MEMORANDUM
April 3, 2026
To: City Manager Matthew Chidester and Community Development Director Leslie Lacko Fr: Elaine Palacios, Kelly Hollywood and Ramie Dare, Mercy Housing CA Re: 555 Kelly Financing Plan
Per the ENA, we are providing the Financing Plan for 555 Kelly, which consists of the following:
• Financing Plan Narrative (in this memo)
• Development Sources and Uses
• 15 year operating proforma
Development Sources Narrative
The development sources for 555 Kelly are per the attached chart and are as follows:
- San Mateo County ARPA $1,141,234
- Becker State Earmark of $2,000,000
- Eshoo Federal Earmark of $1,800,000 for Community Resource Center - State HCD Infill Infrastructure Grant (IIG) of $2,756,304 - State HCD Joe Serna Farmworker Housing Program funding of $13,350,000 - Seeking approximately $6.5 million from County Affordable Housing Fund in 2026 - Seeking 9% tax credits in Q1 2027
To date, Mercy and ALAS have already secured a significant amount of competitive state and federal funding awards. This includes $1.14 million in federal pandemic recovery funds (ARPA) through the San Mateo County, $2 million from the State through Senator Becker, and $1.8 million in federal funding secured by Congresswoman Anna Eshoo specifically for the Community Resource Center portion of the project. The ARPA funds have been expended and the State funds secured by Senator Becker will be administered by the City through a Funding Agreement between the City and Mercy Housing California. The federal earmark will go directly to ALAS, who has been working with staff at the U.S. Department of Housing and Urban Development (HUD) on satisfying the requirements for the release of funds. One of the last remaining steps is to obtain NEPA clearance, which is an environmental review. A NEPA consultant has been retained and is ready to coordinate with the City to finalize the submission to HUD. Once received, the federal funds will be used solely for the construction of the Community Resource Center. As the funds are a Congressional earmark, they will not affect the 555 Kelly residential occupancy requirements.
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The California Housing and Community Development Department (HCD) has awarded significant funding to 555 Kelly. In 2023, the State awarded $2.76 million through its Infill Infrastructure Grant program, which will be used for site work, utilities and reconfiguration of the Ted Adcock Community Center parking lot. Last year, HCD awarded over $13.3 million through the Joe Serna Farmworker Housing Program. This is a highly competitive program focused on housing low income agricultural workers, and receiving this award reflects strong alignment with state priorities and a high level of readiness of 555 Kelly.
This year, we will apply to the San Mateo County Department of Housing for approximately $6.5 million of funds that will be made available in the upcoming Affordable Housing Fund Round 13.0.
The application is anticipated to be due in June and any County award is anticipated to be made in August or September. With a County funding commitment, we will be competitive for the final source required to complete the development funding stack: federal 9% Low-Income Housing Tax Credits and state tax credits. We will apply for a tax credit allocation in the first application round of 2027 and expect an award three months later. At the time of award (or before) we will select a tax credit investor who will use the tax credits and in exchange, provide equity proceeds to pay for the development. Construction will start approximately 6 months after that.
In total, this approach reflects a “leveraging” strategy: the city’s land lease for 555 Kelly is leveraging significant county, state and federal funding to build and operate the 40 units of the 555 Kelly affordable housing that is part of the city’s housing plan. The City will not need to contribute any city funding to build the 555 Kelly affordable housing, Community Resource Center or TACC parking lot improvements.
Development Uses Narrative
The Development Uses (Costs) fall into these primary categories:
Demolition, TACC Parking Reconfiguration and Infrastructure HCD awarded the IIG funds for the site demolition, reconfiguring the parking and providing utility infrastructure and a portion of the new building cost. The existing single family home on the property along with the drive isle and parking lot at the TACC will be demolished. Following demolition, new underground utility services including water and sewer will be installed and the parking lot at the TACC will be reconfigured and repaved.
New Building Construction
The budget reflects the most recent cost estimate provided by a general contractor for the 75% construction documents (CDs) for the construction of the new building according to the design approved by the Architecture Design Review Committee and the Planning Commission. The new building will consist of 40 apartments, property management offices, 18 space parking garage and bicycle parking, outdoor courtyard with garden, resident community room and trash room. 603
It will also include a ground floor community resource center that will house support services for the senior farmworker households living at 555 Kelly, as well as provide multi-purpose space for use by the wider public.
