CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS
CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT
YEAR ENDED DECEMBER 31, 2016 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
Page
Independent Auditor’s Report...... 1
Consolidated Statement of Financial Position...... 3
Consolidated Statement of Activities...... 5
Consolidated Statement of Net Assets ...... 6
Consolidated Statement of Functional Expenses ...... 7
Consolidated Statement of Cash Flows...... 8
Notes to the Consolidated Financial Statements ...... 9
Supplementary Information...... 40
Schedule of Low-Income Housing Operations – Unrestricted – Total ...... 41
Schedule of Low-Income Housing Operations – Unrestricted – CCDC Owned ...... 42
Schedule of Low-Income Housing Operations – Unrestricted – Subsidiaries ...... 43
Schedule of Low-Income Housing Operations – Unrestricted – Affiliated Partnerships ...... 44
Schedule of Assets, Liabilities and Net Assets – Chinatown Community Development Center Only ...... 45
Schedule of Support and Revenue, and Expenses – Chinatown Community Development Center Only...... 47
Schedule of Notes Payable...... 48
Schedule of Expenditures of Federal Awards ...... 54
Notes to the Schedule of Expenditures of Federal Awards ...... 56
Schedule of Findings and Questioned Costs ...... 57
Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards...... 58
Independent Auditor’s Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by the Uniform Guidance ...... 60
* * * * Board of Directors Chinatown Community Development Center San Francisco, California
INDEPENDENT AUDITOR’S REPORT
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Chinatown Community Development Center, subsidiaries and affiliated partnerships, which comprise the consolidated statement of financial position as of December 31, 2016, and the related consolidated statements of activities, net assets, functional expenses and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
1 Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Chinatown Community Development Center, subsidiaries and affiliated partnerships as of December 31, 2016, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Report on Supplementary Information
Our audit was conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying supplementary information on pages 41 through 53 is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. The accompanying schedule of expenditures of federal awards on pages 54 through 56 is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects, in relation to the consolidated financial statements as a whole.
Report on Other Legal and Regulatory Requirements
In accordance with Government Auditing Standards, we have also issued a report dated June 27, 2017 on our consideration of Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control over financial reporting and compliance.
June 27, 2017
2 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2016
Low-Income Housing Operations Owned Affiliated Other Notes Projects Partnerships Programs Eliminations Total
ASSETS
Current assets: Cash and cash equivalents $ 1,537,237 $ 5,814,109 $ 5,805,216 $ - $ 13,156,562 Cash and cash equivalents – development 138,001 2,078,784 - - 2,216,785 Cash held as trustee (contra) 3 - - 30,370 - 30,370 Investments in marketable securities 10 - - 6,031,550 - 6,031,550 Receivables: Rent 72,577 187,174 - - 259,751 Government contracts 4 - - 951,510 - 951,510 Grants and contributions 5 - - 13,684 - 13,684 Other 6 27,732 945,092 403,736 - 1,376,560 Project development fee receivable 13 - - 3,038,851 (2,905,726) 133,125 Management and other fees receivable 13 - - 1,012,441 (986,362) 26,079 Receivable from related parties and affiliated partnerships 13 4,533 - 272,776 (192,624) 84,685 Interest receivable 13 - - 351,000 - 351,000 Prepaid expenses 22,004 82,711 98,706 - 203,421 Total current assets 1,802,084 9,107,870 18,009,840 (4,084,712) 24,835,082
Property and equipment, net of accumulated depreciation of $80,700,984 8 29,566,052 395,829,944 22,169 (2,255,006) 423,163,159 Cash – restricted 7 3,593,026 7,866,446 - - 11,459,472 Grants and contributions receivable 5 - - 21,550 - 21,550 Tenant security deposits 286,742 815,861 - - 1,102,603 Investments in real estate limited partnerships 11 4,985,474 - - (4,986,246) (772) Investment in SEA 12 - - 25,000 - 25,000 Other fee receivable – noncurrent - - 108,985 (108,985) - Deposits 1,200 - 113,729 - 114,929 Prepaid ground lease 20 - 13,084,919 - - 13,084,919 Notes receivable 13 - - 4,933,953 (3,406,393) 1,527,560 Interest receivable inter-company 13 - - 274,886 (274,886) - Capitalized fees, net of accumulated amortization of $532,569 9 386,361 368,407 - - 754,768 Total non-current assets 38,818,855 417,965,577 5,500,272 (11,031,516) 451,253,188
Total assets $ 40,620,939 $ 427,073,447 $ 23,510,112 $ (15,116,228) $ 476,088,270
The accompanying notes are an integral part of these financial statements.
3 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2016
Low-Income Housing Operations Owned Affiliated Other Notes Projects Partnerships Programs Elimination Total
LIABILITIES AND NET ASSETS
Current liabilities: Accounts payable $ 568,563 $ 378,654 $ 139,381 $ - $ 1,086,598 Accrued payroll and vacation 17,591 55,346 854,609 - 927,546 Unearned revenue 22,134 189,459 - - 211,593 Other accrued liabilities 106,041 281,121 - - 387,162 Accrued interest 14 26,403 224,695 2,500 - 253,598 Management and other fees payable 13 48,787 828,369 113,800 (633,632) 357,324 Project development fee payable - 2,905,726 - (2,905,726) - Trustee funds (contra) 3 - - 30,370 - 30,370 Payable to CCDC, affiliates, and related parties 13 44,782 189,131 67,693 (301,606) - Ground lease payable, current portion 20 136,984 653,385 - - 790,369 Current portion of notes payable to City and State – nonforgivable 14 60,345 - - - 60,345 Current portion of secured notes payable 14 388,862 2,083,104 - - 2,471,966 Current portion of accrued deferred interest – nonforgivable loans 14 86,812 224,572 - - 311,384 Total current liabilities 1,507,304 8,013,562 1,208,353 (3,840,964) 6,888,255
Non-current liabilities: Construction costs payable (to be funded by additional loans and capital contributions) - 8,415,415 - (352,732) 8,062,683 Tenant security deposits 274,919 806,388 - - 1,081,307 Ground lease payable 20 984,177 3,941,763 - - 4,925,940 Permanent loan costs, net of accumulated amortization of $987,646 14 (202,249) (1,170,631) (83,891) - (1,456,771) Swap contract liability 15 - 1,152,632 - - 1,152,632 Notes payable to CCDC 13 309,523 3,096,870 - (3,406,393) - Unsecured loans payable 14 - - 500,000 - 500,000 Secured notes payable to City – forgivable 14 6,439,874 - - - 6,439,874 Secured notes payable to City and State – nonforgivable 14 20,732,970 240,863,249 - - 261,596,219 Secured notes payable 14 5,917,062 37,819,662 1,329,560 - 45,066,284 Construction loans payable 14 - 19,721,345 - - 19,721,345 Accrued interest payable – inter-company 13 - 274,886 - (274,886) - Accrued deferred interest – forgivable loans 14 6,247,538 - - - 6,247,538 Accrued deferred interest – nonforgivable loans 14 13,156,952 13,418,653 - - 26,575,605 Total non-current liabilities 53,860,766 328,340,232 1,745,669 (4,034,011) 379,912,656
Total liabilities 55,368,070 336,353,794 2,954,022 (7,874,975) 386,800,911
Net assets: Unrestricted – controlling interest (24,870,881) 4,996,465 19,530,000 (7,241,253) (7,585,669) Unrestricted – non-controlling partners’ interests - 85,723,188 - - 85,723,188 Total unrestricted (24,870,881) 90,719,653 19,530,000 (7,241,253) 78,137,519
Temporarily restricted 16 7,909,500 - 1,026,090 - 8,935,590 Permanently restricted 17 2,214,250 - - - 2,214,250 Total net assets (14,747,131) 90,719,653 20,556,090 (7,241,253) 89,287,359
Total liabilities and net assets $ 40,620,939 $ 427,073,447 $ 23,510,112 $ (15,116,228) $ 476,088,270
The accompanying notes are an integral part of these financial statements.
4 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2016
Low-Income Housing Operations Affiliated Owned Projects Partnerships Other Programs Temporarily Permanently Temporarily Notes Unrestricted Restricted Restricted Unrestricted Unrestricted Restricted Elimination Total Support and revenue: Rental $ 5,855,587 $ - $ - $ 18,839,756 $ 31,681 $ - $ (193,003) $ 24,534,021 Government grants and contracts 13,472 - 350,000 - 2,762,098 65,000 - 3,190,570 Management and RAD service fees 13 - - - - 2,149,982 - (1,929,770) 220,212 Technical assistance fees - - - - 275,927 - - 275,927 Developer and project administrative fees 13 - - - - 4,011,875 - (1,110,750) 2,901,125 Tenant services fees 13 - - - - 735,471 - (735,471) - Outreach and relocation service fees - - - - 618,950 - - 618,950 Bookkeeping and others 13 - - - - 234,968 - (213,132) 21,836 Investment income 18 305,333 - - 10,680 740,069 - (374,981) 681,101 Foundation grants 200 - - - 226,850 361,589 - 588,639 Contributions - - - - 570,011 154,691 - 724,702 Miscellaneous 67,483 - - 230,351 12,031 - - 309,865 Net assets released from restrictions: Satisfaction of grant restrictions 16 57,000 (57,000) - - 541,791 (541,791) - - Total support and revenue 6,299,075 (57,000) 350,000 19,080,787 12,911,704 39,489 (4,557,107) 34,066,948 Expenses: Program services: Low-income housing projects: Operating 5,172,515 - - 14,268,237 - - (2,878,376) 16,562,376 Deferred interest 688,956 - - 2,648,134 - - (92,278) 3,244,812 Deferred rent - - - 239,600 - - - 239,600 Depreciation and amortization 1,603,818 - - 7,712,675 - - 366,860 9,683,353 Amortization of permanent loan costs 25,383 - - 84,271 - - - 109,654 Property management - - - - 754,990 - (16,210) 738,780 Housing development - - - - 1,233,815 - (18,798) 1,215,017 Program and planning - - - - 4,362,431 - (83,223) 4,279,208 Costs of direct benefits to donors - - - - 126,947 - - 126,947 Management and general: Operating - - - - 3,311,159 - (65,235) 3,245,924 Depreciation and amortization - - - - 23,027 - - 23,027 Fund-raising - - - - 363,531 - (9,534) 353,997 Total expenses 7,490,672 - - 24,952,917 10,175,900 - (2,796,794) 39,822,695 Change in net assets from operations (1,191,597) (57,000) 350,000 (5,872,130) 2,735,804 39,489 (1,760,313) (5,755,747)
Change in net assets, before non-controlling partners' interest (1,191,597) (57,000) 350,000 (5,872,130) 2,735,804 39,489 (1,760,313) (5,755,747) Less: non-controlling partners’ interests - - - 6,166,784 - - - 6,166,784 Change in net assets $ (1,191,597) $ (57,000) $ 350,000 $ 294,654 $ 2,735,804 $ 39,489 $ (1,760,313) $ 411,037 The accompanying notes are an integral part of these financial statements.
5 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENT OF NET ASSETS YEAR ENDED DECEMBER 31, 2016
Accumulated Other Change in Net Transfer of Beginning of Contributed Comprehensive Syndication Assets from Reclassification Partnership Inter-program Year Capital Distribution Loss Costs Operations s Interest Subtotal Reclassification End of Year (Note a) (Note a) (Note b) (Note c) Unrestricted net assets: Controlling interest – low-income housing: Owned projects $ (24,810,399) $ - $ (44,324) $ - $ - $ (1,191,597) $ 1,099,631 $ (600,925) $ (25,547,614) $ 676,733 $ (24,870,881) Affiliated partnerships 3,005,480 - (5,676) 20 - 294,654 1,101,062 600,925 4,996,465 - 4,996,465 Other program 16,824,102 - 50,000 - - 2,735,804 - - 19,609,906 (79,906) 19,530,000 Inter-program elimination (3,016,006) - - - - (1,760,313) (1,868,107) - (6,644,426) (596,827) (7,241,253) Subtotal – unrestricted net assets (7,996,823) - - 20 - 78,548 332,586 - (7,585,669) - (7,585,669)
Non-controlling interest – low-income housing: Affiliated partnerships 67,362,094 24,975,747 (52,097) 202,114 (265,300) (6,166,784) (332,586) - 85,723,188 - 85,723,188 Subtotal – unrestricted net assets 67,362,094 24,975,747 (52,097) 202,114 (265,300) (6,166,784) (332,586) - 85,723,188 - 85,723,188
Total unrestricted 59,365,271 24,975,747 (52,097) 202,134 (265,300) (6,088,236) - - 78,137,519 - 78,137,519
Temporarily restricted net assets: Low-income housing – owned projects 7,966,500 - - - - (57,000) - - 7,909,500 - 7,909,500 Other program 986,601 - - - - 39,489 - - 1,026,090 - 1,026,090 Total – temporarily restricted net assets 8,953,101 - - - - (17,511) - - 8,935,590 - 8,935,590
Permanently restricted net assets: Low-income housing – owned projects 1,864,250 - - - - 350,000 - - 2,214,250 - 2,214,250 Total – permanently restricted net assets 1,864,250 - - - - 350,000 - - 2,214,250 - 2,214,250
Total net assets $ 70,182,622 $ 24,975,747 $ (52,097) $ 202,134 $ (265,300) $ (5,755,747) $ - $ - $ 89,287,359 $ - $ 89,287,359
Note a: Reclassification of developer fee adjustments and eliminations.
Note b: The limited partners of Ping Yuen and North Ping Yuen were admitted in October 2016; thereafter, the unrestricted net assets totaling $1,600 was transferred from CCDC Subsidiaries to Affiliated Partnership. The unrestricted net assets of $602,525 from Golden Gate was transferred from Affiliated Partnerships to Subsidiaries.
Note c: This is inter-program reclassifications resulted from inter-program activities.
The accompanying notes are an integral part of these financial statements.
6 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES YEAR ENDED DECEMBER 31, 2016
Costs of Low-Income Direct Management Housing Property Housing Program and Benefits and Projects Management Development Planning to Donors General Fund-raising Elimination Total
Expenses: Salaries, payroll taxes and fringes $ 3,399,318 $ 677,448 $ 1,109,804 $ 2,738,190 $ - $ 2,524,690 $ 305,886 $ - $ 10,755,336 Tenant services 845,359 - - 102,468 - - - (735,471) 212,356 Repairs, maintenance and garbage 3,517,370 5,542 6,433 33,064 - 33,140 4,251 - 3,599,800 Professional fees 599,054 12,900 26,543 915,257 - 143,101 2,348 (213,132) 1,486,071 Management fees 2,249,639 ------(1,929,770) 319,869 Rent/ground lease 1,138,676 17,836 23,366 122,477 - 71,648 10,476 (193,003) 1,191,476 Utilities 2,697,315 1,842 2,138 9,456 - 7,800 1,083 - 2,719,634 Office supplies and expenses 321,585 18,786 28,253 154,058 - 215,610 30,998 - 769,290 Travel and conference 8,550 11,834 7,816 57,242 - 70,811 115 - 156,368 Insurance 440,882 1,699 1,962 8,820 - 100,112 994 - 554,469 Property taxes, licenses and permits 482,711 34 297 758 - 9,228 351 - 493,379 Bad debts 21,883 - 12,565 1,329 - 3,298 - - 39,075 Interest 2,884,461 - 10,000 - - - - - 2,894,461 Interest – amortization of permanent loan costs 109,654 ------109,654 Other financial expenses 620,137 ------620,137 Contribution expenses - - - - - 57,000 - - 57,000 Catering - - - - 126,947 1,203 670 - 128,820 Other event expenses ------3,304 - 3,304 Community outreach - - - 148,523 - 1,110 - - 149,633 Depreciation and amortization 9,316,493 - - - - 23,027 - 366,860 9,706,380 Miscellaneous 213,812 7,069 4,638 70,789 - 72,408 3,055 - 371,771 28,866,899 754,990 1,233,815 4,362,431 126,947 3,334,186 363,531 (2,704,516) 36,338,283 Inter-program eliminations (2,603,794) (16,210) (18,798) (83,223) - (65,235) (9,534) 2,796,794 -
Total operating expenses 26,263,105 738,780 1,215,017 4,279,208 126,947 3,268,951 353,997 92,278 36,338,283
Deferred rent 239,600 ------239,600 Deferred interest – nonforgivable loans 3,254,146 ------(92,278) 3,161,868 Deferred interest – forgivable loans 82,944 ------82,944
Total deferred rent and interest 3,576,690 ------(92,278) 3,484,412
Total expenses $ 29,839,795 $ 738,780 $ 1,215,017 $ 4,279,208 $ 126,947 $ 3,268,951 $ 353,997 $ - $ 39,822,695
The accompanying notes are an integral part of these financial statements.
