HomeMy WebLinkAbout2014-10-21; City Council; 21763; Approval Community Development Block Grant Funds, Loan to Solutions for Change to Acquire Complex 945 Chestnut Avenue Housing to Homeless FamiliesCITY OF CARLSBAD - AGENDA BILL
AB# 21,763 Approval of resolution approving a grant of DEPT. DIREaOR
MTG. 10/21/2014 federal Community Development Block Grant CITY ATTORNEY
DEPT. CED Funds of $454,000 and a loan of $2,436,000 to
Solutions for Change, to acquire an existing 16-
unit apartment complex at 945 Chestnut
Avenue, for the purpose of providing lower
income affordable housing to homeless
families
CITY MANAGER /
RECOMMENDED AaiON:
That the City Council adopt Resolution No. 2014-243 approving a grant of federal Community
Development Block Grant (CDBG) program funds in the amount of $454,000 and a loan from the City's Housing
Trust Fund in the amount of $2,436,000 to acquire an existing 16-unit apartment complex at 945 Chestnut
Avenue, and to authonze the City Manager and Housing and Neighborhood Services Director in coordination
with the City Attorney to prepare and execute the related grant and loan documents for the purpose of
providing lower income affordable housing to homeless families who graduate from Solutions University.
ITEM EXPLANATION:
Solutions for Change (Solutions) recently contracted with a pnvate property owner to purchase an existing 16
unit apartment complex located at 945 Chestnut Avenue in the histonc Barno neighborhood of the Carlsbad
Village Area. Solutions intends to acquire and own the apartment complex, rehabilitate it over time and rent-
restrict all of the units to provide affordable housing for lower income households. Specifically, after full
rehabilitation of all the units, the apartment complex will provide permanent affordable housing opportunities
for 16 homeless families who have graduated from the Solutions University. To initially finance acquisition of
the noted property. Solutions has requested assistance from the City of Cartsbad.
Solutions for Change was founded in 1999 with a vision to permanently solve family homelessness - one
family, one community at a time. To do so. Solutions has developed a wealth of housing, educational and
social enterprise resources and focuses on solutions to homelessness in three areas: education, enterprise
and providing affordable housing opportunities. Solutions has indicated that the program has led more than
700 families (1,400 children) to permanent solutions to their homelessness. The attached written request
from Solutions provides more program information for review by City Council.
Solutions has been working for many years to create affordable housing opportunities for homeless families
in every city within North San Diego County. Recently, Solutions identified and contracted to purchase a .75
acre site within Cartsbad with an existing 12,600 square foot multi-family complex that was built in 1975 and
provides for 16 apartment homes. Solutions has had the property inspected and determined that the
apartment complex has no major defects or required repairs and with rehabilitation over time will meet the
housing needs of the homeless families who graduate from Solutions University. The development will consist
DEPARTMENT CONTACT; Debbie Fountain 760-434-2935 debbie.fountainOcarlsbadca.gov
FOR CITY CLERKS USE ONLY.
COUNCIL ACTION: APPROVED CONTINUED TO DATE SPECIFIC •
DENIED • CONTINUED TO DATE UNKNOWN •
CONTINUED • RETURNED TO STAFF •
WITHDRAWN • OTHER-SEE MINUTES •
AMENDED •
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of four 1-bedroom, 1-bath apartments (580 square feet) and twelve 2-bedroom, 1-bath apartments (750
square feet). One of the apartment homes will be used for an on-site manager. Solutions intends to rent-
restrict the homes for very low income households earning 50% of the San Diego County Area Median Income
(AMI), which for a family of 4 is currently $39,450. Subject to eligibility, the majonty of current tenants will
remain in the property initially. Over time, as existing tenants move or are relocated, the new tenants will be
graduates of the Solutions University and occupy 100% of the rental homes at full program build-out.
Financial Assistance
As part of the project financing, the Developer requested $3.1 million ($193,750 per unit) from the city to
allow for the property acquisition. The request or proposal from Solutions is attached and has more detail for
City Council review; it indicates that Solutions is seeking an acquisition loan from the city, with possibly part
of the funding provided as a grant (no repayment required). A staff analysis of the request is attached and set
forth in the report to the Housing Commission, dated September 11, 2014.
Housing Policv Team (Staff) Recommendation
The proposed request from Solutions for financial assistance was reviewed by the Housing Policy Team (staff).
The team recommended approval of the financial assistance from the city and the project itself, with the
exception that staff recommended that the amount of assistance be reduced to a maximum of $2,890,000 to
compensate for the appraised value of the property which is lower than the contract purchase pnce by
approximately $210,000. While there is adequate justification for Solutions to purchase the property at the
asking pnce of $3.1 million, staff believes that Solutions should provide the funds required for the purchase
above the appraised value and Solutions has indicated that it would be able to do so.
The proposed project will provide for the following public benefits:
1. Physical enhancement of an aesthetically declining apartment complex within the Histonc Barno
neighborhood of the Village Area;
2. Intenor rehabilitation of existing rental homes to improve livability for the lower income residents;
3. Diversity of housing opportunities for lower income households, and more specifically homeless
families who have completed the Solutions University;
4. Additional units (16 total) to count for affordable housing opportunities within the city for lower
income households; and
5. Meet a program goal within the city's Housing Element and Consolidated Plan (for the CDBG
program) by providing permanent housing and services to a special needs population - homeless
families.
Housing Commission recommendation
At their meeting on September 11, 2014, the Housing Commission reviewed the request from Solutions for
financial assistance to acquire the existing 16 unit apartment complex at 945 Chestnut Avenue. The
Commission recommended (3-0; Smith and Kirk, absent) that the City Council approve financial assistance in
the total amount of up to $2,438,000 from the Housing Trust Fund in form of a loan (either short-term or long
term, as needed); City Council is being asked to approve $2,436,000 from the Housing Trust Fund at this time.
The City Council previously approved a grant of $454,000 in CDBG funds for the project (AB# 21,600). The
total amount of city financial assistance, if approved, for the noted property acquisition will not exceed
$2,890,000 ($180,625 per unit). Solutions will be required to make up the difference in total funds required
to complete the acquisition from their own equity under this approval scenano.
