City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Planning and Development Services
Meeting Date: November 3, 2025
Report #:2509-5262
TITLE
Approval of Budget Amendments in the Local Housing Trust Fund, Residential Housing In-Lieu Fund, Residential Housing Impact Fee Fund, and Commercial Housing Impact Fee Fund to Reflect Prior City Council Funding Commitments for the Development of 3001 El Camino Real 100% Affordable Multi-Family Housing Project; CEQA Status: Not a Project.
RECOMMENDATION
Staff recommend that City Council approve the following actions to reflect the prior $5,000,000 funding commitment to the 3001 El Camino Real 100% Affordable Multi-Family Housing Project:
1. Amend the Fiscal Year 2026 Budget Appropriation (Requires 2/3 Vote) for:
a. The Local Housing Trust Fund (Fund 252) by:
i. Increasing Grant Revenue by $1,900,000; and
ii. Increase appropriation for Contract Services Expenses by $1,900,000; b. The Residential Housing In-Lieu Fund (Fund 233) by:
i. Increasing appropriation for Contract Services expenses by $500,000; and ii. Decreasing the Fund Balance by $500,000;
c. The Residential Housing Impact Fee Fund (Fund 293):
i. Increasing appropriation for Contract Services expenses by $400,000; and ii. Decreasing the Fund Balance by $400,000;
d. Commercial Housing Impact Fee Fund (Fund 234):
i. Increasing appropriation for Contract Services Expenses by $2.2 million; and
ii. Decreasing the Fund Balance by $2.2 million.
EXECUTIVE SUMMARY
On January 21, 2025, City Council awarded a conditional funding commitment of $5 million to the 3001 El Camino Real 100% Affordable Multi-Family Housing Project, which was also found
to be a Local Housing Trust Fund qualifying project.1 The funding commitment sources were as follows:
The remaining $1.9 million from the City’s 2022 Local Housing Trust Fund (LHTF) (Fund 252) program grant award from the State Department of Housing and Community Development (HCD);
A corresponding $1.9 million in City Council designated Local Housing Trust Fund local matching funds from the Residential Housing In-Lieu Fund (Fund 233) ($500,000), Residential Housing Impact Fee Fund (Fund 293) ($400,000), and Commercial Housing Impact Fee Fund (Fund 234) ($1,000,000); and
An additional $1.2 million from the Commercial Housing Impact Fee Fund (Fund 234).
It is now timely for City Council to undertake budget amendment actions that would allow disbursement of this funding. These Council actions would complete the internal budgeting process to fund this project.
BACKGROUND
On May 23, 2022, City Council authorized the Planning & Development Services Department to apply for a $3.4 million 2022 HCD Local Housing Trust Fund (LHTF) program grant and designated $3.4 million in local matching funds. Palo Alto was awarded the $3.4 million LHTF program grant on October 11, 2022. City Council approved direction of these LHTF funds toward permanent financing loans for new affordable multi-family residential rental housing projects. To qualify for these funds, a new affordable housing project must:
Use a maximum of 70% of City and LHTF funds toward affordability levels at or below 60% of area median income (AMI);
Use a minimum of 30% of City and LHTF funds toward affordability levels at or below 30% AMI; and
Establish income and rent restrictions for no less than 55 years. 2 City Council awarded the 525 E. Charleston/Mitchell Park Place project $1.5 million of the City’s 2022 Local Housing Trust Fund program grant award.3 The $1.5 million in grant funding, plus $1.5 million in local matching funds from Residential Housing In-Lieu Fund (Fund 233) were disseminated to the project.4 Therefore, there is a remaining balance of $1.9 million from the 1 City Council City Manager Report ID # 2409-3517; January 21, 2025:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=2834b4e7-62e3-4bf4-b5a0- 76a52064282e
2 City Council City Manager Report ID # 14300; May 23, 2022:
https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/long-range- planning/lhtf_14300.pdf
3 City Council City Manager Report ID # 14281; May 23, 2022:
https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/long-range- planning/lhtf_14281.pdf.
4 City Council City Manager Report ID # 2310-2167; November 27, 2023:
https://cityofpaloalto.primegov.com/viewer/preview?id=0&type=8&uid=e6396253-ac8c-4d66-a41f- eaa569d4b79e.
