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Home My WebLink About15 - Request to Commit $3 Million in Funding to American Family Housing for the Travelodge North Homekey Project at 1400 Bristol Street, Costa MesaQ SEW Pp�T CITY OF z NEWPORT BEACH c�<,FORN'P City Council Staff Report July 11, 2023 Agenda Item No. 15 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Grace K. Leung, City Manager - 949-644-3001, gleung@newportbeachca.gov PREPARED BY: Tara Finnigan, Assistant City Manager, tinnigan@newportbeachca.gov Lauren Wooding Whitlinger, Real Property Administrator Iwooding@newportbeachca.gov PHONE: 949-644-3001 TITLE: Request to Commit $3 Million in Funding to American Family Housing for the Travelodge North Homekey Project at 1400 Bristol Street, Costa Mesa ABSTRACT: The City of Newport Beach (City) has been invited to participate in the funding of a permanent supportive housing project proposed by American Family Housing. The project, located at 1400 Bristol Street, Costa Mesa, would convert the existing, 120-room Travelodge North Motel property, into a 78-unit permanent supportive housing project. Staff recommends the City Council approve committing $3,000,000 toward the conversion of the Travelodge North Homekey Project. RECOMMENDATIONS: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Approve Budget Amendment No. 24-009 appropriating $2,000,000 from General Fund surplus funds for Fiscal Year 2022-23 and transferring $1,000,000 from the General Fund CIP Fund to commit $3,000,000 toward this project as further outlined in this report; and c) Approve a commitment of $3,000,000, and authorize the City Manager to execute a Commitment Letter to American Family Housing for the conversion of the Travelodge North Motel property at 1400 Bristol Street, Costa Mesa, CA, in connection with the application for Homekey Round 3 permanent supportive housing project funding. 15-1 Request to Commit $3 Million in Funding for the Travelodge North Homekey Project July 11, 2023 Page 2 DISCUSSION: Background In March 2023, the State of California Department of Housing and Community Development (HCD) announced the availability of $736 million in Homekey Round 3 funds for projects that would help expand the state's supply of affordable and supportive housing for those experiencing or at risk of homelessness. Following HCD's announcement, the County of Orange (County) released a Request for Information (RFI) to identify a list of developers with potential housing projects that could meet the Homekey eligibility requirements. American Family Housing (AFH) is a nonprofit organization with nearly 40 years of experience providing services to those experiencing or at -risk of homelessness, and in the development and operation of affordable, supportive and bridge housing. AFH currently owns and operates 49 housing projects, encompassing 386 affordable units, in Los Angeles and Orange Counties. AFH responded to the County's RFI with a proposal for the acquisition, conversion and operation of the Travelodge North Motel property located at 1400 Bristol Street, Costa Mesa (Property) as permanent supportive housing for those experiencing or at risk of homelessness (Project). AFH's proposed project would convert the existing 120-unit motel property into 78 total units of housing — 76 units of permanent supportive housing and two manager's units. A location map is included as Attachment A and a project overview is included as Attachment C. Per HCD's Homekey program requirements, the Project would operate as permanent supportive housing for a minimum term of 55 years. The County RFI required applicants' proposals to show financial support from the governing jurisdiction or a plan to secure such support and AFH approached the City of Costa Mesa earlier this year about the Project and the potential for local funding. Permanent Supportive Housing in Newport Beach In recent years, the City of Newport Beach helped to fund The Cove Apartments, comprised of 12 units of permanent affordable and supportive rental housing for homeless veterans and low-income senior citizens. The project, located near 60t" Street and West Coast Highway, opened in 2018. As part of a multi -pronged approach to addressing homelessness, in 2020, the City Council approved identifying approximately $3 million in funding and authorized staff to actively seek experienced affordable housing developers to develop, operate and help finance a project with up to 50 units of