TO: HONORABLE MAYOR
AND CITY COUNCIL
FROM: Erik L. Soliván
SUBJECT: See Below DATE: August 21, 2026
Approved
Date:
8/21/26
COUNCIL DISTRICT: 6
SUBJECT: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
RECOMMENDATION
Adopt a resolution authorizing the:
(a) Housing Director, or his designee, to negotiate and execute:
(1) An Exclusive Negotiation Agreement for a three-year term, and two six-month extensions, at the City’s discretion, and any ancillary documents with Episcopal Community Services of San Francisco and affiliates, for a final proposal for: (i) the conversion of the existing Arena Hotel project into housing units restricted to households with area medium income and rents consistent with the project's HomeKey agreement; and (ii) the potential future construction of mixed-income housing on the existing parking lot portion of the site, serving households earning at or below 120% of the area median income;
(2) A Right of Entry Agreement with Episcopal Community Services or its affiliates to allow access to the Arena Hotel property to conduct the due diligence necessary to satisfy the milestones to be set forth in the Exclusive Negotiation Agreement;
(3) A three-year Exclusive Negotiation Agreement with the possibility of two six- month extensions, at the City’s discretion, and any ancillary documents, including a Right of Entry Agreement with the second highest scoring respondent, Propertyworx LLC or its affiliates for the final proposal of a housing development project on the Arena Hotel property, if Episcopal Community Services is unable to successfully execute an agreement with the COUNCIL AGENDA: 9/1/26
FILE: 26-895
ITEM: 8.2
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
City or does not comply in a timely and diligent manner with any material obligation under the Exclusive Negotiation Agreement; and
(b) City Manager, Housing Director, or their designees, to negotiate and execute:
(1) An amendment to the Homekey Program Standard Agreement with the California Department of Housing and Community Development to remove A0729 San Jose L.P., Urban Housing Communities LLC, and HomeFirst Services of Santa Clara County as co-applicants, co-grantees, operator, designated payee, and/or other responsible party identified in the Standard Agreement and related Homekey documents for the Arena Hotel, and to identify the City as the sole grantee and responsible party under the Standard Agreement; and
(2) Documents necessary to unwind, terminate, or amend project agreements with Urban Housing Communities LLC or A0729 San Jose L.P., including the ground lease, the Acquisition and Rehabilitation Grant Agreement, operating agreements, grant agreements, or other related agreements.
SUMMARY AND OUTCOME
The City Council’s approval will authorize the Housing Director, or his designee, to execute an Exclusive Negotiation Agreement (ENA) with Episcopal Community Services of San Francisco (ECS) to establish a comprehensive site affordability program for the subject site, to be coordinated with and approved by the California Department of Housing and Community Development (HCD), consistent with the minimum requirements of the HomeKey program. The final program may provide for an increased total unit count and serve a broader range of household incomes, up to 120% of the area median income, in order to create a mixed-income housing opportunity that promotes greater integration into the surrounding community and reduces socioeconomic segregation. Consistent with the updated Conversion Plan submitted to HCD on July 24, 2026, the conversion of the existing hotel is planned to provide approximately 89 fully self-contained permanent supportive housing units and one manager’s unit serving households earning at or below 30% of the area median income, while a future mixed-income development serving households up to 120% of area median income is contemplated for the existing parking lot portion of the site.
BACKGROUND
In March 2023, the City purchased the Arena Hotel for $22.9 million using a HomeKey Grant from HCD and Measure E funds in the amounts of $17.9 million and $5.0 million, respectively. The Arena Hotel is a single parcel approximately 1.39 acres or 60,548 square feet in size, located at 817 The Alameda. The current General Plan designation
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
is Transit Residential with a minimum density of 65 dwelling units per acre and a maximum density of up to 250 dwelling units, a Floor Area Ratio of up to 12 and up to seven stories with a maximum height of 90 feet. The site is located within the Diridon Station Area Plan. Since 2023, the Arena Hotel has been serving as interim housing for at-risk individuals.
The Arena Hotel is funded in part under the HomeKey Standard Agreement No. 21-HK- 17232 with HCD, which currently lists A0729 San Jose L.P., Urban Housing Communities LLC, and HomeFirst Services of Santa Clara County as co-grantees with the City. Between 2023 and 2025, the City worked collaboratively with Urban Housing Communities LLC towards an agreeable redevelopment proposal for the site. During this timeframe, Urban Housing Communities LLC submitted two proposals to the City that were not financially feasible and triggered the City’s desire to locate a new development partner who can draft a proposal more consistent with the City’s expectations regarding the future of the site.
In December 2025, the Housing Department issued a Request for Proposals to invite qualified developers to submit proposals to design, finance, and construct high-quality workforce/middle-income housing on two City-owned sites: the Arena Hotel and 71 Vista Montana. Each proposal was evaluated, and developers with the highest preliminary scores for each site were invited to provide a presentation to the evaluation panel. On May 11, 2026, the Housing Department issued a notice of intent to award ENAs to the selected developers.
