City of Sacramento
City Council - 2PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2024-00805 6/11/2024 Discussion Item 7.
Approval to Allocate $2.65 Million and Enter into a Funding Agreement for Capitol Park Hotel [Published for 10-Day Review 05/30/2024]
File ID: 2024-00805
Location: 1125 9th Street, District 4, Represented by Councilmember Valenzuela Recommendation: Adopt a City Council Resolution authorizing 1) Sacramento Housing and Redevelopment Agency (SHRA) to enter into, negotiate, and execute related funding agreements for a $2.65 million loan for Capitol Park Apartments with Mercy Housing or related entity; and 2) an amendment to SHRA’s budget for a $2.65 million loan consisting of $1.57 million in Community Development Block Grant (CDBG) funds and $1.08 million in Housing Opportunities for Persons with AIDS (HOWPA) funds for the construction and permanent financing of Capitol Park Apartments (Project).
Contact: Christine Weichert, Director, Housing Finance, (916) 440-1353, [email protected], Sacramento Housing and Redevelopment Agency
Presenter: Whitney Hinton, Program Manager, (916) 440-1325, [email protected], Sacramento Housing and Redevelopment Agency
Attachments:
1-Description/Analysis
2-City Council Resolution
3-Attachment 1 Vicinity Map
4-Attachment 2 Photo of Project
5-Attachment 3 Residential Project Summary
Description/Analysis
Issue Detail: The Capitol Park Hotel (Property), located at 1125 9th Street in downtown Sacramento, was built in 1912 and operated as a 180-unit single-room occupancy (SRO) residential hotel and later served as a temporary shelter.
In 2019, the County of Sacramento applied for $9,690,825 in No Place Like Home Program (NPLH) funds for the rehabilitation of the Hotel into 134 Permanent Supportive Housing units. The State Department of Housing and Community Development (HCD) awarded these funds to the Project.
File ID: 2024-00805 6/11/2024 Discussion Item 7.
The NPLH Program provides funding to households that have been designated homeless and that include at least one household member living with mental illness. 65 units will be designated as NPLH units, of which 26 will be allocated to the category of "Chronically Homeless," 19 to the category of "Homeless," and 20 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. In addition, SHRA awarded 134 Project Based Vouchers (PBV) to house homeless households at Capitol Park Hotel.
On November 17, 2020, the City Council and Housing Authority Board approved final loan documents for a total of $13.3 million with the Developer for acquisition, construction, and permanent financing of the Project. Construction of the Project started in December 2020.
In 2021, Mercy Housing notified SHRA of several areas of concern related to the construction of the Project and requested to augment the project budget. Mercy indicated that, despite extensive preconstruction investigation and testing and design review, they had encountered unforeseen conditions that necessitated the request for additional funds. These included unanticipated structural repairs, the demolition or replacement of failing structural components, and extensive dry rot. In addition, they were notified that they were required to relocate the SMUD transformer from the alley into the building, which would be an additional unanticipated expense of over $1 million. Other expenses include permit/code design changes required by new code requirements. The total amount needed to address these issues was $8.9 million. On April 12, 2022, the City Council approved the allocation of $6 million in City Housing Trust Funds and $1 million in CDBG funds as a construction loan to the Developer for the Project. At that time, the Developer planned to close the remainder of the funding gap via increased investor equity associated with additional tax credit basis from the additional costs.
In January 2024, the Developer applied to SHRA for additional funding. While the Project's construction is complete, the Developer is unable to obtain final occupancy permits until a permanent electrical source is installed in the building. This permanent electrical source requires specific switchgear that is delayed in manufacturing and shipping to the Project's location. The Developer has received a final date of October 2024 for the switchgear to be delivered and installed. Because of the delay of the switchgear, the Project accrued over $5 million in construction interest costs. This SHRA loan will provide the financing needed to cover a portion of the cost of the delay and bring this Project to full completion. The remaining funding gap will be covered by a conventional loan.
As of the date of this report, construction is complete with the exception of the electrical switchgear.
The Project currently provides housing to 80 formerly homeless households. The remaining units are expected to be leased by Fall 2024 after the switchgear is installed.
Project Description
File ID: 2024-00805 6/11/2024 Discussion Item 7.
The Capitol Park Hotel Project rehabilitates a historic 180-unit single-room occupancy building into 134 studio permanent supportive housing units that include new kitchenettes with a small refrigerator, sink, two-burner cooktop, and a microwave; new full bathrooms; new furnishings including twin bed frames and mattresses, built-in wardrobes, nightstands, and window blinds.
