HomeMy WebLinkAbout2026-06-09; City Council; 07; Authorize the Sale of the Chestnut Apartments to a Subsidiary of Kingdom Development through a Carryback Loan and Authorize an Additional Housing Trust Fund Loan not to eCA Review CDS
Meeting Date:
To:
From:
Staff Contact:
nicole.pianojones@carlsbadca.gov, 442-339-2191
Subject:
Kingdom Development through a Carryback Loan and Authorize an
Additional Housing Trust Fund Loan not to exceed $850,000 for
Development Costs
District:
Recommended Actions
1)Adopt resolution authorizing the City Manager to execute all required documents necessary
to complete the sale and property transfer of 945 Chestnut Avenue to The Chestnut
Apartments, LP, through a carryback loan for the appraised value; and
2)Adopt resolution approving a loan to The Chestnut Apartments, LP, from the Housing Trust
Fund in an amount not to exceed $850,000 for gap financing toward development costs of
the 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 its 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 the 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.
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Kingdom Development is now proposing to finance its acquisition of the Chestnut Apartments
from the City of Carlsbad to operate as affordable housing through carryback financing for the
acquisition and a maximum loan of $850,000 from the Housing Trust Fund for other
development costs not covered by other revenue sources to the project, otherwise known as
gap financing. (Carryback financing means the seller provides a loan to the buyer to cover
the purchase price.)
Staff are recommending the City Council authorize the City Manager to execute all required
documents necessary to complete the sale and property transfer of 945 Chestnut Avenue to
The Chestnut Apartments, LP through a carryback loan for the appraised value and approve a
loan to Chestnut Apartments from the Housing Trust Fund in an amount not to exceed
$850,000 for the gap financing for costs of developing the property..
City Council Policy No. 90 establishes the requirements and process for the use of the city’s
Housing Trust Fund. In accordance with the policy, both the Housing Policy Team and the
Housing Commission reviewed the proposed sale and financing and recommended that the City
Council approve.
Explanation & Analysis
Solutions for Change sale to city
The city provided a $3.1 million loan to Solutions for Change 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 for Change
entered into agreements requiring
Solutions 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 financing
required under the terms of the loan
agreement, despite the city granting
three extensions.
The Solutions for Change Board of
Directors ultimately 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.
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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 and/or developed 42
affordable housing communities since its inception in 2015. It has demonstrated experience
with tax credit financing and operation of projects that range in size, location and type, with
five projects in San Diego County. During the due diligence process, staff found all neighboring
jurisdictions where Kingdom Development operates had positive feedback about their
experience with Kingdom Development. Kingdom Development now owns or is in the process
of buying many of the affordable housing properties previously owned by Solutions for Change.
Kingdom Development has been managing the property since July 2025, so the transfer of
ownership will be a seamless transition for all parties, including the existing residents.
Financing requests
Kingdom Development is prepared to secure the financing and other subsidies necessary to
make its acquisition and rehabilitation of the property feasible. Kingdom Development has
created a limited partnership, The Chestnut Apartments, LP, that will be the legal entity to
borrow the funding and acquire and operate the property.
Kingdom Development’s acquisition and rehabilitation funding strategy includes:
•Tax credit equity obtained through the sale of tax credits issued to developers in
exchange for keeping rents affordable
•The developer deferring some of its normal developer fees
•The city providing a loan for the acquisition cost
•An additional city loan from the Housing Trust Fund to cover development costs not
covered by other revenue sources to the project
Below is a summary of the proposed sources and uses of funds:
Permanent sources of funds Amount Per unit cost
TOTAL $11,638,401 $727,400
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Permanent uses of funds Amount Per unit cost
Property acquisition* $3,100,000 $193,750
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 and expended in 2014, so no additional cash will be spent.
This is included to show what the city has already invested in the property.
** The City Council approved Community Development Block Grant 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 and/or expended in 2025, so
no additional cash will be expended. This is also included to show what the city has already
invested in the property.
The sale of Chestnut Apartments to Kingdom Development will be for the new appraised value,
to be determined through an appraisal 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.
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 for any development costs not
adequately covered by other revenue sources. The actual amount will be determined toward
the end of development when we can determine what the actual costs were compared to the
financing and other subsidies that were obtained. If construction and relocation costs end up
being lower than anticipated and Kingdom Development receives all the revenue it anticipates,
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 that will be recorded against the
property to secure repayment of the city’s loans. Additionally, the loans require that a new
June 9, 2026 Item #7 Page 4 of 11
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regulatory agreement be recorded against the property to ensure the property is used as
affordable housing for 55 years.
Additional review
City Council Policy No. 90 requires that the City Council make final decisions on Housing Trust
Fund financial assistance after review and recommendation by the Housing Policy Team and the
Housing Commission. The city’s Housing Policy Team, composed of staff representatives from
Finance, Community Development, Housing & Homeless Services, and the City Attorney’s
Office, recommended the Housing Trust Fund commitment on May 5, 2026.
The Housing Commission also reviewed the financial request and voted to recommend the City
Council approve the funding from the Housing Trust Fund for Chestnut Apartments on May 14,
2026.
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 two loans from the city’s Housing
Trust Fund.
For the first loan, the Chestnut Apartments property is an asset of the Housing Trust Fund
because it was obtained in exchange for the cancellation of the Housing Trust Loan issued for
the original acquisition. Instead of loan repayment, the Housing Trust Fund acquired the asset,
which covered the amount of the loan amount due.
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 amount owed in the amount of the sales price.
