Title
Staff Report for a City of San Leandro City Council Resolution Approving and Authorizing Execution of an Agreement for Purchase of the Nimitz Motel Property Located at 555 Lewelling Boulevard (Assessor’s Parcel Number: 412-1-4-1) in an Amount Not to Exceed $6,235,000 (for Short-Term Conversion to a Homeless Navigation Center and Shelter and Long-Term Conversion to Permanent Supportive Housing for the Homeless)
Staffreport
SUMMARY AND RECOMMENDATIONS
The City Council established in early 2021 the development of a short-term navigation center with shelter and a long-term navigation center with permanent supportive housing as a top City policy priority. The City intends to apply for Project Homekey Round 2 Grant funding from the State Department of Housing and Community Development (HCD) by the May 2, 2022 application deadline. Owning a property and site control are critical to obtaining this funding.
Staff recommends that the City Council approve the attached resolution approving and authorizing the execution of the Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Purchase Agreement) for the Nimitz Motel at 555 Lewelling Boulevard (Property) in an amount not to exceed $6,235,000, with the owner, Parshotam, Inc. The APN for the property is 412-1-4-1.
BACKGROUND
In February 2021, Recreation and Human Services, Community Development and Building Futures with Women and Children (BFWC) staff presented a proposal to establish a short-term navigation and long-term navigation centers with permanent supportive housing for the homeless. The Council supported and directed staff to begin searching for feasible sites. The City Council approved $1.6 million in General Funds for operation/services of a navigation center in the 2 Year Fiscal Year (FY)2021-2023 City Budget. Also in 2021, the Council approved $750,000 in federal American Rescue Plan Act funds for acquisition of a navigation center site to further advance this priority goal.
In Spring 2021, the City entered into an agreement with TRI Commercial Real Estate Services to assist with property searches and acquisitions. Staff reviewed dozens of sites and met weekly with the realtor, established a regular internal navigation center working group, coordinated review of potential sites with relevant City departments, and conducted research/consultation with nonprofits and other jurisdictions. In Summer 2021, the City reached out to the Nimitz Motel owner to see if they were interested in selling. The ownership reciprocated interest and negotiations have recently concluded when terms were mutually established.
City staff identified the Property as an ideal opportunity to address both the short-term navigation center and long-term permanent supportive rental housing goals of the City Council in one property. The Nimitz Motel has 33 studio units in good condition, ground floor office/retail spaces including a Chinese restaurant, on-site laundry, on-site parking, and billboard sign. The property is also closely located near food/retail services and public transportation. The lot is about 30,000 square feet and there is approximately 16,930 square feet of building.
In Fall 2021, the City entered into a memorandum of understanding (MOU) with the local nonprofit homeless service provider Building Futures with Women and Children (BFWC) and the nonprofit affordable housing developer, Eden Housing, Inc. The MOU established roles and responsibilities between the City, Building Futures, and Eden Housing to coordinate an application to the State Project Homekey Round 2 Grant Program due in May 2022 and to define understandings as partners with and technical advisors to the City. The City has identified BFWC as the service provider for the short-term navigation center and shelter. Eden Housing has been identified as the developer/property manager for the long-term permanent supportive housing given their respective organizational expertise in homeless services and permanent affordable and supportive housing. Contract services between the City and BFWC will be presented to City Council for review near the close of escrow for the Property in Fall 2022.
While the City has a variety of existing and local affordable housing/homeless funding sources to apply towards the acquisition, rehabilitation, and operations/supportive services of the Property, the key public funding source will be the State’s Project Homekey Grant Program. The State created Project Roomkey and Project Homekey Round 1 in 2020 to address immediate housing and services needs for homeless persons and persons at-risk of homelessness due to the COVID-19 pandemic impacts. The Project Homekey Round 2 Request for Proposals (RFP) opened in September 2021 and has a final deadline of May 2, 2022.
Proposed Development Plan for the Nimitz Motel Conversion
Upon acquisition of the Property and approval of Project Homekey funding, the City plans to convert the Property into a short-term navigation center with shelter for approximately 1½ to 3 years. During this interim period, the City and its nonprofit partners will seek additional public financing to convert the Property into long-term supportive and affordable rental housing for the homeless. Before conversion to the long-term model, the City will ensure the navigation center and shelter spaces at the Property will be relocated to a new, more permanent site. This interim to permanent plan is an eligible activity under Project Homekey.
