EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: July 18, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Amy Chen, Community & Economic Development Director Karen Camacho, Housing & Economic Development Manager
SUBJECT: City Council Action on Colibri Commons, an Affordable Housing Development at 965 Weeks
Recommendation
1. Adopt a Resolution (Attachment 1):
a. Authorizing the City Manager to accept $8,000,000 from the State of California pursuant to 2022-23 California Budget Bill (Chapter 249, Statutes of 2022, AB 179), Section 19.56 (“State Funds”) and execute all documents necessary for receipt and administration of the State Funds; and
b. Authorizing the City Manager to execute an amendment to the Disposition, Development and Loan Agreement (DDLA) with MP 965 Weeks Street Associates, L.P. (Developer) related to the 965 Weeks Affordable Housing Development (Colibri Commons, the “Project”), substantially in the form attached, subject to changes approved by the City Attorney, providing the Developer with additional loan funds in the amount of $6.5 million from the State Funds as a zero-interest loan; and c. Authorizing the City Manager to administer $1.5 million of the State Funds for water improvements to be made by the City to benefit the Project and adjacent properties; and
d. Authorizing the City Manager to approve amendments and to take such other actions as are necessary to effectuate the purposes of the DDLA and the Ground Lease including, but not limited to, negotiate and execute subordination agreements, lease riders, intercreditor agreements, and escrow instructions; and e. Authorizing the City Manager to negotiate and execute a First Source Agreement.
2. Adopt a Resolution (Attachment 2):
a. Finding the City-owned property at 965 Weeks to be “exempt surplus” land to be disposed of pursuant to Government Code Section 54221(f)(1) and authorizing the City Manager to transmit the adopted resolution to the State Department of Housing and Community Development to seek concurrence of the subject property’s qualification as “exempt surplus” land pursuant to Government Code Section 54230.5 (b)(1).
3. Adopt a Resolution (Attachment 3)
a. Authorizing the City Manager to accept an award of Affordable Housing Sustainable Communities (AHSC) funds from the State of California in the amount of $19,787,125 ($8,087,125 in grant funds and a $11,700,000 in a loan for 965 Weeks) and to negotiate and execute all agreements necessary for the receipt of such funds, including, but not limited to standard agreements, disbursement agreements, deeds of trust, subordination agreements and such other documents.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
• Promote Housing, Economic and Workforce Development
Background
Colibri Commons Affordable Housing Project
965 Weeks Street is a 2.52-acre property (“Property”) acquired by the former East Palo Alto Redevelopment Agency in 2009 using Low- and Moderate-Income Housing funds. The Property was determined to be a housing asset of the former Redevelopment Agency and, in accordance with the Redevelopment Dissolution law, transferred to the City as the Housing Successor to the Former Redevelopment Agency. In July 2018, the City issued a Request for Proposals (RFP) for the development of affordable housing on the Property. Some of the key components of the RFP, as directed by City Council, included:
• Develop the Property with multi-family affordable apartments and maximize density on the site.
• Support a mix of incomes ranging from Extremely Low Income (ELI) to Low Income (LI).
Area Median Income (AMI) targets should be consistent with the Facebook Agreement. • Include a mix of unit types, such as studios and units for larger families: not more than 20% of the units should be one (1) bedrooms or studios and at least 20% of the units should be three (3) bedroom units.
• Implement a local (“live/work”) preference as established by the City. • Demonstrate financial viability.
Following an extensive application review and interview process, on November 8, 2018,1 the City Council selected MidPen Housing and EPACANDO (MidPen Housing and EPACANDO jointly form the “Developer”) from among nine applicants as the developer of the Colibri Commons affordable housing project (“Project”), formerly known as the 965 Weeks Street affordable housing project and directed staff to prepare an Exclusive Negotiation Agreement (ENA) between the City and the Developer.
After a series of community meetings and submittal of a formal Planning application, the Project was approved by the Planning Commission on December 16, 2019.2 The Project consists of 135 units ranging from 30% to 60% Area Median Income (AMI) and one manager 1 November 8, 2018 City Council meeting:
http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1536 2 December 16, 2019 Planning Commission meeting:
http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1155 unit.
Disposition, Development and Loan Agreement
The City and the Developer entered into a Disposition Development and Loan Agreement as of December 15, 2020,3 that provides for the City to ground lease the Property to the Developer pursuant to the terms of a Ground Lease with a term of ninety-nine (99) years. The Developer will pay the City One dollar per year as ground rent. The DDLA and the Ground Lease require that the Developer construct on the Property the Project and operate the Project as affordable housing in accordance with terms of a regulatory agreement to be recorded against the Property.
