Susana Alcala Wood, City Attorney Jorge Oseguera, City Auditor Mindy Cuppy, City Clerk Howard Chan, City Manager John Colville, City Treasurer City Council Report
915 I Street, 1st Floor
Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2022-00396 April 19, 2022 Consent Item 14
Title: Capitol Park Hotel – Approval to Allocate Funds and Approval to Enter into a Funding Agreement (Two-Thirds Vote Required)
Location: 1117, 1121, 1125, 1127, 1129 and 1131 9th Street, District 4
Recommendation: 1) Pass a Motion by two-thirds vote waiving the 10-day posting requirement for contracts over $1 million under City Code section 4.04.020(C) and Council Rules of Procedure Chapter 7, Section E.2.d; and 2) adopt a City Council Resolution authorizing: a) the City Manager, or the City Manager’s designee, to establish the Capitol Park Hotel Affordable Housing Development Project (I02000250); b) the City Manager, or the City Manager’s designee to appropriate $6 million to I02000250 from the City Housing Trust Fund Commitment of General Fund balance to the Revolving Loan Fund (Fund 2029) c) the City Manager, or the City Manager’s designee, and the Sacramento Housing and Redevelopment Agency (SHRA) to negotiate, enter into, execute, and amend from time to time a $6 million funding agreement comprised of City Funds for the purpose of SHRA providing a construction grant to Mercy Housing California or related entity (Developer) for the Project (City Funds); d) SHRA to accept the $6 million in City Funds, amend its budget and allocate the $6 million in City Funds, $1 million in Community Development Block Grant (CDBG) funds and amend the SHRA budget to provide a construction loan to the Developer for the Project; d) SHRA to negotiate, enter into, execute and amend from time to time a $7 million funding agreement comprised of $6 million in City Funds and $1 million in CDBG funds to provide a construction loan to the Developer for the Project; e) SHRA will return Developer loan repayments to the source of the originating funds, including, but not limited to, repayments of the $6 million City Funds loan being returned to the City Revolving Loan Fund (Fund 2029); f) SHRA to perform other actions related to the Project including executing related documents with the Developer; and g) approval of related findings.
Contact: Christine Weichert, Director of Housing Finance, 916-440-1353, [email protected] ,
Sacramento Housing and Redevelopment Agency
Presenter: Not applicable.
Attachments:
1-Description/Analysis
2-Vicinity Map
3-Picture of Project
4-Residential Project Summary
5-City Council Resolution
Description/Analysis
Issue Detail: The Capitol Park Hotel (Property), located at 1125 9th Street in downtown Sacramento, was built in 1912 and was operated as a 180-unit single room occupancy (SRO) residential hotel and temporary shelter.
In 2018, SHRA awarded 134 Project Based Vouchers (PBV) to be used for homeless households at Capitol Park Hotel. In 2019, the County of Sacramento applied for, and the State Department of Housing and Community Development (HCD) awarded, the Project $9,690,825 in No Place Like Home Program (NPLH) funds. The NPLH Program provides funding to households that have been designated homeless and that include at least one household member living with mental illness. Inclusive of the 134 PBV units, 65 of the units will be designated as NPLH units. Of the 65 NPLH units, 26 units will be allocated to the category of “Chronically Homeless,” 19 units to the category of “Homeless,” and 20 units to the category “At Risk of Homelessness.” The Sacramento County Department of Health Services (DHS) will be responsible for the mental health supportive services and the coordination of other supportive services needed by the 65 NPLH residents for a minimum of 20 years.
On February 11, 2020, the City Council and Housing Authority Board (Board) approved a $7,600,000 Loan Commitment (Loan Commitment) comprised of $1,700,000 in City Community Development Block Grant (CDBG) funds, $1,100,000 in Housing Opportunities for Persons with AIDS (HOPWA) funds, $800,000 in City Housing Trust Funds (HTF), $2,300,000 in Mixed Income Housing Funds (MIHF) and $1,700,000 Housing Authority Successor Agency (HASA) funds to assist Mercy Housing California, or related entity (Developer), with acquisition, construction and permanent financing for the Capitol Park Hotel affordable, permanent supportive and workforce housing development located downtown at 1125 9th Street (Project).
The Board also adopted a resolution on February 11, 2020, authorizing the Executive Director, or designee, of the Housing Authority of the City of Sacramento (HACS) to enter into and execute a $1,500,000 predevelopment loan agreement and related documents comprised of HASA funds with the Developer for the Project (Predevelopment Loan). Subject to approval by the Board, the Developer and HACS are requesting to refinance and incorporate the Predevelopment Loan with the previously approved HASA funds for a total of $3,200,000 in HASA funds for an acquisition, construction and permanent loan to the Developer for the Project.
