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Home My WebLink About2023-11-07; City Council; ; Authorizing negotiations for the acquisition of Chestnut Apartments real property at 945 Chestnut Ave. (APN 204-191-2200), an affordable housing property commonly known aCA Review _ RK _ Meeting Date: Nov. 7, 2023 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Mandy Mills, Housing & Homeless Services Director mandy.mills@carlsbadca.gov, 442-339-2907 Subject: Authorizing negotiations for the acquisition of Chestnut Apartments real property at 945 Chestnut Ave. (APN 204-191-2200), an affordable housing property commonly known as Chestnut Apartments District: 1 Recommended Action Adopt a resolution authorizing a city team to negotiate with representatives of Solutions for Change, Inc. on acquisition of real property at 945 Chestnut Ave. (APN 204-191-2200), an affordable housing property known as Chestnut Apartments. Executive Summary In 2014, the city provided $3.1 million from Community Development Block Grant funds and the city’s Housing Trust Fund to Solutions for Change to acquire Chestnut Apartments, a 16-unit apartment complex at 945 Chestnut Ave. to provide affordable housing for homeless families. The borrower, Solutions Chestnut LLC, is a subsidiary of Solutions for Change, Inc. The project was to include the relocation of the existing tenants and minor renovation of the units, to be accomplished in the first year, with permanent financing to be obtained by Solutions for Change within the first three years to fund the completion of major rehabilitation of the entire project. The loan documents recorded against the property required the developer to obtain that permanent financing. Solutions for Change has been unable to secure funding to complete the project because of a significant change in the operational requirements associated with governmental funding. It is now looking to end its ownership of the property and is proposing to transfer the property to the City of Carlsbad for its continued use as affordable housing. Staff are evaluating the property, and after additional due diligence, city staff will present the City Council with options regarding the future use and disposition of the property for the City Council’s evaluation. Staff are now recommending that the City Council identify the team of city staff to negotiate with the representatives for Solutions for Change on the acquisition of the property. This item is being presented to the City Council in keeping with California Government Code Section 54956.8, which requires a city to hold an open and public session in which it identifies its Nov. 7, 2023 Item #1 Page 1 of 6 negotiators, the real property or real properties that the negotiations may concern, and the people with whom its negotiators may negotiate. Explanation & Analysis The $3.1 million loan to Solutions for Change that the City Council approved in 2014 was funded with $2,436,000 from the city’s Housing Trust Fund and $454,000 from Community Development Block Grant funds. Solutions for Change was to use the loan acquire the 16 units on Chestnut Avenue to provide permanent affordable housing for homeless families who had graduated from the Solutions Academy. Solutions for Change was to obtain additional funding sources and financing to complete tenant relocation and major rehabilitation. The agreement with the city required Solutions for Change to obtain the additional financing to initiate work to plan, design and obtain permits for the substantial rehabilitation of the apartment project by Dec. 31, 2019. Since Solutions for Change bought the Chestnut Avenue property in Dec. 2014, the funding climate for its program model changed significantly. Funds for homeless programs that come from the federal or state level now require homeless programs to incorporate the Housing First1 approach into the programs. Solutions for Change has been unwilling to make this change. Because Solutions for Change requires sobriety and participation in workforce training as a condition of housing, the project is not eligible to receive federal or state level Housing First public funds that are traditionally used for transitional or supportive housing. The city has worked with Solutions for Change since November 2019 and has granted three extensions to the Dec. 31, 2019, deadline due to its difficulties in obtaining financing and delays during the COVID-19 pandemic. The Solutions for Change Board of Directors ultimately decided to move completely away from this project and all government-funded residential programs. Solutions for Change has decided to turn the property over to the City of Carlsbad since it cannot fulfill the obligations identified in the 2014 loan documents recorded against the property. The property is required to continue to include 16 affordable units because of the recorded regulatory agreement and housing replacement requirements. The City of Carlsbad will have options ranging from retaining ownership of the existing affordable units, to selling them to an 1 Housing First is an approach to quickly connect individuals experiencing homelessness to permanent housing without preconditions and barriers to entry, such as sobriety, treatment or service participation requirements. Supportive services are offered to maximize housing stability and prevent returns to homelessness as opposed to addressing predetermined treatment goals prior to permanent housing entry. The property at 426 Chestnut Ave. Nov. 7, 