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3.4. SR 08-16-2010REQUEST FOR ACTION TO ITEM NUMBER Ma or & Ci Council 3,4, AGENDA SECTION MEETING DATE PREPARED BY Consent August 16, 2010 Catherine Mehelich, Director of Economic Develo ment ITEM DESCRIPTION REVIEWED By Resolution Authorizing Issuance of Multifamily Housing Lori ohnson, Ci Administrator Revenue Bond and the Subordinate Multifamily Housing REVIEWED BY Revenue Note for the Dove Tree Apartments Project ACTION REQUESTED Staff recommends City Council approval of the attached resolution that authorizes the issuance, sale and delivery of a Multifamily Housing Revenue Bonds in the aggregate principal amount of $4,000,000 as well as the Subordinate Multifamily Housing Revenue Note in the principal amount of $3,000,000 for the Dove Tree Apartments Project, 1105 Lions Park Drive, along with execution of related documents as authorized within the resolution. Staff is recommending this issuance based on the following: • Approximately $1,122,000 of rehabilitation funds will be dedicated to the project (approx. $16,500 per unit) • Issuance and other fees to be paid for by the applicant BACKGROUND/DISCUSSION The City Council recently held a public hearing and passed a resolution on June 28, 2010, which allowed the process to begin for Dominium Development and Acquisition, LLC, under the ownership of Elk River Leased Housing Associates III, Limited Partnership (the "Borrower") to secure a tax exempt housing revenue bond in an amount up to $7,000,000 from the City. These funds will be used as proceeds for the purchase of the existing 68-unit multifamily rental housing facility known as Dove Tree Apartments located at 1105 Lions Park Drive. The City's issuance of these housing revenue bonds will also enable the owner to receive housing tax credits which will be converted to project equity. Approval of the attached resolution will formally authorize the Mayor and City Administrator to execute the necessary documents for the issuance, sale, and delivery of the Bonds and Note. No programmatic changes have occurred from the June 28, 2010 meeting and the amount of the rehabilitation, rent restrictions, etc. regarding this program are the same as shown on the attached June 28, 2010 Council action. FINANCIAL IMPACT It is important to reiterate that there will be no impact to the City, since this request is for a revenue bond (conduit financing), with the City not having to pledge any considerations for its debt payment. In addition, Dominium has paid an initial $5,000 application fee. Consistent with the City's Conduit Bonding Policy, the City will also require one percent of the issuance amount of the bonds be paid at C:\Users\jmiller\AppData\Local\Microsoft\Windows\Temporary Internet Files\OLKE8DB\Action Requested 8 16 IO.doc closing to the City's Development Fund, and all out-of-pocket expenses for legal fees to underwrite the bond will be paid by the applicant. ATTACHMENTS Resolution No. 10- Authorizing Issuance of Multifamily Housing Revenue Bond and the Subordinate Multifamily Housing Revenue Note for the Dove Tree Apartments Project Preliminary Approval Resolution of the City of Elk River No. 10-36 Program for Financing a Multifamily Rental Housing Development Action Motion by Second by Vote FOllow Up C:\Users\jmiller\AppData\Local\Microsoft\Windows\Temporary Internet Files\OLKE8DB\Action Requested 8 16 10.doc RESOLUTION NO. A resolution of the City Council of the City of Elk River, Minnesota, authorizing the issuance, sale, and delivery of Multifamily Housing Revenue Bonds (Dove Tree Apartments Project), Series 2010, in the original aggregate principal amount of up to $4,000,000 (the "Bonds"), as well as the Subordinate Multifamily Housing Revenue Note (Dove Tree Apartments Project) Series 2010, in the original principal amount of up to $3,000,000 (the "Note"); and approving the form of and authorizing the execution and delivery of documents relating to the Bonds and Note WHEREAS, the City of Elk River, Minnesota (the "Issuer"), is a municipal corporation duly organized and existing under the Constitution and laws of the State of Minnesota; and WHEREAS, pursuant to the Constitution and laws of the State of Minnesota, particularly Minnesota Statutes, Chapter 462C, as amended (the "Act"), the Issuer is authorized to issue its revenue bonds or obligations in such principal amount as, in the opinion of the Issuer, is necessary to provide sufficient funds for financing a "development" as defined in the Act; and WHEREAS, Elk River Leased Housing Associates III, Limited Partnership, a Minnesota limited liability partnership (the "Borrower"), intends to