HomeMy WebLinkAbout2026-05-14; Housing Commission; 02; Request from Kingdom Development for a Housing Trust Fund loan not to exceed $850,000 toward development costs of Chestnut ApartmentsMeeting Date: May 14, 2026
To: Housing Commission
From: Mandy Mills, Housing & Homeless Services Director
Staff Contact: Mandy Mills, Housing & Homeless Services Director
mandy.mills@carlsbadca.gov, 442-339-2907
Subject: Request from Kingdom Development for a Housing Trust Fund loan not to
exceed $850,000 toward development costs of Chestnut Apartments
District: 1
Recommended Action
Adopt a resolution recommending that the City Council approve a loan to Chestnut Apartments,
LP, from the Housing Trust Fund in an amount not to exceed $850,000 for gap financing toward
development costs of Chestnut Apartments.
Executive Summary
In 2014, the city provided a $3.1 million Housing Trust Fund loan to Solutions Chestnut, LLC, a
subsidiary of Solutions for Change, Inc. to acquire the Chestnut Apartments, a 16-unit
apartment complex at 945 Chestnut Ave., to provide affordable housing for homeless families.
In the ensuing years, Solutions for Change was unable to fulfill their obligations under the city’s
loan and proposed to transfer ownership of the property back to the city in exchange for
forgiveness of the remaining loan balance.
The City Council on May 21, 2024, authorized the acquisition of Chestnut Apartments as well as
loan forgiveness, and authorized staff to pursue the sale of the property. On Sept. 23, 2025, the
City Council approved an agreement with Kingdom Development to manage the property upon
ownership transfer to the city for an interim period while Kingdom Development arranged
financing and other subsidies necessary to make the acquisition and rehabilitation feasible.
Kingdom Development’s financing proposal to acquire the Chestnut Apartments from the City
of Carlsbad to operate as affordable housing includes carryback financing for the acquisition
and a maximum loan of $850,000 from the Housing Trust Fund towards other development
costs. City Council Policy No. 90 establishes the requirements and process in the use of the
city’s Housing Trust Fund. In accordance with the Policy, the Housing Commission is being
presented an opportunity to review the financing request for potential recommendation to the
City Council.
HOUSING COMMISSION
May 14, 2026 Item #2 Page 1 of 6
Explanation & Analysis
The city provided a $3.1 million loan to Solutions for Change (Solutions) to acquire the 16 units
on Chestnut Avenue to provide permanent affordable housing for homeless families who had
graduated from the Solutions Academy.
The city and Solutions entered into agreements
requiring Solutions to obtain additional
financing to perform relocation and substantial
rehabilitation of the apartment project by Dec.
31, 2019. Solutions was unable to obtain
financing required 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 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
In 2024, city staff solicited proposals to identify a new owner for the property, and beginning in
2025, began pursuing negotiations with Kingdom Development. Kingdom Development, Inc. is a
California nonprofit public benefit corporation that has acquired/developed 42 affordable
housing communities since its inception in 2015. They have demonstrated experience with tax
credit financing and operation of projects that range in size, location and type. They have 5
(five) projects in San Diego County. During the due diligence process, staff found that all
neighboring jurisdictions in which Kingdom operates, relayed positive feedback about their
experience with Kingdom Development. Kingdom Development now owns, or is in the process
of purchasing, majority of, the affordable housing residential properties previously owned by
Solutions for Change.
Kingdom Development has been managing the property since July 2025, and therefore the
transfer of ownership will be a seamless transition for all parties, including the existing
residents.
Financing Requests
Kingdom Development is prepared to secure financing and other subsidies necessary to make
acquisition and rehabilitation of the property feasible. Kingdom Development has created a
limited partnership, Chestnut Apartments, LP, that will be the legal entity for borrowing the
funding. City staff reviewed Kingdom Development’s funding proposal, which has also been
reviewed by the Housing Policy Team.
