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HomeMy WebLinkAboutMINUTES - 07241984 - 1.46 I,J� TO: BOARD OF SUPERVISORS �( ♦ FROM: Anthony A. Dehaesus Contra lra Director of Planning COSta DATE: July 17, 1984 _@ County SUBJECT: Designation of a Lender for the Contra Costa County Multi-Family Bond Program SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATION Designate World Savings and Loan Association as Lender for the multi-family revenue bond program. BACKGROUND In order to implement a multi-family "pooled" development (grouping of smaller projects) revenue bond program a lender must be secured. The function of a lender is to underwrite the loans and provide credit support for the bonds. The lender bears the ultimate risk and responsibility for the real estate loans. In order to secure a lender a request for proposal (Attachment 1) was circulated. Written proposals (Attachment 2) were received from four lending institutions - Bank of America, California Federal Savings & Loan, Golden State Sanwa Bank, and World Savings and Loan. A panel consisting of the Executive Director of the Housing Authority, the principals from our financial advisor (Caine Gressel Midgley and Slater), the underwriter (Dean Witter Reynolds), and my staff conducted lender interviews. It was the unanimous view of this group that the lending institution of World Savings and Loan Association would provide the best combination of financing and developer services necessary to implement a successful program. CONTINUED ON ATTACHMENT: YES SIGNATE: /(" RECOMMENDATION OF COUNTY ADMINISTRATOR RECO MEN ATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S) 2 ACTION OF BOARD ON July 24, 1984 APPROVED AS RECOMMENDED X OTHER VOTE OF SUPERVISORS _X_ UNANIMOUS (ABSENT ) I HEREBY CERTIFY THAT THIS IS A TRUE AYES: NOES: AND CORRECT COPY OF AN ACTION TAKEN ABSENT: ABSTAIN: AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. CC: World Savings & Loan ATTESTED a� Caine Gressel Midgley & Slater yoJ.R. 9LSSOk COUNTY CLERK Dean Witter Reynolds Vo p-�%� AQP . AND EX OFFICIO CLERK OF THE BOARD Housing Authority 0001.54 Count Administrator D M9e2/7 Counsel BY DEPUTY ATTACIDIENT 1 Request for Proposals Sent To Lending Institutions as --.manning Departmee Contra 6 Costa County Administration Building, North Wing County P.O. Box 951 Martinez, California 94553-0095 Anthony A. Dehaesus Director of Planningr Phone:372-2035 May 18, 1984 Mr. Mike Covarrubias Union Bank 99 Almaden Boulevard, 2nd Flr. San Jose, CA 95113 Dear Mr. Covarrubias: The Contra Costa County Planning Department is structuring a program for financing new multi-family rental housing by using tax-exempt revenue bonds. The County is currently seeking proposals from interested private lending institutions who will: a. originate and service multi-family loans; and b. provide credit enhancement or identify a third party who could provide a credit enhancement for the bonds, either directly or indirectly, so that they receive an AA or AAA rating. One copy of the proposals should be submitted no later than 5:00 p.m., Friday, June 1 to each of the following: James Kennedy Gene Slater Joe Litten Contra Costa County Gaine Gressel Midgley Slater Dean Witter Reynolds Planning Department 150 California Street, Ste. 201 101 California Street P.O. Box 951 San Francisco, CA 94111 San Francisco, CA 94111 Martinez, CA 94553 The Program The County's multi-family bond program is outlined in the enclosed draft Program Summary. Please bear the following points in mind in submitting a proposal: 1. Pooled Bond Issues. The County is seeking a lender who will work on pooled bond issue(s), so that smaller projects can be financed. Typical projects may be from $2 to $5 million, although there may be smaller and larger projects. The first such bond issue might be about $10 to $15 million. The County may also issue bonds separately for very large, stand-alone projects, as well. 2. Loan Maturity. Based on experience elsewhere, the County is seeking to provide loans due in approximately 12 years. We would also consider lenders proposing to limit loan maturity to 10 years. In any case, amortization would be on a 30-year schedule. 3. Construction and Permanent Financing. The bond issue should provide both construction and permanent financing on a tax-exempt basis. 0Q qj ; •P Mr. Russell Kittel Page Two May 18, 1984 4. Fixed Rate Loans. Given the scale of most developments and developers, we think that a fixed-rate loan to the developer will be preferable (whether the bonds are 12 year bonds or variable rate demand bonds, etc.). Proposals which adjust the developer's interest rate but cap that rate, will also be considered. The County's team for this program includes: Orrick, Herrington and Sutcliffe, bond counsel; Dean Witter Reynolds, senior managing underwriter; and Caine Gressel Midgley Slater Inc., financial advisor. Lender Criteria Among the criteria that the County will use in selecting a lender are: 1. Responsiveness to program needs described above. 2. The lowest possible interest rate to the developer, taking into account any up-front points. 3. Loan underwriting criteria. 4. Ability to proceed promptly with a program; we are interested only in proposed formats, credit enhancements, interest rate positions, and underwriting criteria that the lender can actually deliver. Lender Proposals The lender proposal should be concise and cover the following points: 1. Name of the lending institution and any other parties that must be involved in the transaction (such as a surety, additional lending institution, liquidity facility, etc.). 2. Who will underwrite the real estate loans (which institution, which division, where are they located, etc.)? Will the loans have to be reviewed by a second organization (e.g. surety, FNMA)? 3. What are the realistic quantitative underwriting criteria that will be used in reviewing loans? (If the loan interest rate is not fixed, at which interest rate will the loan be underwritten?) Please include debt service coverage requirements, vacancy and expense percentages, loan-to-value requirement, and cash equity requirements. 4. What will be the source of bond security and what bond rating will that provide? 