Special Notice / Hearing: None__
Vote Required: Majority
To: Honorable Board of Supervisors
From: Raymond Hodges, Director, Department of Housing
Subject: Measure K: Capitalized Operating Subsidy Reserve funding for 721 Airport South San Francisco
RECOMMENDATION:
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Measure K: Adopt a resolution:
A) Allocating $1,300,000 in Measure K reserves to fund a Capitalized Operating Subsidy Reserve to fund operating expenses and reserves of the 721 Airport permanent supportive housing project; and
B) Authorizing the Director of the Department of Housing, or designee, acting in consultation with the County Attorney, to negotiate and execute an agreement with 721 Airport LLC, to provide a Capitalized Operating Subsidy Reserve, in an amount not to exceed $1,300,000, for the 721 Airport permanent supportive housing project.
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BACKGROUND:
The Homekey Program is a State program that provides local public agencies with funding to purchase a broad range of property types, such as hotels, motels, vacant apartment buildings, and other properties, and convert them into permanent or interim housing for those experiencing homelessness, or at risk of homelessness, and disproportionately impacted by COVID-19 (the “Target Population”).
This Board has authorized numerous actions in connection with the County’s participation in the State Homekey Program to support the creation of permanent supportive housing for people experiencing homelessness. With this Board’s authorization, the County used Homekey funds to acquire the former Ramada Inn located at 721 Airport Blvd., South San Francisco, with the intention of rehabilitating the property and converting it to permanent supportive housing (the “Project”). The Homekey program also provides operating subsidies for initial project operations.
This Board’s past authorizations in connection with the Project are summarized as follows:
On June 13, 2023, the Board adopted Resolution Number 079743, which took the following primary actions:
• Authorized the County’s application to Homekey Round 3 for the Project for funding in an amount not to exceed $27,585,600
• Allocated American Rescue Plan Act (ARPA) funds in the amount of $6,750,000 in local match of funding for capital expenses, and $8,100,000 in the form of County Housing Vouchers to fund Project operations for five years
• Authorized a Memorandum of Understanding (“MOU”) setting forth the terms and conditions by which a Special Purpose Entity owned by Episcopal Community Services (“ECS”), as the County’s co-applicant for the Homekey award, would acquire, rehabilitate, manage, operate, and provide supportive services at the Project
On September 12, 2023, this Board declared its intent to purchase the Property.
On August 13, 2024, the Board adopted Resolution Number 080574, which clarified the County’s funding commitments for the Project and took the following primary actions:
• Approved an updated resolution in a form required by HCD.
• Approved an updated commitment of local matching funds for capital development expenditures and a commitment of five years of the Project’s operating expenses.
• Declared support and an intent to commit an allocation not to exceed $19,100,000 in Measure K funds under the County Housing Voucher Program to provide operating support for the Project, through a 15-year contract with ECS, including $8,100,000 (as authorized in Resolution Number 079743).
• Declared support for a funding plan for the provision of operating subsidies for the Project in out-years using such County, state or federal funds as may be available.
• Authorized the Director of the Department of Housing to enter into various agreements with ECS and the Special Purpose Entity as referenced in their MOU.
Pursuant to this Board’s authority, in December 2024, the County entered into a loan agreement with ECS’ Special Purpose Entity, 721 Airport LLC, to fund rehabilitation with $7,350,000 in ARPA monies, provided in the form of a loan, secured by a deed of trust and subject to a regulatory agreement to ensure the Project would remain continuously affordable for the Target Population for 55 years.
On January 27, 2026, pursuant to Resolution No. 081651, this Board approved the allocation of $2,105,000 in additional funds to complete construction of the Project. The rehabilitation of the Project is now underway with construction completion expected in November and lease-up expected to occur in December 2026 through January 2027. Pursuant to this Board’s authorizations, the property has been ground leased to 721 Airport LLC and is restricted for use as affordable housing for the Target Population.
DISCUSSION:
Permanent supportive housing projects often utilize revenue from multiple sources to fully fund operating expenses. In addition to CDBG-CV funding and Homekey operating subsidies--which must be fully expended by June 30, 2027, the Project’s primary source of revenue for operations is rent subsidy authorized by this Board under the County Housing Voucher Program (CHVP). The CHVP subsidy is a vital source of funding for the Project but is not sufficient to cover the property management and supportive services program expenses planned for the first 7 years when expenses are projected to be the highest.
In view of the Project’s funding requirements, staff recommends that the Board approve an allocation of $1,300,000 from Measure K reserves to fund a supplemental Capitalized Operating Subsidy Reserve (“COSR”). The COSR will fill the funding gap to help cover the initial 7 years of operations and supportive services at the Project. The allocation will be provided to the Department of Housing via an Appropriation Transfer Request in connection with the September revisions to the FY 2026-27 Recommended Budget.
With this Board’s authorization, the COSR would be established under an agreement between the County and 721 Airport LLC, negotiated in consultation with the County Attorney, and will ensure the County’s control and supervision of the funds. The COSR agreement will require that the funds be used for expenses authorized by the County and that such funds will remain with the Project.
The funding provided under the proposed COSR agreement will support clients in achieving greater stability in their lives and developing skills that promote greater self-sufficiency, with the primary goal of maintaining housing and gaining independence.
The County Attorney has reviewed the proposed resolution as to form.
COMMUNITY IMPACT:
The 721 Airport project provides 45 units of permanent supportive housing for seniors who have experienced or are at risk of homelessness, which is a segment of the population experiencing increases in homelessness in the County. The proposed action will ensure funding for services for residents of the Project which will positively impact the Target Population and further the goals of the Board to address homelessness in San Mateo County including reaching and maintaining functional zero status.
FISCAL IMPACT:
Under the proposed action, the County would allocate $1,300,000 in Measure K, reserve funds and there is no impact to Net County Cost. This amount will be included in the September revisions to the FY 2026-27 Recommended Budget.