HomeMy WebLinkAbout2026-05-12; City Council; 04; Chestnut Apartments Affordable Housing Agreement AmendmentCA Review CDS
Meeting Date: May 12, 2026
To: Mayor and City Council
From: Geoff Patnoe, City Manager
Staff Contact: Nicole Piano-Jones, Senior Program Manager
nicole.pianojones@carlsbadca.gov, 442-339-2191
Subject: Chestnut Apartments Affordable Housing Agreement Amendment
District: 1
Recommended Action
Adopt a resolution authorizing the City Manager to execute an amendment to the affordable
housing regulatory agreement for the Chestnut Apartments, located at 945 Chestnut Avenue.
Executive Summary
The city provided a $3.1 million Housing Trust Fund loan to Solutions for Change in 2014 to help
it acquire the Chestnut Apartments, a 16-unit affordable housing apartment complex for
homeless families located at 945 Chestnut Ave. In the ensuing years, Solutions for Change was
unable to fulfill its obligations under the city’s loan and proposed to transfer ownership of the
property back to the city in exchange for the city forgiving the remaining loan balance.
The City Council authorized the acquisition of Chestnut Apartments as well as the forgiveness of
the loan and authorized staff to pursue sale of the property on May 21, 2024.
Then, on Sept. 23, 2025, the City Council approved a management agreement with Kingdom
Development to operate the property during the interim period between when the city
completes its acquisition of the property from Solutions for Change and when Kingdom
Development completes its acquisition of the property from the city.
While steps are underway to sell the property to Kingdom Development, staff propose an
amendment to the current affordable housing regulatory agreement that is recorded against
the property. This short-term action is expected to help increase Kingdom Development’s
eligibility for competitive affordable housing financing programs and will be replaced with more
permanent agreements when the city sells the property to Kingdom Development.
Amendments to the agreement require City Council approval.
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Explanation & Analysis
Solutions for Change sale to city
The city provided a $3.1 million loan to
Solutions Chestnut, LLC, a subsidiary of
Solutions for Change to acquire the 16
units on Chestnut Avenue to provide
permanent affordable housing for
homeless families who had graduated
from its Solutions Academy.
The city and Solutions for Change
entered into agreements requiring
Solutions for Change to obtain
additional financing to perform
relocation and substantial
rehabilitation of the apartment project
by Dec. 31, 2019.
Solutions for Change was unable to
obtain the required financing under the terms of the loan agreement, despite the city granting
three extensions. Ultimately the Solutions for Change Board of Directors decided to move away
from this project and all government-funded residential projects and programs. The City
Council approved acquisition of the property from Solutions for Change on May 21, 2024, in
exchange for having its loan forgiven. At that time, the City Council also authorized city staff to
seek proposals for a new owner of the property.
City sale to Kingdom Development
City staff solicited proposals to identify a new owner for the property and have been pursuing
negotiations with Kingdom Development. On Sept. 23, 2025, the City Council approved a
management agreement with Kingdom Development, which is currently operating the property
for Solutions for Change, to continue managing the property during the interim period between
when the city completes its acquisition of the property from Solutions for Change and when
Kingdom completes its acquisition of the property from the city.
Amendment to affordable housing regulatory agreement
An affordable housing regulatory agreement is the mechanism used to secure the long-term
affordability requirements on a property. It is anticipated that the city will own Chestnut
Apartments for only a short period of time. Staff are proposing that the regulatory agreement
be amended for that time to better position the property for competitive affordable housing
financing programs.
Existing agreement
The existing affordable housing regulatory agreement recorded for Chestnut Apartments on
Dec. 14, 2014, restricted the use of a property as affordable housing for a designated period of
time. Typically, an agreement is a required component of an affordable housing funding source,
a policy such as the city’s Inclusionary Housing Ordinance, or both. In the case of the Chestnut
Apartments, the affordable housing regulatory agreement was recorded because of the loan to
Solutions for Change from the city’s Housing Trust Fund.
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With the city’s action to take ownership of the property from Solutions for Change in exchange
for loan cancellation, the terms of the loan are no longer applicable. However, the city can’t
simply remove the affordable restrictions. Once a property becomes restricted through the
recording of an affordable housing agreement, state law has strict noticing requirements1 prior
to termination or expiration of the affordability term. The proposed action to amend the
existing affordable housing regulatory agreement maintains compliance with state law, while
achieving other benefits for the property.
Proposed amendments
Staff are proposing two amendments to the affordable housing regulatory agreement. The first
is to lower the affordability restrictions. This recommendation meets the needs of the existing
cost-burdened residents and offers deeper affordability for future households. Lowering the
affordability of the units will also better position the property for competitive affordable
housing financing programs. The table below shows the existing and proposed units by
affordability level, expressed as a percentage of area median income, or AMI.
