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HomeMy WebLinkAbout11042024 CC Agenda - Special MeetingIn compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the office of the City Clerk (951) 694-6444. Notification 48 hours prior to a meeting will enable the City to make reasonable arrangements to ensure accessibility to that meeting [28 CFR 35.102.35.104 ADA Title 11]. AGENDA TEMECULA CITY COUNCIL SPECIAL MEETING COUNCIL CHAMBERS 41000 MAIN STREET TEMECULA, CALIFORNIA NOVEMBER 4, 2024 - 9:00 AM CLOSED SESSION - 8 AM CONFERENCE WITH REAL PROPERTY NEGOTIATORS. The City Council will convene in closed session pursuant to Government Code Section 54956.8 regarding the amendments to the agreements for the sale and acquisition of certain property interests for the real property located at 28715 Las Haciendas, 28111 Colorado Avenue, and 28772 Calle Cortez, Temecula CA 92590 CA (APNs: 921-050-016-2; 921-050-020-5). The negotiating parties are the City of Temecula and the property owner, Las Haciendas Housing Associates, L. P. Negotiators for the City are Luke Watson, Matt Peters, and Haide Urias. Under negotiations are price and terms of the amendments to the agreements for the sale and acquisition of certain property interests for the real property. CALL TO ORDER: Mayor James Stewart FLAG SALUTE: Mayor James Stewart ROLL CALL: Alexander, Kalfus, Schwank, Stewart BUSINESS Any member of the public may address the City Council on items that appear on the Business portion of the agenda. Each speaker is limited to 5 minutes. Public comments may be made in person at the meeting by submitting a speaker card to the City Clerk. Speaker cards will be called in the order received. Still images may be displayed on the projector. All other audio and visual use is prohibited. Public comments may also be submitted by email for inclusion into the record. Email comments must be received prior to the time the item is called for public comments and submitted to CouncilComments@temeculaca.gov. All public participation is governed by Council Policy regarding Public Participation at Meetings adopted by Resolution No. 2021-54. 1. Approve Subordination Agreement Required for a Refinanciniz/Permanent Loan for the Las Haciendas Project (Which Pays Off the Existing Construction Loan Coming Due) (At the Request of Subcommittee Members Kalfus and Schwank) Recommendation: That the City Council adopt a resolution entitled: RESOLUTION NO. Page 1 City Council Agenda November 4, 2024 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TEMECULA APPROVING A SUBORDINATION AGREEMENT WITH NEWPOINT REAL ESTATE CAPITAL, LLC, FOR ITS LOAN TO LAS HACIENDAS HOUSING ASSOCIATES, L.P. TO REFINANCE AND PAY OFF ITS EXISTING CONSTRUCTION LOAN Attachments: Agenda Report Resolution Subordination Agreement Subordination Memorandum CITY ATTORNEY REPORT ADJOURNMENT The next regular meeting of the City Council will be held on Tuesday, November 12, 2024, at 5:00 p.m., for a Closed Session, with regular session commencing at 6:00 p.m., at the Council Chambers located at 41000 Main Street, Temecula, California. NOTICE TO THE PUBLIC The full agenda packet (including staff reports, public closed session information, and any supplemental material available after the original posting of the agenda), distributed to a majority of the City Council regarding any item on the agenda, will be available for public viewing in the main reception area of the Temecula Civic Center during normal business hours at least 72 hours prior to the meeting. The material will also be available on the City's website at TemeculaCa.gov. and available for review at the respective meeting. If you have questions regarding any item on the agenda, please contact the City Clerk's Department at (951) 694-6444. Page 2 Item No. 1 CITY OF TEMECULA AGENDA REPORT TO: City Manager/City Council FROM: Matt Peters, Interim Director of Community Development DATE: November 4, 2024 SUBJECT: Approve Subordination Agreement Required for a Refinancing/Permanent Loan for the Las Haciendas Project (Which Pays Off the Existing Construction Loan Coming Due) (At the Request of Subcommittee Members Kalfus and Schwank) PREPARED BY: Haide Urias, Housing Analyst RECOMMENDATION: That the City Council adopt a resolution entitled: RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TEMECULA APPROVING A SUBORDINATION AGREEMENT WITH NEWPOINT REAL ESTATE CAPITAL, LLC, FOR ITS LOAN TO LAS HACIENDAS HOUSING ASSOCIATES, L.P. TO REFINANCE AND PAY OFF ITS EXISTING CONSTRUCTION LOAN BACKGROUND: Pursuant to a Loan Agreement dated May 26, 2020, the City made a loan of $718,445 of Development Impact Fees (DIF) and a construction loan of $8,910,698 of low/moderate housing set aside funds (as successor to the assets of the former Redevelopment Agency) to Las Haciendas Housing Associates, L.P. ("Borrower") repayable from a percentage of net cash flow/residual receipts. The loan was to help finance a 77-unit apartment project ("Project") with 37 units restricted to low-income households at affordable rent by a recorded agreement with the City ("Regulatory Agreement"). Section 3.4 of the Loan Agreement authorizes the City to execute subordination agreements that subordinate the deed of trust securing the City's loan to the deed of trust securing any Senior Project Loan if necessary for the borrower to obtain the applicable Senior Project Loan. Section 1.1.26 of the Loan Agreement defines "Senior Project Loan" as the initial construction loan (from a third -party lender) and any financing used to refinance such loan that does not exceed outstanding principal of the loan being refinanced plus refinancing loan closing costs. The existing construction loan for the Project is coming due on November 7, 2024. The Borrower has negotiated with NewPoint Real Estate Capital LLC, an approved Freddie Mac Multifamily lender, to secure a new loan. This new loan, originated by NewPoint Real Estate Capital LLC and backed by Freddie Mac, will be used to pay the existing construction loan. Subsequently, Freddie Mac will pool this loan with other similar loans and securitize them, issuing mortgage-backend securities to investors. This process enables Freddie Mac to provide stable and long-term financing for affordable housing projects like Las Haciendas. Counsel for the new lender has provided the attached form of Freddie Mac Subordination Agreement as a document required from the City in order for the new loan to be made, and after repeated discussions with counsel to Freddie Mac, Freddie Mac counsel has reportedly said that no changes can be made to it because the loans in the securitization pool must have standard documentation (they can't make special disclosures to securities purchasers regarding legal differences for certain loan documentation, like the Subordination Agreement). RECOMMENDATION: The problem faced by the City is that the Federal Home Loan Mortgage Corporation, Freddie Mac, insists upon an unlimited "standstill" clause that limits the City's remedies in the event of a default of the Regulatory Agreement. If Freddie Mac were more reasonable, and did not insist on an unlimited standstill clause, all would be good for the City. Now the City is caught between approving the proposed subordination agreement that limits its rights and a collapse of Las Haciendas Housing Associates financing of the Project. Staff recommends that the Council adopt Resolution No. 2024- approving the proposed Subordination Agreement, recognizing that: (1) it contains an unlimited "standstill" clause with certain impacts on the City's rights under the Loan Agreement; (2) the refinancing lender in question requires that form of Subordination Agreement with unlimited standstill in order to make its new loan; (3) according to the attached Memo Regarding Las Haciendas Subordination Agreement from Developer, the owner/borrower is not able to get acceptable loan terms (amount; use; interest rate) from any other lender that would not require an unlimited standstill provision; and (4) since the City's deed of trust is currently subordinate to the construction loan deed of trust, if the construction loan is not timely repaid by refinancing, the existing senior construction loan deed of trust could be foreclosed, extinguishing the City's junior/subordinate deed of trust. FISCAL IMPACT: There are no fiscal impacts to the City. ATTACHMENTS: 1. Resolution 2. Subordination Agreement 3. Memo Regarding Las Haciendas Subordination Agreement from Developer RESOLUTION NO.2024- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TEMECULA APPROVING A SUBORDINATION AGREEMENT WITH NEWPOINT REAL ESTATE CAPITAL, LLC, FOR ITS LOAN TO LAS HACIENDAS HOUSING ASSOCIATES, L.P. TO REFINANCE AND PAY OFF ITS EXISTING CONSTRUCTION LOAN THE CITY COUNCIL OF THE CITY OF TEMECULA DOES RESOLVE AS FOLLOWS: Section 1. The City Council does hereby find determine and declare that: (a) Pursuant to a Loan Agreement dated May 26, 2020, the City made a loan of $718,445 of development impact fees and a construction loan of $8,910,698 of low/mod housing set aside funds (as successor to the assets of the former redevelopment agency) to Las Haciendas Housing Associates, L.P. ("Borrower") repayable from a percentage of net cash flow/residual receipts. The loan was to help finance a 77 unit apartment project ("Project") with 37 units restricted to low income households at affordable rent by a recorded agreement with the City ("Regulatory Agreement"). (b) The existing construction loan for the Project is coming due on November 7, 2024 and the Borrower is negotiating a refinancing loan