For the second loan, staff are recommending that the City Council authorize a loan in an
amount not to exceed $850,000. Upon the loan’s approval, this amount will be committed and
made available from the Housing Trust Fund. If construction and relocation costs are lower than
anticipated and Kingdom receives all of its 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 for the gap financing loan,
in an amount not to exceed $850,000, is being requested from the fund balance 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
The city will sell Chestnut Apartments to a limited partnership created and managed by
Kingdom Development 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.
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Environmental Evaluation
The proposed action is categorically exempt from environmental review under California
Environmental Quality Act, or 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.
Exhibits
1.City Council resolution - Sale and property transfer
2.City Council resolution - Loan from Housing Trust Fund
June 9, 2026 Item #7 Page 6 of 11
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Exhibit 1 RESOLUTION NO. 2026-107
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, AUTHORIZING THE CITY MANAGER TO EXECUTE ALL REQUIRED
DOCUMENTS NECESSARY TO COMPLETE THE SALE AND PROPERTY
TRANSFER OF 945 CHESTNUT AVENUE TO THE CHESTNUT APARTMENTS, LP,
THROUGH A CARRYBACK LOAN FOR THE APPRAISED VALUE
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
Avenue, to provide affordable housing for homeless families; 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, on May 21, 2024, the City Council adopted Resolution No. 2024-113, declaring the
property to be exempt surplus land pursuant to California Government Code Section 54221(f)(1)(A) as
property planned to be purchased and transferred pursuant to California Government Code Section
37364; and
WHEREAS, on Sept. 23, 2025, the City Council adopted Resolution No. 2025-219, authorizing
Kingdom BP LLC, a subsidiary of Kingdom Development, Inc. to manage and operate the Chestnut
Apartments at 945 Chestnut Avenue; and
WHEREAS, on Sept. 23, 2025, the City Council adopted Resolution No. 2025-220, authorizing a
forgivable loan not to exceed $500,000 in Community Development Block Grant funds to Kingdom BP
LLC, as operator of the Chestnut Apartments, to make immediate repairs at the Chestnut Apartments
affordable housing project; and
WHEREAS, the city wishes to sell the Chestnut Apartments, located at 945 Chestnut Avenue,
Carlsbad, CA, 92008, to a subsidiary of Kingdom Development, Inc. at the appraised value of the
property. The city desires to lend the proceeds necessary to acquire the property from the City of
Carlsbad. The loan will be secured by a deed of trust recorded on the property; and
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WHEREAS, the use of the property will be restricted by a regulatory agreement recorded against
the property for a period of 55 years to uses that exceed the minimum affordability requirements
pursuant to California Government Code Section 37364; and
WHEREAS, Kingdom Development, Inc. has created a limited partnership, The Chestnut
Apartments, LP, that will be the legal entity to borrow the funding and acquire and operate the
property.
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 categorically exempt from environmental review under
California Environmental Quality Act, or 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.
3.That the City Manager, or designee, is authorized to execute and record all required
documents, to the satisfaction of the City Attorney, necessary to complete the sale and
property transfer of 945 Chestnut Avenue for the current appraised value to The
Chestnut Apartments, LP, a limited partnership created and managed by Kingdom
Development, Inc.
4.That the City Manager, or designee, is authorized to execute and record all required loan
documents, to the satisfaction of the City Attorney, necessary to complete a carryback
loan in the amount of the current appraised value to The Chestnut Apartments, LP for
the acquisition of 945 Chestnut Avenue.
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PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City
of Carlsbad on the 9th day of June, 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)
June 9, 2026 Item #7 Page 9 of 11
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Exhibit 2 RESOLUTION NO. 2026-108
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING A LOAN TO THE CHESTNUT APARTMENTS, LP,
FROM THE HOUSING TRUST FUND IN AN AMOUNT NOT TO EXCEED
$850,000 FOR GAP FINANCING TOWARD DEVELOPMENT COSTS OF THE
CHESTNUT APARTMENTS
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. to provide affordable housing for homeless families; and
WHEREAS, on Dec. 24, 2014, 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 Dec. 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, Kingdom Development, Inc. has created a limited partnership, The Chestnut
Apartments, LP, that will be the legal entity to borrow the funding and acquire and operate the
property; and
WHEREAS, the request for financial assistance was submitted to the City of Carlsbad’s Housing
Commission for review and consideration at their public meeting on May 14, 2026, on which date the
Housing Commission approved Resolution No. 2026-004 recommending that the City Council approve
the financial assistance requested in the amount not to exceed $850,000 from the Housing Trust Fund.
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 categorically exempt from environmental review under
California Environmental Quality Act, or CEQA, Guidelines Section 15301 because it
June 9, 2026 Item #7 Page 10 of 11
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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.
3.That the request for a loan commitment from the Housing Trust Fund to The Chestnut
Apartments, LP, a subsidiary of Kingdom Development, Inc., in an amount not to exceed
$850,000 for gap financing toward development costs of Chestnut Apartments is
consistent with the goals, objectives and programs of the City of Carlsbad's Housing
Element, City Council Policy No. 90 guidelines, and the city’s Housing Trust Fund
underwriting practices.
4.That the City Manager, or designee, is authorized to assign and appropriate up to
$850,000 from the Housing Trust Fund to The Chestnut Apartments, LP, or another
related business entity, for the Chestnut Apartments affordable housing project once all
project funding is secured by the developer.
5.That the City Manager, or designee, is authorized to prepare and execute all documents
related to the city loan, subject to review and approval by the City Attorney.
PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City
of Carlsbad on the 9th day of June, 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)
June 9, 2026 Item #7 Page 11 of 11
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