7 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2016
Low-Income Housing Operations Owned Affiliated Other Projects Partnerships Programs Elimination Total
Cash flows from operating activities: Change in net assets $ (898,597) $ (5,872,130) $ 2,775,293 $ (1,760,313) $ (5,755,747) Other partners' interests - 6,166,784 - - 6,166,784 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 1,603,819 7,712,675 23,027 366,860 9,706,381 Amortization of ground lease - 345,528 - - 345,528 Interest – amortization of permanent loan costs 25,383 84,271 - - 109,654 Unrealized gain on investment in marketable securities - - (293,506) - (293,506) Realized loss on investment in marketable securities - - 516,224 - 516,224 Gain in investment in real estate limited partnerships (282,674) - - 282,703 29 Amortization of grants (13,742) - - - (13,742) Deferred interest 688,956 2,648,134 - (92,278) 3,244,812 Non-controlling partners’ interests - (6,166,784) - - (6,166,784) (Increase) decrease in operating assets: Rent receivable (40,868) (123,451) - - (164,319) Contracts receivable - - (103,452) - (103,452) Grants and contributions receivable - - 316,193 - 316,193 Other receivables 189,945 219,697 (139,330) - 270,312 Inter-fund receivable/payable 113,045 - (113,045) - - Receivables from related parties and affiliated partnerships 17,431 - 340,184 (374,694) (17,079) Interest receivables - - (57,259) 92,278 35,019 Project developer fee receivable - - (1,405,750) - (1,405,750) Management and other fees receivable - - (538,075) 503,822 (34,253) Prepaid expenses 5,147 (4,155) 6,734 - 7,726 Deposits (1,200) - (79,302) - (80,502) Increase (decrease) in operating liabilities: Accounts payable and other accrued liabilities 476,972 240,792 24,013 - 741,777 Unearned revenue 1,020 (28,362) - - (27,342) Accrued interest (26,799) (668,761) - - (695,560) Payable to CCDC, affiliates, and other partners (277,714) 257,104 65,274 (44,664) - Management and other fees payable (33,547) - - 150,846 117,299 Ground lease payable (74,501) 365,292 - - 290,791 Tenant security deposits, net (2,134) (2,471) - - (4,605) Net cash provided by operating activities 1,469,942 5,174,163 1,337,223 (875,440) 7,105,888
Cash flows from investing activities: Decrease in restricted fund 142,619 88,070 - - 230,689 Net investment in marketable securities - - 918,206 - 918,206 Payment for capitalized fees - (98) - - (98) Payments for rehabilitation and pre-development costs and other fixed assets (328,408) (23,771,079) - 1,110,750 (22,988,737) Net cash provided by (used in) investing activities (185,789) (23,683,107) 918,206 1,110,750 (21,839,940)
Cash flows from financing activities: Contribution (distribution) to partners (44,324) (57,773) 50,000 - (52,097) Payment for permanent loan costs (52,198) - (95,875) - (148,073) Intercompany loan payable - (38,518) - 38,518 - Principal payments of notes payable (1,540,426) (2,103,289) - - (3,643,715) Net proceeds from loan payables 642,944 26,724,778 - - 27,367,722 Payment of short-term development costs payable (40,235) (3,467,936) - (273,828) (3,781,999) Net cash provided by (used in) financing activities (1,034,239) 21,057,262 (45,875) (235,310) 19,741,838
Net increase in cash and cash equivalents 249,914 2,548,318 2,209,554 - 5,007,786
Cash and cash equivalents, beginning of year 821,547 4,836,546 3,595,662 - 9,253,755 Reclassification from restricted cash to development cash - 1,111,806 - - 1,111,806 Cash transfer from affiliated partnerships to owned projects 603,777 (603,777) - - - Cash and cash equivalents, beginning of year, as restated 1,425,324 5,344,575 3,595,662 - 10,365,561
Cash and cash equivalents, end of year $ 1,675,238 $ 7,892,893 $ 5,805,216 $ - $ 15,373,347
Supplemental disclosures of cash flow information: Interest paid during the year (net of capitalization) $ 309,419 $ 3,250,692 $ 10,000 $ - $ 3,570,111 Noncash investing and financing activities: Assets acquired by assuming liabilities $ 2,514,535 $ 140,933,268 $ - $ - $ 143,447,803 Assets acquired through capital contributions $ - $ 12,707,570 $ - $ - $ 12,707,570 Syndication costs incurred through capital contribution $ - $ 265,300 $ - $ - $ 265,300 Construction loan paid-off from capital contributions $ - $ 12,002,877 $ - $ - $ 12,002,877 Partners' capital contribution receivable $ - $ 110,943,864 $ - $ - $ 110,943,864 The accompanying notes are an integral part of these financial statements.
8 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 1 – ORGANIZATION AND NATURE OF ACTIVITIES
Chinatown Community Development Center is a nonprofit public benefit organization incorporated in California in 1978. Chinatown Community Development Center serves the Chinatown, North Beach and Tenderloin areas of San Francisco, and its main purpose is to improve the quality of housing for low-income individuals, elderly, and families in San Francisco.
Chinatown Community Development Center receives a substantial amount of its support from government grants, loans and private foundations. A significant reduction in the level of this support, if this was to occur, would have an adverse effect on Chinatown Community Development Center’s programs and activities.
Chinatown Community Development Center has formed a number of LLCs and nonprofit entities (see Note 2 (i)) to facilitate the organizational structure of its low-income housing tax credit partnerships (see Note 2 (ii)). All of these entities are solely controlled by Chinatown Community Development Center. Chinatown Community Development Center and these entities are jointly referred to as “CCDC” in these notes to the consolidated financial statements.
The activities/programs of CCDC include:
(a) Low-Income Housing Operations
Except as otherwise noted, CCDC manages the following low-income housing projects in San Francisco. The rental operations are subject to various covenants (including restrictions on rental charges and on tenants to only those that are income-qualified) imposed by loan and regulatory agreements applicable to each property.
Number of CCDC Property Name Place in Service Units Property Type Ownership
Bayside Senior Apartments 1990 31 Senior Sponsored NPO Clayton Hotel 1983 82 Senior-SRO 100% International Hotel 2005 105 Senior Sponsored NPO Larkin Pine Senior Housing 1994 63 Senior-SRO 100% Mary Helen Rogers Sr. Community 2012 100 Senior <1% Namiki Apartments. 2001 34 Senior <1% Notre Dame Senior Apartments 2000 204 Senior <1% Parkview Terrace Apartments 2008 100 Senior <1% Swiss American 1986 66 Senior-SRO 100% Hamlin Hotel (3) 1992 67 Special Needs-SRO 99% William Penn Hotel 1993 91 Special Needs-SRO 99% Veterans Commons (2) 2012 76 Special Needs <1% 9th Avenue 1989 14 Multi-family none 665 Clay 2000 25 Multi-family-SRO 100% 1150 Grant Avenue 2008 14 Multi-family 100% 1370 California Street 1995 49 Multi-family 100% Broadway Family Apartments 2008 81 Multi-family <1% Consorcia Apartments 1982 24 Multi-family 100% Golden Gate Apartments (3) 1999 72 Multi-family <1% Crescent Cove 2007 236 Multi-family <1% St Claire Residences 1987 41 Multi-family 100% Tenderloin Family Housing (1) 1993 175 Multi-family <1% Tower Hotel 1984 34 Multi-family-SRO 100% Broadway Sansome Apartments 2015 75 Multi-family <1% 462 Green Street 2016 6 Multi-family 100%
9 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
(1) Tenderloin Family Housing is the successor of 201 Turk Street Apartment, a project managed by CCDC.
(2) CCDC is the manager but subcontracts property management to the Co-general partner, Swords to Plowshares.
(3) CCDC contracts an outside party for management of these properties.
Non-CCDC managed projects:
CCDC Property Name Place in Service Number of Units Property Type Ownership
Wharf Plaza I & II 1983 230 Multi-family 1%
Property under construction or rehabilitation:
Expected Year CCDC Property Name Place in Service Number of Units Property Type Ownership
Mission Bay Block 7 2017 200 Multi-family <1% 227 Bay (3) 2017 50 Multi-family <1% 990 Pacific (3) 2017 92 Multi-family <1% Ping Yuen (4) 2019 234 Multi-family <1% North Ping Yuen (4) 2019 200 Multi-family <1%
(4) These projects are Phase I projects under the Rental Assistance Demonstration (RAD) program. The acquisition of these Phase I projects and rehabilitation construction started in November 2015.
(5) These projects are Phase I projects under the Rental Assistance Demonstration (RAD) program. The acquisition of these projects and rehabilitation construction started in October 2016.
(b) Property Management
CCDC has a property management division that oversees the low-income housing operations.
(c) Housing Development
CCDC initiates and develops low-income housing projects in San Francisco, and also provides technical assistance to other not-for-profit organizations in the planning, development and construction of affordable housing projects. On occasion, CCDC teams up with for-profit partners to develop low-income housing projects and becomes the managing general partner of the limited partnership.
(d) Program and Planning
CCDC prepares written plans involving public transportation and housing for city agencies, and also serves as a “watch dog” over private development. It works with tenant organizations to advocate for the community in the involvement of public policy decisions and improves landlord/tenant relationships through counseling, educational seminars and community events. It implements neighborhood environmental projects to improve primarily the streets, alleyways, recreation centers and open spaces in the Chinatown neighborhood. It provides outreach, referral, translation, and health and wellness services as well as eviction prevention assistance and conflict mediation services to the residents in the CCDC buildings. In addition, CCDC engages immigrant youth, including low-income youth living in SRO hotels, in leadership development activities.
10 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The accompanying consolidated financial statements use the accrual method of accounting, which recognizes income in the period earned and expenses when incurred, regardless of the timing of payments.
Principle of Consolidation
Generally accepted accounting principles require limited partnerships to be consolidated in the general partner’s financial statements when the general partner has control over the limited partnership. The presumption of control by the general partner can be overcome if the limited partners have either (a) the substantive ability to dissolve (liquidate) the limited partnership or otherwise remove the general partners without cause or (b) substantive participating rights.
The limited partnerships where CCDC is the managing partner generally do not overcome the presumption of control by CCDC. When there is a co-general partner, CCDC is also deemed to have ultimate control of the partnership. Therefore, these limited partnerships (“affiliated partnerships”) are required to be consolidated with CCDC, except for certain jointly-controlled partnerships with a third party.
The accompanying financial statements include the accounts of CCDC and the following entities:
(i) Wholly or Majority-Owned Entities by CCDC
Non-profit organizations and LLCs formed by CCDC (CCDC subsidiaries) as the general partner for affordable housing partnerships:
- Larkin Pine Senior Housing Corporation - William Penn Hotel Corporation - Hamlin Hotel Corporation - GGA Corporation - Broadway Family Apartments LLC - Parkview Terrace LLC - Notre Dame Housing LLC - Senior Apartments Namiki LLC - 701 Golden Gate LLC - CCDC-150 Otis LLC - CCDC-MBB7 LLC - CCDC 1296 Shotwell LLC - CCDC 2060 Folsom LLC - CCDC-MB3E LLC - Tenderloin Family Housing LLC - Chinatown Public Housing LLC - CCDC Small Sites LLC - CCDC Legacy Foundation
Non-profit organization formed by CCDC to own and operate a HUD-financed project: - Bayside Elderly Housing Corporation (a CCDC subsidiary)
Partnerships wholly or majority-owned (99%) by CCDC’s subsidiaries: - William Penn Hotel L.P. (William Penn) - 99% owned, a CCDC subsidiary - Hamlin Hotel L.P. (Hamlin Hotel) - 99% owned, a CCDC subsidiary - Larkin Pine Limited Partnership (Larkin Pine) - wholly owned by CCDC (1) - GGA 1820 Post, L.P. (Golden Gate) - wholly owned by CCDC(1)
11 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
(1) These were formerly a tax credit limited partnership. The limited partners assigned their limited partner interest to Parkview Terrace, LLC, which is solely owned by CCDC, after the tax credit compliance period.
(ii) Affiliated Partnerships
Tax Credit Partnerships
These are partnerships which qualify for or will apply for low-income housing tax credits under IRC Section 42. Either CCDC or one of its subsidiaries is the managing general partner with less than 1% partnership interest in these entities. These partnerships own and operate low-income housing projects in San Francisco.
- Broadway Family Apartments, L.P. (Broadway Family) - Notre Dame Housing Partners L.P. (Notre Dame) - Namiki Apartments Limited Partnership (Namiki) (1) - Parkview Terrace Partners, L.P. (Parkview Terrace) - Mission Bay Housing Partners, L.P. (Crescent Cove) - MHRSC, L.P. (MHRSC) - Broadway Sansome Associates, L.P. (Broadway Sansome) - Tenderloin Family Housing, L.P. (Tenderloin Family) - Bay Street, L.P. (227 Bay) (2) - Pacific Avenue, L.P. (990 Pacific) (2) - Ping Yuen, L.P. (Ping Yuen) (3) - North Ping Yuen, L.P. (North Ping Yuen) (3)
(1) On December 31, 2016, the limited partner assigned its limited partner interest to Parkview Terrace, LLC.
(2) Rental operations for 227 Bay and 990 Pacific were transferred from the San Francisco Housing Authority (SFHA) in November 2015 and construction is expected to be completed in 2017.
(3) Rental operations for Ping Yuen and North Ping Yuen were transferred from SFHA in October 2016 and construction is expected to be completed in 2019.
The activities of the above entities are shown in gross amounts, and significant inter-company accounts and transactions are eliminated in the consolidated totals.
Non-Consolidated Entities
The following are projects/entities in which CCDC is involved but does not control:
150 Otis Associates, L.P. (150 Otis) – CCDC is the managing general partner with less than a 1% ownership interest and there is an unrelated nonprofit organization as the co-general partner. Both general partners have equal percentages of ownership. Essentially, this project is jointly controlled by the two general partners. CCDC's role in this partnership is mainly in the rehabilitation of the project. The land and the original building of this project were donated to the partnership by the co-general partner. Management of the rental operation is handled by the co-general partner. CCDC has no intention of acquiring control of this project in the future.
12 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Mission Bay Block 7 Housing Partners, L.P. (MBB7) – this partnership is currently under construction. CCDC is the managing general partnership with less than a 1% ownership interest. There is a for-profit general partner that handles the development and the future property management of the project. CCDC has no intention of managing or acquiring control of the project after development.
MB3E, L.P. (MB3E), 1296 Shotwell Housing, L.P. (Shotwell), and 2060 Folsom Housing, L.P. (Folsom) – these partnerships are in the pre-development stage. CCDC is the co-general partner with equal percentages of ownership with the other co-general partners. CCDC has no intention of acquiring control of these projects in the future.
Wharf Plaza I and II – CCDC is a limited partner holding 1% interest of each of the two partnerships – Wharf Plaza I and Wharf Plaza II. Each of these partnerships owns and operates an apartment complex located in San Francisco for low-income and elderly households.
