EXHIBIT No. 7 Sec. 220 projects in financial difficulty (as of Apr. 1, 1965 and Apr. 1, 1966) Attached is a 2264, pencil notes, indicating the results of a third approach to the rental schedule of this project that are self-explanatory. Also attached is a comparative sheet indicating the three F.H.A. approaches to rent plus an estimate by the sponsor and the George Elkin's Company. The second 2264 indicates the results of this composite approach. While averages may not be desirable, they have been used in this instance as they afford the opportunity to incorporate all of the F.H.A. approaches as well as the sponsor's and the Elkin's approach to the rent schedule, which gives consideration to all pertinent opinions. This composite rent schedule is, in my judgment, the best that we can achieve in this preliminary analysis and I recommend that it be used in any analysis of feasibility. The commercial rents are again indicated by an average of the sponsor's estimate, data furnished by the Coldwell-Banker Company and F.H.A. estimates which again seems eminently fair, as all opinions are taken into consideration. Obviously, there has been no time to survey the commercial rental market in this stage. Data used is already in our files. The loans created by the composite rent schedule which considers a 2% curtail and a 95% debt service are as follows: 90 percent of FHA cost estimate (preliminary) Room count 3,123 rooms, at $4,070 per room. Sponsors request_ Debt service_. $12, 215, 000 12, 710,600 12, 650, 000 11, 293, 000 All of the above analysis is based upon a restudy by the sponsor of all apartments and the orientation on the plot plan to achieve maximum livability. Reference is made to my memorandum of September 9, 1958 and the detailed analysis of risk therein. Because of this risk and furthermore because the Urban Renewal plan for Sawtelle does not afford the protection which is contemplated under Section 220 loans of the scope, this project is not recommended for F.H.A. mortgage insurance. B. W. BLASE, Project Mortgage Appraiser. E. D. ROE. EXHIBIT No. 15 SECURITY FIRST NATIONAL BANK, Re Barrington Plaza. FEDERAL HOUSING ADMINISTRATION, Los Angeles, Calif. GENTLEMEN: We submit herewith properly executed FHA Form 2013, Appli cation for Mortgage Insurance, under Section 220 of the National Housing Act, and covering the Barrington Plaza project in West Los Angeles. Also enclosed is Cashiers Check for $18,750, representing the required appli cation fee. The following Exhibits are presented with this application: (1) Two sets plans (2) Two copies outline specifications (3) Two copies survey (incorporated in plans) (4) Two copies location map (5) Two copies soil report (6) Two copies letter regarding elevators The sponsors have advised us that you have been previously supplied with other necessary Exhibits with the exception of personal financial statements of the sponsors. These statements will be forwarded by us in the near future. Your attention is directed to the fact that although the total requirements of the project are estimated to be $16,162,000 thereby making it eligible for a mortgage of $14,545,100, the application for commitment has been reduced to $12,500,000, the maximum allowable amount for a single mortgage under present legislation. This application is submitted with the understanding that if presently pending legislation allows, the mortgage application will be amended to request the higher amount of $14,545,100. Otherwise, the project will be split into two areas. and the application amended accordingly. Very truly yours, EXHIBIT No. 16 Vice President.. FEDERAL HOUSING ADMINISTRATION,. To: W. Beverley Mason, Jr., Assistant Commissioner-Technical Standards. Pursuant to conferences in your office with various members of your staff, Underwriting Advisor Joe Woods and Belden Morgan and Burton Blase of this office, there are attached two income analyses on Form 2264 on the above project. The first one indicated "207 Approach on Rents" indicates the maximum probable rentals as we would report them on a 207 project. The second analysis indicated "Rentals Required to Create Loan of 90% of Sponsor's Estimated Cost" shows the approximate rentals that would be required to make the commitment acceptable to the sponsor. The rentals on the second analysis are approximately 7% higher than on the first. In our opinion, these rentals are well within the realm of possibility.. Our question to you is whether or not the use of these higher level rentals is justified in our processing, and whether or not you would consider that using such rentals falls within the concepts set forth in Section 220 Letter #32 dated November 13, 1956? A second problem confronts us which was discussed in the conferences referred to, and this is the probable deficit