital contributions will be reduced by an amount (the “Downward Capital Adjustment”) equal to the product of (i) the pricing multiplied by (ii) the difference between the LIHTC Allocated to the Company and the actual LIHTC. (b) Late Delivery Adjustment. The amount of LIHTC allocated to RBC will be determined at the time the Project is fully leased. If the amount of the LIHTC allocated to RBC is less than the Projected LIHTC, RBC’s capital contribution shall be reduced by an amount (the “Late Delivery Adjustment”) equal to the difference between the Projected LIHTC (adjusted for any Downward Capital Adjustment) and the amount of the LIHTC allocated to RBC less the present value (using a 10% discount rate) of the additional LIHTC projected to be received in later years. (c) Payment by Managing Member. If the Downward Capital Adjustment and the Late Delivery Adjustment exceed the total of all unfunded capital contributions, then the Managing Member will make a payment to the Company equal to the amount of such excess, and the Company will immediately distribute such amount to RBC as a return of its capital contribution. Except to the extent otherwise stated herein, this payment will not give rise to any right as a loan or capital contribution or result in any increase in the Managing Member’s capital account. 6. Managing Member Obligations and Guarantees. The Managing Member will be responsible for the following items. Any amounts advanced by the Managing Member will not be considered as loans or Capital Contributions reimbursable or repayable by the Company unless otherwise stated herein. (a) Construction Completion. The Managing Member will guarantee construction completion in accordance with approved plans and specifications and will pay for any construction costs, costs to achieve permanent loan closing, and costs necessary to fund reserves required to be funded at or before permanent loan closing. (i) Pre-Stabilization. The Managing Member will guarantee funding of operating deficits until the date (the “Stabilization Date”) which is the first day of the month following a 3-month period (such 3-month period to commence after the permanent loan closing and full payoff of the construction) in which the Project has maintained an average 1.15 debt service coverage; and (ii) Post-Stabilization. Commencing with the Stabilization Date and continuing until the Release Date (defined below), the Managing Member will guarantee funding of operating deficits of up to an amount equal to 6 months of operating expenses, replacement reserves and must-pay debt service. Any funds paid by the Managing Member under this Paragraph 6(b)(ii) shall be treated as an unsecured loan to the Company with interest at the rate of 0% per annum, to be repaid out of cash flow, refinancing, sale and liquidation proceeds as provided in Paragraph 9 hereof. The “Release Date” is the later of: (A) the fifth anniversary of the Stabilization Date, (B) the date the Project has achieved an average debt service coverage of 1.15 for the 12-month period immediately prior to the Release Date, and (C) the date the Project has achieved a 1.15 debt service coverage for each of the 3 months immediately prior to the Release Date. Notwithstanding the foregoing, if, as of the Release Date, the balance of the Operating Reserve is less than the amount described in Section 7(a), this obligation shall continue until the balance in the Operating Reserve is equal to or greater than the amount described in Section 7(a). (b) LIHTC Shortfall or Recapture Event. In addition to the Adjustment Amount and Late Delivery Adjustment, if the actual amount of Actual LIHTC for any year is less than Projected LIHTC, the Managing Member will guarantee payment to the Investor Member of an amount equal to the shortfall or recapture amount, plus related costs and expenses incurred by the Investor Member. (c) Repurchase. The Managing Member will repurchase RBC’s interest upon the occurrence of certain events described in the Operating Agreement. (d) Environmental Indemnity. The Managing Member will indemnify RBC against any losses due to environmental condition at the Project. (e) Developer Fee. The Managing Member will guarantee payment of any developer fee remaining unpaid at the end of the LIHTC compliance period. (f) Guarantors. The Guarantors will guarantee all of the Managing Member’s obligations. The Guarantors will maintain a net worth and liquidity level as determined by RBC after review of the Guarantors’ financial statements. 7. Reserves. (a) Operating Reserves. An operating reserve in an amount equal to 6 months of operating expenses, replacement reserves and must pay debt service, or a lessor amount acceptable to NCHFA, will be maintained from available cash flow for the life of the compliance period. Withdrawals from the operating reserve will be subject to RBC’s consent. (b) Replacement Reserves. The Company will maintain a replacement reserve, and make contributions on an annual basis equal to a minimum of $250 per unit or a higher amount as required by lender or NCHFA and will increase annually by 4%. 8. Fees and Compensation. The following fees will be paid by the Company for services rendered in organizing, developing and managing the Company and the Project. (a) Developer Fee. The Developer will earn a developer fee up to the maximum allowed by NCHFA. If the proceeds from the Project budget are not sufficient to pay the developer fee, the fee will be deferred with interest at the long term AFR rate per annum and payable from net cash flow. Payment of the deferred fee will be subordinate to all other Company debt as well as operating expense and reserve requirements. (b) Incentive Management Fee. An incentive management fee will be payable to the Managing Member on an annual basis in an amount equal to 90% of net cash flow after payment of the items described in Paragraph 9. (c) Property Management Fee. The management agent and the terms of the property management agreement are subject to the prior approval of RBC. 9. Tax Benefits and Distributions. (a) Tax Benefits. Tax profits, tax losses, and tax credits will be allocated 99.99% to RBC, .001% to RBC Manager and .009% to the Managing Member. (b) Net Cash Flow Distributions. Distributions of net cash flow (cash receipts