Improvements were made to the existing structural systems and historic stairwells, and a new concrete moment frame structural system was added throughout the building. All existing building systems were demolished and removed, and new systems installed, including: two elevators, additional stairwells, plumbing, electrical, energy efficient lighting, life safety/fire systems, heating, and air conditioning (HVAC) systems, and basement storage. New community amenities include management and service office spaces, a 24/7 desk clerk reception area, a community room, a community kitchen area, a laundry facility, restrooms, and meeting rooms for individual and group settings. Extensive bicycle parking will be available onsite. A vicinity map and a photo of the Project are included in Attachments 3 and 4.
Property Management:
The Project will be managed by Mercy Housing Management Group, an affiliate of the Developer. Mercy Housing manages more than 220 properties nationally (more than 11,000 affordable housing units), including over 100 properties in California.
Supportive Services: 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, as required by the State NPLH program and SHRA. In addition to DHS onsite supportive services, a case management team will provide services needed by the remaining 69 PBV homeless residents not served by NPLH.
Resident Services: Resident services will be provided by Mercy Housing California. A minimum of 20 hours per week of onsite services will be available to all residents. Resident services will include education and enrichment programs and transportation assistance (e.g., light rail/bus passes). An onsite coordinator will be assigned to the property.
Policy Considerations: The recommended actions 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; b) the 2021-2029 Housing Element, Goals H-1.7 Encourage Adaptive Reuse; H-2.1 Provide Opportunities for Affordable Housing Throughout the City; H-2.3, Assist in the Development of Affordable Housing; H-2.11 Conversions to Affordable Housing; and H-7.4, Permanent Supportive Housing.
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 million shall be made available to the public at least ten days prior to
File ID: 2024-00805 6/11/2024 Discussion Item 7.
council action. This item was published for 10-day review on May 30, 2024, in compliance with the City Code.
Economic Impacts: The Capitol Park Hotel multifamily residential project is expected to create 929.51 total jobs (526.72 direct jobs and 402.79 jobs through indirect and induced activities) and create $77,459,225 in total economic output ($47,216,224 of direct output and another $30,243,001 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 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 2040 General Plan. This Project will advance goal LUP 10.1 - Existing Structure Reuse, which encourages the retention and renovation of existing structures with green building technologies.
Commission/Committee Action: Sacramento Housing and Redevelopment Commission: At its May 15, 2024, meeting, the Sacramento Housing and Redevelopment Commission reviewed the staff recommendation for this item. The votes were as follows:
AYES: Amanfor, Duncan, Jefferson, Nunley, Ramos, Ross, Staajabu, Starks, Woo NOES: None.
ABSENT: Griffin, Osmany
File ID: 2024-00805 6/11/2024 Discussion Item 7.
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 2021-2029 Housing Element as part of Sacramento's 2040 General Plan, Promise Zone Plans and Goals, Downtown Housing Initiative and Initiation of the Downtown Specific Plan and the Opportunity Zone Program.
Financial Considerations: The recommended additional funding for this project is $2.65 million, comprised of $1.57 million in CDBG and $1.08 million in HOPWA funds as a loan at 0% interest with a term of 55 years to the Developer of the Project. The financing structure of the Project includes competitive nine percent Low-Income Housing Tax Credits (LIHTC), a certificated state credit sale loan, historic tax credits, an NPLH loan, an Affordable Housing Program loan, a fee waiver, SMUD incentives, a conventional permanent loan, and a previous Agency loan.
Local Business Enterprise (LBE), Minority and Women's Business Enterprise (M/WBE) requirements: Minority and Women’s Business Enterprise requirements and Section 3 considerations will be applied to all activities to the extent required by the federal funding and in accordance with SHRA’s Section 3 Economic Opportunity Plan.
Resolution 2024-XXXX June 11, 2024 Page 1 of 2
RESOLUTION 2024-
Adopted by the Sacramento City Council
June 11, 2024
Capitol Park Hotel Project (Project): Authorization to Amend Sacramento Housing and Redevelopment Agency's (SHRA) Budget to Allocate $1.57 Million in Community Development Block Grant (CDBG) Funds and $1.08 Million in Housing Options for Persons with AIDS (HOPWA) Funds to the Project; Approval to Execute a $2.65 Million Funding Agreement Between SHRA and Mercy Housing or Related Entity; 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 a related entity (Developer) for $13.3 million in co nstruction and permanent loan financing for Capitol Park Apartments (Project).
B. On April 12, 2022, the Council approved an allocation of $7 million in loan funding for the Project to cover unforeseen construction conditions that required additional funds to complete the Project's construction phase.
C. In January 2024, the Developer applied for additional funds from the Sacramento Housing and Redevelopment Agency (SHRA or Agency). Additional funds are needed to cover the accruing construction interest while the required electrical switchgear component is being manufactured. Without the switchgear component, the Project cannot secure final occupancy permits and, therefore, cannot convert to permanent financing.