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It is important to note that Solutions hopes to repay most or all of the Housing Trust Fund loan in approximately
5 years, if it is successful in obtaining other sources of financing such as tax credits or other grants/loans from
other agencies. If not successful, the city acquisition loan will become a long term residual receipts loan paid
over time as surplus cash is available from operations.
Financial Assistance Documents
In order to receive financial assistance from the city, Solutions will be required to enter into a CDBG grant
agreement, as well as loan and regulatory agreements for the Housing Trust Funds. As one of the actions set
forth within this report, the City Council is being asked to authonze the City Manager and Housing and
Neighborhood Services Director in coordination with the City Attorney to prepare and execute the required
grant and loan documents.
It is important to also note that the city may ultimately be required to subordinate the subject documents to
any senior lien holder(s) in the future, if applicable, for permanent financing. If approved, the'attached
resolution authonzes the City Manager, or designee, to execute subsequent loan documents and
subordination agreements. While the loan and related subordination documents will not return to the City
Council for review and approval. Staff will take the necessary steps to insure that the documents provide the
city with adequate secunty, notice and cure ability. The grant, loan and subordination documents will be
reviewed by, and be subject to final approval by the City Attorney.
FISCAL IMPACT:
If approved, the financial assistance from the city totaling $2,890,000 will be provided partially as a grant from
federal Community Development Block Grant Funds ($454,000) and the remaining from the city's Housing
Trust Fund ($2,436,000) in the form of a residual receipts loan (starting in year 5). It is Solutions for Change's
intent to repay the City loan in full within 5 years of disbursement; therefore, for the first 5 years the loan will
be a no interest, deferred payment loan. If Solutions is unable to obtain financing to repay the loan in full by
the end of the 5^^ year, the loan will convert to a low interest, residual receipts. The CDBG funds have been
previously approved by the City Council and the US Department of Housing and Urban Development for the
subject project (AB# 21,600); staff is requesting approval to distribute the CDBG funds as a grant at this time.
The Housing Trust Funds, which has a current undesignated fund balance of approximately $15.7 million,
require approval by the City Council. The Housing Trust funds may be used for affordable housing purposes
and only for lower income households. Both the CDBG and the Housing Trust Funds are special revenue
sources; approval of the financial assistance request from Solutions for Change, therefore, will have no impact
on the General Fund.
ENVIRONMENTAL IMPACT
The project is exempt from the California Environmental Quality Act (CEQA) per CEQA Guidelines Section
15194-Affordable Housing.
EXHIBITS:
1. City Council Resolution No. 2014-243 to approve financial assistance for the Solutions for Change
acquisition of an existing apartment complex for affordable housing purposes.
2. Location Map
3. Proposal Letter from Solutions for Change
4. Housing Commission Report and Resolution, dated September 11, 2014.
RESOLUTION NO. 2014-243
1 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, APPROVING A GRANT OF FEDERAL COMMUNITY
^ DEVELOPMENT BLOCK GRANT FUNDS OF $454,000 AND A LOAN
OF $2,646,000 TO ACQUIRE AN EXISTING 16-UNIT APARTMENT
COMPLEX AT 945 CHESTNUT AVENUE, FOR THE PURPOSE OF
4 PROVIDING LOWER INCOME AFFORDABLE HOUSING TO
HOMELESS FAMILIES.
5 APPLICANT: SOLUTIONS FOR CHANGE
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WHEREAS, Solutions for Change (non-profit organization) has proposed to
acquire and rehabilitate 16 rental apartment homes and convert them to rent-restricted
affordable housing for lower income households at 945 Chestnut Avenue in the histonc Barrio
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neighborhood of the Village Area within the northwest quadrant of the City of Carlsbad as a
11 voluntary transaction and with no threat of condemnation; and
12 WHEREAS, Solutions for Change has requested that the City of CaHsbad provide
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financial assistance in the form of an acquisition grant and/or loan up to $3.1 million to assist in
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the acquisition and rehabilitation of an existing apartment complex within the City of Carlsbad
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that will be converted to a rent-restricted development affordable to lower income households
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YJ to accommodate homeless families that graduate from the Solutions for Change University,
18 assisting in the effort to provide a permanent solution to family homelessness; and
WHEREAS, the public benefits of the proposed project include: a) physical
enhancement of an aesthetically declining apartment complex within the historic Barrio
neighborhood ofthe Village area; b) intenor rehabilitation of existing rental homes to improve
livability for lower income residents; c) diversity of housing opportunities for lower income
24 households and more specifically homeless families; d) additional 16 units to count as
25 affordable housing within the city for lower income households; and e) meet a program goal
within the City of Carlsbad's Housing Element and Consolidated Plan (for the CDBG program) by
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1 providing permanent housing and services to a special needs population - homeless families;
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and
WHEREAS, on the 11th day of September, 2014 the City of Cartsbad Housing
Commission did hold a public meeting to consider the request from Solutions for Change for
city financial assistance for the acquisition of said existing apartment complex which provides
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7 for 16 rental apartment homes to be converted to permanent affordable housing for homeless
8 families graduating from the Solutions for Change University, and subsequently recommended
approval ofthe request for financial assistance to the City Council; and
WHEREAS, the City Council did hold, on the date of this resolution, a public
meeting to consider said request from Solutions for Change for city financial assistance for the
acquisition of the existing 16 home rental apartment complex at 945 Chestnut Avenue for
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14 lower income affordable housing purposes for homeless families graduating from the Solutions
15 University; and
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WHEREAS, at said public meeting, upon hearing and considenng all testimony, if
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any, of all persons desiring to be heard, said City Council considered all factors relating to the
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request for financial assistance; and
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2Q WHEREAS, the City Council hereby approves financial assistance to Solutions for
21 Change in the form of a grant in the total amount of $454,000 in federal Community
22 Development Block Grant funds and a loan in the total amount of $2,646,000 from the city's
Housing Trust Fund for the purposes of purchasing an existing 16 apartment complex located at
945 Chestnut Avenue within the histonc Barno neighborhood ofthe Village Area within the City
of Carlsbad to provide for permanent affordable housing for homeless families graduating from
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1 Solutions University and thereby helping to solve family homelessness in the northern San
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Diego County area.
NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council of the City of
Carlsbad, California, as follows:
1. The above recitations are true and correct.
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7 2. The request for city financial assistance will assist Solutions for Change to
8 acquire an existing apartment complex providing for a total of 16 one and two bedroom rental
^ homes located at 945 Chestnut Avenue for the purpose of providing permanent affordable
homes for homeless families who have graduated from Solutions University. The project,
therefore, has the ability to uniquely and effectively serve the city's housing needs and
pnorities as expressed in the Housing Element and the Consolidated Plan. The property will be
14 acquired by Solutions for Change through a voluntary private transaction, and under no threat
15 of condemnation.
3. That the City Council authorizes the City Manager and Housing and
Neighborhood Services Director, in coordination with the City Attorney, to prepare all grant and
loan documents related to provision ofthe city financial assistance in the form of a grant in the
amount of $454,000 of federal Community Development Block Grant funds and a loan in the
21 amount of $2,646,000 to fund the acquisition of the apartment complex at 945 Chestnut
22 Avenue by Solutions for Change to provide permanent affordable housing for homeless families
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in Carlsbad and North San Diego County.
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4. That the City Council authorizes the City Manager, or designee, to
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execute the grant and loan documents as well as subsequent agreement(s) subordinating the
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1 city's Regulatory Agreement and Deed of Trust to the Deed of Trust for acquisition and
2 rehabilitation and permanent lenders, as required, subject to review and approval by the City
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Attorney, and subject to the City Manager finding that no other financing that does not require
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subordination is reasonably available.
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5. That the City Council authonzes the Housing and Neighborhood Services
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7 Department to complete the Request for Release of Funds process, if necessary and
8 appropriate, as set forth by the US Department of Housing and Urban Development for the
^ CDBG funds to be used for the acquisition of the subject property by Solutions for Change, and
the Administrative Services Director to appropnate and disburse the grant and loan proceeds
(from the CDBG Fund and Housing Trust Fund) as set forth within this approval in the total
amount of $3,100,000, and appropriately account for the grant and the loan to Solutions for
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14 Change for the subject affordable housing project, and as set forth in the approved grant and
15 loan documents.
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1 PASSED, APPROVED AND ADOPTED at a Regular Meeting ofthe City Council ofthe City
2 of Carlsbad on the 21st day of October 2014, by the following vote to wit:
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AYES: Council Members Hall, Schumacher, Blackburn.
NOES: Council Member Packard.
ABSENT: Council Member Wood.
MATT HALL, Mayor
ATTEST:
16 BARBARA ENGLESON, Cify Clerk
EXHIBIT 2
PROJECT LOCATION MAP
945 Chestnut Avenue, east of Harding Street, west of Interstate 5
APN:2041912200
EXHIBITS
'Soltftions for CJianqe
June 10, 2014
City Council
City of Carlsbad
1200 Carlsbad Village Drive
Carlsbad, CA 92008
RE: Opportunity to Invest In a Solutions for Change Multifamily Housing Community and
Request for Acquisition Loan
Dear Honorable Mayor and members ofthe City Council:
Thank you for the recent council action approving the use of CDBG funds for an affordable housing
project to benefit the families of Solutions for Change. We are pleased to present to you this proposal
and request for an acquisition loan for the purchase of 945 Chestnut Avenue, Carlsbad. Solutions has
partnered with Hitzke Development Corporation, an affordable housing developer who has a track
record of eliminating blighted apartment complexes and replacing them with award winning affordable
housing communities. This request is part of a larger collective impact regional effort referred to as
Solve It! - an Imperative to Solve Family Homelessness in Northern San Diego.
The City of Carlsbad is one of six local jurisdictions (which also include the County of San Diego,
Oceanside, Vista, San Marcos and Escondido) that have signed on in support of a regional
public/private plan to get over 500 families (about 1,000 children) out of homelessness, employed,
rehoused and reestablished back into our communities. The vision of the effort is to solve family
homelessness in North County by creating more access to per/77a/7e/7f solutions through a coordinated
regional network of housing, educational, health and employment related resources. In addition to
solving homelessness for over 500 families, the effort will expand on a proven innovative model that,
when fully funded and implemented, will provide Carlsbad and the region with long-term permanent
solutions for many years to come.
The educational, workforce development and health sen/ice costs associated with the plan are funded
by private sector investments from area corporations and philanthropists. The capital costs associated
with affordable housing development are funded largely by the public sector - including local
municipalities, state and federal resources. Both are equally important in order for the plan to be
successful. A community leadership team comprised of public and private sector leaders and
investors have been assembled to move the effort fonward. Their names are attached.
Based upon the City Council's input, we have analyzed the project as an acquisition/rehabilitation
project using a straightfonward development approach to acquire the property with a five-year. City of
Carlsbad-sponsored acquisition loan with future development activities being rolled out as described
in the attached three phased approach.
This phased development approach of acquiring and stabilizing then operating the complex as
affordable while performing minor rehabilitation and partial relocation while assembling permanent
financing provides Carlsbad and Solutions with affordable units while giving our team the time it needs
to secure permanent funding. Once secured the development will move into major rehabilitation and
complete relocation, transforming an old, worn apartment complex into a more livable and
aesthetically-pleasing apartment community, while providing graduate families of Solutions University
an affordable place to live. The ultimate goal of this development is to acquire permanent financing
and achieve the major development activities as quickly as possible. In the interim. Solutions will serve
as the landlord, completing repairs and building updates, while managing affordable units for eligible
low-income tenants (including as many Solutions for Change graduate families as possible). It should
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be noted that Solutions is mission-driven and focused on assisting homeless families. Therefore,
Solutions is highly motivated to move into Phase 3 as fast as possible. We are asking for a five-year
loan because we believe this to be a consen/ative enough timeline to allow for multiple attempts at
funding applications, if needed. Because of this conservative estimate, no delays or extensions
beyond these five years are anticipated.
This proposal includes a development budget, sources and uses, and operating income/expense cash
flow that reflects the first two phases of acquisition and minor rehab and relocation. The figures in this
proposal are preliminary, conservative, and subiect to change as we move through the approval
process.
After you have an opportunity to consider this proposal, please let us know if you wish to take the next
steps necessary to take this item fonward to the Housing Commission. To discuss this proposal,
please contact me at (760) 941-6545 ext. 303.
