Fremont City Council Meeting: 01/18/22 07:00 PM
3300 Capitol Avenue Div/Dept: Community Development
Fremont, CA 94538 Category: Affordable Housing
SCHEDULED
Sponsors:
STAFF REPORT (ID # 4514) DOC ID: 4514 A
Updated: 1/13/2022 5:56 PM by Susan Gauthier A Page 1
APPLICATION FOR STATE HOMEKEY ROUND 2 FUNDING - Authorize Staff to Partner with Shangri-La Industries, LLC and Step Up On Second Street, Inc. on an Application for Funding Under the State Homekey Round 2 Program to Acquire, Rehabilitate and Operate a Supportive Services Affordable Housing Project at 46101 Research Avenue (Currently the Motel 6)
Contact Persons:
Name: Dan Schoenholz Suzanne Shenfil
Title: Community Development Director Director
Div/Dept: Community Development Human Services Department Phone: 510-494-4438 510-574-2051
E-Mail: [email protected] [email protected]
Executive Summary: Staff is recommending that the City Council authorize the submittal of a $40.2 million Homekey Round 2 application to the State of California Housin g and Community Development Department (HCD) for the conversion of Motel 6 at 46101 Research Avenue to permanent affordable housing. The number of units would range from 152 to 156 depending on the actual space needed to accommodate property management and supportive services. Staff is also recommending that Council authorize staff to enter into a Memorandum of Understanding (MOU) with Shangri-La Industries, LLC (SLI) and Step Up on Second Street, Inc., (Step Up) that delineates the roles and responsibilit ies of each party.
BACKGROUND:
Homelessness Identified as a Top Council Priority: On September 18, 2018, the City Council declared a shelter crisis due to the significant number of persons in Fremont without the ability to obtain shelter, resulting in a threat to their health and safety. Since the declaration of the shelter crisis, the City has pursued numerous strategies to provide resources and shelter to unhoused residents. These efforts have included the adoption of ordinances to allow faith-based organizations to provide temporary shelter or Safe Parking within their facilities, roll-out of the CleanStart Mobile Hygiene Program, the expansion of the Winter Warming Center into a Winter Shelter and now a Winter Relief program, the creation of the temporary Islander Motel shelter program, and the opening of the Housing Navigation Center.
Homeless Statistics in Fremont: The 2019 Alameda County EveryOne Home Point-in- Time Count found that 608 people in Fremont were experiencing homelessness, a 27% overall increase when compared to the 2017 Count. Of those counted in 2019, 485 were unsheltered, meaning they resided in places not meant for human habitation, like vehicles or tents outside, a 72% increase when compared to the 2017 Count. The 2019 Count also found the number of sheltered individuals had decreased by 38%, which indicates a loss in shelter.
Since 2019, shelter and affordable housing resources have not kept pace with the need of people seeking them. Although the bi-annual Count did not occur in 2021, homelessness in Staff Report (ID # 4514) Meeting of January 18, 2022
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Fremont has likely increased because of the continued insufficient shelter and housing resources, coupled with the overall impacts of the COVID-19 pandemic on income and employment. The next Point-in-Time Count is scheduled for February 2022, with data expected in the spring of 2022.
Response to COVID-19 and the Homeless
In March 2020, the State established Project Roomkey. Hotel and motel rooms were quickly secured for vulnerable homeless persons (seniors 65+ and/or those suffering from chronic illness), providing a way for those who didn't have a home to stay inside to prevent the spread of COVID. Project Roomkey also provided non-congregate shelter options for people needing to quarantine or recuperate from COVID helping to minimize the strain on the health care system.
Building on the success of Project Roomkey, on June 30, 2020, the Governor announced Homekey as the next phase of a COVID-19 response to protect homeless Californians.
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, into permanent or interim housing for the chronically homeless population.
Homekey Round 1: In 2020, the State issued a Notice of Funding Availability (NOFA) for Project Homekey Round 1. Over $800 million in funding was provided for 94 projects that resulted in over 6,000 units of affordable housing.
Homekey Round 2: Based on the success of Round 1, the State included $1.45 billion in the FY 2021/22 budget for Homekey Round 2, including $1.2 billion from Coronavirus State Fiscal Recovery Funds and $250 million from the State’s General Fund.
In September 2021, the State Department of Housing and Community Development (HCD) released a NOFA inviting local jurisdictions to apply for Round 2 funding. This funding is divided into eight geographic regions. The Bay Area’s allocation is approximately $200 million. The funding is available on a continuous and over the counter basis until May 2022 or until funds are exhausted, whichever comes first. Homekey represents an opportunity to tap into significant State funding to address local homelessness. Funds must be used to provide housing for the target population of individuals and families experiencing homelessness or who are at risk of homelessness and who are impacted by or at increased risk for medical diseases or conditions due to COVID-19 and other communicable diseases.