5. How will the loan rate be determined; what would the loan rate be in the current market? Please describe the deal in detail, including all spread(s), points, other charges, etc. to all. parties. If the proposed structure will (or can) be used with variable rate demand bonds, please describe how this would be done; who will take the liquidity and interest rate risk, etc. 000157 . Mr. Russell Kittel Page Three May 18, 1984 For comparative purposes, we assume that the bond trustee and the County will charge a total of about 20 basis points per year. We also assume that if 12 year bonds are involved, the AAA bond rate would be, say 9.5%. 6. Describe any other requirements that the lender may have for the bond issue. How will loan funds be invested prior to loan disbursement? 7. Are there any uncertainties or contingencies in your proposal (e.g. approval of the proposed structure by your board, approval needed from other parties, etc.)? Please list any other issuers for whom you are using the same proposed structure and the date (or expected date) of mailing preliminary official statements for those bond issues. 8. List other issuers for whom you have acted as a lender on closed multi-family bond issues in the last 12 months. If you have any questions, please feel free to call me at (415) 372-2035, or for technical questions, Gene Slater or Helen Dunlap of Caine Gressel Midgley Slater, (415) 956-2454. Sincerely, Anthony A. Dehaesus Director of Planning 1 a es Kennedy / 'Se for Housing Planner JK/mb1G Enclosure 000158 .. 1 CONTRA COSTA COUNTY LIST OF LENDERS tt BANK OF AMERICA GOLDEN STATE SANWA BANK Bank of America Center 9000 East Valley Boulevard P.O. Box 37003 Rosemead, CA 91770 San Francisco, CA 94137 Attn: John Kronfeld Attn: Andrew Bard r c Richard Schermerhorn CALIFORNIA FEDERAL SAVINGS HOME FEDERAL SAVINGS AND LOAN AND LOAN ASSOCIATION 5670 Wilshire Boulevard 707 Broadway at Seventh Los Angeles, CA 90036 San Diego, CA 92101 Attn: Edward Tillmon Attn: Bob Simonson CITIBANK, N.A. UNION BANK 55 Water Street 99 Almaden Boulevard New York, N.Y. 10043 2nd Floor San Jose, CA 95113 Attn: John Certich Joe Van Houten Attn: Mike Covarrubias FIRST INTERSTATE MORTGAGE CO. WORLD SAVINGS One Embarcadero Center 1970 Broadway Suite 2401 10th Floor San Francisco, CA 94111 Oakland, CA 94612 Attn: Bob Starr Attn: Russell Kittel FIRST SAVINGS ASSOCIATION OF WISCONSIN 700 North Water Milwaukee, Wisconsin 53202 Attn: Robert Muth 000 .5(-? . ATTACHMENT 2 Proposals Received From - Bank of America - California Federal - Golden State Sanwa Bank - World Savings and Loan 000160 R BANKOFAMERICA PUBLIC FINANCE DEPARTMENT May 31, 1984 Mr. James Kennedy Contra Costa County Planning Department P.O. Box 951 Martinez, CA 94553 Gentlemen: Thank you for your letter dated May 18, 1984 requesting proposals for lenders for your Housing Authority. I will respond in the order of your questions. 1. The main lending institution will be the Bank of America; however, as we will outline below, in some instances, we may use certain foreign Japanese banking relations. Their names are not definitive now since they vary on a case by case basis depending on size and length of credit enhancement desired. 2. The Bank of America Main Branch in San Francisco or the Contra Costa County Branch located in Concord would do tha real estate underwriting. We are also in a position to allow developers to bring in lenders who are not rated who would make a construction loan and stay online until some break-even point. This will allow local lenders to participate or the developer to bring in a lender who knows him better and would make him a larger loan. The Japanese banks will put up cover letters of credit and participate back the construction and rent up risk back to the developer's lender. 3. The underwriting criteria with the Bank would be 80% loan to value and 1. 1 - 1. 15 debt service coverage. The vacancy factor would be whatever was realistic for the area and we would look at approximately 30% expenses. If a developer has a lender who is willing to make him a more agressive loan and stay online through rent up, we can cover this with a Japanese letter of credit. The developer should have at least 10% cash equity in the Project. Either through his own contribution or equity syndication. `1ERICA NATIONAL TRUST AND SAVINGS ASSOCIATION - FINANCIAL SERVICES DIVISION - BOX 37003 - SAN FRANCISCO.CA 94137 - (415)622.2465 000161 5, Mr. Janes Kennedy Page Two May 31, 1984 4. If the Bank of America is the direct credit enhancer the rating will be a Moody's AA-1 or if we use one of our Japanese affiliates, the bonds will have a AAA rating. 5. The loan rate will be determined by taking the bond rate and adding the credit enhancement fees to it. . Since it is difficult to break all the points and spreads out for credit enhancement, initially you can merely take the bond rate and add 150 basis points to this. This does not include the cost of issuance for the bonds. This will give you a mortgage rate. In the final analysis we will break this out into up front points for Construction Lending and Real Estate Underwriting thus leaving the remainder of the 150 basis points to be added onto the bond rate for a mortgage rate. 6. Prior to disbursement, the loan funds will be invested by a third party such as our Trust Department or if the County wishes they can provide their own investment agreement on a competitive basis. Since most of these transactions are contemplated to .be as a 1 etter of credit transaction the developer may have the = ' arbitrage during construction period and from the monthly amortization of principal and his interest payments as they are s collected prior to, disbursement to the bondholders. _ 7. We are presently processing through the Bank's loan policy the ability to use loan to lender scenarios for floating rate bond issues. They will be in place in approximately 30 days. The exact format is not finalized; however, when we can speak. to you about our specific structures, we will do so at the earliest possible date. :a. Sincerely, John Kronfeld Senior Financial Consultant JK:jc/08271 . cc: Dick Schermerhorn, C/0 #3365 SANK OF AMERICA NATIONAL TROSST AND SAVINGS ASSOCIATION �i INNOVATIVE HOUSING FINANCE STRUCTURES Bank of America Credit Support for Multifamily Housing Programs Loan-to-Lender Program with Bank of America as Lender T s ? The Bank is willing to work with issuers in structuring multifamily housing programs under which the Bank acts as the lender. Based on the Bank' s obligation to repay the loan, the loan-to-lender structure would currently receive a "Aal" rating from Moody's. r The following is a brief outline of this program. 