Fremont City Council Meeting: 05/09/23 07:00 PM
3300 Capitol Avenue Div/Dept: Community Development
Fremont, CA 94538 Category: Agreements and Contracts
SCHEDULED
Sponsors:
COUNCIL STAFF REPORT (ID # 4882) DOC ID: 4882
Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 1 APPLICATION FOR STATE HOMEKEY ROUND 3 FUNDING – Adopt a Resolution Authorizing Staff to Partner with Shangri-La Industries, LLC and Step Up on Second Street, Inc. on an Application for Funding under State Homekey Round 3 Program to Acquire, Rehabilitate and Operate a Supportive Services Affordable Housing Project at 46101 Research Avenue (Currently Motel 6); Conditionally Appropriate $8,668,000 to Support the Project; Conditionally Recognize $1,000,000 in Revenue from Alameda County in Support of the Project; and Authorize the City Manager or Her Designee to Execute Implementing Documents and Making Findings of CEQA Exemption
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 $35 Million Homekey Round 3 application to the State of California Housing and Community Development Department (HCD) for the conversion of Motel 6 at 46101 Research Avenue to permanent supportive affordable housing. There would be a total of 156 studio apartments with bathrooms and kitchenettes for tenants, with 3 units reserved for property management staff-in-residence, for a total of 159 units. Staff also recommends that Council appropriate $8,668,000 to support the project contingent upon receiving a Homekey grant award from the State; recognize $1,000,000 in funds conditionally allocated for the project by Alameda County; and authorize the City Manager or her designee to execute the necessary agreements to implement the project.
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 with Safe Parking on 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: In 2022, the Alameda County Point-in-Time Homeless Count found that 1,026 people in Fremont were experiencing homelessness, an increase of 68% compared to 2019. Of those counted in 2022, 866 were unsheltered, meaning they resided in places not meant for human habitation such as vehicles or outdoor tents.
Council Staff Report (ID # 4882) Meeting of May 9, 2023 Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 2
State Homekey Program: The State’s Homekey program (Round 1) was initiated in June of 2020 as a COVID-19 response to rapidly expand housing options for persons experiencing homelessness or at risk of homelessness. The City of Fremont did not apply for Round 1 funding.
In September 2021, the State Department of Housing and Community Development (HCD) announced the availability of additional Homekey funding (Round 2). In order to explore options for a Homekey Round 2 project in Fremont, City staff issued a Request for Proposals (RFP) for developers/service providers to partner with the City on a Homekey application.
One proposal, from Shangri-La Industries, Inc. (SLI), a Los Angeles-based for-profit affordable housing developer was received. SLI proposed to partner with Step Up on Second Street, Inc. (Step Up), an experienced homeless services provider/property manager. SLI and Step Up have partnered successfully on two Homekey projects in Round 1 and five in Round 2. An article regarding one such project in the City of Redlands is included as an attachment.
In their proposal, SLI identified four potential Fremont hotel properties, including the 46101 Research Avenue location, for conversion to permanent supportive affordable housing. In the analysis prepared by City staff, Motel 6’s cost per unit for construction and renovation was the lowest of the four sites and offered the highest number of units. The Motel 6 also scored the highest of the four properties on locational criteria related to proximity to services. Finally, the Fire Marshal determined that the Motel 6 raised few concerns about conflicts between residential and industrial uses.
Based on the priority Council has placed on addressing homelessness, and based on staff’s analysis of potential project sites, on January 18, 2022, staff recommended and the City Council approved the submission of an application for Homekey Round 2 funding to convert the Motel 6 property into permanent supportive housing. Unfortunately, HCD did not select the application for funding, citing concerns that the financial documentation submitted did not comply with the grant requirements. SLI and City staff believe it will be relatively straightforward to address these comments to HCD’s satisfaction in the Round 3 application.
