Agenda Item Wording:
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Authorize staff to apply for Homekey Round 3.0 not to exceed $15 million to assist with the development and operation of the Majestic Project to convert the Majestic Motel into permanent supportive rental housing upon the completion of the application by the partner agency to fully comply with the grant and City requirements.
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Deadline for Action: 4/17/2023
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:
• Receive a summary of the funding available for the Homekey Round 3 and authorize staff to apply as a joint application with RHCB Development, LP for the Homekey Round 3 Notice of Funding Available (NOFA) not to exceed $15 million dollars to assist with the development and operation of the Majestic Project to provide permanent supportive housing for people experiencing homelessness;
• Adopt Resolution 23-__ authorizing a joint application with RHCB Development, LP for Homekey 3.0 (round three) program as required by California Department of Housing and Community Development; and
• Authorize the City Manager or their designee to sign Resolution 23-__.
Background Discussion:
Homekey is a statewide effort to sustain and rapidly expand housing for people experiencing homelessness or at risk of homelessness administered by the California Department of Housing and Community Development Department (HCD). Homekey is an opportunity for state, regional, and local public entities to develop a broad range of housing types, including but not limited to hotels, motels, hostels, single-family homes and multifamily apartments, adult residential facilities, and manufactured housing, and to convert commercial properties and other existing buildings to Permanent or Interim Housing for the Target Population.
Homekey is a proven model for state, regional and local public entities to acquire, develop, and rehabilitate a broad range of housing types, including, but not limited to hotels, motels, hostels, single-family homes, multifamily apartments, adult residential facilities, and manufactured housing, and to convert commercial properties and other existing buildings to permanent or interim housing for those most in need.
The Majestic Project: On December 20, 2021, Council approved the release of a Request for Proposals (RFP) for $1.8 million in HOME-ARP and $900,000 in Successor Agency Housing (SAH) funds for the development of Permanent Affordable Rental Housing for HOME-ARP Qualifying Populations. Staff released RFP-21-22-28, Development of Permanent Affordable Rental Housing for Qualifying Populations, in the spring of 2022. On July 18, 2022, Council awarded RFP 21-22-28 to the RH Community Builders (RHCB) to develop the Majestic Motel into Permanent Affordable Rental Housing for people experiencing homelessness in accordance with HOME-ARP Qualifying Populations, with the use of $1.8 million in HOME-ARP and $900,000 in SAH funds. RHCB’s proposal indicated plans to apply for Homekey funds as the major source of funding for the Majestic Project. The project has also secured $1,044,000 in Housing and Homelessness Incentive Program (HHIP) funds and $207,691 in Homeless Housing, Assistance, and Prevention (HHAP) funding from the Kings/Tulare Homeless Alliance (KTHA). The secured match funding has been confirmed and verified by City staff. The Majestic Project total budget for acquisition and rehabilitation is approximately $17 million. The project has secured approximately $4 million in grant funding; therefore, has a development gap of $13.4 million, as shown below in Table 1 - Majestic Development Funding. As stated in their proposal, the project seeks to apply for Homekey funds to fund this gap. This project is currently undergoing an environmental review, which is expected to be completed this summer.
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Table 1 - Majestic Development Funding |
|
Secured Development Funding |
Amount |
|
COV HOME-ARP |
$ 1,800,000 |
|
COV Successor Agency Housing |
900,000 |
|
Homeless Housing, Assistance and Prevention (HHAP) |
207,691 |
|
Housing and Homelessness Incentives Program (HHIP) |
1,044,000 |
|
Total Secured Development Funding |
$ 3,951,691 |
|
Total Development Costs |
17,398,349 |
|
Total Development Gap |
$ (13,446,658) |
RH Community Builders: RH Community Builders (RHCB) will be the co-applicant and has extensive grant management experience with collection of tenant eligibility data, as well as managing several Homekey sites. RHCB will be responsible for completing the full Homekey application subject to review by the City. RHCB has extensive experience in Homekey funding and manages the following six Homekey sites: Crossroads Village Project (165-units) in Fresno, the Hacienda Project (250-units) in Fresno, the Sands Motel (50-units) in Fresno, the Ambassador (56-units) in Fresno, and Sequoia Village (50-units) in Visalia. RHCB upcoming projects include the San Joaquin Hotel (69-units) in Fresno, the Dakota Project (99-units) in Fresno, the Twelvethirteen Project (90-units) in Merced, the Villa Project (52-units) in Fresno, Madison Gardens (50-units) in Tulare County, and the Majestic Project (42-units) in Visalia. RHCB has the necessary staff capacity, capital, assets, and operational resources to satisfy the obligations in connection with the Majestic Project.