acquire, renovate and equip a 68-unit multifamily rental housing facility located at 1105 Lions Park Drive in the City of Elk River (the "Project"); and WHEREAS, the Issuer proposes to finance the Project pursuant to the Act and this Resolution by the issuance of the Bonds and Note; and WHEREAS, the Bonds will be issued under the Indenture, as hereinafter defined, and the Note will be issued in a direct placement to Elk River Leased Housing Associates Limited Partnership (the "Subordinate Lender"), and the Bonds and the Note and the interest thereon shall be payable solely from the revenues pledged therefor and the Bonds and Note shall not constitute a debt of the Issuer within the meaning of any constitutional or statutory limitation, nor shall the Bonds or Note constitute or give rise to a pecuniary liability of the Issuer or a charge against its general credit or taxing powers and the Bonds and Note shall not constitute a charge, lien, or encumbrance, legal or equitable, upon any property of the Issuer; and WHEREAS, the Issuer on June 28, 2010 held a public hearing relating to the issuance of the Bonds and Note with respect to the Project and the housing program therefor in accordance with the requirements of the Act and Section 147(f) of the Internal Revenue Code of 1986, as amended; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELK RIVER, MINNESOTA, AS FOLLOWS: 1. For the purpose of financing the Project, as well as the establishment of a reserve to secure the Bonds and the payment of all other expenditures of the Issuer incident to and necessary or convenient to carry out the purposes of the Project, there is hereby authorized the issuance, sale and delivery of the Bonds in the original aggregate principal amount not to exceed $4,000,000, and the Note in the original principal amount not to exceed $3,000,000. The Bonds shall be in such principal amounts, shall be numbered, shall be dated, shall mature within thirty- five years of the date of issuance thereof, shall be subject to redemption prior to maturity, and shall be in such form and have such other details and provisions as are prescribed in the Indenture of Trust (the "Indenture"), between the Issuer and U.S. Bank National Association, as trustee (the "Trustee"), substantially in the form now on file with the Issuer. The Bonds shall bear interest at the rates established by the marketing of the Bonds, provided that the average weighted interest rate on the Bonds shall not exceed 7.00% per annum. Notwithstanding the preceding, the Mayor may establish or change the maturity dates for the Bonds, the principal amount of the Bonds maturing on any date of maturity, the principal amounts of the Bonds subject to redemption, and the dates of redemption of the Bonds. The form of the Bonds included in the Indenture is approved, subject to such changes not inconsistent with this resolution and applicable law, and subject to such changes that are approved by the Mayor. The issuance and delivery of the Bonds shall be conclusive evidence that the Mayor has approved all provisions of the Bonds as issued and any changes to the form of the Bonds on file with the Issuer on the date hereof. 2. The Note shall be in substantially the form submitted to the Council on the date hereof, and shall mature at the times and amounts, be subject to redemption, and provide interest at the rate(s) as therein specified as such may be modified by agreement of the Subordinate Lender, the Borrower and the Issuer. The Note shall mature within 40 years of the date of issuance, and carry an initial interest rate not to exceed 5.00% per annum. 3. The Bonds and Note shall be special obligations of the Issuer payable solely from the revenues pledged thereto. The Issuer hereby authorizes and directs the Mayor and the City Administrator of the Issuer to execute and deliver the Indenture, and hereby authorizes and directs the execution and delivery of the Bonds in accordance with the Indenture. The Issuer hereby authorizes and directs the Mayor and the City Administrator to execute and deliver the Note to the Subordinate Lender. 4. The Trustee is hereby appointed the custodian of the funds and accounts created under the Indenture and the paying agent and bond registrar with respect to the Bonds. All the provisions of the Indenture, when executed as authorized herein, shall be deemed to be a part of this Resolution as fully and to the same extent as if incorporated verbatim herein and shall be in full force and effect from the date of execution and delivery of the Indenture. The Indenture shall be substantially in the form now on file with the Issuer, with such necessary and appropriate variations, omissions, and insertions as do not materially change the substance thereof, or as the Mayor, in the Mayor's discretion, shall determine, and the execution thereof by the Mayor shall be conclusive evidence of such determination. 