May 14, 2026 Item #2 Page 2 of 6
Below is a summary of the proposed sources and uses of funds:
Permanent sources of funds Amount Per unit cost
Senior Loan $1,716,846 $107,303
Tax Credit Equity 5,170,740 323,171
Deferred developer fee 350,815 21,926
City of Carlsbad land loan* 3,100,000 193,750
City of Carlsbad CDBG forgivable Loan** $450,000 28,125
City of Carlsbad loan 850,000 53,125
TOTAL $11,638,401 $727,400
Permanent uses of funds Amount Per unit cost
Property acquisition* $3,100,000 $193,750
Immediate repairs already completed** 450,000 28,125
Construction 3,685,333 230,333
Construction interest and fees 393,149 24,572
Construction contingency 368,533 23,033
Soft costs, other 856,221 53,514
Operating Reserves 69,695 4,356
Architecture and engineering 650,000 40,625
Financing Costs 305,912 19,119
Temp/Perm Relocation 508,200 31,763
Developer fee 1,251,358 78,210
TOTAL $11,638,401 $727,400
*The acquisition cost and city carryback loan to acquire the property will be the same value based
on the appraisal conducted at time of transfer. The original acquisition cost and loan for this were
already incurred/expended in 2014, so no additional cash will be expended. This is included to show
what the city has already invested in the property.
** The City Council approved Community Development Block Grant (CDBG) funds for Kingdom
Development to make immediate and critically needed repairs to the property on Sept. 23, 2025.
The cost and loan for the repairs were already incurred/expended in 2025, so no additional cash will
be expended. This is included to show what the city has already invested in the property.
Kingdom Development’s acquisition and rehabilitation funding strategy includes tax credit
subsidies, a deferred developer fee, city-seller carryback financing, and an additional city loan.
The sale of Chestnut Apartments to Kingdom Development will be for the new appraised value,
to be determined through an appraisal which is currently being conducted. City staff
recommend providing a carryback loan of the same amount to Kingdom Development to
acquire the property from the City of Carlsbad. A carryback loan is a transaction where the
seller provides a loan to the buyer to cover the purchase price. Kingdom Development will
repay the loan over time when there are net proceeds from the property. This is known as a
residual receipts loan which is standard practice for city loans for affordable housing. Loan
documents will be recorded against the property to secure the city’s loan.
Kingdom Development’s proposal includes an additional loan in an amount up to $850,000
from the City of Carlsbad Housing Trust Fund for gap financing. The actual amount will be
May 14, 2026 Item #2 Page 3 of 6
determined toward the end of development when we can determine what actual costs were
compared to financing and other subsidies that were obtained. If construction and relocation
costs end up lower than anticipated and they receive all anticipated revenue the loan could be
lower. Like the carryback loan for the land, Kingdom Development will repay the gap financing
loan over time when there are net proceeds from the property.
Both loans require the preparation of loan documents, including Promissory Notes and Deeds
of Trust which will be recorded against the property to secure repayment of the city’s loans.
Additionally, the loans require that a new Regulatory Agreement will be recorded against the
property to ensure the property is used as affordable housing for 55 years.
Fiscal Analysis
There is no fiscal impact to the General Fund related to the sale of Chestnut Apartments to
Kingdom Development, Inc. The financing proposal includes (2) two loans from the city’s
Housing Trust Fund. The sale of Chestnut Apartments to Kingdom Development is provided as a
carryback loan to Kingdom Development for the value of the property. The carryback loan will
be for the appraised value of the property and is being provided to Kingdom Development to
acquire the property from the City of Carlsbad. The carryback loan is solely a paper transaction,
and no funds are actually distributed from the Housing Trust Fund as the asset is owned
outright. The Housing Trust Fund will have a loan receivable in the amount of the sales price.
For the second loan, staff are requesting that the City Council authorize the reservation of
$850,000 from the Housing Trust Fund as gap financing towards the total development costs. If
construction and relocation costs are lower than anticipated and Kingdom receives all
anticipated revenues for the project, the city’s gap loan could be lower. Loan payments for the
city’s gap loan will be repaid to the Housing Trust fund over time as net revenue from the
property allows. The budget authority requested for the gap financing loan, in an amount not
to exceed $850,000, is available in the Housing Trust Fund. As of June 30, 2025, the Housing
Trust Fund had an available fund balance of $11,587,091.
