Agenda Item Wording:
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Authorize the City Manager to execute an agreement and appropriate an additional $425,000 in Successor Agency Housing (SAH) funds for Visalia Homekey LP to convert the Majestic Motel at 4545 W. Noble Avenue into a 42-unit Permanent Affordable Rental Housing complex for qualifying populations.
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Deadline for Action: 11/6/2023
Submitting Department: Finance and Technology Services
Contact Name and Phone Number:
Margie Perez, Housing Specialist, margie.perez@visalia.city <mailto:margie.perez@visalia.city>, (559) 713-4460;
Melody Murch, Assistant Finance Director, melody.murch@visalia.city <mailto:melody.murch@visalia.city>, (559) 713-4379;
Renee Nagel, Finance Director, renee.nagel@visalia.city <mailto:renee.nagel@visalia.city> (559) 713-4375.
Department Recommendation:
Staff recommends that Council:
1) Appropriate Successor Agency Housing (SAH) funds, in the amount of $425,000 with affordable housing provisions for a period of 55 years between the City of Visalia and Visalia Homekey LP, for the conversion of the Majestic Motel to develop a 42-unit Permanent Affordable Rental Housing complex for qualifying populations; and
2) Authorize the City Manager or their designee to negotiate, make minor changes, and execute the necessary contracts and loan agreements.
Background Discussion:
On July 18, 2022, Council awarded RFP 21-22-28 to RHCB Development LP (RHCB) to convert the Majestic Motel at 4545 W. Noble Avenue into the Majestic Gardens, a Permanent Affordable Rental Housing complex with on-site wrap-around intensive case management and supportive services for people experiencing homelessness at or below 30% of the area median income (AMI) level in accordance with HOME American Rescue Plan Program (HOME-ARP) Qualifying Populations, with the use of $1.8 million in HOME-ARP funds, and $900,000 in Successor Agency Housing (SAH) funds. The Majestic Gardens total acquisition and rehabilitation capital costs are $17,298,880 and the project has secured $16,225,070 in capital development funding, which will cover 94% of the total costs. To assist in funding the Majestic Gardens development gap and meeting funding expenditure tight deadlines, staff recommends providing an additional $425,000 in available Successor Agency Housing (SAH) funds to the development of the project. This agenda item is to execute the agreements as required by the City Purchasing Policy.
Funding Secured: The project has secured $1,022,000 in Housing and Homelessness Incentive Program (HHIP) funds and $207,691 in Homeless Housing, Assistance, and Prevention (HHAP) Round 4 funding. RHCB in partnership with UPHoldings, and Housing on Merit formed Visalia Homekey Limited Partnership (LP) for the Visalia Majestic Homekey Project.
Homekey: The Majestic Gardens project was contingent upon a successful award from the California Department of Housing and Community Development (HCD) Project Homekey Round 3. On September 26, 2023, the City of Visalia was notified of a Homekey Round 3 award in the total amount of 13,835,376, which includes $12,295,379 for capital costs and $1,539,997 for operating costs for the Majestic Gardens. Homekey capital funds must be expended within eight months of the date of the award. HCD may extend the eight (8) month expenditure deadline by up to seven (7) months, upon the request of the grantee. All operating funds must be fully disbursed by HCD by June 30, 2025, and fully expended by the grantee by no later than June 30, 2026.
Majestic Gardens Funding Summary: The Majestic Gardens total acquisition and rehabilitation capital costs are $17,298,880 and the project has secured $16,225,070 in capital development funding, which will cover 94% of the total costs. As a result, the Majestic Gardens development gap is $1,073,810 as shown below in Table 1: Majestic Gardens Development Funding Summary.
Successor Agency Housing Funds: To assist in funding the Majestic Gardens development gap and meeting funding expenditure tight deadlines, staff recommends providing an additional $425,000 in available Successor Agency Housing (SAH) funds to the development of the project. Due to the repayment of past loans made from the Successor Agency Housing (SAH) funds, there is currently $427,842 in uncommitted SAH funds available for the development of permanent affordable housing for low-income households, as shown below in Table 2: Successor Agency Housing (SAH) Balance. SAH regulations require at least 30% of funds to be used to develop affordable housing for households at or below 30% of the area median income. The Majestic Project helps the City meet this State funding requirement.
