City of Sacramento
City Council - 5PM Report
915 I Street Sacramento, CA 95814
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File ID: 2023-00652 11/14/2023 Consent Item 46.
Contract:Township 9 California Department of Housing and Community Development Proposition 1C Agreements Amendments and Assignment and Assumption Agreement [Published for 10-Day Review 11/03/2023]
File ID: 2023-00652
Location: District 4, Represented by Mayor Steinberg
Recommendation: Pass a Motion: 1) authorizing the City Manager or the City Manager’s Designee to execute: a) the second amendment to Transit-Oriented Development Grant (TOD Grant) Standard Agreement 14-TOD-10074 between the City and the California Housing and Community Development Department (HCD) (City Agreement 2015-1290); b) the second amendment to TOD Grant Standard Agreement 14-TOD-10111 between the City and HCD (City Agreement 2015-1289); c) the first amendment to TOD Grant Disbursement Agreement 14-TOD-10074 between the City and HCD (City Agreement 2015-1345); d) the first amendment to TOD Grant Disbursement Agreement 14 -TOD-10111 between the City and HCD (City Agreement 2015-1344); e) the Agreement for the Assignment and Assumption of Proposition 1C Transit Oriented Development Infrastructure Program Grants for the Township 9 Project between the City, 29SC T9 Phase A Property Owner LLC, and 29SC BC Holding Company LLC; and 2) authorizing the City Manager or the City Manager’s Designee to take all actions necessary to disburse the remaining funds under the TOD Grant agreements.
Contact: Amanda Wallace, Development Project Manager, 916-808-5453, [email protected]; Leslie Fritzsche, Economic Development Manager, 916-808-5450, [email protected],
Office of Innovation and Economic Development
Presenter: None.
Attachments:
1-Description/Analysis
2-Second Amendment to Standard Agreement 14-TOD-10074
3-Second Amendment to Standard Agreement 14-TOD-10111
4-First Amendment to Disbursement Agreement 14-TOD-10074 5-First Amendment to Disbursement Agreement 14-TOD-10111 6- Agreement for Assignment and Assumption of Proposition 1C TOD Grants for Township 9
File ID: 2023-00652 11/14/2023 Consent Item 46.
Additional Description/Analysis
Issue Detail: Between 2008 and 2015 HCD awarded the City of Sacramento four grants totaling $36,259,817 to support the development of Township 9. HCD awarded the grants under the Infill Infrastructure Grant (IIG) and TOD Grant programs created to implement the Housing and Emergency Shelter Act of 2006, known as Proposition 1C (“Prop 1C”). The City used the grants to fund certain infrastructure improvements such as streets, utilities, parks, the Township 9 light rail station, and a parking garage, in consideration of affordable and market rate housing development within the Township 9 development project (see Background section). HCD recorded a declaration of restricted covenant against the property, which specified the housing unit development requirements.
For each grant allocation the City and HCD entered into two agreements, a standard agreement and a disbursement agreement (collectively referred to as the “HCD Agreements”). Through assignment and assumption agreements, the City assigned these agreements to Capitol Station 65, the project owner and lead developer at the time, to construct the public improvements and satisfy the affordable and market rate housing requirements under the HCD Agreements. Capitol Station 65 filed for Chapter 11 bankruptcy in 2017 and the project lender issued a notice of default in 2017 and foreclosed on the construction loan in December 2018. Prior to the foreclosure, Capitol Station 65 completed the IIG funded public improvements and satisfied the affordable housing requirements with construction of Cannery Place Apartments. Capitol Station 65 partially satisfied the TOD Grant funded public improvements but did not satisfy the income restricted housing requirement. Capitol Station 65 did not construct any of the market rate housing required by either grant program.
To date, $3,275,600 in TOD grant funds are available for construction of the remaining public improvements. The requirement for production of 714 market rate units and 25 income restricted for- sale housing units remains unsatisfied. The existing funds are set to expire on June 30, 2024, after which funding will not be available for the remaining infrastructure improvements. Table 1 below summarizes the status of the individual grant allocations.
