CITY COUNCIL
Kevin McCarty, Mayor
Lisa Kaplan, District 1
Roger Dickinson, District 2
Karina Talamantes, Vice Mayor, District 3
Phil Pluckebaum, District 4
Caity Maple, District 5
Eric Guerra, Mayor Pro Tem, District 6
Rick Jennings, II, District 7
Mai Vang, District 8
CHARTER OFFICERS
Mindy Cuppy, City Clerk
Gustavo Limón Martinez, Interim City Attorney
Farishta Ahrary, City Auditor
Leyne Milstein, Interim City Manager
John Colville, City Treasurer
City Council
Financing Authority
Housing Authority
Public Financing Authority
Redevelopment Agency Successor Agency
City Hall Complex
915 I Street, Sacramento, CA 95814
Published by the Office of the City Clerk
(916) 808-7200
AMENDED MATERIAL
Description: Attached is an amendment to Attachment 2. The attached staff report replaces the original staff report in its entirety.
For the Meeting of: Tuesday, December 2, 2025 at 5:00 p.m.
Agenda Item: Consent Item 21
21. Subor
dination Agreement for the Gateway Housing Project Loan File ID: 2025-01948
Location: Citywide
Recommendation: Pass a Resolution authorizing the Interim City Manager or designee to execute a subordination agreement with the Banc of California for the Gateway Housing Project City loan subject to approval as to form by the Interim City Attorney or designee.
Contact: Leslie Fritzsche, Economic Investment Manager, (916) 808-5450, [email protected]; Ya-yin Isle, Housing Policy Manager, (916) 808-1869, [email protected], Office of Innovation and Economic Development
City of Sacramento
City Council - 5PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2025-01948 12/2/2025
Subordination Agreement for the Gateway Housing Project Loan File ID: 2025-01948
Location: Citywide
Recommendation: Pass a Resolution authorizing the Interim City Manager or designee to execute a subordination agreement with the Banc of California for the Gateway Housing Project City loan subject to approval as to form by the Interim City Attorney or designee.
Contact: Leslie Fritzsche, Economic Investment Manager, (916) 808-5450, [email protected]; Ya-yin Isle, Housing Policy Manager, (916) 808-1869, [email protected], Office of Innovation and Economic Development Presenter: None
Attachments:
1-Description/Analysis
2-Resolution - Amended
Description/Analysis
Issue Detail: On October 25, 2022 the City Council adopted Resolution #2022-0327 approving the City External Loan Policy for Public Benefit Projects (“External Loan Policy”). This policy was developed in response to requests by Council for city staff to assess the availability of city-held fund balances that could act as a short- to medium-term loans for public benefit projects approved by Council and to outline the requirements for the use of those funds should any become available.
As part of the same Council item, the Council also approved a loan for a mixed-income housing project at 3400 and 3441 Stockton Boulevard, known as the Gateway Housing Project. This catalytic housing project will bring 196 units to the east and west sides of Stockton Boulevard at 9th and 10th avenues, providing housing options for existing area residents and assisting in stabilizing an area of the city undergoing substantial redevelopment with the UC Davis Aggie Square Development.
The developer of the project, CW Gateway LLC, has secured a loan commitment from a new lender for the project, Banc of California (“Lender”) and that Lender has asked the City to subordinate to their loan. The External Loan Policy and the City’s executed loan documents allow for a
File ID: 2025-01948 12/2/2025
subordination, but the External Loan Policy states: “The loan must be senior to partnership equity and other obligations but can be subordinate to conventional debt if a 1.25 debt coverage exists and the risk is mitigated.” Debt coverage is a term utilized in the industry to evaluate the ratio of the project’s income over the project’s debt. As normal practice, lenders look at a project’s projected income when determining a debt coverage ratio. For projects like Gateway that involve construction there is no income during the construction period thus a debt coverage ratio that looks at the project’s existing income versus amount of debt is not a relevant metric. The debt coverage ratio for the Gateway project is 1.27 at project stabilization. In addition, an October 21, 2025 appraisal indicates a completed value of $77.5 million which exceeds the Lender’s loan of $48 million and the City’s loan of $15 million by $14.5 million resulting in a total value to loan of 1.23:1. These factors aid in mitigating the City’s loan risk.