1. The proceeds of a multifamily housing bond issue are loaned to the Bank ("Bank Loan") . The Bank Loan is designed to match the debt i;. service requirements of the associated bond issue as to both maturities and interest rate payments. 2. The Bank makes multifamily housing loans ("Project Loans") from the proceeds of the Bank Loan in accordance with the public purposes of the issuer. The Project Loans are designed to nature over the life of the '= Bank Loan. 3. Under the Bank' s program, the Project Loans will normally be structured on a fully amortized basis such that there are no balloon payments or refinancing requirements at maturity. 4. In some cases a Project Loan may be structured on a partially amortized basis. In this event, a guaranteed takeout acceptable to the Bank must be in place at or prior to the closing of the bond transaction. 5. All Project Loans made by the Bank go through its standard approval process and are subject to the Bank's normal underwriting criteria. Commitment and origination fees charged developers are in line with normal applicable credit standards. 6. The bonds are not payable from or secured by the Project Loans made by the Bank. The Bank' s obligation to repay the Bank Loan is independent of the stream of repayments from any Project Loans rade from the Bank Loan. 7. As the bondholders' security is the Bank's general obligation to repay its borrowing, the rating given the bond offering is based on the Bank's credit. Letter of Credit Support In 1981 the Bank co-developed a new method of structuring multifamily housing issues by initiating the use of a letter of credit to support such issues. The development of this technique made these issues possible by enhancing market acceptance at a time when prevailing market rates made the - °` 'II deals otherwise undoable. -Based on the Bank's letter of credit, .this bond u': I structure would currently receive a "Aal" rating from. Moody's. fThe following is a brief outline of this program as currently constituted. l 1. The program is structured using a loans-to-Tenders format with the issuer lending the bond proceeds to qualified local savings and loans and commercial banks. These institutions, in turn, lend the borrowed funds to -#` developers of multifamily housing projects within the community. The loans to these lenders and the lender's loans to the developers have terms which correspond to the maturities of the bonds including any required f sinking fund payments. 2. Under this program, the Bank issues an irrevocable standby letter of credit to the bond trustee for the benefit of the bondholders that covers 4 the principal of and twelve months interest on the outstanding bonds. 3. ' As the bondholders' ultimate security is the Bank's letter of credit, the rating accorded the bond offering reflects the Bank's credit. 4. ' The Bank's letter of credit fees are determined on a transaction by transaction basis and are based on the Bank's exposure for both principal and twelve month's interest on the outstanding bonds. 5. Under the terns of the application for the letter of credit, the issuer agrees to repay any draws under the letter of credit including 1 interest at an annual rate equal to 1% over the Bank's prime rate. Such repayments by the issuer may only be made from amounts available under the bond indenture after providing for the repayment of all outstanding bonds. 6. In order to participate in the program, each lender must be approved ! by the Bank and is required to enter into a collateral, assumption and reimbursement agreement with the Bank. Under this agreement, the lender assumes the obligation of the issuer to reimburse the Bank for any draws under the letter of credit attributable to such lender. - 13 - �3= 7. Unless waived by the Bank, each lender will collateralize its obligation to reimburse the Bank by maintaining eligible collateral with a +. depositary designated by the Bank. Eligible collateral currently required consists of either (a) direct U.S. Government or U.S. Government guaranteed securities and various securities issued or guaranteed by certain federal agencies in an amount equal to 110% of the sum of the - outstanding principal balance of the lender's loan, twelve months interest on the lender's loan and the amount of the prepayment penalty then applicable under the lender's loan or (b) FHA-insured, VA-guaranteed or ;. conventional mortages with a fair market value in an amount equal to 120% of the sum itemized under (a) . The bonds will not be payable from or secured by the collateral pledged to the Bank. ' 8. An administrator will be selected by the Bank to administer the 4 collateral, assumption and reimbursement agreement. The administrator's duties will include reviewing collateral for eligibility and evaluating " the collateral on a monthly basis. The administrator or another entity may also agree to purchase collateral from the Bank in the event of default by a lender. ,. 9. Under the Bank' s program, the final maturity of the bond offering will normally not exceed fifteen years. The loans-to- lenders bond structure A consists of a small principal amount of serials with the bulk of the issue offered as term bonds. The serial bonds are repaid on the basis of an r. assumed thirty year amortization schedule for the lender loans and associated developer loans. The term bonds are typically designed to mature over the last two years of the offering's life through the use of mandatory sinking fund redemptions funded from corresponding mandatory lender loan and developer loan prepayments. 