Affordability level by
percentage of AMI Existing Proposed
30% (Extremely) 0 4
50% (Very Low) 0 6
60% (Low) 8 3
80% (Low) 0 2
90% (Moderate) 8 0
Totals 16 15
(+ 1 manager’s unit)
The second purpose of amending the agreement is to temporarily change the affordability
period from 55 years to five years. The five-year term is consistent with federal Community
Development Block Grant funding restrictions due to the city’s recent CDBG loan for
improvements on the property authorized by the City Council on Sept. 23, 2025. The five-year
term also enhances the property’s eligibility for competitive affordable housing financing
programs by qualifying it for a designated set-aside category of tax credits, enabling it to
compete within a smaller pool of applications rather than being considered in the general pool
of applications. Given the needs of the property and prior unsuccessful attempts to rehabilitate,
this amendment provides a viable pathway to the long-term affordability and physical
sustainability of the project.
The reduced affordability term is temporary in nature, to apply only while the city is the owner.
When city staff return to the City Council in the near future with a financing proposal to sell the
property, the new financing structure will be conditioned on a new 55-year affordable housing
regulatory agreement to be recorded against the property.
1 California Government Code Sections 65863.10 and 65863.11.
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Fiscal Analysis
There is no direct fiscal impact associated with amending the Chestnut Apartments affordable
housing regulatory agreement.
Next Steps
The amended affordable housing agreement will be executed and recorded against the
property. City staff will return to City Council to present a financing structure to sell the
Chestnut Apartments for its continued use as affordable apartments and enter into a new 55-
year affordable housing agreement with the future owner.
Environmental Evaluation
The proposed action is not a “project” as defined by the California Environmental Quality Act,
or CEQA, Section 21065 and CEQA Guidelines Section 15378(a) and does not require
environmental review under CEQA Guidelines Section 15060(c)(2) because the action is limited
to amending an existing Affordable Housing Regulatory Agreement. The action has no potential
to cause either a direct physical change in the environment or a reasonably foreseeable indirect
physical change in the environment.
Exhibit
1.City Council resolution
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Exhibit 1 RESOLUTION NO. 2026-088 .
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, AUTHORIZING THE CITY MANAGER TO EXECUTE AN
AMENDMENT TO THE AFFORDABLE HOUSING REGULATORY AGREEMENT
FOR THE CHESTNUT APARTMENTS, LOCATED AT 945 CHESTNUT AVENUE
WHEREAS, on Dec. 24, 2014, the City of Carlsbad executed a loan of $2,646,000 from the city’s
Housing Trust Fund to Solutions Chestnut, LLC, a subsidiary of Solutions for Change, Inc. (collectively
Solutions for Change), to acquire Chestnut Apartments, a 16-unit apartment complex at 945 Chestnut
Ave. (Property), to provide affordable housing for homeless families; and
WHEREAS, on Dec. 24, 2024, a Regulatory Agreement and Declaration of Restrictive Covenants
was executed, and recorded in the Office of the Recorder of the County of San Diego, State of California
on December 26, 2014, as Instrument No. 2014-0570837 to restrict the use of the Property; and
WHEREAS, Solutions for Change could not fulfill the obligations identified in the 2014 loan
documents recorded against the Property and decided to turn the Property over to the City of Carlsbad
in lieu of loan repayment; and
WHEREAS, on May 21, 2024, the City Council adopted Resolution No. 2024-111, authorizing the
City Manager to execute all documents necessary to complete the City’s acquisition of the Property;
and
WHEREAS, the City provided Kingdom Development, the property operator for Solutions for
Change, Community Development Block Grant (CDBG) funds as a forgivable loan to make critically
needed repairs to the property; and
WHEREAS, the CDBG program is a federally funded program, and carries with it a five year
performance period, and
WHEREAS, an Amendment to the Regulatory Agreement and Declaration of Restrictive
Covenants is needed to align with the Property’s prevailing regulatory funding restrictions.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as
follows:
1.That the above recitations are true and correct.
2.The proposed action is not a “project” as defined by California Environmental Quality
Act, or CEQA, Section 21065 and CEQA Guidelines Section 15378(a) and does not require
environmental review under CEQA Guidelines Section 15060(c)(2) because the action is
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limited to amending an existing Affordable Housing Regulatory Agreement. The action
has no potential to cause either a direct physical change in the environment or a
reasonably foreseeable indirect physical change in the environment.
3.That the City Manager or designee is authorized to execute an Amendment to the
Regulatory Agreement and Declaration of Restrictive Covenants to the satisfaction of
the City Attorney.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City
of Carlsbad on the 12th day of May, 2026, by the following vote, to wit:
AYES: Blackburn, Bhat-Patel, Acosta, Burkholder, Shin.
NAYS: None.
ABSTAIN: None.
ABSENT: None.
______________________________________
KEITH BLACKBURN, Mayor
______________________________________
SHERRY FREISINGER, City Clerk
(SEAL)
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