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February 20, 2024
ITEM TITLE
Affordable Housing: Authorize Joint Application to and Participation in the Homekey Program with Wakeland Housing and Development Corporation for Rehabilitation and Conversion of the Palomar Motel into Permanent Supportive Housing
Report Number: 24-0023
Location: 1160 Walnut Avenue, 91911
Department: Housing and Homeless Services
G.C. § 84308: No
Environmental Notice: The Project is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing Facilities), Section 15326 (Acquisition of Housing for Housing Assistance Programs), and Section 15061(b)(3) (Common Sense Exemption).
Recommended Action
Adopt a resolution authorizing the City of Chula Vista to jointly apply to and participate in the Homekey Program, with Wakeland Housing and Development Corporation, for the rehabilitation and conversion of the Palomar Motel into Permanent Supportive Housing , and authorizing the City Manager or designee to negotiate and enter into a developer agreement(s) with Wakeland Housing and Development Corporation.
SUMMARY
The City of Chula Vista owns the site of the former Palomar Motel, located at 1160 Walnut Avenue (Property), and intends to rehabilitate and convert it into Permanent Supportive Housing for formerly homeless households. After conducting a competitive selection process, City staff have selected Wakeland Housing and Development Corporation as its proposed developer partner. To carry out the rehabilitation and conversion, the City intends to apply to the Homekey program, administered by the California Department of Housing and Community Development, for funding in an amount not to exceed $10,175,000.
This action will authorize the City Manager to apply for the Homekey funds with Wakeland Housing and Development Corporation and enter into all necessary documents to the confirm the partnership.
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ENVIRONMENTAL REVIEW
The Director of Development Services has reviewed the proposed Project for compliance with the California Environmental Quality Act (CEQA) and has determined that the Project qualifies for a Categorical Exemption pursuant to State CEQA Guidelines Section 15301 (Existing Facilities), Section 15326 (Acquisition of Housing for Housing Assistance Programs), and Section 15061(b)(3) (Common Sense Exemption). This is because the action to acquire the motel for the purpose of providing PSH would not result in a significant effect on the environment, create a cumulative impact, damage a scenic highway, or cause a substantial adverse change in the significance of a historical resource. Therefore, no further environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
DISCUSSION
Homekey Program
Homekey is a California Department of Housing and Community Development (HCD) program created in the wake of the COVID-19 pandemic to convert motels and other housing types to permanent or interim housing for homeless persons. The City applied for funding in the third Homekey round in connection with the Palomar Motel project, pursuant to Resolution No. 2023-109, but was not awarded funds. Since then, the City has taken significant steps to increase its likelihood of success in future funding rounds, including acquiring the Property, commissioning a physical needs analysis, and identifying a proposed developer partner. It is expected that Homekey fund s will release a Phase 4 Notice of Funding Availability (NOFA) in March 2024.
Because Homekey applications have been reviewed on a rolling basis during the application window, City staff are taking steps to be prepared to apply as early as possible, with approved resolutions and other documentation in hand.
Homekey is a critical funding source for the rehabilitation of the project, as the program is tailor-made for rehabilitation of such motels for use as Permanent Supportive Housing (PSH), which is a best -practice intervention for addressing homelessness that combines permanent, subsidized housing with voluntary, wraparound supportive services, needed by the Very-Low Income population it serves. Awards from other affordable housing programs, such as Low-Income Housing Tax Credits, would be difficult to secure for this project’s size and scope.
Motel Acquisition and Rehabilitation
The City acquired the Palomar Motel on October 6, 2023, for $6,200,000, authorized by Resolution No. 2023- 108, adopted on July 25, 2023. The City’s intent for the motel is to rehabilitate it and convert it into PSH for formerly homeless households. It is anticipated that approximately 28 units of PSH will be provided at the site, with additional space set aside for supportive services and onsite management. To convert the motel rooms into long -term housing, the City intends to add kitchenettes and perform other unit upgrades and carry out a wide range of necessary building repairs.
Kitchell Corporation was commissioned to provide a Feasibility Study Draft Report to identify the scope of needed repairs and determine a cost estimate. The full cost of carrying out all repairs and improvements was estimated at $8,134,501. The rehabilitation scope would include accessibility upgrades to comply with the Americans with Disabilities Act (ADA); stairway replacement; new fire sprinklers and other life safety improvements, and major u pgrades to the plumbing, electrical, HVAC, and other systems. An additional P a g e | 3
amount of approximately $1,115,500 beyond Kitchell Corporation’s estimate has been budgeted for unaccounted soft costs and a developer fee in line with Homekey regulations.