Architecture, Engineering, Construction Supervision
This budget reflects the cost for these professional services to design, engineer and supervise the new construction and the site and infrastructure improvements described above.
Local Permits and Utility Fees
This line item includes the city’s fees for planning and building permits, and utility fees charged for the construction and installation of new utilities to serve the 555 Kelly development.
Financing Costs, Construction Interest, Insurance, Lender Fees, Reserves, Other The majority of the tax credit proceeds are disbursed when the construction of the new development has been completed. A construction loan from a bank is used to pay for construction and then is paid off with the tax credit proceeds after construction is completed.
The bank costs to provide this loan include loan fees and monthly construction interest which are included in this budget line item. This line item also includes the premium for construction period builder’s risk insurance that isrequired by the bank and tax credit investor. The tax credit investor, HCD and County will require operating and other reserves to be established and included in the development budget. Miscellaneous other costs such as cost certification audit required by the tax credit investor are also included. This line item includes the industry standard of $2,500,000 to cover the cost of Mercy Housing California providing the financial guaranties required by the bank construction lender and tax credit investor, and the project management costs for the 6 years of predevelopment and construction.
Furnishings, Marketing and Lease Up
This line item includes the cost to furnish and equip the outdoor space, community room and property management offices. It also includes the staffing and expenses related to the marketing and leasing of the 39 apartments in accordance with the city mandated preferences for local senior farmworkers outlines in the ground lease.
Operating Proforma Narrative
The 555 Kelly property will consists of this rental unit mix: 3 studio, 34 one bedroom and 3 two bedrooms for a total of 40 apartments. One of the two-bedroom units will be the on-site manager’s apartment, 29 units will be affordable to senior farmworker households at or below 50% of Area Median Income (AMI) and 10 units will be affordable to senior farmworker households at or below 30% AMI.
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Affordable housing developments that utilize public funding are required to charge rents no greater than yearly rates published by the California Tax Credit Allocation Committee (TCAC).
These published rents for 2025 San Mateo County are:
AMI Income Level Studio 1-bedroom 2-bedroom
50% $1,692 $1,813 $2,393
30% $1,015 $1,088 $1,305
To increase the affordability for senior farmworkers, we are working with the San Mateo County Department of Housing (DOH) on an operating subsidy that would allow the senior households to pay less than the rents in the above chart. Our goal is to obtain sufficient operating subsidy to allow the senior farmworker households to pay approximately $350 per month for rent and utilities if their income was such that deeper affordability was needed. A Utility Allowance is calculated by San Mateo County for each unit based on bedroom count and those amounts are listed on the upper right corner of the “555 Kelly Unit Mix and Rent” page. The difference between $350 per unit per month and the Utility Allowance is considered rent paid by the tenant household and is included on the “555 Kelly Operating Proforma” page as Residential Income.
The DOH would cover the difference between the tenant payment and the cost to operate the property. This DOH operating subsidy is shown on the 15 year Operating Proforma as “County Operating Subsidy”. Benefits of the DOH operating subsidy to the residents include the ability to pay rents that are truly affordable relative to their income, leading to greater housing stability for the senior farmworkers. The operating subsidy would allow residents to pay lower rents while ensuring the property operating expenses are covered, and the property remains financially stable and well-managed. The Unit Mix and Rent page and the 15 year proforma page reflect a County Operating Subsidy for all 39 units.
The County Operating Subsidy combined with the tenant rent payments, called Residential Income on the 15 year proforma, would be sufficient to cover the operating costs. Operating costs include all ongoing expenses necessary to manage and sustain the property, including staffing (property management, maintenance, janitorial), utilities, insurance, and routine property operations. These costs also encompass required financial obligations such as replacement reserves for future capital needs, mandatory debt service to the California Housing and Community Development Department (HCD), and asset management fees to ensure compliance with regulatory requirements, as well as resident services typical for senior housing communities.