City’s 2022 LHTF program grant award and a corresponding $1.9 million remaining balance in City Council designated Local Housing Trust Fund local matching funds in the Residential Housing In-Lieu Fund (Fund 233), Residential Housing Impact Fee Fund (Fund 293), and Commercial Housing Impact Fee Fund (Fund 234).
The Director of Planning and Development Services approved the Major Architectural Review application for a 129-unit 100% Affordable Multi-Family Housing Project at 3001 El Camino Real on June 6, 2023 (application 22PLN-00229). The Director subsequently approved a minor modification to the project on September 19, 2025, to add one additional manager‘s unit with corresponding minor façade changes for the project to be more competitive for Tax Credit Allocation Committee funds (application 25PLN-00002). Additional minor adjustments in unit affordability levels are currently being addressed based upon the updated financials and funding package prepared for the project across all project lenders.
The total development cost for this project is estimated at approximately $126.6 million. In December 2023, the County of Santa Clara awarded $13 million from the 2016 Measure A Affordable Housing Bond and allocated 42 Section 8 Project-Based Vouchers to the project. A year later, in December 2024, the County increased its funding commitment to $16 million. On January 21, 2025, City Council awarded a conditional funding commitment of $5 million to the 3001 El Camino Real 100% Affordable Multi-Family Housing Project, which was also found to be a LHTF qualifying project.
ANALYSIS
Since the project’s original entitlement in 2023 and City Council’s $5 million conditional funding award in January 2025, Charities Housing and partners applied for additional funding sources, refined the operations and financials for the project, and staff have participated in project funding meetings.
Charities Housing will construct a new five-story, multifamily rental apartment building. The project includes a unit mix of studios, one-bedroom, two-bedroom, and three-bedroom units in addition to amenity space (community room and common open space). The project description for the 3001 El Camino Real 100% Affordable Multi-Family Housing Project remains generally consistent with what was proposed at the time that City Council made its funding commitment.
Modifications to the project subsequent to City Council’s conditional funding award are described below:
a. The project was originally entitled to contain 129 units, but a unit was added under application 25PLN-00002, bringing the total unit count to 130 units. Two units will be unrestricted property manager units and the remaining 128 units will be deed restricted affordable housing.
b. At the time of City Council’s conditional funding award in January 2025, the project included at least 45% of the project units (58 units) with a preference for households experiencing or at risk of homelessness. These were comprised of 26 Homeless Prevention System (HPS) units and 32 Rapid Rehousing (RHH) units. Subsequently, Charities Housing determined it would be unable to provide the 26 HPS units due to operational and financial constraints. However, the project is still able to provide at least 25% of the project units (32 units offered at 30% AMI) as Rapid Rehousing (RRH) units for transitionally homeless individuals, which would be allocated through the Countywide Rapid Rehousing program.
c. Charities Housing needs to make minor adjustments in unit affordability levels based upon updated financials and the funding package prepared for the project across all project lenders. Table 1 summarizes these proposed adjustments. The maximum rent for each household remains at 30% of a household’s income. The average affordability for the project was 39.9% AMI when entitled in June 2023, went down to 38% AMI when City Council made its conditional funding award in January 2025, and the project currently proposes an average affordability of 40.39% AMI. Although 25 units would now be restricted at 60% AMI under the proposed affordability levels, City staff supports these minor affordability adjustments because the applicant has expressed that they are necessary for the purposes of funding the operation of the project and because more 2- bedroom and 3-bedroom units would now be restricted at 30% AMI than at entitlement and when City Council made its conditional funding award.
Table 1: 3001 El Camino Real 100% Affordable Multi-Family Housing Project Unit Mix and Affordability Levels
Table 1: 3001 El Camino Real 100% Affordable Multi-Family Housing Project Unit Mix and Affordability Levels
Unit Type AMI %
June
2023
Entitlement
22PLN-00229
(units)
January
2025
Conditional
Funding Award
(units)
November
2025
Proposed
Affordability
Adjustments
(units)
Studio 30% 15 22 12
1BR 30% 25 20 12
2BR 30% 12 15 20
3BR 30% 10 15 20
Sub-Total 30% 62 72 64
Studio 40% 0 2 6
1BR 40% 0 5 6
2BR 40% 0 7 4
3BR 40% 0 7 4
Sub-Total 40% 0 21 20
Studio 50% 5 0 4
1BR 50% 15 7 7
2BR 50% 23 7 4
3BR 50% 22 7 4
Sub-Total 50% 65 21 19
Studio 60% 0 0 2
1BR 60% 0 8 15
2BR 60% 0 3 4
3BR 60% 0 3 4
Sub-Total 60% 0 14 25
2BR-
Manager
Unit
Unrestricted 0 1 1
3BR-
Manager
Unit
Unrestricted 2 1 1
TOTAL 129 130 130
Average
Affordability: 39.9% 38% 40.39%
The terms of the loan and other necessary documents for 3001 El Camino Real are still in the process of finalization, including review by HCD. However, according to the Affordable Housing Funding Guidelines, the typical loan terms included in the loan and other documents are a 3% interest rate, deferred, residual receipts, and a 55-year term loan. Underwriting and other LHTF-specific requirements are incorporated into the loan documents and the City’s regulatory agreements for the project. The promissory note contains the obligation to repay the $5 million with 3% interest per annum.