Competitive Selection Process
The City used a two -step selection process to select a developer partner , with a Request for Qualifications (RFQ) followed by a Request for Proposals (RFP). The RFQ for development teams to construct, rehabilitate, and/or operate PSH was issued on July 24, 2023 and concluded on August 24, 2023. The purpose of the RFQ was to evaluate general organizational experience and capacity rather than project -specific proposals. The evaluation criteria included developer experience, service prov ider experience, and experience financing affordable housing projects.
Four organizations submitted responses to the RFQ: Wakeland Housing and Development Corporation (Wakeland), PATH Ventures (PATH), Milestone Housing Group, LLC (Milestone), and RPM JT2 Horizon. An ad hoc committee of City staff members evaluated the proposals and determined that three of the four organizations (Wakeland, Path, and Milestone) met the minimum criteria for qualifications.
The RFP to select a partner for substantial rehabili tation and operation of PSH at 1160 Walnut Avenue was issued on December 11, 2023, with a mandatory site tour held on Monday, December 18, 2023. The RFP evaluation criteria included the following categories: Homekey competitiveness and proposal quality (40%); PSH services plan (35%); and developer qualifications (25%). The three previously qualified organizations were invited to submit responses and were personally notified of the mandatory site tour by City staff.
Wakeland and PATH attended the tour, with Milestone not attending.
The RFP concluded on Monday, January 22, 2024. Wakeland was the sole organization to submit a response.
Staff reviewed the submittal and found it to be responsive and responsible and recommends moving forward with the selection of Wakeland as a developer partner.
Wakeland Housing and Development Corporation Proposal
Wakeland’s proposal includes a preliminary financing plan, an alternate financing scenario, a services plan, and more details regarding their organizational experience and capacity. Two critical aspects of Wakeland’s financing plan include Homekey funds and an issuance of Project-Based Section 8 Vouchers from the County of San Diego. The Homekey funds would provide necessary capital for the rehabilitation of the project, while the Project-Based Section 8 Vouchers would provide an ongoing operating subsidy to the project to ensure its long-term viability.
Wakeland’s PSH plan satisfies Homekey requirements and demonstrates a strong work ing knowledge of required processes for leasing and operations of PSH. Their proposal budgets for 1.5 Full Time Equivalent services staff to provide case management and other wraparound services at the Property. Wakeland points to its 96% housing retention rate and 96% participation rate for its supportive housing residents as evidence of its strong track record in operating PSH.
Finally, Wakeland’s developer qualifications are excellent. The company has completed 11 projects within the last five years, eight of which have a PSH component. It was awarded Homekey funds in a previous round for an apartment conversion project in San Diego. Wakeland’s current portfolio consists of 5,882 housing units. Its fiscal outlook is healthy and trending upwards. A review of recently completed projects demonstrates that the company delivers completed projects in a cost-effective manner. A review of operating budgets for projects in operation shows positive cash flow and demonstrates that projects are operated in line with b udget expectations. A subsidiary entity, Wakeland Opportunities for Affordable Housing, is P a g e | 4
certified as a Community Housing Development Organization (CHDO), a classification created by the United States Department of Housing and Urban Development (HUD) tha t allows Wakeland to qualify for certain federal funds. City staff have full confidence that Wakeland has the experience and capacity to take on the proposed project.
Partnership/Developer Agreement
To carry out the construction and operation of the project, the City would need to enter into an agreement or set of agreements with Wakeland. Such agreements may consist of a developer agreement, management agreement, services agreement, partnership agree ment, or other documents identifying each party’s roles and responsibilities. This resolution would authorize the City Manager or her designee to negotiate and execute such agreements with Wakeland consistent with this resolution and its basic purpose. The sale or transfer of the Property is not authorized by this resolution.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the City of Chula Vista City Council members and has found no property holdings within 1,000 feet of the boundaries of the property which is the subject of this action.
Consequently, this item does not present a disqualifying real property -related financial conflict of interest under California Code of Regulations Title 2, section 18702.2(a)(7) or (8), for purposes of t he Political Reform Act (Cal. Gov’t Code §87100, et seq.). Staff is not independently aware and has not been informed by any Chula Vista City Council member, of any other fact that may constitute a basis for a decision -maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
This action does not request appropriation of funds. The resolution would allow the City to apply for and receive state Homekey funds in connection with the proposed project.
ONGOING FISCAL IMPACT
If successfully awarded f unds, the City will work with its developer partner to identify additional funding sources for the ongoing maintenance and operations of the property. It is not anticipated that City funds will be used for ongoing operations. If necessary, any City funding commitments will be considered in a separate City Council action.
ATTACHMENTS
None.
Staff Contact: Carlos Rodriguez, Management Analyst II Brian Warwick, Housing Manager
Stacey Kurz, Director of Housing & Homeless Services