Homekey Round 3 NOFA: The Homekey Round 3 Notice of Funding Availability (NOFA) has been released on March 29, 2023, and attached herein. The Homekey Round 3 NOFA will provide approximately $736 million in Homekey funding statewide and approximately $43 million of that amount will be available to the San Joaquin Valley region to develop or purchase housing for individuals experiencing homelessness. Due to the previous oversubscriptions of Homekey funds, HCD encourages eligible applicants to submit their application as soon as possible. HCD will release the Homekey application on April 24, 2023, and accept applications April 24, 2023, through July 28, 2023, or until the available funds are exhausted, whichever occurs first. RHCB is ready to prepare the full application and provide assurances for approvals and construction timelines for early submission to HCD to stay competitive with other Homekey Round 3 applications throughout the San Joaquin Valley.
The Homekey Rd 3 application will be approved by City staff for submission after a full review to ensure the project and application are in compliance with Homekey and City requirements. As a joint applicant, the City is responsible for project compliance and could be required to repay grant funds should the funding be mis-spent. This review will ensure that all aspects of the project and application are in order prior to submission. Majority of the information needed to complete the Homekey Round 3 application for the Majestic Project was submitted to the City in RH Community Builders proposal in response to the RFP for the use of HOME-ARP funds. Individual awards will generally be announced within 60 to 90 days of HCD’s receipt of a complete and accurate application.
Eligible Applicants: Eligible Homekey applicants are cities, counties, cities and counties, and all other state, regional and Local Public Entities, including councils of government, metropolitan planning organizations, and regional transportation planning agencies designated in Section 29532.1 of the Government Code, or tribal entities. Local Public Entity includes the duly constituted governing body of an Indian reservation or rancheria; a tribally designated housing entity, as specified; and a housing authority. Each of the foregoing entities may apply independently, or each entity may apply jointly with a nonprofit or for a non-profit corporation, a limited liability company (LLC), and/or a limited partnership (LP) as a Co-Applicant.
Eligible Uses: Awarded funds must be used to provide housing for the Target Population of people experiencing homelessness or at risk of homelessness and who are inherently impacted by or at increased risk for medical diseases or conditions due to the COVID-19 pandemic or other communicable diseases. All tenants of the Majestic will be chronically homeless that have been identified through the Coordinated Entry System (CES) as required by Homekey. The list of eligible uses is as follows:
• Acquisition or Rehabilitation of motels, hotels, hostels, or other sites and assets, including apartments or homes, adult residential facilities, residential care facilities for the elderly, manufactured housing, commercial properties, and other building with existing uses that could be converted to permanent or interim housing.
• Master leasing of properties for non-congregate housing.
• Conversion of units from nonresidential to residential.
• New construction of dwelling units.
• The purchase of affordability covenants and restrictions for units.
• Relocation costs for individuals who are being displaced as a result of the Homekey project.
• Capitalized operating subsidies for units purchased, converted, constructed, or altered with funds provided pursuant to HCS section 50675.1.3.
Eligible Projects: HCD welcomes and will consider a variety of innovative housing solutions as eligible projects. The following list of eligible projects is not exhaustive.
• Conversion of nonresidential structures to residential dwelling units.
• Conversion of commercially zoned structures, such as office or retail spaces, to residential dwelling units.
• Adult residential facilities, residential care facilities for the elderly, manufactured housing, and other buildings with existing residential uses.
• Multi-family rental housing projects.
• Excess state-owned properties.
• Shared housing or scattered site housing is permitted as long as the resulting housing has common ownership, financing, and property management, and each household signs a lease.