Next Steps
After the Commission's review and recommendation, the request for financial assistance to
Chestnut Apartments will be forwarded to the City Council for their review and approval. The
city will sell Chestnut Apartments to Chestnut Apartments, LP with a carryback loan from the
Housing Trust Fund. Loan documents will be recorded against the property to secure the city’s
loan and ensure the property is used as affordable housing for 55 years. Shortly after acquiring
the property, Kingdom Development will pursue tax-credit financing to substantially
rehabilitate the property.
Environmental Evaluation
The proposed action is categorically exempt from environmental review under CEQA Guidelines
Section 15301 because it involves the leasing, operation, maintenance and minor alteration of
existing facilities with negligible or no expansion of the existing or former use. No exceptions to
the categorical exemption as set forth in CEQA Guidelines Section 15300.2 or Carlsbad
Municipal Code Section 19.04.070(C) apply.
Exhibit
1.Housing Commission Resolution
May 14, 2026 Item #2 Page 4 of 6
May 14, 2026 Item #2 Page 5 of 6
May 14, 2026 Item #2 Page 6 of 6
Chestnut Apartments
Housing Trust Fund Request
Mandy Mills,
Housing & Homeless Services Director
Nicole Piano-Jones,
Senior Program Manager
Housing Commission
May 14, 2026
1
TODAY’S PRESENTATION
•Project background and history
•Funding request
•Recommended action and next steps
2
ITEM 2: Chestnut Apartments
ITEM 2: Chestnut Apartments
3
AFFORDABLE SITE
CHARACTERISTICS
16 units
1-2 bedrooms
Extensive Rehabilitation Needs
2 stories
Affordability mix
30% - 80% AMI
ITEM 2: Chestnut Apartments
4
History
•2014 $3.1M loan to Solutions for Change
•2015-2020 Solutions explored financing
•2021-2023 Solutions/City explored alternatives
•2023-2025 City sought a development partner
•2025 City/Kingdom Development begin negotiation of
acquisition/rehabilitation of Chestnut Apts.
•2025 City CDBG funds ($450,000) immediate repairs
•2026 City request for sale and $850,000 HTF loan
5
ITEM 2: Chestnut Apartments
North Coast Terrace Apartments -
Oceanside
32 affordable units
Applicant
Background:
•Extensive experience
•Positive regional
project history
•Currently operating
Chestnut Apts.
ITEM 2: Chestnut Apartments
6
Solutions Escondido Apartments-
Escondido
33 affordable units
7
ITEM 2: Chestnut Apartments
Sources of funds Amount Per unit cost
Senior Loan $1,716,846 $107,303
Tax Credit Equity 5,170,740 323,171
Deferred developer fee 350,815 21,926
City of Carlsbad land loan*3,100,000 193,750
City of Carlsbad CDBG forgivable Loan**$450,000 28,125
City of Carlsbad loan 850,000 53,125
TOTAL $11,638,401 $727,400
Uses of funds Amount Per unit cost
Property acquisition*$3,100,000 $193,750
Immediate repairs already completed**450,000 28,125
Construction 3,685,333 230,333
Construction interest and fees 393,149 24,572
Construction contingency 368,533 23,033
Soft costs, other 856,221 53,514
Operating Reserves 69,695 4,356
Architecture and engineering 650,000 40,625
Financing Costs 305,912 19.120
Temp/Perm Relocation 508,200 31,763
Developer fee 1,251,358 28,125
TOTAL $11,638,401 $727,400
SUBSIDY ANALYSIS
City Council Policy 90
Public benefit
Housing Element
Risk
8
ITEM 2: Chestnut Apartments
NEXT STEPS
TAX CREDIT
ALLOCATION
AWARD
LOAN
DOCUMENTS
REHABILITATION
CITY COUNCIL
CONSIDERS
REQUEST & LOAN
9
ITEM 2: Chestnut Apartments
STAFF RECOMMENDATION
•Approve Resolution recommending that the
City Council approve an $850,000 gap financing
loan from the Housing Trust Fund to Chestnut
Apts. LP (Kingdom Development) for
development costs of Chestnut Apts.
10
ITEM 2: Chestnut Apartments