Special Notice / Hearing: None
Vote Required: Majority
To: Honorable Board of Supervisors
From: Raymond Hodges, Director of Department of Housing
Subject: Updated Funding Commitments for 721 Airport, South San Francisco Project
RECOMMENDATION:
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Adopt a resolution:
A) Approving, adopting and authorizing the President of the Board of Supervisors to execute an updated form Resolution attached as Attachment A as required by the California Department of Housing and Community Development (“HCD”) for the County’s application to the Homekey Program for State funding in an amount not to exceed $27,585,600 for capital and operating expenses for the conversion of a hotel at 721 Airport Boulevard, South San Francisco (the “Property”) to permanent supportive housing for people experiencing or at risk of homelessness (the “Project”); and
B) Authorizing and committing an allocation of $6,750,000 in American Rescue Plan Act (“ARPA”) funds for estimated capital development matching funds for the Project, as required by Homekey and authorized in Resolution Number 079743; and
C) Declaring an intention 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, including $8,100,000 in years 2 to 7 (as authorized in Resolution Number 079743) and $11,000,000 in years 7 to 13 of the Project; and
D) Declaring support for a funding plan for the provision of operating subsidies for the Project using such County, state or federal funds as may be available in the amount of $4,493,678 for years 13-15 of the Project; and
E) Authorizing and directing the Director of the Department of Housing, or designee(s), to take such further actions with the approval of the County Executive that may be necessary to execute the Standard Agreement that includes the complete Homekey application and all required attachments, including but not limited to the Verification of Acceptance, and finalize any conditions imposed on the Homekey award as may be necessary and advisable to effectuate the purposes of this Resolution; and
F) Authorizing the Director of the Department of Housing, or designee(s), acting in consultation with the County Attorney and the approval of the County Executive, to negotiate and execute any and all agreements, documents, certificates and amendments as may be necessary and advisable and within the scope of funding authorized by the Board for the Project pursuant to this Resolution, including such agreements referenced in the Memorandum of Understanding between the County, a special purpose entity (“Special Purpose Entity”) owned and controlled by Episcopal Community Services (“ECS”), and ECS, authorized by this Board in Resolution No. 079743 and attached as Attachment B.
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BACKGROUND:
A. The County Receives Funding Under Homekey Rounds 1 and 2 to Acquire and Convert Hotels to Supportive Housing.
Building off the success of Project Roomkey, the State created Homekey to sustain and expand the inventory of housing for those experiencing homelessness, or at risk of homelessness, and disproportionately impacted by COVID-19. Homekey provides local public agencies with funding to purchase a broad range of housing types, such as hotels, motels, vacant apartment buildings, and other properties, and convert them into permanent or interim housing for the target population. To date, there have been three rounds of Homekey funding.
In 2020, the County applied for and received funding under Homekey Round 1 to purchase two hotels in Redwood City: Pacific Inn, now known as “Pacific Shelter”, which was converted to a service-enriched 74-unit interim housing site serving San Mateo County residents experiencing homelessness who are highly vulnerable to COVID-19; and Towneplace Suites, now known as “Shores Landing,” which was converted to a service-enriched 95-unit permanent affordable housing site for extremely-low income seniors who may be at risk of homelessness or previously experienced homelessness and at heightened risk for COVID-19 related complications.
In 2021, the County applied for and received funding under Homekey Round 2 to purchase two additional hotels: (1) Stone Villa Inn in San Mateo, now known as El Camino House, which was converted to a service-enriched 44-unit non-congregate shelter; and (2) Comfort Inn in Redwood City, now known as Casa Esperanza, which was converted to a service-enriched 51-unit permanent affordable housing site for extremely low-income households experiencing homelessness or at risk of homelessness. In addition, the County received Homekey Round 2 funding for the Navigation Center, a 240-unit new construction non-congregate shelter in Redwood City with a comprehensive set of on-site services, including medical, dental, and substance abuse treatment, for people experiencing homelessness or at risk of homelessness.
B. The Board authorizes the County’s initial application for Homekey Round 3.
On March 24, 2023, HCD opened Homekey Round 3, with available funds totaling $736 million. Applications for Homekey Round 3 closed in July 2023.
In anticipation of Homekey Round 3 funding, the County conducted a competitive procurement to select one or more non-profit co-applicants to collaborate with the County in the acquisition, rehabilitation, and management of permanent affordable rental housing projects. Of the four respondents, Episcopal Community Services (“ECS”) was selected to be a co-applicant with the County, based on prior experience with Homekey projects and decades of experience in providing comprehensive supportive services to people experiencing homelessness in San Francisco.
Taking into consideration the County’s existing portfolio of non-congregate shelter sites and the concentration of prior Homekey-awarded projects in southern San Mateo County, staff investigated and conducted negotiations on several sites in northern San Mateo County and finalized a recommendation for purchase of the Property.