permanent supportive housing in Newport Beach. The City issued a Request for Qualifications and ultimately selected Jamboree Housing Corporation and National CORE to help identify a site and develop a project. The first of the two developers to present a project to the City would be awarded the job. Both developers have actively sought property to acquire and convert or develop, but high Newport Beach land values and the dynamic real estate market of recent years have stymied their efforts. To date, neither developer has been able to identify a viable site. 15-2 Request to Commit $3 Million in Funding for the Travelodge North Homekey Project July 11, 2023 Page 3 Proposed Participation in Travelodge North Project Costa Mesa staff was aware that the City of Newport Beach was actively seeking a permanent supportive housing project and contacted Newport Beach staff this spring about participating in the Project and helping to provide the local funding required. Staff has since been in discussions with Costa Mesa and AFH about the Project and the City of Newport Beach's possible participation. AFH has asked Newport Beach to provide a $3,000,000 loan with a 55-year term, at a 3.00% simple interest rate, repaid out of a portion of the project's residual receipts. Costa Mesa would provide $4,000,000 in funding. In return, there would be "local preference" for 28 studio units at the Project, and the County of Orange's Coordinated Entry System (CES) qualifying tenants based, in part, on their connection to Newport Beach or Costa Mesa. As currently proposed, there would be local preference on 12 units for Newport Beach and 16 units for Costa Mesa. Project Scope AFH is currently in escrow to purchase fee simple interest in the Property for $24,000,000 or $200,000 per unit. The outside closing date under the purchase contract is February 24, 2024. The proposed Project includes exterior renovations such as fapade and landscaping improvements, demolition of an existing pool to create a community courtyard, and path of travel upgrades to comply with American with Disabilities Act requirements. Interior renovations include extensive upgrades to all living quarters, the installation of kitchenettes, and the reconfiguration of office space to accommodate on -site services. Due to the small size - approximately 250 square feet - of the existing motel rooms, AFH is proposing to absorb 42 of the current 120 rooms to create 76 studio and one - bedroom apartments. The space reconfiguration will bring the units into compliance with minimum floor space requirements and provide enough space to accommodate the kitchenettes. AFH estimates the total development cost to complete the Project is $45,386,520. Proposed Funding As proposed, the Project's funding would come from the following sources: 1. Homekey Program —The Homekey Program provides grant funding based on the number of rooms acquired. AFH anticipates an award of $28,450,000, or $240,000 per unit, in Homekey funds. The Homekey Program also provides funding to develop and administer a relocation plan to ensure the housing needs of current residents are addressed. 15-3 Request to Commit $3 Million in Funding for the Travelodge North Homekey Project July 11, 2023 Page 4 2. County of Orange — In addition to the County's involvement in the application for Homekey Program funds, in March 2023, the County released the 2023 Supportive Housing Notice of Funding Available (NOFA), making $67.1 million available from state and federal sources including the HOME Investment Partnership (HOME) and the Mental Health Services Act (MHSA) to promote the development of supportive housing. AFH intends to apply for two development loans in addition to the Homekey Program funds: one for $2,400,000 in HOME Funds, and one for $4,421,520 in MHSA funds. Further, to support the ongoing operations of the Project, AFH intends to apply for 48 project -based housing choice vouchers, which would subsidize the difference between a tenant's contribution and the determined rent for a specific unit. 3. City of Costa Mesa — On June 20, 2023, the Costa Mesa City Council approved the commitment of $4,000,000 in local funds to AFH to support the Project. 4. City of Newport Beach — The City is being asked to commit $3,000,000 in local funds to AFH toward the Project. 