The Majestic Project qualifies under the following eligible Homekey project:
• Conversion of nonresidential structures to residential dwelling units.
Ineligible Projects: The following list of projects are ineligible for the use of Homekey funds:
• Existing Homekey assisted units, previously awarded under the previous round of Homekey funding.
• The Homekey program is intended to support the development of housing units and will not fund congregate shelter.
Program Deadlines: Capital funds must be expended within eight months of the date of award. For projects that involve acquisition and are receiving capital awards, Grantees must expend the funds by the expenditure deadline and the project escrow must be closed by the expenditures deadline. Additionally, all applicable construction and/or rehabilitation must be complete within 12 months of the date of award. Homekey projects must achieve full occupancy within 90 days of construction and/or rehabilitation completion, or within 15 months of the date of award. Homekey operating funds must be fully expended by June 30, 2026.
The Majestic project already has infrastructure in place and is a rehabilitation project that will include the installation of kitchens. The remodel project is expected to take approximately four months and be completed well within the 12 month deadline for construction and the occupancy deadlines noted above.
Homekey Maximum Capital Grant Amounts and Capital Funding Match: Homekey will fund a maximum grant amount per door, which includes both acquisition and rehabilitation or new construction costs. The award will be the lower of the maximum grant amount, or the sum of the acquisition amount supported by an appraisal, whichever is lower, and any additional construction and rehabilitation expenses.
HCD will contribute a baseline amount per door, as outlined below, in whichever category is higher for the assisted unit. This base line contribution does not require a local match.
Unit Size - Baseline Capital Amounts:
• Studio or one-bedroom units will receive a baseline amount of $150,000 per door;
• Two-bedroom units will receive a baseline amount of $175,000 per door; and
• Three-bedroom or larger units will receive a baseline amount of $200,000 per door.
OR
Sub-Populations Served - Baseline Capital Amounts:
• Assisted Units reserved for those experiencing Chronic Homelessness will receive a baseline amount of $200,000 per door.
• Assisted Units for Homeless Youth or Youth at Risk of Homelessness will receive a baseline amount of $175,00 per door.
Additional Homekey Contribution Amount - Local Match
Beyond the applicable baseline amount, the eligible applicant may leverage a 1:1 local match to provide up to $100,000 in additional funds per door. For example, where the applicant shows $100,000 in matching funds, HCD will fund no more than $250,000 for a 1-bedroom assisted unit, $275,000 for a 2-bedroom assisted unit, $300,000 for an assisted unit serving chronic homelessness, and $275,000 per door for an assisted unit serving homeless youth/youth at risk of homelessness. Table 2- Majestic Project Potential Homekey Capital Funding, below illustrates the maximum potential Homekey capital funding for the Majestic project.
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Table 2 - Majestic Potential Homekey Capital Funding |
|
Activity |
Per Door |
# of Doors |
Total |
|
Homekey, Manager Unit |
$ 150,000 |
1 |
$ 150,000 |
|
Homekey, Chronic Homeless |
$ 200,000 |
41 |
8,200,000 |
|
Total Homekey w/o Local Match |
$ 8,350,000 |
|
Homekey Match Contribution |
3,951,691 |
|
Total Potential Homekey Capital Funding |
$ 12,301,691 |
Homekey Operating Awards and Match
Homekey also provides up to 3-years of operating funding referred to as Capitalized Operating Subsidy Reserve (COSR). COSR refers to funding that is set aside at the beginning of a project to cover potential or projected operating deficits over time. The purpose of a COSR is to ensure that adequate funds are on hand should operating costs such as utilities, management staff salaries, and maintenance exceed the amount available from a project’s income at any time in the project’s operation. Homekey operating funds may pay for a Project’s necessary, recurring operating expenses. Qualifying expenses include utilities, maintenance, management fees, taxes, licenses, and tenant rents and supportive services costs.
Where an operating award is requested, the total amount of the operating award per Assisted Unit is limited as follows:
• Assisted units reserved for those experiencing chronic homelessness, for homeless youth, or for youth at risk of homelessness shall not exceed $1,400 per month.
