Council approves $900,000 loan to avert default at Hillcrest Villas supportive-housing project

The Thousand Oaks City Council voted 5-0 to authorize a one-time, $900,000 loan to Many Mansions to stabilize operations at Hillcrest Villas, a 60-unit mixed supportive affordable-housing complex.

Finance Director Jamie Boscarino told the council Hillcrest Villas — completed in 2013 — houses very low- and extremely low-income residents and provides supportive services for about half its residents. The project was initially financed with multiple sources; the city still holds a $7.1 million residual-receipts loan on the property. Boscarino said the property failed to meet the required debt-service-coverage ratio (DSCR) for two consecutive years, prompting U.S. Bank to issue a notice of default on the remaining permanent loan balance (about $944,000). Many Mansions sought partner financing to cure the default.

Boscarino described the principal cause of the cash-flow squeeze as rapidly rising property-insurance costs after the Woolsey Fire and changes in the insurance market. She said property insurance jumped from under $20,000 annually to more than $275,000 in recent years; subsequent negotiations and a switch to the California FAIR Plan reduced that exposure to roughly $166,000, but operating costs remain elevated. The supportive-service model (services for formerly homeless residents and others) constrains rents and increases operating expense, Boscarino said.

Staff described a negotiated approach: Many Mansions asked for partner loans and proposed a plan in which the city would provide $900,000 to pay off the U.S. Bank balance and remove bank-enforced debt service. Montecito Bank had proposed a junior loan but staff advised against adding a private bank in a superior lien position. Boscarino said the city’s proposed loan would carry a 55-year term, 3% simple interest and be repaid from residual receipts (excess cash flow) and require payoff upon any future syndication. The city would likely be in second lien position behind HCD if payoffs and HCD priorities are finalized.

Many Mansions President Rick Schrader told the council the nonprofit had already spent about $500,000 in cash preserving the property’s operations and expects fewer insurance costs going forward after moving to the FAIR Plan. He said the organization has been current on debt-service payments to U.S. Bank but drew down reserves to cover operating shortfalls.

Council members questioned the current DSCR, the project’s reserves and long-term sustainability. Staff said the project had been designed with operating reserves intended to last about 20 years; Hillcrest is roughly year 12. Boscarino said residual-receipts payments had been made in some earlier years but not recently because of insurance-driven negative net income. Staff said HCD approval would be required for a loan restructuring and that the city would pursue the best possible lien position consistent with HCD requirements.

Mayor Pro Tem Taylor and other council members emphasized the project’s community value, noting Hillcrest houses vulnerable residents and works in partnership with the city’s navigation center and regional supportive-housing efforts. Council member Engler and others asked for improved early-warning communication between Many Mansions and the city; Many Mansions’ leadership agreed to closer coordination.

Council member Taylor moved to follow staff recommendations to provide the additional loan; the motion passed 5-0. Staff said the loan is not a project under CEQA and authorized the city manager to execute any necessary agreements with HCD and other parties to implement the financing.