5. Private Loan — The $3,115,000 balance of the anticipated Project costs are to be sourced from a private mortgage lender, likely for a 20-year term at market rates. A summary of the proposed funding sources is as follows: Funding Source Amount Homekey Program Award $27,700,000 Homekey - Relocation $750,000 County of Orange HOME $2,400,000 County of Orange MHSA $4,421,520 City of Costa Mesa $4,000,000 City of Newport Beach $3,000,000 Private Loan $3,115,000 TOTAL $45,386,520 If approved by the City Council, a letter of commitment from the City will allow AFH to submit applications to the various grant funding sources. The City's funding would be contingent upon the award of all other funding sources, commitment of local preference of 12 units for the City, as well as positive outcomes related to pre -acquisition due diligence investigations typical of affordable housing projects. Costa Mesa's funding commitment is also contingent upon the successful award of funding from the other sources, and the successful completion of pre -development activities such as the environmental review and financial feasibility analysis. Upon award of the various funding sources, a loan agreement with AFH will be presented to the City Council for its consideration. 15-4 Request to Commit $3 Million in Funding for the Travelodge North Homekey Project July 11, 2023 Page 5 Timeline County staff is currently reviewing AFH's proposal, qualifications and request for funding, submitted in response to the County's RFI and Notice of Funding Availability, and anticipates taking the proposal to the Orange County Board of Supervisors for consideration later this month. Should the Orange County Board of Supervisors approve the Project and authorize the County funding this month, AFH will submit its formal application for Homekey Program funds. The developer anticipates the Homekey funding will be released by the end of 2023 or early 2024 and escrow on the property will close soon after. HCD requires units to be available for occupancy within 12 months from the date of award, placing the anticipated completion date of the Project in late 2024 or early 2025. FISCAL IMPACT: In 2020, the City Council approved allocating $3 million to a permanent supportive housing project, appropriating $1 million from the General Fund and anticipating $2 million would come from future development agreement funding. The Fiscal Year 2023-24 Capital Improvement Program (CIP) budget includes $1,000,000 in funding for Permanent Supportive Housing (Project No. 22M15) in the General Fund CIP Fund (012), which will be transferred to the General Fund (010) to fund a portion of the City's $3,000,000 commitment for this project. At this time, additional development agreement contributions have not been received. Therefore, it is recommended that the City Council consider approving a supplemental appropriation of $2,000,000 to account no. 0102041- 841060 in the General Fund utilizing a portion of the anticipated General Fund budget surplus for Fiscal Year 2022-23 (Attachment B). The Third Quarter Budget Update that was provided to the City Council on May 23, 2023, reflected an anticipated budget surplus of $15.8 million. Approximately $8.4 million of the budget surplus is expected to be utilized to set -aside funds for the contingency reserve, and to replenish the FFP and General Fund CIP Fund for amounts attributable to the Dove Street property purchase. Therefore, the unrestricted portion of the General Fund surplus for Fiscal Year 2022-23 is projected to be approximately $7.4 million, which would be reduced to $5.4 million if the City Council approves the supplemental appropriation of $2 million for this permanent supportive housing project. The General Fund would be replenished when development agreement funding is received. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. 15-5 Request to Commit $3 Million in Funding for the Travelodge North Homekey Project July 11, 2023 Page 6 NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Location Map Attachment B — Budget Amendment Attachment C — Project Overview 15-6 NTTAf`LJRACAIT /1 1 1 > is l•'._ _ `..' \\ � / ' —,� •� \ � a • � � �• " -fix ,; .40 73 Newport Beach Boundary ;DO /i<91 ATTACHMENT B � aEW PORT ° City of Newport Beach > BUDGET AMENDMENT C7"Foaa`* 2023-24 BA#: 24-009 Department: City Manager ONETIME: F-,] yes ❑ No Requestor: Tara Finnigan Approvals F 1 CITY MANAGER'S APPROVAL ONLY Finance Director: • c"W WAMA(01 Date 0 COUNCIL APPROVAL REQUIRED City Clerk: Date EXPLANATION FOR REQUEST: To appropriate funding to American Family Housing for the Travelodge North Homekey Project. from