• All other assisted units shall not exceed $1,000 per month,
The total duration of the operating award is tied to the amount of the Applicant’s matching funds, and is limited as follows:
• For projects that demonstrate a commitment of three years of non-Homekey operating funds for assisted units, HCD will provide an operating award size for two years.
• For projects that demonstrate a commitment of four or more years of non-Homekey operating funds for assisted units, HCD will provide an operating award size for three years.
The Homekey-funded portion of the operating award must be expended by June 30, 2026, with the Grantee establishing a Capitalized Operating Subsidy Reserve (COSR). No extensions will be granted on the Grantee’s expenditure deadline for the operating award. Projects are required to demonstrate a minimum five-year commitment to provide operating funds for the proposed Project. The first two years of operating funds may include an award from Homekey. Operating match may be obtained from any source, including federal, state, local, private, or philanthropic source(s). Table 3 - Majestic Potential Homekey COSR Funding illustrates the maximum potential Homekey operating funding.
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Table 3 - Majestic Potential Homekey COSR Funding |
|
Activity |
Per Door |
# of Doors |
Months |
Total |
|
Homekey, Chronic Homeless |
$ 1,400 |
41 |
36 |
$ 2,066,400 |
|
Total Potential Homekey COSR Funding |
$ 2,066,400 |
The Majestic maximum potential Homekey capital funding is $12,301,691 and the maximum potential Homekey operating funding is $2,066,400 for a total of $14,368,091 in Homekey funding plus $3,951,691 in local match contribution that will bring the total permanent sources to $18,319,782, as shown below in Table 4 - Majestic Potential Homekey Funding. However, per HCD’s guidance the City will be rounding up to request $15 million in the event the Homekey award is greater the City’s projection. If the amount listed is not sufficient, it could compromise an award because HCD cannot award more than the Applicant is authorized to apply for or receive.
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Table 4 - Majestic Potential Homekey Funding |
|
Potential Homekey Capital Funding |
$ 12,301,691 |
|
Potential Homekey COSR Funding |
2,066,400 |
|
Total Homekey Potential Funding |
$ 14,368,091 |
|
Local Match Contribution |
3,951,691 |
|
Total Permanent Sources |
$ 18,319,782 |
Majestic Operating Funds: The Majestic Project has been awarded $290,440 in annual HUD funded Continuum of Care (CoC) Permanent Supportive Housing (PSH) vouchers for 20 units. The grant will continue annually and in perpetuity as long as HUD CoC awards continue. HUD CoC are not expected to terminate and have steadily increasing each year. RHCB will continue to renew their annual grant to have ongoing rental operating subsidy through HUD funded CoC PSH vouchers. The Majestic Project will obtain additional vouchers for the remaining 21 units from Coordinated Entry Services (CES) from the CoC and Housing Choice Vouchers (HCV) from the Housing Authority of Tulare County (HATC). The Majestic Project will also have approximately $921,433 in available Homekey funds to assist in covering operating funds. The Majestic projected permanent sources are $18,319,782 and the total development costs are $17,319,782; therefore, there will be $921,433 in remaining Homekey funds that may be used to provide additional operating funds, as shown below in Table 5 - Majestic Homekey Operating Funds.
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Table 5 - Majestic Homekey Operating Funds |
|
Total Permanent Sources |
$ 18,319,782 |
|
Total Development Costs |
17,398,349 |
|
Homekey Operating Funds |
$ 921,433 |
The Majestic’s 5-year operating budget consists of $290,440 per year for a total of $1,452,200 in permanent supportive housing vouchers, and $921,433 in projected Homekey operating funds for a total of $2,373,633 in projected 5-year operating resources. Majestic’s 5-year operating rental expenditures are projected at $682 per unit according to HOME low-rent established by HUD, multiplied by 41 tenant units for 5-years or 60-months for a total of $1,677,720. As a result, there will be an operating balance of $695,913, as shown below in Table 6 - Majestic 5-Year Operating Funding. The operating balance can be used for on-going maintenance, case management, and/or tenant supportive services.