or so-called "permanent loan" from NewPoint Real Estate Capital, LLC to refinance and pay off the construction loan. That new loan will be purchased by Freddie Mac (i.e., the Federal Home Loan Mortgage Corporation) and put into a pool of similar loans in order for Freddie Mac to issue mortgage -backed securities. (c) Counsel for the new lender has provided the attached form of Freddie Mac Subordination Agreement as a document required from the City in order for the new loan to be made, and after repeated discussions with counsel to Freddie Mac, Freddie Mac counsel has reportedly said that no changes can be made to it because the loans in the securitization pool must have standard documentation (they can't make special disclosures to securities purchasers regarding legal differences for certain loan documentation, like the Subordination Agreement). (d) That form of Subordination Agreement provides for much more than simple subordination of the City's deed of trust, but such scope is not unusual for commercial subordination agreements with one primary exception --it provides that upon a default under the City Regulatory Agreement that is not cured, the City may not exercise its right to accelerate its loan and if not paid, foreclose its junior deed of trust, without the consent of the new lender. That is the so-called "standstill provision". (e) In adopting this Resolution and approving the proposed Subordination Agreement, Council recognizes that: (1) it contains an unlimited "standstill" clause with certain impacts on the City's rights under the Loan Agreement; (2)) the refinancing lender in question requires that form of Subordination Agreement with unlimited standstill in order to make its new loan; (3) according to the Memo Regarding Las Haciendas Subordination Agreement from the owner/borrower dated as of October 21, 2024, the owner/borrower is not able to get acceptable loan terms (amount; use; interest rate) from any other lender that would not require an unlimited standstill provision; and (4) since the City's deed of trust is currently subordinate to the construction loan deed of trust, if the construction loan is not timely repaid by refinancing, the existing senior construction loan deed of trust could be foreclosed, extinguishing the City's junior/subordinate deed of trust. Section 2. The City Council hereby approves the Subordination Agreement in substantially the form attached hereto as Exhibit A and authorizes the City Manager to execute the Subordination Agreement on behalf of the City with such changes as are necessary or convenient to accomplish the purposes of the City's loan agreements for the Project and this Resolution. The City Manager is further authorized: 1) to enter into amendments to the Subordination Agreement to change, adjust, or clarify provisions of the Subordination Agreement that are appropriate to further the intended purposes of the Subordination Agreement and this Resolution; 2) for good cause, extend the time for performance of Developer's obligations under the City's Agreements with the Developer of the Project; and 3) approve on behalf of the City such subordination agreements or other amendments to the City's Agreements for the Project as necessary or convenient to integrate the Developer's affordable housing financing and Project financing with the terms of the City's Agreement. PASSED, APPROVED, AND ADOPTED by the City Council of the City of Temecula this 4th day of November, 2024. ATTEST: Randi Johl, City Clerk [SEAL] James Stewart, Mayor 2 STATE OF CALIFORNIA ) COUNTY OF RIVERSIDE ) ss CITY OF TEMECULA ) I, Randi Johl, City Clerk of the City of Temecula, do hereby certify that the foregoing Resolution No. 2024- was duly and regularly adopted by the City Council of the City of Temecula at a meeting thereof held on the 4th day of November, 2024, by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSTAIN: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: Randi Johl, City Clerk Prepared by, and after recording return to: Thomas P. Wild, Esq. Wild & Kearney LLC 174 W. State Street Doylestown, PA 18901 SUBORDINATION AGREEMENT GOVERNMENTAL ENTITY (Revised 10-15-2024) Freddie Mac Loan Number: 510100767 Property Name: Las Haciendas Apartments SUBORDINATION AGREEMENT GOVERNMENTAL ENTITY (Revised 10-15-2024) THIS SUBORDINATION AGREEMENT ("Agreement') is entered into this day of , 2024, by and between (i) NEWPOINT REAL ESTATE CAPITAL LLC, a limited liability company organized and existing under the laws of the State of Michigan ("Senior Lender") and (ii) CITY OF TEMECULA, a municipal corporation organized and existing under the laws of the State of California ("Subordinate Lender"). RECITALS A. LAS HACIENDA HOUSING ASSOCIATES, L.P., a limited partnership organized under the laws of the State of California ("Borrower") is the owner of certain land located in Riverside County, California, described in Exhibit A ("Land"). The Land is improved with a multifamily rental housing project ("Improvements"). B. Senior Lender has made or is making a loan to Borrower in the original principal amount of $ ("Senior Loan") upon the terms and conditions of a Multifamily Loan and Security Agreement dated as of between Senior Lender and Borrower ("Senior Loan Agreement') in connection with the Mortgaged Property. The Senior Loan is secured by a Multifamily Deed of Trust, Assignment of Rents Security Agreement and Fixture Filing, dated as of the date of the Senior Loan Agreement ("Senior Mortgage")encumbering the Land, the Improvements and related personal and other property described and defined in the Senior Mortgage as the "Mortgaged Property." C. Pursuant to a a Loan Agreement dated as of May 26, 2020 between Subordinate Lender and Borrower ("Subordinate Loan Agreement'), Subordinate Lender has made or is making a loan to Borrower in the original principal amount of $9,629,143 ("Subordinate Loan"). The Subordinate Loan is or will be secured by a Deed of Trust, Assignment of rents, Security Agreement and Fixture Filing dated as of December 8, 2021 ("Subordinate Mortgage") encumbering all or a portion of the Mortgaged Property. D. The Senior Mortgage will be recorded in the Official Records of Riverside County, California ("Recording Office"). The Subordinate Mortgage is recorded in the Recording Office on December 21, 2021 at Doc#2021-0747923. Subordination Agreement — Governmental Entity Page 1 E. The execution and delivery of this Agreement is a condition of Senior Lender's making of the Senior Loan. AGREEMENT NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: 1. Definitions. The following terms, when used in this Agreement (including, as appropriate, when used in the above recitals), will have the following meanings: The terms "Condemnation," "Imposition Reserve Deposits," "Impositions," "Leases," "Rents" and "Restoration," as well as any term used in this Agreement and not otherwise defined in this Agreement, will have the meanings given to those terms in the Senior Loan Agreement. "Bankruptcy Proceeding" means any bankruptcy, reorganization, insolvency, composition, restructuring, dissolution, liquidation, receivership, assignment for the benefit of creditors, or custodianship action or proceeding under any federal or state law with respect to Borrower, any guarantor of any of the Senior Indebtedness, any of their respective properties, or any of their respective partners, members, officers, directors, or shareholders. "Borrower" means all persons or entities identified as `Borrower" in the first Recital of this Agreement, together with their successors and assigns, and any other person or entity who acquires title to the Mortgaged Property after the date of this Agreement; provided that the term "Borrower" will not include Senior Lender if Senior Lender acquires title to the Mortgaged Property. "Casualty" means the occurrence of damage to or loss of all or any portion of the Mortgaged Property by fire or other casualty. "Enforcement Action" means any of the following actions taken by or at the direction of Subordinate Lender: the acceleration of all or any part of the Subordinate Indebtedness, the advertising of or commencement of any foreclosure or trustee's sale proceedings, the exercise of any power of sale, the acceptance of a deed or assignment in lieu of foreclosure or sale, the collecting of Rents, the obtaining of or seeking of the appointment of a receiver, the seeking of default interest, the taking of possession or control of any of the Mortgaged Property, the commencement of any suit or other legal, administrative, or arbitration proceeding based upon the Subordinate Note or any other of the Subordinate Loan Documents, the exercising of any banker's lien or rights of set-off or recoupment, or the exercise of any other remedial action against Borrower, any other party liable for any of the Subordinate Indebtedness or obligated under any of the Subordinate Loan Documents, or the Mortgaged Property. Subordination Agreement — Governmental Entity Page 2 "Enforcement Action Notice" means a Notice given from Subordinate Lender to Senior Lender following one or more Subordinate Mortgage Default(s) and the expiration of any applicable notice or cure periods, setting forth in reasonable detail the Subordinate Mortgage Default(s) and the Enforcement Actions proposed to be taken by Subordinate Lender. "Lien" means any lien, encumbrance, estate or other interest, recorded against or secured by the Mortgaged Property. "Loss Proceeds" means all monies received or to be received under any insurance policy, from any condemning authority, or