existing budget appropriations ❑ from additional estimated revenues Q from unappropriated fund balance REVENUES Fund # Org Object Project Description Increase or (Decrease) 010 01099 691012 GENERAL FUND INTERFUND TRANSFR -TRANSFER IN FUND 01 1,000,000.00 Subtotall $ 1,000,000.00 EXPENDITURES Fund # Org Object Project Description Increase or (Decrease) $ 012 0120192S 980000 22M15 FACILITIES - CIP EXPENDITURES FOR GL (1,000,000.00) 012 01299 991010 INTERFUND TRANSFERS - TRANSFER OUT GENERAL FUND 1,000,000.00 010 0102041 841060 CITY MGR OUTREACH SERVICES - OTHER AGENCY FEES 3,000,000.00 Subtotall $ 3,000,000.00 FUND BALANCE Fund # Object Description Increase or (Decrease) $ 010 300000 GENERAL FUND - FUND BALANCE CONTROL (2,000,000.00) 012 300000 GENERAL FUND CAPITAL PROJECTS - FUND BALANCE CONTROL Subtotal $ _ (2,000,000.00)1 Fund Balance Change Required 15-8 ATTACHMENT C 0• American Family Housing Welcome Home 1400 Bristol Homekey Development Project Summary For its proposed 1400 Bristol Homekey development located at 1400 Bristol Street in Costa Mesa, American Family Housing (AFH) proposes the rehabilitation of a fully operational 120 unit motel into a 78-unit permanent supportive housing community which would house 38 chronically homeless tenants, 28 homeless tenants and 10 tenants who are at -risk of becoming homeless. Two units would be set -aside for on -site property management staff. The project is composed of two 2-story buildings with ample indoor and outdoor common areas. The buildings feature 120 existing hotel rooms which will be renovated to become affordable residential units. Unit improvements include: combining some units so the final unit mix is 36 studio units, 40 one bedroom units and 2 two bedroom staff units. The 3.5 acre site provides ample parking and open space along with a free standing restaurant which would remain as a revenue source for the development. AFH will serve as developer, property manager and supportive services provider. 1400 Bristol will be the 6t" Homekey project that AFH is involved with in a significant role. Financing The City of Costa Mesa intends to provide $4,000,000 in soft financing to the project. To make the project feasible, AFH is requesting $3 million from the City of Newport Beach, which would in turn allow AFH to secure $3 million in Orange County funds. The County would arrange for a local preference for 28 units within the Coordinated Entry System for tenants with a connection to Newport Beach or Costa Mesa in exchange for the two cities financial support. The local preference would also apply for replacement tenants when tenants move out. The requested support of $187,500 per unit is consistent with County MHSA funding levels and the amount of subsidy per unit that other cities in Southern California typically provide. Sources of Funds Homekey $28,450,000 City of Newport Beach 3,000,000 City of Costa Mesa 4,000,000 County of Orange 6,821,520 Permanent Loan 3,115,000 Total $45,386,520 www_AFFI usa.org O 714.897.3221 • F 714.893.6858 15161 Jackson Street, Midway City, CA 92655 15-9 �• American amily ikkousing Unit Mix Unit Type %AMI # Studio (Proj Based Vouchers) 30% 8 1 Bdrm (Pro* Based Vouchers) 30% 40 Studio* 30% 28 Staff NA 2 Total *represents 28 units with local preference Key Milestones Newport Beach City Council Orange County Board of Supervisors Homekey Application Submittal Homekey Anticipated Award Purchase site Start of rehabilitation Finish rehabilitation Complete lease -up American Family Housing m TBD July 18 July 19 September 18 December 4 December 18 September 12, 2024 December 6, 2024 Welcome Home The mission of American Family Housing (AFH) is to provide a continuum of housing and an array of services to support homeless and low-income families and adults to secure a stable home, to be an active part of their community, and to achieve a self-sustaining way of life. AFH brings an interdisciplinary expertise to its mission, generating cost-effective, practical solutions for vulnerable households who otherwise might not be able to secure or maintain a home. REAL ESTATE DEVELOPMENT oversees our construction and acquisition pipeline, with over 200 units coming. PROGRAM SERVICES support our tenants and clients with a focus on evidence -based practices. PROPERTY MANAGEMENT handles the operations and maintenance of more than 50 AFH rental properties. www_AFFI usa.org O 714.897.3221 • F 714.893.6858 15161 Jackson Street, Midway City, CA 92655 15-10