Thank you for your consideration.
Sincerely,
Chris Megison
President / CEO
Solutions for Change
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PRELIMINARY DEVELOPMENT PROPOSAL
AND REQUEST FOR ACQUISITION LOAN
General
This proposal is a formal request from Solutions for Change to obtain a 5-year acquisition loan from
the City of Carlsbad for the purpose of acquiring 945 Chestnut Avenue Carlsbad, an approximately
0.75 acre property with 16 units of multifamily housing. Because ofthe planned phasing ofthis project,
this proposal provides the city with the development details related to how Solutions for Change will
manage the development through Phase 1 and Phase 2. For Phase 3, Solutions will seek and obtain
permanent financing which will 1) repay the loan to Carlsbad, 2) permanently relocate the current
tenants and 3) perform major rehabilitation activities. Solutions will provide the City with a detailed pro
forma for Phase 3 at a later date.
About Solutions for Change
Solutions for Change was founded in 1999 with a vision - a vision of permanently solving family
homelessness - one family, one community at a time. It was our vision then, and it remains our vision
today. To date, we have led more than 700 families (1,400 children) to a permanent solution, at an
estimated savings of more than $35 million in public expenditures.
To solve family homelessness. Solutions has developed a wealth of housing, educational and social
enterprise resources. These resources now encompass about 180,000 ft^ of real estate owned by the
organization which helps 133 homeless families per day. Solutions for Change has organized its
mission around three initiatives: 1) Solutions University, 2) Solutions Enterprises and 3) Solutions in
the Community. Each initiative provides a unique offering to the homeless family and community;
however, we believe that when all three work in unison, the community has the fastest and best
chance of permanently solving family homelessness. All three initiatives are currently operating in
North San Diego County through Solutions for Change.
Solutions University is Solutions for Changes' signature initiative. It is the basis for a deeply personal
transformation journey for the most disconnected, dependent and vulnerable in our communities -
homeless families with children. Solutions University is a 1,000-day strategic partnership that attacks
the causative root of our families' homelessness. It combines learning, practical application and hard
work to make sure our formerly homeless parents are equipped and inspired to become servant
leaders - servant leaders who then return to the community and our workforce as positive role models
for their children and net contributors to our society.
The university is largely funded by private corporations and philanthropists who undenwrite the tuition
and agree to a partnership with Solutions for the benefit of these families. These investors help move
families through the Solutions University and back into the workforce fully equipped. This funding
helps our families break the intergenerational cycle of poverty, returning them to society as net
contributors and freeing them from continuing dependency on taxpayer-funded programs.
Solutions Enterprises is our initiative that matches those we serve with meaningful and purposeful
work, while providing them with practical workforce development. Solutions does this through
mission-based social enterprises that Solutions has intentionally selected because they play a direct
purpose in our overall vision of solving family homelessness. These enterprises provide positive social
benefits to the community in which they operate, while also providing funds that are reinvested back
into the organization to support its overall programs. Solutions' current social enterprises include
Solutions Housing/Real Estate Development and Solutions Farms. Solutions' Housing/Real Estate
Development includes the running and rehabilitation of affordable housing rental communities. In this
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social enterprise, Solutions works as a housing developer and places those we serve in construction
jobs, as well as roles operating and performing the upkeep of our properties. The second social
enterprise, Solutions Farms, is the largest nonprofit aquaponics farm in California and one of the
largest organically-certified aquaponics farms in the country. Because of its innovation and its social
and environmental impacts, the farm has quickly become our signature social enterprise. It has
already won awards for the role it plays while supporting our affordable housing tenants and the larger
community. Unlike traditional farming, it uses 95% less water, has no runoff, uses no chemicals or
pesticides, grows 4-5 times more food per ft^ and is a completely sustainable, locally-grown food
source for people in need in our community. The Farm engages Solutions University participants in the
act of growing, distributing, and selling this organic produce, providing an invaluable workforce
development tool. Produce from the Farm also goes to benefit the local community, providing over
200,000 healthy salads to the local school district annually (with plans to 5x that number in 2015).
Solutions also provides this food at no cost to our families and their kids and to other nonprofits in the
region who serve people in poverty.
Solutions in the Community is a Solutions for Change community building initiative. Affordable
housing is a major component of our families' journey out of homelessness. Without it, no community
can permanently solve family homelessness. Solutions finds and acquires worn apartment complexes
and single family homes and brings them back to healthy, vibrant rental communities. Solutions also
builds new multifamily rental housing. This is where our families live while they undergo the second leg
of their Solutions University journey. After graduation, some families stay on and pay higher rents,
while others move on to market rate apartments. In every case. Solutions is always working with
people to empower them to step up and out of subsidized housing, freeing up affordable units for the
other families who are earlier on their comeback trail. Solutions manages all of its own properties. As
a servant leadership based nonprofit, we naturally connect with our families and by developing deep
connections to our people, and them to each other, we sustain strong healthy, self-accountable
communities that keep our properties beautiful. Solutions in the Community is about community
transformation for parts of our community that our vulnerable and that need healing and restoration.
Our Unique Strength
With our three initiatives described above. Solutions for Change offers a full-sen/ice solution for any
family or community struggling with the seemingly intractable problems associated with family
homelessness. We transform lives and communities while sustaining the transformation with our
innovative social enterprises. What Solutions for Change strives to do better than anyone is to lower
the total cost of public support while increasing the total positive impact on society. Simply put, we
solve family homelessness by equipping and inspiring our people to exit welfare, find their gifts, and
then give back to their society as net contributors. We take people who many think are the weakest
among us, lift them up, equip them and put them to work serving to solve for the sake of others. In
order to achieve this for more families, we are asking Carlsbad to invest in our vision by helping us
create more housing.
Solutions for Change is proud of its extensive history of converting highly distressed properties into
healthy sustainable rental homes that a city can be proud to have their community. We have
accomplished this difficult task in Vista, Fallbrook, Bonsall, Valley Center and San Marcos. The cities
of Oceanside and Escondido have recently approved and awarded funds to assist Solutions in
building new multifamily rental housing in their communities. We hope to bring this unique strength to
the City of Carlsbad through the conversion of the Chestnut property.
