REPORT TO THE CITY COUNCIL
FROM: JENNIFER CLARK, Director
Planning and Development Department
PHILIP SKEI, Assistant Director
Planning and Development Department
BY: JENNIFER DAVIS, Sr. Management Analyst
Housing Finance Division
SUBJECT
Title
Actions pertaining to the Fresno Quality HK affordable housing development located at 6051 North Thesta Street, Fresno, California (District 6):
1. ***RESOLUTION - Authorizing acceptance of funding from the California Department of Housing and Community Development Homekey Round 3 Program in the amount of $16,450,000 for the Fresno Quality HK project and authorizing the City Manager, or designee, to enter into and execute a standard agreement to secure the Homekey Round 3 program funds and participate in the Homekey Round 3 Program. (Subject to Mayor’s veto)
2. ***RESOLUTION - Adopt the 27th Amendment to the Annual Appropriation Resolution (AAR) No. 2023-185 to appropriate $16,450,000 for the Fresno Quality HK project from the Homekey Round 3 Program Grant. (Requires 5 Affirmative Votes) (Subject to Mayor’s veto)
3. ***RESOLUTION - Initiating a rezone to remove a condition of zoning requiring a recorded covenant for real property located at 6051 North Thesta Street, APN 409-20-043 pursuant to Fresno Municipal Code Section 15-5803-B.
4. Approve a HOME Investment Partnerships - American Rescue Plan Program (HOME-ARP) Agreement with Fresno Quality Homekey LP, in the amount of $1,749,835.24 to acquire the Fresno Quality Inn for affordable housing development.
5. Approve a Community Development Block Grant (CDBG) Agreement with Fresno Quality Homekey LP, in the amount of $4,250,164.76 to acquire the Fresno Quality Inn for affordable housing development.
6. Approve a Cost Sharing and Reimbursement Agreement between the City of Fresno and Fresno Quality Homekey LP and UP Holdings, LLC.
7. Approve a Rental Assistance Agreement between the City of Fresno and Fresno Quality Homekey LP, in the amount of $690,000 in rental subsidy funds for the Fresno Quality HK project.
Body
RECOMMENDATIONS
Staff recommends the City Council: 1) Adopt the Resolution authorizing acceptance of Award funds from the Homekey Round 3 Program and authorizing the City Manager, or designee, to enter into and execute a standard agreement to secure funding and participation in the Program; 2) Adopt the 27th Amendment to the AAR No. 2023-185 to appropriate the Program Award funds to the Fresno Quality HK project; 3) Adopt the Resolution initiating a rezone to remove a condition of zoning restricting the subject property to motel use only; 4) Approve a HOME-ARP Agreement with the Developer in the amount of $1,749,835.24 for acquisition of the Fresno Quality Inn; 5) Approve a CDBG Agreement with the Developer in the amount of $4,250,164.76 for acquisition of the Fresno Quality Inn; 6) Approve a Cost Sharing and Reimbursement Agreement with the Developer for the project; and 7) Approve a Rental Assistance Agreement with the Developer in the amount of $690,000 in rental subsidy funds for the project.
EXECUTIVE SUMMARY
On April 20, 2023, City Council adopted Resolution 2023-095 authorizing City staff to apply to the California Department of Housing and Community Development (HCD) Homekey Round 3 Program in the amount of $16,450,000 for the Fresno Quality HK project (Project); and adopted Resolution 2023-096 committing the City’s contribution of funds in the amount of $6,000,000 to the Project. The Fresno Quality HK project proposed the acquisition and redevelopment of the Fresno Quality Inn located at 6051 North Thesta Street (Property), into 59 permanent affordable housing units for families and individuals experiencing or at risk of homelessness. The City applied jointly with co-applicant Fresno Quality Homekey LP and UP Holdings, LLC (Developer) who will act as the Developer of the Project.
Adopting the Resolution authorizing the City Manager, or designee, to accept the Program Award funds and execute a standard agreement with HCD will allow the City to secure Project Homekey funding and participate in the Program. Adopting the 27th Amendment to the Annual Appropriation Resolution No. 2023-185 will appropriate the Program Award funds in the amount of $16,450,000 to the Project. Adopting the Resolution to initiate a rezone to remove a condition of zoning requiring a recorded covenant restricting the subject property to motel use only will allow the property to be developed as supportive housing under California Assembly Bill 2162. Approving the HOME-ARP and CDBG Agreements with the Developer in the amounts of $1,749,835.24 and $4,250,164.76, respectively, will fulfill the City’s commitment to fund eligible acquisition costs for the Project. Approving the Cost Sharing and Reimbursement Agreement with the Developer will establish certain costs associated with the operation and development of the Project between the City and the Developer. Approving the Rental Assistance Agreement with the Developer in the amount of $690,000 for the first year of operating expenses will ensure rental subsidy funds, based on HUD’s Fair Market Rents, are available for the project in the event other subsidy sources are not secured.