Between March to August 2020, the final structural and electrical testing and investigation on the building, and the State Historic Preservation Officer’s (SHPO) historic preservation were completed. These latest developments resulted in significant Project cost increases to satisfy the structural, electrical and SHPO requirements, which included: 1) reinforced concrete frames and structural steel to provide the Project with seismic force-resisting systems in the building to resist earthquakes, 2) exterior brick repair and reinforcement, 3) structural shear reinforcement in the floor structure and historic stairwells, 4) increased gypsum underlayment onto the floors to meet current fire codes and prepare a uniform, level surface for floor covering installation, 5) increased fire barriers and assemblies, 6) new transformer and 7) entirely new electrical system.
On August 3, 2020, the Developer submitted a funding application to the Sacramento Housing and Redevelopment Agency (SHRA) requesting an additional $4,200,000 loan to finance this increased scope of development in the Project. SHRA’s construction staff reviewed and approved the additional scope of development and construction budget. Subject to approval by Council, the additional loan will be comprised of $3,200,000 in HOME Investment Partnerships Program (HOME) funds and $1,000,000 in HTF.
On November 17, 2020, the City Council (Council) and Housing Authority Board approved the final loan documents with Mercy Housing California 90, L.P., a related entity to Mercy Housing California (Developer) for the Capitol Park Hotel permanent supportive and workforce housing development (Project). Construction of the Project started in December 2020.
In the Fall of 2021, Mercy Housing notified SHRA of several areas of concern related to the construction and a request to augment the project budget. Mercy indicated that, despite extensive preconstruction testing and design review, they had encountered unforeseen conditions that necessitated the request for additional funds. These included unanticipated structural repairs, the demolition/replacement of failing structural components, and extensive dry rot. In addition, they had been notified that they would be required to relocate the SMUD transformer from the alley into the building which would be an additional unanticipated expense of over $1 million dollars. Other expenses include permit/code design changes required by new code requirements. The total amount needed to complete the Project is $8.9 million.
Staff is requesting authority to allocate $6 million in City Housing Trust Funds (General Funds) (City Funds) and $1 million in CDBG funds as a construction loan to the Developer for the Project, and to enter into funding agreements with the City and the Developer. Mercy Housing will contribute the remaining $1.9 million needed in additional construction costs.
Project Description
The Capitol Park Hotel Project is the proposed rehabilitation of a historic 180-unit single room occupancy building into 134 studio, affordable, permanent supportive and workforce housing units that include new kitchenettes with a small refrigerator, sink, two-burner cooktop and microwave shelving; new full bathrooms; and new furnishings including twin bed frames and mattresses, nightstands, dressers and window blinds. Inclusive of the 134 units, there will be 17 Americans with Disabilities Act (ADA) compliant accessible units and seven (7) additional units will have communication features. Improvements will be made to the structural and seismic systems, two elevators, stairwells, plumbing, electrical, lighting, fire systems, heating, ventilation and air conditioning (HVAC) systems, flooring, ceiling, walls, basement for storage, and sidewalk support systems. New community amenities include management and service office space, 24/7 desk clerk area, community room, community kitchen area, laundry facility, restrooms, and meeting areas for individual and group settings. Bicycle parking will be available onsite. Loan Documents attached as Exhibit 2. The vicinity map and picture of the Project are included as Attachments 2 and 3.
Policy Considerations: The recommended actions for both phases of the development are consistent with: a) SHRA approved Multifamily Lending and Mortgage Revenue Bond Policies (Council Resolution 2019-0452 and Board Resolution 2019-0022), Affordable Housing Priority 2(i), Conversion of Non-Residential to Residential Use for Permanent Supportive Housing and Homeless Housing, and Priority 2(iii), Workforce Housing; b) the 2021-2029 Housing Element, Goals H-1.1.1 Sustainable housing practices; H-1.2.9, in part, Workforce Housing, especially in and around downtown; H-1.3.2 Economic integration of multifamily affordable housing projects; H-2.2.4, in part, Pursue and maximize the use of all appropriate state, federal, local and private funding for the development of housing affordable for extremely low-, very low-, and low- income households, while maintaining economic competitiveness in the region; H-3.1.1 Promote extremely low income housing; H-3.2.8 Provide funding and other resources for permanent supportive housing; H-3.2.9, in part, Prioritization of Special Needs Housing, such as chronically homeless individuals or families for available local affordable housing financing as set forth in the City’s Multifamily Lending and Mortgage Revenue Bond Policies administered by SHRA; and projects that augment or safeguard the City’s inventory of single room occupancy units will also have the same priority; and H-5.1 to 5.4, in part, Promote and create accessible residential development (Resolution No. 2013-415); and c) the Sacramento Promise Zone Plans and Goals, Sustainably Built Community sub-goal to increase housing types and transit growth to promote livability and connectivity within the Promise Zone (Resolution No. 2015-263).
