June 20, 2023
Community Development
DATE: June 20, 2023
TO: Mayor Martinez and Members of the City Council
FROM:
Lina Velasco, Director of Community Development
Jesus Morales, Housing Manager
SUBJECT:
Homekey 3 Joint Application for a Permanent Supportive
Housing Project
FINANCIAL IMPACT: The proposed Homekey Project would require a subsidy from the City in an amount not to exceed $4,900,000.
Funding sources could include a combination of Low
Moderate Income Housing Fund, Affordable Housing
Nexus Fees, General Fund loan to Affordable Housing
Nexus Fees, and/or American Rescue Plan Act (ARPA)
Funding. Any City funds committed to the Project would
be matched by the State 1 to 1. If awarded, the Homekey project would leverage approximately $17,000,000 in
State funds to create permanent supportive housing to
serve the chronically homeless.
PREVIOUS COUNCIL
ACTION:
N/A
STATEMENT OF THE
ISSUE:
City staff is recommending that the City Council authorize the submittal of a not to exceed $23,000,000 Homekey
Round 3 application to the State of California Housing
and Community Development Department (HCD) for the
acquisition and conversion of the Motel 6 (located at 425 24th Street) to permanent supportive affordable housing.
There would be a total of 49 studio apartments with
bathrooms and kitchenettes and one (1) one-bedroom
AGENDA
REPORT
June 20, 2023
unit reserved for property management staff-in-
residence, for a total of 50 units (the “Project”). City staff recommends that the City Council consider issuing a loan amount up to $4,900,00 to support the Project contingent upon receiving a Homekey grant award from the State
and authorize the City Manager or her designee to
execute the necessary agreements and negotiate the
final City loan amount to implement the Project.
RECOMMENDED ACTION:
ADOPT a resolution authorizing a joint application to and participation in the Homekey Program with 425 Civic
Center LP, to acquire and convert the Motel 6 at 425 24th Street, into a 50-unit permanent supportive housing
development; DIRECT staff to seek additional funding for the Project; ADOPT a resolution authorizing the issuance of a general fund loan to the affordable housing nexus
fund in an amount not to exceed $4,900,000 to support
the Project contingent upon receiving a Homekey grant
award from the State; and AUTHORIZE the city manager
or her designee to execute the necessary agreements to
implement the Project – Community Development
Department (Lina Velasco/Jesus Morales 510-620-6649).
DISCUSSION:
On October 2, 2018, the City Council declared a shelter crisis due to the significant number of persons in Richmond 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 a Homelessness Strategic Plan, an ordinance to allow faith-based organizations and other assembly uses to provide temporary shelter with Safe Parking on their sites, a Housing First Program to provide temporary rent assistance to the unhoused, an Emergency Housing Program to provide short-term housing assistance to avoid homelessness, and an Encampment Resolution Funding project that uses a Housing First approach to house residents.
Homeless Statistics in Richmond:
In 2020, the Contra Costa County Point-in-Time Homeless Count (PIT) found that 280 people in Richmond were experiencing unsheltered homelessness. The 2023 PIT found that the number of people experiencing homelessness in Richmond has increased to 487. Per the 2020 PIT, people who identify as Black/African American make up 57 percent (57%) of the population experiencing homelessness. The vast majority (85 percent (85%)) of people experiencing homelessness in Richmond are adults-only households, and 67 percent (67%) have a disabling condition, compared to 12 percent
June 20, 2023
(12%) of the general population in Richmond. Fifty-eight percent (58%) of people experiencing homelessness in Richmond are men, and 42 percent (42%) are women.
Fifty-six percent (56%) of people experiencing homelessness in Richmond were adults ages 25-54, compared to 44 percent (44%) in the general Richmond population.
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. In September 2021, the State Department of Housing and Community Development (HCD) announced the availability of additional Homekey funding (Round 2). During that time, City staff members were approached by Novin Development about Novin’s interest in acquiring a hotel to convert to permanent affordable supportive housing. At that time, the proposed hotel site was not received well by the public due to its proximity to an elementary school. No applications were made by the City of Richmond in Rounds 1 and 2.
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 2023 or until funds are exhausted on a first-come, first-served basis.
Prior to the release of the Homekey Round 3 NOFA, City staff members were approached by the owners of the Civic Center Motel, now a Motel 6, about a potential lease or sale to the City. Since the option to apply for Homekey funding was not available at the time, the City was not able to commit to an acquisition or lease.
Following the Homekey Round 3 NOFA being released, the City reached out to Mercy Housing, Eden Housing, and Novin Development about their interest in partnering in a Homekey Round 3 project for a motel acquisition and conversion.