BACKGROUND
On March 29, 2023, HCD announced the availability of approximately $736 million of Homekey Program grant funding through Round 3, for the purpose of sustaining and rapidly expanding housing for persons experiencing or at risk of homelessness. Homekey Round 3 builds on the success of Project Roomkey, as well as the first two rounds of Homekey, to continue a statewide effort to rapidly sustain and expand housing for persons experiencing homelessness or at risk of homelessness, and who are, thereby, disproportionately impacted by the COVID-19 pandemic.
On April 20, 2023, City Council adopted Resolution 2023-095 authorizing the City’s joint grant application with the Developer in the amount of $16,450,000 to the Homekey Round 3 Program Project, which consists of the acquisition and redevelopment of the Quality Inn. On that same date, City Council adopted Resolution 2023-096 committing City funds in the amount of $6,000,000 for the Project, subject to full allocation of Homekey Round 3 Award funds and the City’s execution and recordation of one or more funding agreements. On May 11, 2023, the City jointly applied for Homekey Round 3 Grant funds with the Developer for the Project. The City engaged in community outreach through two community meetings designed to inform constituents and gather input regarding the Project and Homekey grant application. On June 7, 2023, the first meeting was held at the Country Inn with 28 attendees; and on June 27, 2023, the second meeting was held at Hope Lutheran Church with 22 attendees. Those in attendance at both meetings included City officials, Planning and Development Department staff, the Developer’s team, local business owners, residents, and other community stakeholders. On November 1, 2023, HCD issued an Award letter to the City and Developer announcing a Homekey Round 3 Award in the amount of $16,450,000 for the Project.
Fresno Quality HK Project
The Project consists of the acquisition and redevelopment of the Fresno Quality Inn located at 6051 North Thesta Street (Property) into 59 units of permanent affordable housing to serve qualified households experiencing or at risk of homelessness, including a portion of which is set aside for persons who are chronically homeless. The Property consists of a single parcel of land with a total site area of 43,560 SF and is located on the western side of North Thesta Street.
The Property consists of a developed two-story motel building located centrally on the parcel. In addition, the site includes a covered entrance on the eastern side of the building, asphalt-paved parking areas, concrete-paved walkways and flatwork, and associated landscaping. The Property is in good condition and will undergo moderate renovation to convert the existing motel rooms into 58 studio units, to include 9 full ADA units, and 1 manager’s unit. The site renovation will include, but will not be limited to, updates to the walkways to ensure ADA accessibility, repairs to the existing trash enclosure, parking, laundry room, and signage; as well as new and/or repairs to asphalt, concrete, fire sprinklers, wrought iron fence, parking, solar panels, doors, windows, roof, stucco, and stair railings. Studio unit upgrades will include the refurbishment of interior finishes and fixtures, new and/or repairs to smoke detectors, CO2 alarms, flooring, HVAC units, bathroom fixtures, the addition of kitchenettes to each studio, and full ADA accessibility incorporated into the 9 assisted units.
The Developer will provide supportive services that include high quality and individualized case management with a housing focused lens to all individuals and households residing at the Project. Case management services will be provided to all who agree to participate, and will include linkage to substance abuse services, school services, vocational services, mental health services, linkage to entitlement programs, health and disease education, 24/7 peer support, housing retention skills, legal assistance, physical health services, and medical services.
The Project’s acquisition, pre-development, and rehabilitation/construction costs are estimated at $22,450,000. The funding sources for these costs are: 1) $1,749,835.24 HOME-ARP funds; 2) $4,250,164.76 in CDBG funds; and 3) $16,450,000 in Homekey Round 3 Award funds.