Cities and their development partners can apply for capital funding up to $300,000 per door and operating funding for up to two years to support the following eligible uses:
• Acquisition, rehabilitation, of motels, hotels, apartments, homes, residential or commercial facilities for elderly, manufactured housing, other buildings that could be converted to permanent or interim housing
• Master leasing of properties for non-congregate housing (very project specific, consultation with HCD needed to go over details)
• New construction of dwellings
• Purchase of affordability covenants and restrictions for units • Relocation costs for individuals who are being displaced as a result of the project Staff Report (ID # 4514) Meeting of January 18, 2022
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• Capitalized operating subsidies for units purchased, converted, constructed, or altered with funds
Incentive Bonuses: The State is also incentivizing applicants to submit applications as soon as possible by offering a $10,000 per door bonus for applications submitted by January 31, 2022. After January 31, 2022, any unallocated geographic set-asides will be placed in a statewide pool. Applications for the statewide pool opens on February 1, 2022.
The $10,000 per door bonus is a significant incentive, especially for projects with a substantial number of units.
Lastly, the State is incentivizing the applicants to achieve occupancy as soon as possible, by providing a $10,000 per door bonus for projects that achieve occupancy within 8 months of funding award. All projects must, however, be completed within a 12-month timeline.
City RFI/RFP: In order to explore the feasibility of a Homekey project in Fremont and in anticipation of a 2nd round of Homekey funding, City staff issued a Request for Information (RFI) and Request for Proposals (RFP) for developers/service providers to partner with the City on a Homekey application. Staff received a total of seven expressions of interest, but only one proposal, from Shangri-La Industries, Inc. (SLI), a Los-Angeles-based for-profit affordable housing developer. SLI received State awards for two hotel conversion projects (one in Salinas and one in San Bernardino) in Round 1 of Project Homekey and has demonstrated the financial resources and the requisite expertise to qualify for state funding.
SLI proposes to partner on any Fremont projects with Step Up on Second Street, Inc. (Step Up), an experienced homeless service provider/property manager that is their partner on the two projects funded in Round 1 of Homekey. More information on both SLI and Step Up is included in Exhibit A.
DISCUSSION/ANALYSIS:
Proposal Description: In their proposal, SLI identified four potential Fremont hotel properties for conversion to permanent affordable housing for chronically homeless households.
Table 1: Potential Homekey Motel Properties
Property
Name Address
Tenant
Units
Manager
Units
Total
Units
Motel 6 46101 Research Ave. 152-156 3 159
Good Nite Inn 4135 Cushing Pkwy. 120 2 121
Hampton Inn 46500 Landing Pkwy. 99 2 100
Days inn 46101 Warm Springs Blvd. 48 1 49
Pursuant to HCD requirements, the City would be the lead applicant and SLI and Step Up would be the co-applicants. All four proposed projects are designed to convert a motel into permanent supportive housing for families and individuals experiencing homelessness that incorporates a wrap-around supportive service framework. SLI is proposing that it own and operate the property and that Step Up be the approved service provider and property manager. SLI and Step Up would form a single asset entity partnership to own the property.
The properties currently feature studio suite layouts that would be converted into permanent supportive housing micro-units targeted for the chronically homeless. Ten Staff Report (ID # 4514) Meeting of January 18, 2022
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percent of the units will be specifically targeted for chronically homeless with serious mental illness. Those who are at risk of homelessness, who qualify with incomes below 30% of t he average median income for Alameda County are also eligible beneficiaries. One to three units per property will be dedicated for a property manager(s). The scope of work includes adding kitchenettes to each unit, which will be financed by SLI along with acquisition and other needed rehabilitation. No additional units or expansion of the building’s floor area or height will be conducted.
Financial and Locational Analysis: Staff and an outside consultant reviewed the four potential properties and evaluated them based on financial feasibility as well as locational criteria. Staff also met several times with staff from SLI and Step Up to discuss project details. A map showing the four potential Homekey properties is included as Exhibit B.
The four projects along with their total acquisition and rehabilitation (A&R) costs and capital cost per unit, are summarized in the table below.