2 5. The Mayor and City Administrator of the Issuer are hereby authorized and directed to execute and deliver the Loan Agreement among the Issuer and the Borrower, providing for the loan of the proceeds of the Bonds to the Borrower. The Mayor and City Administrator of Issuer are hereby authorized and directed to execute and deliver the Subordinate Loan Agreement among the Issuer and the Borrower, providing for the financing of a portion of the acquisition costs of the Project. All of the provisions of such Loan Agreements, when executed and delivered as authorized herein, shall be deemed to be a part of this Resolution as fully and to the same extent as if incorporated verbatim herein and shall be in full force and effect from the date of execution and delivery of the Loan Agreements. The Loan Agreements shall be substantially in the form now on file with the Issuer with such variations, omissions, and insertions as do not materially change the substance thereof, or as the Mayor, in the Mayor's discretion, shall determine, and the execution thereof by the Mayor shall be conclusive evidence of such determination. 6. The Mayor and City Administrator are hereby authorized and directed to execute the Bond Purchase Agreement, among the Issuer, Dougherty & Company LLC (the "Underwriter"), and the Borrower (the "Bond Purchase Agreement"), relating to the Bonds. All of the provisions of the Bond Purchase Agreement, when executed and delivered as authorized herein, shall be deemed to be a part of this Resolution as fully and to the same extent as if incorporated verbatim herein and shall be in full force and effect from the date of execution and delivery of the Bond Purchase Agreement. The Bond Purchase Agreement shall be substantially in the form now on file with the Issuer, with such necessary and appropriate variations, omissions, and insertions as do not materially change the substance thereof, or as the Mayor, in the Mayor's discretion, shall determine, and the execution thereof by the Mayor shall be conclusive evidence of such determination. 7. The Mayor and City Administrator are hereby authorized and directed to execute the Assignment and Pledge Agreement between the Issuer and the Subordinate Lender (the "Assignment and Pledge Agreement"), relating to the Note. All of the provisions of the Assignment and Pledge Agreement, when executed and delivered as authorized herein, shall be deemed to be a part of this Resolution as fully and to the same extent as if incorporated verbatim herein and shall be in full force and effect from the date of execution and delivery of the Assignment and Pledge Agreement. The Assignment and Pledge Agreement shall be substantially in the form now on file with the Issuer, with such necessary and appropriate variations, omissions, and insertions as do not materially change the substance thereof, or as the Mayor, in the Mayor's discretion, shall determine, and the execution thereof by the Mayor shall be conclusive evidence of such determination. 8. The Mayor and City Administrator of the Issuer are hereby authorized and directed to execute and deliver the Regulatory Agreement among the Issuer, the Trustee and the Borrower, relating to the Bonds. The Mayor and City Administrator of Issuer are hereby authorized and directed to execute and deliver the Subordinate Regulatory Agreement among the Issuer, the Subordinate Lender or its designee and the Borrower, relating to the Note. All of the provisions of such Regulatory Agreements, when executed and delivered as authorized herein, shall be deemed to be a part of this Resolution as fully and to the same extent as if incorporated verbatim herein and shall be in full force and effect from the date of execution and delivery of the 3 Regulatory Agreements. The Regulatory Agreements shall be substantially in the form now on file with the Issuer with such variations, omissions, and insertions as do not materially change the substance thereof, or as the Mayor, in the Mayor's discretion, shall determine, and the execution thereof by the Mayor shall be conclusive evidence of such determination. 