Figure 1 below illustrates the location and layout of the Arena Hotel parcel.
Figure 1: Arena Hotel Aerial View
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
On May 18, 2026, the City formally requested HCD’s approval to amend the Standard Agreement so that ECS replaces the former entities as the development partner for the site. Urban Housing Communities LLC has not exercised operational control of the site since November 30, 2025. Because Urban Housing Communities LLC declined to execute the amendment request, on July 20, 2026, the City requested that HCD proceed with the amendment and approve ECS as the replacement development partner, and on July 24, 2026, the City submitted an updated Conversion Plan to HCD confirming that the developer transition and predevelopment activities will not disrupt operations of the interim housing site. HCD’s approval of the Standard Agreement amendment is required to complete the developer transition.
ANALYSIS
ECS was selected through the Request for Proposals #12-15-2025 published in December 2025, a competitive process that was conducted to identify developers to develop a future affordable housing development that can provide up to 200 to 234 units and deliver mixed income range up to 120% area median income and to convert an existing hotel to permanent housing units, where each unit must include individual bathroom(s) and kitchen space.
ECS brings more than 40 years of experience developing, operating, and sustaining supportive housing and service programs and a proven track record delivering complex HomeKey-funded projects on accelerated timelines while maintaining long-term operational stability. ECS currently oversees a portfolio of more than 2,000 Permanent Supportive Housing units across the Bay Area and has successfully developed and renovated eight Permanent Supportive Housing developments. ECS has demonstrated expertise across the full housing lifecycle, including acquisition, adaptive reuse, rehabilitation, lease-up, and long-term operations.
ECS has extensive direct experience with the HCD’s HomeKey program and successfully competed in multiple HomeKey funding rounds to acquire and renovate properties into Permanent Supportive Housing. These projects required close coordination with HCD, local jurisdictions, and service partners. ECS has demonstrated experience in all phases of the HomeKey process, including feasibility analysis, proforma development, application submission, purchase negotiations, design, permitting, construction, lease-up, and ongoing compliance. This experience ensures that ECS brings in-depth knowledge of HomeKey requirements, eligible uses, reporting obligations, habitability standards, and long-term affordability and operations compliance. The proposed Arena Hotel conversion is structured to meet all HomeKey criteria, including delivery of fully self-contained units and alignment with Housing First principles and supportive housing best practices. ECS's proposed schedule for the two- phase project, from preliminary planning application through construction and lease-up, is consistent with the City's required delivery timeframe, with a detailed timeline provided in the Evaluation and Follow-Up section.
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
In preparation for the redevelopment, the City engaged with ArtHaus Partners to assess the Arena Hotel’s physical condition, zoning, and development potential. The assessment found the building to be in generally good structural condition, with no immediate seismic upgrades anticipated, a well-maintained building envelope, and functional core building systems that will require targeted upgrades upon the change of occupancy.
The consultant also evaluated a range of development scenarios for the site, from a HomeKey-compliant permanent supportive housing conversion of the existing building (Phase 1) to a mixed-income conversion paired with new construction (Phase 2) on the rear of the parcel. Broadening the income mix will improve operating self-sufficiency, while new construction will expand capacity at a higher total cost.
ECS's proposal, as submitted, provides a 100% permanent supportive housing conversion serving households at or below 30% of the area median income, meeting the 89-unit requirement in the HCD agreement; the broader mixed-income program contemplated in this memorandum will be refined during the ENA period.
The Housing Department is recommending that the City enter into an ENA with ECS to provide the developer with assurances that the City will negotiate solely with ECS for the development of the site. The term of the ENA will be for three years and include two six-month extensions at the City’s discretion. The ENA will contain the provision for a long-term ground lease of the Property, which will allow for the development of the site.
The certainty offered by the ENA will allow ECS to initiate the planning permit process and to obtain environmental review. In addition to securing future entitlements, the ENA will require that ECS pursue the necessary funding to bring the future project to fruition.
The ENA will contain a detailed schedule of performance that outlines the milestones and submittals required by ECS during the ENA period. It will also provide ECS and its consultants with the right of entry to access the property for the purposes of conducting predevelopment activities.
An ENA is not a commitment to develop or to convey interests in land to a developer. It is an agreement to negotiate only with a specific developer, and a right of entry to be used while the developer pursues entitlements on the site. Once the site is entitled and the environmental review is complete, staff will return to the City Council for additional approvals. In addition, because the site is subject to the HomeKey Standard Agreement, completion of the developer transition and any subsequent agreements for the site remain contingent on HCD’s approval of the pending Standard Agreement amendment substituting ECS for the current co-grantee entities.