Initiating a Rezone to Remove a Condition of Zoning
The building was constructed in 1993 after City Council approved a rezone of the parcel from C-P to C-6 permitting the development of a motel. As a condition of the rezone approval, City staff requested that a covenant be recorded restricting use of the parcel to a motel as a mechanism to limit the traffic associated with other potential permitted C-6 uses such as a business college, supermarket, or bowling alley. As part of the city-wide rezone approved in 2015, this parcel’s zoning was changed to O (“Office”), which allows this property to be converted from lodging-to-dwelling subject to a Conditional Use Permit (CUP). However, California Assembly Bill 2162, which went into effect January 1, 2019, amended Government Code 65651 to allow supportive housing projects as a by right use in zones where multifamily and mixed uses are permitted, including nonresidential zones permitting multifamily uses. Supportive housing projects such as the Fresno Quality HK Project, meeting the criteria set forth in Government Code 65651, are therefore not subject to a CUP or the California Environmental Quality Act. City staff have determined the Fresno Quality HK Project meets the supportive housing requirements of Government Code 65651 and have confirmed their analysis with the City Attorney’s Office. Because it has been determined this Project is allowed by right pursuant to Government Code 65651, the City Attorney’s Office has recommended that rezoning the parcel to remove the 1993 condition of rezone is the appropriate action, which will be initiated by adopting the Resolution. Additionally, City staff have determined that the proposed Project would generate 391 daily trips, which is beneath the 500 daily trip threshold set by the 1993 condition.
CDBG and HOME-ARP Funding
On May 26, 2022, City Council approved the 2022-2023 Annual Action Plan which included CDBG funding for land acquisition to support affordable housing development. At the same meeting, Council approved the HOME-ARP Allocation Plan allocating a portion of the HOME-ARP funds to the development of affordable rental housing, including acquisition, for qualified populations. On December 15, 2022, Council approved Substantial Amendment 2022-01 allocating additional CDBG funds to land acquisition in support of affordable housing development.
On May 19, 2023, the Community Development Division released the 2023-2024 Affordable Housing Development NOFA for available state and federal funding, including CDBG and HOME-ARP, through Planet Bids No. 12302837. In response to the NOFA, the Community Development Division received several applications, one of which was the Fresno Quality Homekey Project. After preliminary underwriting and technical assessment of the applications, the Fresno Quality Homekey project was determined to be one of the most “shovel ready” and is therefore being recommended for funding for acquisition in the amount of $6 million in federal funding, $4,250,164.76 in CDBG and $1,749,835.24 in HOME-ARP. Both the CDBG and HOME-ARP funds will be provided as residual receipts low interest loans, with the balance due and payable in full at the 55-year maturity date.
As an entitlement community receiving CDBG funds, the City is tested by HUD for timeliness sixty days prior to the end of the program year. Timeliness is not met if the amount of entitlement grant funds undisbursed by the U.S. Treasury and available to the City exceeds a ratio of 1.5 of current year entitlement funds. The City currently has a ratio of 3.04 and must expend, document, and drawdown $10.6 million before the next timeliness test. The use of $4.2 million in CDBG for the acquisition of Fresno Quality Inn for the development of affordable housing puts the City in the best position to meet its next timeliness test. Failure to meet the next timeliness test may result in the City’s loss of CDBG entitlement funds.
The City Attorney’s Office has reviewed and approved as to form the attached Resolutions, HOME-ARP Funding Agreement, CDBG Funding Agreement, Cost Sharing and Reimbursement Agreement, and Rental Assistance Agreement.
ENVIRONMENTAL FINDINGS
Staff has determined this project is exempt under Section 15268 (Ministerial Projects), of the California Environmental Quality Act (CEQA) guidelines. The project qualifies for ministerial approval as a qualifying supportive housing project pursuant to Assembly Bill (AB) 2162 (Gov. Code Sec. 65650 et seq.). Ministerial projects approved by public agencies are not subject to CEQA (Pub. Res. Code Sec. 21080(b)(1)).
Furthermore, an environmental review of the project activities was reviewed pursuant to the National Environmental Policy Act (NEPA) guidelines on August 18, 2023, and resulted in a Finding of No Significant Impact. On September 25, 2023, the City received authorization to use grant funds from HUD.
LOCAL PREFERENCE
Local preference was not considered because the action today does not include a bid or award of a construction or services contract.
FISCAL IMPACT
This project is located in Council District 6 and will not impact the General Fund. The sources of funding in this action will be appropriated from HOME Investment Partnerships - American Rescue Plan Program (HOME-ARP); Community Development Block Grant (CDBG); and California Department of Housing and Community Development’s Homekey Round 3 Program Award.
Attachments:
1. Resolution - Accepting Homekey Round 3 Program Award Funds
2. Resolution - 27th Amendment to Annual Appropriation Resolution No. 2023-185
3. Resolution - Initiating a Rezone to Remove a Condition of Zoning
4. Funding Agreement (HOME-ARP)
5. Funding Agreement (CDBG)
6. Cost Sharing and Reimbursement Agreement
7. Rental Assistance Agreement
8. Site Photos and Site Map