9. The Mayor and City Administrator are hereby authorized to execute and deliver, on behalf of the Issuer such other certificates, instruments, and other documents as are necessary, customary, or appropriate in connection with the issuance, sale, and delivery of the Bonds and Note, or are necessary to establish the validity or enforceability of the Bonds and Note, or are required by Bond Counsel to establish the validity or enforceability of the Bonds and Note or the exclusion from gross income of interest on the Bonds and Note for purposes of Federal and State of Minnesota income taxation. The authorization in this paragraph specifically includes the Assignment of Mortgage from the Issuer to the Trustee, and the Assignment of Subordinate Mortgage from the Issuer to the Subordinate Lender. 10. The Issuer hereby consents to the distribution of the Preliminary Official Statement relating to the Bonds (the "Preliminary Official Statement"). The Issuer hereby consents to the use by the Underwriter of the final Official Statement substantially in the form of the Preliminary Official Statement described above (the "Official Statement") in connection with the offer and sale of the Bonds. The Preliminary Official Statement and the Official Statement are the sole materials consented to by the Issuer for use in connection with the offer and sale of the Bonds. The Issuer has not participated in the preparation of the Preliminary Official Statement or the Official Statement and takes no responsibility for and makes no representation or warranty as to the accuracy or completeness of such information. 11. All covenants, stipulations, obligations, and agreements of the Issuer contained in this resolution and the aforementioned certificates, instruments, and documents shall be deemed to be the covenants, stipulations, obligations, and agreements of the Issuer to the full extent authorized or permitted by law, and all such covenants, stipulations, obligations, and agreements shall be binding upon .the Issuer. No covenant, stipulation, obligation, or agreement herein contained or contained in the aforementioned certificates, instruments, or documents shall be deemed to be a covenant, stipulation, obligation, or agreement of any member of the City Council of the Issuer, or any officer, agent, or employee of the Issuer in that person's individual capacity, and neither the City Council of the Issuer nor any officer or employee executing the Bonds or Note shall be liable personally on the Bonds or Note or be subject to any personal liability or accountability by reason of the issuance thereof. No provision, covenant, or agreement contained in the aforementioned certificates, instruments, or documents, or in the Bonds or Note, or in any other document related to the Bonds or Note, and no obligation therein or herein imposed upon the Issuer or the breach thereof, shall constitute or give rise to any pecuniary liability of the Issuer or any charge upon its general credit or taxing powers. In making the agreements, provisions, covenants, and representations set forth in such documents, the Issuer has not obligated itself to pay or remit any funds or revenues, other than funds and revenues derived from the Loan Agreements which are to be applied to the payment of the Bonds and Note, respectively, as provided therein and in the Indenture and Assignment and Pledge Agreement. 4 12. Except as herein otherwise expressly provided, nothing in this resolution or in the aforementioned documents expressed or implied, is intended or shall be construed to confer upon any person or firm or corporation, other than the Issuer or any holder of the Bonds or Note issued under the provisions of this resolution any right, remedy, or claim, legal or equitable, under and by reason of this resolution or any provision hereof, this resolution, the aforementioned documents and all of their provisions being intended to be and being for the sole and exclusive benefit of the Issuer and any holders from time to time of the Bonds and Note issued under the provisions of this resolution. 13. In case any one or more of the provisions of this resolution, or of the aforementioned documents, or of the Bonds or Note issued hereunder shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this resolution, or of the aforementioned documents, or of the Bonds or Note, but this resolution, the aforementioned documents, and the Bonds and Note shall be construed and endorsed as if such illegal or invalid provision had not been contained therein. 