10. While the loan-to-lenders structure offers the issuer and developers lower interest costs than a fully amortized multifamily transaction, the lenders and the developers must address the refinancing question before >' entering into their loan agreements. .i 14 Y. CD a �o i P R O P O S A L CALIFORNIA FEDERAL SAVINGS & LOAN ASSOCIATION To Participate as Originator/Lender-Servicer/Program Administrator in the CG`TRA COSTA COUNTY MULTIFAMILY HOUSING REVENUE BOND PROGRAM 000164 CCALIFORNIA Soso Wilshire Boulevard FEDERAL Los Angeles.California 90036 Telephone 213 932 4321 James Kennedy May 30, 1984 Senior Housing Planner Planning Department Contra Costa County Post Office Box 951 Martinez, California 94533 Dear Mr. Kennedy: We are responding to your RFP for the Contra Costa County Multi-family Housing Revenue Bond Program. The association will serve in the capacity of originator/ lender-servicer/program administrator. The association will work to structure pooled bond issues to enable the financing of smaller developments. California Federal will also work with Contra Costa County in structuring separate bond issues for very large individual projects. In order to achieve a AAA rating on the multi-family housing revenue bonds, the association will purchase a surety bond from one of the following insurance compa- nies: Municipal Bond Insurance Association (MBIA) , Industrial Indemnity, or Fireman's Fund. We are a federally chartered savings and loan association, with total assets in excess of $14 billion. California Federal has long been a leading lender throughout the state of California. We now also have nationwide lending capabilities in place. The following data is furnished as requested by the RFP. STAFFING Program Coordination - The consumer affairs division of California FederaT is responsible for coordinating the association's tax-exempt bond financing pro- grams. Edward E. Tillmon, senior vice president, consumer affairs division head, oversees the tax-exempt hous- ing bond program. He joined California Federal in August 1973 as vice president of financial administration for Plaza Mortgage Company, a wholly owned mortgage banking subsidiary. In 1977 Tillmon became senior vice president and head of the consu- mer affairs division. . Prior to joining California Federal, Tillmon had 25 years of commercial banking experience with two commercial banks, serving as president of each. He is a graduate of the Univer- sity of Kansas. William B. Manhart, vice president, coordinates the association's administrative functions in the tax- exempt housing bond programs. Manhart joined Cal Fed in 1962 and has wide experience in real estate lending , including origination, underwriting and administration. Prior to his present position, he was California Federal's branch loan coordinator for Southern California. Manhart is a graduate of UCLA. 000165 Loan Ordination - California Federal's Northern OperationsDivision will be responsible for processing loan packages submitted under the Contra Costa Multi-Family Housing Revenue Bond Program. Multi- family loan origination/underwriting for individual loans in excess of $3 million will be processed in our income property division. For loans under $3 million, the residential lending division will assume origination/underwriting. Thomas H. Mathews, senior vice president, oversees California Federal's extensive network of residential lending units nationwide. He was named head of the residential lending group in July 1983. He was appointed senior vice president in charge of first trust deed lending in March 1982, having joined California Federal in 1977 as the senior loan officer for tract and single-family residential construction lending. Mathews, a graduate of the University of Nebraska, has 15 years of previous experience with two major California savings and loans. John •Solaro, senior vice president of the income property division, oversees California Federal's income property lending nationwide. Solaro joined California Federal in April, 1984. He has had exten- sive executive management experience. He brings over 25 years of experience in investment and mort- gage lending and appraisal to the association. Solaro is a graduate of Harbor College and the Mortgage Banking School at Notre Dame. Robert F. Hayes, vice president and director of loan production of the income property division, was appointed to this position in August 1983. Hayes joined California Federal in April 1982 as senior loan officer after obtaining 32 years of extensive experience in all phases of real estate with emphasis on mortgage lending, joint ventures, construction, i appraisal and brokerage. Hayes is a graduate of the University of Southern California in finance. BILITY TO PERFORM Current and Future Bond Issues - Over the past few years, California Federal hiTs participated in several single-family and multi-family -tax-exempt housing revenue bond issues. Presently the association will serve as originator/lender-servicer/program administrator for. future bond issues for the City of San Diego, and the Counties of Los Angeles, Sonoma, and Orange. During the 1983-84 period, the association was the administrator/fender-servicer on the following multi-family bond issues: -2- 1 . PROMENADE TOWERS Figueroa Street between 1st and 2nd Streets Los Angeles, California This $52 million multi-family housing revenue bond issue financed a 470-unit rental housing development consisting of four structures ranging from three to eighteen stories, located on Parcel A in the Commu- nity Redevelopment Agency's Bunker Hill redevelop- ment area. Fifteen percent of the units are to be made available to persons or families of low income who would be eligible for Section 8 assistance. The project will fill a gap in downtown's current rental housing inventory. 2. CITY OF LOS ANGELES 1983 MULTI-FAMILY HOUSING REVENUE BOND PROGRAM SERIES A (California Federal Savings and Loan Certificate of Deposit Program.) The $45.6 million multi-family housing revenue bond issue financed 45 multi-family rental projects located I throughout the City of Los Angeles. The number of I units in each project range from seven to 100, with loan requests ranging from $265,000 to $5.3 million. Under the program, developers are required to reserve 20% of the units for qualified low-moderate income tenants. a 3. BROWARD COUNTY, FLORIDA, MULTI-FAMILY CERTIFICATE OF DEPOSIT BACKED PROGRAM This $2 million-plus loan, provided through the program, financed a 102-unit apartment building. The developer is reserving 20% of the units for low-moderate income tenants. 4. COUNTY OF LOS ANGELES, CALIFORNIA, VARIABLE RATE MULTI-FAMILY MORTGAGE REVENUE DEMAND BONDS 1983 ISSUE C Also in 1983, the association was the originator/ lender/servicer for the $11 .4 million Los Angeles County Variable Rate Multi-family Mortgage Revenue Demand Bond issue. This initial issue in the County's on-going rental housing program financed new construction for 390 rental housing units in the County. Twenty per cent of the units will be reserved for qualified low-moderate income tenants. 