If ECS is unable to successfully reach an agreement with the City or does not comply in a timely and diligent manner with any material obligation of ECS under the ENA, the City may terminate the ENA and commence exclusive negotiations with the secondary- ranked respondent, Propertyworx LLC.
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
The Propertyworx LLC team, a partnership between Community HousingWorks (CHW) and Cloud Apartments (Cloud), proposes redeveloping the Arena Hotel as 210 modular rental units delivered in two phases, including all 100% affordable at 80% AMI or below, averaging roughly 60% AMI, and structured to comply with HomeKey requirements.
Financing relies on tax-exempt bonds, tax credits, a City loan, and a ground lease returning residual receipts to the City. The team targets financing commitments within 24 months and construction start within 36 months of agreement execution, arguing that modular delivery minimizes neighborhood disruption and improves cost and schedule certainty on the transit-adjacent Diridon site.
EVALUATION AND FOLLOW-UP
Upon approval of any ENA agreement and fulfillment of the associated ENA requirements, including entitlement and environmental review, staff will return to the City Council for approval of the next actions.
The project is required to comply with the Progress Milestone Schedule, consistent with the Performance Milestones included in the Request for Proposals and the Developer's proposal. Any changes to milestones will be subject to the Housing Director's evaluation and are not guaranteed to be approved. Substantial failure to execute these milestones, as determined by the Housing Department, will result in rescission of the land commitment.
Table 1 - Schedule of Performance for Phase I (motel conversion) of the project conversion will include the following milestones:
Table 1: Schedule of Performance for Phase I
Key Project Milestones Date
1 Developer’s Consultant Selection
Developer to identify architectural firms, landscape and other design firms, and consultants for the Project
Within one
month of the
execution of the
Agreement
2 Developer Due Diligence
Developer to complete the following due diligence items as deemed necessary: soils/geotechnical, environmental,
hazardous materials, title review, boundary/ALTA survey, traffic study, utility study, off-site study, acoustics, entitlement process/CEQA review, retail study, residential market study, development fee study, and other studies.
Within four
months of the
execution of the
Agreement
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
Key Project Milestones Date
3 Initial Financing Proposal
Developer to provide evidence that they are actively
seeking additional sources of funding for
development
Within six months of the
execution of the
Agreement
4 Preliminary Planning Review Application
Developer to submit an Enhanced Preliminary
Review Application to the City of San José Planning
Department for review and comment
Within six months of the
execution of the
Agreement
5 Entitlements and other Necessary Land-Use
Approvals
Developer to submit proof that they have obtained all
necessary planning approvals to effectuate the
project
Within 12 months of the
execution of the
Agreement
6 Financing Commitments
Developer to obtain funding commitments and
finalize construction budget
Within 18 months of the
execution of the
Agreement
7 Start Construction Within 36 months of the
execution of the
Agreement
Predevelopment milestones and schedule of performance for the second phase of the project, which will be a new mixed-income housing development in the parking lot area, will be discussed and approved prior to the expiration of the ENA period based on the entitlement requirements and funding stack.
Additionally, prior to disposition of any City-owned site, the City must comply with the Surplus Land Act and the proceedings and findings required under that Act.
Additionally, the Arena Hotel was acquired with Measure E funds; prior to any lease or disposition of the property, the City Council must approve the disposition agreement following a noticed public hearing, supported by a Health and Safety Code Section 33433 report summarizing the value of the property and the terms of disposition.
It is also highly anticipated that the Housing Department will be providing construction and permanent financing for these developments. Though the City Council's request for loan commitments is not expected until one or two years after execution of an ENA.
FISCAL IMPACTS
No expenses will be incurred in connection with pursuing an ENA with ECS. Any potential revenues from the lease or disposition of the property or potential expenditures
HONORABLE MAYOR AND CITY COUNCIL
August 21, 2026
Subject: Actions Related to the Arena Hotel Redevelopment and Homekey Program Transition
for financing the development of the property will be subject to future City Council appropriations approval.
COORDINATION
The preparation of this memorandum was coordinated with the City Attorney’s Office and the City Manager’s Budget Office.
PUBLIC OUTREACH
This memorandum will be posted on the City Council Agenda website for the September 1, 2026 City Council meeting.
BOARD, COMMISSION, COMMITTEE RECOMMENDATION AND INPUT
No board, commission, or committee recommendation or input is associated with this action.
CEQA
Not a Project, File No. PP17-003, Agreements/Contracts (New or Amended) resulting in no physical changes to the environment.
PUBLIC SUBSIDY REPORTING
This item does not include a public subsidy as defined in section 53083 or 53083.1 of the California Government Code or the City’s Open Government Resolution.
/s/
Erik L. Soliván
Director, Housing Department
For questions, please contact Banu San, Deputy Director, Housing Department, at [email protected].