Title
Approving a subordination request in connection with a partial payment of claim transaction for University Dale Apartments, Ward 1, District 8.
Body
WHEREAS, the City of Saint Paul, Minnesota (the “City”) has provided subordinate secured financing in the form of an Inclusionary Housing Account loan in the amount of $200,000 (the “IHA Loan”) and a STAR loan in the amount of $65,000 (the “STAR Loan”) to fund the University Dale Apartments (the “Project”), which Project serves the public purpose of providing affordable housing opportunities for families and individuals at or below 60 percent of area median income; and
WHEREAS, the completed Project, which is owned by University Dale Apartments Limited Partnership (the “Owner”), has encountered financial distress due to higher than projected vacancy rates and lower than projected rents, to the point of insufficient cash flow to service the existing first mortgage, which is insured by the United States Department of Housing and Urban Development (“HUD”); and
WHEREAS, in order to achieve financial stability, the Owner intends to request HUD approval of a partial payment of claim (“PPC”) transaction, in which HUD would pay a certain portion (the “PPC Amount”) of the claim of the insured first mortgage lender and take a second-position lien against the property to secure the Owner’s obligation to repay to HUD the PPC Amount, and the first mortgage terms would be modified to reduce the principal amount by the PPC Amount and reduce the interest rate to the then-current market rate; and
WHEREAS, in order to approve the PPC transaction, HUD requires all subordinate mortgage lenders to agree to subordinate their debt to the new second-position HUD debt and the modified first-position debt; and
WHEREAS, the staff has reviewed the Owner’s request and supports the proposed PPC transaction, including the proposed subordination of the IHA Loan and the STAR Loan, to restore financial stability to the Project and ena...
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