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555 Kelly Financing Plan
Development Sources
CA Serna Farmworker Housing Program $ 13,350,000 Secured State Earmark: Senator Josh Becker $ 2,000,000 Secured
CA Infrastructure Infill Grant $ 2,756,304 Secured
San Mateo County ARPA $ 1,141,234 Secured
San Mateo County AHF $ 6,563,763 Application in 2026
Federal Earmark: Anna Eshoo $ 1,800,000 Secured
Low Income Housing Tax Credit Program $ 14,021,364 Application in 2026-2027 Total Sources $ 41,632,665
Development Uses (Costs)
Demolition, TACC Parking Reconfiguration and Infrastructure Required for Project $ 2,756,304
New Building Construction $ 27,407,963
Architecture, Engineering, Construction Supervision $ 2,017,665 Local Permit and Utility Fees $ 1,730,431
Financing Costs: Construction Interest and Insurance, Lender Fees, Reserves, Other $ 7,345,302
Furnishings, Marketing and Lease Up $ 375,000
$ 41,632,665
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Studio Utility Allowance 76 $
555 Kelly Unit Mix and Rents One BR Utility Allowance 92 $ Two BR Utility Allowance 167 $
40 units total comprised of 1 manager unit (no income) and 39 units subsidized by County Operating Subsidy (COS) This proforma assumes all 39 households pay only $350 per month in rent and utilities and County Operating Subsidy covers the cost to operate the property Monthly Rents # Units # with COS
Monthly
tenant rent
payment
# Households with
Max Income of 30%
AMI
# Households
with Max
Income at 50%
AMI Manager Unit
Studios 3 3 274 $ 2 1
One Bedroom 34 34 258 $ 7 27
Two Bedroom 2 2 183 $ 1
Two Bedroom Manager Unit 1 0 1
Total 40 39 9 29 1
AMI is Area Median Income
The AMI represent the maximum annual household income for households to qualify to move in Annual Rental Income Total # with COS
Annual tenant
payments
Studios 3 3 9,864 $
One Bedroom 34 34 105,264 $
Two Bedroom 2 2 4,392 $
Two Bedroom Manager Unit 1 0 - $
Total 40 39 $ 119,520
See next page for 15 year operating proforma
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555 Kelly Operating Proforma Standards Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Residential Income 2% 119,520 $ 121,910 $ 124,349 $ 126,836 $ 129,372 $ 131,960 $ 134,599 $ 137,291 $ 140,037 $ 142,837 $ 145,694 $ 148,608 $ 151,580 $ 154,612 $ 157,704 $ County Operating Subsidy 656,146 $ 677,977 $ 700,606 $ 724,062 $ 748,374 $ 773,573 $ 799,691 $ 826,761 $ 854,816 $ 883,893 $ 914,027 $ 945,257 $ 977,621 $ 1,011,160 $ 1,045,917 $ Less Vacancy 5% (5,976) $ (6,096) $ (6,217) $ (6,342) $ (6,469) $ (6,598) $ (6,730) $ (6,865) $ (7,002) $ (7,142) $ (7,285) $ (7,430) $ (7,579) $ (7,731) $ (7,885) $ Gross Effective Income 769,690 $ 793,792 $ 818,737 $ 844,555 $ 871,277 $ 898,935 $ 927,560 $ 957,187 $ 987,851 $ 1,019,588 $ 1,052,437 $ 1,086,434 $ 1,121,622 $ 1,158,041 $ 1,195,735 $ Less Total Operating Expenses 3.5% (650,460) $ (673,226) $ (696,789) $ (721,177) $ (746,418) $ (772,542) $ (799,581) $ (827,567) $ (856,532) $ (886,510) $ (917,538) $ (949,652) $ (982,890) $ (1,017,291) $ (1,052,896) $ Less Replacement Reserve (required) (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ (20,000) $ Less State of CA Debt Service (required) (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ (61,070) $ Less Asset Management Fees to General and
Limited Partners 3.5% (38,160) $ (39,496) $ (40,878) $ (42,309) $ (43,789) $ (45,322) $ (46,908) $ (48,550) $ (50,249) $ (52,008) $ (53,828) $ (55,712) $ (57,662) $ (59,681) $ (61,769) $ Remaining Cash Flow $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 dated: April 3, 2026
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OPERATING BUDGET YEAR 1
PROJECT NAME: 555 Kelly
FINANCE TYPE: 9%/ HCD IIG