from any other source, as a result of any Condemnation or Casualty. "Notice" means all notices, requests, demands, consents, approvals or other communication pursuant to this Agreement provided in accordance with the provisions of Section 10. "Regulatory Agreement" means collectively the (i) AFFORDABILITY RESTRICTIONS AND REGULATORY AGREEMENT (Low -Mod Set Aside Funds) between Borrower and Subordinate Lender dated as of December 8, 2021 and recorded as Document # 2021-0747921 in the Recording Office and (ii) NOTICE OF AFFORDABILITY RESTRICTIONS ON TRANSFER OF PROPERTY between Borrower and Subordinate Lender dated as of December 8, 2021 and recorded as Document # 2021-0747926 in the Recording Office. "Senior Indebtedness" means the "Indebtedness" as defined in the Senior Loan Agreement. "Senior Lender" means the "Lender" as defined in the Senior Mortgage. When any other person or entity becomes the legal holder of the Senior Note, such other person or entity will automatically become Senior Lender. "Senior Loan Documents" means the "Loan Documents" as defined in the Senior Loan Agreement, as such documents may be amended. "Senior Mortgage Default" means any act, failure to act, event, condition, or occurrence which constitutes, or which with the giving of Notice or the passage of time, or both, would constitute, an "Event of Default" as defined in the Senior Loan Agreement. "Senior Note" means the promissory note or other evidence of the Senior Indebtedness and any replacement of the Senior Note. "Subordinate Indebtedness" means all sums evidenced or secured or guaranteed by, or otherwise due and payable to Subordinate Lender pursuant to, the Subordinate Loan Documents. Subordination Agreement — Governmental Entity Page 3 "Subordinate Lender" means the person or entity named as such in the first paragraph of this Agreement and any other person or entity who becomes the legal holder of the Subordinate Note after the date of this Agreement. "Subordinate Loan Documents" means the Subordinate Mortgage, the Subordinate Note, the Subordinate Loan Agreement, the Regulatory Agreement and all other documents at any time evidencing, securing, guaranteeing, or otherwise delivered in connection with the Subordinate Indebtedness, as such documents may be amended. "Subordinate Mortgage Default" means any act, failure to act, event, condition, or occurrence which allows (but for any contrary provision of this Agreement), Subordinate Lender to take an Enforcement Action. "Subordinate Note" means the promissory note or other evidence of the Subordinate Indebtedness and any replacement of the Subordinate Note. "Surplus Cash" means, with respect to any period, any revenues of Borrower remaining after paying, or setting aside funds for paying, all the following: (a) All sums due or currently required to be paid under the Senior Loan Documents, including any reserves and Imposition Reserve Deposits. (b) All reasonable operating expenses of the Mortgaged Property, including real estate taxes, insurance premiums, utilities, building maintenance, painting and repairs, management fees, payroll, administrative expenses, legal expenses and audit expenses (excluding any developer fees payable with respect to the Mortgaged Property). 2. Subordinate Lender's Representations and Warranties. (a) Subordinate Lender represents and warrants that each of the following is true as of the date of this Agreement: (i) Subordinate Lender is now the owner and holder of the Subordinate Loan Documents. (ii) No Subordinate Mortgage Default has occurred and is continuing. (iii) The current unpaid principal balance of the Subordinate Indebtedness is (iv) No scheduled payments under the Subordinate Note have been prepaid. (b) Without the prior written consent of Senior Lender, Subordinate Lender will not do any of the following: Subordination Agreement — Governmental Entity Page 4 (i) Pledge, assign, transfer, convey, or sell any interest in the Subordinate Indebtedness or any of the Subordinate Loan Documents. (ii) Take any action which has the effect of increasing the Subordinate Indebtedness, except to cure a Senior Mortgage Default as contemplated under Section 5(a) of this Agreement. (iii) Accept any prepayment of the Subordinate Indebtedness. 3. Terms of Subordination. (a) Agreement to Subordinate. The Subordinate Indebtedness is and will at all times continue to be subject and subordinate in right of payment to the prior payment in full of the Senior Indebtedness. Each of the Subordinate Loan Documents is, and will at all times remain, subject and subordinate in all respects to the liens, terms, covenants, conditions, operations, and effects of each of the Senior Loan Documents. (b) Subordination of Subrogation Rights. If Subordinate Lender, by indemnification, subrogation or otherwise, acquires any Lien on any of the Mortgaged Property, then that Lien will be fully subject and subordinate to the receipt by Senior Lender of payment in full of the Senior Indebtedness, and to the Senior Loan Documents, to the same extent as the Subordinate Indebtedness and the Subordinate Loan Documents are subordinate pursuant to this Agreement. (c) Payments Before Senior Mortgage Default; Soft Subordinate Debt. Until the occurrence of a Senior Mortgage Default, Subordinate Lender will be entitled to retain for its own account all payments of the principal of and interest on the Subordinate Indebtedness pursuant to the Subordinate Loan Documents; provided that Subordinate Lender expressly agrees that it will not accept any such payment that is made more than 10 days in advance of its due date and provided further that Subordinate Lender will not accept any payment in an amount that exceeds 75% of then available Surplus Cash. (d) Payments After Senior Mortgage Default or Bankruptcy. (i) Immediately upon Subordinate Lender's receipt of Notice or actual knowledge of a Senior Mortgage Default, Subordinate Lender will not accept any payments of the Subordinate Indebtedness, and the provisions of Section 3(d) of this Agreement will apply. (ii) If Subordinate Lender receives any of the following, whether voluntarily or by action of law, after a Senior Mortgage Default of which Subordinate Lender has actual knowledge (or is deemed to have actual knowledge as provided in Section 4(c)) or has been given Notice, such will be received and held in trust for Senior Lender: Subordination Agreement — Governmental Entity Page 5 (A) Any payment, property, or asset of any kind or in any form in connection with the Subordinate Indebtedness. (B) Any proceeds from any Enforcement Action. (C) Any payment, property, or asset in or in connection with any Bankruptcy Proceeding. (iii) Subordinate Lender will promptly remit, in kind and properly endorsed as necessary, all such payments, properties, and assets described in Section 3(d)(ii) to Senior Lender. Senior Lender will apply any payment, asset, or property so received from Subordinate Lender to the Senior Indebtedness in such order, amount (with respect to any asset or property other than immediately available funds), and manner as Senior Lender determines in its sole and absolute discretion. (e) Bankruptcy. Without the prior written consent of Senior Lender, Subordinate Lender will not commence, or join with any other creditor in commencing, any Bankruptcy Proceeding. In the event of a Bankruptcy Proceeding, Subordinate Lender will not vote affirmatively in favor of any plan of reorganization or liquidation unless Senior Lender has also voted affirmatively in favor of such plan. 4. Default Under Subordinate Loan Documents. (a) Notice of Subordinate Mortgage Default and Cure Rights. (i) Subordinate Lender will deliver to Senior Lender a copy of each Notice delivered by Subordinate Lender pursuant to the Subordinate Loan Documents within 5 Business Days of sending such Notice to Borrower. Neither giving nor failing to give a Notice to Senior Lender pursuant to this Section 4(a) will affect the validity of any Notice given by Subordinate Lender to Borrower. (ii) For a period of 90 days following delivery to Senior Lender of an Enforcement Action Notice, Senior Lender will have the right, but not the obligation, to cure any Subordinate Mortgage Default. However, if such Subordinate Mortgage Default is a non -monetary default and is not capable of being cured within such 90-day period and Senior Lender has commenced and is diligently pursuing such cure to completion, Senior Lender will have such additional period of time as may be required to cure such Subordinate Mortgage Default or until such time, if ever, as Senior Lender takes either of the following actions: (A) Discontinues its pursuit of any cure. Subordination Agreement — Governmental Entity Page 6 (B) Delivers to Subordinate Lender Senior Lender's written consent to the Enforcement Action described in the Enforcement Action Notice. (iii) Senior Lender will not be subrogated to the rights of Subordinate Lender under the Subordinate Loan Documents as a result of Senior Lender having cured any Subordinate Mortgage Default. (iv) Subordinate Lender acknowledges that all amounts advanced or expended by Senior Lender in accordance with the Senior Loan Documents or to cure a Subordinate Mortgage Default will be added to and become a part of the Senior Indebtedness and will be secured by the lien of the Senior Mortgage. (b) Subordinate Lender's Exercise of Remedies After Notice to Senior Lender. (i) In the event of a Subordinate Mortgage Default, Subordinate Lender will not commence any Enforcement Action until 90 days after Subordinate Lender has delivered