Other uses for these SAH funds can include development of affordable housing for households at or below 80% of the area median income level, with at least 30% of the funds for households at or below 30% of the area median income level. However, staff does not recommend this since the available SAH funds are only a small amount for a development project and will require a $5,000 annual monitoring fee for the life of the 55-year affordability period in accordance with SAH regulations. This project is already involved in the monitoring process so this additional funding will not trigger another fee or additional monitoring.
Approval of the proposed SAH amendment would bring the City’s SAH commitment from $900,000 to $1,325,000 for the development of Majestic Gardens, leaving a remaining funding gap of approximately $648,810 as shown in Table 3: Majestic Gardens Development Gap. To close the gap, the City in partnership with Visalia Homekey LP, the project sponsor, intends to apply for Encampment Resolution Funding (ERF) Round 3 grant funding. ERF Round 3 Notice of Funding Opportunity is expected to be released December 1, 2023, and awards are expected to be released in 2024.
Project and Loan Agreement Terms:
The City will provide two loans to Visalia Homekey LP for the Majestic Gardens Project. The first for HOME-ARP funds, in the amount of $1,800,000 and the second, if approved, for SAH funds in the amount of $1,325,000, for a total of $3,125,000. Repayment of these loans will be contingent upon the availability of residual receipts from operation of the project. Residual receipts are defined as net operating revenues (operating revenues less operation and maintenance costs) available from the Project. This will be monitored annually by City staff who will review affordable unit rents, property condition, and financial audits.
Rental Restriction Covenants:
The property will carry three separate rental restriction covenants for each funding source to ensure grant compliance with HOME-ARP, SAH, and Homekey grant funding. The property will carry a twenty (20) year rental restrictive covenant to ensure HOME-ARP compliance that will restrict units to HOME-ARP qualifying populations. Additionally, the property will carry a fifty-five (55) year rental restrictive covenant as required by State law for restricted affordable SAH and Homekey funds. The City will annually monitor the property for continued restricted use during the life of the affordability periods.
Fiscal Impact:
Approval of this proposed funding would commit the available fund balance in the Successor Agency Housing Fund (362) in the amount of $425,000 to the Majestic Gardens Project (CP0516). Upon approval, an appropriation for this additional $425,000 would be added to this project budget, bringing the total Successor Agency Housing commitment to $1,325,000. No General Fund money is included in, or requested for, this project.
Prior Council Action:
● December 20, 2021 - HOME-ARP public hearing to review and comment on the development of the HOME-ARP Allocation Plan. Approval to release an RFP for the use of $1,800,000 of HOME-ARP funds and $900,000 in SAH funds for the development of affordable rental housing for qualifying populations.
● April 18, 2022 - Approval of 2021 Annual Action Plan Amendment, HOME-ARP Allocation Plan, and appropriate $1,800,000 in HOME-ARP funds for a HOME-ARP project.
● July 18, 2022 - Approval of RFP 21-22-28 to RHCH Development LP to convert the Majestic Motel at 4545 W. Noble Avenue for the development of a 42-unit permanent affordable rental housing complex for qualifying populations.
● April 17, 2023 - Approval to apply for Homekey Round 3.0 not to exceed $15 million to assist with the development and operation of the Majestic Project.
Other: None
Alternatives: None
Recommended Motion (and Alternative Motions if expected):
recommendation
I move that Council:
1) Appropriate Successor Agency Housing (SAH) funds, in the amount of $425,000 with affordable housing provisions for a period of 55 years with the City of Visalia and Visalia Homekey LP, for the conversion of the Majestic Motel to develop a 42-unit Permanent Affordable Rental Housing complex for qualifying populations; and
2) Authorize the City Manager and staff to negotiate, make minor changes, and execute the necessary contracts and loan agreements.
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Environmental Assessment Status: Completed
CEQA Review: N/A
Attachments:
Attachment A - Homekey Rd 3 Award Letter
Attachment B - RHCB Letter of Request
Attachment C - SAH Draft Agreement