HOUSING TYPE: Senior
ADDRESS: 555 Kelly
COUNTY: San Mateo
SPONSOR: Mercy Housing California/ALAS
Units 40
PAYROLL/PAYROLL TAXES
Admin Payroll 78,459 1,961 0.5 FTE PM and 0.5 FTE APM
Operations and Maintenance Payroll 68,127 1,703 0.5 FTEMM and 0.5 FTE Janitor Other Personnel Expenses 3,100 78
Taxes and Benefits 52,370 1,309
TOTAL PAYROLL EXPENSES 202,056 5,051
ADMINISTRATIVE EXPENSE Yearly Expense PUPA Notes
Administrative Expenses 25,644 641
Advertising 1,200 30
Audit Fees -
Bookkeeping and Accounting Fee 6,000 150
TOTAL ADMINISTRATIVE EXPENSE 32,844 671
UTILITIES EXPENSES
Electricity 19,800 114
Water 36,880 808
Gas 270
Sewer 37,800 777
TOTAL UTILITIES EXPENSES 94,480 1,969
OPERATING AND MAINTENANCE
Operating Contracts 38,600 965
Operating Supplies 4,580 115
Garbage/Trash Removal 23,000 575
HVAC Repairs &Contracts 7,000 175
Maintenance Contracts 27,000 675
Maintenance Supplies 9,500 238
TOTAL OPERATING EXPENSES 109,680 1,807
REAL ESTATE TAXES 29,600 740
INSURANCE 51,800 1,295
RESIDENT SERVICES 96,400 2,410
MANAGEMENT FEE 33,600 840
TOTAL OPERATING BUDGET 650,460 16,262
RESERVES/GL/BOND FEES
Ground Lease Base Rent - -
Replacement Reserve Deposit 20,000 500
TOTAL RESERVES/GL/BOND FEES 20,000 500
DEBT SERVICE
Hard Debt-First Lender - -
Hard Debt-HCD 61,070 1,527
TOTAL DEBT SERVICE EXPENSE 61,070 1,527
BELOW THE LINE FEES
Partnership Management Fee 30,660 767
LP Asset Management Fee 7,500 188
TOTAL BELOW THE LINE 38,160 954
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From: Matthew Chidester
To: Maggie Rodriguez; Bazzano, Denise S.
Cc: Leslie Lacko; Dale Leda
Subject: Fw: 555 Kelly - Seismic Conditions
Date: Tuesday, April 28, 2026 4:17:32 PM
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FYI - another item to potentially add.
From: Kelly Hollywood <[email protected]> Sent: Tuesday, April 28, 2026 4:14 PM
To: Matthew Chidester <[email protected]>; Bazzano, Denise S. <[email protected]>; Maxwell, Lisa N. <[email protected]> Cc: Emma Wynkoop <[email protected]>; Amy Bayley <[email protected]>; Elaine Palacios <[email protected]>; Ramie Dare <[email protected]>; Evan Gross <[email protected]>; CJ Higley <[email protected]>; Leslie Lacko <[email protected]> Subject: 555 Kelly - Seismic Conditions
[CAUTION]: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.
Good afternoon, Matthew - Following our previous discussion regarding the property’s seismic conditions, we wanted to share the specific details below to help address your questions.
1. Will the property carry Earthquake insurance?
No, the property will not carry earthquake-specific insurance under its permanent insurance plan. The expense associated with this coverage significantly exceeds the property’s operating budget, which is estimated at roughly $100,000 to $200,000 annually. Excluding earthquake is standard for other affordable developments and thus, our public sector and bank lenders do not require earthquake insurance. Mercy Housing does not maintain earthquake insurance across its California portfolio.
Although this insurance is not intended for the property, 555 Kelly was engineered by an experienced team to endure major seismic events. The following information is provided by the development Geotechnical and Structural Engineers who adhere to recognized engineering standards and have experience in designing 610
projects of comparable or larger scale. The building meets all California Building Code (CBC) requirements and is specifically designed to modern seismic safety standards with multiple layers of protection. While no building can be completely damage-proof in a major earthquake, this building is engineered to protect occupants, remain standing, and perform reliably under severe conditions.