to Senior Lender an Enforcement Action Notice. During such 90-day period or such longer period as provided in Section 4(a), Subordinate Lender will be entitled to seek specific performance to enforce covenants and agreements of Borrower relating to income, rent, or affordability restrictions contained in the Regulatory Agreement, subject to Senior Lender's right to cure a Subordinate Mortgage Default set forth in Section 4(a). (ii) Subordinate Lender may not commence any other Enforcement Action, including any foreclosure action under the Subordinate Loan Documents, until the earlier of. (A) The expiration of such 90-day period or such longer period as provided in Section 4(a). (B) The delivery by Senior Lender to Subordinate Lender of Senior Lender's written consent to such Enforcement Action by Subordinate Lender. (iii) Subordinate Lender acknowledges that Senior Lender may grant or refuse consent to Subordinate Lender's Enforcement Action in Senior Lender's sole and absolute discretion. At the expiration of such 90-day period or such longer period as provided in Section 4(a) and, subject to Senior Lender's right to cure set forth in Section 4(a), Subordinate Lender may commence any Enforcement Action. (iv) Senior Lender may pursue all rights and remedies available to it under the Senior Loan Documents, at law, or in equity, regardless of any Subordination Agreement — Governmental Entity Page 7 Enforcement Action Notice or Enforcement Action by Subordinate Lender. No action or failure to act on the part of Senior Lender in the event of a Subordinate Mortgage Default or commencement of an Enforcement Action will constitute a waiver on the part of Senior Lender of any provision of the Senior Loan Documents or this Agreement. (c) Cross Default. Subordinate Lender acknowledges that a Subordinate Mortgage Default constitutes a Senior Mortgage Default. Accordingly, upon the occurrence of a Subordinate Mortgage Default, Subordinate Lender will be deemed to have actual knowledge of a Senior Mortgage Default. If Subordinate Lender notifies Senior Lender in writing that any Subordinate Mortgage Default of which Senior Lender has received Notice has been cured or waived, as determined by Subordinate Lender in its sole discretion, then provided that Senior Lender has not conducted a sale of the Mortgaged Property pursuant to its rights under the Senior Loan Documents, any Senior Mortgage Default under the Senior Loan Documents arising solely from such Subordinate Mortgage Default will be deemed cured, and the Senior Loan will be reinstated. 5. Default Under Senior Loan Documents. (a) Notice of Senior Mortgage Default and Cure Rights. (i) Senior Lender will deliver to Subordinate Lender a copy of any Notice sent by Senior Lender to Borrower of a Senior Mortgage Default within 5 Business Days of sending such Notice to Borrower. Failure of Senior Lender to send Notice to Subordinate Lender will not prevent the exercise of Senior Lender's rights and remedies under the Senior Loan Documents. (ii) Subordinate Lender will have the right, but not the obligation, to cure any monetary Senior Mortgage Default within 30 days following the date of such Notice. During such 30-day period Senior Lender will be entitled to continue to pursue its remedies under the Senior Loan Documents. (iii) Subordinate Lender may, within 90 days after the date of the Notice, cure a non -monetary Senior Mortgage Default if during such 90-day period, Subordinate Lender keeps current all payments required under the Senior Loan Documents. If such a non -monetary Senior Mortgage Default creates an unacceptable level of risk relative to the Mortgaged Property, or Senior Lender's secured position relative to the Mortgaged Property, as determined by Senior Lender in its sole discretion, then during such 90-day period Senior Lender may exercise all available rights and remedies to protect and preserve the Mortgaged Property and the Rents, revenues and other proceeds from the Mortgaged Property. (iv) All amounts paid by Subordinate Lender to Senior Lender to cure a Senior Mortgage Default will be deemed to have been advanced by Subordinate Subordination Agreement — Governmental Entity Page 8 Lender pursuant to, and will be secured by the lien of, the Subordinate Mortgage. Notwithstanding anything in this Section 5(a) to the contrary, Subordinate Lender's right to cure any Senior Mortgage Default will terminate immediately upon the occurrence of any Bankruptcy Proceeding. (b) Release of Mortgaged Property. (i) Subordinate Lender consents to and authorizes any future release by Senior Lender of all or any portion of the Mortgaged Property from the lien, operation, and effect of the Senior Loan Documents. Subordinate Lender waives to the fullest extent permitted by law, all equitable or other rights it may have in connection with the release of all or any portion of the Mortgaged Property, including any right to require Senior Lender to do any of the following: (A) To conduct a separate sale of any portion of the Mortgaged Property. (B) To exhaust its remedies against all or any portion of the Mortgaged Property or any combination of portions of the Mortgaged Property or any other collateral for the Senior Indebtedness. (C) To proceed against Borrower, any other party that may be liable for any of the Senior Indebtedness (including any general partner of Borrower if Borrower is a partnership), all or any portion of the Mortgaged Property or combination of portions of the Mortgaged Property or any other collateral, before proceeding against all or such portions or combination of portions of the Mortgaged Property as Senior Lender determines. Subordinate Lender waives to the fullest extent permitted by law any and all benefits under California Civil Code Sections 2845, 2849 and 2850. (ii) Subordinate Lender consents to and authorizes, at the option of Senior Lender, the sale, either separately or together, of all or any portion of the Mortgaged Property. Subordinate Lender acknowledges that without Notice to Subordinate Lender and without affecting any of the provisions of this Agreement, Senior Lender may do any of the following: (A) Extend the time for or waive any payment or performance under the Senior Loan Documents. (B) Modify or amend in any respect any provision of the Senior Loan Documents. (C) Modify, exchange, surrender, release, and otherwise deal with any additional collateral for the Senior Indebtedness. Subordination Agreement — Governmental Entity Page 9 (c) Termination Upon Foreclosure. The lien of the Subordinate Loan Documents will automatically terminate upon the acquisition by Senior Lender or by a third -party purchaser of title to the Mortgaged Property pursuant to a foreclosure of, deed in lieu of foreclosure, or trustee's sale or other exercise of a power of sale or similar disposition under the Senior Mortgage. 6. Conflicts. If there is any conflict or inconsistency between the terms of the Subordinate Loan Documents and the terms of this Agreement, then the terms of this Agreement will control. Borrower acknowledges that the terms and provisions of this Agreement will not, and will not be deemed to do any of the following: (a) Extend Borrower's time to cure any Senior Mortgage Default or Subordinate Mortgage Default. (b) Give Borrower the right to receive notice of any Senior Mortgage Default or Subordinate Mortgage Default, other than that, if any, provided, respectively under the Senior Loan Documents or the Subordinate Loan Documents. (c) Create any other right or benefit for Borrower as against Senior Lender or Subordinate Lender. 7. Rights and Obligations of Subordinate Lender Under the Subordinate Loan Documents and of Senior Lender under the Senior Loan Documents. (a) Insurance. (i) All requirements pertaining to insurance under the Subordinate Loan Documents (including requirements relating to amounts and types of coverages, deductibles and special endorsements) will be deemed satisfied if Borrower complies with the insurance requirements under the Senior Loan Documents and of Senior Lender. (ii) All original policies of insurance required pursuant to the Senior Loan Documents will be held by Senior Lender. (iii) Nothing in this Section 7(a) will preclude Subordinate Lender from requiring that it be named as a mortgagee and loss payee, as its interest may appear, under all policies of property damage insurance maintained by Borrower with respect to the Mortgaged Property, provided such action does not affect the priority of payment of Loss Proceeds, or that Subordinate Lender be named as an additional insured under all policies of liability insurance maintained by Borrower with respect to the Mortgaged Property. (b) Condemnation or Casualty. Subordination Agreement — Governmental Entity Page 10 In the event of a Condemnation or a Casualty, the following provisions will apply: (i) The rights of Subordinate Lender (under the Subordinate Loan Documents or otherwise) to participate in any proceeding or action relating to a Condemnation or a Casualty, or to participate or join in any settlement of, or to adjust, any claims resulting from a Condemnation or a Casualty, will be and remain subordinate in all respects to Senior Lender's rights under the Senior Loan Documents, and Subordinate Lender will be bound by any settlement or adjustment of a claim resulting from a Condemnation or a Casualty made by Senior Lender. (ii) All Loss Proceeds will be applied either to payment of the costs and expenses of Restoration or to payment on account of the Senior Indebtedness, as and in the manner determined by