Table 1: Prop 1C Grant Allocation Status
HCD
Contract
Standard
Agreement
Disbursement
Agreement
Grant AmountFunds
Remaining
Income
Restricted
Units
Market
Rate
Units
Public Improve-
ments
07-IIG-
4234
C2009-0935 C2009-0935-1 $19,000,000 $0 89* 398** Complete 09-IIG-
6021
C2011-0442 C2011-0442-1 $10,900,000 $0 90* 174 Complete 14-TOD-
10111
C2015-1289
C2015-1289-1
C2015-1344 $2,259,817 $2,259,817 9*** 51*** No Progress 14-TOD-
10074
C2015-1290
C2015-1290-1
C2015-1345 $4,000,000 $1,003,491 16 92 Partially Complete
File ID: 2023-00652 11/14/2023 Consent Item 46.
* Units developed and grant requirement satisfied.
** One market rate manager’s unit was constructed as part of the Cannery Place Apartments housing development, which satisfied the IIG program’s income restricted housing requirement. ***TOD Grant Agreements require ownership units for sale to households earning up to 120% of Area Median Income.
On November 13, 2020, 29SC T9 Phase A Property Owner, LLC (“Phase A Developer”) acquired approximately 20 acres of the Township 9 project (“Phase A Property”). On January 27, 2021, 29SC BC Holding company, LLC (“Phase BC Developer”) acquired another 28 acres of the project (“Phase B Property”). Both Phase A Developer and Phase BC Developer (jointly referred to as “29SC”) are affiliates of 29th Street Management III, LLC and are managed by another affiliate, 29th Street Capital, LLC.
On November 9, 2020, and January 26, 2021, the City and Phase A Developer and Phase BC Developer, respectively, entered into separate contingent assignment and assumption agreements (City Agreements 2020-3674 and 2023-0617) conveying the rights and responsibilities of the HCD Agreements to Phase A Developer and Phase BC Developer upon close of escrow. The contingent assignment and assumption agreements stipulate that disbursement of Prop 1C funds to Phase A Developer and Phase BC Developer is contingent on HCD, 29SC, and City mutually agreeing on 1) the allocation of the remaining TOD Grant funds for the remaining infrastructure improvements; 2) amendments to the HCD Grant Agreements and Restrictive Covenants to reflect changes in the location and delivery dates for development of the market-rate and income-restricted housing units; and 3) City Council approval of a joint assignment agreement between the City and Phase A Developer and Phase BC Developer, which requires repayment of the HCD Grants in the event of default.
TOD Agreement Amendments
This Council action authorizes the City Manager or the City Manager’s designee to execute the second amendments to the TOD standard agreements and first amendment to the TOD disbursement agreements (Attachments 2 through 5), satisfying the first two requirements of the contingent assignment and assumption agreements.
Amended TOD Grant Infrastructure Improvements
The City, HCD, and 29SC allocated the remaining TOD grant funds based on current development costs and prioritized improvements that could reasonably be completed before the June 2024 funding deadline. Table 2 below compares the scope of the existing TOD Grant infrastructure improvements to the amended TOD Grant infrastructure improvements. 29SC will use the remaining TOD Grant funds to construct the remaining street improvements including site preparation, excavation, soil import, sewer, water, storm drainage, curb cuts, sidewalk, paving, signage, striping, landscaping, and dry utilities. To meet the TOD Grant’s 20% match requirement, the City will use $7 million in Green Means Go funding awarded to the City by the Sacramento Area Council of Governments (SACOG) in spring of 2023 to complete the Sump 111 drainage improvements. Since
File ID: 2023-00652 11/14/2023 Consent Item 46.
the improvements are being funded separately, HCD does not require the Sump 111 drainage improvements be complete by the June 2024 TOD Grant funding deadline.