On March 29, 2023, HCD issued the Homekey Round 3 Notice of Funding Availability (NOFA), continuing the statewide effort to sustain and expand housing for persons experiencing homelessness or at-risk of homelessness. The estimated Homekey Geographic Allocation for the Bay Area is slightly more than $111 Million for Round 3. HCD began accepting applications on a continuous, over-the-counter basis on April 24, 2023, and will continue through the end of July or until funds are exhausted.
DISCUSSION/ANALYSIS: Homekey funds must be used to provide housing for the target population of persons who are experiencing homelessness or at-risk of homelessness, and who are, thereby, disproportionately at risk of contracting communicable diseases and developing or worsening chronic health conditions . Referrals to Homekey will be made in partnership with the Coordinated Entry System (CES), which assesses and prioritizes the most vulnerable community members to permanent supportive housing solutions based factors such as age, disability and time unhoused.
As in previous funding rounds, eligible uses of Homekey funds include acquisition and rehabilitation of motels, hotels or other sites and assets that can be converted to permanent Council Staff Report (ID # 4882) Meeting of May 9, 2023 Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 3 or transitional housing; conversion of units from nonresidential to residential; and capitalized operating subsidies for units purchased or converted.
Pursuant to HCD requirements, the City would be the lead applicant and SLI and Step Up would be the development partners/co-applicants. SLI would own and operate the property and Step Up would provide supportive services and act as the property managers. The staff to tenant ratio will be no less than 1 to 20 and at least two resident managers will live onsite. SLI and Step Up would form a single asset entity partnership to own and manage the property.
Cities and their co-applicants/development partners can apply for a baseline amount of up to $200,000 per door for assisted units reserved for those experiencing chronic homelessness, for a per project funding limit of no more than $35 Million of HCD funding sources, for Homekey Round 3 capital and operating funds.
Motel 6 currently features rooms with in-suite bathrooms that would be converted into 156 permanent supportive housing studios with kitchenettes. Three units will be reserved for on - site property management staff, for a total of 159 units. No additional residential units or expansion of the building’s floor area will be conducted, however a portable unit is planned to be added to the parking lot area to serve as a community room, for tenant activities, training, and community building. SLI would utilize Homekey funds to acquire and rehabilitate the property, which includes adding kitchenettes and ADA accom modations to each unit, for total anticipated acquisition, soft costs and construction costs of $42,357,801, or about $266,400/unit.
Operating expenses include utilities, maintenance, management fees, taxes, licenses, and supportive services costs. Applicants are required to demonstrate a minimum five-year commitment to provide operating funds for the project. The first two years of operating funds may include an award from Homekey of up to $1,400 per month for those experiencing chronic homelessness. Matching funds for operating may be obtained from any federal, state, local, private or philanthropic sources. SLI anticipates that $3,295,674/year, or $16,478,368 over the first five-year is needed to operate the project.
Based on the construction and acquisition costs as well as the robust services that will be provided, the project is eligible for—and staff intends to request--$35 million in Homekey funding.
Pursuant to program requirements, Homekey capital funds must be expended within eight months of the date on the award letter issued by HCD to the applicant. HCD has the discretion to extend the expenditure deadline by up to seven months, if requested, to account for the fact that payments to grantees are made in arrears. Acquisition and rehabilitation/construction must be completed within twelve months of the date of award, and full occupancy must be achieved by fifteen months from the date of the award letter.
SLI and Step Up believe these timelines are achievable. If approved by the City Council, the anticipated timeline is as follows:
• Submit Homekey application to HCD May 16, 2023
• Award Date (60-90 days after application) July 16, 2023 • SLI purchases the Motel 6 property August 2023
• Renovation and construction improvements September – April 2024 Council Staff Report (ID # 4882) Meeting of May 9, 2023 Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 4 • First residents move-in May 2024
Subsequent to the January 18, 2022, City Council approval, the City entered into an MOU with SLI and Step Up to establish the partnership and delineate the roles and responsibilities of each party, including responsibilities to negotiate the acquisition of the motel property, obtain permits, plan and execute a scope of work necessary to convert the motel to permanent affordable housing, develop a supportive services and operations plan, and lease-up and manage the property. Because many of the Homekey program’s requirements and funding parameters have changed, staff is requesting City Council’s approval to enter into a new MOU with SLI and Step Up.
