STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of September 22, 2026
TO: Mayor and Members of the City Council
VIA: Patrick Tang, Interim City Manager
SUBMITTED BY: Timothy Rood AICP, Community Development Director SUBJECT: Housing Asset Funding Commitment Letter to Satellite Affordable Housing Associates RECOMMENDED ACTION:
By resolution, approve a commitment letter outlining preliminary loan terms for the award of $2,500,000 in Housing Asset Funds to Satellite Affordable Housing Associates (“SAHA”) to support affordable housing development and authorize staff to negotiate, draft, and execute loan documents that carry out the terms of the commitment letter.
BACKGROUND:
Housing Asset Fund
The City of Hercules (“City”) serves as the Housing Successor Agency (“Housing Successor”) to the former Hercules Redevelopment Agency (“Redevelopment Agency”). The Housing Successor’s Low and Moderate Income Housing Asset Fund (“Housing Asset Fund”) had a $6.2 million cash balance as of June 30, 2025. The balance is primarily from loan repayments related to homeowner and developer loans issued by the former Redevelopment Agency. Approximately $3 million of the Housing Asset Fund will be forfeited to the state if not timely committed or awarded to an eligible project ($2,685,377 must be expended or encumbered by June 30, 2027, and an additional $266,421 must be spent or encumbered by June 30, 2028).
Housing Asset Funds may be used on a variety of project development costs with the following restrictions:
At least 30% must be spent assisting extremely low income rental households earning 30% or less of the AMI. No more than 20% may be spent on low income households earning 60% to 80% of the Area Median Income (“AMI”).
Moderate and above moderate-income households (above 80% AMI) may not be assisted with Housing Asset Funds.
Housing Asset Funds may be used to assist senior units if no more than 50% of rental units assisted by any City funding source are restricted for seniors.
All affordable housing units developed with this funding source must be income restricted for at least 55 years. All deed-restricted affordable housing units within Hercules City limits are subject to the City’s Affordable Housing Policy.
Notice of Funding Availability Awards
The City issued a Notice of Funding Availability (“NOFA”) in October 2025 inviting developers to submit proposals to develop affordable housing utilizing up to $5 million in Housing Asset Funds. At a special meeting on July 28, 2026, the City Council approved awarding $2.5 million to Satellite Affordable Housing Associates and $2.5 million to Eden Housing to develop affordable housing, as presented in Table 1.
Table 1:
Awarded Developer Proposals
Developer
Satellite Affordable Housing Associates (SAHA)
Eden Housing (“Eden”)
Project Name
Sycamore Crossing
Victoria Green
# of Units
100
66 new units
+132
rehab units
Housing Asset Fund Award
$2,500,000
$2,500,000
Commitment Letter, Loan Documents, and Next Steps
The next steps in providing the $2.5 million award to each developer are to:
Commitment Letter: Approve commitment letters outlining preliminary loan terms with each developer. The commitment letters will encumber Housing Asset Funds toward the proposed projects. They will also serve to leverage City funds when developers apply for other financing sources.
Loan Documents: Negotiate, draft, and execute predevelopment and construction loan documents based on the terms of the commitment letter. The agreements will have more detailed loan terms. They may be amended prior to closing on construction financing in order to align with the terms or other lenders.
City staff has met with SAHA to negotiate the terms of a commitment letter. A meeting with Eden is forthcoming.
SAHA intends to apply the City’s $2.5 million loan toward purchasing a vacant 1.9-acre parcel at the intersection of Sycamore Avenue and San Pablo Avenue. The purchase price is approximately $3.5 million; SAHA plans on utilizing other funds for the approximately $1 million balance of the purchase price. SAHA could close on the land acquisition as early as October 6, with an outside date of February 17 if SAHA pays the landowner for an additional extension of their option to purchase the property.
SAHA plans to apply for other financing sources and work toward obtaining entitlements and building permits over the next two years. They plan to apply for funds from the County of Contra Costa in December 2027, the California Department of Housing and Community Development in 2028, and tax credits in early 2029. Construction will commence after SAHA secures complete financing necessary for construction and operations, tentatively anticipated in late 2029. These timelines are subject to change based on when funds become available and are awarded.
The proposed commitment letter and loan terms are discussed in the following section.
ANALYSIS:
City staff is seeking City Council’s input and approval of a 1) commitment letter (Attachment 1) to SAHA for the award of $2.5 million in Housing Asset Funds to the proposed Sycamore Crossing affordable housing project and 2) authorization to negotiate, draft, and execute loan documents that carry out the terms of the commitment letter.
