Click here to view entire resolution
RESOLUTION NO. R-37-2016 October 18, 2016
RDA Loan Program Policy
RESOLUTION OF THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF SALT LAKE CITY ADOPTING A RDA LOAN PROGRAM POLICY
WHEREAS, the Redevelopment Agency of Salt Lake City ("RDA") was created to transact the business and exercise the powers provided for in the Utah Community Reinvestment Agency Act; and
WHEREAS, the Utah Community Reinvestment Agency Act grants the RDA powers to use funds to 1) provide for project area development within project area boundaries and 2) to expand the affordable housing supply within Salt Lake City boundaries; and
WHEREAS, the Redevelopment Agency of Salt Lake City ("RDA") has an RDA Loan Program ("Program"), whose purpose is to promote economic development, encourage private investment, enhance project area vitality, and expand affordable housing opportunities; and
WHEREAS, the Board of Directors ("Board") supports the goal to provide loans through the Program pursuant to a rigorous selection process to mitigate risk while ensuring that transformative projects are carried out.
NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE REDEVELOPMENT AGENCY OF SALT LAKE CITY, that we do hereby establish policy guidelines for the RDA Loan Program to include the following:
1. GENERAL
1.1 Mission
The RDA Loan Program provides critical gap financing for projects that advance the RDA's goals and objectives outlined in its Strategic Plans. We work with project developers and lenders to bridge the funding gap between a project's economics and market realities. In support of the RDA's mission, we can assume a higher level of risk than traditional lenders to ensure that transformative projects get built. While our approach is flexible, we incentivize projects that achieve the RDA's goals for affordable housing, placemaking, sustainability, high quality urban design, and economic development.
1.2 Loan Administration
The Board shall set program policy guidelines for the Program. Administration of the Program shall be guided by administrative policies and procedures.
1.3 Eligible Costs
The Program provides funding to facilitate various development projects, including new construction, building rehabilitation, and energy efficiency upgrades. Funding is made available for construction costs, or hard costs. Program funds may also be used for site improvements associated with a development project and short-term land acquisition for affordable housing development. Use of funds for environmental remediation, demolition, or construction mitigation shall be considered on a case-by-case basis. Refinancing of existing debt is ineligible.
1.4 Applicant Requirements
Applicants shall be required to meet minimum legal and practical requirements as established by administrative policies and procedures.
1.5 Project Objective Requirements
To be eligible for a loan, the project applying for funds must meet either 1) Project Area Development or 2) Affordable Housing requirements, as follows:
a) Project Area Development: Project must be located within an eligible RDA project area and meet at least one objective as provided in the most recent project area strategic plan as adopted by the Board.
b) Affordable Housing Development: Projects must be located within Salt Lake City municipal boundaries and include housing units affordable to households earning 80% of area median income or below. Loans for mixed income and/or mixed-use projects located outside of RDA project areas may be sized in proportion to the number of affordable residential units.
1.6 Financing Structure
The Program is intended to provide gap funding to supplement existing, secured financing. Under specific circumstances, the Program will provide primary loans for projects that demonstrate a high level of community benefit. Requirements are as follows:
a) Gap Financing: The applicant must provide sufficient evidence that the amount of funds requested from the RDA is necessary for the project to succeed.
b) Primary Financing: Under limited circumstances, the RDA will consider acting as a primary lender. Circumstances are as follows:
•Small Loans: $500,000 or less
•Significant Public Benefit: The project qualifies for six or more Public Benefit interest rate reductions.
•RDA Innovative Project: The project, which involves the redevelopment of RDA-owned property, is innovative in nature and lacks the market comparables necessary to receive adequate traditional financing.
•Short-Term Affordable Housing Land Acquisition: Loans that provide short-term funding to allow for strategic acquisition of sites for affordable and mixed-income housing development.
1.7 Design Requirements
Projects approved for funding must support the RDA's Design Guidelines and comply with all applicable Salt Lake City building codes and ordinances.
2. LOAN AMOUNT, INTEREST RATE, AND TERMS
2.1 Loan Amount
Standard guidelines for determining maximum loan amounts shall be as follows:
a) Gap Financing: Loan maximums are limited to the demonstrated gap in available financing to cover project costs, and shall be sized to meet the lower of a debt coverage ratio (DCR) of 1.1 or a loan to value (LTV) of 95%.
b) Primary Financing: In instances where the RDA is the primary lender, loans shall be sized to meet the lower of a debt coverage ratio (DCR) of 1.2 or a loan to value (LTV) of 90%.