The DDLA also serves as the loan agreement for the City loan to the Developer in the amount of $714,000 (“City Loan”). The City Loan bears interest at the rate of 3% and is repaid out of project cash flow shared with the other public lenders. The City Loan is secured by a deed of trust on the Developer’s leasehold interest in the Property. The City Loan is funded with Lowand Moderate-Income Housing Asset Funds transferred to the City by the former Redevelopment Agency.
Funds Committed to the Project
In addition to the City Loan, the City has committed the following resources to the Project:
• On June 4, 2019,4 the City Council authorized Local Initiatives Support Corporation (LISC) to appropriate $1,000,000 in Catalyst Funds for a predevelopment loan to assist the Developer with initial expenses associated with entitling the Project and to apply for other funding sources. MidPen repaid the funds to LISC on February 1, 2023. On January 21, 2020,5 the City Council authorized the appropriation of an additional $5,286,000 in Catalyst Funds for the construction and permanent financing of the Project.
• On March 30, 2023, the City dispersed $1.7 million to the Housing Endowment and Regional Trust of San Mateo County (HEART) as a match grant to HEART from the State of California’s Local Housing Trust (LHTF) Program for the development of the Project. HEART is to provide a low-interest, 55-year loan in the amount of $3.23 million to the Project using LHTF funds. To ensure a long-term benefit to East Palo Alto from the use of City funds, the grant agreement with HEART commits HEART to restricting 50% of program income from the City’s portion of the LHTF to be used on future affordable housing projects in East Palo Alto. The Grant Agreement further states that the loan terms and regulatory agreement associated with HEART funding for the Project will meet or exceed City requirements for funding affordable housing developments.6 3 December 15, 2020 City Council meeting, Item No. 10.1(b):
http://eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1332&MinutesID=1205&F ileFormat=pdf&Format=Minutes&MediaFileFormat=mpeg4
4 June 4, 2019 City Council meeting: http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1511 5 January 21, 2020 City Council meeting (Item No. 8):
http://eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1028&MinutesID=1010&F ileFormat=pdf&Format=Minutes&MediaFileFormat=mp4
6 For more information regarding the Local Housing Trust Fund, read the May 17, 2022 City Council s taff report available at (Item No. 3.4):
• The City co-applied with the Developer for State of California Affordable Housing Sustainable Communities (AHSC) funds.7 The California Department of Housing and Community Development (HCD) awarded the Project a $11.7 million loan for funding the affordable housing, and an additional $8,087,125 in grant funds (see the breakdown of the funds disbursement in Table 1 below). The City San Mateo County Transit District (“SamTrans”), and the Peninsula Corridor Joint Powers Board (“JPB” or “Caltrain”) will enter into a “Cooperative Agreement” to further specify deliverables and responsibilities and to indemnify, defend, protect, and hold each other harmless against any and all claims arising out of, or in connection with, each other’s performance or failure to perform their respective AHSC Program obligations. As part of the AHSC award the City will also be required to enter into a “Standard Agreement” with the California Department of Housing and Community Development. Additionally, the City, the Developer, SamTrans and JPB may enter into a “Cooperation and Implementation Agreement” related to the various parties' responsibilities pursuant to the AHSC funds.
The City Council authorized and directed the City Manager to enter into, execute, and deliver these and any other required agreements deemed necessary on May 18, 2021 via Resolution No. 66-2021. The resolution listed the first sponsor to be “MidPeninsula The Farm, Inc.” Per an updated award letter received on June 8, 2023 (see Attachment 5) the project sponsor should now be MidPen Housing Corporation. An updated resolution accepting the funds and reauthorizing the execution of agreements has been included with this staff report under Attachment 3.
http://eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1810&MinutesItemID=584 7&Format=Minutes
7 For more information about the AHSC application, see May 18, 2023 City Council meeting available at:
http://eastpaloalto.iqm2.com/Citizens/Detail_LegiFile.aspx?ID=1702&highlightTerms=AHSC%20applicatio n
Table 1: Colibri Commons AHSC Program Scope
Element Entity Amount Activity
Affordable
Housing
Development
(AHD)
Developer $11,700,000
Funding for the Affordable Housing Project.
Eligible expenses include construction and
permanent financing.
Sustainable
Transportation
Infrastructure
(STI)
City of
East Palo
Alto
$780,000
The City will provide:
1.) an estimated 700 linear feet of safe and
ADA-accessible sidewalks along Garden Street;
2.) an estimated .5 miles of bikeways to
complete the northern section of the City’s
Bicycle Transportation Plan; and
3.) Rail Spur trail improvements to support
bicycle and pedestrian access and connect to
Weeks Street.
Sustainable
Transportation
Infrastructure
(STI)
SamTrans
(passed
through
City of
East Palo
Alto)
$3,520,000
The Route 2/East Palo Alto Express (EPX)
route, a new limited stop route using US-101 as
well as adjacent arterials between East Palo
Alto and San Bruno, was identified as part of the
US-101 Express Bus Feasibility Study (adopted
December 2018). It is tentatively scheduled for
launch in 2022.
