Subject
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Adoption of Resolution to approve Montgomery County, Maryland’s $1,500,000.00 Housing Initiative Fund Loan to RHE Scarborough Square, LLC, owner of the Scarborough Square Townhomes & Apartments.
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Department
Housing and Community Development
Recommendation
Staff recommend The Mayor and Council (i) approve the $1,500,000.00 County HIF Loan from Montgomery County, Maryland to RHE Scarborough, as additional financing related to the Scarborough Square Apartments in order to assist RHE Scarborough in the payment of certain essential mortgage payments, interest reserve replenishment, and new extension fees related to the prior financing of its acquisition of Scarborough Square Apartments, and (ii) authorize and empower the City Manager of the City of Rockville, Maryland to execute any and all documents required in connection therewith, subject to approval as to legal sufficiency and final form by the City Attorney.
Discussion
On November 1, 2022, RHE Scarborough Square, LLC (the “RHE Borrower”) acquired Scarborough Square Townhomes and Apartments (a 121-unit multifamily rental apartment complex) from Montgomery County for $40,000,000. The acquisition was initially financed with a short-term $40 million promissory note from Montgomery County. Rockville Housing Enterprises guaranteed repayment of the Montgomery County loan, for which payment was due May 1, 2023.
On December 20, 2022, ORLO Scarborough Investors, LLC (“ORLO”) provided the RHE Borrower with a short-term loan of $33,000,000. The ORLO loan accrues interest at the rate of 8% per annum. The RHE Borrower is required to make monthly interest payments on the loan. Initially, the full outstanding balance of the loan was due and payable on December 20, 2023. $28,200,000 of the ORLO loan proceeds were used by the RHE Borrower to pay down the Montgomery County loan.
After receiving the $28,200,000 from the ORLO loan proceeds, Montgomery County agreed to refinance its short-term loan to the RHE Borrower and issued an $11,800,000 promissory note. The refinanced Montgomery County loan accrues interest at 1% per annum. The RHE Borrower is required to make monthly interest payments on the refinanced loan, and the full outstanding balance of the loan is now due and payable on December 14, 2027.
On July 17, 2023, in order to ensure that 61 apartment units in Scarborough Square apartments are reserved and designated for occupancy by low-income households for 15 years, the Mayor and Council approved and authorized a loan of $1,200,000.00 (the “MPDU Loan”) to the RHE Borrower and provided the RHE Borrower with a $600,000 grant. The MPDU Loan accrues interest at the rate of 0% per annum. The RHE Borrower is not required to make periodic loan payments, and the full outstanding balance is due and payable on December 14, 2027.
On October 30, 2023, the RHE Borrower submitted a letter to ORLO requesting an extension of the repayment term of the ORLO loan. After the RHE Borrower paid the $330,000 extension fee, ORLO agreed to extend the loan's maturity date from December 20, 2023, to December 20, 2024.
ORLO forgave $9,000,000 of the $33,000,000 ORLO loan in exchange for acquiring a 49% ownership interest in the RHE Borrower (sole owner of Scarborough Square apartments).
On October 27, 2024, ORLO agreed to extend the due date for its $24,000,000 loan to the RHE Borrower to March 20, 2025, subject to the RHE Borrower’s payment of a $220,000 extension fee and a 2% increase on the $24,000,000 Note.
Montgomery County is proposing to loan One-Million Five-Hundred Thousand and 00/100 Dollars ($1,500,000.00) in housing initiative funds to RHE Scarborough to assist RHE Scarborough in the payment of “essential mortgage payments, interest reserve replenishment, and new extension fees related to the prior financing of the acquisition of [Scarborough Square Apartments]”.
RHE Scarborough is requesting that the Mayor and Council approve the County HIF Loan to RHE Scarborough, as additional financing related to the Scarborough Square Apartments.
Mayor and Council History
On August 1, 2023, the Mayor and Council considered and approved a $1,200,000 moderately priced dwelling unit loan and a $600,000 grant to RHE Scarborough Square, LLC.
On September 30, 2024, the Mayor and Council adopted a resolution to approve RHE Scarborough Square, LLC’s sale of a beneficial interest in the Scarborough Square Townhomes and Apartments. The Mayor and Council also approved and authorized the City Manager to execute on behalf of the Mayor and Council the First Amendment to the City of Rockville Moderately Priced Housing Fund Loan Agreement with RHE Scarborough Square, LLC, and the First Amendment to the Deed of Declaration of Restrictive Covenants made by RHE Scarborough Square, LLC for the benefit of the Mayor and Council.
Fiscal Impact
The terms remain the same pursuant to the terms of the $1,200,000 Moderately Priced Housing Loan Agreement by and between the Mayor and Council and the RHE Scarborough Square Owner, as evidenced by the Rockville Moderately Priced Housing Fund Promissory Note payable to the Mayor and Council, which shall expire on December 14, 2027, unless the agreement is earlier terminated by prepayment of the Rockville MPDU Loan.
Next Steps
Following the approval of the Resolution, RHE and the county will proceed with the transaction.