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Table 6 - Majestic 5-Year Operating Funding |
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Operating Resources |
|
Activity |
|
Amount |
Years |
Total |
|
CoC PSH Vouchers |
$ 290,440 |
5 |
$ 1,452,200 |
|
Homekey Operating Funds |
$ 921,433 |
|
Total 5-Year Operating Resources |
$ 2,373,633 |
|
Operating Expenditures |
|
Activity |
HOME Low-Rent |
# of Doors |
Months |
Total |
|
Studio Unit |
$ 682 |
41 |
60 |
$ 1,677,720 |
|
Total 5-Year Rent Expenditures |
$ 1,677,720 |
|
5-Year Operating Balance |
$ 695,913 |
If the Majestic Project does not get awarded Homekey funding or only receives partial Homekey funding, RHCB will apply for HHIP and HHAP Round 4 funding. As a permanent housing project, the Majestic Project also qualifies for other grant funding, such as, HOME Investment Partnerships Program (HOME), Successor Agency Housing (SAH), Permanent Local Allocation Housing (PLHA), and the Multifamily Housing Program (MHP).
Housing First: Homekey projects must follow core components of Housing First, as set forth at Welfare and Institutions Code section 8255, in its property management and
tenant selection practices. Projects shall accept tenants regardless of sobriety,
participation in services or treatment, history of incarceration, credit history, or history of
eviction in accordance with practices permitted pursuant to Housing First practices,
including local Coordinated Entry System (CES) prioritization protocols, or other federal or state Project funding sources.
Tenant Selection: Referrals to Homekey Assisted Units must be made through the local Coordinated Entry System (CES) or another comparable prioritization system based on greatest need shall be used. All referral protocols for Homekey Assisted Units must be developed in collaboration with the local CoC and implemented consistent with the requirements set forth in the Homekey NOFA. CoC collaboration in Project and supportive service design is also strongly encouraged to help target and serve greatest need populations.
Affordability Period: Homekey funding requires all Permanent Housing Projects to be encumbered with a 55-year Affordability Covenant, which restricts the use, operating, occupancy, and affordability of the Project in accordance with all applicable requirements of the Homekey Program. The Homekey affordability period is in alignment with City of Visalia Successor Agency Housing (SAH) funds. The city is already committed to perform annual monitoring of the Majestic Project for a 55-year affordability period as required with Successor Agency Housing (SAH) funds. RH Community Builders will pay an annual monitoring fee for actual monitoring fees, which is approximately $5,000 for the life of the affordability period. Staff has confidence in RH Community Builders long term grant management capability to ensure long-term grant compliance.
Fiscal Impact:
If awarded, the Homekey Round 3 funding will generate approximately $15 million toward the development and operation of the Majestic Project to provide permanent supportive housing. No additional funding is requested from City grant sources, and there is no General Fund money budgeted for this project.
Prior Council Action: Click or tap here to enter text.
• December 20, 2021 - HOME-ARP Public Hearing to review and comment on the development of HOME-ARP Allocation Plan.
• July 18, 2022 - Approval of RFP-21-22-28 to RH Community Builders for $1.8 million in HOME-ARP funds and $900,000 in Successor Agency Housing (SAH) funds for the development of the Majestic Motel to Permanent Affordable Rental Housing.
Other: None.
Alternatives: Do not apply for Homekey Round 3 for the Majestic Project.
Recommended Motion (and Alternative Motions if expected):
recommendation
I move to:
• Authorize staff to apply for Homekey Round 3 as a joint application with RHCB Development, LP not to exceed $15 million dollars to assist with the development and operation of the Majestic Project to provide permanent supportive housing for people experiencing homelessness;
• Adopt Resolution 23-__ authorizing a joint application with RHCB Development, LP for Homekey 3.0 (round three) program as required by California Department of Housing and Community Development; and
• Authorize the City Manager or their designee to sign Resolution 23-__.
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Environmental Assessment Status: Not applicable.
CEQA Review: Not applicable.
Attachments: Click or tap here to enter text.
• Attachment A - Homekey Rd 3 NOFA
• Attachment B - Resolution No. 23-__
• Attachment C - Majestic RFP-21-22-28 Proposal