Regardless of the negotiation regarding the establishment of preferences and the adjustments in the affordability levels in the unit mix, staff has confirmed that the proposed dissemination of HCD LHTF funding ($1.9 million) and local matching LHTF funding ($1.9 million) will be directed to accomplish City Council’s requirement of a minimum of 30% of total LHTF funds toward extremely low-income units (at/below 30% AMI) and a maximum of 70% of total LHTF funds toward low-income units (at/below 60% AMI).
POLICY IMPLICATIONS
The funding award by City Council in January 2025 to support the 3001 El Camino Real affordable housing project assisted with advancing the City's Housing Element program implementation objectives, including:
Program 2.1 Affordable Housing Development regarding partnering with a housing developer to provide housing for homeless, large families, and low-income persons; Program 6.2 Family Housing and Large Units due to the number of 3-bedroom units that City funding will assist; and
Program 6.6 Fair Housing Impediments regarding the project being mixed-income project located in a high opportunity and resource rich area.
FISCAL/RESOURCE IMPACT
It is now timely for City Council to undertake budget amendment actions that would allow disbursement of City Council’s previous funding commitment to the 3001 El Camino Real 100% Affordable Multi-Family Housing Project. These Council actions would complete the internal budgeting process to fund this project.
The staff recommended actions do not involve any new fiscal or resource impact to the funding commitment already made by City Council on January 21, 2025. The budget appropriations described in this report will exhaust all the remaining $1.9 million in City Council designated Local Housing Trust Fund local matching funds from the Residential Housing In-Lieu Fund (Fund 233) ($500,000), Residential Housing Impact Fee Fund (Fund 293) ($400,000), and Commercial Housing Impact Fee Fund (Fund 234) ($1,000,000), as well as fully exhaust the remaining balance from the City’s 2022 Local Housing Trust Fund (LHTF) award from HCD ($1,900,000).
The budget actions would also further reduce the Commercial Housing Impact Fee Fund (Fund 234) balance by $1.2 million to $2.4 million.9
STAKEHOLDER ENGAGEMENT
The 3001 El Camino Real 100% Affordable Multi-Family Housing Project was reviewed at public hearings before the Architectural Review Board in 2022 and 2023, prior to entitlement. The project also applied for funding under the City’s September 2024 Notice of Funding Availability.
Applications were reviewed in December 2024 by the Housing Ad-Hoc Council Committee and City Council held a public hearing on the recommendation for action on the applications and a conditional funding award for the project on January 21, 2025.
ENVIRONMENTAL REVIEW
The commitment of funds does not qualify as a project in accordance with the California Environmental Quality Act (CEQA). For the project entitlement process, the project was reviewed under CEQA. A Draft Mitigated Negative Declaration (MND) was circulated for the project for a 30-Day public review period beginning on February 13, 2023, and ending March 15, 2023. A Final MND was made available on April 27, 2023. The project was approved on June 6, 2023, under application 22PLN-00229. Minor modifications to the project were approved on September 19, 2025, under application 25PLN-00002; the minor modifications did not affect the findings of the previously approved CEQA analysis. The additional minor adjustments in unit affordability levels would similarly not affect the findings of the previously approved CEQA analysis.
APPROVED BY:
Jonathan Lait, Planning and Development Services Director 9 After City Council made its conditional funding award of $5 million to the 3001 El Camino Real project, the corresponding amounts in Fund 233, Fund 293, and Fund 234 were committed for the project. These amounts already specified for 3001 El Camino Real are not included in recent reporting to City Council in the October 22, 2025, City Manager Report #2505-4745 of available fund balances for potential affordable housing at Lot T.