Project Descnption
The site is currently a 16-unit, 12,604 square foot multi-family complex that was built in 1975. The
proposed unit mix is (4) 1-bedroom, 1-bath apartments of approximately 580 square feet, (12)
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2-bedroom, 1-bath apartments of about 750 square feet. One of the units would be resen/ed for the
building's on-site Property Manager.
Development Activity Summary
For purpose of this proposal the development activities will consist of acquisition, stabilization and
conversion to multifamily affordable rental housing (Phase 1) followed by minor renovation and a
partial relocation of existing tenants (Phase 2).
Phase Phase Activities
Phase 1 (2014)
Phase 2 (2014-2015)
Phase 3 (2015-2018)
2014 acquisition, stabilization and conversion
to affordable housing development.
Minor renovation, partial relocation. Serve
limited number of Solutions families. Make
application to permanent funding sources.
Obtain permanent funding sources. Perform
major rehab. Conversion to Solutions for
Change housing community sen/ing
maximum number of Solutions families.
Repay Carlsbad loan minus whatever
permanent funding Carlsbad choses to
invest.
Income Restnctions - Affordability is proposed for Phase 1 and Phase 2 as follows:
Unit Type % Median
Income
# Units Monthly
Rent
Utility
Allowance
Total
Monthly
Rent
Annual
Rent
IB/IB 50% 4 $888 $23 $865 $41,520
2B/1B 50% 11 $1066 $30 $1036 $136,752
2B/1B Mgr 1 0 0 0 0
Total Gross Rent From Units $178,222
Plus laundry @ $31 per month for 16 units $5,952
TOTAL GROSS REVENUES $184,224
Vacancy Rate 5%
LESS Vacancy Allowance $8,913
EFFECTIVE GROSS INCOME $175,311
Income Restrictions / Rents in the Future
Solutions will qualify the current tenants as eligible for rent restricted affordable units. Based on our
initial observation we believe that most of the tenants will qualify at or below 50% AMI. Subject to
eligibility the majority of current tenants will remain in the property initially. The proposed affordability
mix would change as current tenants move out and Solutions families move into the units. By
completion of phase three Solutions anticipates that all of families living at the Chestnut property will
be at or below 50% AMI and will all be Solutions for Change graduate families.
Operation of the Property
Solutions for Change would be responsible for management of the property, and would hire a full-time
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Property Manager who will also be skilled at performing the light renovation work. This person will
reside in an exempt unit on the property. The Property Manager will work with our assigned property
management entity and oversee handling the application process; applicant screening and
interviewing; applicant verifications; resident selection; waiting list management; new resident leasing
and orientations; working with the management agent's vendors and contractors; collecting,
depositing and recording rents and other fees; enforcing the lease and rules; submitting reports;
effectively communicating with residents; and assisting with the provision of various resident
amenities to help build a sense of community within the complex. The Property Manager will also be
in charge of collecting all rent and security deposits and will be trained in all policies and procedures
needed to fulfill his/her job duties. This will include all policies and procedures and any other training
required by funding sources. This training will be updated annually through internal training, outside
workshops, seminars, and will include fair housing and fair employment training.
Relocation of Current Residents
Upon purchase ofthe property. Solutions for Change will perform relocation sen/ices to relocate four
of the current tenants to make light renovations and move Solutions graduates in. Solutions has
received a preliminary proposed scope of relocation sen/ices from Overland Pacific. The remaining
twelve tenants will remain in the building until we move into Phase 3 of the development: major
rehabilitation and relocation. Should tenants move prior to Phase 3; the units will be renovated and
additional Solutions graduates will be moved into the open units.
immediate Repairs
Two months after acquisition, Solutions will complete a priority first round of repairs. Plumbing and
electrical repairs are anticipated, as well as gradual renovations, the updating of appliances, and
indoor/outdoor painting. The renovation is expected to be very light as compared with other projects,
allowing the space to be quite functional during the rehabilitation and allowing all tenants to remain
housed.
Operating Budget and Cash Flow Analysis
Rents will be collected on the 16 units throughout the Phase 1 and Phase 2 loan period which is
anticipated to be through year three at which time the project would move into Phase 3 development
activities. Cash flow during Phase 1 and 2 will fund the minor renovation work and the light tenant
relocation. Following is a quick look cash flow summary for Phase 1 and 2. This chart is presented as
a simple estimate to show available net income that could be used for Phase 1 and 2 development
actiyities. For a detailed monthly cash flow projection please see the attached excel file.
Quick Look Cash Flow Summary for Phase 1 and Phase 2
If Needed*
Year 1 Year 2 Years Year 4 Year 5 Total
Income $175,961 $175,961 $175,961 $175,961 $175,961 $879,805
Expense $71,652 $71,652 $71,652 $71,652 $71,652 $358,260
Available $104,309 $104,309 $104,300 $104,300 $104,300 $521,545
Monthly Cash Available For Development Activities
Monthly
Breakdown $8,692 $8,692 $8,692 $8,692 $8,692
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'Extension of Phase 2 into Year 4 and 5 only if more time is required to assemble permanent financing
ailowing us to move into Phase 3.
Acquisition Costs & Approach
An appraisal was ordered and completed, a copy of which will be sent under separate cover. A
property inspection report was also completed. Based on these two documents Solutions revised its
offer and asked for a price reduction from the original contracted price of $3,100,000 to the appraised
value of $2,890,000. Solutions also asked for an additional five months (through November 2014) to
allow adequate time for Solutions and Carlsbad to acquire approvals and close escrow. The seller
agreed to give us the additional time but denied our request to lower the purchase price. The seller did
agree to waive further deposits and not require the original deposit to go hard. These points are
important to Solutions because of our nonprofit mission.
Sources and Uses
The projected sources and uses for Phase 1 and 2 development activities are outlined below:
Acquisition, Stabilization, Minor Development
Uses
Description Amount
Property Acquisition
Relocation Consultant (consultant only)
ALTA Survey + reimbursable
Phase I Environmental Survey + asbestos testing
Borrower Legal
Borrower Interest (3'''' party loans for deposits, costs, etc.)