In addition, the recommended actions for the development are located in a) the Downtown Housing Initiative and Initiation of the Downtown Specific Plan, to bring 10,000 places to live to Downtown Sacramento by 2025 (Resolution No. 2015-282), and b) the Opportunity Zone that provides a federal tax incentive for investors, who invest in real estate projects and operating businesses located in designated low-income communities through deferral and partial tax reductions of reinvested capital gains and forgiveness of tax on new capital gains (enacted into federal law through the Tax Cuts and Jobs Act of 2017).
The Sacramento City Code Section 4.04.020 and Council Rules of Procedure (Chapter 7, Section E.2.d) mandate that unless waived by a 2/3 vote of the City Council, all labor agreements and all agreements greater than $1,000,000 shall be made available to the public at least ten (10) days prior to council action. The recommendation is to waive this requirement.
Economic Impacts: The Capitol Park Hotel multifamily residential project is expected to create 518.40 total jobs (293.76 direct jobs and 224.64 jobs through indirect and induced activities) and create $43,200,000 in total economic output ($26,333,091 of direct output and another $16,866,909 of output through indirect and induced activities).
The indicated economic impacts are estimates calculated using a calculation tool developed by the Center for Strategic Economic Research (CSER). CSER utilized the IMPLAN input-output model (2009 coefficients) to quantify the economic impacts of a hypothetical $1 million of spending in various construction categories within the City of Sacramento in an average one- year period. Actual impacts could differ significantly from the estimates and neither the City of Sacramento nor CSER shall be held responsible for consequences resulting from such differences.
Environmental Considerations: California Environmental Quality Act (CEQA): The Capitol Park Hotel Project has been found to be exempt from the provisions of the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines, Article 19, Categorical Exemptions, Section 15332, In-Fill Development Projects.
National Environmental Policy Act (NEPA): An Environmental Assessment (EA) was prepared for this project pursuant to the National Environmental Policy Act (NEPA), and it was found that with mitigation measures incorporated, the project will not result in a significant impact on the quality of the human environment.
Sustainability: The Project has been reviewed for consistency with the goals, policies and targets of the Sustainability Master Plan and the 2030 General Plan. If approved, this Project will advance the following goal, policy and target of goal number one – Energy Independence, specifically by reducing the use of fossil fuels and providing long-term affordable and reliable energy.
Commission Action: Sacramento Housing and Redevelopment Commission: It is anticipated that, at its April 6, 2022 meeting, the Sacramento Housing and Redevelopment Commission will approve the staff recommendation. Staff will notify the Council in the event this does not occur.
Rationale for Recommendation: The actions recommended in this report enable SHRA to continue to fulfill its mission of providing a range of affordable housing opportunities in the City and are consistent with the SHRA’s approved Multifamily Lending and Mortgage Revenue Bond Policies, the City of Sacramento’s 2013-2021 Housing Element as part of Sacramento’s 2035 General Plan, Promise Zone Plans and Goals, Downtown Housing Initiative and Initiation of the Downtown Specific Plan and the Opportunity Zone Program.
Financial Considerations: On February 2, 2021, City Council set aside a commitment of $31.5 million in the City’s General/Measure U (GF/MU) fund balances for the City Housing Fund. This report recommends establishing the Capitol Park Hotel Affordable Housing Development Multi-Year Operating Project (I02000250) and appropriating a $6 million budget to the project from the City Housing Trust Fund commitment in the General Fund, bringing the City Housing available fund balance to $8.8 million, provided Council approves the recommendation.
The $7 million loan comprised of $6 million in City Housing Trust Funds (General Funds) and $1 million in CDBG funds as a construction loan will have a term of 55 years at 0% interest to the Developer for the Project.
Local Business Enterprise (LBE), Minority and Women’s Business Enterprise (M/WBE) requirements: Local Business Enterprise requirements do not apply to this report. Minority and Women’s Business Enterprise will be applied as required by federal requirements to maintain that federal funding. Section 3 requirements will be applied as required by federal regulations and the SHRA Economic Opportunity Plan. Developer and General Contractor will work with the Sacramento Employment and Training Agency, the Greater Sacramento Urban League, or similar programs, for employment opportunities and program requirements.