International Hotel Senior Housing, Inc. (I-Hotel) – I-Hotel is a nonprofit public benefit corporation, which owns a senior housing project. I-Hotel is co-sponsored by CCDC and Kearny Street Housing Corporation, a California nonprofit public benefit corporation, both of which have equal voting rights. CCDC is the developer and the property manager for this project.
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of the revenue and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation
The consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (GAAP), which requires information regarding the financial position and activities to be presented in three classes of net assets as follow:
Unrestricted net assets – Net assets not subject to donor-imposed restrictions.
Temporarily restricted net assets – Net assets subject to donor-imposed stipulations that will be met either by the actions of CCDC (purpose restrictions) and/or the passage of time (time restrictions).
Permanently restricted net assets – Net assets subject to donor-imposed stipulations that the assets be maintained permanently by CCDC in perpetuity.
Revenue Recognition
Rental Income:
Rental income is shown at its maximum gross potential. Vacancy loss is shown as a reduction in rental income. Rental units occupied by employees are included in rental income and as an expense of operations.
Government Contracts:
Government contracts, which are funded on a reimbursement basis, are shown as unrestricted revenue.
13 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Contributions:
Contributions are recorded at fair value as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of donor imposed restrictions, as applicable. CCDC has adopted a policy that all contributions are considered available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increase those net asset classes. For restricted contributions, if the restrictions are fulfilled in the same time period in which the contribution is received, the contribution is first reported as temporarily restricted support and then released as unrestricted.
Noncash contributions are recorded at fair market value on the date of receipt.
Development and Project Administrative Fees:
CCDC earns fees for development of properties and generally recognizes fees as earned over the development period. Fees are recognized based on milestones in the agreement, generally consisting of a portion earned upon the initial loan closing, a portion earned during the construction phase which is recorded using the percentage of completion method, and a portion earned at the permanent loan closing or upon receipt of Form 8609 from the California Tax Credit Allocation Committee.
The profit portion of development and project administrative fees recognized from owned projects and affiliated partnerships are eliminated as intercompany transactions. CCDC estimates that 70% of its development fees generally cover related project costs as of December 31, 2016. To the extent that inter-company developer fees are recognized, the profit portion of the fee is eliminated against property and equipment and will be recognized as an offset to depreciation over the buildings’ 40-year depreciable life upon completion of construction.
Management Revenue and Related Accounts
CCDC provides property management, tenant service, bookkeeping and other services to the subsidiaries and partnerships. Income is earned in accordance with the terms of the agreements and recorded as revenue. Such intercompany revenue has been eliminated in the consolidated financial statements.
Cash and Cash Equivalents
Cash is defined as cash in demand deposit accounts as well as cash on hand. Not included as cash are funds restricted as to their use, regardless of liquidity, such as replacement reserves, operating reserves, other restricted reserves and tenant security deposits. CCDC and certain affiliates occasionally maintain cash on deposit at a bank in excess of the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation limit. The uninsured cash balance, including restricted cash, was approximately $14,611,000 as of December 31, 2016.
Cash equivalents are highly liquid investments that are readily convertible to known amounts of cash. Generally, money market accounts and investments with original maturities of three months or less qualify as cash equivalents.
Receivables
Rent:
CCDC elects to record bad debts using the direct write-off method. GAAP requires that the allowance method be used to reflect bad debts. However, the effect of the use of the direct write-off method is not materially different from the result that would have been obtained had the allowance method been followed.
14 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Government Contracts:
Receivables for service contracts with government and outside parties are deemed fully collectible; therefore, no allowance for doubtful accounts is deemed necessary.
Grants and Contributions:
Receivables from foundations and donors are deemed fully collectible and therefore, no allowance for doubtful accounts is necessary. For promises-to-give, a reserve of 30% for uncollectible receivables is provided for.
Property and Equipment and Capitalized Fees
Property and equipment is stated at cost of acquisition or construction. The costs of maintenance and repairs below $5,000 that neither significantly add to the permanent value of a property and equipment nor prolong its intended useful life are charged to expense as incurred. Interest incurred during a construction period is capitalized to the cost of the building. Land is not depreciated. Depreciation is computed based on the straight-line method over the estimated useful lives of the assets.
Capitalized fees include fees and costs incurred to obtain tax credits and loans for the low-income housing projects, lease commissions, ground lease acquisition costs, and an air rights development fee (Larkin Pine only). These fees are stated at cost and amortized on a straight-line basis. Organization costs are expensed as incurred.
Costs incurred in order to obtain permanent financing are stated at cost and amortized on a straight-line basis into interest expense over the term of the loan. Permanent loan costs are reported as a direct deduction from the face amount of the related debt.
The useful lives of the assets are estimated as follows:
Site improvements 15 to 70 years Building and improvements 7 to 40 years Leasehold improvements 5 to 10 years Furniture, fixtures and equipment 5 to 10 years Tax credit related costs 10 to 15 years Lease commission costs 5 years Ground lease costs 20 to 65 years Air rights development fee 75 years
Donated fixed assets are recorded at fair market value as of the date of receipt.
CCDC reviews its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying value of such property may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the property and equipment to the future net undiscounted cash flows expected to be generated by the rental property, including any estimated proceeds from the eventual disposition of the property and equipment. If the property and equipment is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the property and equipment exceeds the fair value of such property. There were no impairment losses recognized in 2016.
Investments – Fair Value Measurement
Under GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date.
15 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
GAAP establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the CCDC. Unobservable inputs, if any, reflects CCDC’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that CCDC has the ability to access at measurement date. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
Level 2 – Valuations based on significant inputs that are observable, either directly or indirectly or quoted prices in markets that are not active, that is, markets in which there are few transactions, the prices are not current or price quotations vary substantially either over time or among market makers.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors, including the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed.
Marketable Securities:
Investments in marketable securities consist of municipal bonds, mutual funds, stocks and real estate investment trust (REITs), and commodities managed through an investment brokerage account. CCDC reports all investments in marketable securities with readily determinable fair values based on quoted prices in active markets with realized and unrealized gains and losses on the investments included in the consolidated statement of activities. Marketable securities are generally categorized in Level 1 of the fair value hierarchy.
Real Estate Limited Partnerships:
Real estate limited partnerships are generally not traded in the public market and are subject to certain time restrictions on resale, and are categorized in Level 3 of the fair value hierarchy. The cost method of accounting is used for investments in Wharf Plaza I and Wharf Plaza II where CCDC is a limited partner and holds less than 20% of the controlling interest. The equity method accounting is used for investments in 150 Otis, MBB7, MB3E, Shotwell and Folsom since CCDC is deemed to have more than 20% of the controlling interest.
Swap Contract:
The value of the swap contract is recorded as an asset or a liability depending on the fair value valuation and the change in the value of the swap contract is recorded as other comprehensive income or loss. Swap contracts are generally categorized in Level 2 of the fair value hierarchy. (See Note 15)
16 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Lease-up/Marketing Costs
Lease-up/marketing costs are capitalized before a project is placed in service and are expensed at the beginning of actual occupancy.
Syndication Costs
Syndication costs are recorded as a reduction of partners’ equity.
Income Taxes
CCDC and its tax-exempt subsidiaries are all exempt from Federal income tax and California franchise tax under provisions of Section 501(c)(3) of the Internal Revenue Code and Section 23701d of the California Code, respectively. However, the net income from commercial rental operations for some properties is debt-financed income and is therefore subject to income tax under Internal Revenue Code Section 514. CCDC is required to file annual informational returns and business income tax returns with the Internal Revenue Services and the California Franchise Tax Board.
The limited partnerships are not subject to income tax (except for the California limited partnership fee of $800) since taxable income or loss from a partnership passes through to, and is reportable by, the partners individually.
Management has considered its tax positions and believes that all of the positions taken in the federal and state tax returns are more likely than not to be sustained upon examination. CCDC, subsidiaries, and the affiliated partnerships file the required tax returns with the Internal Revenue Service and the California Franchise Tax Board, and these returns for the years 2012 through 2015 are subject to examination by the taxing authorities generally for three years and four years for Federal and California, respectively, starting with the date of filing or the due date of the tax return, whichever is later.
CCDC, its subsidiaries, and the affiliated partnerships have not received notifications and are not currently undergoing any tax examinations.
Non-controlling Partners’ Interests
Non-controlling partners’ interests are the unrelated partners’ share of the partnerships’ income or loss and their equity in the affiliated partnerships.
Allocation of Partnership Income/Loss and Tax Credits
The affiliated partnerships are generally expected to generate low-income housing tax credits, which will be allocated in the same manner as the income or loss of the affiliated partnerships. Because the limited partners’ losses are limited to their investments, the limited partners’ capital will generally not be reduced below zero unless future capital contributions will be made in an amount sufficient to absorb the losses. All remaining losses are allocated to the general partners. Any subsequent income allocable to the limited partners is allocated to the general partners first until the general partners’ share of that income offsets the losses not previously recognized by the limited partners.
Functional Expenses Allocation
The costs of providing program services and supporting services are summarized on a functional basis in the statements of activities and statements of functional expenses. Accordingly, certain costs are allocated among program services and supporting services based on usage of resources.
17 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Subsequent Events
Management has evaluated subsequent events through June 27, 2017, the date on which the financial statements were available to be issued.
NOTE 3 – CASH HELD AS TRUSTEE
At December 31, 2016, the balance of the trustee accounts totaled $30,370, which were held by CCDC in bank accounts for the following agencies and properties that it manages:
. Chinatown Alleyway Improvement Association (CAIA) . 9th/Clement rental property . Chinatown Coalition for Better Housing (CCBH)
NOTE 4 – GOVERNMENT CONTRACTS RECEIVABLE
Contracts receivable for CCDC’s Other Programs as of December 31, 2016 are as follows:
City and County of San Francisco Mayor’s Office of Community Development $ 120,711 Department of Building Inspection 541,877 Department of Children, Youth and Their Families 17,754 Department of Public Health 11,523 Human Services Agency 68,768 Office of Economic and Workforce Development 10,775 San Francisco Public Utilities Commission 1,803 City of San Francisco Rent Board 19,589 San Francisco Community Challenge Grant Program 30,000 Causa Justa: Just Cause 15,085
Other Enterprise Community Partners, Inc. 49,670 Local Initiatives Support Corporation 63,955
Total contracts receivable $ 951,510
Amounts expected to be received in: Less than one year $ 951,510
NOTE 5 – GRANTS AND CONTRIBUTIONS RECEIVABLES
Contributions receivable for CCDC Other Programs, net of allowances of $15,101, at December 31, 2016 are as follows:
Unrestricted contributions $ 35,234 Amounts expected to be received in: Less than one year (13,684)
One to five years $ 21,550
18 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 6 – OTHER RECEIVABLES
Other receivables at December 31, 2016 are summarized as follows:
Owned Affiliated Other Properties Partnerships Programs Total
Property tax refund $ - $ 540,590 $ - $ 540,590 Technical assistance fees – Central Subway - - 339,550 339,550 Insurance refund - 361,849 - 361,849 Other 27,732 42,653 64,186 134,571
Total $ 27,732 $ 945,092 $ 403,736 $ 1,376,560
Amounts expected to be received in: Less than one year $ 27,732 $ 945,092 $ 403,736 $ 1,376,560
Certain affiliated partnerships made payments for property taxes pending approval and receipt of a property tax exemption of the affordable housing projects. As the property tax exemption is received, refunds were requested. While the approval process and the receipt of refunds involves a considerable amount of time, management believes that the full amount property tax refunds is collectible.
NOTE 7 – CASH – RESTRICTED
Cash restricted for varying purposes at December 31, 2016 are summarized as follows:
Owned Affiliated Other Properties Partnerships Programs Total
Replacement reserves $ 1,651,868 $ 2,910,122 $ - $ 4,561,990 Operating reserves 845,621 2,024,027 - 2,869,648 Debt services reserves held by trustee 121,726 400,509 - 522,235 RAD service reserves - 1,277,935 - 1,277,935 Restricted capital funds 777,156 - - 777,156 Residual receipts reserves 45,199 - - 45,199 Other reserves 151,456 1,253,853 - 1,405,309
Total $ 3,593,026 $ 7,866,446 $ - $ 11,459,472
Replacement and Operating Reserves
CCDC-owned projects and affiliated partnerships are required to maintain operating reserves as well as replacement reserves for property and equipment in accordance with partnership and other lenders’ regulatory agreements. Withdrawals usually require approval from the lender and/or the limited partner.
19 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Debt Services Reserve Held by Trustee
Certain affiliated partnerships are required to maintain debt service reserves in accordance with partnership and other lenders’ regulatory agreements.
RAD Service Reserves
Certain affiliated partnerships are required to maintain a tenant service reserve during the rehabilitation period in accordance with the requirements of RAD agreements.
Restricted Capital Fund
CCDC maintains a separate account for the unused balance of the grants from NeighborWorks America, which is restricted for project rehabilitation.
Residual Receipts Reserve
Bayside, one of CCDC’s subsidiaries, is required to deposit any excess cash into a separate bank account in accordance with the requirements of the Department of Housing and Urban Development (HUD).
Other Reserves
Certain other restricted cash reserves are maintained by CCDC and affiliated partnerships for property development and other purposes.
NOTE 8 – PROPERTY AND EQUIPTMENT
Property and equipment is summarized as follows:
Owned Affiliated Other Projects Partnerships Programs Total
Land $ 7,731,147 $ 2,031,471 $ - $ 9,762,618 Site improvements - 1,335,601 - 1,335,601 Building and improvements 51,975,052 390,181,837 8,262 442,153,473 Leasehold improvements 15,000 31,813 71,680 118,493 Development costs 2,050 49,191,691 - 49,193,741 Furniture, fixtures and equipment 473,485 2,978,494 94,713 3,546,692 60,196,734 445,750,907 174,655 506,122,296 Less: accumulated depreciation (30,630,682) (49,920,963) (152,486) (80,704,131)
Total property and equipment – net, before elimination 29,556,052 395,829,944 22,169 425,418,165 Elimination (8,531) (2,246,475) - (2,255,006)
Total property and equipment – net $ 29,547,521 $ 393,583,649 $ 22,169 $ 423,163,159
20 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 9 – CAPITALIZED FEES
Capitalized fees are summarized as follows:
Owned Affiliated Other Projects Partnerships Programs Total
Tax credit related costs $ - $ 552,465 $ - $ 552,465 Lease commission costs - 28,213 - 28,213 Ground lease acquisition costs - 158,704 - 158,704 Air rights development fee 547,955 - - 547,955 547,955 739,382 - 1,287,337 Less: accumulated amortization (161,594) (370,975) - (532,569)
Total capitalized fees – net $ 386,361 $ 368,407 $ - $ 754,768
NOTE 10 – INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities recorded at fair value have been categorized based upon a fair value hierarchy of inputs in accordance with generally accepted accounting principles (Note 2).
The following table presents information about the fair value hierarchy inputs used in determining the fair value of the marketable securities as of December 31, 2016:
Owned Affiliated Other Projects Partnerships Programs Total
Mutual funds $ - $ - $ 701,857 $ 701,857 Equities - - 2,806,848 2,806,848 Fixed income - - 2,226,908 2,226,908 REITs - - 166,742 166,742 Commodities - - 129,195 129,195
Total $ - $ - $ 6,031,550 $ 6,031,550
All marketable securities held by CCDC were categorized as Level 1 of the fair value hierarchy.
21 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 11 – INVESTMENT IN REAL ESTATE LIMITED PARTNERSHIPS
CCDC has financial interests in the following real estate limited partnerships and CCDC’s capital account balances at December 31, 2016 are summarized as follows:
Percentage of Capital Account Ownership Balance
Affiliated Partnerships: Notre Dame Housing Partners L.P. 0.1% $ 543,533 Namiki Apartments Limited Partnership 0.1% (187,419) Broadway Family Apartments, L.P. 0.01% 6,672,091 Mission Bay Housing Partners, L.P 0.001% (98) Broadway Sansome Associates, L.P. 0.01% 29,046 MHRSC, L.P. 0.0051% (978) Tenderloin Family Housing, L.P. 0.01% (2,066,409) Parkview Terrace Partners, L.P. 0.005% (576) Bay Street, L.P. 0.01% (17) Pacific Street, L.P. 0.01% (31) Ping Yuen, L.P. 0.01% (1,445) North Ping Yuen, L.P. 0.01% (1,451)
Total $ 4,986,246
Non-consolidated Partnerships: 150 Otis Associates, L.P. 0.005% $ (772) Mission Bay Block 7 Housing Partners, L.P. (1) 0.0049% - MB3E, L.P. (2) 50% - 1296 Shotwell Housing, L.P. (2) 50% - 2060 Folsom Housing, L.P. (2) 50% - Wharf Plaza I & II (3) 1.0% -
Total $ (772)
(1) This project is currently under construction. No losses have been allocated to the limited partner subsequent to the complete depletion of the limited partner’s capital account.
(2) These projects are in pre-development stage.
(3) CCDC is a limited partner and its capital account has been fully depleted by net losses allocated in prior years.
NOTE 12 – INVESTMENT IN SEA
In 2001, CCDC joined the Sustained Excellence Alliance Corporation (SEA) as a charter member. The mission of SEA is to build the capacity of the community development industry: by resource development, by fostering a learning environment, and by sharing findings with other community development organizations, investors and policy makers, so that it might provide better diverse and comprehensive services to build healthy communities on a local and national scale. CCDC participates in the loan fund of SEA; and as part of the arrangement, CCDC advanced $25,000 to SEA for establishing a loan loss reserve. The reserve fund balance will be distributed as equity among all organizations participating in the fund upon the fund’s termination.
22 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 13 – RELATED PARTY TRANSACTIONS
Receivables and Payables
At December 31, 2016, the affiliated partnerships and related parties (except as noted) receivable are as follows:
Project Management Resident Service Development Various Charges and Other Fees Fees Fees Interest
Owned Projects Bayside $ 8,132 $ - $ - $ - $ - 1150 Grant 831 - - - - Consorcia 43,097 - - - - 665 Clay 1,884 - - - - Clayton 46,742 - - - - Tower Hotel 23,535 - - - - Larkin Pine 3,929 - - - - Swiss America 57,498 - - - - St. Claire 30,165 - - - - 1370 California 5,870 - - - - Hamlin Hotel 28,889 5,000 - - - William Penn (18,681) 5,000 - - - 462 Green 3,775 - - - - Golden Gate 4,782 38,787 - - - Legacy Foundation 18,305 - - - -
Affiliated Partnerships Notre Dame 12,026 88,160 - - - Tenderloin Family 12,427 18,746 - 345,601 274,886(a) Namiki 2,060 39,779 - - - Broadway Family 4,013 59,283 - - - Broadway Sansome 7,895 63,960 - 337,625 - MHRSC 8,208 84,426 - - - Parkview Terrace 8,286 45,538 - - - Crescent Cove 6,368 32,373 - - - 227 Bay 3,406 38,130 41,583 1,231,250 - 990 Pacific 6,791 38,130 61,037 991,250 - Ping Yuen 74,982 38,160 130,140 - - North Ping Yuen 42,671 38,160 119,970 - -
Related Parties 150 Otis (2,951) 26,000 - 87,500 - I-Hotel 13,384 - - - - Shotwell 3,894 - - - - Folsom 52,767 - - - - 9th Avenue 987 - - - - MBB7 - - - 15,000 - MB3E - - - 30,625 - Wharf Plaza I & II - - - - 351,000(b) Other 16,604 79 - - -
Total 532,571 659,711 352,730 3,038,851 625,886
23 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Project Management Resident Service Development Various Charges and Other Fees Fees Fees Interest
Current portion 532,571 659,711 352,730 3,038,851 351,000 Inter-company elimination (447,886) (633,632) (352,730) (2,905,726) -
Net – current portion 84,685 26,079 - 133,125 351,100
Non-current portion - - - - 274,886 Inter-company elimination - - - - (274,886)
Net – noncurrent portion $ - $ - $ - $ - $ -
(a) This interest is payable based on available excess cash only. See Note Receivable – Related Parties below.
(b) See Note Receivable – Related Parties below.
Management and other fees payable also includes fees payable to unrelated parties, co-general partners and limited partners. The net management fees and other payable at December 31, 2016 are as follows:
Owned Affiliated Projects Partnerships Other Total
Management and other fees payable, before elimination $ 48,787 $ 828,369 $ 113,800 $ 990,956 Inter-company elimination (48,787) (584,845) - (633,632)
Total management and other fees payable – current $ - $ 243,524 $ 113,800(a) $ 357,324
(a) This payable is 50% share of developer fee payable collected on behalf of Swords to Plowshares, which were disbursed subsequent to the year end.
Inter-company Revenue and Expenses
Significant related party transactions for CCDC, subsidiaries, affiliated partnerships and other related parties in 2016 are summarized below:
(a) Leases
CCDC’s Housing Development Department has a month-to-month lease for an office space at Notre Dame Apartments at free-of-charge.
24 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
CCDC also leases various office space from certain owned projects under various lease terms. The rental revenue and expense is eliminated for consolidation purpose. CCDC paid rent expense to the following properties in 2016:
665 Clay $ 59,136 Clayton 31,080 Tower Hotel 87,060 Broadway Sansome 15,732
Total $ 193,008
(b) Developer and Project Administrative Fees
CCDC charged the following projects for development related fees:
227 Bay $ 1,431,250 990 Pacific 991,250 Ping Yuen 600,000 North Ping Yuen 600,000 Shotwell 75,000 Folsom 75,000 MB3E 144,375 MBB7 15,000 462 Green 80,000
Total before inter-company elimination 4,011,875 Inter-company elimination (1,110,750)
Net total $ 2,901,125
The profit portion of developer and project administrative fee revenue are eliminated in the consolidation.
25 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
(c) Service Fees
Asset / Supervisory / Bookkeeping Property Partnership Incentive Tenant RAD Service and Other Management Management Management Services Management
Owned Projects Bayside $ 3,534 $ 29,016 $ - $ - $ - $ - Tower Hotel 4,896 28,114 - - 3,600 - Larkin Pine 7,760 39,066 - - 3,600 - Hamlin Hotel - - 5,000 - - - William Penn 11,575 45,816 5,000 - - - Consorcia 3,456 18,720 - - 5,100 - Clayton 11,391 39,360 - - 3,600 - 665 Clay 3,600 17,250 - 2,250 10,000 - Swiss America 7,625 47,520 - - 3,600 - St. Claire 5,904 29,520 - - 5,500 - 1370 California 7,081 38,220 - - 5,500 - 1150 Grant 3,024 9,660 - 1,260 5,100 - 462 Green 228 - - 1,560 - - Golden Gate - - - 38,787 - -
Affiliated Partnerships 227 Bay 5,950 37,260 19,065 19,065 60,750 - 990 Pacific 12,213 68,558 19,065 19,065 81,000 - Ping Yuen 6,358 26,403 19,080 19,080 35,951 64,654 North Ping Yuen 6,025 23,140 19,080 19,080 35,951 64,654 Tenderloin Family 26,250 135,636 18,746 - 96,200 - Namiki 6,980 27,223 22,779 17,000 25,735 - Notre Dame 32,804 161,782 28,879 59,281 199,680 - Broadway Family 12,700 54,409 19,283 40,000 63,004 - Broadway Sansome 12,150 50,301 14,900 43,976 50,600 - Parkview 10,475 68,840 15,834 25,611 - - MHRSC 10,353 82,488 17,219 67,207 41,000 - Crescent Cove 800 221,943 12,775 19,598 - -
Related Parties 150 Otis 7,500 12,000 - 12,500 - - I-Hotel 12,320 63,000 - - - - Other - - - (6,256) - -
Managed Properties 9th Avenue 2,016 9,660 - - - -
Total before inter-company elimination 234,968 1,384,905 236,705 399,064 735,471 129,308 Inter-company elimination (213,132) (1,300,245) (236,705) (392,820) (735,471) -
Net total $ 21,836 $ 84,660 $ - $ 6,244 $ - $ 129,308
26 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
(d) Notes Receivable/Payable
Notes receivable/payable from/to certain related parties, owned projects and affiliated partnerships at December 31, 2016 are as follows:
Interest Receivable/ Principal Payable
Related Parties
Wharf Plaza I & II – $349,000 was loaned to each partnership from a $700,000 fund received from the Site Acquisition Program of the Community Development Grant Funds of the City. The notes are payable upon the dissolution of the partnerships and bear interest based on 29% of the gross receipts less operating costs. Interest earned in 2016 totaled $725,219. $ 698,000 $ 351,000
I-Hotel – CCDC borrowed $829,560 from the Affordable Housing Program (AHP) of the Federal Home Loan Bank of San Francisco through Bank of America and assigned it to I-Hotel. This loan is secured with a deed of trust on the project, bears no interest and will be due in 15 years from date of completion of project in 2020. Such loan may be forgiven if certain conditions are met. 829,560 -
Subtotal 1,527,560 351,000
Owned Projects
Tower Hotel – This note became non-interest bearing effective January 1, 1996, and CCDC does not intend to call this loan in the near future. 309,523 -
Subtotal 309,523 -
Affiliated Partnerships
Parkview Terrace – CCDC obtained a loan through the AHP program and loaned the proceeds to Parkview Terrace. This note is secured by a deed of trust. Such note is non-interest bearing and is due in 2063. 500,000 -
Tenderloin Family – CCDC loaned $1,596,870 to Tenderloin Family for financing the development of the project. This note is secured by deed of trust and bears interest at 3.32% compounded annually. Annual principal and interest are paid based upon available excess cash starting June 1, 2016. All accrued interest and principal are due in 2070. Interest earned/paid in 2016 totaled $56,744. 1,596,870 169,033
Tenderloin Family – CCDC was assigned the note from TSA Inc. when it was dissolved. This note is secured by deed of trust and bears interest at 3.32% compounded annually. Annual principal and interest are paid based upon available excess cash starting May 1, 2016. All accrued interest and principal are due in 2070. Interest earned/paid in 2016 totaled $35,535. 1,000,000 105,853
Subtotal 3,096,870 274,886
27 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Interest Receivable/ Principal Payable
Total before inter-company elimination 4,933,953 625,886
Inter-company elimination (3,406,393) (274,886)
Net total 1,527,560 351,000
Less: current portion - (351,000)
Non-current portion $ 1,527,560 $ -
NOTE 14 – NOTES PAYABLE
Notes payable are generally secured by the respective properties and bear simple interest rates unless otherwise stated. Notes payable and related interest payable balances at December 31, 2016 are summarized as follows:
Interest Principal Payable
Owned Projects Bond and permanent loans, bearing interest from 1.5% to 8.38%, generally with principal and interest payable monthly, to be repaid in full on various dates through 2031. Interest expense was $282,620. $ 6,305,924 $ 26,403
State loans, bearing 3.00% interest, generally with principal and interest payments deferred and payable upon maturity at various dates through 2041. Interest expense was 151,970. 5,065,664 3,612,620
State loans, bearing 3.00% interest, generally with principal and interest due monthly until paid in full. Interest expense was $5,374. 160,345 42,100
State loans, bearing 3.00% interest, generally payable out of excess cash in arrears, to be repaid in full at various dates through 2054. Interest expense was $54,989. 1,832,925 1,235,863
State loans, bearing 3.00% interest, generally with interest payable out of excess cash in arrears, to be repaid in full at various dates through 2016. Interest expense was $27,957. 931,900 759,695
City loans, bearing interest from 0.00% to 3.00%, generally payable out of excess cash in arrears, to be repaid in full at various dates through 2065. Interest expense was $119,632. 4,164,234 1,286,523
City loans, bearing interest from 2.50% to 6.00%, generally with principal and interest payments deferred and payable upon maturity at various dates through 2048. Interest expense was $246,090. 8,638,247 6,306,963
28 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Interest Principal Payable
City loans, bearing interest from 0.00% to 10.00%, generally with principal and interest payments deferred, then later forgiven upon maturity at various dates through 2041. Interest expense was $82,944. 2,684,167 6,247,538
City loans, bearing 0% interest to be forgiven upon maturity at various dates through 2073. 3,755,707 -
Subtotal – owned projects 33,539,113 19,517,705
Affiliated Partnerships Bond and permanent loans, bearing interest from 5.45% to 6.85%, generally with principal and interest payable monthly, to be repaid in full on various dates through 2040. Interest expense was $2,372,807. (1) 38,762,766 191,883
Construction loans, bearing 1.50% interest, with principal and interest to be repaid upon maturity through 2020. Interest capitalized was $186,668. Interest expense was $229,034. 19,721,345 32,812
State loans, bearing 3% interest, generally payable upon maturity through 2065. Interest expense was $340,583. 16,738,378 1,810,652
State loans, bearing 3% interest, generally payable out of excess cash, to be repaid in full through 2048. Interest expense was $228,987. 8,876,616 6,323,202
City loans, bearing 2.75% compounded interest, generally with $15,000 payable annually upon the completion of the rehabilitation, to be repaid in full through 2070. Interest capitalized was $353,120. Interest expense was $320,911. 26,115,000 785,890
City loans, bearing interest from 0.00% to 6.00%, generally with principal and interest payments payable out of excess cash in arrears, to be repaid in full at various dates through 2072. Interest expense was $602,488. 43,473,840 2,698,661
City loans, bearing interest from 3.00% to 3.32%, generally payable upon maturity through 2070. Interest expense was $433,445. 14,179,415 1,395,409
City loans, bearing interest from 0.00% to 1.95%, generally payable upon maturity through 2076. Interest expense was $629,411. 131,080,000 629,411
City loans, bearing no interest, payable out of excess cash upon the completion of the rehabilitation, to be repaid in full through 2070. 400,000 -
Affordable Housing Program (AHP) loans, bearing no interest, payable upon maturity through 2068. 1,140,000 -
Subtotal – affiliated partnerships 300,487,360 13,867,920
29 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Interest Principal Payable
Other Programs
Unsecured loan from Wells Fargo, bearing 2% interest, with interest payable quarterly, to be repaid in full through 2021. Interest expense was 10,000. 500,000 2,500
AHP loans through CCDC, bearing no interest, payable upon maturity through 2028. 1,329,560 -
Subtotal – other programs 1,829,560 2,500
Total 335,856,033 33,388,125
Less: unamortized permanent loan costs (2) (1,456,771) -
Net 334,399,262 33,388,125
Less: current portion (2,532,311) (564,982)
Long-term portion $ 331,866,951 $ 32,823,143
(1) In connection with the issuance of bonds to Namiki and Notre Dame, an irrevocable letter of credit (LOC) from Citibank, N.A. for the benefit of the Trustee and the holders of the bond to secure payment of principal and interest of the bonds, and the purchase price of the bonds tendered for purchase pursuant to the indenture. The LOC amounted to $5,967,891 and $16,831,475, for Namiki and Notre Dame, respectively.
(2) Costs incurred in order to obtain permanent financing were $2,444,417 and are amortized on a straight-line basis into interest expense over the term of the loan. Interest expense for amortization of permanent loan costs was $109,654 in 2016.
Principal payments towards notes payable for the next five years are subject to changes in net cash flow which is a contingency that cannot be reasonably estimated. Minimum required payments are estimated as follows:
2017 2018 2019 2020 2021 Thereafter Total
Permanent and bond $ 2,471,966 $ 2,274,121 $ 1,528,226 $ 1,620,027 $ 1,717,266 $ 35,457,084 $ 45,068,690 Construction - 12,055,386 5,115,702 2,550,257 - - 19,721,345 AHP - - - - - 2,469,560 2,469,560 State 60,345 - 2,900 97,100 - 32,513,583 32,673,928 City - - - - - 225,189,734 225,189,734 Unsecured - - - - - 500,000 500,000
Not included in the schedule are forgivable city loans of $6,439,874 and state and city loans of $931,900 and $2,861,002, respectively, which are currently under negotiation for an extension and are presented as noncurrent in the statement of financial position.
30 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 15 – SWAP CONTRACT
Tenderloin Family entered into an interest rate swap contract with MUFG Union Bank, N.A. for the permanent portion of the MUFG Union Bank, N.A. loan. The effective date of the swap contract is December 2, 2013 with a termination date of June 1, 2040; however, Tenderloin Family has the right to change the termination date once to any date between June 1, 2029 and June 3, 2030. The fixed interest rate to be paid by Tenderloin Family is 4.15% for the duration of the swap contract.
The swap contract is valued based on the present value of the differential future cash flows resulting from utilization of the swap. At December 31, 2016, the notional amounts were $6,832,411 and the fair value of the swap contract was minus $1,152,632 to Tenderloin Family as computed by MUFG Union Bank, N.A. The value of the swap contract is recorded as an asset or a liability depending on the fair market value valuation, and the change in the value of the swap contract is recorded as other comprehensive income or loss.
NOTE 16 – TEMPORARILY RESTRICTED NET ASSETS
Temporarily restricted net assets are restricted for the following purposes:
December 31, Releases from December 31, 2015 Contributions Restrictions 2016
General operating support of the Neighborhood action network $ - $ 45,000 $ (45,000) $ - Revitalizing Chinatown infrastructure through arts and culture organizing project 383,477 - (288,235) 95,242 Community organizing and advocacy - 30,800 - 30,800 Enable senior residents to age in place - 15,000 - 15,000 General operating - 35,000 - 35,000 Green organization designation application - 15,000 - 15,000 In support of the small sites housing preservation program - 70,000 - 70,000 Strategic investment fund - 50,000 - 50,000 Develop sustainable Chinatown plan that creates a comprehensive strategy of sustainability of San Francisco’s Chinatown 32,143 - (32,143) - Engage immigrant and monolingual communities to identify strategies that sustain Chinatown’s unique culture and affordability and increase its environmental performance 104,747 - (104,747) - Support civic engagement activities to advance anti-displacement policies - 40,000 - 40,000 2016-17 Internet essentials accelerator funding request - 10,000 - 10,000 Chinatown alleyway tour programs 8,333 - (8,333) - Chinatown public housing campaign 23,333 - (23,333) - CATs & RAD - 60,000 - 60,000 RAD Public Housing Project 309,568 210,480 (40,000) 480,048 Small sites program 125,000 - - 125,000 Subtotal – owned projects 986,601 581,280 (541,791) 1,026,090
31 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
December 31, Releases from December 31, 2015 Contributions Restrictions 2016
Broadway Family Apts. – city grant 6,000,000 - - 6,000,000 665 Clay – city grant 1,966,500 - (57,000) 1,909,500 Subtotal – other program 7,966,500 - (57,000) 7,909,500
Total $ 8,953,101 $ 581,280 $ (598,791) $ 8,935,590
NOTE 17 – PERMANENTLY RESTRICTED NET ASSETS
Permanently restricted net assets consist of donations received from NeighborWorks America which are restricted for establishing and maintaining a Permanently Restricted Revolving Loan and Capital Projects Fund. As of December 31, 2016, the balance of permanently restricted net assets, including $1,464,374 expended for capital improvements on various projects owned and operated by CCDC, was as follows:
Balance at December 31, 2015 $ 1,864,250 Additions 350,000
Balance at December 31, 2016 $ 2,214,250
NOTE 18 – INVESTMENT INCOME
The investment income for 2016 consists of the following:
CCDC and Legacy Affiliated Foundation Partnerships Total
Interest from notes receivable $ 817,497 $ - $ 817,497 Interest and dividends earned 149,336 10,680 160,016 Distributions from Wharf Plaza I and II 18,613 - 18,613 Net unrealized gain on investments 293,506 - 293,506 Net realized loss on investments (516,224) - (516,224) Income from real estate limited partnerships 282,674 - 282,674
Total before inter-company elimination 1,045,402 10,680 1,056,082 Inter-company elimination (374,981) - (374,981)
Net investment income $ 670,421 $ 10,680 $ 681,101
NOTE 19 – AIR RIGHT LEASES
Bayside has an agreement with San Francisco Housing Authority to lease the air space above the project site for a period of 75 years commencing December 1990. The rent is 1.4% of the effective gross income from the operations of the project as long as the percentage increase in rent does not exceed 4% annually. The rent for 2016 was $12,602. Future rent is not expected to be materially different from the current rent.
32 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Larkin Pine leases air rights above the postal facility owned by the United States Postal Service on which the project was constructed. The lease is for 75 years and commenced in 1994. The lease required an initial payment of $38,000 as rent for the first year, and annual rent was a fixed percentage (approximately 14%) of the gross income. In May 2002, the new arrangement provided that the monthly rent would be adjusted every June 1st based on the gross rental income of the prior year. The rent for 2016 was $56,280. Future rent is not expected to be materially different from the current rent.
Estimated non-cancelable lease payments are as follow:
Bayside Larkin Pine Total
2017 $ 12,602 $ 56,280 $ 68,882 2018 12,602 56,280 68,882 2019 12,602 56,280 68,882 2020 12,602 56,280 68,882 2021 12,602 56,280 68,882 Annually thereafter through 2068 12,602 56,280 68,882
NOTE 20 – GROUND LEASES
Certain affiliated partnerships made lease prepayments to various regulatory agencies upon the closing of escrow on the purchase of properties. These prepayments are amortized on a straight-line basis over the terms of the leases. The following table summarizes the lease prepayment amounts and related terms:
Balance at Annual December 31, Term Prepayment Amortization 2016
Broadway Family Initial 65 years $ 500,000 $ 7,692 $ 402,740 Namiki (1) First 20 years 540,000 27,000 130,414 Notre Dame (1) First 20 years 5,390,403 269,520 1,078,081 North Ping Yuen (2) 99 years 4,640,000 46,869 4,630,236 Ping Yuen (2) 99 years 5,110,000 51,616 5,099,247 227 Bay (3) 99 years 375,000 3,788 370,581 990 Pacific (3) 99 years 1,390,000 14,040 1,373,620
Total $ 13,084,919
(1) The annual amortized amount is applied against the residual rent.
(2) Ground lease prepayments were funded by a seller acquisition loan from SFHA in October 2016.
(3) Ground lease prepayments were funded by a seller acquisition loan from SFHA in November 2015.
33 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
These certain affiliated partnerships also lease land where the projects are situated, generally from the San Francisco Mayor’s Office of Housing (SF-MOH). The leases range from an initial term of 50 to 70 years and have options to renew for an additional 29 to 49 years. Annual rent is composed of base rent and residual rent which are payable in arrears and are due on January 31st and April 15th of the following year, respectively. Base rent is accrued without interest until paid if no surplus cash is available while residual rent is accrued and payable to the extent that the properties have excess cash. Nonpayment of base rent and/or residual rent is subject to stipulated terms in the ground lease agreements with SF-MOH.
Annual rent expenses for each affiliated partnerships are summarized as follows:
Total Base Rent Residual Rent Annual Rent
Broadway Sansome (5) $ 15,000 $ 360,000 $ 375,000 Golden Gate (4) 15,000 150,317 165,317 MHRSC (5) 15,000 440,000 455,000 Namiki 15,000 175,000 190,000 Notre Dame 15,000 525,000 540,000 Parkview Terrace 15,000 273,750 288,750
(4) Base rent, in any given year, is $15,000 plus the difference between (a) the HUD §236 Approved Rent for non-Section 8 rental assistance units and (b) the estimated tenant rent payment for those units. Base rent, besides the $15,000, is paid with the level rent payments.
(5) If no surplus cash is available, any unpaid residual rent shall not accrue.
Ground lease expenses for 2016 and related payable balances at December 31, 2016 are as follows:
Ground Lease Ground Lease Expense Payable
Broadway Sansome $ 66,719 $ 76,886 Golden Gate 165,317 1,121,161 MHRSC 28,600 28,600 Namiki 144,000 1,819,653 Notre Dame 270,480 354,556 Parkview Terrace 288,750 2,315,453
Total $ 963,866 5,716,309
Current portion ** (790,369)
Noncurrent portion $ 4,925,940
** The current portion included base rent of $90,000 and residual rent of $700,369, which was the accumulated available excess cash from past years.
34 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
NOTE 21 – EMPLOYEE RETIREMENT PLAN
CCDC established a retirement plan for its employees to participate in. The IRC §403(b) plan covers employees after one year of service as defined in the plan. Employees are not required to contribute to the plan and employee contributions are immediately vested upon becoming eligible. The employer contributes a dollar-for-dollar matching up to a designated percentage based on the employee’s length of service. The employer’s maximum contribution is 3%. For 2016, the employer contributions to the plan for CCDC and subsidiaries were $100,287 and for the affiliated partnerships were $10,664.
NOTE 22 – COMMITMENT, CONTINGENCIES AND OTHER MATTERS
Contingent Notes Payable
Notes payable of $1,027,833 and $709,921 from North of Market Development Corporation (NOMDC), which was the managing partner of the partnerships that owned the properties, to CCSF were transferred to William Penn Hotel L.P. and Hamlin Hotel L.P, respectively, at the time of restructuring. However, there have not been any amendments to the loan agreements for such transfer. These notes were secured by the 4th deeds of trust on the properties, and are due in October 2041, but may be forgiven if the terms and covenants of the loans are complied with. Had these obligations been recognized by the affiliated partnerships, the cost basis of the real estate acquired would have been increased by the same amount. The terms of the note with William Penn Hotel is non-interest bearing, while the note with Hamlin Hotel bears interest at 10% compounded annually. At December 31, 2016, the contingent deferred interest expense payable on note with Hamlin Hotel totaled $7,116,736.
571 Broadway/1150 Grant Avenue Property
In November 2005, CCDC received a donation of real property located at 571 Broadway/1150 Grant Avenue in San Francisco from Wells Fargo Bank. As part of this donation, Wells Fargo Bank reimbursed CCDC for the alterations, repairs, upgrades, replacement and improvements to the building, which was completed in 2008.
As part of this donation, Wells Fargo Bank obtained a lease for the ground floor space for its branch office for 99 years at $1 rent per year. There is also an extension option for nine terms of ten years each. The fair value of the discounted lease income was not determinable at the time that CCDC received the donation from Wells Fargo Bank.
Lease Commitments and Obligations
On December 1, 2010, CCDC leased an office space for the program department at a monthly rate of $2,900. The lease expired on December 31, 2013 and is currently on month-to-month basis. On August 12, 2016, CCDC entered into a lease agreement for an office space with Hank K. Fung, a third party, with an initial term of three years starting on September 1, 2016 and an option to extend the term for additional three years. The monthly rent for the first year is $4,500 and shall increase on an annual basis thereafter as specified in lease term. Other CCDC departments also occupied office space on month-to-month basis at various properties owned or managed by CCDC. See Note 13.
In August 2016, CCDC entered an office lease with June Chin, a third party. The lease is based on 15 years term staring from May 2017 to May 2032 at a monthly rate of $10,437 with $60,000 rent credit.
In addition, CCDC also has operating leases for copiers, telephone system, and a postage meter with various terms and maturity dates that are expiring in 2018.
35 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
The future minimum rental payments for the non-cancelable operating leases are as follow:
Office Equipment Total
2017 $ 105,415 $ 23,334 $ 128,749 2018 181,423 15,236 196,659 2019 163,439 - 163,439 2020 113,871 - 113,871 2021 113,247 - 113,247 Thereafter 1,290,219 - 1,290,219
Thermal Energy Services Agreement
In August 2013, CCDC entered into an agreement with Renewable Technology Development, Inc. (RTD) for space leasing so that RTD would install and maintain a commercial solar heating system for no cost on the rooftop of the buildings at 1370 California and at Notre Dame Apartments. These systems will be connected to the projects’ existing water heating system. The projects agreed to purchase 100% of the energy delivered by the system at a 20% discount to the prevailing monthly published PG&E GMT Master Metered Multi-Family Service Gas Tariff, including PPP surcharge. This agreement is for 15 years until 2029 commencing with starting of the commercial operation date, with an option to renew for another 5 years ending 2034. The energy production began in February 2014. Total payments made to RTD for energy production in 2016 amounted to $2,172 and $5,229 for 1370 California and Notre Dame, respectively.
The projects also have an option to purchase the system at a buyout value as stated in the agreement no later than 180 days prior to the expiration date. If no option is exercised by the projects, then RTD will, at their expense, remove the system from the premises no later than 180 days after the expiration date. In addition, on the 6th anniversary of the 15-year term (year 2020) and each subsequent anniversary, the projects may elect to purchase the system at the greater of the buyout value and the fair market value. RTD is given sole and absolute discretion to terminate this agreement with not less than 60 days written notice to the projects; if that is to happen, the projects have an option to buy the system at the greater of the buyout value and the fair market value. The buyout value is stated in the agreement with the first year value stated at $158,927 and $324,000, and decreasing annually to $3,082 and $9,261 at year 15 for 1370 California and Notre Dame, respectively.
Equity Investments
150 Otis was formed jointly with Swords to Plowshares: Veteran Rights Organization (Swords) who also formed an LLC to act as the administrative general partner, and is currently operating the affordable housing complex under the name of Veteran Commons. This complex participates in the low-income housing tax credit program under Section 42 of the Internal Revenue Code. 150 Otis is structured so that both CCDC and Swords have equal ownership, control and authority. It is intended that Swords will acquire entire ownership of the project at the end of the tax credit period.
MBB7 was formed jointly with Related Companies of California (Related) who formed an LLC to act as the administrative general partner for the purpose of operating an affordable housing complex under the name of Mission Bay Block 7. Construction began in May 2015 and is expected to be completed by January 2017. This partnership intends to qualify for the low income housing tax credit program under Section 42 of the Internal Revenue Code. It is intended that Related will acquire the entire ownership of the project at the end of the tax credit period.
Folsom and Shotwell were formed jointly with Mission Economic Development Agency (MEDA) who formed two separate LLCs to act as co-general partner for each limited partnership, for the primary purpose to acquire, construct, own, hold for investment, operate, manage, lease or sell an affordable rental housing development for low-income persons. The two projects are still at pre-development stage.
36 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
MB3E was formed jointly with Swords to Plowshares: Veteran Eights Organization (Swords) who also formed an LLC to act as co-general partner, for the primary purpose to acquire, construct, own, hold for investment, operate, manage, lease or sell an affordable rental housing development for low-income persons. The project is still at pre-development stage.
CCDC uses the equity method of accounting for reporting these investments and recorded its allocated share of losses from the above five partnerships. The following are key financial information for the five partnerships at December 31, 2016, and for the year then ended:
150 Otis MBB7 Folsom Shotwell MB3E
Property and equipment, net $ 24,652,667 $ - $ - - $ - Construction in progress - 76,831,642 1,147,457 896,874 796,927 Total assets 25,627,362 76,883,533 1,147,457 896,974 796,927 Notes payable 7,572,979 58,692,619 906,554 786,293 790,093 Construction costs payable - 10,390,155 182,242 101,754 - Total liabilities 8,102,735 69,790,398 1,148,257 897,674 797,727 Partners’ capital 17,524,627 7,093,135 (800) (800) (800) Net revenue for 2016 1,270,234 - - - - Total expenses for 2016 1,847,811 39,386 800 800 800 Net loss (577,577) (39,386) (800) (800) (800) Investment loss – CCDC’s share (29) (2) (400) (400) (400)
Guarantees
Operating Deficit Guarantee:
Operating deficit guarantees are commitments to fund future operating deficits of affiliated partnerships. The guarantees are issued in favor of tax credit limited partnerships, and generally are for the fifteen-year period during which the investor is expected to hold its limited partner interest, or for shorter periods (for example, until certain debt coverage ratios are achieved for Tenderloin Family). A payment under such a guarantee would result in the transfer of cash resources from the guarantor to a consolidated affiliate, resulting in an obligation to repay the advance, usually from future operating cash flow. To date, CCDC and affiliates have not experienced any calls on these guarantees.
Together with the administrative or co-general partner, CCDC as the sole member, sponsor, or controlling interest of the affiliated partnership’s managing general partner, guarantees the following amounts:
150 Otis $ 625,000 Broadway Sansome 200,000 MHRSC 630,000 Ping Yuen 2,083,028 Ping Yuen North 1,834,740 227 Bay 321,173 990 Pacific 655,962
Total $ 6,349,903
37 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Development Deficiency:
Tenderloin Family – The general partner promises to lend to the partnership all funds necessary for completion of the rehabilitation and to pay all development costs of the project. The development deficiency Loan shall be unsecured and non-recourse to the partners without interest. If the general partner fails to make the development deficiency loan as requested, the general partner will pay the partnership interest at prime plus 2% per annum from the date the development deficiency loan is requested until it is made.
Ping Yuen and North Ping Yuen – The general partner is obligated to assume all responsibility for the completion of the rehabilitation of the project in accordance with the construction contract and the requirements of all lenders in accordance with the plans, and at general partner’s own cost and expense, cause the projects to reach completion no later than 30 days after the outside completion date on November 1, 2019 and January 31, 2020, respectively. The general partner shall pay for all bills, expenses, charges, costs and fees relating in any manner to or otherwise in connection with such rehabilitation. The general partner covenant, agrees and promises to pay to the partnership the funds required to pay any development deficiency incurred by the partnership during the development deficiency guaranty period, which will end on the rent-up date as defined in the partnership agreements.
227 Bay and 990 Pacific – The general partner is obligated to complete the rehabilitation of the projects and cause the partnerships to satisfy any other requirements necessary to achieve final closing with the project documents in accordance with the partnership agreements. If the designated proceeds as defined in the partnership agreements are insufficient to complete the rehabilitation of the projects, the general partner shall have the liability to make development advance up to $2,500,000 to the partnerships for each project.
Construction Contracts:
Ping Yuen, North Ping Yuen, 227 Bay and 990 Pacific entered into a construction contract with unrelated third party general contractor to provide general contractor services in the construction of respective projects. The contacts, as adjusted by changes orders and amount incurred as of December 31, 2016 are as follows:
Contract Amount Incurred
Ping Yuen $ 52,833,377 $ 1,624,437 North Ping Yuen 48,329,959 2,324,145 227 Bay 8,400,725 6,345,275 990 Pacific 29,426,234 13,198,003
Total $ 138,990,295 $ 23,491,860
Payment Guarantee:
MHRSC – In the event that the general partners have not substantially complied with any material provisions of the Amended and Restated Limited Partnership Agreement, or default of the construction loan or foreclosure proceedings have been commenced against the Project for reasons other than the failure to make payment of the capital contribution from the limited partner, which the failure is not a result of a default by the general partners, the partnership shall withhold payment of the developer fee, incentive management fee, and partnership management fee. The general partners shall be liable for the developer fee paid.
38 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2016
Energy Tax Credit Compliance Guarantee:
MHRSC – CCDC and the co-general partner irrevocably and unconditionally guarantee payments to the limited partner equal to the greater of either (i) the amount of energy tax credit recapture plus interest in connection with such recapture or (ii) the amount of the deficiency assessed against the limited partner with respect to the recapturing of energy tax credits plus an amount sufficient to pay any tax liability owed by the limited partner, including interest. Such guaranty would not apply to amounts due solely to transfer by the limited partner's interest or to changes in tax law, which the general partner is unable to comply despite the exercise of its good faith and reasonable efforts.
Property Purchase Options
CCDC, as the sponsor or sole member of its affiliated partnerships’ general partner, is granted the option to purchase the project or the limited partner’s interest, and the right of first refusal. The purchase price of the aforementioned and the option period when they can exercise such rights are stipulated in each partnership’s purchase option and right of first refusal agreement.
Others
For the low-income housing tax credit partnerships for which CCDC is the general partner, CCDC has to indemnify the limited partners for shortfall in the tax credits and other tax benefits. The aggregate outstanding amount of such guarantees is approximately $186,000,000 at December 31, 2016.
CCDC has received various grants and contracts, which are restricted for their intended purposes. Such funding may be subject to audit by the funding agencies, and costs disallowed will need to be refunded. In the opinion of management, any liability, which may arise as the result of such audits, would not be material.
Contingencies
CCDC was named in a lawsuit relating to operation of Clayton Hotel in December 2016. No amounts have been accrued in the statement of operations since the outcome of this matter is uncertain and the amount of liability, if any, cannot be determined or estimated, including any potential insurance recovery.
39 SUPPLEMENTARY INFORMATION
40 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF LOW-INCOME HOUSING OPERATIONS – UNRESTRICTED – TOTAL YEAR ENDED DECEMBER 31, 2016
See page 42 See page 43 See page 44 Other CCDC Low-Income Owned Subsidiaries Housing Total Owned Affiliated Total Total Operations Projects Partnerships Grand Total
Revenue: Rental $ 2,124,579 $ 3,731,008 $ - $ 5,855,587 $ 18,839,756 $ 24,695,343 Investment income (loss) 1,974 1,947 301,412 305,333 10,680 316,013 Foundation grants and contributions - - 200 200 - 200 Miscellaneous 32,897 34,586 - 67,483 230,351 297,834 Total revenue 2,159,450 3,767,541 301,612 6,228,603 19,080,787 25,309,390
Expenses: Salaries, payroll taxes and fringes 410,509 604,117 - 1,014,626 2,384,692 3,399,318 Tenant services 42,000 8,187 - 50,187 795,172 845,359 Repairs, maintenance and garbage 355,213 996,401 - 1,351,614 2,165,756 3,517,370 Professional fees 122,782 122,120 - 244,902 354,152 599,054 Management fees 239,560 233,527 - 473,087 1,776,552 2,249,639 Rent - 234,199 - 234,199 558,949 793,148 Utilities 308,854 361,107 - 669,961 2,027,354 2,697,315 Office supplies and expenses 44,275 62,724 - 106,999 214,586 321,585 Travel and conference - 8,550 - 8,550 - 8,550 Insurance 66,655 76,534 - 143,189 297,693 440,882 Property taxes, licenses and permits 91,725 31,540 - 123,265 359,446 482,711 Bad debt 1,193 12,412 - 13,605 8,278 21,883 Interest 94,148 188,472 - 282,620 2,601,841 2,884,461 Other financial expense - 393,182 - 393,182 226,955 620,137 Miscellaneous 16,547 45,982 - 62,529 151,283 213,812 Subtotal 1,793,461 3,379,054 - 5,172,515 13,922,709 19,095,224
Changes in unrestricted net assets before noncash income (expenses) 365,989 388,487 301,612 1,056,088 5,158,078 6,214,166
Noncash income (expenses): Annual amortization of loan/grant 70,472 - - 70,472 - 70,472 Ground lease amortization - - - - (345,528) (345,528) Deferred rent - - - - (239,600) (239,600) Deferred interest – forgivable loans - (82,944) - (82,944) - (82,944) Deferred interest – nonforgivable loans (354,643) (251,369) - (606,012) (2,648,134) (3,254,146) Depreciation and amortization (635,813) (968,005) - (1,603,818) (7,712,675) (9,316,493) Interest – amortization of permanent loan costs (16,848) (8,535) - (25,383) (84,271) (109,654) Total noncash income (expenses) (936,832) (1,310,853) - (2,247,685) (11,030,208) (13,277,893)
Change in unrestricted net assets (570,843) (922,366) 301,612 (1,191,597) (5,872,130) (7,063,727)
Unrestricted net assets, beginning of year (6,265,793) (15,673,151) (3,882,409) (24,810,399) 70,367,574 45,557,175 Interprogram reclassifications - - 676,733 676,733 - 676,733 Transfer of partnership interest * - (600,925) - (600,925) 600,925 - Reclassification - - 1,099,631 1,099,631 768,476 1,868,107 Other accumulated comprehensive income - - - - 202,134 202,134 Syndication costs - - - - (265,300) (265,300) Cash distribution (50,000) - 5,676 (44,324) (57,773) (102,097) Contributed capital - - - - 24,975,747 24,975,747
Unrestricted net assets, end of year $ (6,886,636) $(17,196,442) $ (1,798,757) $(24,870,881) $ 90,719,653 $ 65,848,772
* The beginning unrestricted net assets for Ping Yuen and North Ping Yuen was reclassified from CCDC Subsidiaries to Affiliated Partnerships; The beginning unrestricted net assets for Golden Gate was reclassified from Affiliated Partnerships to CCDC Subsidiaries. The Low-Income Housing Operations include the following: - Allocated income (loss) from the investments in low-income housing limited partnerships; - The distributions from the investments in Wharf Plaza I and II; and - The activities (excluding partnership management fee revenue and note receivable interest income) of the CCDC controlled entities, which are the general partners of the CCDC sponsored limited partnerships.
41 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF LOW-INCOME HOUSING OPERATIONS – UNRESTRICTED – CCDC OWNED YEAR ENDED DECEMBER 31, 2016
CCDC Owned Swiss 1370 Consorcia Clayton American St. Claire California Tower 665 Clay 462 Green 1150 Grant Total
Revenue: Rental $ 190,650 $ 325,149 $ 382,553 $ 252,644 $ 464,841 $ 189,353 $ 206,274 $ 23,718 $ 89,397 $ 2,124,579 Investment income 213 91 214 461 484 9 405 - 97 1,974 Miscellaneous 14,957 6,333 4,537 795 3,984 205 1,273 - 813 32,897 Total revenue 205,820 331,573 387,304 253,900 469,309 189,567 207,952 23,718 90,307 2,159,450
Expenses: Salaries, payroll taxes and fringes 32,594 55,289 72,397 52,436 101,929 25,671 56,448 - 13,745 410,509 Tenant services 5,100 3,600 3,600 5,500 5,500 3,600 10,000 - 5,100 42,000 Repairs, maintenance and garbage 20,021 64,276 88,602 42,974 53,480 42,097 19,858 1,598 22,307 355,213 Professional fees 11,638 25,589 22,450 18,469 15,974 10,350 11,100 228 6,984 122,782 Management fees 19,875 40,725 48,780 29,520 38,220 28,114 20,130 3,276 10,920 239,560 Utilities 27,864 42,560 62,534 48,134 44,659 24,784 32,268 3,502 22,549 308,854 Office supplies and expenses 2,416 4,422 4,743 7,706 13,385 3,787 4,167 - 3,649 44,275 Insurance 5,087 13,664 11,095 7,885 9,863 8,166 7,400 499 2,996 66,655 Property taxes, licenses and permits 7,559 15,397 18,941 3,541 4,364 18,699 20,926 933 1,365 91,725 Bad debt - 1,193 ------1,193 Interest - 20,173 - - 66,605 - - 7,370 - 94,148 Miscellaneous 1,393 2,550 2,592 1,955 3,613 1,272 1,747 98 1,327 16,547 Subtotal 133,547 289,438 335,734 218,120 357,592 166,540 184,044 17,504 90,942 1,793,461
Changes in unrestricted net assets before noncash income (expenses) 72,273 42,135 51,570 35,780 111,717 23,027 23,908 6,214 (635) 365,989
Noncash income (expenses): Annual amortization of loan/grant - 13,472 - - - - 57,000 - - 70,472 Deferred interest – nonforgivable loans (22,627) (30,165) (78,070) (42,900) (44,004) (38,717) (74,431) (23,729) - (354,643) Depreciation and amortization (26,946) (81,327) (27,773) (102,716) (135,608) (36,762) (153,503) (10,725) (60,453) (635,813) Interest – amortization of permanent loan costs - (668) - (216) (12,717) - (3,013) (234) - (16,848) Total noncash income (expenses) (49,573) (98,688) (105,843) (145,832) (192,329) (75,479) (173,947) (34,688) (60,453) (936,832)
Change in unrestricted net assets 22,700 (56,553) (54,273) (110,052) (80,612) (52,452) (150,039) (28,474) (61,088) (570,843)
Unrestricted net assets, beginning of year (57,980) (2,133,654) (2,371,838) (1,113,547) (644,780) (1,552,142) (573,730) - 2,181,878 (6,265,793) Distribution to CCDC ------(50,000) (50,000)
Unrestricted net assets, end of year $ (35,280) $ (2,190,207) $ (2,426,111) $ (1,223,599) $ (725,392) $ (1,604,594) $ (723,769) $ (28,474) $ 2,070,790 $ (6,886,636)
42 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF LOW-INCOME HOUSING OPERATIONS – UNRESTRICTED – SUBSIDIARIES YEAR ENDED DECEMBER 31, 2016
Subsidiaries Golden Gate North Ping Apartments William Penn Larkin Pine Hamlin Ping Yuen Yuen Bayside Total Revenue: Rental $ 1,154,346 $ 677,331 $ 414,573 $ 573,485 $ - $ - $ 911,273 $ 3,731,008 Investment income 1,215 194 455 52 - - 31 1,947 Miscellaneous 10,710 13,977 1,991 6,752 - - 1,156 34,586 Total revenue 1,166,271 691,502 417,019 580,289 - - 912,460 3,767,541 Expenses: Salaries, payroll taxes and fringes 153,370 155,261 89,048 124,831 - - 81,607 604,117 Tenant services 3,464 - 3,600 - - - 1,123 8,187 Repairs, maintenance and garbage 156,979 231,871 122,119 431,514 - - 53,918 996,401 Professional fees 28,075 28,369 21,939 27,833 - - 15,904 122,120 Management fees 70,791 51,866 39,066 42,788 - - 29,016 233,527 Rent 165,317 - 56,280 - - - 12,602 234,199 Utilities 107,341 72,050 72,328 78,909 - - 30,479 361,107 Office supplies and expenses 17,216 13,376 11,058 8,819 - - 12,255 62,724 Travel and conference - - 8,550 - - - - 8,550 Insurance 20,779 19,994 13,533 14,575 - - 7,653 76,534 Property taxes, licenses and permits 13,616 9,824 1,137 6,099 - - 864 31,540 Bad debt 11,481 - - 931 - - - 12,412 Interest 86,579 - - - - - 101,893 188,472 Other financial expense 14,162 - - - - - 379,020 393,182 Miscellaneous 706 37,409 4,339 - - - 3,528 45,982 Subtotal 849,876 620,020 442,997 736,299 - - 729,862 3,379,054 Changes in unrestricted net assets before noncash income (expenses) 316,395 71,482 (25,978) (156,010) - - 182,598 388,487 Noncash income (expenses): Deferred interest – forgivable loans - - - - - (82,944) (82,944) Deferred interest – nonforgivable loans (44,810) (83,490) (54,589) (68,480) - - - (251,369) Depreciation and amortization (339,800) (174,455) (243,170) (106,280) - - (104,300) (968,005) Interest – amortization of permanent loan costs (8,535) ------(8,535) Total noncash income (expenses) (393,145) (257,945) (297,759) (174,760) - - (187,244) (1,310,853) Change in unrestricted net assets (76,750) (186,463) (323,737) (330,770) - - (4,646) (922,366) Unrestricted net assets, beginning of year - (5,555,497) (2,498,935) (4,661,300) (800) (800) (2,955,819) (15,673,151) Transfer of partnership interest (602,525) - - - 800 800 - (600,925)
Unrestricted net assets, end of year $ (679,275) $ (5,741,960) $ (2,822,672) $ (4,992,070) $ - $ - $ (2,960,465) $(17,196,442)
43 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF LOW-INCOME HOUSING OPERATIONS – UNRESTRICTED – AFFILIATED PARTNERSHIPS YEAR ENDED DECEMBER 31, 2016
Broadway Tenderloin Parkview Broadway North Ping Golden Gate Namiki Notre Dame Family Family Crescent Cove Terrace Sansome 227 Bay 990 Pacific MHRSC Ping Yuen Yuen Total
Revenue: Rental $ - $ 1,150,069 $ 4,748,607 $ 1,513,034 $ 2,366,335 $ 3,740,666 $ 1,190,990 $ 954,628 $ 606,683 $ 649,015 $ 1,029,643 $ 479,543 $ 410,543 $ 18,839,756 Investment income - 953 5,104 438 942 625 370 697 31 72 1,429 13 6 10,680 Miscellaneous - 2,077 9,388 12,798 58,128 69,514 16,521 29,498 198 154 30,534 1,098 443 230,351 Total revenue - 1,153,099 4,763,099 1,526,270 2,425,405 3,810,805 1,207,881 984,823 606,912 649,241 1,061,606 480,654 410,992 19,080,787
Expenses: Salaries, payroll taxes and fringes - 85,044 419,876 190,875 446,369 273,974 307,170 182,639 67,296 68,917 246,758 40,166 55,608 2,384,692 Tenant services - 25,737 199,680 63,004 96,200 - 60,455 50,600 62,000 83,275 79,976 37,214 37,031 795,172 Repairs, maintenance and garbage - 96,238 303,908 223,356 334,418 259,456 146,622 159,647 117,843 139,021 158,478 135,143 91,626 2,165,756 Professional fees - 22,229 52,656 32,482 61,611 40,902 28,208 31,299 15,266 25,799 30,937 6,439 6,324 354,152 Management fees - 68,703 258,429 114,636 164,412 441,304 132,768 115,708 75,390 106,688 172,651 64,563 61,300 1,776,552 Rent - 144,000 270,480 - - - 49,150 66,719 - - 28,600 - - 558,949 Utilities - 40,431 427,257 192,490 284,680 291,641 159,772 175,965 54,698 118,143 127,560 86,909 67,808 2,027,354 Office supplies and expenses - 19,633 22,281 13,281 22,198 26,199 25,093 24,092 12,222 17,291 17,012 6,736 8,548 214,586 Insurance - 7,872 44,950 27,544 36,712 77,618 26,194 24,975 - - 26,863 7,865 17,100 297,693 Property taxes, licenses and permits - 5,188 42,698 36,593 41,824 180,637 28,851 5,794 1,369 1,269 13,623 800 800 359,446 Bad debts - 364 - - - 2,191 5,713 - 10 - - - - 8,278 Interest - 28,560 602,918 142,906 429,673 1,050,201 118,549 229,034 - - - - - 2,601,841 Other financial expense - 11,654 16,355 46,096 50,543 24,106 - 64,201 2,000 2,000 - 5,000 5,000 226,955 Miscellaneous - 9,509 18,421 4,375 22,170 44,547 8,880 8,116 6,729 4,126 21,203 2,066 1,141 151,283 Subtotal - 565,162 2,679,909 1,087,638 1,990,810 2,712,776 1,097,425 1,138,789 414,823 566,529 923,661 392,901 352,286 13,922,709
Changes in unrestricted net assets before noncash income (expenses) - 587,937 2,083,190 438,632 434,595 1,098,029 110,456 (153,966) 192,089 82,712 137,945 87,753 58,706 5,158,078
Noncash income (expenses): Ground lease amortization - (27,000) (269,520) (7,692) - - - - (4,419) (16,380) - (10,753) (9,764) (345,528) Deferred rent ------(239,600) ------(239,600) Deferred interest – nonforgivable loans - (38,740) - (332,745) (344,748) (315,784) (134,243) (503,360) (129,221) (191,690) (28,192) (327,795) (301,616) (2,648,134) Depreciation and amortization - (224,947) (687,632) (845,007) (1,014,604) (1,292,707) (837,796) (960,828) (219,289) (182,427) (926,766) (233,568) (287,104) (7,712,675) Interest – amortization of permanent loan costs - (12,211) (7,875) (8,301) (21,311) (25,665) (7,872) (199) - - (837) - - (84,271) Total noncash income (expenses) - (302,898) (965,027) (1,193,745) (1,380,663) (1,634,156) (1,219,511) (1,464,387) (352,929) (390,497) (955,795) (572,116) (598,484) (11,030,208)
Change in unrestricted net assets - 285,039 1,118,163 (755,113) (946,068) (536,127) (1,109,055) (1,618,353) (160,840) (307,785) (817,850) (484,363) (539,778) (5,872,130)
Unrestricted net assets, beginning of year (602,525) (553,633) 4,103,886 9,765,543 9,230,969 14,078,832 6,119,618 1,407,834 975,281 2,770,987 23,070,782 - - 70,367,574 Transfer of partnership interest 602,525 ------(800) (800) 600,925 Reclassifications - 81,175 167,272 520,029 ------768,476 Accumulated other comprehensive income - - - - 202,134 ------202,134 Syndication costs ------(135,150) (130,150) (265,300) Capital distribution - - - - (5,676) (52,097) ------(57,773) Capital contribution ------12,513,373 - - - 6,598,843 5,863,531 24,975,747
Unrestricted net assets, end of year $ - $ (187,419) $ 5,389,321 $ 9,530,459 $ 8,481,359 $ 13,490,608 $ 5,010,563 $ 12,302,854 $ 814,441 $ 2,463,202 $ 22,252,932 $ 5,978,530 $ 5,192,803 $ 90,719,653
44 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF ASSETS, LIABILITIES AND NET ASSETS – CHINATOWN COMMUNITY DEVELOPMENT CENTER ONLY DECEMBER 31, 2016
Owned Projects CCDC Only Elimination Total
ASSETS
Current assets: Cash and cash equivalent $ 471,354 $ 4,640,495 $ - $ 5,111,849 Cash held as trustee (contra) - 30,370 - 30,370 Investments in marketable securities - 701,857 - 701,857 Receivables: Rent 15,994 - - 15,994 Government contracts - 951,510 - 951,510 Grants and contributions - 13,684 - 13,684 Other 7,622 422,180 - 429,802 Inter-fund receivable - 21,990 - 21,990 Project development fee receivable - 3,038,851 - 3,038,851 Management and other fees receivable - 519,840 - 519,840 Receivables from related parties 7,952 1,692,258 (625,315) 1,074,895 Interest receivable - 351,000 - 351,000 Prepaid expenses 20,000 98,706 - 118,706 Total current assets 522,922 12,482,741 (625,315) 12,380,348
Property and equipment, net of accumulated depreciation of $13,876,168 14,083,328 22,169 (8,532) 14,096,965 Fund – restricted 1,542,348 777,156 - 2,319,504 Contributions receivables - 21,550 - 21,550 Tenant security deposits 147,575 - - 147,575 Investments in real estate limited partnerships - 5,999,901 - 5,999,901 Investment in SEA - 25,000 - 25,000 Management and other fees receivable – non-current - 108,985 - 108,985 Deposits - 113,729 - 113,729 Notes receivables - 4,933,953 (309,523) 4,624,430 Interest receivable – related party - 274,886 - 274,886
Total assets $ 16,296,173 $ 24,760,070 $ (943,370) $ 40,112,873
45 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF ASSETS, LIABILITIES AND NET ASSETS – CHINATOWN COMMUNITY DEVELOPMENT CENTER ONLY DECEMBER 31, 2016
Owned Projects CCDC Only Elimination Total
LIABILITIES AND NET ASSETS
Current liabilities: Accounts payable $ 51,414 $ 139,180 $ - $ 190,594 Trustee funds (contra) - 30,370 - 30,370 Accrued payroll and vacation 7,363 854,609 - 861,972 Other accrued liabilities 11,611 - - 11,611 Unearned revenue 3,579 - - 3,579 Accrued interest 1,614 2,500 - 4,114 Payable to related parties 799,360 153,376 (625,315) 327,421 Unsecured loan payable 69,977 - - 69,977 Current portion of notes payable to City – non-forgivable 60,345 - - 60,345 Current portion of accrued deferred interest – nonforgivable loans 86,812 - - 86,812 Total current liabilities 1,092,075 1,180,035 (625,315) 1,646,795
Non-current liabilities: Tenant security deposits 143,915 - - 143,915 Notes payable to CCDC 309,523 - (309,523) - Unsecured loan payable, non-current - 500,000 - 500,000 Secured notes payable to City – forgivable 3,755,707 - - 3,755,707 Secured notes payable to City and State – non-forgivable, net of current portion 8,583,218 - - 8,583,218 Secured notes payable, net of current portion 1,439,771 1,329,560 - 2,769,331 Permanent loan costs net of accumulated amortization of $100,581 (90,741) (83,891) - (174,632) Accrued deferred interest – nonforgivable loans 5,961,370 - - 5,961,370 Total non-current liabilities 20,102,763 1,745,669 (309,523) 21,538,909
Total liabilities 21,194,838 2,925,704 (934,838) 23,185,704
Net assets: Unrestricted (6,858,165) 12,644,027 (8,532) 5,777,330 Temporarily restricted 1,909,500 7,026,089 - 8,935,589 Permanently restricted 50,000 2,164,250 - 2,214,250 Total net assets (4,898,665) 21,834,366 (8,532) 16,927,169
Total liabilities and net assets $ 16,296,173 $ 24,760,070 $ (943,370) $ 40,112,873
46 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF SUPPORT AND REVENUE, AND EXPENSES – CHINATOWN COMMUNITY DEVELOPMENT CENTER ONLY YEAR ENDED DECEMBER 31, 2016
Owned Projects CCDC Only Elimination Total
Support and revenue: Rental $ 2,100,862 $ 31,681 $ (177,270) $ 1,955,273 Government grants and contracts 13,472 2,762,098 - 2,775,570 Management and RAD service fees - 1,668,974 (228,364) 1,440,610 Technical assistance fees - 275,927 - 275,927 Developer and project administrative fees - 4,011,875 - 4,011,875 Tenant services fees - 735,471 (42,000) 693,471 Outreach and relocation service fees - 618,950 - 618,950 Bookkeeping and others - 227,468 (47,205) 180,263 Investment income 1,974 896,765 - 898,739 Foundation grants - 946,673 - 946,673 Contributions - 724,702 - 724,702 Miscellaneous 32,897 12,031 - 44,928 Total support and revenue 2,149,205 12,912,615 (494,839) 14,566,981
Expenses: Program services: Low-income housing projects: Operating 1,793,472 - (494,839) 1,298,633 Deferred interest 330,914 - - 330,914 Depreciation and amortization 607,573 - (389) 607,184 Interest – amortization of permanent loan costs 16,614 - - 16,614 Property management - 754,990 - 754,990 Housing development - 1,233,815 - 1,233,815 Program and planning - 4,362,431 - 4,362,431 Costs of direct benefits to donors - 126,947 - 126,947 Management and general: Operating - 3,246,267 - 3,246,267 Depreciation and amortization - 23,027 - 23,027 Fundraising - 363,531 - 363,531 Total expenses 2,748,573 10,111,008 (495,228) 12,364,353
Other loss: Loss on investment in limited partnerships - (5) - (5) Total other income loss - (5) - (5)
Change in net assets (599,368) 2,801,602 389 2,202,623
Net assets, beginning of year (4,249,297) 15,817,731 (8,921) 11,559,513
Transfer (to) from affiliates (50,000) 3,215,033 - 3,165,033
Net assets, end of year $ (4,898,665) $ 21,834,366 $ (8,532) $ 16,927,169
47 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF NOTES PAYABLE YEAR ENDED DECEMBER 31, 2016
Notes payable are generally secured by the respective properties and under simple interest rates unless otherwise stated:
Notes Payable – City and State
CA=State SF = City Principal Amount Deferred Interest Property Year Due* Interest Rate Non-forgivable Forgivable Payable **
Owned Projects:
Consorcia Hotel 2002 3% CA (f) $ 60,345 $ - $ - Consorcia Hotel 2011 6% SF (a) 330,898 - 498,829 Consorcia Hotel 2054 3% SF (b)(d) 13,340 - 400 Clayton Hotel 2012 3% CA (f) 100,000 - 42,100 Clayton Hotel 1999 6% SF (a) 295,565 - 614,531 Clayton Hotel 1999 6% SF (a) 39,039 - 79,413 Clayton Hotel 2073 0% SF (b)(c) - 469,963 - Clayton Hotel 2049 0% SF (b)(e) - 444,576 - Clayton Hotel 2051 0% SF (b)(d) - 60,000 - Clayton Hotel 2052 3% SF (b)(d) 232,945 - 109,239 665 Clay St 2026 2.5% SF (d) 2,977,245 - 739,913 462 Green 2046 3%SF (d) 1,516,761 - 23,729 Swiss American Hotel 2015 3% CA (a) 521,900 - 462,558 Swiss American Hotel 2005 6% SF (d) 1,040,214 - 1,345,902 St Claire Hotel 2016 3% CA (a) 410,000 - 297,137 St Claire Hotel 2006 6% SF (b)(c) 510,000 - 925,126 St Claire Hotel 2050 0% SF (d) - 478,168 - 1370 California St. 2065 3% SF (d)(l) 1,466,785 - 90,935 1370 California St. (land) 2069 0% SF (c)(g) - 2,303,000 - William Penn Hotel 2041 3% CA (d) 2,783,001 - 2,049,382 William Penn Hotel 2041 0% SF (d)(l) 184,396 - 247,766 William Penn Hotel 2041 0% SF (c)(g) - 1,073,820 2,308,453 Larkin Pine Hotel 2048 3% CA (d) 1,819,585 - 1,235,463 Larkin Pine Hotel 2048 3% SF (n) 2,800,000 - 1,261,151 Tower Hotel 2005 6% SF (a) 645,286 - 842,098 Hamlin Hotel 2041 3% CA (d) 2,282,663 - 1,563,238 Hamlin Hotel 2041 0% SF (l) 16,514 - 27,069 Hamlin Hotel 2041 0% SF (c)(g) - 780,960 1,678,873 Golden Gate Apts. 2048 6% SF (d) 746,833 - 787,785 Bayside Housing 2039 10% SF (c) - 829,387 2,260,212
Subtotal 20,793,315 6,439,874 19,491,302
48 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF NOTES PAYABLE YEAR ENDED DECEMBER 31, 2016
CA=State SF = City Principal Amount Deferred Interest Property Year Due* Interest Rate Non-forgivable Forgivable Payable **
Affiliated Partnerships: 227 Bay 2071 0% SF (b)(d) 947,117 - - 227 Bay 2070 0% SF (d) 400,000 - - 227 Bay 2070 2.57% SF (k) 8,175,000 - 246,014 990 Pacific 2072 0% SF (b)(d) 8,500,000 - - 990 Pacific 2070 2.57% SF (k) 17,940,000 - 539,876 Ping Yuen 2076 1.95%SF (k) 67,240,000 - 327,795 Ping Yuen 2076 0%SF (b)(d) 920,000 - - Ping Yuen 2076 0%SF (b)(d) 1,050,000 - - North Ping Yuen 2076 1.95%SF (k) 61,870,000 - 301,616 Broadway Family 2057 3% SF (d) 4,142,286 - 1,211,503 Broadway Family 2065 3% CA (b)(d)(i) 7,999,094 - 1,314,245 Namiki Hotel 2058 3% CA (b)(d)(i) 1,501,542 - 388,938 Crescent Cove 2062 6% SF (d) 5,228,125 - 151,857 Tenderloin Family 2048 3% CA (m) 8,876,616 - 6,323,202 Tenderloin Family 2068 3.32 % SF (d)(n) 660,000 - 69,863 Parkview Terrace 2062 1% SF (d) 13,424,376 - 1,322,545 MHRSC 2068 0.25% SF (b)(d)(j) 11,231,936 - 12,756 Broadway Sansome 2071 3% CA (b)(d) 7,237,742 - 107,469 Broadway Sansome 2070 3% SF (b)(d) 13,519,415 - 1,325,546
Subtotal 240,863,249 - 13,643,225
Total 261,656,564 6,439,874 33,134,527
Less: current portion (60,345) - (311,384)
Non-current portion $ 261,596,219 $ 6,439,874 $ 32,823,143
CCDC has the following loans from the City and County of San Francisco (City) and the State of California (State), which were used for the purposes of acquiring and/or rehabilitating real properties for low and moderate-income housing. The loans payable balances and deferred interest payable to the City and State at December 31, 2016 were as follows:
* The entire principal and deferred interests of the above loans are due in one payment on the due date, except as noted below:
(a) Requests for long-term extension for these loans have been made/will be made and management believes that the extensions will be granted.
(b) In the event of default (as defined in the loan agreements), interest will be deemed to have accrued at 10% or 12% compounded annually.
(c) These loans are forgivable upon maturity if all the terms and covenants of the loan are met.
(d) Interest is due based on available cash flows upon submission of annual report. Amount not paid is deferred.
49 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF NOTES PAYABLE YEAR ENDED DECEMBER 31, 2016
(e) For such period that this project is operated for the benefit of qualifying tenants, 1/50th of the original principal will be reduced at the end of each year. Accordingly, the principal is being amortized for $13,472 annually.
(f) These loans were due in 2012. The agreed repayments started on August 1, 2013 with monthly payments of $3,500 and $1,500 for Consorcia Hotel and Clayton Hotel, respectively. The monthly payments will continue until the loans are paid in full and are first applied against deferred interest payable.
(g) Interest was at 12% per annum up to December 31, 2001 then changed to 0% starting January 1, 2002.
(h) Interest is at 3% (simple) per annum for the first 15 years and carries no interest thereafter.
(i) Annual payment of 0.42% on the unpaid principal balance as monitoring fee for the first 30 years. Commencing the 30th anniversary and continuing thereafter, the annual required payment is the lesser of (1) the full amount of interest accruing on the unpaid principal amount for the immediately preceding 12 month period, or (2) the amount determined by the SF-MOH to be necessary to cover the costs of continued monitoring of the project for compliance with the Program requirements.
(j) CCDC is in negotiation with SF-MOH for the return of unused loan proceeds.
(k) Interest at 2.57% compounded annually with $15,000 required monthly payment beginning June 30 after the completion of the rehab.
(l) Interest at 10% compounded annually, then changed to 0% starting January 1, 2002.
(m) This loan was assumed by Tenderloin Family through acquisition of Turk Street Apt. from 201 Turk Street, L.P., on December 3, 2013. It requires annual interest payment of 0.42% on the unpaid principal balance starting December 31, 2013.
(n) This loan was assumed by Tenderloin Family through acquisition of Turk Street Apt. from 201 Turk Street, L.P., on December 3, 2013. Interest previously accrued by 201 Turk Street, L.P. was forgiven.
** The total deferred interest payable of the above loans included $6,247,938 from forgivable loans.
Secured Notes Payable
Loan balance at Monthly December 31, Property Interest Rate Payment Maturity 2016
Owned Projects: Bond and Permanent Loans: Clayton Hotel 7.75% $ 3,557 2024 $ 249,900 1370 California St. (g) 4.25% 22,690 2027 1,259,848 462 Green 5.25% 1,663 2026 380,000 Bayside 8.375% 12,046 2031 1,196,918 Golden Gate (c) 6.02% 28,754 2029 3,000,898 Golden Gate (c) 6.02% 9,794 2018 218,360
Total 6,305,924
Less: current portion (388,862)
Non-current portion $ 5,917,062
50 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF NOTES PAYABLE YEAR ENDED DECEMBER 31, 2016
Loan balance at Monthly December 31, Property Interest Rate Payment Maturity 2016
Other Program: Affordable Housing Program (AHP) loans: (d) I-Hotel 0% $ - 2020 $ 829,560 Parkview Terrace 0% - 2061 500,000
Total – non-current portion $ 1,329,560
Affiliated Partnerships: Bond and Permanent Loans: Namiki (a) 6.00% $ 30,179 2017 $ 293,656 Notre Dame (a) 6.50% 61,721 2033 7,588,895 Notre Dame (a)(b) 6.50% 59,889 2018 1,291,809 Crescent Cove 5.45% 127,556 2022 19,042,393 Broadway Family 6.85% 12,188 2040 1,703,772 Broadway Family 6.85% 17,558 2018 283,697 Parkview Terrace 6.77% 14,268 2024 1,726,133 Tenderloin Family (f) LIBOR + 2% - 2040 6,832,411
Total bond and permanent loans 38,762,766
Less: current portion (2,083,104)
Non-current portion $ 36,679,662
Affordable Housing Program (AHP) loans: (d) Broadway Family 0% 2063 $ 400,000 Broadway Sansome (e) 0% 2068 740,000
Total AHP loans 1,140,000
Total 47,538,250
Less: current portion (2,471,966)
Non-current portion $ 45,066,284
(a) In connection with the issuance of the bonds, Namiki and Notre Dame each have an irrevocable letter of credit in the amount of $5,967,891 and $16,831,475, respectively, obtained from Citibank, N.A. for the benefit of the Trustee and the holder of the bonds to secure payment of principal and interest of the bonds, and the purchase price of the bonds tendered for purchase pursuant to the indenture. The amounts of the letter of credit are reducing as the bonds are repaid and they expire on November 1, 2017 and December 7, 2017, respectively, for Namiki and Notre Dame.
(b) As part of the financing arrangement for the project, Notre Dame obtained a Standby Payment Agreement from SF-MOH, whereby, SF-MOH agreed to fund, at its option, either payoff of a portion of the loan (amount to be determined at that time) or monthly advances enough to meet the monthly debt services for the Tranche B loan in the event that the HAP contract is not renewed or the payment is reduced by HUD. SF-MOH’s obligation under this agreement only arises if Notre Dame does not have sufficient funds available to make the debt service payments as required.
51 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF NOTES PAYABLE YEAR ENDED DECEMBER 31, 2016
If SF-MOH advances the payoff for the loan, Notre Dame agrees to repay SF-MOH for the payoff amount on terms and conditions equivalent to those provided for in connection with the loan of funds (other than bond proceeds) by SF-MOH to Notre Dame in connection with the project. If SF-MOH funds the monthly debt services, the partnership would not be required to repay SF-MOH for the amount funded unless reimbursement from HUD or other funding sources are received. This Standby Payment Agreement is effective for 15 years in addition to the rehabilitation period.
(c) Golden Gate has an interest reduction agreement with HUD by which HUD assists in the monthly debt service payment based on a preset formula with an annual limit of $127,911 per year. This arrangement ends in 2018. CCDC guarantees payment on this loan.
(d) AHP of the Federal Home Loan Bank loans are due immediately if the project is not in compliance with the terms set forth in the loan agreement.
(e) This loan is due in full in the later of (a) 55 years after recordation of security instrument or (b) 15 years after the date of completion of construction of the project.
(f) This loan requires monthly principal and interest payment based on the amortization schedule of the loan agreement.
(g) This loan requires monthly interest payment until the disbursement of the full principal amount, which is estimated to occur in September 2017. Thereafter, estimated monthly principal and interest payment of $22,690 are due until the entire note is repaid in full by February 2027.
Construction Loans Payable
CCDC has the following loans for construction in progress. Interest payments on the loans are added to the principal balance. Loans payable are secured with the real and personal properties of the respective property, and are expected to be refinanced or paid off with a combination of new permanent loans and equity financing. The loans payable balances and deferred interest payable at December 31, 2016 were as follows:
Loan balance at Required December 31, Property Interest Rate Payment Maturity 2015
Affiliated Partnerships: Interest only 227 Bay LIBOR+1.5% starting Dec 2015 2018 (1) $ 6,547,358 LIBOR +195 Interest paid North Ping Yuen basis points monthly 2020 2,550,257 LIBOR +180 Interest paid Ping Yuen basis points monthly 2019 5,115,702 Interest only 990 Pacific LIBOR+1.5% starting Dec 2015 2018 (1) 55,08,028
Total – non-current portion $ 19,721,345
(1) The initial maturity dates of these loans are February 2018 and May 2018 for 227 Bay and 990 Pacific, respectively, and could be extended for six-months if certain conditions are met.
52 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF NOTES PAYABLE YEAR ENDED DECEMBER 31, 2016
Unsecured Loans Payable
Loan balance at Quarterly December 31, Property Interest Rate Payment Maturity 2015
Other Program: CCDC 2% $ 2,500 2019 (1) $ 500,000
Total – non-current portion $ 500,000
(1) CCDC extended a loan agreement with Wells Fargo Bank on March 6, 2015 to March 6, 2019, with an automatic extension for two additional years unless CCDC notifies the bank in writing not to extend.
53 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED DECEMBER 31, 2016
Federal Agency Pass- CFDA Through Federal Federal Grantor/Pass-Through Grantor/Program Title Number Number Expenditures
The following loans were outstanding at December 31, 2016:
U.S. Department of Housing and Urban Development (HUD): Loan Balance Pass through City and County of San Francisco
Community Development Block Grants - Consorcia Hotel 14.218 $ 330,898 - Consorcia Hotel 14.218 13,340 - Clayton Hotel 14.218 295,565 - Clayton Hotel 14.218 39,039 - Clayton Hotel 14.218 232,945 - Clayton Hotel 14.218 444,576 - Clayton Hotel 14.218 60,000 - Swiss American Hotel 14.218 1,040,214 - St. Claire Hotel 14.218 510,000 - St. Claire Hotel 14.218 478,168
HOME Program Loan – 1370 California 14.239 2,303,000 HOME Program Loan – Clayton Hotel 14.239 469,963
Total loans 6,217,708
The following is the unamortized grant balance as of December 31, 2016:
U.S. Department of Housing and Urban Development (HUD): Grant Pass through City and County of San Francisco
Community Development Block Grant - 665 Clay 14.218 1,909,500
54 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED DECEMBER 31, 2016
Federal Agency Pass- CFDA Through Federal Federal Grantor/Pass-Through Grantor/Program Title Number Number Expenditures
Program Expenditures U.S. Department of Housing and Urban Development (HUD):
Community Development Block Grants Pass through City and County of San Francisco Mayor’s Office of Housing and Community Development - Public Services – Eviction Prevention 14.218 #40982 49,467 - 227 Bay Street Project 14.218 #40468 7,621 - 1370 California Street Project 14.218 82718-15 17,784 - Notre Dame Project 14.218 73686-15 563 75,435
Section 4 Capacity Building for Community Development and Affordable Housing Pass through Local Initiative Support Corporation 14.252 PA#40186-0071 37,250 Pass through Local Initiative Support Corporation 14.252 PA#40186-0072 23,000 Pass through Local Initiative Support Corporation 14.252 PA#40186-0073 45,000 105,250
Pass through Enterprise Community Partners, Inc. 14.252 #14SG4761 4,813 Pass through Enterprise Community Partners, Inc. 14.252 #15SG0145 51,477 56,290
Department of the Treasury / Community Development Financial Institutions Fund:
Community Development Financial Institutions Fund Pass through NeighborWorks America 21.020 2,741,750
Total program expenditures 2,978,725
Total federal awards $ 11,105,933
55 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS YEAR ENDED DECEMBER 31, 2016
NOTE 1 – BASIS OF PRESENTATION
The accompanying Schedule of Expenditures of Federal Awards (Schedule) includes the federal grant and loan activities of Chinatown Community Development Center only and is presented on the accrual basis of accounting. The schedule does not include Bayside Elderly Housing Corporation (HUD Project No. 121-EH-271-NP-WAH-L8), a subsidiary of Chinatown Community Development Center, which has been reported to HUD separately for the year ended December 31, 2016. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. The purpose of the Schedule is to present a summary of those activities of Chinatown Community Development Center for the year ended December 31, 2016, which have been financed by the U.S. Government. For purposes of the Schedule, federal awards include all federal assistance entered into directly and indirectly between Chinatown Community Development Center and the federal government. Chinatown Community Development Center did not elect to use the 10% de minimis indirect cost rate as allowed under the Uniform Guidance.
NOTE 2 – LOANS OUTSTANDING
The loans outstanding at December 31, 2016 require continuous compliance with certain provisions of the loan agreements. The amount is the same as presented in the Schedule totaling $6,217,708.
NOTE 3 – UNAMORTIZED GRANT OUTSTANDING
The grant of $1,909,500 was received in prior year and requires continuous compliance with the terms on the grant agreement. This grant is being amortized over 50-year compliance period.
56 CHINATOWN COMMUNITY DEVELOPMENT CENTER, SUBSIDIARIES AND AFFILIATED PARTNERSHIPS SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2016
Section I – Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued: Unmodified
Internal control over financial reporting:
Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weakness(es)? Yes X None reported
Noncompliance material to financial statements noted? Yes X No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? Yes X No Significant deficiency(ies) identified that are not considered to be material weakness(es)? Yes X None reported
Type of auditor’s report issued on compliance for major programs: Unmodified
Any audit findings disclosed that are required to be reported in accordance with Section 200.516 of the Uniform Guidance? Yes X No
Identification of major programs:
CFDA Number(s) Name of Federal Program or Cluster
14.218 Community Development Block Grant
Dollar threshold used to distinguish between Type A and Type B programs: $750,000
Auditee qualified as low-risk auditee? X Yes No
Section II – Financial Statement Findings
None noted.
Section III – Federal Award Findings and Questioned Costs
None noted.
57 Board of Directors Chinatown Community Development Center San Francisco, California
INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of Chinatown Community Development Center, subsidiaries and affiliated partnerships, which comprise the consolidated statement of financial position as of December 31, 2016, and the related consolidated statements of activities, net assets, functional expenses and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated June 27, 2017.
Internal Control Over Financial Reporting
In planning and performing our audit of the consolidated financial statements, we considered Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control. Accordingly, we do not express an opinion on the effectiveness of Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
58 Compliance and Other Matters
As part of obtaining reasonable assurance about whether Chinatown Community Development Center, subsidiaries and affiliated partnerships’ consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
Purpose of This Report
The purpose of this report is solely to describe the scope of testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Chinatown Community Development Center, subsidiaries and affiliated partnerships’ internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
June 27, 2017
59 Board of Directors Chinatown Community Development Center San Francisco, California
INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE
Report on Compliance for Each Major Federal Program
We have audited Chinatown Community Development Center’s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of Chinatown Community Development Center’s major federal programs for the year ended December 31, 2016. Chinatown Community Development Center’s major federal programs are identified in the summary of auditor’s results section of the accompanying Schedule of Findings and Questioned Costs.
Management’s Responsibility
Management is responsible for compliance with the federal statutes, regulations, and the terms and conditions of its federal awards applicable to its major federal programs.
Auditor’s Responsibility
Our responsibility is to express an opinion on compliance for each of Chinatown Community Development Center’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about Chinatown Community Development Center’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination on Chinatown Community Development Center’s compliance.
60 Opinion on Each Major Federal Program
In our opinion, Chinatown Community Development Center complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2016.
Report on Internal Control Over Compliance
Management of Chinatown Community Development Center is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered Chinatown Community Development Center’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly we do not express an opinion on the effectiveness of Chinatown Community Development Center’s internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
June 27, 2017
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