Title & Escrow
Relocation expense (four units)*
Minor renovation costs
Furnishings / Start-Up
Contingency
$3,100,000
$50,000
$7,650
$10,000
$5,000
$5,000
$10,000
$120,000
$189,927
$5,000
$3,000
Total Development Uses
Costs per Unit
$3,505,577
$219,098
*Relocation consultant will provide actual cost within 60 days.
Acquisition, Stabilization and Minor Development
Sources
Description Amount
CDBG (on hand)
Housing Trust Fund
Available Net Operating Income
$452,000
$2,740,650
$312,927
Total Development Sources $3,505,577
71 Page
Project Timeline
The following timeline is provided to give the City a projected timeframe of the entire development
which includes the later development activities of acquiring permanent financing.
Event
City Staff Complete Review of Proposal
City Housing Commission Review
City Council Meeting
Close Escrow
Stabilization
Relocate Residents (partial)
Start Minor Renovation
Complete Minor Renovation
Lease Up Units (4) to Solutions Families
Obtain Permanent Funding for Phase 3
Submit Development Proposal for Phase 3 Major Rehab and
Relocation
Begin Phase 3 Development Activities
Approximate Date
August 1 2014
September 15 2014
October 30, 2014
November 30 2014
March 2015
March 2015
April 2015
June 2015
June 2015
December 2016
February 2017
January 2018
Attachments
The following attachments have been included for your review:
1. Income & Expense Cash Flow Projection
2. Operating Budget
3. Leadership Team Roster
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EXHIBIT 4
The City ofCarlsbad Housing & Neighbortiood Services Department
A REPORT TO THE HOUSING COMMISSION
staff: Debbie Fountain
Housing and Neighborhood Services
Director
Item No. 1
DATE: September 11, 2014
SUBJECT: SOLUTIONS FOR CHANGE- RECOMMENDATION OF APPROVAL TO
THE CITY COUNCIL TO PROVIDE A TOTAL OF $2,890,000 IN FINANCIAL
ASSISTANCE FOR ACOUISITION OF EXISTING APARTMENT UNITS AT
945 CHESTNUT AVENUE IN THE NORTHWEST QUADRANT OF THE
CITY FOR GRADUATE HOMELESS FAMILIES OF THE SOLUTIONS FOR
CHANGE UNIVERSITY
I. RECOMMENDATION
That the Housing Commission ADOPT Resolution No. 2014-003,
recommending APPROVAL to the City Council to provide up to $2,890,000 in
financial assistance from Community Development Block Grant (CDBG) and
Housing Trust Funds for the Solution for Change's acquisition of a 16 unit
existing apartment complex at 945 Chestnut Avenue to be subsequently
rent restricted to be affordable to lower income homeless families who have
successfully completed the Solutions for Change University.
II. PROJECT BACKGROUND
Eartier this year, the City Council approved the use of $452,000 in federal
CDBG funds for Solutions for Change to partner with a third party to
construct low income affordable homes or to acquire property in Cartsbad
to provide affordable housing opportunities for homeless families who have
successfully completed the Solutions University. Solutions as decided that
the best way to provide for affordable housing for lower income homeless
families in Carlsbad is initially through acquisition and rehabilitation of
existing rental homes. Solutions has identified an existing rental property in
Cartsbad, within the historic Barno neighborhood, and is under contract to
purchase the property if adequate funds can be raised by the organization
to do so. Solutions has submitted a request to the City of Carlsbad for
property acquisition funds in the total amount of $3.1 million. As noted
above, the City has previously approved a portion ofthe requested funding.
Solutions, however, requires additional funding to be provided as a short
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term loan from the City in order to complete the property acquisition at this
time.
Solutions for Change was founded in 1999 with a vision to permanently
solve family homelessness - one family, one community at a time. To solve
family homelessness, Solutions has developed a wealth of housing,
educational and social enterpnse resources and focuses on solutions in
three areas: education, enterpnse and providing for affordable housing
opportunities. More information on these programs developed and
administered by Solutions is included in the attached proposal.
Solutions has identified a 16 unit apartment complex at 945 Chestnut
Avenue in Carlsbad to purchase with the requested financial assistance from
the City. It is a 12,604 square foot multi-family complex that was built in
1975. The unit mix is proposed to be four 1-bedroom, 1 bath apartments of
approximately 580 square feet in size and twelve 2-bedroom, 1 bath
apartments at about 750 square feet in size. One of the units will be
reserved for an on-site property manager.
PROJECT DESCRIPTION
As noted above. Solutions for Change is proposing to purchase an existing
16-unit apartment complex at 945 Chestnut Avenue in Carlsbad. This
affordable housing development will consist of three phases: 1) 2014:
acquisition, stabilization and conversion to a lower income affordable
development; 2) 2014-15: minor renovation, partial relocation of existing
residents and service to a limited number of Solutions families; applications
will be initiated for permanent financing; 3) 2015-18: Obtain permanent
financing, and repay City for a portion or all ofthe acquisition loan; perform
major rehabilitation and then serve maximum number of Solutions families
(15 total).
Solutions has proposed that all units be rent restncted to be affordable to
households at 50% or less of the San Diego County Area Median Income
(AMI). Subject to eligibility the majority of current tenants will remain in the
property initially. The proposed affordability mix may change as current
tenants move out and Solutions families move into the rental homes. By
completion of Phase 3, Solutions anticipates that all of the families living
within the complex will be at or below 50% AMI and will all be Solutions
University graduate families.
Initially, four of the existing families will be relocated to make light
renovations and move in some of the Solutions graduates. The remaining
twelve tenant households will not be required to relocate until Phase 3 of
the project as outlined above.
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Cash flow (rental income) dunng Phase 1 and 2 will fund the minor
renovation work and the limited tenant relocation activities.
An appraisal was ordered by Solutions for Change and completed to
determine the fair market value ofthe property proposed for acquisition by
Solutions for Change. The contract pnce to acquire the property is $3.1
million. However, the appraised value for the property is $2,890,000. Staff
is supporting a recommendation to provide financial assistance to help
Solutions for Change purchase the subject property. However, staff is
recommending a financial assistance amount that is more consistent with
the appraised value for the property. Staff is recommending a maximum of
$2,890,000 in financial assistance from the City of CaHsbad - $452,000 in
CDBG funds (previously approved) and $2,438,000 in Housing Trust Funds.