Staff has determined that the navigation center needs to be moved to another site to make the permanent supportive housing conversion financially sustainable for the long-term, and therefore more competitive for Project Homekey funding. While affordable rental housing generates revenue from rent to sustain long-term affordability, the navigation center and shelter rely on public subsidies and there are no long-term public funding sources for them. The City will continue to explore County, State and federal operating and supportive services funding to ensure that the navigation center can operate sustainably and longer term when the City moves it to a new location.
Analysis
The City ordered a formal appraisal of the Property in late 2021, which was $5.8 million. Staff recommends that the City Council approve the seller’s asking price of $6.15 million, a slight increase to the appraised value. Initial informal due diligence shows the Property appears in overall good condition and ready to quickly transition to a navigation center and shelter. The Property is situated near prominent homeless encampments.
If the Council authorizes the execution of the purchase agreement, City staff will open escrow with a $184,500 deposit. The deposit becomes non-refundable on July 30, 2022. The City will know before July 30 if it has or has not been awarded Project Homekey funding. The City has the right to exercise up to three (3) 30-day extensions with additional deposits not to exceed $75,000. If a second extension is sought by the City, then the total $75,000 in deposits will be non-refundable.
Below are the itemized acquisition/closing costs:
• Purchase price $6,150,000
• Closing costs (estimate) $ 85,000
TOTAL $6,235,000
There are due diligence issues that must be assessed prior to the May 2 Project Homekey deadline and close of escrow. These due diligence reports/studies have already occurred or are under contract and budgeted for under the City’s Adopted FY2021-2022 Budget and include to date:
• Appraisal (completed) $ 8,500
• Relocation Consultant $ 38,640
• Property Condition Assessment $ 3,300
• Phase I Environmental $ 2,100
• ALTA Survey $ 4,400
• Lead in Water Testing $ 1,220
• Lead Based Paint & Asbestos $ 6,925
• Americans with Disabilities Act Survey $ 2,200
• Termite Report $ 1,570
• Sewer Line Scoping $ 1,950
TOTAL DUE DILIGENCE COSTS $ 70,805
Because the City is planning to allocate federal and/or State funds to the acquisition and rehabilitation of the Property, the City will ensure full compliance with State and/or federal relocation laws regarding motel guests who may be determined to be eligible for relocation financial assistance. Therefore, the City is in the process of contracting with an experienced relocation consulting firm to administer proper noticing, interviews, relocation payments and technical assistance, if applicable and/or necessary. If relocation payments need to be made to eligible motel clients, City staff will publicly seek City Council approval on how much additional relocation funding assistance is needed for eligible motel guests.
State Project Homekey funding is critical and essential for the City to purchase the Property, operate it immediately as a short-term navigation center/shelter, and convert it to long-term permanent supportive housing. City, BFWC and Eden Housing staff are currently assessing 1) rehabilitation, operating, and supportive services costs related to the navigation center, 2) appropriate City match amount for Project Homekey and 3) total Project Homekey funding that the City is eligible for. Project Homekey will provide capital (acquisition, rehabilitation, construction) and operations/services grant funding to an approved project.
The City Council has approved the following funds for the navigation center to date: $750,000 in federal American Rescue Plan Act (ARPA) funds for acquisition and $1.6 million in General Funds for operations/services in the Adopted FY2021-2023 City Budget of which $600,000 was allocated for FY2021-22 and $1 million in FY2022-2023. City staff is reviewing other existing local funding sources as matching funds for Project Homekey including federal Community Development Block Grant (CDBG) and HOME Program funds, City Affordable Housing Trust or Housing In Lieu Fee (AHTF) funds, City Affordable Housing Asset Fund, State Permanent Local Housing Allocation (PLHA) grant, and State Homeless Housing, Assistance and Prevention (HHAP) grant. City staff will return to City Council on April 18, 2022 to seek approval of a resolution authorizing submission of a Project Homekey application. City staff at that time will be able to provide more details on the City funding sources to be committed as local match for the application, as well as the Project Homekey proposal costs and funding request to the State.
Alternative Plan to Project Homekey Funding
If the State does not approve the City’s Project Homekey Round 2 application because it is a highly competitive process, the City will then re-apply for the Round 3 Project Homekey RFP, which is expected to be issued in Fall/Winter 2022. If there is an early deadline incentive in Round 3, as there was in Round 2, the City would aim to meet the early deadline.