Senior Lender in its sole discretion; provided however, Senior Lender agrees to consult with Subordinate Lender in determining the application of Casualty proceeds. In the event of any disagreement between Senior Lender and Subordinate Lender over the application of Casualty proceeds, the decision of Senior Lender, in its sole discretion, will prevail. (iii) If Senior Lender holds Loss Proceeds, or monitors the disbursement of Loss Proceeds, Subordinate Lender will not do so. Nothing contained in this Agreement will be deemed to require Senior Lender to act for or on behalf of Subordinate Lender in connection with any Restoration or to hold or monitor any Loss Proceeds in trust for or otherwise on behalf of Subordinate Lender, and all or any Loss Proceeds may be commingled with any funds of Senior Lender. (iv) If Senior Lender elects to apply Loss Proceeds to payment on account of the Senior Indebtedness, and if the application of such Loss Proceeds results in the payment in full of the entire Senior Indebtedness, any remaining Loss Proceeds held by Senior Lender will be paid to Subordinate Lender unless another party has asserted a claim to the remaining Loss Proceeds. (c) Modification of Subordinate Loan Documents. Subordinate Lender agrees that, until the principal of, interest on and all other amounts payable under the Senior Loan Documents have been paid in full, it will not, without the prior written consent of Senior Lender, increase the amount of the Subordinate Loan, increase the required payments due under the Subordinate Loan, decrease the term of the Subordinate Loan, increase the interest rate on the Subordinate Loan, or otherwise amend the Subordinate Loan terms in a manner that creates an adverse effect upon Senior Lender under the Senior Loan Documents. If Subordinate Lender either (i) amends the Subordinate Loan Documents in the manner set forth above Subordination Agreement — Governmental Entity Page 11 or (ii) assigns the Subordinate Loan without Senior Lender's consent, then such amendment or assignment will be void ab initio and of no effect whatsoever. (d) Modification of Senior Loan Documents. Senior Lender may amend, waive, postpone, extend, renew, replace, reduce or otherwise modify any provisions of the Senior Loan Documents without the necessity of obtaining the consent of or providing Notice to Subordinate Lender, and without affecting any of the provisions of this Agreement. Notwithstanding the foregoing, Senior Lender may not modify any provision of the Senior Loan Documents that increases the Senior Indebtedness, except for increases in the Senior Indebtedness that result from advances made by Senior Lender to protect the security or lien priority of Senior Lender under the Senior Loan Documents or to cure defaults under the Subordinate Loan Documents. (e) Commercial or Retail Leases. If requested, Subordinate Lender will enter into attornment and non -disturbance agreements with all tenants under commercial or retail Leases, if any, to whom Senior Lender has granted attornment and non - disturbance, on the same terms and conditions given by Senior Lender. (f) Consent Rights. Whenever the Subordinate Loan Documents give Subordinate Lender approval or consent rights with respect to any matter, and a right of approval or consent for the same or substantially the same matter is also granted to Senior Lender pursuant to the Senior Loan Documents or otherwise, Senior Lender's approval or consent or failure to approve or consent will be binding on Subordinate Lender. None of the other provisions of Section 7 are intended to be in any way in limitation of the provisions of this Section 7(f). (g) Escrows. Except as provided in this Section 7(g), and regardless of any contrary provision in the Subordinate Loan Documents, Subordinate Lender will not collect any escrows for any cost or expense related to the Mortgaged Property or for any portion of the Subordinate Indebtedness. However, if Senior Lender is not collecting escrow payments for one or more Impositions, Subordinate Lender may collect escrow payments for such Impositions; provided that all payments so collected by Subordinate Lender will be held in trust by Subordinate Lender to be applied only to the payment of such Impositions. (h) Certification. Within 10 days after request by Senior Lender, Subordinate Lender will furnish Senior Lender with a statement, duly acknowledged and certified setting forth the then -current amount and terms of the Subordinate Indebtedness, confirming that there exists no default under the Subordinate Loan Documents (or describing any default that does exist), and certifying to such other information with respect to the Subordinate Indebtedness as Senior Lender may request. 8. Refinancing. Subordinate Lender agrees that its agreement to subordinate under this Agreement will extend to any new mortgage debt which is for the purpose of refinancing all or any part of the Senior Indebtedness (including reasonable and necessary costs Subordination Agreement — Governmental Entity Page 12 associated with the closing and/or the refinancing, and any reasonable increase in proceeds for rehabilitation in the context of a preservation transaction). All terms and covenants of this Agreement will inure to the benefit of any holder of any such refinanced debt, and all references to the Senior Loan Documents and Senior Lender will mean, respectively, the refinance loan documents and the holder of such refinanced debt. 9. Governmental Powers. Nothing in this Agreement is intended, nor will it be construed, to in any way limit the exercise by Subordinate Lender of its governmental powers (including police, regulatory and taxing powers) with respect to Borrower or the Mortgaged Property to the same extent as if it were not a party to this Agreement or the transactions contemplated by this Agreement. 10. Notices. (a) Any Notice required or permitted to be given pursuant to this Agreement will be in writing and will be deemed to have been duly and sufficiently given if (i) personally delivered with proof of delivery (any Notice so delivered will be deemed to have been received at the time so delivered), or (ii) sent by a national overnight courier service (such as FedEx) designating earliest available delivery (any Notice so delivered will be deemed to have been received on the next Business Day following receipt by the courier), or (iii) sent by United States registered or certified mail, return receipt requested, postage prepaid, at a post office regularly maintained by the United States Postal Service (any Notice so sent will be deemed to have been received on the date of delivery as confirmed by the return receipt), addressed to the respective parties as follows: Notices intended for Senior Lender will be addressed to: Newpoint Real Estate Capital LLC 5800 Tennyson Parkway, Suite 200 Plano, Texas 75024 Attention: Asset Management Group Email: AssetManagementGroupgnewpoint.com Notices intended for Subordinate Lender will be addressed to: City of Temecula 41000 Main Street Temecula, CA 92590 Attention: City Clerk (b) Any party, by Notice given pursuant to this Section 10, may change the person or persons and/or address or addresses, or designate an additional person or persons or an additional address or addresses, for its Notices, but Notice of a change of address will only be effective upon receipt. Neither party will refuse or reject delivery of any Notice given in accordance with this Section 10. Subordination Agreement — Governmental Entity Page 13 11. Reserved. 12. Miscellaneous Provisions. (a) Assignments/Successors. This Agreement will be binding upon and will inure to the benefit of the respective legal successors and permitted assigns of the parties to this Agreement. Without prior notice to or the consent of the Subordinate Lender or the Borrower, the Senior Lender may freely transfer or assign the Senior Loan and the Senior Loan Documents, including this Agreement, in whole or in part, and the Subordinate Lender acknowledges and agrees that any future legal holder of the Senior Note will automatically be a legal successor and permitted assignee of Senior Lender hereunder, without the necessity of any further action or instrument. No other party will be entitled to any benefits under this Agreement, whether as a third -party beneficiary or otherwise. (b) No Partnership or Joint Venture. Nothing in this Agreement or in any of the Senior Loan Documents or Subordinate Loan Documents will be deemed to constitute Senior Lender as a joint venturer or partner of Subordinate Lender. (c) Further Assurances. Upon Notice from Senior Lender, Subordinate Lender will execute and deliver such additional instruments and documents, and will take such actions, as are required by Senior Lender to further evidence or implement the provisions and intent of this Agreement. (d) Amendment. This Agreement may be amended, changed, modified, altered or terminated only by a written instrument signed by the parties to this Agreement or their successors or assigns. (e) Governing Law. This Agreement will be governed by the laws of the State in which the Land is located. (f) Severable Provisions. If any one or more of the provisions contained in this Agreement, or any application of any such provisions, is invalid, illegal, or unenforceable in any respect, the validity, legality, enforceability, and application of the remaining provisions contained in this Agreement will not in any way be affected or impaired. (g) Term. The term of this Agreement will commence on the date of this Agreement and will