The CDBG funds are recommended as a grant, and the $2,438,000 is
recommended as a loan to be repaid at a later date in a lump sum or over
time through a residual receipts loan payment. Staff has discussed with
Solutions for Change the need for them to separately raise funds to make up
the difference between the City subsidy and the contract pnce and other
related acquisition costs. Solutions has indicated that they can provide the
funding to fill this financing gap.
IV. DEVELOPMENT TEAM
A partnership team of Solutions for Change and Hitzke Development
Corporation will develop the proposed affordable housing project. Solutions
for Change is expenenced and has recognized expertise in coordinating the
effort to create more access to permanent solutions to family homelessness
in North San Diego County through a coordinated regional network of
housing, educational, health and employment related services. Hitzke
Development Corporation is an affordable housing developer who has a
strong track record of eliminating blighted apartment complexes and
replacing them with award winning affordable housing communities. This is
the first affordable housing development in Cartsbad for this team.
However, they are both well-established and experienced service/affordable
housing providers in other cities, and both have the capacity to successfully
complete the project. The joint proposal from the team is attached and
submitted for review by the Housing Commission.
V. FINANCIAL ASSISTANCE
A. Cost Reasonableness
The developer has provided a development proforma for review by staff and
the Housing Commission (See Exhibit 2). Since development costs are one
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of the key vanables determining the need for subsidies, it is important that
those costs be reasonable. As noted above, the contract price for acquisition
is slightly higher than the appraised value, but it is not significant or
unreasonable. Staff, however, is only recommending financial assistance to
accommodate the property acquisition at the fair market value, per the
appraisal. Solutions will be required to provide the difference from their
own funding or non-city source. Initially, it is anticipated that the total
project costs will be $3,505,577, including the cost of the land and minor
renovation and relocation costs. The average unit cost is therefore
$219,098, which is very reasonable and approximately $100,000 less per
unit than new construction in this neighborhood.
B. Undue Gain
It is important that any financial assistance have the effect of making the
units more affordable and not creating undue gain for any party. There is
no developer fee or profit included in this initial project development, which
is only property acquisition and minor renovation at this time.
C. Subsidy Analysis
The Developer is proposing to finance the acquisition with city funds, and a
small portion of its own equity. The minor renovations will be funded
through rental income over time. At Phase 3, the Developer will seek
permanent financing to allow for substantial or major rehabilitation of the
complex and relocation of the remaining tenants existing at the time of
property purchase. At this time, the City's Housing Trust Fund subsidy of
$2,438,000 in the form of a loan which will either be repaid in full or convert
to a residual receipts loan depending on the amount of other funds received
separately. The CDBG funds in the amount of $452,000 will be provided as a
grant, and repayment will not be required. This subsidy will remain within
the development for the life of the project. Staff is recommending that
direct financial assistance be provided to the project in the total amount of
$2,890,000 for property acquisition. This direct financial assistance will
equate to $180,625 per affordable unit in subsidy from the City of Carlsbad.
The $180,625 per unit is a large public subsidy; however, it is anticipated
that approximately $152,000 per unit shall be invested by the City only as a
short term acquisition loan (maximum of 5 years) that will be repaid by the
developer upon approval of permanent financing for the acquisition and
rehabilitation project. Until the permanent financing source is applied for
and approved, however, there remains uncertainty as to whether or not the
developer will have the funds to repay the short term acquisition loan as
proposed. Therefore, staff suggests it is best to approve the loan with the
understanding and general approval that it may be a long term residual
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receipts loan with an interest rate of 3%, rather than a no interest, no
annual payment short term acquisition loan. Staff believes that the greater
amount of assistance is warranted for the current project for two key
reasons. First, the project is being developed in the northwest quadrant and
outside of the City's Inclusionary Housing Program, which means that there
is no master developer to assist with the subsidy or gap financing and the
costs of land are higher. City assistance is generally required to be much
larger in these cases. Second, the development will meet a different
program need in that it is providing permanent affordable housing for
homeless families and is much more social service oriented than a typical
affordable housing development. It has become difficult for homeless
families to find affordable market rate housing due to the great need and
long waiting lists, but there are also very low vacancy rates in Carlsbad
which further exacerbate the problem. Ultimately, this project will be
designated specifically for, and restricted to, graduates of the Solutions
University as long as it is necessary. As a final note, the project is anticipated
to have rents that do not exceed 50% of the AMI, which is a lower rental
rate that generally requires greater public subsidies.
Form of Assistance
City cash assistance will be in the form of both a grant and a loan. The CDBG
funds ($452,000) will be provided in the form of a grant - no repayment will
be required as long as the property is used for affordable housing purposes
as noted within this report. The Housing Trust Funds will be provided as a
short term acquisition loan with no payments required for the first 5 years.
If the loan is not repaid in full at the end of the five year period it will
convert to a 55 year residual receipts loan secured by a note and deed of
trust with a 3% per annum interest rate. The loan will begin accruing
interest after the completion of construction of the substantial/major
rehabilitation improvements, which is Phase 3 ofthe proposed project.
E. Risk
Initially, the City will be in senior position as lien holder with the property as
collateral. Although there is a slight nsk a junior lien holder (if allowed) could
foreclose to cure a loan default, the City's senior lien position does remain
secure and any new owner would assume the loan obligation or be found in
default and subject to foreclosure action by the City ifthe loan is not repaid.
To mitigate this nsk, the deed of trust could include a term/condition that
does not allow for any junior liens (of any kind) on the property in the short
term.
If the loan converts to a long term residual receipts loan for any reason, the
City will most likely find it necessary to subordinate to the pnmary lender for
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the permanent financing. In this case, there will be risk if the permanent
financing (conventional or otherwise) results in a loan payment to the
lender, and operations do not subsequently return adequate revenue to
cover expenses. This situation could result in a default and subsequent
foreclosure action which could result in a financial loss to the City.
A couple of factors mitigate the potential nsk noted above. From a long
term financing perspective, other financial commitments, such as a tax
credit investment, will have stakeholders that depend on the success ofthe
project and pay attention to the financial health of a project. In other words,
there are a lot of "eyes" on these type of projects that will help to identify
problems early when they can be best addressed. They also have strict
underwriting criteria that help mitigate the nsk. Affordable housing
developers have expertise in operating on tight budgets, and are thoughtful
in the financing used for these type of developments to ensure long term
financial sustainability and regulatory compliance.