14. The Bonds and Note, when executed and delivered, shall contain a recital that they are issued pursuant to the Act, and such recital shall be conclusive evidence of the validity of the Bonds and Note and the regularity of the issuance thereof and that all acts, conditions, and things required by the laws of the State of Minnesota relating to the adoption of this resolution, to the issuance of the Bonds and Note, and to the execution of the aforementioned documents to happen, exist, and be performed precedent to and in the enactment of this resolution, and precedent to issuance of the Bonds and Note, and precedent to the execution of the aforementioned documents have happened, exist, and have been performed as so required by law. 15. The officers of the Issuer and its attorneys, agents and employees are hereby authorized to do all acts and things. required of them by or in connection with this resolution, the aforementioned certificates, instruments, or documents, and the Bonds and Note for the full, punctual, and complete performance of all the terms, covenants, and agreements contained in the Bonds and Note, the aforementioned certificates, instruments, and documents, and this resolution. In the event that for any reason the Mayor is unable to carry out the execution of any of the documents or other acts provided herein, the Acting Mayor shall be authorized to act in the capacity of the Mayor and undertake such execution or acts on behalf of the Issuer with full force and effect, which executions or acts shall be valid and binding on the Issuer. If for any reason the City Administrator of the Issuer is unable to execute and deliver the documents referred to in this resolution, such documents may be executed by any other officer of the Issuer, with the same force and effect as if such documents were executed and delivered by the City Administrator. If the person whose signature appears on any of the foregoing certificates, instruments, or documents as the Mayor or City Administrator shall cease to be the Mayor or City Administrator, respectively, before the date of issuance of the Bonds and Note such signature shall, nevertheless, be valid and sufficient for all purposes. 16. This resolution shall be in full force and effect from and after its passage. 5 Adopted by the City Council of the Issuer this 16~' day of August, 2010. Stephanie Klinzing, Mayor Attest: Tina Allard, City Clerk GP:2824601 vl RESOLUTION NO. 10-36 • RESOLUTION RELATING TO A MULTIFAMILY HOUSING DEVELOPMENT AND THE ISSUANCE OF REVENUE BONDS TO FINANCE THE COSTS THEREOF UNDER NIINNESOTA STATUTES, CHAPTER 462C, AS AMENDED; GRANTING PRELIMINARY APPROVAL THERETO; AND TAKING CERTAIN OTHER ACTIONS WITH RESPECT THERETO BE IT RESOLVED by the City Council of the City of Elk River, Minnesota (the "City"}, as follows: Section 1. •Recitals. 1.01 The City is a municipal corporation duly organized and existing under the Constitution and laws of the State of Minnesota. 1.02. Pursuant to Minnesota Statutes, Chapter 462C, as amended (the "Act's, the City is authorized to carry out the public purposes described in the Act by issuing revenue bonds to provide funds to finance or refinance multifamily housing developments located within the City. The Act imposes certain affordability standards on such multifamily housing developments. 1.03. As a condition to the issuance of revenue bonds pursuant to the Act, the City must adopt a housing program providing the information required by Section 46X.03, subdivision la, of the Act (the "Housing Program"). In addition, a public hearing must be held in accordance with the requirements of Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"}, and in accordance with the requirements of the Act. Under Section 146 of the Code, an allocation of private activity bonding authority must be received from the State of Minnesota. An application for such an allocation must be made pursuant to the requirements of Minnesota • Statutes, Chapter 474A, as amended (the "Allocation Act"). 1.04. Elk River Leased Housing Associates III, Limited Partnership, a Minnesota limited partnership, or an affiliate thereof (the `Borrower"), has proposed that the City, pursuant to the Act, issue its revenue bonds in the approximate aggregate principal amount of $7,000,000, in one or more series at one time or from time to time (the "Bonds"), the proceeds of which will be loaned by the City to the Borrower to be applied by the Borrower to the acquisition and renovation of an existing 68-unit multifamily rental housing facility located at 1105 Lions Park Drive in the City (the "Project"). The Borrower will apply the proceeds of the loan to: (i) the acquisition and renovation of the Project; (ii) the funding of one or more reserve funds to secure the .timely payment of the Bonds; (iii) the payment of certain interest on the Bonds during renovation of the Project; and (iv) the payment of certain costs of issuing the Bonds. Section 2. Preliminarv Findings. Based on representations made by the Borrower to the City to date, the City Council of the City hereby makes