Table 2: TOD Grant Infrastructure Improvement Amendments Existing TOD Agreement Amended TOD Agreement
14 -TOD-10111 14-TOD-10074 14 -TOD-10111 14-TOD-10074
· Portions of N. 5th St · Can
Avenue · Cannery Avenue
· Sump 111 drainage
improvements*
· N. 6th St · Victory
Boulevard · Chill Avenue
· Peach Paseo · Victory
Park · Victory
Promenade
· Portions of North 5th
St · North 6th St · Can
Avenue · Sump 111
drainage
improvements*
· Chill Avenue · Sump
111 drainage
improvements*
*Sump 111 drainage improvements to be funded by SACOG’s Green Means Go grant program and will satisfy the TOD Grant program’s 20% match requirement.
29SC intends to construct the remaining public improvements and deliver approximately 900 market- rate housing units by 2028, which would satisfy the outstanding IIG and TOD market- rate housing requirements. Phase A Developer already secured entitlements for the infrastructure improvements and 542 housing units, and broke ground on the first 180 units in May 2023. 29SC intends to construct the balance of the income-restricted units during a later development phase anticipated to be complete around 2029. To satisfy Opportunity Zone financing holding requirements, HCD agreed to allow 29SC to lease the remaining income-restricted units to households earning up to 60% of Area Median Income (AMI) for ten years. After the ten-year rental period, Phase BC Developer must sell the units to households earning up to 120% of AMI. Provision of the required market-rate and income-restricted housing units will be secured by a restrictive covenant recorded against the sites where the housing will be located.
Assignment and Assumption Agreement
This Council action authorizes the City Manager or the City Manager’s designee to execute the agreement for the assignment and assumption of Proposition 1C Transit Oriented Development Infrastructure Program Grants for the of Township 9 project between the City, 29SC T9 Phase A Property Owner LLC, and 29SC BC Holding Company LLC (Attachment 6), satisfying the third and final requirement of the contingent assignment and assumption agreements. The assignment and assumption agreement assigns the City’s rights and responsibilities under the HCD Agreements jointly to the Phase A and Phase BC Property Owners and requires repayment of the remaining TOD Grant funds in the event of default. Additionally, the assignment and assumption agreement requires HCD to record restrictive land use covenants against the sites where the required market-rate and income-restricted housing will be located prior to disbursement of funds.
Policy Considerations: The recommendations are consistent with previous City Council direction and actions regarding the Prop 1C grant acceptance and program implementation for the Township 9
File ID: 2023-00652 11/14/2023 Consent Item 46.
project. The recommendations are also consistent with the City’s Smart Growth Principles, the River District Specific Plan, and the 2035 General Plan.
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. This item was published for 10-Day review on November 3, 2023, in compliance with City Code.
Economic Impacts: Executing the assignment and assumption agreement and amending the HCD Agreements will facilitate use of the remaining $3,275,600 in TOD Grant funds for construction of public improvements necessary to support build out of the Township 9 project, including at least 900 new market rate and 25 income restricted housing units. Construction of the Township 9 housing and infrastructure is anticipated to generate approximately 550 direct construction jobs.
Environmental Considerations: The environmental impacts of the infrastructure improvements and the housing projects, which are the subject matter of the agreements referenced in this report, were included in the Township 9 Project Environmental Impact Report (EIR), which was certified on August 28, 2007 (Resolution No. 2007-641). An Addendum to the EIR dated April 29, 2021, prepared by the City of Sacramento as part of the Developer’s entitlement (P20-030), determined that there is no substantial evidence that the revised project would have a significant effect on the environment beyond that which was evaluated in the Township 9 EIR. Staff has determined that no additional environmental review is required because none of the circumstances set forth in section 15162 of the CEQA Guidelines exists.
Sustainability: The Prop 1C grant funds will be utilized for public infrastructure and will support the further development of Township 9, a sustainable mixed-use infill development that combines housing, office, and retail development near the River District transit station.
Commission/Committee Action: None.
Rationale for Recommendation: The City has the authority to assign the remaining TOD Grant funds, has a duty to ensure the income-restricted and market-rate housing is developed as required by the HCD grants, and is liable for repayment of the HCD grants if that housing is not built.
