City Council
Report
City Council Meeting: August 11, 2026
Agenda Item: 11.B
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To: Mayor and City Council
From: Aileen Reynolds, Director, Housing and Human Services Department Subject: Report Back Regarding Oversight for the Virginia Avenue Apartment Project Recommended Action
Staff recommends that City Council receive and file informational report responding to the Council’s request for information regarding the Virginia Avenue Apartment Project located at 2033-2101 Virginia Avenue.
Executive Summary
On August 12, 2025, City Council authorized the City Manager to negotiate and execute all necessary documents to make a Housing Trust Fund loan to Community Corporation of Santa Monica (CCSM) of up to $35,650,000 for the rehabilitation of 2033-2101 Virginia Avenue. The property consists of 40 rent-controlled apartments constructed in 1947-48. All tenants at the property were relocated and construction began in November 2025.
On May 26, 2026, the City Council directed the City Manager to have staff work with CCSM in providing information and outreach regarding the rehabilitation progress, expenditures and oversight as detailed in Attachment A.
Background
2033-2101 Virginia Avenue was listed for sale in 2019 which led to outreach from the community to City Council about potential displacement if the property were to be acquired by speculative developers. In January 2020, CCSM acquired the property with a $15,183,670 City Housing Trust Fund (HTF) acquisition and predevelopment loan. 2 of 7
The goals were to 1) preserve the affordability of the homes of long-term tenants to ensure existing tenants, many of whom are low-income, would not be displaced; and 2) substantially rehabilitate the property, which was in poor condition.
The COVID pandemic followed CCSM’s acquisition of the property, resulting in delays and cost escalations. In 2021, the City increased its HTF commitment by $5,376,330 to cover a portion of the anticipated construction costs, bringing the total City commitment at that time to $20,560,000. The City commitment was contingent on CCSM obtaining additional non-City funding to fully fund the rehabilitation.
In 2022, CCSM requested an additional $5,800,561 in City funds, citing challenges in the feasibility of obtaining and using tax credit financing for the rehabilitation as well as higher-than-anticipated rehabilitation needs.
In 2024, CCSM applied for tax credit equity financing and a tax-exempt construction loan to help finance the rehabilitation. At that point, the City had committed a total of $32,115,008 in HTFs (including acquisition and predevelopment costs) under the City’s Emergency Order on Homelessness and allocated up to 20 Project-Based Vouchers (PBVs) from the Santa Monica Housing Authority to support the project’s ability to leverage outside financing necessary to complete the rehabilitation. However, the tax credit application was not successful.
CCSM was successful in obtaining $850,000 in federal grant funds through Representative Ted Lieu’s office as well as a $24,999 grant from the City’s Office of Sustainability and the Environment for the sustainability features of the rehabilitation. In addition, CCSM determined the development would be eligible for $200,000 from the Low-Income Weatherization Program (LIWP) from the California Department of Community Services and Development, which would provide reimbursement after the rehabilitation is completed.
On August 12, 2025, the Council authorized the City Manager to negotiate and execute all necessary documents to make a HTF loan to CCSM of up to $35,650,000 for the project. The amount includes $34,800,000 requested by CCSM as well as a 3 of 7
contingency of $850,000 to be released by the City only if the federal grant funds are rescinded.
Construction began in November 2025 following tenant relocation. The project scope, timeline, current construction status, remaining phases, and anticipated completion dates are provided in Attachment B.
Discussion
At the time of City loan closing, the total development budget including all funding sources was $35,874,999. To date, $26,633,843, or 77 percent, of the original budget has been expended. A line item budget and breakdown of expenditures is provided in Attachments B and C.
Projected Budget
As shown in Attachment B, CCSM forecasts that the project will be overbudget by approximately $2.4 million, driven largely by higher-than-estimated construction and relocation costs.
Construction costs are higher than anticipated largely due to the extent of work required to address mold, termite damage, and deteriorated sewer lines. Additional work is also required to correct existing conditions not known prior to construction. For example, the original framing under the stairways, which was not exposed until after the start of construction, required the addition of fire-rated materials for code compliance. As shown in Attachment B, CCSM anticipates that the project’s hard cost budget will increase by approximately $2.7 million, of which approximately $1.2 million will be covered by the project’s hard cost contingency, resulting in a shortfall of about $1.4 million.