continue until the earliest to occur of the following events: (i) The payment of all the Senior Indebtedness; provided that this Agreement will be reinstated in the event any payment on account of the Senior Indebtedness is avoided, set aside, rescinded or repaid by Senior Lender. Subordination Agreement — Governmental Entity Page 14 (ii) The payment of all the Subordinate Indebtedness other than by reason of payments which Subordinate Lender is obligated to remit to Senior Lender pursuant to this Agreement. (iii) The acquisition by Senior Lender or by a third -party purchaser of title to the Mortgaged Property pursuant to a foreclosure of, deed in lieu of foreclosure, or trustee's sale or other exercise of a power of sale or similar disposition under the Senior Mortgage. (iv) With the prior written consent of Senior Lender, without limiting the provisions of Section 4(b)(iv), the acquisition by Subordinate Lender of title to the Mortgaged Property subject to the Senior Mortgage pursuant to a foreclosure, or a deed in lieu of foreclosure, of (or the exercise of a power of sale under) the Subordinate Mortgage. (h) Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. (i) Entire Agreement. This Agreement represents the entire understanding and agreement between the parties regarding the matters addressed in this Agreement, and will supersede and cancel any prior agreements regarding such matters. (j) Authority. Each person executing this Agreement on behalf of a party to this Agreement represents and warrants that such person is duly and validly authorized to do so on behalf of such party with full right and authority to execute this Agreement and to bind such party with respect to all of its obligations under this Agreement. (k) No Waiver. No failure or delay on the part of any party to this Agreement in exercising any right, power, or remedy under this Agreement will operate as a waiver of such right, power, or remedy, nor will any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power, or remedy or the exercise of any other right, power or remedy under this Agreement. (1) Remedies. Each party to this Agreement acknowledges that if any party fails to comply with its obligations under this Agreement, the other parties will have all rights available at law and in equity, including the right to obtain specific performance of the obligations of such defaulting party and injunctive relief. 13. Attached Riders. The following Riders are attached to this Agreement: XI REGULATORY AGREEMENT PRIMES MORTGAGE Subordination Agreement — Governmental Entity Page 15 14. Attached Exhibits. The following Exhibits, if marked with an "X" in the space provided, are attached to this Agreement: JXJ Exhibit A Description of the Land (required) 1_1 Exhibit B Ground Lease Description (if applicable) [SIGNATURE AND ACKNOWLEDGMENT PAGES FOLLOW] Subordination Agreement — Governmental Entity Page 16 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. SENIOR LENDER: NEWPOINT REAL ESTATE CAPITAL LLC, a Michigan limited liability company LM Ana Marie McBayne Senior Closer ACKNOWLEDGMENT STATE OF MARYLAND ) SS: COUNTY OF MONTGOMERY ) This instrument was acknowledged before me this day of 2024, by Ana Marie McBayne, the Senior Closer of Newpoint Real Estate Capital LLC, having been authorized to do so, voluntarily executed the foregoing on behalf of the company. Signature of Notary Notary Public My Commission expires: Subordination Agreement — Governmental Entity Page 17 SUBORDINATE LENDER: CITY OF TEMECULA a municipal corporation Aaron Adams City Manager ATTEST: Randi Johl, City Clerk (Acknowledgement continued on next page) Subordination Agreement — Governmental Entity Page 18 A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF On this day of , 20_, before me, , Notary Public, personally appeared , who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public (Seal) Subordination Agreement — Governmental Entity Page 19 CONSENT OF BORROWER Borrower acknowledges receipt of a copy of this Subordination Agreement, dated , 2024, by and between NEWPOINT REAL ESTATE CAPITAL LLC, and the CITY OF TEMECULA and consents to the agreement of the parties set forth in this Agreement. BORROWER: LAS HACIENDAS HOUSING ASSOCIATES, L.P., a California limited partnership By: CHW Las Haciendas LLC, a California limited liability company, its General Partner By: Community HousingWorks, a California nonprofit public benefit corporation, its Sole Member and Manager ME Kevin Leichner Senior Vice President (Acknowledgement continued on next page) Subordination Agreement — Governmental Entity Page 20 A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. STATE OF CALIFORNIA ) ss. COUNTY OF On this day of , 2024, before me, , Notary Public, personally appeared Kevin Leichner, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Notary Public (Seal) Subordination Agreement — Governmental Entity Page 21 RIDER TO SUBORDINATION AGREEMENT — GOVERNMENTAL ENTITY REGULATORY AGREEMENT PRIMES MORTGAGE (Revised 8-28-2024) The following changes are made to the Agreement which precedes this Rider: A. Section 1 is modified as follows: (A) The definition of Subordinate Loan Documents is modified to add the following: "Subordinate Loan Documents" means the Subordinate Mortgage, the Subordinate Note, the Subordinate Loan Agreement and all other documents at any time evidencing, securing, guaranteeing, or otherwise delivered in connection with the Subordinate Indebtedness, as such documents may be amended; provided, however, that the Regulatory Agreement is specifically excluded from the definition of Subordinate Loan Documents. (B) The following definitions are added: "First Transfer" has the meaning set forth in Section 11 of this Agreement. "Foreclosure Action" has the meaning set forth in Section 11 of this Agreement. "Regulatory Agreement Default" means any act, failure to act, event, condition, or occurrence which (but for any contrary provision of this Agreement) is a default under the Regulatory Agreement, which continues beyond the giving of notice and expiration of any applicable cure period as provided in the Regulatory Agreement. "Regulatory Agreement Enforcement Action" means the exercise of any rights or remedies under the Regulatory Agreement following a Regulatory Agreement Default. "Regulatory Agreement Enforcement Action Notice" means a Notice given from Subordinate Lender to Senior Lender following one or more Regulatory Agreement Default(s), setting forth in reasonable detail the Regulatory Agreement Default(s) and the Regulatory Agreement Enforcement Actions proposed to be taken by Subordinate Lender. Subordination Agreement — Governmental Entity Page 22 B. Section 11 is deleted and replaced with the following: 11. Regulatory Agreement. (a) Representations and Warranties. (i) Subordinate Lender represents and warrants that each of the following is true with respect to the Regulatory Agreement as of the date of this Agreement: (A) Subordinate Lender is the owner and holder of the Regulatory Agreement. (B) No Regulatory Agreement Default has occurred and is continuing. (ii) Without the prior written consent of Senior Lender, Subordinate Lender will not do any of the following: (A) Pledge, assign, transfer, convey, or sell any interest in the Regulatory Agreement. (B) Amend the Regulatory Agreement in any manner. (b) Agreement to Subordinate. (i) The Senior Indebtedness is and will at all times continue to be subject and subordinate in priority to the Regulatory Agreement. Each of the Senior Loan Documents is, and will at all times remain, subject and subordinate in all respects to the lien of the Regulatory Agreement. Therefore, following a foreclosure under the Senior Mortgage, or the acceptance by Senior Lender of a deed to the Mortgaged Property in lieu of such a foreclosure (each, a "Foreclosure Action'), the Regulatory Agreement will survive and the successor owner of the Mortgaged Property will acquire the Mortgaged Property subject to the Regulatory Agreement, except that, notwithstanding anything to the contrary set forth in the Regulatory Agreement: (A) Senior Lender (or its nominee) will have the right, without further consent of Subordinate Lender, to commence a Foreclosure Action and transfer (or cause the transfer of) the Mortgaged Property pursuant a Foreclosure Action and, following such Foreclosure Action, in the event Senior Lender (or its nominee) acquires title to the Mortgaged Subordination Agreement — Governmental Entity Page 23 Property, transfer the Mortgaged Property to any third - party (the "First Transfer"). (B) No limitation on creation of indebtedness or creation of any lien securing indebtedness will apply to any third -party acquiring title to the Mortgaged Property in connection with a Foreclosure Action or the First Transfer. (ii) Subordinate Lender agrees that: (A) Subordinate Lender will look to Senior Lender (or its nominee) and any third -party acquiring title to the Mortgaged Property in connection with a Foreclosure Action or the First Transfer to perform the obligations of owner of the Mortgaged Property accruing only from and after the date of foreclosure or possession. Subordinate Lender will not hold Senior Lender (or its nominee) or any third -party acquiring title to the Mortgaged Property in connection with a Foreclosure Action or the First Transfer responsible for the past actions or inactions of Borrower or any prior owner of the Mortgaged Property. (B) Neither Senior Lender nor any third -party acquiring title to the Mortgaged Property in connection with a Foreclosure Action or