000166 -3- II 5. THE CITY OF SAN DIEGO, CALIFORNIA, MULTI-FAMILY MORTGAGE REVENUE BONDS 1984 ISSUE A In 1984, the association is serving as the origi- nator/lender/servicer for the $25.5 million City of San Diego Multi-family Mortgage Revenue Bond issue. The number of units in each project range from. 12 to 355 units, with loan requests ranging from $246,000 to $11 .3 million. This initial issue financed approximately 1 ,070 units of new rental housing throughout the City of San Diego. Twenty per . cent of the units will be reserved for qualified low-moderate income tenants. Through its track record, the association has demonstrated its ability to perform its responsibilities associated with multi-family bond issues. California Federal continues to work with various cities and counties throughout the state of California. in structuring new multi-family bond issues.. OND STRUCTURE/ Letter of. Credit/Surety Bond - The bond structure ECURITY—gErTFAMSM will utilize a letter of credit in conjunction with the purchase of a surety bond by California Federal. The surety bond, together with the association's j pledge of collateral, will assure a AAA rating on the bonds. This mechanism will assure the prompt repayment of principal and interest on the bonds. California Federal would agree to make project loans } at a fixed-rate which will mature 3 to 6 months prior j to maturity of the bonds to identified developers. j This mechanism has been used in,bond issues for the County of Los Angeles, the City of San Diego and 3 projects in the state of Florida. i Lower Floater - Given the current tax-exempt bond E mar et, a variable rate bond structure will likely be utilized in order to attain the lowest possible long-term fixed interest rate in the 10.0 10.750 f range. Through this bond structure, the association will assume the interest rate risk. The points associated with ' the lower floater structure would include a fee to the association for, its liquidity and interest rate risk. The determination of total points will depend on market conditions and final bond structure. Credit Authorization - The association's executive office and/or the finance committee will provide ;the necessary authorization in order to pledge collateral. The loan committee will provide approval . for California Federal's real estate loan risks. -4- Y Pledging of Collateral - The type of collateral has not been determined. The final decision will be made 30-45 days prior to bond funding and will depend on final bond_ structure. On previous trans- actions, collateral has been provided via FNMA,. FHLMC participation and GNMA's. The collateral to be provided in this transaction, will achieve a AAA rating on the bonds. NDERWRITING As previously mentioned, loans above $3 million will rX be underwritten by the association's income property loan division and loans below $3 million will be underwritten by the residential loan division. Both divisions have qualified staffs for the underwriting and appraisal for projects that are to be submitted. Construction and permanent financing will be available. California Federal's standard underwriting criteria will be applied to determine loan amounts. Loan Terms o Maximum loan to value - 75% of appraised value. o Interest rates are 10.0% - 10.75% fixed rate, 30-year amortization due in approximately 12 years. o Minimum number of units - 10 units. a o Cap rate - is to be dependent upon the local market area and may range from 84 - 9. o Debt service coverage - is dependent upon the size of the development. It is 1 .0: 1 .00 for projects below $5 million; above $5 million it is 1 .05:1 .00. o Cash equity - 15% of total project development cost. o Vacancy factors - 3% - 5% o Cost standards - there is no fixed maximum for square footage construction and/or land costs; they are dependent upon the local market area. o Loan fees - 4 points for construction and perma- nent loan. o Spread to lender - 1 .5% _�_ •0©-0167 N o Other fees - are out of pocket expenses charged to process, appraise and fund loans. ROJECT LOAN California' Federal's loan service division will be ING responsible for all project loan servicing. During project construction, disbursements will be made through a voucher system. NVESTMENT OF Prior to loan disbursement, bond proceeds will be invested in securities at a rate which is at least equal or greater than the interest rate due bond holders. The association will guaranty a sufficient return on the investment to pay interest to the bond holders. OND PROGRAM The consumer affairs division will be responsible DMINISTRATION for bond program administration, which is to include overall internal coordination. The division will prepare and file the required reports to the County and Bond Trustee throughout the term of the bonds. hank you for the opportunity to present this proposal. Should you have - any urther, questions or require any .additional information, please feel free to call me t (213) 932-4030. incerely, dward E. Tillmon - enior Vice President ET:yc C Gene Slater Joe Litten i r i Golden State Sanwa Bank 9000 East Valley Blvd. r h+ Rosemead, CA 91770 , , L10 Ftp it� (818) 288-0220 June 4, 1984 Mr. James Kennedy Contra Costa County Planning Department 651 Pine Street , N.W. Fourth Floor . Martinez, California 94553 Dear Mr. Kennedy: Golden State Sanwa Bank is pleased to submit to you our proposal to act as "Lender" for the County 's Multi-Family Bond Program. Golden State Sanwa Bank utilizes , as its credit enhancement device, a Letter of Credit. Our Parent, The Sanwa Bank, Limited, then confirms our Letter of Credit. This structure has received a "Aaa" from Moodys Investors Service. Additionally, any liquidity facility necessitated by a floating rate type issue would also be provided within the Letter of Credit structure. THE BANK Golden State Sanwa Bank is a California state chartered bank and a wholly-owned subsidiary of The Sanwa Bank, Limited. Golden State Sanwa Bank was founded in 1972 as the Sanwa Bank of California. Through expansion and subsequent mergers it has grown to 29 offices throughout California with a main office in the City of San Francisco. Golden State Sanwa Bank offers a full ranqe of commercial and retail banking services to business, industry, local governments and individuals. Golden State Sanwa Bank has Assets in excess of $1 .3 Billion and Capital in excess of g66 Million. The Sanwa Bank, Limited is one of Japan 's leading commercial banks with a broad base of retail and corporate banking activities, extentive international banking services and rapidly expanding merchant banking activities. The Sanwa Bank, Limited traces its history to 1.656 with the establishment of the Konoike Money Exchanqe House. The present Sanwa Rank was incorporated in 1933. The Sanwa Bank, Limited has 250 branches in Japan and U.S. offices in New York, Chicago, San Francisco and Houston. Additionally it has offices and subsidiaries in every major financial capital in the world. 