L ST
K ST
9TH ST
10TH ST
8TH ST
CAPITOL MALL
Capitol Park Hotel
SHRA GIS
January 3, 2020
0 200100
Feet
Capitol Park Hotel
50 99
GARDEN HWY
5 J ST
T ST
X ST
N ST E ST
BROADWAY
80 8TH AVE
N B ST
vicinity map
Map
Location
Capitol Park
Hotel
Attachment 3
Capitol Park Hotel
Address
Number of Units
Year Built
Acreage
No Place Like Home (NPLH) Units
Unit Mix and Rents¹ ELI (20% AMI) NPLH & PBV VLI (40% AMI) PBV Studio/1 Bath 65 69
Square Footage Unit Size (sq.ft.) Total
Studio/1 Bath 228 14,820 sq. ft.
Community Area and Other 29,330 sq. ft.
Total Gross 44,150 sq. ft.
Resident Facilities
Permanent Sources Total Per Unit Per Square Foot
Federal Tax Credit Equity 21,935,306 163,696 496.84 GP Certificated Credit Sale Loan 8,944,159 66,747 202.59 Historic Tax Credit Equity 8,211,716 61,281 186.00 NPLH Competitive Loan 6,890,825 51,424 156.08 NPLH Non-Competitive Loan 2,800,000 20,896 63.42 Affordable Housing Program (AHP) Loan 1,340,000 10,000 30.35 Previous SHRA and HACS Loan 13,300,000 99,254 301.25 New SHRA Grant 7,000,000 52,239 158.55 GP Contribution 100 1 0.00 New GP Contribution 1,900,000 14,179 43.04 Fee Waivers 85,969 642 1.95 TOTAL SOURCES 72,408,075$ 540,359$ 1,640.05$ Permanent Uses
Acquisition 10,056,000 75,045 227.77 Construction Costs 34,300,000 255,970 776.90 Additional Construction Costs 8,900,000 66,418 201.59 Architecture & Engineering 2,735,291 20,413 61.95 Permits and Fees 420,969 3,142 9.53 Hard Cost Contingency 4,773,600 35,624 108.12 Soft Cost Contingency 361,800 2,700 8.19 Financing Cost 2,771,718 20,684 62.78 Relocation 3,335,000 24,888 75.54 Operating Reserve 726,084 5,419 16.45 Rent Reserve 243,945 1,820 5.53 Replacement Reserve 134,000 1,000 3.04 Legal Fees 110,000 821 2.49 Developer Fee 2,000,000 14,925 45.30 Third Party Fees, Marketing, Other 1,539,668 11,490 34.87 TOTAL USES 72,408,075$ 540,359$ 1,640.05$ Management / Operations
Proposed Developer
Property Management Company
Operations Budget 1,018,339 7,600
Property Management 94,739 707
Resident Services 179,966 1,343
Replacement Reserves 67,000 500
Taxes and Insurance 114,444 854
Attachment 4
Capitol Park Hotel
Residential Project Summary
1117, 1121, 1125, 1127, 1129 & 1131 9th Street
134
1912 and 1932
¹Pursuant to 24CFR 983.301, contract rents approved by HUD may exceed the tax-credit rent limits. The tenant rent will not exceed 30% of the household adjusted gross income with PBV.
Mercy Housing Management Group
Mercy Housing California
The development will be a conversion of a historic 180-unit Single Room Occupancy (SRO) building into 134 Permanent Supportive Housing studio units with kitchenettes and full bathrooms. This conversion includes 14 units that meet Americans with Disabilities Act requirements. Amenities include a management office, 24/7 desk clerk, community room, and meeting areas for individual and group settings. Bicycle parking is also available on site.
0.26 (11,326 sq. ft.)
65 of the 134 units will be designated as NPLH.
RESOLUTION NO. 2022 -
Adopted by the Sacramento City Council
on date of
CAPITOL PARK HOTEL PROJECT (PROJECT): AUTHORIZATION TO AMEND THE
CITY OF SACRAMENTO (CITY) AND SACRAMENTO HOUSING AND
REDEVELOPMENT AGENCY (SHRA) BUDGETS TO ALLOCATE $6 MILLION IN
CITY HOUSING TRUST FUNDS (CITY FUNDS) AND AMEND SHRA BUDGET TO ALLOCATE $1 MILLION IN COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) FUNDS FOR A $7 MILLION CONSTRUCTION LOAN TO THE PROJECT; APPROVAL TO EXECUTE A $6 MILLION FUNDING AGREEMENT BETWEEN THE CITY AND SHRA; APPROVAL TO EXECUTE A $7 MILLION FUNDING AGREEMENT
BETWEEN SHRA AND MERCY HOUSING CALIFORNIA OR RELATED ENTITY (DEVELOPER); AND ENVIRONMENTAL FINDINGS
BACKGROUND
A. On November 17, 2020, the City Council (Council) and Housing Authority Board approved the final loan documents with Mercy Housing California, or related entity (Developer) for the Capitol Park Hotel permanent supportive and workforce housing development (Project).