The major terms of the commitment letter are summarized in Table 2 below:
Table 2:
Summary of Commitment Letter Terms
Item
Term
Comments
Loan Amount
$2,500,000
As approved by City Council
Interest Rate
3% simple interest
Standard for public agency affordable housing agreements Term
55 years from completion of construction
Minimum affordability term required by state law for Housing Asset Funds Timing / Use
Acquisition, construction, and permanent financing of an approximate 100 unit affordable housing development City funds will be used for land acquisition and permanent financing over the 55-year loan term.
Borrower proposes an “approximate” 100 units to allow flexibility in case the unit number changes during entitlements and when obtaining other financing sources.
Security
Deed of trust on the borrower’s fee interest in the development Land is held as collateral if the borrower defaults on the loan or the project is not constructed Affordable Housing Covenant
Rental units shall be restricted as affordable housing units by a regulatory agreement in accordance with the City’s Affordable Housing Policy at income and rent levels to be determined by the parties The covenant will have a 55-year term as required by state law for Housing Asset funds.
Specific terms will be negotiated in the loan documents and will comply with the City’s Affordable Housing Policy.
SAHA’s NOFA response proposed:
25 units @ 30% AMI
25 units @ 50% AMI
49 units @ 60% AMI
1 manager unit
The final mix of units by affordability level must comply with Health and Safety Code Section 34176.1 Payment
The loan shall be repaid from residual receipts
Standard for public agency affordable housing agreements. Loans are paid from net cash flow remaining after revenues and expenses to be defined in the loan documents.
Prepayment
The borrower shall have the right to prepay the loan. If they are unable to secure construction financing, and the loan is prepaid in full, the City shall release the borrower and property from the regulatory agreement If the project is not constructed, and the borrower repays the City in full, the borrower and property are not subject to affordability restrictions.
Insurance
Borrower shall obtain insurance as reasonably required by the lender Loan documents will contain specific requirements that comply with City requirements and industry standards Loan Documents
Lender and Borrower will execute loan documents evidencing the Loan, including, without limitation, a promissory note, the Regulatory Agreement and the Deed of Trust The resolution authorizes City staff to negotiate, draft, and execute loan documents that align with the terms of the commitment letter Labor Standards
Borrower shall ensure that all contractors and subcontractors pay all workers performing work on the Development not less than the prevailing wage rates specified for the applicable craft classification in the wage determinations issued by the California Department of Industrial Relations for Contra Costa County, as such wage determinations exist on the date of building permit approval. Borrower shall comply with the apprenticeship requirements of AB 2011 to the extent feasible, and shall engage a labor compliance consultant to ensure no violations occur.
This language was negotiated with SAHA as directed by the City Council.
Waiver of Conditions
Lender in its sole discretion may waive or modify certain conditions or requirements of the Commitment Provides the City flexibility to waive or modify requirements if needed. This is helpful if modifications are necessary to secure financing by other lenders and increase probability of a successful project.
Termination
Lender reserves the right to cancel the commitment due to material misrepresentations or adverse change in the borrower or development Preserves the City’s right to cancel the commitment if there are material misrepresentations or changes.
FISCAL IMPACT:
There is sufficient funding for the NOFA award and the City’s anticipated legal and consultant expenses in the Housing Successor’s Low- and Moderate-Income Housing Asset Fund (“Housing Asset Fund”). The Housing Asset Fund houses all former redevelopment agency housing assets and is subject to expenditure requirements detailed in Health and Safety Code (“HSC”) Section 34176.1. The City oversees expenditure of the Housing Asset Fund.
Per HSC 34176.1 (d), a Housing Asset Fund may not accumulate an “excess surplus” of cash, which is an unencumbered amount that exceeds the greater of $1 million or the sum of deposits in the prior four fiscal years. An excess surplus must be spent within three (3) fiscal years. If the Housing Successor fails to comply, it must transfer the excess surplus to the California Department of Housing and Community Development (HCD).
According to the City’s FY 2024-25 Housing Successor Annual Report, there was a remaining excess surplus from FY 2023-24 of $2,685,377 that must be expended or encumbered by June 30, 2027. There is an excess surplus amount for FY 2024-25 of an additional $266,421 that must be spent or encumbered by June 30, 2028. This NOFA was intended to facilitate the encumbrance of the Housing Asset Funds to ensure compliance with this requirement.
ATTACHMENTS
Attachment 1 – Resolution
Attachment 2 – Loan Commitment Letter