D. The project has been analyzed in accordance wit h 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 regulations at 24 CFR §58, an Environmental Assessment was prepared, and it was determined that the project would 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 findings, including environmental findings regarding this action, as stated above, are found to be true and accurate and are hereby approved and adopted.
SECTION 2.
The Agency is authorized to negotiate, enter into, execute, and amend from time to time a $2.65 million funding agreement comprised of $1.57 million in CDBG funding and $1.07 million in Resolution 2024-XXXX June 11, 2024 Page 2 of 2
HOPWA funding to provide a construction loan to the Developer for the Project an d to execute other documents, as approved to form by its Office of the General Counsel and perform other actions required for the funds, including without limitation, negotiation, subordination, regulatory agreement, financial restructuring, and extensions , consistent with its adopted policy and with this resolution.
SECTION 3.
The Agency is authorized to amend its budget and to transfer up to $2.65 million to the Project comprised of $1.57 million in CDBG funding and $1.07 million in HOPWA funding.
L ST
K ST
9TH ST
10TH ST
8TH ST
CAPITOL MALL
Capitol Park Hotel
SHRA GIS
January 3, 2020
0 200100
Feet
Capitol Park Hotel
50 99
GARDEN HWY
5 J ST
T ST
X ST
N ST E ST
BROADWAY
80 8TH AVE
N B ST
vicinity map
Map
Location
Capitol Park
Hotel
Attachment 2
Capitol Park Hotel
Addresses
Number of Units
Project Type
Acreage
Unit Mix and Rents 20% AMI 40% AMI Total
Studio 65 69 134
Total Units 65 69 134
Square Footage Unit Size (sq.ft.) Total (sq. ft.)
Studio 228 30,552
Common Areas 29,330 29,330
Total Gross 59,882
Resident Facilities
Permanent Sources Total Per Unit Per Square Foot
Federal Tax Credit Equity 20,590,886$ 153,663$ 343.86$ GP Certificated Credit Sale Loan 8,192,648$ 61,139$ 136.81$ Conventional Permanent Loan 4,349,031$ 32,455$ 72.63$ Historic Tax Credit Equity 9,822,267$ 73,301$ 164.03$ NPLH Competitive Loan 6,890,825$ 51,424$ 115.07$
NPLH Non-Competitive Loan 2,800,000$ 20,896$ 46.76$ Affordable Housing Program Loan 1,340,000$ 10,000$ 22.38$ Previous SHRA and HACS Loan 20,300,000$ 151,493$ 339.00$ 2024 SHRA Loan 2,650,000$ 19,776$ 44.25$
GP Contribution 100$ 1$ 0.00$
Fee Waivers 85,969$ 642$ 1.44$
SMUD Incentives 437,500$ 3,265$ 7.31$
TOTAL SOURCES 77,459,226$ 578,054$ 1,293.53$
Permanent Uses Total Per Unit Per Square Foot
Acquisition 10,056,811$ 75,051$ 167.94$
Construction Costs 34,646,723$ 258,558$ 578.58$
Additional Construction Costs 10,059,929$ 75,074$ 168.00$ Architecture & Engineering 3,390,940$ 25,306$ 56.63$ Permits/Fees 821,468$ 6,130$ 13.72$
Hard Cost Contingency 400,000$ 2,985$ 6.68$
TOTAL HARD COSTS 59,375,871$ 443,104$ 991.55$
Soft Cost Contingency 100,000$ 746$ 1.67$
Financing Cost 7,401,983$ 55,239$ 123.61$
Relocation 2,889,192$ 21,561$ 48.25$
Operating Reserves 1,332,839$ 9,947$ 22.26$
Rent Reserve 409,316$ 3,055$ 6.84$
Replacement Reserve 134,000$ 1,000$ 2.24$
Legal Fees 259,830$ 1,939$ 4.34$
Developer Fee 2,000,000$ 14,925$ 33.40$
Third Party Fees, Marketing, Other 3,556,195$ 26,539$ 59.39$ TOTAL SOFT COSTS 18,083,355$ 134,950$ 301.98$
TOTAL USES 77,459,226$ 578,054$ 1,293.53$
SHRA $ per Unit Per Unit Cost
171,269$ 578,054$ $1.00 : $3.38
Management / Expenses
Proposed Developer
Property Management Company
Operating Expenses 1,136,062$ 8,478$
Property Management Fee 88,440$ 660$
Resident Services 354,156$ 2,643$
Taxes and Insurance 215,528$ 1,608$
Replacement Reserves 67,000$ 500$ per unit
Leverage
Leverage
SHRA: Other
Mercy Housing California
Mercy Housing Management Group
per unit
per unit
per unit
per unit
Management office, 24/7 desk clerk, community room, meeting areas, and bicycle parking.
Attachment 3
Capitol Park Hotel
Residential Project Summary
1125 9th Street
134
Rehabilitation
0.26