On June 13, 2023, the Board adopted Resolution Number 079743, which among other actions:
• Authorized the County’s application to Homekey Round 3 for the Project in an amount not to exceed $27,585,600;
• Allocated 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 under which the Special Purpose Entity owned and controlled by ECS, as the County’s co-applicant for the Homekey award, will acquire, rehabilitate, manage, operate, and provide supportive services at the Project in the event the County receives Homekey funding and the County acquires the Property; and
• Approved a resolution in a form required by HCD for the County’s Homekey Round 3 application.
Further to this Board’s authorization, on July 24, 2023, the County, ECS and the Special Purpose Entity entered into the MOU as a condition of the County’s Homekey Round 3 application. Consistent with the purposes of the MOU, the MOU contemplates various agreements necessary to carry out the Project and effectuate the enforceable funding commitments authorized by the Board, including a Predevelopment loan agreement (MOU, § 8.2); a Ground Lease of the Property (MOU, § 9.1); County Development Agreement and County Regulatory Agreement (MOU, § 9.3); Supportive Services Agreement (MOU, § 9.5); and a Housing Voucher Program Agreement (MOU, § 9.6). The MOU is submitted herewith as Attachment B.
On September 12, 2023, this Board declared its intent to purchase the Property.
C. HCD Requests Clarification of County’s Enforceable Funding Commitment for Homekey Round 3 Funding.
In connection with an award of funding for the Project under Homekey Round 3, the County is required to satisfy certain conditions. Among other requirements, the County is required to clarify elements of the enforceable funding commitments and funding plan for the Project reflected in Resolution No. 079743, and to adopt a standard form resolution required by HCD.
DISCUSSION:
In response to HCD’s requests for clarification of the County’s Homekey Round 3 enforceable funding commitments for the Project, staff has prepared a proposed resolution (the “Resolution”) providing an updated set of enforceable funding commitments and addressing other Homekey requirements. The proposed Resolution has several components.
First, pursuant to HCD requirements, the Resolution includes as Attachment A an updated form resolution for adoption by the Board authorizing the County’s application for Homekey funding and participation in the Homekey program. The form resolution conforms to HCD’s requirements and specifies the amount of Homekey funds requested and identifies co-applicant, the Special Purpose Entity. HCD recommends identifying an authorized dollar amount in the form resolution that is twice the anticipated award as amounts are subject to change based on application review. Consistent with this recommendation, the County has requested in the form resolution $27,585,000, an amount representing the maximum potential Homekey award.
Second, pursuant to Homekey requirements, applicants are required to demonstrate local matching contributions and enforceable funding commitments using a formula provided by Homekey. Based on these requirements, the County, if awarded Homekey funds, will be expected to provide a one-time local match contribution for capital development expenditures based on the number of units at the Project and a local match contribution accounting for at least four years of operating subsidies that will support the Project’s operating expenses for a minimum of five years. Those amounts are as follows:
• Based on 45 assisted units at the Project, the minimum proposed County match for the Project’s capital development expenditures is $6,750,000, which contribution would be satisfied using ARPA funds.
• To account for operating subsidies that will support the Project’s operating expenses for a minimum of five years (as required by Homekey program guidance), staff recommends that the Board declare an intention to commit the amount of $8,100,000 for operating support in years 2 to 7 (as provided in Resolution Number 079743) and an additional amount of approximately $11,000,000 for operating support in years 7 to 13 for a total commitment of $19,100,000 of County Housing Voucher Program Measure K funds for the Project’s operating expenses and a supplemental capitalized operating subsidy reserve that is intended to build a trust fund for ongoing operations of the Project and secured with a regulatory agreement.
• Declaring support for a funding plan for the provision of operating subsidies for the Project using such County, state or federal funds as may be available in the amount of $4,493,678 for years 13-15 of the Project.
Third, the proposed resolution authorizes and directs the Director of the Department of Housing, or designee(s), to take such further actions with the approval of the County Executive that may be necessary to execute the Standard Agreement with HCD, all required attachments, and to finalize any conditions imposed on the Homekey award as may be necessary and advisable to effectuate the purposes of this Resolution.
In addition, the proposed Resolution authorizes the Director of the Department of Housing, or designee(s), acting in consultation with the County Attorney and the approval of the County Executive, to negotiate any and all agreements, documents, certificates and amendments as may be necessary and advisable and within the scope of funding authorized by the Board for the Project pursuant to this Resolution, including without limitation such agreements referenced in the MOU between the County, the Special Purpose Entity, and ECS, authorized by this Board in Resolution No. 079743 and as described in Attachment B.
FISCAL IMPACT:
Under the proposed Resolution, the County would commit the following funds to the Project: (1) a local capital development match of up to $6,750,000 consisting of ARPA funds; and (2) Measure K funds under the County Housing Voucher Program of approximately $19,100,000 to subsidize Project operating expenses from year 2 through 13 of the Project. The Resolution also declares the Board’s support for provision of operating subsidies for years 13-15 of the Project in the amount of $4,493,678 in such County, state, or federal funds as may be available.
These amounts will be accounted for in the Department of Housing’s Recommended Budget for FY 2024-25, and, as applicable, in future Recommended Budgets.