the following preliminary findings, determinations, and declarations: (a) The Project consists of a multifamily housing development, and at least forty percent (40%) of the units in the Project will be set-aside for persons or families with sixty percent (60%) or less of median area income, adjusted for family size. (b) The proceeds of the Bonds will be loaned to the Borrower and the proceeds of the loan will be applied to: (i) the acquisition and renovation of the Project; (ii) the funding of one or more reserve funds to secure the timely payment of the Bonds; (iii) the payment of certain interest on the Bonds during the renovation of the Project; and (iv) the payment of certain costs of issuing the Bonds. The City will enter into a loan agreement (or other revenue agreement) with the Borrower requiring loan repayments from the Borrower in amounts sufficient to repay the loan when due and requiring the Borrower to pay all costs of maintaining and insuring the Project, including taxes thereon. (c) The Bonds will be limited obligations of the City payable solely from the revenues pledged to the payment thereof, and will not be a general or moral obligation of the City and will not be secured by or payable from revenues derived from any exercise of the taxing powers of the City. Section 3. Public Hearing. The City on the date hereof conducted a public hearing on the Housing Program, the Project, and the issuance of the Bonds by the City, notice of which hearing (the "Public Notice") was published in the City's official newspaper on June 12, 2010. The Public Notice provided a general, functional description of the Project, the expected maximum aggregate face amount of the Bonds, the identity of the Borrower, and the location of the Project. At the public hearing reasonable opportunity was provided for interested individuals to express their views on the Project and the proposed issuance of the Bonds. Section 4. Housing Program. Prior to the date hereof, Gray, Plant, Mooty, Mooty & Bennett, P.A., as Bond Counsel, prepared and submitted the Housing Program to City staff for review. The Housing Program is hereby approved and adopted. Section 5. Preliminary Approval. The City Council hereby provides preliminary approval to the issuance of the Bonds in the approximate aggregate principal amount of $7,000,000 to finance a portion of the costs of the Project pursuant to the Housing Program of the City, subject to: (i) a final approval following the prepazation of applicable documents; and (ii) final determination by the City Council that the financing of the Project and the issuance of the Bonds are in the best interests of the City. Section 6. Submission of an Application for an Allocation of Bonding Authority. The City Council hereby authorizes the submission of an application for allocation of bonding authority pursuant to Section 146 of the Code and the Allocation Act in accordance with the requirements of the Allocation Act. The Mayor, City Administrator, Finance Director and Duector of Economic Development of the City, with the assistance of Bond Counsel, shall take all actions, in cooperation with the Borrower, as aze necessary to submit an application for an allocation of bonding authority to the Minnesota Office of Management & Budget. Section 7. Reimbursement of Costs under the Code. The United States Department of the Treasury has promulgated regulations governing the use of the proceeds of tax-exempt obligations, all or a portion.of which aze to be used to reimburse project expenditures paid prior to the date of issuance of such obligations. Those regulations (Treasury Regulations, Section 1.150-2) (the "Regulations' require that the City adopt a statement of official intent to reimburse an original expenditure not later than sixty (60) 2 days after payment of the original expenditure. The Regulations also generally require that the obligations be issued and the reimbursement occur within. •eighteen (18) months after the later of (i) the date the expenditure is paid, or (ii) the date the project is placed in service or abandoned, but in no event more than three (3) years after the date the expenditure is paid. The Regulations generally permit reimbursement of capital expenditures and costs of issuance. This Resolution shall act as a declaration of the City's intent to reimburse the Borrower for expenditures made for costs of the Project prior to the issuance of the Bonds, subject to the City Council's final approval of the issuance of the Bonds. • Section 8. Costs. The Borrower will pay any administrative fees of the City and pay or reimburse the City for payment of, any and all costs incurred