Table 2: Potential Homekey Motel Properties
Property
Name
Total
Units
Total
Capital
Cost
Capital
Cost
per unit
Projected
Homekey
Capital
Request
Motel 6 159 $33,421,417 $210,198 $31,800,000
Good Nite Inn 121 $41,828,554 $345,691 $24,200,000
Hampton Inn 100 $40,565,087 $405,651 $20,000,000
Days inn 49 $20,394,474 $416,214 $9,600,000
SLI would utilize State Homekey Round 2 capital funding to acquire and rehabilitate / reconfigure the motel(s), and secure bank financing to fill-in any costs not covered by the Homekey grant. As shown above in table 2, the Motel 6 project has the lowest capital cost per unit as well as the smallest gap between the total capital costs and the projected Homekey capital request.
HCD requires the application to demonstrate sufficient funding for at least the first five years of operations. SLI is requesting that the City agree to capitalize the required 5-year operating reserve based on a current monthly Fair Market Rent (FMR) of $1,611 for studio/one-bedroom/Single Room Occupancy (SRO) units in Alameda County, per the Housing Authority of the County of Alameda (HACA). SLI’s proforma assumes an ann ual FMR adjustment of 3%. SLI and Step Up are also requesting that the City provide funding for supportive services at $5,500 per unit per year for Hampton Inn and Days Inn, and $3,850 per unit per year for Good Nite Inn. Due to economies of scale, SLI expects supportive services associated with the Motel 6 property to be covered by operating revenues. Therefore, the City would not need to fund supportive services for Motel 6.
Based on the above financial structure, the City’s obligation to cover the cost to operate and provide supportive services at each of the project sites over five years is as follows:
Staff Report (ID # 4514) Meeting of January 18, 2022
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Table 3: Potential City 5-Year Obligation by Property
Property Name
Tenant
Units
Total City 5-
Year Funding
Obligation
Total City
Funding
Obligation per
Unit
Motel 6 156 $14.6 Million $93,400
Good Nite Inn 120 $13.6 Million $113,741
Hampton Inn 99 $12.1 Million $122,504
Days Inn 48 $5.9 Million $122,266
Staff also conducted a locational analysis on each of the properties, based on criteria below.
Each of the ten criteria was assigned a score of 1. Motel 6 scored highest based on these criteria. For more detailed locational analysis on each of the four projects, please see Exhibit C.
• Within 0.50 miles of a grocery store*
• Within 0.50 miles of BART
• Within 0.50 miles of public transit*
• Within 0.50 miles of a health facility*
• Within 0.50 miles of a library*
• Within 0.50 miles of a pharmacy*
• Within 0.50 miles of social service agency
• Indoor service delivery areas available
• Common open space available
• Private open space available
*Homekey funding criteria
Table 4: Results of Locational Analysis
Property Name Address
Score
(out of
10)
Motel 6 46101 Research Ave. 6
Good Nite Inn 4135 Cushing Pkwy. 4
Hampton Inn 46500 Landing Pkwy. 3
Days inn 46101 Warm Springs Blvd. 3
Motel 6 Recommendation: Due to the resources demanded by any one project, staff believes it is unrealistic for the City to take on more than one project at this time.
Therefore, staff is recommending that Council authorize the submittal of one motel site for an application for State Homekey Round 2 funding consideration. Staff is recommending the Motel 6 site for the following reasons:
• Motel 6’s cost per unit for construction and renovation is the lowest among the four projects;
• The City’s per unit obligation for operations and supportive services at the Motel 6 property is the lowest of the four sites;
Staff Report (ID # 4514) Meeting of January 18, 2022
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• Motel 6 offers the highest number of units, allowing more individuals and families to be served, therefore having the biggest impact of any of the potential projects on reducing chronic homelessness;
• Motel 6 scored the highest in locational criteria;
• Pursuant to a review by the Fire Marshal, the two properties east of I-880 (Motel 6 and Days Inn) raise fewer concerns about industrial uses conflicting with residential uses than the two properties west of I-880.
Project Timeline: Pursuant to Homekey program requirements, capital funds must be expended within eight months of the date of award and all applicable construction/ rehabilitation must be completed within twelve months of the date of the award. Moreover, the project must achieve full occupancy within ninety days of construction/ rehabilitation completion. The State also provides an expedited occupancy incentive with an award of $10,000 per assisted unit. Projects must achieve full occupancy within eight months of the date of award and occupancy would need to occur by November 2022 in order to secure the expedited occupancy incentive. Staff and SLI will combine efforts to try to earn the early occupancy incentive; however, staff believes the early occupancy timeline is very ambitious and will be difficult to meet. However, staff is more confident that the standard State- mandated timelines, which would require construction completion by March 2023 and occupancy by June 2023 (assuming a March 2022 award) are achievable.
Tenant Selection criteria: The Homekey project will target serving individuals and families who are considered chronically homeless and who are rooted to the Tri Ci ties of Fremont, Newark or Union City. Based on our 2019 homeless count, 126 people were counted as chronically homeless, representing approximately 21% of those experiencing homelessness in Fremont.