COMMUNITY OUTREACH
To publicize the proposed Homekey Round 3 application/project and tonight’s meeting, staff performed the following public outreach activities:
• Updated the City’s Homekey Project webpage for Round 3. • Shared information about the public hearing via the City’s website, newsletters, interest lists, and social media accounts. Information included instructions on how to access the agenda and staff report and how to participate in the Council meeting and provide public comment.
• Set up an online discussion forum on the City’s community engagement platform, MyFremont, for the public to be able to provide feedback to the Fremont City Council in advance of tonight’s meeting. (All comments have been provided in Council packets.)
• Prepared an FAQs document in English, Chinese, and Spanish to help provide more information and answer questions from the public.
• Set up a dedicated email address, [email protected], to help answer questions from the public and provide more information.
FISCAL IMPACT:
OPERATING COSTS: As noted previously, the City’s Homekey Round 3 application must identify funding for five years of operations, and the total amount needed is $16,478,368 over the five-year period. SLI anticipates that $9,561,487 will be generated from non-City sources, as shown in Table 1.
Table 1: Non-City Funding Sources for Five Years of Operations Sources Amount
State Homekey Funding (Anticipated) $5,241,600
Rent Vouchers (Anticipated) $1,647,837
Tenant Rent (Anticipated) $993,870
Shangri La Contribution (Secured) $1,678,180
Total Other Operation Funding: $9,561,487
The balance of funding needed to be provided by the City is $6,916,881 for expenses for Years 3-5 of operations. Adding a 10% contingency to address unanticipated costs, the total recommended appropriation for operations is $7,608,000.
The following Table 2 provides the proposed funding sources for the City’s contribution towards operating costs for the project:
Council Staff Report (ID # 4882) Meeting of May 9, 2023 Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 5 Table 2: Proposed Funding Sources for City Contributions to Operating Costs Sources Amount
County – HOME American Rescue Plan Act (Secured) $1,000,000 City – State Permanent Local Housing Allocation (Secured) $400,000 City - Low Moderate Income Housing Fund (Secured) $1,250,000 City - Affordable Housing Fund (Secured) $4,958,000
Total City Contribution Toward Operations $7,608,000
Should the revenue from rent vouchers and/or tenant rent fall short of the financial expectations, SLI will be responsible for covering the shortfall. Any additional revenue from rent vouchers and/or tenant rent above the financial expectations will reduce the City’s operating funding obligation.
ACQUISITION AND CONSTRUCTION COSTS
The project budget also calls for the City to provide a total of $1,060,000 in capital funding for the acquisition and construction costs of the project. At the January 18, 2022 City Council meeting, Council approved an allocation of $750,000 in CDBG funding as recommended by the Citizens Advisory Committee (CAC) to support the acquisition/ development of the project. Staff has subsequently identified an additional $310,000 in unallocated CDBG funding that can be utilized for the project. However, before Council can appropriate the $310,000 for the project, the CAC must review the request and make a recommendation, which cannot be completed in time for the submittal of the Homekey application. In order to demonstrate to the State that all local funds dedicated to the project have been appropriated at the time of the application submittal, staff is recommending adding $310,000 to the appropriation from the Affordable Housing Fund as a temporary “backstop.” After CAC consultation (likely in May 2023), staff intends to return to Council to request that $310,000 in CDBG funds be appropriated to the Homekey project, replacing the “backstop” appropriation.