Separately, the relocation budget at the time of City loan closing was based on an earlier phased construction and relocation plan in which some of the property would remain occupied while a portion was under construction during each phase. Due to the complexity and cost of adding utility infrastructure so that part of the property could remain occupied, safety risks posed by maintaining occupancy of the site during 4 of 7
construction, and a longer construction period needed to complete an occupied rehabilitation, CCSM ultimately determined that the construction would occur in one phase with all tenants relocated prior to starting on-site work. The projected relocation budget assumes that all households will remain relocated through construction completion in June 2027. CCSM estimates a relocation cost increase of approximately $1.6 million compared to what was budgeted at City loan closing.
Addressing Budget Overruns
As shown in Attachment B, CCSM has reduced budgets or identified cost savings for other line items, such as reserves, legal fees and insurance, to offset the overruns in construction and relocation costs. In addition, CCSM is exploring funding opportunities from the California Energy Commission’s Building Initiative for Low-Emissions Development (BUILD) program, for the development’s building electrification scope.
There is also the potential for CCSM to obtain a permanent bank loan following construction if enough returning households elect to receive an SMHA PBV. The feasibility of applying PBVs to units with returning tenants depends on the availability of household income information, how many households would income-qualify for a PBV, and how many of those who qualify would see their rent payments reduced with a PBV compared to their existing rent-controlled rent.
The City has also applied for up to $4 million in federal Community Project Funding grant funds administered by the U.S. Department of Housing and Urban Development (HUD) for affordable housing preservation in the Pico neighborhood. If awarded during construction, the grant funds could be applied to the rehabilitation.
The City’s loan agreement stipulates that any costs above the contingency amount shall be paid through reallocating budget from other line items, including but not limited to deferring a portion of the developer fee, of which $1.5 million is still undisbursed.
Outreach and communication
CCSM began a series of quarterly in-person meetings with tenants beginning on June 18, 2026 to discuss rehabilitation progress and answer questions. The next meetings 5 of 7
are anticipated to occur in October 2026, January 2027, and April 2027. CCSM, the project architect and general contractor led tenants on a tour of the property on July 13 and July 14, 2026. During the tour, tenants walked through two apartments in progress, one modified to meet accessibility code requirements, and the other a standard apartment. CCSM has committed to providing monthly email updates to tenants with photos and descriptions of work completed.
Housing Trust Fund Dashboard
The City’s Housing Division has a long-standing Housing Trust Fund webpage ,(https://www.santamonica.gov/housing-trust-funds) which publicly shares funding commitment letters, public meetings, and reasonings for the City’s approval or denial of HTF loans for affordable housing. For additional transparency into HTF loans after City commitment, the Housing Division will add a HTF Dashboard to this webpage. The HTF Dashboard will clearly show the amount of HTF funds committed for each development in predevelopment and construction phase, as well as the amount of HTF funds disbursed.
City’s Oversight Role as Lender
For all construction projects receiving Housing Trust Funds, the Housing Division monitors expenditures, conducts regular site visits, and meets regularly with the development team. Housing Division oversight of the Virginia Avenue rehabilitation includes the following:
• Weekly meetings with the development team, including CCSM’s project manager, the project architect, general contractor, and construction manager.
During the weekly meetings, Housing staff and the development team review completed and upcoming work, the contractor’s applications for payment, change order requests, discuss permitting and inspection, and review other items pertaining to project delivery and conformance with City loan requirements. 6 of 7
• Twice-monthly site visits with the development team to review work completed and potential change orders.
• Monthly site visits, review of change orders, and review of the general contractor’s applications for payment by a third-party lender’s representative hired by the City.
• Review of CCSM’s monthly loan draw requests, including documentation of expenditures and budget reallocations.
• Weekly meetings with CCSM’s project manager to discuss loan draw requests, potential other funding sources, outreach and communication, and any other project management matters.
Environmental Review
This update report is not a “project” within the meaning of the California Environmental Quality Act because no action is proposed that would result in a direct or reasonably foreseeable indirect physical change in the environment (Public Resources Code Section 21065). The item consists solely of informational updates and therefore, falls within the activities excluded from the definition of a project under CEQA Guidelines Section 15378(b). Accordingly, no environmental review is required at this time.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary as a result of the recommended action. Staff will return to Council if specific budget actions are required in the future.
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Prepared By: Ayala Scott, Senior Development Analyst
Approved Forwarded to Council
Attachments:
A. Request from Councilmember Negrete that the City Council Consider Directing the City Manager to engage with CCSM regarding the rehabilitation project at the Virginia Avenue Apartments as outlined i
B. CCSM Presentation
C. 2033-2101 Virginia Avenue - City Loan Expenditures as of July 2026 D. Written Comments
E. PowerPoint Presentation