Title
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Resolution Authorizing Subordination of a Restrictive Covenant for the Property Located at 855 Lake Street
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Introduction
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The owners of 855 Lake Street are requesting the ability to subordinate the Affordable Housing Restrictive Covenant to a new first mortgage through Fannie Mae.
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Recommended Action
Approve the resolution.
Prior Board Action
The Board has taken the following prior action(s):
• RES 20-046: A Resolution Approving a Funding Grant Agreement in the Amount of $260,000 with Icon Clark, LLC Consistent with the Recommendation of the Oak Park Economic Development Corporation (Oak Park EDC) and Authorizing its Execution.
Background
855 Lake Street is a 64-unit apartment building rehabilitated over the last six years. In February 2020, the Village Board approved $260,000 from the Affordable Housing Fund (predecessor to the Housing Trust Fund) for Icon Clark, LLC to construct an exterior full cab elevator as part of their work rehabilitating and updating 855 Lake Street in order to address safety concerns. In turn, Icon Clark agreed to restrict 20% of units (i.e., 13 units) as affordable to households with incomes at or below 50% of the area median income for 15 years. The Village agreed to pay the $260,000 once the building received its final Certificate of Occupancy (CO). Due to several construction delays, the building did not receive its final CO until the end of 2025. As a result, staff have not disbursed the funds or signed the finalized agreement.
To secure the Village’s affordable units, the Village requested that Icon Clark record an Affordable Housing Restrictive Covenant against the property. Icon Clark has requested that the covenant include subordination language that is required by their new first mortgage through Fannie Mae. The Village’s original agreement with Icon Clark did not include such language, and staff would need Board approval to do so.
The Village has traditionally agreed to subordinate loans provided that equity remains in the property to protect the Village's financial interest. For example, 801 S. Oak Park’s original agreement with the Village included a clause allowing subordination to any of the financing options included as part of the original application. Similarly, staff has regularly brought forward subordination requests for rehabilitation loans.
An appraisal submitted by Icon Clark found the property to have a current value of $13.4 million. After the new first mortgage, the total indebtedness on the property will be $9.4m, leaving $4m in equity or 30% of the value in place. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
Timing Considerations
Icon Clark is currently in the process of refinancing with a new first mortgage through Fannie Mae.
Financial Impact
There is no budget impact associated with this item. The $260,000 in the Housing Trust Fund has been encumbered since 2020 for this use.
Operations Impact
There is no operating impact associated with this item. The item aligns with the department’s core service delivery.
DEI Impact
Icon Clark agreed to restrict 20% of units (i.e. 13 units) as affordable to households with incomes at or below 50% of the area median income for 15 years.
Community Input
Community input on this item occurred via the original loan approval process in 2020.
Staff Recommendation
Adopt the resolution.
Advantages:
• This action secures the Village’s restrictions on 13 units of affordable housing for the next 15 years.
Disadvantages:
• There are no disadvantages to this action.
Alternatives
Alternative 1:
The Board can reject the resolution.
Advantages:
• This action can free up $260,000 in Housing Trust Fund monies.
Disadvantages:
• The property owner would not be required to maintain 13 units of affordable housing for the next 15 years.
Anticipated Future Actions
If approved by the Board, staff would execute and record the necessary documents.
Prepared By: Jonathan Burch, Assistant Village Manager/ Neighborhood Services Director
Reviewed By: Jack Malec, Assistant to the Village Manager
Approved By: Kevin J. Jackson, Village Manager
Attachment(s):
1. Resolution
2. Original funding grant agreement
3. Subordination request
4. Fannie Mae subordination agreement
5. Affordable Housing Restrictive Covenant