Executing the amendments to the HCD Agreements and the assignment and assumption agreement are necessary to fulfill the City’s obligation to construct the grant-funded infrastructure improvements by the June 30, 2024 grant expiration deadline and deliver the required market and income-restricted housing units. Authorizing the City Manager or the City Manager’s designee to take all action necessary to disburse the remaining grant funds will achieve administrative efficiencies in the limited time remaining before the TOD grant expires on June 30, 2024.
File ID: 2023-00652 11/14/2023 Consent Item 46.
Financial Considerations: On June 2, 2015, Council adopted Resolution No. 2015-0163, accepting the award of two TOD Grants totaling $6,259,817 from HCD; authorized execution of the TOD Grant Agreements between the City and HCD; established the Township 9 TOD Infrastructure Project (B18219600) and associated revenue and expenditure budget of the same amount; and approved the Township 9 TOD Grants assignment and assumption agreement with Capitol Station 65, LLC.
Prior to filing for Chapter 11 bankruptcy in 2017, Capitol Station 65 LLC., drew down $2,984,217 from the TOD Grants for construction of eligible infrastructure improvements, leaving $3,275,600 remaining unobligated. The recommended Council actions would facilitate disbursal of the remaining grant funds and satisfaction of the outstanding grant requirements related to the construction of eligible infrastructure improvements and market-rate and income-restricted housing units.
Local Business Enterprise (LBE): Not Applicable.
Background
The Township 9 project is a mixed-use, infill development project located on 65 acres of land which lie north of Richards Boulevard between North 5th and North 7th Streets in the River District area of the City of Sacramento immediately adjacent to the Richards Boulevard/Township 9 light rail station.
Development of Township 9 is regulated by the Township 9 Planned Unit Development (PUD) Schematic Plan and PUD Design Guidelines, which specifies the development standards and design requirements for development of Township 9. The Environmental Impact Report (EIR), certified by the City Council on August 28, 2007, by Resolution No. 2007-641, analyzed a maximum build out scenario that included up to 2,350 housing units, 840,000 square feet of office, and 150,000 square feet of retail. On August 28, 2007, by Ordinance No. 2007- 069, the City and Capitol Station 65 LLC, the project’s previous owner, entered into a development agreement (City Agreement No. 2007-1081) to vest certain rights to the previous owner and successors in interest and to impose certain obligations regarding development of Township 9. The City and Capitol Station 65 executed five subsequent amendments to the development agreement to facilitate development.
Capitol Station 65 completed Cannery Place Apartments, a 180-unit income restricted apartment project, and the majority of Township 9’s public improvements, including construction of most streets and utility infrastructure, the Township 9 light rail station, the North 7th Street Promenade, Cannery Plaza, Riverfront Park, and the parking garage serving the Cannery Place Apartments, before filing for Chapter 11 bankruptcy in 2017. The project lender issued a notice of default in 2017 and foreclosed on the construction loan in December 2018.
On November 13, 2020, Phase A Developer acquired approximately 20 acres of the Township 9 project from the successor of the foreclosing lender. On January 27, 2021, Phase BC Developer acquired approximately another 28 acres of the project from the successor of the foreclosing lender.
Phase A Developer intends to construct the remaining grant funded public improvements and deliver
File ID: 2023-00652 11/14/2023 Consent Item 46.
approximately 900 market-rate housing units by 2028. The City transferred the development agreement and other maintenance agreements to Phase A Developer in November 2022 (City Agreement 2020-3676). Phase A Developer secured entitlements for the infrastructure improvement and 542 housing units, and broke ground on the first 180 units in May 2023. Phase A Developer is also seeking entitlements under P21-032 for a 146,889 square foot, five story, 201-key hotel. Phase BC of the project will include an additional undetermined number of housing units, including 25 income-restricted units required by the TOD Grants, in a future development phase anticipated to be complete around 2029.