Reimagine SamTrans, a comprehensive
operational analysis launched in 2019 to
improve systemwide service, will result in
significant service expansions to existing bus
routes.
An AHSC award will fund 1.) the purchase of
three electric buses to service the Route 2/East
Palo Alto Express (EPX) bus route and 2.) a
portion of operational costs over 2 years for one
additional bus per hour daily on the Route 281
line connecting East Palo Alto to the Palo Alto
Caltrain station. An AHSC award will fund the
total cost of the three EPX buses, $3 M. The
service expansion will cost an estimated
$900,000 total, with $520,000 funded through
AHSC and $380,000 funded through Measure
W.
Sustainable
Transportation
Infrastructure
(STI)
Caltrain
(passed
through
City of
East Palo
Alto)
$2,450,000
The Caltrain Modification Program, or CalMod,
is the Caltrain plan to electrify the entire train
corridor from San Francisco to San Jose and
increase the number of cars in use, increasing
peak hour service and significantly reducing
GHGs. Caltrain will utilize this portion of an
AHSC award to purchase an electric multi-unit
train car (EMU).
Transit-Related
Amenities
(TRA)
City of
East Palo
Alto
$7,500,000 The City will provide lighting improvements and Urban Greening along the Rail Spur.
Transit-Related
Amenities
(TRA)
Developer $250,000 The Developer will provide street trees and landscaping along the Rail Spur.
Eligible
Program Costs
(PGM)
Developer $337,125
This includes transit passes for up to three
years for all residents of the 965 Weeks
community. The Developer will also use these
funds to support JobTrain scholarships for
career training programming for East Palo Alto
residents, with a focus on the construction
trades.
TOTAL $19,787,125
• On September 12, 2022, pursuant to 2022-23 California Budget Bill Jr. (Chapter 249, Statutes of 2022, AB 179), Section 19.56, the City of East Palo Alto was allocated $8,000,000 for the Project. The City is proposing to loan $6.5 millions of these funds to the Developer for costs associated with the Development. The remaining funds, $1.5 million, will be used by the City for water improvements benefiting the Project.
Surplus Land Act (SLA)
When the City approved the DDLA in 2020, the City prepared a report and made findings pursuant to Health and Safety Code Section 33433 based on the Property being former Redevelopment Agency Property that was transferred to the City as the Housing Successor.
Those findings remain valid with regard to the lease of the Property to the Developer, but in order to ensure that no Surplus Land Act issues arise, the City is also making findings declaring the Property “exempt surplus” land, as discussed below.
Analysis
Documents for City Council Review
The following documents associated with the amendment to the DDLA require City Council approval (see Resolution in Attachment 1) and are provided as attachments to this staff report:
First Amendment to Disposition, Development, and Loan Agreement (DDLA, Attachment 7), Deed of Trust (Attachment 8), and Promissory Note (Attachment 9). The amendments to the DDLA, the Deed of Trust and the Promissory Note increase the City loan to the Developer by the additional $6.5 million that the City received from the State.
Surplus Land Act
The Surplus Land Act (SLA)1 is a statute (Government Code Sections 54220-54234) that all local agencies (including cities and counties) must follow prior to disposing of surplus real property. It requires the local agency to offer the property to affordable home developers and certain entities before the general public, unless the land qualifies as exempt surplus land. There are four (4) categories of exemptions to the SLA as follows (relevant exemptions are in bold):
1. Certain actions were taken by the local agency to dispose of the property prior to September 30, 2019 (Grandfathering Exemption).
2. Disposition can be streamlined because the surplus land is proposed for development that includes certain percentages of affordable housing, with specific affordability requirements met for lower income households (Streamlining Exemption).
3. The surplus land is dedicated for other public uses (Public Use Exemption).
4. The surplus land is not suitable for housing development (Unsuitable Parcel Exemption).
The Project meets the requirements for the Streamlining Exemption, pursuant to California Government Code Section 53221(f)(1)(A) in that the property is being disposed of pursuant to Government Code Section 37364, provided that:
• At least eighty (80) percent of the Property will be developed with housing; • At least forty (40) percent of the housing units developed will be affordable to households with incomes at or below seventy-five (75) percent of the maximum income of lower-income households, as defined in Health & Safety Code Section 50079.5; • Half of those affordable units will be affordable to very-low income households, as defined in Health & Safety Code Section 50105;
• The project will restrict units to remain affordable for a period of at least thirty (30) years The Project as proposed by the Developer and restricted by the City’s regulatory agreement meets the requirements for exemption as follows:
• One hundred (100) percent of the Property will be developed with housing; • All housing units are restricted with incomes at or below sixty (60) percent of the area median income;
• The regulatory agreement restricts 55 of the units to be very low or extremely low income households, while under California Government Code Section 37364, only 27 or 28 of the units would need to be restricted to very low income; • The regulatory agreement is for a term of ninety-nine (99) years.