the First Transfer will be obligated to pay, or otherwise have any liability for or in connection with, (1) any rents or other payments received by Borrower prior to foreclosure in excess of what Borrower is permitted to charge and receive under the Regulatory Agreement or (2) any claim by Subordinate Lender for liquidated damages, for indemnification or for damages in connection with any breach of any term or provision of the Regulatory Agreement first occurring prior to the date upon which Senior Lender or such third -party acquired title to the Mortgaged Property. Subordination Agreement — Governmental Entity Page 24 (c) Notice of Regulatory Agreement Default and Cure Rights. (i) Subordinate Lender will deliver to Senior Lender a copy of each Notice of a Regulatory Agreement Default delivered by Subordinate Lender pursuant to the Regulatory Agreement within 5 Business Days of sending such Notice to Borrower. Neither giving nor failing to give a Notice to Senior Lender pursuant to this Section 11(c) will affect the validity of any Notice given by Subordinate Lender to Borrower. (ii) Senior Lender will have the right, but not the obligation, to cure any Regulatory Agreement Default, until such time, if ever, as Senior Lender delivers to Subordinate Lender written consent to proceed with the Regulatory Agreement Enforcement Action described in the Regulatory Agreement Enforcement Action Notice. (iii) Subordinate Lender acknowledges that all amounts advanced or expended by Senior Lender in accordance with the Senior Loan Documents or to cure a Regulatory Agreement Default will be added to and become a part of the Senior Indebtedness and will be secured by the lien of the Senior Mortgage. (d) Exercise of Remedies following Notice of Regulatorygreement Enforcement Action. (i) Subordinate Lender will not commence any Regulatory Agreement Enforcement Action until: (A) Subordinate Lender has delivered to Senior Lender a Regulatory Agreement Enforcement Action Notice with respect to such Regulatory Agreement Enforcement Action. (B) The delivery by Senior Lender to Subordinate Lender of Senior Lender's written consent to such Regulatory Agreement Enforcement Action by Subordinate Lender. (ii) Senior Lender will advise Subordinate Lender whether Senior Lender consents to the Regulatory Agreement Enforcement Action by Subordinate Lender within 90 days following Senior Lender's receipt of the Regulatory Agreement Enforcement Action Notice. Failure of Senior Lender to provide written consent to the Regulatory Agreement Enforcement Action within such 90-day period constitutes Senior Lender's refusal of such consent. Subordinate Lender acknowledges that Senior Lender may grant or refuse consent to Subordinate Lender's Regulatory Agreement Subordination Agreement — Governmental Entity Page 25 Enforcement Action in Senior Lender's sole and absolute discretion. (iii) Notwithstanding the forgoing, at all times following delivery to Senior Lender of a Regulatory Agreement Enforcement Action Notice, Subordinate Lender may exercise only the remedies of specific performance or injunctive relief subject to Senior Lender's right to cure a Regulatory Agreement Default set forth in this Section 11(d). (iv) Senior Lender may pursue all rights and remedies available to it under the Senior Loan Documents, at law, or in equity, regardless of any Regulatory Agreement Enforcement Action Notice or Regulatory Agreement Enforcement Action by Subordinate Lender. No action or failure to act on the part of Senior Lender in the event of a Regulatory Agreement Default or commencement of any enforcement action with respect to such a default will constitute a waiver on the part of Senior Lender of any provision of the Senior Loan Documents or this Agreement. (e) Operating Covenants. With respect to the operating covenants under the Regulatory Agreement, if any, Subordinate Lender acknowledges and agrees as follows: (1) Subordinate Lender will not require the removal of the property manager for the Mortgaged Property or changes to the management plan or management agreement in respect of the Mortgaged Property under the Regulatory Agreement, without the prior written consent of the Senior Lender; and such provisions of the Regulatory Agreement will be suspended at any time that a Senior Mortgage Default shall be continuing or at any time that the Senior Lender becomes or is the owner of the Mortgaged Property; and (ii) that: (A) reserve requirements imposed by the Regulatory Agreement, if any, will be deferred so long as adequate deposits to the same or similar reserves required by the Senior Loan Documents are made by Borrower; (B) insurance requirements imposed by the Regulatory Agreement, if any, will be deemed satisfied if Borrower complies with the insurance requirements under the Senior Loan Documents and of Senior Lender and all Loss Subordination Agreement — Governmental Entity Page 26 Proceeds will be paid to Senior Lender and applied in accordance with Section 7(b) of this Agreement; and (C) Subordinate Lender will have no claim to or security interest in reserve funds or accounts as required under the Senior Loan Documents, which will be owned and controlled as set forth in the Senior Loan Documents; provided however that this section will not be construed to allow Borrower or its partners or members, as applicable, to distribute any amount remaining in such reserve funds or accounts as part of a sale or refinancing transaction prior to the expiration of the Regulatory Agreement. (f) Written Statement. Within 30 days after a written request by Senior Lender, Subordinate Lender will furnish Senior Lender with a statement confirming that no Regulatory Agreement Default exists (or describing any default that does exist). (g) Cross Default. Borrower and Subordinate Lender acknowledge that a Regulatory Agreement Default constitutes a Senior Mortgage Default. Accordingly, upon the occurrence of a Regulatory Agreement Default, Subordinate Lender will be deemed to have actual knowledge of a Senior Mortgage Default. If Subordinate Lender notifies Senior Lender in writing that a Regulatory Agreement Default of which Senior Lender has received Notice has been cured or waived, then provided that Senior Lender has not conducted a sale of the Mortgaged Property pursuant to its rights under the Senior Loan Documents, any Senior Mortgage Default under the Senior Loan Documents arising solely from such Subordinate Mortgage Default will be deemed cured, and the Senior Loan will be reinstated. Subordination Agreement — Governmental Entity Page 27 EXHIBIT A LEGAL DESCRIPTION The land referred to herein is situated in the State of California, County of Riverside, City of Temecula and described as follows: Being Lots 16 and 20 of Tract No. 3841, City of Temecula, County of Riverside, State of California, as per map filed in Book 61, Pages 75 and 76 of maps, amended by a Certificate of Correction recorded August 25, 1987 as Instrument no. 246382, and merged by Certificate of Parcel Merger recorded on November 24, 2021 as Instrument no. 2021-0701655 Records of Riverside County, California, Being more particularly described as follows: Beginning at the most northerly corner of said lot 16 also being a point on that 38.00 foot Southeasterly Right -of -Way of Las Haciendas Street as shown on said Tract No. 3 84 1: thence leaving said corner and along the Northeasterly line of said lots 16 and 20, South 36°59'17" East a distance of 539.10 feet to a point on the 38.00 foot Northwesterly Right -of -Way of Calle Cortez and also being the most Easterly corner of said lot 20, said point also being on a 738.00 foot radius curve, concave southeasterly, a radial to said curve at said point bears North 36°59'17" West; thence leaving said corner and along said Right -of -Way, Southwesterly along the arc of said curve through a central angle of 06' 00'43 ", an arc length of 77.44 feet; thence continuing along said Right -of -Way, South 47°00'00" West a distance of 98.79 feet to the Southerly corner of said Lot 20; thence leaving said Northwesterly Right -of -Way and along the Southwesterly line of said Lots 20 and 16, North 43°00'00" West a distance of 532.91 feet to the Most Westerly Corner of said Lot 16, also being a point on said 38.00 foot Southeasterly Right - of -Way of Las Haciendas Street; thence along said Right -of -Way, North 47°00'00" East a distance of 204.80 feet to the beginning of a 462.00 foot radius curve, concave Southeasterly; thence Northeasterly along the arc of said curve through a central angle of 03°26'36", an arc length of 27.76 feet to the Point of Beginning. Containing 2.5 Acres or 109117.21 Square Feet More of Less. APN: 921-050-029 and 921-050-030 (Prior APNs 921-050-016 & 921-050-020) APN: 921-050-029 and 921-050-030 Subordination Agreement — Governmental Entity Page A-1 MEMO REGARDING LAS HACIENDAS SUBORDINATION AGREEMENT BACKGROUND COMMUNITY HOUSINGWORKS & LAS HACIENDAS DEVELOPMENT Community HousingWorks — Who We Are Community HousingWorks is a highly respected 501(c)(3) nonprofit organization with over 35 years of experience in developing, rehabilitating, preserving, and operating affordable housing communities throughout California. We own and operate over 4,500 affordable apartment units in nearly 20 cities across the state, including the City of Temecula. Our dedication and expertise have enabled us to sustain strong financial health, achieve high occupancy rates at our properties (averaging 99%), and secure partnerships that have helped over 9,000 households obtain quality affordable housing. We have