September 22, 2026
Agenda Item No. 13
TO:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM:
Seimone Jurjis, City Manager - 949-644-3001, [email protected] PREPARED BY:
Lauren Wooding Whitlinger, Real Property Manager - 949-644-3236, [email protected] TITLE:
Amendment No. One to Affordable Housing Loan Agreement with American Family Housing for the Avon River Homekey Project at 1400 Bristol Street, Costa Mesa ABSTRACT:
In December 2024, the City Council authorized the City of Newport Beach (City) to partner with the County of Orange (County) and the City of Costa Mesa and approved a $3,000,000 loan for American Family Housing (AFH) to help fund a permanent supportive housing project at 1400 Bristol Street in Costa Mesa. Known as “Avon River,” the project converted the former Travelodge North Motel into a 78-unit permanent supportive housing project under the state’s Homekey Program and has been completed. Tenant move-ins are scheduled to begin later this month. While AFH secured funding to complete the project, several unforeseen construction conditions exceeded the project’s contingency allowance. AFH has obtained additional funding commitments totaling $4,450,000 from the County and the City of Costa Mesa, and requested an additional $262,500 in funding from the City.
For the City Council’s consideration is Amendment No. One to the Affordable Housing Loan Agreement (Amendment) with AFH and a funding request to loan $262,500 from the City’s Affordable Housing Fund to close out the Avon River project.
RECOMMENDATIONS:
a) Find this project and the City Council’s subsequent action are exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because this project has no potential to have a significant effect on the environment; b) Approve Budget Amendment No. 27-025, appropriating $262,500 from the Affordable Housing, Restricted Programs unappropriated fund balance for increased expenditures in the Permanent Supportive Housing Account No. 1800011-811055; and c) Authorize the City Manager to finalize negotiations and authorize the City Manager and City Clerk to execute the Amendment No. One to the Affordable Housing Loan Agreement between the City of Newport Beach and American Family Housing, LLC, to loan an additional $262,500, utilizing the City of Newport Beach’s Affordable Housing Fund, to convert the property at 1400 Bristol Street, Costa Mesa, into permanent supportive housing, provided the terms of Amendment No. One to the Affordable Housing Loan Agreement are substantially similar with the Agreement attached hereto, which terms shall be reviewed and approved by the City Attorney’s Office, and to take any other action necessary to implement Amendment No. One, including, but not limited to, approving and executing additional documents related thereto.
DISCUSSION:
Following the California Department of Housing and Community Development’s (HCD) announcement of additional funding for affordable and supportive housing in early 2023, a nearly $29,000,000 grant of Homekey funds was awarded to local affordable and supportive housing developer, AFH, by the County of Orange (County), which disburses the State of California funds. The County also loaned an additional $6,800,000 in other funds for the acquisition, conversion and operation of the Travelodge North Motel property located at 1400 Bristol Street, Costa Mesa (Property) as permanent supportive housing for those experiencing or at risk of homelessness (Project). AFH also secured $4,000,000 in grant and loan funds from the City of Costa Mesa, a private loan, and a loan of $3,000,000 from the City under an Affordable Housing Loan Agreement (Agreement) approved by City Council in December 2024 (Attachment B).
The City’s commitment included a $3,000,000 loan with a 55-year term, at a 3.00% simple interest rate, repaid out of a portion of the Project’s residual receipts. In return, there would be “local preference” for 12 studio units at the Project based, in part, on the eligible tenant’s connection to Newport Beach. These tenants must have a household connection to the Newport Beach, meaning 36 months’ tenancy in the city, current and active employment in the city with documented income, or having a child enrolled in a school within the Newport-Mesa Unified School District, or a child who attended such a school in the last two years.
The Avon River Project
The Project began construction in February 2026, was completed in August 2026, and received its certificate of occupancy on September 1, 2026. The Project successfully converted the 120-unit former motel property into 78 total units of housing comprised of 76 units of permanent supportive housing and two manager’s units.
Despite AFH’s thorough due diligence prior to construction, the Project faced several unforeseen conditions once construction began, including: (i) extensive additional water infrastructure requirements by the water district; (ii) structural damage and deficiencies in the roof; and (iii) costs and delays associated with the utility and roof issues.
Following AFH and its contractor’s discovery and resolution of the above listed issues, AFH secured additional funding commitments from the County in the amount of $4,100,000 and from the City of Costa Mesa in the amount of $350,000. AFH also contacted the City requesting an additional $262,500 in loan funding (Attachment C).
Proposed Amendment
The proposed Amendment will increase the City’s funding to AFH by $262,500, for a total loan of $3,262,500, and adjusts the proportionate share of residual receipts that will be allocated to payment of the City’s note based upon the additional funding from the other lending partners. The Amendment does not otherwise materially change the terms of the Agreement or the loan repayment terms. It should be noted the annual repayment of the loan will be posted to the Affordable Housing Fund first until fully repaid. From there on, annual repayments from AFH will be applied to the portion of the original loan sourced from the General Fund.
The Amendment has been prepared by the City Attorney’s Office. AFH, the City of Costa Mesa, and the County are reviewing the Amendment and may have additional comments; any substantive revisions to the Amendment affecting the terms of the Agreement will be returned to City Council for its consideration at a future meeting.
FISCAL IMPACT:
On July 11, 2023, the City Council committed $3,000,000 to this project, which was appropriated to an account in the General Fund. Budget Amendment No. 25-047 appropriated and funded $3,000,000 from the Permanent Supportive Housing Account No. 01201925-980000-22M15, by a transfer from the Facilities Financing Planning Fund.
The proposed Budget Amendment, 27-025 (Attachment D) appropriates $262,500 from the Affordable Housing, Restricted Programs unappropriated fund balance and increases expenditures in account 1800011-811055.
The $3,262,500 contribution is the total commitment for the City; all ongoing costs to provide the supportive services will be managed by AFH.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this project and the subsequent action on this Amendment are exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (Existing facilities) and Section 15302 (Replacement or Reconstruction) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential to have a significant effect on the environment.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
ATTACHMENTS:
Attachment A – Amendment No. One to Affordable Housing Loan Agreement Attachment B – Staff Report, dated December 10, 2024 (no attachments) Attachment C – Additional Funding Request Letter from AFH Attachment D – Budget Amendment
Amendment No. One to Affordable Housing Loan Agreement with American Family Housing for the Avon River Homekey Project at 1400 Bristol Street, Costa Mesa September 22, 2026
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