Based on the above facts, findings can be made that the Property is eligible for Exemption from the SLA requirement pursuant to Government Code section 54221 (f)(1)(A) under Category 2b – Streamlining Exemption (see Resolution in Attachment 2) A Note on First Source Hiring
The project will comply with the City’s First Source Hiring Ordinance (adopted April 5, 20228, adding Chapter 5.11 to the East Palo Alto Municipal Code9). Since the City has not yet developed First Source Hiring Guidelines, the City will enter into a First Source Agreement (Attachment 12) between the Developer and related employers establishing the hiring process to be followed and containing the employer's commitment to abide by the responsibilities of an 8 April 5, 2022 City Council Meeting:
http://eastpaloalto.iqm2.com/Citizens/Detail_LegiFile.aspx?Frame=None&MeetingID=1806&MediaPositio n=532.737&ID=2177&CssClass=
9 Municipal Code Chapter 5.11:
https://library.municode.com/ca/east_palo_alto/codes/code_of_ordinances?nodeId=TIT5BULIRE_CH5.11
FISOHICINDPRPR
employer in order to maximize the number of East Palo Alto residents and disadvantaged workers employed.
Project Timeline
The original project timeline has shifted to reflect the fact that the Project was awarded AHSC funds in February 2022 (see Attachment 6). The Project was also awarded Low Income Housing Tax Credits (LIHTC) in May 2023. Construction is anticipated to begin in October 2023, with full occupancy of the units achieved by December 2025. Key Project milestones are shown below.
Table 1: Colibri Commons (fka 965 Weeks) Updated Project Timeline Planning Application submitted September 2019
Planning Commission Hearing and
Entitlements received December 2019
Executed DDLA December 2020
Submitted AHSC Round 6 Application June 2021
Received AHSC Round 6 Award January 2022
Submitted IIG Round 7 Program
Application (unawarded)
July 2021
Submitted 4% Tax Credit Application February 2023
Received 4% Tax Credit Award May 2023
Close of Construction Financing October 2023
Construction Start October 2023
Construction End July 2025
100% Occupancy December 2025
Next Steps
If authorized by City Council, the City Manager will execute the First Amendment to the DDLA and allocate the $6.5 million in State funds in the form of a loan to the Project, and conduct the water infrastructure improvements work with the $1.5 million in additional State funds, for a total of $8 million. The City will also collaborate with the Developer in executing all documents necessary for receipt of the $19,787,125 in AHSC funds. These actions will allow the Developer to close the other construction funding and begin construction by the third quarter of 2023.
The City has prepared a resolution (Attachment 2) declaring the subject property to be exempt surplus land to be disposed of pursuant to Government Code 37346, and directing staff to transmit a copy of the resolution to the California Department of Housing and Community Development no later than thirty (30) days prior to the disposition of the Property.
Fiscal Impact
The City of East Palo Alto has been awarded the State HCD grant and AHSC grants for the 965 Weeks Street Affordable Housing Development in the amount of $8,000,000 and $19,787,125, respectively. Staff seek spending authority of the grants for the following purposes.
State HCD Grant:
Project/Program Amount
Affordable Housing Loan $6,500,000
Water Infrastructure Projects $1,500,000
Total $8,000,000
AHSC Grants:
Project/Program Amount
Affordable Housing Loan10 $11,700,000
Transportation (STI) $6,750,000
Transportation (TRA) $1,000,000
PGM $337,125
Total $19,787,125
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website and at the San Mateo Co. Library located at 2415 University Avenue, East Palo Alto.
Environmental
In accordance with California Environmental Quality Act (CEQA), a Mitigated Negative Declaration has been prepared with an Initial Study. Prior to approving the DDLA the City Council approved the Mitigated Negative Declaration on December 16, 2019. There have been no changes to the project that would warrant conducting additional environmental review pursuant CEQA guidelines 15162. Accordingly, there were no significant CEQA issues that could not be mitigated to a less than significant level and staff has incorporated conditions of approval and mitigation measures accordingly.
Attachments
1. Resolution - Approving Agreements and Amendments re Colibri Commons
2. Resolution - Exempt Surplus Land Declaration
3. Resolution - Affordable Housing Sustainable Communities
4. Resolution 66 - 2021
5. Updated AHSC Award Letter
6. HCD AHSC Loan Commitment
7. First Amendment to Disposition Development and Loan Agreement
8. Deed of Trust Amendment
9. Promissory Note Amendment
10. Regulatory Agreement Amendment
11. Ground Lease Amendment
12. First Source Hiring Agreement
10 Funds will be directly disbursed to the Developer’s payee.