2.2 Interest Rate
Standard guidelines for determining interest rates shall be as follows:
a) Base Interest Rate: The base interest rate shall be fixed at 300 basis points (3%) plus the current United States Treasury Yield Curve Rate, as determined by the term of the loan, at loan closing.
b) Public Benefit Incentives: A reduction to the base interest rate is available if the project meets one or more of the following Public Benefit criteria: Sustainability, Public Amenities, Adaptive Reuse, Historic Preservation, Permanent Job Creation/Retention, Architecture/Urban Design, Economic Impact, and Affordable Housing. For each criterion fulfilled, the project shall receive a 50 basis points (one half of one percent) reduction from the standard interest rate, with a maximum reduction of 300 basis points.
2.3 Terms
Standard guidelines for determining loan terms shall be as follows:
a) The loan term for development projects shall be up to 5 years. An option to extend the overall loan term to 10 years may be available through a preauthorized extension that provides an interest rate increase of 2% at the 5-year extension.
b) The standard amortization period is up to 20 years.
c) Affordable housing development projects may qualify for an amortization period equal to the length of the affordability restrictions on residential units, up to 30 years.
d) The maximum loan term for short-term affordable housing land acquisition loans shall be two years. To ensure that the proposed development is built as specified, an interest rate increase, retroactive to closing, shall be imposed at the United States Treasury Yield Curve Rate plus 800 basis points if the developer does not record the appropriate restriction providing the specified affordable units.
3. STANDARDS FOR COLLATERAL AND GUARANTEES
Loan shall be secured by adequate collateral and guarantees as established by administrative policies and procedures.
4. EVALUATION & APPROVAL PROCESS
4.1 Application Process
The process for distributing and collecting loan applications and supporting documentation shall be established by administrative policies and procedures.
4.2 Underwriting by RDA Staff
RDA staff shall carry out an underwriting process according to administrative policies and procedures. If either the applicant or proposed project fails to demonstrate the ability to meet underwriting requirements, RDA staff shall reserve the right to deny the loan application.
4.3 RDA Finance Committee Review
Once underwriting standards have been met, applications shall be forwarded to the RDA Finance Committee, consisting of representatives from the Salt Lake City administration and Redevelopment Advisory Committee ("RAC"). The RDA Finance Committee shall evaluate applications, supplemental materials, and underwriting reports to determine if the application shall be selected/recommended for conditional loan approval.
4.4 Conditional Approval Process
The process for providing conditional loan approval shall be as follows:
Standard loan requests totaling $500,000 or less: The RDA Finance Committee shall consider and have the authority to provide conditional loan approval.
a. Loan requests that exceed $500,000, or loans that require an adjustment from standard loan terms: The RDA Finance Committee shall consider and, upon submitting a recommendation to the Board, the Board shall consider and have the authority to provide conditional loan approval.
4.5 Loan Finalization
Once an applicant receives conditional loan approval, RDA staff shall finalize the loan according to administrative policies and procedures.
4.6 Fees
Closing costs and legal fees associated with a loan shall be borne by the Borrower.
5. LOAN DISBURSEMENT, REPAYMENT, AND OVERSIGHT
As established by administrative policies and procedures, RDA staff shall ensure that each loan is serviced in accordance with procedures used in prudent loan administration.
6. LOAN DELINQUENCY AND MODIFICATIONS
6.1 Loan Delinquency
RDA staff shall be responsible for monitoring the status of the loan and for taking any necessary administrative actions in connection with delinquent loans.
6.2 Loan Modifications
In the event of extenuating circumstances, the RDA may provide payment forbearance or deferment, or loan write-down or forgiveness. Such adjustment to loan terms shall be considered on a case-by-case basis and shall be subject to a thorough review of the project's financial standing and other relevant information. The process for providing loan modifications shall be considered and authorized as follows:
a) Forbearance/Deferment: The Executive Director of the RDA may elect to provide the Borrower a temporary forbearance or deferment of payment for up to one (1) year. For periods of forbearance or deferment longer than one (1) year, the RDA Finance Committee shall provide a recommendation that is forwarded to the Board, who shall consider and act upon all such requests.
b) Loan Write-down or Forgiveness: The RDA Finance Committee shall provide a recommendation that is forwarded to the Board, who shall consider and act upon all such requests.
7. EXCEPTIONS
In conjunction with approval of a loan and on a case-by-case basis, the Board could provide conditional grants, possibly based upon the tax increment that the project will generate, or a combination of a tax increment reimbursement and loan. Projects must provide a demonstrative and significant public benefit that aligns with Public Benefit criteria as provided through the interest rate reduction policy.
8. REPORTING
The RDA shall provide a written briefing to the Board, no less than semi-annually per fiscal year, which contains an update on the loan portfolio. Such briefing shall include a summary of new loans, outstanding principal balance, available loan funds, and delinquencies.
Passed by the Board of Directors of the Redevelopment Agency of Salt Lake City, this 18th day of October, 2016.