of net return during the first few years after completion of the buildings during which period it is anticipated that normal Occupancy cannot be achieved. On the second page of the first income analysis. a net return of $466,000 is shown. This is approximately 2 million dollars short of the debt service requirements. Offsetting the risk which is apparent by this deficit, the sponsors have agreed to leave intact in the corporate funds. from the 3% cash equity requirement, a sum of $250,000 cash (or acceptable securities) for the purpose of meeting such a contingency. If the remaining balance of the 3% cash equity at the time of final closing is less than $250,000 the sponsors have agreed to augment and maintain that balance so that a reservę of $250,000 will be available. As an additional offset to the risk of deficit during these early years, the sponsor in this case has unusual financial strength as evidenced by his financial statements now on file which indicate a net worth of approximately $22,000,000. In your opinion, are we warranted in issuing a commitment in the maximum amount indicated by final processing without additional assurances from the sponsor with relation to these deficits? NORMAN M. LYON. EXHIBIT No. 17 JUNE 26, 1959. To: Mr. Norman M. Lyon, Director, Los Angeles Insuring Office. Subject: Barrington Plaza-Proposed Section 220, Urban Renewal Project- In re: Belden Morgan, Chief Underwriter. This is in reply to your memo of June 26 asking advice on two underwriting problems which have arisen in connection with your processing of the Barrington Plaza, Section 220 project. I have carefully considered these problems in the light of the policy expressed in Section 220 Letter No. 32 dated November 13, 1956. Therein we find the statement that "reasonable doubts as to the acceptability of such a proposal, including expectations of marketability should be resolved in favor of acceptance of the project proposal rather than in favor of rejection." In my opinion this and other supporting statements justify both of the favorable findings which you suggest. To: Directors of all field offices. EXHIBIT No. 18 FEDERAL HOUSING ADMINISTRATION, Subject: Policy considerations in section 220 processing. In the processing of an application for mortgage insurance under Section 220, one of the basic questions is always the nature and extent of the special risk which FHA is justified in assuming. Outstanding instructions for reaching such a conclusion are technically adequate, but in their application there is need for a full grasp of the broad policy involved. Among the various statements explaining the intent of this legislation, one of the most significant is that contained in a memorandum from Administrator Albert M. Cole to Commissioner Norman P. Mason. Pertinent excerpts from this memorandum are quoted below for your express guidance: In recommending the creation of Section 220 the President's Advisory Committee clearly recognized that mortgage underwriting as a part of an urban renewal undertaking offered special problems and special risks. The Congress accepted this idea and replaced the normal finding of economic soundness with the Administrator's certification that a comprehensive urban renewal program had been reviewed and approved. Thus, the FHA was not required to wait for the demonstration that urban renewal could improve and stabilize downtown neighborhoods and the related real estate values; it could accept the promise that these values could and would be created "In substituting replacement cost for value in Section 220 (for multi-family projects) Congress expressed the expectation that this step would result in increased mortgage amounts which it felt were needed to make the program work . . . I believe the Congress expected and intended that this action would lead to a generally more liberal approach to the whole underwriting process. I believe Congress intended that this increased liberality should apply to all the risk factors affecting acceptability of the project and the mortgage amount, including the estimates of marketability. 