VI. FINANCIAL ASSISTANCE AGREEMENT
With a recommendation from the Housing Commission and approval ofthe
City Council,, appropnate documents, including a Financial Assistance
Agreement, Regulatory Agreement, Promissory Note and Deed of Trust, will
be prepared and executed to set forth the terms of the financial assistance
and its repayment.
Vll SUMMARY AND STAFF RECOMMENDATION
It is the role of the Housing Commission to make financial assistance
recommendations to the City Council based on several considerations with
respect to affordable housing projects. These are:
The proposal's effectiveness in serving the City's needs and priorities
as expressed in the Housing Element of the General Plan and the
Consolidated Plan.
The proposal's consistency with the City's affordable housing policies
and ordinances as expressed in the Housing Element.
The proposal's development and operating feasibility, emphasizing
the development team capacity, financing sources and the role of
the City in providing financial assistance or incentives.
It is the Affordable Housing Policy Team's (staff) recommendation that the
Housing Commission approve the resolution of support recommending to
the City Council that the City provide up to a total of $2,890,000 in financial
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cash assistance to Solutions for Change to acquire an existing apartment
complex in the historic Barrio neighborhood to provide permanent
affordable housing opportunities for homeless families who have graduated
from Solutions University. This assistance will be provided in the form of a
grant from Community Development Block Grant funds ($452,000) and a
loan from the Housing Trust Fund ($2,438,000) for property acquisition.
VIII. EXHIBITS
1. Housing Commission Resolution No. 2014-003
2. Solutions for Change Proposal, including a Phase I development proforma
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HOUSING COMMISSION RESOLUTION NO. 2014-003
THAT THE HOUSING COMMISSION RECOMMEND APPROVAL TO THE
CARLSBAD CITY COUNCIL TO PROVIDE A TOTAL OF $2,890,000 IN FINANCIAL
CASH ASSISTANCE TO SOLUTIONS FOR CHANGE FOR ACQUISITION OF
EXISTING APARTMENT UNITS AT 945 CHESTNUT AVENUE IN THE
NORTHWEST QUADRANT OF THE CITY TO CREATE AFFORDABLE HOUSING
OPPORTUNITIES FOR GRADUATE HOMELESS FAMILIES OF THE SOLUTIONS
FOR CHANGE UNIVERSITY.
APPLICANT: SOLUTIONS FOR CHANGE
WHEREAS, Solutions for Change and Hitzke Development Corporation have partnered
and proposed to acquire 16 existing apartment units at 945 Chestnut Avenue within the City of
Carlsbad and rehabilitate them over time to accommodate homeless families that have
participated in and graduated from the Solutions for Change University and are now prepared to
move into pennanent affordable housing; and,
WHEREAS, in partnership with Hitzke Development Corporation, Solutions for Change
has submitted a request for financial assistance to the City of Carlsbad to acquire the existing 16
unit apartment complex at 945 Chestnut Avenue, and this request is now submitted to the City of
Carlsbad's Housing Conunission for review, consideration and a recommendation to the City
Council; and
WHEREAS, said Housing Conunission did, on the 11th day of September, 2014, hold a
public meeting to consider the request for financial assistance from Solutions for Change to
allow for the purchase of the 16 unit existing apartment complex at 945 Chestnut Avenue to
create affordable housing opportunities for the homeless families who have graduated from the
Solutions for Change University and are now prepared to access permanent affordable housing
and lift themselves out of homelessness; and
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WHEREAS, upon hearing and considering all testimony, if any, of all persons desiring to
be heard, said Conunission considered all factors relating to the request for financial assistance
to purchase an existing apartment complex and allow for its conversion to affordable housing for
homeless families.
NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing Commission ofthe
City of Carlsbad, California, as follows:
1. The above recitations are true and correct.
2. The request for financial assistance is consistent v^nth the goals and objectives of
the City of Carlsbad's Housing Element, Consolidated Plan, and the Carlsbad
General Plan.
3. The request for financial assistance will assist Solutions for Change and the
affordable housing developer, Hitzke Development Corporation, to acquire an
existing apartment complex consisting of 16 units and located at 945 Chestnut
Avenue within the City of Carlsbad, and convert the existing market-rate complex
to an affordable housing development to accommodate families with incomes at
50% or less of the area median income for San Diego County. The project,
therefore, has the ability to effectively serve the City's housing needs and
priorities as expressed in the Housing Element and the Consolidated Plan.
4. That based on the information provided within the Housing Commission Staff
Report and testimony presented during the public meeting of the Housing
Commission on September 11, 2014, the Housing Commission hereby ADOPTS
Resolution No. 2014-03, recommending APPROVAL to the City Council of up
to a maximum of $2,890,000 in financial cash assistance from the Community
Development Block Grant Program ($452,000) and the Housing Trust Fund
($2,438,000) to Solutions for Change for the acquisition of an existing 16 unit
apartment complex located at 945 Chestnut Avenue within the City of Carlsbad to
provide for affordable housing opportunities for graduate families of the Solutions
for Change University which is intended to solve the family homelessness
problem in northem San Diego.
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5. Thai the Housing Commission recommends that the Housing and Neighborhood
Services Director be aulhorized by the Cily Council to prepare and execute all
documents related to provision ofthe City assistance, including but not limited to
a Financial Assistance Loan Agreement, Note, Deed of Trust and Regulatory
Agreement, subject to review and approval by the City Attomey.
PASSED, APPROVED, AND ADOPTED at a meeting of the Housing Commission of
the City ofCarlsbad, California, held on the 11"^ of September, 2014, by the following vote, to
wit:
AYES: ANDREWS, BRAD WELL AND IGOE
NOES; NONE
ABSENT: KIRK AND SMITH
ABSTAIN: NONE
SUSAN IGOE, ACTING CHAIRPERSON
CARLSBAD HOUSING COMMISSION
DEBORAH K. FOUNTAIN,
HOUSING AND NEIGHBORHOOD SERVICES DIRECTOR