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Approve two subordination agreements for an existing $200,000 loan to MidPen Housing Corporation to facilitate conversion of bridge financing to permanent financing for the Sunset Pines Apartments property in Fairfield; and Authorize the County Administrator to execute all documents related to the subordinations
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Published Notice Required? Yes ____ No _X _
Public Hearing Required? Yes ____ No _X _
DEPARTMENTAL RECOMMENDATION:
The County Administrator’s Office (CAO) recommends the Board of Supervisors:
1. Approve two subordination agreements for an existing $200,000 loan to MidPen Housing Corporation to facilitate conversion of bridge financing to permanent financing for the Sunset Pines Apartments property in Fairfield; and
2. Authorize the County Administrator to execute all documents related to the subordinations.
SUMMARY:
On March 2, 2021, the Board of Supervisors approved a $200,000 loan to MidPen Housing Corporation (MidPen) for the acquisition of Sunset Pines Apartments, located at 1705 Sunset Avenue in Fairfield, to support the conversion of 35 units into affordable housing with a 55-year affordability restriction. As part of the original financing, MidPen secured a five-year bridge loan and now seeks to refinance it with permanent financing through Housing Trust Silicon Valley. MidPen also proposes to amend its existing subordinate financing to increase the loan amount to approximately $5.9 million. To facilitate the refinancing, the County must subordinate its $200,000 loan to a third-lien position.
FINANCIAL IMPACT:
The County’s loan to MidPen was funded by the Housing/SB375 Reserve, and approval of the subordination agreements will not impact the County’s General Fund. The costs associated with preparing the agenda item are nominal and absorbed by the Department’s FY2025/26 Working Budget.
DISCUSSION:
MidPen was founded in 1970 and is recognized as a leading non-profit developer, owner, and manager of affordable housing in northern California. Their portfolio includes 140 communities in 12 counties, including three in Solano County. In April 2021, they acquired a 36-unit, market-rate apartment complex and converted 35 units (with one retained as a manager’s unit) to affordable housing. As part of the acquisition process, MidPen sought financing assistance from the County, and on March 2, 2021, the Board approved a $200,000 loan to MidPen for the acquisition of Sunset Pines Apartments by its affiliate, MP Sunset Pines, LLC, in exchange for a 55-year affordability restriction requiring units to remain affordable to households earning up to 80% of area median income (AMI).
The funding source for the County loan was the Housing/SB375 Reserve, consisting of former redevelopment agency funds available on a one-time basis to address housing needs of the county’s most vulnerable residents. The loan was estimated to be repaid within 20 years of acquisition, although earlier repayment was anticipated if MidPen refinanced the property. Any loan repayment would be returned to the Housing/SB375 Reserve.
MidPen’s existing bridge loan matures on June 30, 2026, and requires refinancing. MidPen has secured new permanent financing through Housing Trust Silicon Valley (HTSV) in the amount of $3,574,720, which is less than the payoff amount of the existing bridge loan. To address the remaining financing gap, MidPen will increase its subordinate financing by approximately $2.2 million, resulting in a total subordinate loan balance of approximately $5.9 million.
HTSV’s financing is conditioned upon maintaining a first-lien position, requiring the County to subordinate its position to the new HTSV loan (Attachment A). Additionally, MidPen requests that the County subordinate its loan to the amended subordinate financing (Attachment B), resulting in the County’s loan moving to a third-lien position. These subordination requests are standard components of affordable housing refinancing transactions and will not affect the County’s share of residual receipts.
No other terms of the County loan are proposed to change. Language has been incorporated into the subordination agreement with HTSV to protect the County’s regulatory agreement and repayment rights. Similar language is not necessary in the MidPen subordination agreement because equivalent protections are already provided in the agreement.
ALTERNATIVES:
The Board could choose not to approve the subordination agreements; however, that is not recommended because the loan supports the continued provision of 35 affordable housing units, and failure to subordinate the loan could jeopardize the refinancing and long-term viability of the property.
OTHER AGENCY INVOLVEMENT:
The Auditor-Controller’s Office participated in meetings with MidPen and the CAO’s Office regarding the subordination request. County Counsel reviewed the subordination agreements.
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION