Exhibit 10.02
PROVISIONAL WORKOUT AGREEMENT
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
PROJECT NO. 934-94W4 EFFECTIVE DATE January 1. 1994
PROJECT MAKE Spring Village Apts. EXPIRATION DATE Dec. 31, 2W2
LOCATION 601 Poplar Street, Sharon Hill, PA
PROVISIONAL WORKOUT ARRANGEMENT
The undersigned mortgagor hereby expressly acknowledges that the mortgage
(Deed of Trust) and note secured by the above project is in default. To afford
an opportunity to effect reinstatement, the mortgagor requests the Secretary,
Department of Housing and Urban Development, to hold the defaulted note and
mortgage on the subject project under the terms and conditions stated herein:
1. Possession. The mortgagor acknowledges that the default entitles HUD to
assume possession of the encumbered premises, but that possession has not been
demanded. As an inducement f or HUD approval of this Arrangement, the
mortgagor agrees that it will not oppose or interfere in any way should HUD
demand possession by reason of subsequent default under the terms of this
arrangement.
2. Junior Obligations The mortgagor agrees that project revenues will not be
used to repay either interest or principal f or any project obligation (other
than reasonable and necessary operating expenses) that is junior to the
Secretary's lien.
3. Payment Provision.
a. Beginning January 1. 1994 and continuing through December 31, 1994 the
mortgagor will remit by the first of the month a minimum payment sufficient to
pay through 87 percent of interest. This payment is currently $24,000.00 per
month. The payment shall be increased annually as follows:
% of
Monthly Year Accruing Interest
1995 25,000 300,000 91%
1996 26,750 321,000 97%
1997 27,750 333,000 101%
1998 28,500 342,000 103%
1999 30,500 366,000 110%
2000 31,500 378,000 114%
2001 33,000 396,000 120%
2002 34,000 408,000 123%
93101802.44
<PAGE>
- 2 -
On January 1, 2003 the mortgage shall be recast and the mortgage payment set
to amortize the then existing balance over the remaining term (239 months).
b. Past delinquency, if any, in the Reserve f or Replacement is hereby
forgiven. Payments into the Reserve for Replacement for the duration of this
workout period are hereby waived.
c. Any funds over $25,000.00 (approximately one month's principal and
interest) remaining in the operating account each month after payment of
project operating expenses will be remitted in addition to the minimum monthly
payment. Mortgagor shall establish an escrow account to assure timely payment
of insurance and heating bills as they come due.
d. A four percent late charge may be assessed against payments not received by
the fifteenth of the month.
e. At no time will the owner permit any delinquency to accrue in either the
service charge due HUD or tax escrow as billed by HUD each month.
f. Mortgagor remitted all of the net operating income to HUD. No additional
late charges other than those assessed pursuant to paragraph 3(d) will be
charged for the duration of this workout period.
4. Lump Sum Payments. The mortgagor made the following lump sum payments, to
be applied to mortgage delinquencies, an the dates indicated:
The mortgagor invested over $750, 000. 00 in renovations to the property over
the past five years substantially improving the property. Since the default,
the mortgagor remitted $41, 269. 77 on June 1, 1992, $44, 000. 00 on July 1,
1992, $136, 000. 00 on August 1, 1992, and the net operating income of the
project monthly thereafter. From January 1, 1992 through June 30, 1993 a total
of $315,250.00 was remitted.
The mortgagor requests that contributions made in prior years be applied to
the 15% contribution. The net income from the property has not covered the
principal and interest since inception. The following contributions were made
for capital improvements and to pay interest and principal on the mortgage:
93101802.44
<PAGE>
- 3 -
1989 $316,000
1990 100,000
1991 105,500
--------
$521,500
We are not in a position to make an additional capital contribution, however,
we should be able to cover any future shortfall if the project cannot meet the
minimum interest payments as shown on the Projected Statement of Operations.
5. Repairs. The mortgagor has on deposit with HUD $41,679.51 in the reserve
for replacement escrow. The mortgagor shall place in escrow, in a separate
repair f und, an additional $9, 000. 00. All disbursements from these funds
may be made only with prior written approval of HUD. All of the repairs
previously agreed to with HUD were completed. Additional major repairs are not
anticipated beyond October 1, 1993 and during the term of this agreement.
6. Mortgage Modification.
a. If the mortgagor has f ully complied with the terms of this Arrangement and
HUD has determined that it is financially feasible, as of January 1, 2003 HUD
agrees to recast the then existing mortgage and accrued interest at 10 1/2%
percent interest amortized over the remaining term of the mortgage (11-30-22).
b. The mortgagor agrees to modify the note and mortgage to insert a call
provision. The call provision gives the mortgagee the option to declare the
entire indebtedness due and payable at or after (ten years) (the longer of ten
years or the remaining term of the Section 8 contract) from the date of the
modification.
7. Equity Kicker. Mortgagor agrees to pay to HUD f if teen percent of the
gross sales price minus the mortgage balance upon a sale or conversion; or
fifteen percent of the gross proceeds from a refinancing.
8. Accounting Reports. During the term of this Arrangement, the mortgagor
shall submit Monthly Reports f or Establishing Net Income (Forms HUD-93479,
93480, and 93481). The f irst report shall be f or the month of January, 1994.
The original reports are to be mailed to the HUD office in Philadelphia.
Previously all reports were mailed to HUD c/o Erwin and Associates.
93101802.44
<PAGE>
- 4 -
9. Distributions. The mortgagor agrees not to take any distributions while the
mortgage is being held in default under the terms of this arrangement and of
the original Note, Mortgage and Regulatory Agreement.
10. Cancellation Clause. This Arrangement in on a month-to-month basis. The
Secretary agrees to take no action because of the existing monetary default,
provided that the mortgagor remits the required minimum monthly payment and
satisfactorily performs the other requirements of this Arrangement. Failure of
the mortgagor to meet the terms of this Arrangement will be sufficient cause
for the Secretary to immediately terminate this Arrangement and to commence
foreclosure action. Failure of the mortgagor to meet the terms of the
Arrangement is also grounds for the Department to consider taking
administrative sanctions against the mortgagor including, but not limited to,
suspension or debarment from participation in HUD programs.
11. Criminal Sanctions for Misuse of Prolect Funds. The mortgagor acknowledges
that the use of project funds derived from the project covered by this
Arrangement for any purpose other than to meet actual and necessary project
expenses may be a criminal offense punishable by a fine of not more than
$5,000 and imprisonment of not more than three (3) years or both.
APPROVED BY:
MORTGAGOR: Harry J. Santoro, President
S.V.G. Properties, L.P.
ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER
BY:
DATE:
93101802.44
<PAGE>
S.V.G. PROPERTIES, L.P.
Projected Statements of Operations
Nine-Year Workout
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
Revenue
Gross rent potential $760,000 $783,000 $810,500 $839,000 $869,000 $900,000
Less: Vacancy -38,000 -39,000 - 40,500 - 42,000 - 43,500 - 45,000
-------- -------- -------- -------- -------- --------
Net rental income 722,000 744,000 770,000 797,000 825,500 855,000
Other Income
Interest 1,500 1,500 1,600 1,700 1,800 1,900
Tenant fees 6,000 6,000 6,200 6,400 6,600 6,800
Laundry Income 7,400 7,400 7,700 7,900 8,100 8,400
-------- -------- -------- -------- -------- --------
Total Other Income 14,900 14,900 15,500 16,000 16,500 17,100
Total Revenues 736,900 758,900 785,500 8l3,000 842,000 872,100
Operating Expenses
Administrative 84,000 86,500 89,000 91,700 94,500 97,300
Utilities 102,500 105,600 108,000 111,300 114,600 ll8,000
Maintenance 91,000 94,000 97,000 99,900 103,000 106,000
Taxes and insurance 126,000 130,000 134,000 138,000 141,200 146,500
-------- -------- -------- -------- -------- --------
Total Operating Exp. 403,500 416,100 428,000 440,900 453,300 467,800
Net Operating Income 333,400 342,800 357,500 359,600 388,700 404,300
Financial and Other
Expenses
Minimum interest pymt. 288,000 300,000 321,000 333,000 342,000 366,000
Mortgage insurance 15,600 15,600 15,600 15,600 15,600 15,600
Capital improvements 30,000 24,000 18,000 18,000 18,000 18,000
-------- -------- -------- -------- -------- --------
Net Cash -200 -3,200 2,900 9,200 13,100 4,700
Mortgage Amortization
Beginning balance 3,462,000
Accrued interest 331,260 331,260 331,260 331,260 331,260 331,260
Minimum payment 288,000 300,000 321,000 333,000 342,000 366,000
Ending balance 3505260 3536520 3543880 3532940 3509100 3469660
</TABLE>
* Net cash used to pay accrued interest at year end.
93101803.44
<PAGE>
S.V.G. PROPERTIES, L.P.
Projected Statements of Operations
Nine-Year Workout
2000 2001 2002
Revenue
Gross rent potential 930,000 958,000 986,700
Less: Vacancy 46,500 47,900 49,300
-------- -------- --------
Net rental income 883,500 910,100 937,400
Other Income
Interest 2,000 2,000 2,100
Tenant fees 7,000 7,100 7,200
Laundry Income 8,600 8,700 8,800
-------- -------- --------
Total Other Income 17,600 17,800 18,100
Total Revenues 901,100 927,900 955,500
Operating Expenses
Administrative 100,300 103,300 106,400
Utilities 121,500 125,100 128,900
Maintenance 109,000 112,300 115,700
Taxes and insurance 151,000 155,500 160,200
-------- -------- --------
Total Operating Expenses 481,800 496,200 511,200
Net Operating Income 419,300 431,700 444,300
Financial and Other
Expenses
Minimum interest payment 378,000 396,000 408,000
Mortgage insurance 15,600 15,600 15,600
Capital improvements 18,000 18,000 18,000
-------- -------- --------
Net Cash 7,700 2,100 2,700
Mortgage Amortization
Beginning balance 3,469,660
Accrued interest 331,260 331,260 331,260
Minimum payment 378,000 396,000 408,000
Ending balance 3,415,220 3,348,380 3,268,940
93101803.44
<PAGE>
S.V.G. PROPERTIES, L.P.
Projected Statement of Income
Year 2003
After Proposed Recasting
Revenue
Gross rent potential $1,016,300
Less: vacancy 50,800
-----------
Net rental income 965,500
Other Income
Interest 2,200
Tenant fees 7,300
Laundry income 8,900
-----------
Total Other Income 18,400
Total Revenues 983,900
Operating Expenses
Administrative 109,600
Utilities 132,800
Maintenance 119,200
Taxes and insurance 165,000
-----------
Total Operating Expense 526,600
Net Operating Income 457,300
Financial and Other Expenses
Interest expense 340,800
Mortgage insurance 16,400
Mortgage principal 51,300
Reserve for replacements 16,400
Capital improvements 18,000
-----------
Total Financial and Other Expenses 442,900
Net Cash Flow $ 14,400
===========
Mortgage balance 1-1-03 $3,268,940 due 11-30-22, amortized over remaining term
of 239 months at the current interest rate of 10.5%.
93101804.44