0000 Ap THE MUNICIPAL SERVICES DIVISION The Municipal Services Division has the responsibility of providing services to municipal governments with respect to their banking and financial needs. Under the umbrella of the Municipal Services Division is the Bank 's Public Finance and Financial Advisory Departments, the Escrow and Trust' Departments and the Letter of Credit/Credit Enhancement Department. The following are brief resumes of the Division 's personnel which will be assigned to the County 's financing: Eugene A. Slagoski Executive Vice President Manager Municipal Services Division Mr. Slagoski has been in finance and banking since 1948. His experience encompasses commercial , municipal and retail lending in addition to investment portfolio management. Mr. Slagoski is a member of the Board of Directors and the Senior Loan Committee of the Bank and was the Chief Executive Officer and Chief Administrative Officer of one of our predecessor . banks. He received his education in finance and accounting from Lasalle University and is a graduate of the School of Banking of the University of Wisconsin. Andrew L. Bard Vice President Assistant Manager Municipal Services Division Manager Public. Finance Department Mr. Bard has been in the investment banking and financial advisory business since 1972. He has a wide range of experience in all phases of the municipal finance field including housing, tax-increment, tax and revenue anticipation, tax-exempt leasing, pollution control and industrial revenue, . public buildings, water and sewer projects, and debt reorganization and restructuring. Prior to joining Golden State Sanwa Bank, Mr. Bard ran Andrew L. Bard Associates, a municipal finance consulting firm and worked for Miller & Schroeder Municipals and Blyth Eastman Dillon. He received his undergraduate education in business administration and his graduate education in investments and finance both from New York University. Richard T. Avery Assistant Vice President Senior Credit Officer Mr. Avery has been in banking since 1976. His experience includes commercial and municipal lending , credit and financial analysis. Prior to joining Golden State Sanwa Bank, Mr. Avery worked for Citicorp and the Barnett Bank. He ' received his undergraduate education in economics and finance from Indiana University and his graduate eduaction in finance from Xavier University. Masashi Nagashima Assistant Vice President Senior Credit Officer Mr. Nagashima has been in banking since 1974. His experience includes corporate, commercial , international and investment banking. Mr. Nagashima ,joined Golden State Sanwa Bank from The Sanwa Bank, Limited in 1983. He received his undergraduate education in management from Keio University, Tokyo, Japan. Mr. Slagoski 's role will be predominantly supervisory and advisory in all phases of the project. Mr. Bard will provide the day-to-day contact , oversee the credit underwriting of the projects, review documents, and provide the Bank 's public finance bond underwriting imput, if requested. Mr. Avery will provide project credit analysis and Mr. Nagashima will provide project credit analysis and liason with The Sanwa Bank, Limited. PROGRAM STRUCTURE/BOND SECURITY MECHANISM Golden State Sanwa Bank proposes that our Letter of Credit, confirmed by our Parent bank, be used as the security mechanism for the Bond issue. Utilizing this structure enables an issue to be rated "Aaa" by Moody 's Investors Service. Golden State Sanwa Bank has created a new structure mechanism which provides a fixed rate mortgage on a multi-family project below that which can be obtained using a fixed rate, 12 to 15 year maturing bond issue. The device utilizes a floating rate bond and a fixed rate mortgage with Golden State Sanwa Bank taking the interest ratesliquidity and market risks. In the present market environment a 12 to 15 year "Aaa" Letter of Credit backed bond financing would sell at an interest rate between 9.5 and 10%. Adding to the bond interest rate the standard letter of credit fee of 1 .5% and possibly additional costs from the use of a surety overlay or other device (and Trustees costs) , the costs to a multi-family project would be approximately 11 .5 %. The rate that would be charged with the Golden State Sanwa Bank program would be between 9.75 and 10.25%. The financing structure would utilize a direct-pay letter of credit where Golden State Sanwa Bank would make all payments to the Bond Trustee ( including Trustee fees and County fees) . As previously stated, the costs to the developer would be a 9.75 to 10.25% mortgage paid monthly to the Bank. This mortgage would be on a 30-year amortization with a balloon payment at the end. By utilizing this structure the Bank assumes the interest rate risk, any bankruptcy risk and any refinancing risk. Additionally, if desired, Bond proceeds may be used to fund construction. Whether or not this occurs, Golden State Sanwa Bank will provide an Investment Agreement for the investment of loan funds prior to loan disbursement. The proposed structure has just recently been developed by Golden State Sanwa Bank and has not yet been utilized in a bond issue. We have consulted with reputable Bond Counsel and Bank Counsel with respect to the structure and they have found no legal problems. We are presently working on a number of transactions which intend on utilizing this structure. Alternately, if the City so desires, we would be pleased to work with a fixed rate bond and a fixed rate mortgage structure utilizing market rates. The information necessary to obtain the appropriate credit authorization is the standard loan package which includes project description, drawings, specifications, pro-forma financials of the project , developer resume, financials and tax returns, and, once preliminary review is performed and a project appears