Novin Development, a Walnut Creek-based affordable housing developer, expressed interest in partnering, while the other two teams stated they were not able to partner with the City on this project due to other commitments. Novin Development was awarded a Homekey Round 2 project with Santa Cruz County for a new construction modular project. Novin Development then reached out to the Motel 6 owner and has since executed a Purchase and Sale Agreement with the owner, contingent on receiving Homekey funds.
Homekey Project Partnership
Pursuant to HCD requirements, the City would be the lead applicant and 425 Civic Center LP would be the development partners/co-applicants. Novin Development and Insight Housing have formed a single asset entity partnership to own and manage the property, 425 Civic Center, LP. Novin Development proposes to partner with Insight Housing (formerly Berkeley Food and Housing Project), a Berkeley-based non-profit,
June 20, 2023
and experienced homeless services provider and owner of permanent supportive housing. Insight Housing has provided services in Richmond in the past, and its current Contra Costa County office is in Martinez. Most recently in 2022, Insight Housing opened the Hope Center in downtown Berkeley, which has 53 units of permanent supportive housing, similar in size and targeting a similar population to the Motel 6 conversion proposal. Novin is also proposing to partner with FPI Property Management (“FPI”), an experienced property management company of supportive housing. FPI currently provides management and compliance services for over 40,500 units financed through the Low-Income Housing Tax Credits (LIHTC) Section 42 program. FPI has been providing comprehensive property management service for affordable housing communities since 1990. A limited partnership was formed to implement the project, 425 Civic Center, LP.
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 Contra Costa Counties 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 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 425 Civic Center LP would be the development partners/co-applicants. Novin Development and Insight Housing have formed a single asset entity partnership to own and manage the property, 425 Civic Center, LP. 425 Civic Center, LP would own and operate the property. FPI Management would be the property managers. Insight Housing would provide on-site supportive services. Insight Housing has proposed two full-time Resident Advocates (inc. Case Manager) and a 0.5 FTE supportive services coordinator on-site. In addition, Insight would provide an allocation of time for their supportive services office staff including the Director of Resident and Clinical Services and Program Manager. The service staff to tenant ratio will be no less than 1 to 20 and there will be one resident manager employee who will live onsite.
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.
The Motel 6, located at 425 24th Street currently features rooms with in-suite bathrooms that would be converted into 49 permanent supportive housing studios with kitchenettes. One unit will be reserved for on-site property management staff, for a total
June 20, 2023
of 50 units. One existing room would be eliminated to expand the on-site service and lobby area. No additional residential units or expansion of the building’s floor area will be conducted. Novin Development would utilize Homekey funds to acquire and rehabilitate the property, which includes adding kitchenettes, Americans with Disabilities Act (ADA) accommodations for certain units, fire sprinklers and alarm system, and site improvements.
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. Insight Housing and City staff met with the Contra Costa Health Plan (CCHP) regarding existing programs that can financially support the tenancy sustaining services for qualified tenants. CCHP has provided a letter demonstrating their commitment to fund tenancy services totaling $223,020 per year for three years, for a total amount of $669,060, beginning in Year 1 of 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 City staff intends to request approximately $17 million in Homekey funding, matched with CCHP operating subsidies, and City of Richmond capital and operating subsidies. Total project costs, inclusive of seven years of capitalized operating reserves, approach $23 million.
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 the award, and full occupancy must be achieved by fifteen months from the date of the award letter. Novin Development and Insight Housing believe these timelines are achievable. If approved by the City Council, the anticipated timeline is as follows:
Submit Homekey application to HCD June 23 to July 7, 2023 Award Date (60-90 days after application) September 25, 2023 425 Civic Center LP purchases the Motel 6 property October 2023 Renovation and construction improvements November 2023 – May 2024 First residents move-in June 2024
City staff is requesting City Council approval to enter into an Memorandum of Understanding (MOU) with 425 Civic Center, LP, comprised of Novin Development and Insight Housing, to establish the partnership and delineate the roles and responsibilities
June 20, 2023
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. The final MOU will be updated to reflect City Council action and final funding plan.
COMMUNITY OUTREACH
To publicize the proposed Homekey Round 3 application/project and tonight’s meeting, City staff performed the following public outreach activities:
Held a hybrid community meeting, in-person and on Zoom, to provide an overview of the project, receive feedback, and respond to questions. Prepared an FAQs document in English and Spanish to help provide more information and answer questions from the public.