66 "... The point is, I think, that this administration is dedicated and committed to the proposition that urban renewal can work. I think it is equally clear that the Congress has instructed us through Section 220 to take risks which are necessary to demonstrate the truth of this proposition." In keeping with the recent actions of the Congress and Administrator Cole's comments, it is essential that this broad concept be kept in mind when considering a Section 220 proposal. More specifically and most emphatically, it is to be recognized that the type or caliber of a project which may be acceptable under Section 220 will often produce risk factors considerably at variance with those ordinarily encountered when testing for economic soundness. Thus, in the underwriting review of a Section 220 proposal, reasonable doubts as to the acceptability of any aspect of such a proposal, including expectations of marketability, should be resolved in favor of acceptance of the project proposal rather than in favor of rejection. Very truly yours, EXHIBIT No. 24 CHARLES E. SIGETY, DECEMBER 11, 1962. TELEPHONE CONFERENCE, R. F. SHERMAN AND M. LEENOV WITH MR. DANIELS Related to Mr. Daniels the details of the sponsor's request for increase in the commitment and our preliminary findings. Mr. Daniels stated that he took a part in the original negotiation between the first sponsors (Ben Deane and Louis Lesser) and was interested in our findings. He indicated that since current procedure required Washington approval, he thought that he might have to come here for a negotiating conference with the sponsors. In the interim, since time is of the essence, he advised that we process the case at once with a view of finding the highest possible commitment in accordance with outstanding instructions and bearing in mind the need for this Urban Renewal Program. M. LEENOV. EXHIBIT No. 25 DECEMBER 11, 1962. TELEPHONE CONFERENCE, R. F. SHERMAN AND M. LEENOV WITH A. TIMMEL Apprised Mr. Timmel of sponsor's request (L. Lesser and Associates) regarding a review and reanalysis of Barrington Plaza. Disclosed to him that sponsor's request for $1,900,000 doesn't appear to be possible due to loan criteria and high rents that appear to be ten percent over economic rent. Mr. Timmel advised calling Mr. Daniels and apprising him of the details of sponsor's request and our preliminary findings. M. LEENOV. EXHIBIT No. 31 AGREEMENT RE FHA PROJECT NO. 122-32020-R BARRINGTON PLAZA CORP. In order to induce the Federal Housing Commissioner to endorse the Deed of Trust to be executed in respect to the captioned project, the undersigned agree that at the time of final endorsement for mortgage insurance a fund in the amount of two hundred fifty thousand ($250,000) dollars will be established and maintained for the purpose of meeting contingencies which may arise as a result of the net rental income being insufficient to meet Debt Service Requirements. It is understood that this fund may consist of the unused portion of the 3% equity and/or working capital deposit, augmented if necessary by cash, or acceptable securities so that the sum of two hundred fifty thousand ($250,000) dollars will remain intact until the Federal Housing Administration is satisfied that the net rental income from the project is sufficient to meet Debt Service Requirements. This Agreement is given to comply with one of the requirements of the Commitment for Insurance dated June 29, 1960. 73070.4 When the housing expense range within the paying ability of the occupants has been determined, the approximate maximum financing within this range to occupant owners can be calculated as follows: (1) Deduct the estimated operating expenses (hazard insurance premiums, taxes and assessments, heating and utilities expense and maintenance and repair) from the total housing expense to arrive at the amount available for debt service on the mortgage. (2) Determine the maximum term of mortgage within remaining economic life limitation. (3) Determine the maximum insurable mortgage based on the eligible term which requires a debt service (principal, interest and mortgage insurance premium) approximating the amount found in Step (1). This will be obtained from Form 2025, Amortization & Insurance Premium Tables. In cases of rental properties the approximate amount of mortgage within the income range that can be supported by rents will be determined in a similar manner. From the prospective housing expense found to be within the paying ability of the tenants must be deducted the cost of any service (heating, utilities, etc.) which are not paid by the landlord. This produces the rents that may be obtained. The obtainable rents less all operating expenses will be the net rents available to support the debt service requirements on the mortgage and provide a return on the owner's investment. The amount of financing will be that amount which does not require debt service payments in excess of 90% of the net income. (New 11/7/63) EXHIBIT No. 33 LOUIS LESSER ENTERPRISES, LTD., Re Barrington Plaza Corporation—F.H.A. Project No. 122–32020–R. GENTLEMEN: In line with a recent conference held with F.H.A. Assistant Commissioner Frank Daniels, and at Mr. Daniels' suggestion, and in connection with the above-entitled project, we respectfully request that you affirmatively consider the following requests: 1. A waiver by F.H.A. of the requirement, at time of final endorsement, of the cash deposit of $250,000.00 to establish a fund for the purpose of meeting |