to be doable, an appraisal which would be performed by the Real Estate Industries Group of Golden State Sanwa Bank. 000169 The Municipal Services Division needs no specific approval or authorization to participate in the County 's program. Each project , however, would require a full credit analysis and approval of our Senior Loan Committee. If the financing is done on an individual basis and the financing is $5 Million or less, Golden State Sanwa Bank needs no further approval to issue our Letter of Credit. If the financing is in excess of $5 Million, once the. Senior Loan Committee of Golden State Sanwa Bank approves the transaction, it is transmitted to Tokyo for review and approval by The Sanwa Bank, Limited. On an individual project , once a complete package ( including appraisal) is received, the preparation of our write-up and its submission to the Senior Loan Committee and the subsequent decision of the Senior Loan Committee should take no more than two weeks. If the project then needs to be reviewed by The Sanwa Bank, Limited the additional time should be no more than two weeks ( it has been our experience to be generally one week) . As mentioned earlier, The Sanwa Bank, Limited has a "Aaa" rating from Moody 's Investors. Service. Golden State Sanwa Bank 's Letter of Credit, confirmed by The Sanwa Bank, Limited, is structured to cover the needed interest reserves, matures a sufficient time beyond the bond so as to cover possible bankruptcy problems, provides coverage for any preference payments that might arise under the program and provides coverage for all risks of project/program failure including non-monetary default. As previously mentioned, Golden State' Sanwa Bank will. issue the Letter of Credit and The Sanwa Bank, Limited will confirm the Letter of Credit. Golden State Sanwa Bank 's standard fee for the origination of a Letter of Credit is l% of the original principal amount of the bonds , our maximum annual Letter of Credit fee is 1.5% of the outstanding principal amount of bonds (paid annually up-front) and, if the bond proceeds are to be used for the construction of the project, there is a construction overview and loan fee equal to 1.75% of that amount of bond proceeds which are used for the hard costs of construction. The 1% origination fee, the 1 .5% first year 's annual fee and the 1.75 - of -hard construction costs fee are paid to the Bank upon the closing of the bond issue (generally from bond proceeds) . Thereafter, if our Hybrid program is used, the Letter of Credit fees are incorporated into the mortgage rate specified above. There are no additional costs to the developer or the County. Golden State Sanwa Bank will service the mortgages, pay the principal and interest on the bonds when . due and pay for the trustee and administrative costs of the program. The only other costs incurred for issuance of our Letter of Credit are the direct legal costs and fees incurred by the Bank and any travel or other ma.ior hard costs (such as appraisal fees) incurred by the Bank. LENDING RESPONSIBILITIES Golden State Sanwa Bank and its predecessor banks have been involved in the underwriting of construction and take-out financinq for rental housing projects since 1929. -During the past 55 years the Rank has been involved in many hundreds of millions of dollars of this type of financing. Of our twenty-nine branches , eighteen are in Los Angeles. County, four are in northern Oranqe County, five are in northern California and one is in San Diego. Golden State Sanwa Bank is presently working with the City of Los Angeles , the City of Huntington Beach, and the City `of San Bernardino with respect to both the construction and take-out financing for rental housing projects' under a bond finance program. These projects have received credit approval from our Senior Loan Committee., are in different stages of bond processing and expect to be in the market or to be closing shortly. 146 presently have in different stages of credit review nine multi-family rental projects ranging in amounts from $700,000 to $30,000,000 and totaling in excess 'of $110,000,000. All but one of these projects are in California. The project loan underwriting criteria that will be used in evaluating the projects are as follows: Maximum Loan to Value 85% (Maximum required by law) Minimum No. of Units in Project 5 Value Determination Income approach (preferred) Cap Rate 9% (plus or minus) Debt Service Coverage 110% (plus or minus) Expense Ratio 25-30% Vacancy Fators 3-5% Cost Standards None With respect to the underwriting critera applicable to rehabilitation loan requests, the maximum loan to value ratio would be 75% with the minimum of 1109'. Debt Service Coverage and the expense ratios being a bit higher. Additionally each of the items stated above are general guidelines with respect to our underwriting criteria. Each project will be evaluated on an individual basis within the frame work of the above criteria. Additionally, a project which does not fit within the frame work of the above criteria may still receive approval if the developer can supply additional equity, collateral or cash flow support from outside the project. The review process will be performed by the Credit Department of the Municipal Services Division. Our credit anaylysts will perform a preliminary review to determine whether or not a project should be pursued. An internal summary report is prepared by the credit analyst and reviewed by the Division Manager or the Assistant Division Manager. If the project looks pursuable, then an appraisal is requested. At this point, the Developer is required to purchase an appraisal . Upon receipt of a complete project package and an appraisal , the project is written up and submitted for approval to our Senior Loan Committee. Upon the approval of our Senior Loan Committee, a commitment letter will be issued. At this point we require the developer to indemnify both the County and the Bank for costs incurred in the processing of the project should the developer decide to end the process. Once the indemnity agreement is signed a title report is requested and we authorize our attorneys to produce the necessary documents and perform document review. As previously mentioned, Golden State Sanwa Bank would be pleased to accomodate the County by utilizing a loan term of 12 .years with a 30-year amortization and we would also consider a shorter term or longer term with intermittent renewals. The interest rate make-up, fees, points and charges and any other costs with respect to the underlying mortgage loan have been previously discussed. The Real Estate Industries Group of Golden State Sanwa Bank will administer the construction loan and supervise and inspect the construction process. Prior to the disbursal of any funds under the construction loan, the Real Estate Industries Group requires that there be clear title and that a building permit has been obtained. If there is a need for escrow services, the Bank would be happy to provide such services through the Escrow Department of the Municipal Services Division. The Real Estate Industries Group estimates that the amount of time it would take to close a standard loan would be approximately 30 days. It does not , however, envision that such a period would be necessary under the bond program. 