by the City in connection with- the Project and the issuance of the Bonds, whether or not the Bonds are issued. Section 9. Commitment Conditional. The adoption of this Resolution does not constitute a guarantee or a firm commitment that the City will issue the Bonds as requested by the Borrower. If, as a result of information made available to or obtained by the City during its review of the Project, it appears that the Project or the issuance of Bonds. to finance the costs thereof is not in the public interest or is inconsistent with the purposes of the Act, the City reserves the right to decline to give final approval to the issuance of the Bonds. The City also retains the right, in its sole discretion, to withdraw from participation and accordingly not issue the Bonds should the City Council, at any time prior to the issuance thereof, determine that it is in the best interests of the City not to issue the Bonds or should the parties:to the transaction be unable to reach agreement as to the terms and conditions of any of the documents for the transaction. Section 10. ~ Effective Date. This Resolution shall be in full force and effect from and after its passage. Adopted by the City Council of the City of Elk River, Minnesota, on June 28, 2010. CITY OF ELK RIVER, MINNESOTA tv~C ' ~~ Mayor Attest: ~' f ~+ ity Administrator CITY OF ELK RIVER, MINNESOTA PROGRAM FOR A MULTIFAMILY HOUSING DEVELOPMENT Pursuant to Minnesota Statutes, Chapter 462C (the "Act"), the City of Elk River, Minnesota (the "City's is authorized to develop and administer programs to finance the acquisition and construction of multifamily housing developments under the circumstances and i within the limitations set forth in the Act. Minnesota Statutes, Section 46X.07 provides that ~ such programs for multifamily housing developments maybe financed by revenue bonds issued by the City. The City has received a proposal that it approve a program providing for the acquisition and substantial renovation of a 68-unit multifamily rental apartment development and facilities functionally related and subordinate thereto (the "Project's located at 1105 Lions Park Drive in the City, by Elk River Leased Housing Associates III, Limited Partnership, a Minnesota limited partnership, or an affiliated entity (the "Borrower"). The acquisition and substantial renovation of the Project is to be funded through the issuance of up to $7,000,000 in aggregate principal amount of revenue bonds to be issued by the City, in one or more series (the "Bonds"). The Borrower will own and operate the Project as a multifamily residential rental project with 40% of the units set-aside for persons or families with 60% or less of median area income, adjusted for family size. The Project will be acquired and renovated in accordance with the requirements of Subdivisions 1 and 2 of Section 46X.05 of the Act. The unit mix and expected initial rents for the units in the Project are as follows: Unit. Type Number of Units Initial Rent Studio 1 $525 One Bedroom 16 $695 Two Bedroom 34 $780 Three Bedroom 17 $880 Section A. Definitions. The following terms used in this Program shall have the following meanings, respectively: "Act" shall mean Minnesota Statutes,. Section 46X.01, et seq., as currently in effect and as the same maybe from time to time amended. `Bonds" shall mean the revenue bonds to be issued by the City to finance this Program. `Borrower" shall mean Elk River Leased Housing Associates III, Limited Partnership, a Minnesota limited partnership, and its affiliates and assigns. "City" shall mean the City of Elk River, Minnesota. "Code" shall mean the Internal Revenue Code of 1986, as amended. -1- "Housing Unit" shall mean any one of the apartment units, each located in the Project, occupied by one person or family, and containing complete living facilities. "Land" shall mean the real property upon which the Project is situated. "Program" shall mean this program for the financing of the Project pursuant to the Act. "Project" shall mean the multifamily residential rental housing development consisting of 68 total Housing Units, of which 1 is a studio unit, 16 are one-bedroom units, 34 are two-bedroom units and 17 are three-bedroom units, to be acquired and substantially renovated by the Borrower, together with functionally related facilities. Section B. Program For Financing the Proiect. It is proposed that the City establish this Program to provide financing for acquisition and substantial renovation of the Project at a cost and upon such other terms and conditions as are set forth herein and as maybe agreed upon in writing between the City, the initial purchaser of the Bonds