Staff is seeking Council approval to allow the City Manager or designee to enter into a subordination agreement, subordinating the City’s loan to the Banc of California’s construction loan. This would be an exception to the approved External Loan Policy.
Policy Considerations: The utilization of the External Loan Policy is another tool for the City Council to use in accomplishing public benefit projects. Investment in these projects is a balance of keeping available funding on-hand for future needs and ensuring the necessary benefit to both the fund and the City in providing this loan. The Gateway project fits into this policy direction.
Economic Impacts: None.
Environmental Considerations: The current action for providing an exception to the External Loan Policy is not a project pursuant to CEQA Guidelines section 15378(b)(4). The exception amendment to the Policy does not constitute an approval of any particular project as defined by CEQA and does not foreclose the adoption of alternatives or mitigation measures because environmental review, as necessary, will be conducted in association with the development of projects. (CEQA Guidelines, § 15004(b).
The Gateway Project completed its necessary CEQA review process under the City’s standard zoning entitlement process.
Sustainability: The Gateway Housing Project will provide mixed-income and affordable housing opportunities increasing the connection of housing, workforce centers such as Aggie Square, and other amenities and services.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: Staff recommends the execution of the subordination to provide for the continued construction of the Gateway Housing Project which will bring 196 mixed-income
File ID: 2025-01948 12/2/2025
units (150 affordable units and 46 market rate units) to Stockton Boulevard. The project supports the City’s commitment in the Aggie Square Community Benefit Partnership Agreement to allocate $50 million in funding to increase the amount of housing in the Aggie Square area to assist in creating new housing opportunities and revitalizing Stockton Boulevard. The Gateway project is currently under construction and is expected to be completed by Fall 2026 bringing these new units online within the next year.
Financial Considerations: Not applicable.
Local Business Enterprise (LBE): Not applicable.
RESOLUTION NO.
2025-
Adopted by the Sacramento City Council
Resolution Authorizing Execution of a Subordination Agreement for the Gateway Housing Project
BACKGROUND
A. On October 24, 2022, the City Council by Resolution 2022-0327, approved the City’s External Loan Policy for Public Benefit Projects (“External Loan Policy”) which established requirements for the use of City funds for external loans that further special projects with public benefits through short-term loans that provide seed funding for the construction of these projects.
B. The City Council also approved by Resolution 2022-0327, the first loan under the new External Loan Policy. This project known as the Gateway Housing Project (“Project”) was provided a construction and permanent loan of $15 million (“Loan”) to assist in the construction of 196 mixed income housing units (150 affordable and 46 market rate units) on two sites on Stockton Boulevard, 3400 and 3441 Stockton Boulevard. The Project will act as a catalyst for further private investment on Stockton Boulevard and supports City efforts to provide a mix of housing types and options that support existing residents from housing displacement.
C. The project is under construction and the developers, CW Gateway, LLC, want to enter into a $48 million Construction Loan Agreement with Banc of California to finance the construction of the Project and the Bank of California has conditioned their loan on obtaining a subordination of the City loan.
D. T
he External Loan Policy and the executed loan documents for the Project allow for a subordination to conventional loans if a 1.25 debt coverage ratio exists.
E. T
he Project does not currently have a 1.25 debt coverage ratio as it is under construction and is generating no income. The project is forecasted to have a 1.27 debt coverage ratio at project stabilization.
F. D
ue to the importance of the Project as a catalyst for the further revitalization of Stockton Boulevard and the provision of 196 housing units, the majority of which are affordable, execution of a subordination agreement with Banc of California is recommended to provide the funding needed for the completion of the project.
BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE CITY COUNCIL RESOLVES AS FOLLOWS:
Section 1. The Interim City Manager or designee is authorized to execute a subordination agreement in substantially similar form the attached Exhibit A with the Banc of California subject to the review and approval as to form by the Interim City Attorney or designee.