Chronic homelessness is defined as an individual or head of household with a disability that meets the HUD definition of a disability who:
(a) lives in a place not meant for human habitation, a safe haven, or in an emergency shelter; AND
(b) has been homeless and living in one of these places continuously for at least 12 months OR on at least 4 separate occasions in the last 3 years, as long as the combined occasions equal at least 12 months and each break in homelessness separating the occasions included at least 7 consecutive nights of not living in one of the aforementioned places.
Affiliation or connection to the Tri-Cities is tracked within Alameda County’s Homeless Management Information System (HMIS) and is established in one of two ways: 1) when an individual completes a crisis or housing assessment at an Access Point located in one of the Tri Cities; or 2) an individual discloses they were previously housed in, went to school in, or were born in Fremont, Newark or Union City.
Memorandum of Understanding - As the lead applicant for the Homekey Grant Program, the City will be required to enter into a Memorandum of Understanding (MOU) with SLI and Step Up to establish the partnership. Staff is requesting Council authorization to negotiate and enter into an MOU with SLI and Step Up. The MOU will require SLI and Step Up to undertake the following activities in collaboration with the City:
Staff Report (ID # 4514) Meeting of January 18, 2022
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1. Negotiate directly with the current property owner(s) and effectuate the purchase of the property;
2. Obtain all permits required for the project;
3. Assist the City in obtaining funding available for both the construction and ongoing operations of the project;
4. Develop a plan of operation for Homekey project clients;
5. Define a development schedule, including project(s) milestones;
6. Plan and execute a scope of work necessary to convert the motel(s) to affordable housing;
7. Create safe and habitable living spaces based on a Physical/Capital Needs Assessment; and
8. Own and operate the property as affordable/permanent housing. There is no current proposal or plan for the City to acquire or own the property.
9. Provide property management services and supportive services to the tenants.
FISCAL IMPACT: As noted previously, the City’s Homekey Round 2 application must identify funding for five years of operations. For the Motel 6 property, the total amount needed is $14.6 million over the five-year period. In its Homekey Round 2 application, in addition to the acquisition and rehabilitation funding of $31.8 million, the City is eligible to apply for two years of operating funding valued at $5.24 million. In addition, the City’s Homekey application may be eligible to receive an early application bonus valued at $1.56 million and an expedited occupancy bonus, also valued at $1.56 million, for a total possible award of $40.16 Million.
The table below shows the 5-Year operating funding sources identified to date, including the $5.24 million in Homekey Round 2 Operating funds and additional bonuses. As noted in the table below, staff has identified $2.59 million in funding readily available for this project.
This amount includes $750,000 in Community Development Block Grant (CDBG) capital funds that were recommended for this project by the City’s Citizens Advisory Committee on January 6, 2021.
Staff has either applied for, or is in the process of applying for, a total of $6.66 million in operating funds. This includes $238,364 in State No Place Like Home (NPLH) Funds. On January 11, 2022, the Alameda County Board of Supervisors adopted a resolution authorizing the submission of the Alameda County/SLI NPLH application to the State of California for this requested funding amount.
Staff Report (ID # 4514) Meeting of January 18, 2022
Updated: 1/13/2022 5:56 PM by Susan Gauthier A Page 8
Table 5: Sources Identified for 5-Year Operations Funding Obligation Funding Source
Homekey
Round 2
Application Secured
Applied
For Total
FUND 196
Commitment
State - Homekey Funding $5,241,600 $5,241,600
State - Homekey Early
Application Bonus $1,560,000 $1,560,000
State – Homekey
Expedited Occupancy
Bonus $1,560,000 $1,560,000
City - Federal Community
Development Block Grant $750,000 $750,000
City - Low-Moderate
Income Housing Asset
Fund $1,250,000 $1,250,000
City -State Permanent
Local Housing Allocation $400,000 $400,000
City - Federal CARES Act
Funding $190,000 $190,000
State - No Place Like
Home $238,364 $238,364
County - HOME American
Rescue Plan Act $3,000,000 $3,000,000
County - Emergency
Shelter Grant $300,000 $300,000
TOTAL IDENTIFIED: $5,241,600 $2,590,000 $6,658,364 $14,489,964 AMOUNT NEEDED: $14,570,405
GAP: $80,441
FUND 196
COMMITMENT $6,658,364 $80,441 $6,738,805
The State Homekey Application also requires the City provide a 5-Year commitment of operating funds in its Homekey Round 2 application, thus staff is requesting the City Council allocate the $2.59 million in secured funding described in Table 5 above, including $750,000 in CDBG funds, $1.25 million in LMI funds, $400,000 in PLHA funds and $190,000 in CARES Act funding.