Table 3: Proposed Funding Sources for City Contributions to Acquisition/Rehab Sources Amount
Community Development Block Grant (Secured) $750,000
City - Affordable Housing Fund (to be replaced by
CDBG funds after consideration by Citizens Advisory
Committee and Council)
$310,000
Total City Contribution Toward Acquisition and Rehab $1,060,000
TOTAL APPROPRIATION REQUESTED
Staff recommends that Council appropriate a total of $8,668,000 for the Homekey project, consisting of $7,608,000 for operations and $1,060,000 for acquisition and construction. It should be noted that:
• $1 million in American Rescue Plan Act revenue has been secured from the County contingent on the City receiving a Homekey grant from the State. This revenue reduces the net cost to the City’s housing funds.
• When taking into account the County contribution, the net estimated subsidy per unit from City funds is about $48,200, far less than the typical $75,000-$125,000 City per/unit subsidy for new construction of permanent supportive housing serving the homeless or those at risk of homelessness.
Council Staff Report (ID # 4882) Meeting of May 9, 2023 Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 6 • City staff will partner with SLI and Step-Up to identify and secure additional funding sources for ongoing operations. However, the MOU the City enters with SLI will assign SLI full financial responsibility for ongoing operations after the first five years of the project.
ENVIRONMENTAL REVIEW:
CEQA – This action is exempt from CEQA, in accordance with Health and Safety Code Section 50675.1.4. Projects funded through the Homekey program are eligible for 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 in part, with public funds • Project units are deed restricted to people experiencing homelessness (very low - income and low-income households) for no fewer than 55 years.
The full list of criteria is found at Health and Safety Code Section 50675.1.4. Staff has reviewed the project and believes the Motel 6 project meets the criteria.
Each as a separate and independent basis, this action is also 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 no potential to cause, directly or indirectly, a significant impact 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.
NEPA - The use of federal funds will require compliance under the National Environmenta l 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 - Redlands Homekey Project Article
• Exhibit B - SLI & Step Up Qualfications
• Exhibit C - Resolution
• Exhibit D - Homekey Project Public Communications 5-4-23
RECOMMENDATIONS:
1. Adopt a Resolution authorizing the submittal of a Homekey Round 3 application to the California Department of Housing and Community Development, with the City as the lead applicant and Shangri-La Industries, LLC and Step Up on Second Street, Inc. as co-applicants, in the amount not to exceed $35 Million and making finds of CEQA exemption.
Council Staff Report (ID # 4882) Meeting of May 9, 2023 Updated: 5/5/2023 9:24 AM by Alberto Quintanilla Page 7
2. Conditionally appropriate the following funding to support the acquisition, development and operation of the Motel 6 Conversion Homekey Project in the City of Fremont (contingent on award of a Homekey grant by the State):
a. $5,268,000 from the City’s Affordable Housing Fund (Fund 196) b. $750,000 from the City’s allocation of CDBG funding (Fund 105) c. $1,250,000 from the City’s Low and Moderate Income Housing Asset Fund (Fund 111)
d. $400,000 from the City’s Permanent Local Housing Allocation (Fund 193)
3. Recognize $1 million in American Rescue Plan Act (ARPA) Recovery Plan funds allocated to the project by the County and appropriate that $1 million for the Motel 6 Conversion Homekey Project from the Miscellaneous Grants Fund to support the operations of the project, contingent on award of a Homekey grant by the State; and authorize the City Manager or her designee to execute a funding agreement and other implementing documents to receive the funds.
4. Authorize the City Manager or designee to execute a Memorandum of Understanding with Shangri-La Industries and Step Up on Second Street, Inc. memorializing roles and responsibilities and to take all actions reasonably necessary to implement the same, consistent with the Resolution.
5. Authorize the City Manager or designee to execute agreement(s) and/or implementing documents with Shangri La Industries, LLC and Step Up Second Street, Inc. to effectuate the implementation of a Homekey project in the City of Fremont and to take all actions reasonably necessary to implement the same, consistent with the Resolution.
6. Authorize the City Manager or designee to execute funding agreement and other implementing documents with the State of California Department of Housing Community Development and to take all actions reasonably necessary to implement the same, consistent with the Resolution.