less cash expenditures, payment of debt service, property management fee and asset management fee), will be made as follows: (i) to RBC in satisfaction of any unpaid amounts due under Paragraphs 5 and 6 above and for any other amounts due and owing to RBC; (ii) to RBC Manager for any unpaid asset management fees; (iii) to the operating reserve to maintain a balance as required in Paragraph 7(a); (iv) to the payment of any unpaid developer fee; (v) to the payment of any debts owed to the Managing Member or its affiliates; (vi) 90% of the remaining cash flow to the Managing Member as an incentive management fee; and (vii) the balance to the Managing Member, RBC and RBC Manager in accordance with their percentage interests described in Paragraph 9(a). (c) Distributions upon Sale, Liquidation or Refinance. Net proceeds resulting from any sale, liquidation or refinance will be distributed as follows: (i) to payment in full of any Company debts except those due to RBC, RBC Manager or the Managing Member and/or their affiliates; (ii) to the setting up of any required reserves for contingent liabilities or obligations of the Company; (iii) to RBC, in satisfaction of any unpaid amounts due under Paragraphs 5 and 6 above and for any other amounts due and owing to RBC; (iv) to RBC Manager for any unpaid asset management fees; (v) to RBC for any excess or additional capital contributions made by it; (vi) to the payment of any debts owed to the Managing Member or its affiliates including any unpaid developer fee; (vii) to RBC Manager, 1% of such proceeds as a capital transaction administrative fee; (viii) to RBC in an amount equal to any projected federal income tax incurred as a result of the transaction giving rise to such proceeds; and (ix) the balance, 90% to the Managing Member, 9% to RBC and 1% to RBC Manager. 10. Construction. The Managing Member will arrange for a fixed or guaranteed maximum price construction contract. In addition the development budget will contain a hard cost contingency acceptable to RBC. RBC will engage a construction consultant, with the cost covered by the Company, to review the plans and specifications and evaluate the construction progress by providing monthly reports to the Company at the Company’s expense. 11. Due Diligence, Opinions and Projections. (a) Due Diligence: The Managing Member will provide RBC with all due diligence items set forth on its due diligence checklist, including but not limited to, a 2021 reservation of tax credits from NCHFA, financial statements for the Guarantors, schedule of real estate owned and contingent liabilities, plans and specifications, a current appraisal, a current (less than 6 months old) market study, a current (less than 6 months old) Phase I environmental report, rent and expense data from comparable properties, site/market visit and title and survey. The Managing Member agrees to reasonably cooperate with RBC (including signing such consents as may be necessary) in obtaining background reports on the Developer, Guarantors and other Project entities as determined by RBC. (b) Legal Opinions. The Managing Member's counsel will deliver to RBC a local law opinion satisfactory to RBC. RBC’s counsel will prepare a tax opinion and the Managing Member agrees to cooperate to provide all necessary documentation requested by RBC's counsel. (c) Projections. The projections to be attached to the Project Entity Agreement and that support the Tax Opinion will be prepared by RBC based on projections provided by the Managing Member. RBC’s projections will include development sources and uses, calculation of eligible basis, operating and construction period cash flow analysis, 15-year operating projection, 30-year debt analysis and 15-year capital account analysis. 12. Closing Contingencies. RBC's obligation to close on the purchase of the Interest will be contingent upon RBC’s receipt, review and approval of all due diligence including the items set forth on its due diligence checklist as well as the following: (a) Project Entity Documents. Preparation and execution of RBC's standard Project Entity Agreement and other fee agreements containing representations and warranties, covenants, consent rights, and indemnities, each on terms and conditions satisfactory to RBC. (b) Information and Laws. No adverse change in the information you have provided to us and no adverse change in existing law. (c) Closing Date. The closing occurring on or before December 31, 2022. 13. Termination and Confidentiality. (a) Termination Date. Once executed by both the Managing Member and the Guarantors, this letter shall be a binding agreement and will remain in effect until the 180th day (the “Termination Date”) after the date the 2021 Reservation is received. In recognition of the time which will be expended and the expenses which will be incurred by RBC in connection with the transaction contemplated hereby, the Managing Member agrees that, until the Termination Date, neither it nor any of its officers, employees, agents, or affiliates will solicit, entertain or negotiate with respect to any inquiries or proposals relating to the acquisition of an interest in the Company or the equity syndication of the Company or the Project without the prior written approval of RBC. In the event the Managing Member enters into an arrangement with a party other than RBC prior to the Termination Date, RBC will be entitled to pursue all remedies available to it. If RBC elects not to acquire the Interest based on the failure of any of the closing contingencies, the Managing Member and RBC will be mutually released from the terms and conditions contained in this letter. (b) Confidentiality. The Managing Member agrees to keep the terms and conditions contained in this letter confidential and not to disclose the terms to any third party (other than NCHFA, attorneys and accountants of the Company) without the express prior written approval of RBC. If the foregoing is in accordance with your understanding of the terms and conditions, please indicate your acceptance on the enclosed copy and return it to the undersigned to RBC. Very truly yours, By: Name: Lake Newcomb Title: Vice President The undersigned approves and accepts the terms of this Letter. Managing Member By: Its: Date: Authorized Signatory 5/12/2021