Created a City Homekey Project webpage that includes the FAQs and recording of the meeting (https://ci.richmond.ca.us/4501/Homekey-Project). 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 City Council meeting and provide public comment.
FISCAL IMPACT:
The numbers provided below derive from the draft Pro Forma that is undergoing refinements to reflect a soon to be completed appraisal, physical needs assessment, and other cost and potential cost savings to the City.
OPERATING COSTS: As noted previously, the City’s Homekey Round 3 application must identify funding for five to seven years of operations, and the total amount needed is $6,331,001 over the seven-year period. 425 Civic Center, LP anticipates that $17,120,700 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) $17,120,170
Tenant Rent (Anticipated) $185,472 in Year 1
Contra Costa Health Plan (Committed) $669,060
Total Other Operation Funding (Homekey
Operating Subsidy Match):
Included in combined Homekey award for
capital and operating subsidies.
The balance of funding needed to be provided by the City is $2,669,788 for operating expense shortfalls for Years 4-7 of operations.
June 20, 2023
The following Table 2 provides the proposed funding sources for the City’s contribution towards operating costs for the project:
Table 2: Proposed Funding Sources for City Contributions to Operating Costs Sources Amount
City - Low Moderate Income Housing Fund (Secured) $1,000,000 City - Affordable Housing Nexus Fund (Secured) $500,000 City - General Fund Loan to the Affordable Housing
Nexus Fund
$1,169,778
Total City Contribution Toward Operations $2,669,778
Should the revenue from rent vouchers and/or tenant rent fall short of the financial expectations, 425 Civic Center, LP 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 to be verified annually before disbursements.
ACQUISITION AND CONSTRUCTION COSTS
The project budget also calls for the City to provide a total of approximately $2,230,222 in capital funding and $131,000 in waived City transfer taxes, for the acquisition and construction costs of the project (for a total City Contribution of $4,900,000 between capital and operating expenses, plus the loss of $131,000 in City transfer tax revenue).
Table 3: Proposed Funding Sources for City Contributions to Acquisition/Rehab Sources Amount
City – General Fund Loan to the Affordable Housing
Nexus Fund
2,230,222
TOTAL APPROPRIATION REQUESTED
City staff recommends that the City Council appropriate a total of $4,900,000 for the Homekey project. It should be noted that:
The net estimated subsidy per unit from City funds is approximately $98,000.
City staff will partner with 425 Civic Center, LP to identify and secure additional subsidies for ongoing operations after Year 7. Measure X funds are identified as a source in the Homekey application for subsidies after Year 7 of operations.
However, the MOU the City enters with Novin Development and Insight Housing
June 20, 2023
will assign them full financial responsibility for ongoing operations after the first seven years of the project. The County has not committed Measure X funds for operating deficits after Year 7, and that represents an operating risk for the project.
FINANCIAL EVALUATION:
The City hired David Paul Rosen & Associates (DRA) to assist in the review of the development and application assumption in the Homekey Application. Based on DRA’s review, the City continues to negotiate with the Project team on refinements to the overall Project, budget and cash flow assumptions and funding plan including making the City’s contribution a loan to be paid through a percentage of residual receipts. City staff seeks City Council authorization for the City Manager or designee to continue negotiations with the developer team to reduce City financial contribution.
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 in Health and Safety Code Section 50675.1.4. City 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 – Novin Development intends to use AB 2162 for entitlements which includes both non-discretionary streamlining provisions and CEQA exemptions. 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, City staff does not anticipate that the project will require any discretionary land use review.
NEPA – If American Rescue Plan Act funds are used to fund this project, the use of these federal funds will require compliance under the National Environmental 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.
June 20, 2023
HOMELESSNESS STRATEGIC PLAN
Over the past year, the City of Richmond engaged the community to create a Homelessness Strategic Plan (HSP). The plan development process included a two- phased approach centered in community and stakeholder engagement, including those with lived experience. The HSP was adopted in May 2023 and includes five key goals, including expanding and sustaining permanent supportive and affordable long-term housing. Homekey grant funds provide a unique opportunity to leverage State resources to quickly create affordable housing opportunities to serve the chronically homeless population. People who are chronically homeless have experienced homelessness for at least a year – or repeatedly – while struggling with a disabling condition such as a serious mental illness, substance use disorder, or physical disability.
NEXT STEPS
Following City Council appropriation of funds, City staff will work with the development team to finalize the application materials for submittal by the Homekey deadlines.
DOCUMENTS ATTACHED:
Attachment 1 – Resolution Authorizing Joint Application Attachment 2 – Resolution Authorizing Loan
Attachment 3 – MOU
Attachment 4 – Project Concepts