Public Outreach Plan
Upon City Council approval, City staff will begin immediate outreach to nearby businesses and residents to the Nimitz Motel. Below are proposed public engagement events in 2022:
• April through December - City staff to identify and meet with commercial and residential stakeholders in close proximity to the Nimitz Motel, along with homeless or at-risk homeless individuals and households, to receive public feedback and provide information on the Project Homekey proposal
• April/May - City staff to hold city-wide community meeting on Project Homekey proposal
• May 2, 2022 - City Council public hearing to review final FY2022-2032 U.S. Department of Housing and Urban Development (HUD) Annual Action Plan including federal CDBG and HOME funds for the Project Homekey proposal
• July - City staff to make presentation to City Council on status of the Project Homekey grant application and purchase of the Nimitz Motel
Next Steps
Below are key dates/milestones:
• April 18, 2022 - City Council to review resolution approving submittal of a State Project Homekey application
• May 2, 2022 - State Project Homekey application deadline
• Mid to late June 2022 - State HCD determines approval or denial of City Project Homekey application
• July 30, 2022 - City deposit becomes non-refundable
• October 1, 2022 - Close of escrow, assuming no extensions exercised
Previous Actions
• February 9, 2021 - City Council Work Session on proposal for a new navigation center and supportive housing for the homeless.
Applicable General Plan Policies
• Goal 58: Special Needs Populations - Proactively address the special housing needs of the community, including seniors, disabled individuals, single parents, large families, and the homeless.
o Action 58.09-B Transitional/Permanent Supportive Housing - Continue to provide financial support to develop and operate supportive and transitional housing facilities, including those located in nearby communities that are accessible to persons who are homeless or at risk of homelessness in San Leandro
o Policy 58.11 Service Enriched Housing - Promote social services and programs in affordable housing projects that assist lower-income households in obtaining the financial resources needed to increase and stabilize their housing choices in the City.
Environmental Review
The City’s acquisition of the Property pursuant to the purchase agreement is exempt from the provisions of the California Environmental Quality Act ("CEQA"), pursuant to the Affordable Housing Exemption of Section 15194 of the CEQA Guidelines for a project consisting of the construction, conversion, or use of residential housing consisting of 100 or fewer units that are affordable to low-income households, and pursuant to the Class 1 Exemption of Section 15301 of the CEQA Guidelines for the operation, repair, maintenance, permitting, leasing, licensing, or minor alteration of existing public or private structures, facilities, mechanical equipment, or topographical features, involving negligible or no expansion of existing or former use. City staff must file a notice of exemption as required by Section 21152.1 of the Public Resources Code, pursuant to Section 15062 of the CEQA Guidelines.
Prior to close of escrow on October 1, 2022, the City will complete required federal National Environmental Protection Act (NEPA) environmental review for the acquisition of the Property.
Legal Analysis
The City Attorney’s Office reviewed and approved the staff report and resolution. The City Attorney’s Office worked closely with staff and the City’s broker on the review, back and forth negotiations with the property owner, and the drafting of particular PSA provisions to get to a standard commercial real estate transaction agreement that is approved as to form.
Fiscal Impacts
The Nimitz Motel will cost an estimated $6,235,000 for the City to purchase: $6,150,000 (purchase price) + $85,000 (estimated closing costs). The City has sufficient funds from a variety of local, State and federal funding sources earmarked for affordable housing and/or a navigation center to provide local matching funds for the State Project Homekey application. Project Homekey will be the primary funding source for the acquisition and rehabilitation of the Nimitz Motel.
Council action only authorizes the City Manager to execute the purchase agreement. Pledging of (or intent to pledge) local, State and federal funding sources for acquisition, rehabilitation, operations and services for the Property will be brought forward for City Council review on April 18, 2022, along with approval to submit a State Project Homekey application.
Upon opening of escrow, this Affordable Housing Trust Fund (Fund 167) request will cost $184,500 as a refundable deposit (until July 30, 2022) and does not require increasing the FY2021-2022 Adopted Budget by the same amount because there are more than $250,000 available in the AHTF.
Budget Authority
This request to approve the execution of the purchase agreement of the Nimitz Motel will require City Council approve transferring $184,500 from the AHTF (Fund 167) to the title company as a refundable deposit until July 30, 2022. There is currently over $250,000 available in the AHTF.
ATTACHMENT(S)
Attachment(s) to Staff Report
• None
Attachment(s) to Related Legislative File
• Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Purchase Agreement) (Note: The redlined markups in the attached Purchase Agreement are the final text in the Agreement that will be executed by all authorized parties.)
PREPARED BY: Tom Liao, Director, Community Development Department