an impeccable track record of upholding our compliance commitments, with no regulatory agreement defaults and no foreclosures. The Development of Las Haciendas in the City of Temecula In 2020, Community HousingWorks (CHW) identified a significant need for affordable housing in Temecula and partnered with the City to develop Las Haciendas, a 77-unit, 100% affordable housing community. We successfully completed the project earlier this year. The development has experienced overwhelming demand, resulting in fully leased units within a month of being placed in service and a waiting list of over 4,800 individuals. There is a clear need for more affordable housing in the City of Temecula, and partnerships with developers like CHW are essential to meeting that need. Financial Urgency to Convert to Permanent Financing CHW did experience financial challenges in developing Las Haciendas, however. Delays caused by the General Contractor resulted in late completion of the project, leading to additional expenses, straining the project and CHW financially. The bulk of additional expenses relate to construction loan interest paid above and beyond what was budgeted, due to these delays. Furthermore, these contractor delays resulted in the loss of our favorable permanent interest rate, locked at construction loan close, but negated when the delays prevented us from meeting the specified closing deadline. This meant that, in the face of budget increases (now exceeding $800,000, which has all been advanced to the project by CHW), we also found ourselves with a lower available permanent mortgage, based on the loss of our favorable interest rate. We were able to obtain a permanent commitment from NewPoint a Freddie Mac lender, which through favorable terms and underwriting, helped mitigate some of the financial impact to the project, allowing a permanent loan of approximately $5.45 million dollars, compared to $4.9 million with the initial lender after our rate lock expired. However, we are now facing delays in closing the permanent financing, which means the excess construction interest costs continue to grow at a rate of over $150,000 a month. The City of Temecula's agreement to sign the subordination form acceptable to the senior lender is key to removing a substantial barrier to closing the permanent financing, enabling the project to move forward with financial stability. THE ISSUE AT HAND Subordination Agreement Considerations The City's loan must be subordinated to the senior lender, in this case, Freddie Mac. Typically, a local regulatory agreement would also be subordinated, but the City of Temecula mandates that its Regulatory Agreement retains a priority position. Fortunately, Freddie Mac, as senior lender, is able to accommodate this requirement, allowing the City's Regulatory Agreement to remain in senior position, only subordinating the City loan. However, certain terms of the subordination required by Freddie Mac are different than what we had in place at the time of construction loan close, necessitating City approval. Under the proposed subordination agreement approved by Freddie Mac, the loan is subordinated while the Regulatory Agreement remains unaffected. If a Regulatory Agreement default occurs, the City must wait for a 90-day period and obtain consent from the senior lender before initiating foreclosure or loan acceleration proceedings related to their subordinate loan, which is cross - defaulted with the Regulatory Agreement. Importantly, all other remedies provided within the Regulatory Agreement are still available to the City without the need for senior lender approval. The City of Temecula, as the subordinate lender, wished to maintain the right to foreclose or accelerate their subordinate loan in the event of a Regulatory Agreement default even if the senior lender does not consent. This requirement conflicts with Freddie Mac's senior lender position, as it could potentially compromise the priority of their lien position. Consequently, Freddie Mac is unable to approve any agreement that includes such a provision. While the subordination agreement signed with the construction lender at the beginning of the project included a provision that better aligned with the City's request, it is uncertain whether the previous permanent lender would have required adjustments to those terms. Extensive efforts by Community HousingWorks, our attorneys, and NewPoint attorneys were dedicated to finding a precedent where Freddie Mac agreed to similar conditions, but no such examples were found. Moreover, even Wells Fargo, the construction lender in this deal, has indicated that they can no longer agree to the terms of the previous subordination, particularly the provision allowing a junior lender to accelerate or foreclose on their loan after a stand -still period due to a Regulatory Agreement default (unless such acceleration is agreed to by the senior lender). Thus, this is no longer commercially available option. By approving the Freddie Mac form of subordination, the Las Haciendas project will be able to secure permanent financing, which will alleviate the mounting cost burden caused by rapidly accumulating construction loan interest. Additionally, this will help prevent a foreclosure on the construction loan, which could render the Regulatory Agreement void. The Freddie Mac subordination form is still substantially similar to the terms offered by the previous lender, as illustrated in the chart below. Furthermore, the risk of a Regulatory Agreement default is minimal, as explained in greater detail later in this memo. Comparison of Freddie Mac Subordination Agreement and Subordination Previously Approved by the City Freddie w/ Reg Agrmnt Rider Wells/CCRC subordination Loan Subordinated? Yes Yes Reg Agreement is Subordinate Loan Doc? No No Upon foreclosure, Reg Agreement: SURVIVES (prior to Senior Loan) SURVIVES (prior to Senior Loan) Regulatory Agreement Default Remedies provided for in Reg Agreement: Equitable Remedies (performance) Available? Yes Yes Require Standstill (60 or 90 day duration)? No Standstill Available immediately No Standstill Available immediately Require Senior Lender Consent? No No Financial Remedies (Foreclosure, loan acceleration) Available? Yes, at sole discretion of Senior Lender Yes Require Standstill (60 or 90 day duration)? Yes Yes Require Senior Lender Consent? Yes, Senior Lender's sole discretion NO -- only during standstill period, after that City may exercise Ramifications of a Regulatory Agreement Default on Las Haciendas In the event of a Regulatory Agreement default, CHW would simultaneously be in default with both Freddie Mac (the senior lender) and the City of Temecula. This situation would entitle Freddie Mac to exercise all rights and remedies under the Senior Loan, including the right to foreclose. In the event the Senior Lender foreclosed, the City Loan would be extinguished, but the City Regulatory Agreement would remain in effect. The Regulatory Agreement will survive foreclosure regardless and ultimately, a new operator would need to come in and bring the property back into compliance. However, such a scenario is highly improbable, considering CHW's 36-year history of managing high -quality affordable housing and our unwavering commitment to compliance. Furthermore, CHW has a strong motivation to avoid defaulting on the Regulatory Agreement to avert the potential repercussions outlined below. Long Term Implications — Additional Considerations Apart from averting adverse consequences from both the City of Temecula and Freddie Mac, it is crucial for CHW to operate Las Haciendas in compliance with the Regulatory Agreement for the sake of our mission and the overall viability of our nonprofit organization. A default on the Regulatory Agreement would have severe, lasting repercussions for CHW, jeopardizing relationships at multiple levels and critically impacting our ability to continue our work. With over 30 tax credit allocations from the California Tax Credit Allocation Committee (TCAC), such a default would damage CHW's standing with TCAC, severely hindering our ability to develop affordable housing in California. Additionally, we would likely be placed on a "Do -Not -Do - Business -With List" by Freddie Mac, further limiting our future financing options. As a mission - driven nonprofit developer, we would never risk our ability to fulfill our commitment to affordable housing by allowing a Regulatory Agreement default to occur. Mission Alignment TCAC, Freddie Mac, and the City of Temecula all share a common objective of creating and preserving quality affordable housing in partnership with owners and operators like CHW who will uphold the Regulatory Agreement. Each stakeholder is deeply invested in ensuring strict adherence to their affordable housing objectives. The presence of multiple stakeholders ensures a "belt and suspenders" approach to Regulatory Agreement compliance, where defaulting with one regulator effectively means defaulting with all. In conclusion, if a Regulatory Agreement default occurred and remained uncured, this would lead to foreclosure by Freddie Mac and the termination of the City's subordinate debt, regardless of whether there were a negotiated right by the City to force Freddie Mac to foreclose. Such a default would have severe financial and reputational consequences for CHW's mission to develop affordable housing. Ultimately, CHW, the City of Temecula, and Freddie Mac are united in their commitment to upholding the Regulatory Agreement and maintaining a strong partnership to provide quality affordable housing.