and the Borrower. The City expects to issue the Bonds as soon as the terms of the Bonds have been agreed upon by the City, the Borrower and the initial purchaser of the Bonds. The proceeds of the Bonds will be loaned to the Borrower to finance the acquisition and substantial renovation of the Project, to fund required reserves, to fund certain interest on the Bonds and to pay certain costs of issuing the Bonds. It is anticipated that the Bonds will have a final maturity of not to exceed forty (40) years and will bear interest at an average rate not to exceed 7.50% per annum. The Bonds will be priced to the market at the time of issuance. The City will hire no additional staff for the administration of the Program. Insofar as the City will be contracting with underwriters, legal counsel, Bond Counsel, the trustee, and others,. all of whom will be reimbursed from Bond proceeds and revenues generated by the Program, no administrative costs will be paid from the City's budget with respect to this Program. The Bonds will not be general obligations of the City, but are to be paid only from property of the Borrower pledged to the payment thereof, .which may include additional security such as credit enhancement. Section C. Standards and Requirements Relating to the Financing of the Proiect Pursuant to the Program. The following standards and requirements shall apply with respect to the operation of the Project by the Borrower pursuant to this Program: (1) Substantially all of the proceeds of the sale of the Bonds will be applied to the acquisition and substantial renovation of the Project and to the funding of appropriate reserves. The proceeds will be made available to the Borrower pursuant to the terms of one or more revenue agreements, which will include certain covenants to be made by the Borrower to the City regarding the use of proceeds and the character and use of the Project. (2) The Borrower, and any subsequent owner of the Project, will not arbitrarily reject an application from a proposed tenant because of race, color, creed, religion, national origin, sex, affectional preference, marital status, or status with regard to public assistance or disability. -2- (3) The Project is designed to meet the affordability standards and set-aside requirements of Section 46X.05, Subdivision 2 of the Act, as well as the requirements of Minnesota Statutes, Chapter 474A and Section 142(d) of the Internal Revenue Code of 1986, as amended. Subsection D. Evidence of Compliance. The City may require from the Borrower at or before the issuance of the Bonds, evidence satisfactory to the City of the ability and intention of the Borrower to complete the acquisition and substantial renovation of the Project, and evidence satisfactory to the City of compliance with the standards and requirements for the making of the financing established by the City, as set forth herein; and in connection therewith, the City or its representatives may inspect the relevant books and records of the Borrower in order to confirm such ability, intention and compliance. In addition, the City may periodically require certification from either the Borrower or such other person deemed necessary concerning compliance with various aspects of this Program. Section E. Issuance of Bonds. To finance the Program authorized by this Section the City may by resolution authorize, issue and sell the Bonds. The Bonds shall be issued pursuant to Section 46X.07, Subdivision 1 of the Act, and shall be payable primarily from the revenues of the Program. Costs of the Project are expected to be approximately $8,700,000. The costs of the Project may change between the date of preparation of this Program and the date of issuance of the Bonds. The Bonds are expected to be issued within six (6) months following the adoption of this Program. Subsection F. Severability. The provisions of this Program are severable and if any of its provisions, sentences, clauses or paragraphs shall be held unconstitutional, contrary to statute, exceeding the authority of the City or otherwise illegal or inoperative by any court of competent jurisdiction, the decision of such court shall not affect or impair any of the remaining provisions. Subsection G. Amendment. The City shall not amend this Program, while the Bonds authorized hereby are outstanding, to the detriment of the holders of such Bonds. Subsection H. State Ceiling. Up to $7,000,000 of the state ceiling for private activity Bonds, pursuant to Section 146 of the Internal Revenue Code of 1986, as amended, and Chapter 474A of Minnesota Statutes, will be used with respect to the Bonds. Adopted:. June 28, 2010. GP:2802078 vl -3-