To: Honorable Mayor and Members of City Council
From: Steve Potter, City Manager
Prepared By: Stephanie Gaul, Housing Manager
TITLE:
Title
3875 Jefferson Street Surplus Land Act Exemption and Exclusive Negotiating Agreement
LABEL
RECOMMENDED ACTION:
Recommendation
1) Adopt a resolution declaring 3875 Jefferson Street exempt surplus land in accordance with the Surplus Land Act; and
2) Adopt a resolution authorizing the City Manager or their designee to negotiate and enter into an Exclusive Negotiating Agreement with Nova Domus Development, LLC for the development of an affordable housing project at 3875 Jefferson Street and authorizing a predevelopment loan in the amount of $250,000 as documented in Budget Adjustment 78P09
Body
DISCUSSION:
In October 2022, the City Council authorized a Purchase and Sale Agreement to acquire the approximate 2.75 acre property located at 3875 Jefferson Street (“the Property”) for the future development of affordable housing. Upon completion of due diligence investigations, the City acquired the Property in March of 2023. The Property was acquired and improved utilizing $2,762,241 of 1% TOT for Affordable and Workforce Housing funds with the intent that the future project could serve households earning up to 120% of area median income (AMI).
In October 2023, the City Council received a presentation from staff on the status of the property and directed staff to issue a Request for Proposal (RFP) which prioritized affordable housing projects that incorporated a housing land trust model.
In August 2024, a RFP was issued to solicit responses from qualified parties to propose an affordable housing project on the property. In addition to prioritizing housing land trust projects, the RFP prioritized proposals that could move to occupancy promptly and did not need additional financial subsidy from the City or Housing Authority of the City of Napa. Typically, projects are completed faster when they do not need additional competitive funding sources to be completed. The RFP contemplated the City’s approximate $2.7 million investment in the project as a loan that would be secured with a deed of trust against the project.
The RFP was issued under the guidelines for Surplus Land Act exemption under Government Code Section 54221(f)(1)(F). Upon release of the RFP, staff delivered the RFP to all parties listed on the State of California Department of Housing and Community Development (HCD) Developers Interest List as well as the City’s internal list of developers interested in development or funding opportunities.
The RFP responses were due in late September 2024 and three responses were received. All responses were deemed to be qualified respondents and qualified projects. Two of the responses did not propose a housing land trust project and therefore did not meet minimum scoring. The single proposal that met minimum scoring was for a housing land trust project which will provide 19 units of for sale affordable housing (“the Project”).
The development team responding to the top scoring proposal includes Nova Domus Development, LLC (“Nova Domus”) as the developer and Housing Land Trust of the North Bay serving as the land steward. Together they have assembled a team of development professionals who have delivered similar housing land trust projects in Sonoma County. The proposal submitted includes 15 single family for sale residences serving households earning up to 80% of AMI and 4 single family for sale residences serving households earning up to 120% AMI. Under the housing land trust model, the ownership of the homes will remain affordable for current and future buyers under a 99-year ground lease. This Project meets the requirements of Government Code Section 54221(f)(1)(F) to be designated as exempt surplus land.
At this time, the developer has not submitted any development plans to the City and will do so after entering into a development agreement. As part of the development process, the developer will need to refine the Project to meet City development requirements and building codes. In addition to seeking entitlement of the Project, the developer will need to secure all necessary financing for the Project.
Because the housing land trust model operates like a ground lease, and the Project is an ownership project, the Project in its entirety is not expected to produce any income. The ground lease that future homeowners will pay is nominal and will go directly to the Housing Land Trust of the North Bay to offset administrative costs in managing the ground lease. Currently, the financial assumptions of the Project predict a funding gap of approximately $1 million. The developer is actively seeking additional funding sources for the Project. The Project does not provide any financial margin or ongoing operating surplus, the developer is requesting the City’s approximate $2.7 million investment in the Project to be forgivable. The City does not currently have underwriting guidelines for home ownership projects, but Underwriting Guidelines utilized for multifamily transactions allow forgivable loans tied to service provision for projects that have no income source for repayment. Because the housing land trust model will provide 99 years of affordability, 54 years more than typically secured for homeownership projects, staff supports the developers request for the City’s investment into the Property to not be carried as a debt owed to the City. In addition to the forgiveness of the approximate $2.7 million investment the City has made in the Property, the developer is requesting a $250,000 predevelopment loan. This loan would be for predevelopment costs including, but not limited to, architectural design work, engineering fees, and permit fees. This loan can be provided utilizing the 1% TOT for Affordable and Workforce Housing Fund and would be a 0%, 36-month loan that can be converted by application to an affordable housing development loan, pending approval and subject to the City’s adopted Underwriting Guidelines.
Upon receiving a brief presentation on the proposed project, staff is seeking City Council approval to declare the Property as exempt under Government Code Section 54221(f)(1)(F) in accordance with the Surplus Land Act and direct the City Manager or their designee to negotiate and enter into an Exclusive Negotiating Agreement with Nova Domus for the development of the Property.
FINANCIAL IMPACTS:
This item has no fiscal impact to the General Fund. However, approving the loan would result in the commitment of $250,000 from the 1% TOT for Affordable and Workforce Housing Fund (25512500-58608). This would leave an estimated undesignated fund balance of approximately $4.9 million available for other housing projects. A budget adjustment for the loan reservation is necessary and is included in this agenda item.
CEQA:
The City Manager has determined that the Recommended Action described in this Agenda Report is not in-and-of-itself a “project” (pursuant to CEQA Guidelines Section 15378) since it does not result in a physical change in the environment. However, the Recommended Action is a part of a larger “project” that will be subject to environmental review in accordance with CEQA at the “earliest feasible time” prior to “approval” consistent with CEQA Guidelines Sections 15004 and 15352. The larger “project” is execution of an agreement with a developer for the transfer and development of the property for affordable housing, and staff plans to bring back a CEQA analysis of that project to Council prior to Council’s approval of such an agreement.
DOCUMENTS ATTACHED:
ATCH 1 - Resolution
EX A - Legal Description
ATCH 2 - Resolution
EX A - Budget Adjustment 78P09
NOTIFICATION:
Nova Domus and Housing Land Trust of the North Bay were notified of this agenda item. In addition, the two additional RFP Respondents were notified of the agenda item.