2. How are site and soil conditions addressed?
Independent geotechnical and structural engineers work together to ensure a safe design. A geotechnical report evaluates soil conditions, seismic hazards, and foundation needs. The structural engineer uses this information to design the building accordingly. The building is analyzed using detailed modeling and designed with built-in safety margins above expected loads.
3. What magnitude of earthquake can the building withstand? The building is designed to perform safely during major earthquakes. It is designed to protect life during a strong earthquake, Magnitude 7.0 earthquake (similar in scale to the 1989 Loma Prieta earthquake). It is also designed to avoid collapse during an extreme earthquake, Magnitude 7.5-8.0 earthquake (similar to the 1906 San Francisco earthquake). In a major event, the building is designed to remain standing, and allow safe evacuation while sustain damage.
4. Is the building designed to allow for movement?
Yes. All buildings are designed to move slightly during normal use and earthquakes. The design follows strict code limits for movement under gravity, wind, and seismic forces, specify for what is acceptable for construction deviations. These movements are anticipated and safely accounted for in the design.
5. How much lateral movement occurs during an earthquake? A small amount of lateral movement is expected and built into the design. The code limit is 2% of the height of the building or roughly 2” per level. 555 Kelly is designed to perform well within this limit, with significantly less movement than allowed.
6. Is this building riskier than others of similar size? No. This building type is common throughout the Bay Area. Its compact, square and balanced design actually reduces risk compared to many comparable buildings.
7. Is liquefaction a concern at this site?
Liquefaction has been carefully studied and is not expected to significantly impact 611
the building. Potentially affected soils are deep below the surface and limited in extent. Estimated impact is very minor (about ½ inch of settlement) during an extreme earthquake. This level of movement is not expected to affect building safety or performance.
Thank you,
Kelly Hollywood (she/her/hers)
ASSOCIATE DIRECTOR | Real Estate Development
Mercy Housing California
1256 Market Street | San Francisco, CA 94102
t|415.355.7116 | mercyhousing.org
*Please note that Mercy Housing offices close at 2PM on Fridays. 612
Law Offices of
GUBB & BARSHAY LLP
235 Montgomery Street, Suite 1110 Telephone: (415) 781-6600 San Francisco, California 94104
485.254/707531
April 28, 2026
VIA ELECTRONIC MAIL
Denise Bazzano
Burke, Williams & Sorenson, LLP
Interim City Attorney
City of Half Moon Bay
[email protected]
Re: Government Code Section 37380 and Section 37364
Dear Ms. Bazzano,
This firm represents Mercy Housing in its efforts to develop affordable housing on Cityowned property at 535 Kelly and 555 Kelly in the City of Half Moon Bay, California (the “Project”). In response to questions from the City Council and members of the public, we have previously objected to the suggestion that the approval of the long-term ground lease in connection with the Project is subject to California Government Code Section 37380, which requires (among other things) that certain long-term leases of City property must be approved by an ordinance that is subject to voter referendum. We understand the City disagrees with our position and intends to approve the proposed lease (subject, of course, to receipt of the requisite votes from City Council) pursuant to Section 37380. The purpose of this letter is to lodge our formal objection to the City’s determination that approval of the proposed Lease is subject to Section 37380, and to object to the notion that the lease, if approved, will be subject to referendum on account of its having been approved pursuant to Section 37380.
As we have previously discussed, Mercy Housing contends the City is authorized by Government Code Section 37364 to approve the lease in support of affordable housing without regard to Section 37380, and to approve the lease “under whatever terms and conditions the city deems best suited to the provision of such housing,” including for a term of 99 years. See Section 37364(1). In fact, under Section 37364, the City is authorized to convey the subject property to Mercy in fee for nominal consideration, should it determine to do so. In our experience, cities around the State of California have relied on Section 37364 as the statutory authority for approving long-term ground leases for affordable housing.
We respectfully object to the City’s determination that Section 37380 applies to the approval of the proposed lease in connection with the Project, and reserve all rights with respect to any potential future referendum effort.
Very truly yours,
Charles J. Higley
Gubb & Barshay LLP
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