B. Currently improvements at the Capitol Park Hotel are underway. In the Fall of 2021, the Developer notified Sacramento Housing and Redevelopment Agency (SHRA) of several areas of concern related to the construction and a request to augment the project budget. The Developer indicated that, despite extensi ve preconstruction testing and design review, they had encountered unforeseen conditions that necessitated a request for additional funds.
C. On October 19, 2021, the 2022 City Action Plan was approved allowing the allocation of $1 million in Community Deve lopment Block Grant (CDBG) funding to the Affordable Housing Rehabilitation Program by Resolution No. 2021-0311.
D. Staff is recommending an allocation of $6 million in City Housing Trust Fund (General Fund) and $1 million CDBG as a construction loan to partially fill the shortfall of construction costs for the Project . The Developer will contribute $1.9 million to cover the additional construction costs. SHRA finds that an economically feasible alternative method of financing on substantially comparable terms and conditions, without subordination is not available.
Therefore, staff is also recommending to permit SHRA to subordinate the security instruments for the City Housing Trust Fund (General Fund) and CDBG funds to the senior loans.
E. The recommended actions are consistent with a) SHRA’s approved Multifamily Lending and Mortgage Revenue Bond Policies, adopted on December 3, 2019 b) the 2021-2029 Housing Element, which encourages the provision of a variety of quality housing types to en courage neighborhood stability, including options for
extremely low -income households (Resolution No. 2021 -0259); c) the Sacramento Promise Zone Plans and Goals, Sustainably Built Community sub - goal to increase housing types and transit growth to promote l ivability and connectivity within the Promise Zone (Resolution No. 2015 -263); and d) the 2013-2024 Consolidated Plan (Resolution No. 2019-0408), and 2021 Action Plan (Resolution No. 2020-0350).
F. The project has been analyzed in accordance with the California Environmental Quality Act (CEQA) and has been determined to be exempt from CEQA pursuant to CEQA Guidelines §15301. Pursuant to National Environmental Policy Act (NEPA) regulations at 24 CFR §58, an Environmental Assessment (EA) was prepared and it was determined that the project will have no significant impact on the human environment.
BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE CITY COUNCIL RESOLVES AS FOLLOWS:
Section 1. All evidence presented having been duly considered, the finding s, including environmental findings regarding this action, as stated above, are found to be true and accurate and are hereby approved adopted.
Section 2. The City Manager, or the City Manager’s designee, is authorized to establish the Capitol Park Hotel Affordable Housing Development Project (I02000250). and appropriate $6 million from the City Housing Trust Funds commitment of General Fund balance (City Funds) to I02000250 for the purpose of SHRA providing a construction loan to the Developer for the Project.
Section 3. The City Manager, or the City Manager’s designee, is authorized to transfer $6 million to the Revolving Loan Fund (Fund 2029) from the General Fund.
Section 4. The City Manager, or the City Manager’s designee, and SHRA are authorized to negotiate, enter into, execute, and amend from time to time, a $6 million funding agreement comprised of City Funds for the Project, and to execute other documents, as approved to form by the Offices of the City Attorney and SHRA’s General Counsel, and perform other actions required for the City Housing Trust Fund (City Funds), including without limitation, negotiation, subordination, regulatory agreement, financial restructuring, and extensions, consistent with its adopted policy and with this resolution.
Section 5. SHRA is authorized to: a) accept the $6 million loan from City Funds, b) amend its budget and c) allocate $6 million in City Funds and $1 million in CDBG funds to provide a construction loan to the Developer for the Project.
Section 6. SHRA is authorized to negotiate, enter into, execute and amend from time to time a $7 million funding agreement comprised of $6 million in City Funds and $1 million in CDBG funds to provide a construction loan at zero percent interest with a 55-year term to the Developer for the Project and to execute other documents, as approved to form by its Office of the General Counsel, and perform other actions required for the City Housing Trust Fund (General Fund) and CDBG funds, including without limitation, negotiation, subordination, regulatory agreement, financial restructuring, and extensions, consistent with its adopted policy and with this resolution.
Section 7. SHRA is authorized to return future Developer repayments to the source of the originating funds, including but not limited to, repayments of the $6 million City loan to the Revolving Loan Fund (Fund 2029).
Section 8. This resolution shall take effect immediately upon its adoption.