Staff anticipates that between the funding sources already identified and other State and County resources that will likely come available and be targeted to Homekey projects, such as County Measure W funding and Section 8 housing vouchers, no contributions from the City’s Affordable Housing Fund (Fund 196) will be necessary for this project.
However, in order to demonstrate full funding for five years of operations, staff is requesting that Council allocate $6.74 million from Fund 196 in its Homekey Round 2 application. That commitment will then be reduced as the City secures funding from current applications and future funding opportunities. In no foreseeable circumstance would the City’s General Fund be called upon to contribute to the cost of operations.
In discussions with City staff, State HCD staff noted that they are working on creating long- term funding streams for Homekey projects. They also noted that nothing in the City’s Staff Report (ID # 4514) Meeting of January 18, 2022
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application for Homekey funds would commit the City to an ongoing financial obligation beyond the first five years of operation. State HCD staff has approved the language to that effect that is incorporated into the attached Resolution.
Although it is difficult to quantify, providing housing for the chronically homeless who are currently on the street will likely result in a reduction of call outs and interactions with that population saving public funds expended on emergency services. National cost studies have shown that the annual cost of servicing chronically homeless individuals on the street through an array of government-funded crisis services (911, police, ER, courts, jails, etc.) ranges from $35,000- $125,000 per year.
ENVIRONMENTAL REVIEW:
CEQA – This action is exempt from CEQA. In accordance with Health & Safety Code Section 50675.1.4. Projects funded through the Homekey program get a statutory exemption from CEQA if they meet certain criteria, including, among others:
• Contractors will pay prevailing wages and use skilled/trained workforce Any acquisition is paid for, in whole or part, with public funds • Project units are deed restricted to people experiencing homelessness (VLI/LI households) for no fewer than 55 years
The full list of criteria is found at Health and Safety Code Section 50675.1.4. Staff reviewed the project and believes the Motel 6 project meets the criteria found in Health and Safety Code 50675.1.4.
Each as a separate and independent basis, this action also is exempt pursuant to, without limitation, CEQA Guidelines Section 15378(b), 15183, and/or 15061(b)(3), in that it is a governmental fiscal or administrative activity that has as no potential to cause, directly or indirectly, a significant effect on the environment, and it is consistent with the general plan and/or zoning.
Land Use - There is a separate universal land use exemption that deems all Homekey projects “consistent and in conformity with any applicable local plan, standard, or requirement, and allowed as a permitted use, within the zone in which the structure is located, and shall not be subject to… discretionary reviews or approvals.” Given this exemption, staff does not anticipate that the project will require any discretionary land use review, and, as a separate and independent basis, would be ministerial act, exempt from CEQA pursuant to CEQA Guidelines Section 15268 (ministerial projects).
NEPA: The use of federal funds will require compliance under the National Environmental Policy Act (NEPA). Consistent with NEPA regulations, funding will not be distributed to a project until appropriate NEPA review and clearance is completed for that project.
ATTACHMENTS:
• Exhibit A - Shangri La & Step Up Proposal and Qualifications • Exhibit B - Map of Proposed HomeKey Projects
• Exhibit C - Locational Analysis
Staff Report (ID # 4514) Meeting of January 18, 2022
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• Draft Resolution- Homekey Funding
RECOMMENDATIONS:
1. Adopt a Resolution authorizing the submittal of a Homekey Round 2 application to the California Department of Housing and Community Development (HCD), with the City as the lead applicant and Shangri La Industries and Step Up as co-applicants, in the amount not to exceed $40,200,000 and making findings of CEQA exemption.
2. Approve a funding commitment and allocation for a Homekey Project in the City of Fremont to be acquired, rehabilitated and owned by Shangri La Industries, in the amount not to exceed $6,738,805 from the City's Affordable Housing Fund (Fund 196); and $2,590,000 from the secured funding sources, including $750,000 in CDBG funds, $1.25 million in LMI funds, $400,000 in PLHA funds and $190,000 in CARES Act funding as described in the report.
3. Authorize the City Manager or her designee to execute a MOU with Shangri-La Industries and Step Up on Second Street, Inc., memorializing roles and responsibilities.
4. Authorize the City Manager or her designee to execute agreement(s) and/or implementing documents with Shangri La Industries and Step Up on Second Street, Inc. to effectuate the implementation of a Homekey project in the City of Fremont.
5. Authorize the City Manager or her designee to execute a funding agreement and other implementing documents with the State of California Department of Housing and Community Development.