000170 The Real Estate Industries Group would have the responsibility of disbursing the funds under the construction loan. REIG uses the Voucher Draw System. This system works as follows: 1) REIG gets a listing of the bills which have been pre-approved by the General Contractor; 2) REIG sends an inspector to the project site to verify that the project is progressing as per the billings; and 3) REIG then deposits money in the General Contractor 's account.so the General Contractor can pay the bills. Disbursements are usual made on a bi-monthly basis, however•, if necessary, we could accomodate a developer with a different schedule. Depending on the size and complexity of the project there may be a withhold on developer payment request but not to exceed 10% of such request. The project loan servicing with respect to the debt payments necessary under both the mortgage and the bond issue will be serviced by the Municipal Services Division. Additionally any program administration functions will also be performed by the Municipal Services Division. It is our understanding that a Regulatory Agreement will be used in this program. We will review the Regulatory Agreement and contribute to its formation with respect to operational procedures. We envision such Regulatory Agreement to contain the requirement that prior to the renting of a unit, each tenant will be required to fill out certain forms and disclosure items. Additionally, on a monthly, basis, the developer will be required to report to us any turnover .in units. Each month these reports will be reviewed so as to determine compliance. Sincerely yours, Andrew L. Bard Vice President and Assista t Manager Financial Services Division Attachments ALB/dw , r' ii,� !tlf .- r .1119 L�i•i WORLD SAVIN%j' AND LOAN ASSOCIATION May 29 , 1984 Mr. Anthony Dehaesus , Director of Planning Contra Costa County - Planning Department County Administration Building, North Wing P.O. Box 951 Martinez , Ca 94533 - 0095 re: Multi-family Mortgage Revenue Bond program Dear Mr. Dehaesus: This letter is in response to your letter of 5/18/84 re- questing proposals . World Savings & Loan Association is pleased to submit the attached proposal expressing its interest in participating in your program to provide financing for multi-family rental housing by using tax-exempt revenue bonds . The Association would both: . a. originate and service multi-family loans; and b. provide credit enhancement for the bonds to achieve an AA or AAA rating Should there be any questions, please contact the undersigned. P. T. Ri mond Vice President & Manager Construction Loan Dept. cc: James Kennedy Gene Slater Joe Litten 20TH STREET&BROADWAY,OAKLAND,CALIFORNIA 94612 (415)645-9200 • 0001-71, MEMBER OF GOLDEN WEST FINANCIAL CORPORATION V T7 WORLD SAVINGS AND LOAN ASSOCIATION PROPOSAL 1. The Lender will be World Savings & Loan Association, a Federal Savings and Loan Association. (the Association) The Association is approximately' $8 billion strong. We .have previously used Fireman-Is Fund and Industrial Indemnity Company as Sureties . 2. The loans would be underwritten by the Association ' s Con- struction Loan Department, administered by P.T. Richmond, located at its Oakland headquarters . No additional review would be required. 3. The Association is not a "formula lender" and each proposal will be analyzed on its own in merits ; however, we offer the following guidelines, to our underwriting: o Interest Rate/Constant - if not then defined, we would assume an 11 .0% rate and an 11 .43% constant for under- writing purposes o Vacancy factor - 3% to 5% range o Expense factor - 28% to 35% range o Loan to Value - not to exceed 75 nor $50 , 000 p'er unit o Debt. Service = from "break-even" to a 1.15 to 1, averaging 1-.05 o Cash Equity - a minimum equal to 30% of the land cost o Terms - 30 year amortization; 12 year maturities 4 . The Association would propose to pledge collateral either directly to the County or to a Surety. The collateral will consist of mortgage - backed securities, Ginnie Maes, Fannie Maes , Freddie Mac ' s , and other government and government agency securities . This collateral will insure a AAA rating. 20TH STREET&BROADWAY,OAKLAND,CALIFORNIA 94612(415)645-9200 MEMBER OF GOLDEN WEST FINANCIAL CORPORATION 5 . If the bonds are fixed, the loan rate would be fixed, with a net spread of 1 . 4% to 1 . 5% to World. If the bonds are variable rate demand bonds the loan rate would be fixed, with a net spread to World of . 3.0% to 3. 5%, World will take the liquidity and interest rate risk uncapped bonds . Our loan fee would be 4 points, 2 of which are related to con- struction and 2 of which are related to the term aspect. We would require an up-front, non-refundable application fee of from $500 to $1500 , which fee will be credited toward the loan fee. 6 . Our only other requirements would be that o the Association have sole determination as to credit approval; and o projects be a minimum of 10 units Prior to disbursement we will invest the funds in short term Money Market instruments . 7. There are no other contingencies to our proposal . Similar proposals have been made to the City of San Francisco, the County of Sonoma and the City of Los Angeles . 8. Within the past 12 months we have participated in similar bond issues for the City of Long Beach ($7 million) and the City of Los Angeles ($47 million) . 0001'72 A L. MORT., GE REVENUE, BOND PRGM MULTI-FAMILY t 2 . WORLD SAVINGS &LOAN ASSN DESIGNATED AS LENDER