2023 Item #1 Page 2 of 6 affordable housing developer to rehabilitate and maintain, or to completely redevelop the site with a minimum of 16 units of affordable housing. Staff are recommending that the City Council authorize the city’s Deputy City Manager for Community Services, Housing & Homeless Services Director, and Real Estate Manager to negotiate with Solutions for Change on acquisition of real property at 945 Chestnut Ave. (APN 204-191-2200), an affordable housing property known as Chestnut Apartments. Staff will return to the City Council for consideration of a purchase and sale agreement upon conclusion of those negotiations. Staff will return to the City Council with a recommended plan for the future use and ultimate disposition of the property for the City Council’s consideration. Fiscal Analysis The city approved loans of $3,100,000 towards the project in 2014 to acquire the property at 945 Chestnut Ave. A portion of the funds, $454,000, were Community Development Block Grant funds provided as a grant. The grant agreement required compliance with a CDBG- eligible use for a minimum of five years. That compliance period has been met, so the $454,000 CDBG grant does not need to be repaid. The remaining $2,436,000 was a loan from the City's Housing Trust Fund. The city’s loan is secured by a deed of trust recorded against the property. There is no direct fiscal impact from authorizing staff to negotiate the acquisition of the subject property. There may be minor costs associated with the property transfer and potential disposition. Should the negotiations result in an agreement for the city to purchase the property, city staff will return to the City Council with the purchase and agreement for consideration. Next Steps City staff will negotiate with the Solutions for Change team on the acquisition of the property. Staff will return to the City Council for consideration of a purchase and sale agreement for the property and a recommended plan for the ultimate disposition of the property. Environmental Evaluation This action does not require environmental review because it does not constitute a project within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065 in that it has no potential to cause either a direct physical change or a reasonably foreseeable indirect physical change in the environment. Exhibits 1.City Council resolution 2.Oct. 21, 2014, City Council Staff Report #21,763 (On file in the Office of the City Clerk Nov. 7, 2023 Item #1 Page 3 of 6 RESOLUTION NO. 2023-271 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, AUTHORIZING A CITY TEAM TO NEGOTIATE WITH REPRESENTATIVES OF SOLUTIONS FOR CHANGE, INC. ON ACQUISITION OF REAL PROPERTY AT 945 CHESTNUT AVE. (APN 204-191-2200), AN AFFORDABLE HOUSING PROPERTY KNOWN AS CHESTNUT APARTMENTS WHEREAS, in 2014 the City Council approved a loan of $3,100,000 in funds from Community Development Block Grant ($454,000) and the city's Housing Trust Fund ($2,436,000) to Solutions for Change to acquire 16 units at 945 Chestnut Avenue to provide affordable housing for homeless families; and WHEREAS, Solutions f�r Chan�e was_to obtain permanent financing within the first three years to fund relocation of the existing tenants and the completion of major rehabilitation of the entire project; and WHEREAS, Solutions for Change has been unable to secure funding to complete the project and has decided to turn the property over to the City of Carlsbad since it cannot fulfill the obligations identified in the 2014 loan documents recorded against the property; and WHEREAS, the staff is evaluating the property at 945 Chestnut Ave., for a potential acquisition by the city; and WHEREAS, the property is required to continue to include 16 affordable units because of the recorded regulatory agreement and housing replacement requirements.; and WHEREAS, California Government Code Section 54956.8 requires that a local agency hold an open and public session in which it identifies its negotiators, the real property or properties which the negotiations may concern, and the person or persons with whom its negotiators may negotiate; and WHEREAS, the staff is recommending that the City Council authorize the city's Deputy City Manager for Community Services, Housing & Homeless Services Director, and Real Estate Manager to negotiate with Solutions for Change on acquisition of real property at 945 Chestnut Ave. (APN 204-191- 2200), an affordable housing property known as Chestnut Apartments. Exhibit 1 Nov. 7, 2023 Item #1 Page 4 of 6 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.That the city's Deputy City Manager for Community Services, Housihg & Homeless Services Director, and Real Estate Manager are authorized to negotiate with Solutions for Change on acquisition of real property at 945 Chestnut Ave. {APN 204-191-2200), an affordable housing property known as Chestnut Apartments. 3.That city staff will return to the City Council to consider the approval a purchase and sale agreement and a recommended plan for the ultimate disposition of the property upon the conclusion of the negotiations. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 7th day of November, 2023, by the following vote, to wit: AYES: NAYS: ABSTAIN: ABSENT: Blackburn, Bhat-Patel, Acosta, Burkholder, Luna. None. None. None. KEITH BLACKBURN, Mayor SHERRY� f {SEAL) Nov. 7, 2023 Item #1 Page 5 of 6 Exhibit 2 Oct. 21, 2014, City Council Staff Report #21,763 (on file in the Office of the City Clerk) Nov. 7, 2023 Item #1 Page 6 of 6