Title
Adopt a Resolution to Approve and Authorize the City Manager to Execute Amendment No. 5 to the Purchase and Sale Agreement (PSA) for the Nimitz Motel Located at 555 Lewelling Boulevard, Assessor’s Parcel Number: 412-1-4-1
Staffreport
COUNCIL PRIORITY
• Housing and Homelessness
• Race and Equity Initiatives
SUMMARY
The current extension for the purchase and sale agreement (PSA) to acquire the Nimitz Motel located at 555 Lewelling Blvd ends on March 15, 2023. The City and motel owner, Parshotam, Inc., seek to extend the PSA due diligence period through July 1, 2023 (Amendment No. 5), which would provide additional time for the City to re-apply for State Project Homekey funding and close escrow by or before August 30, 2023. The motel will be an interim navigation center/shelter for unhoused individuals and eventually converted to longer-term permanent supportive housing. The City will release $75,000 (of the $184,500 deposited when escrow was opened in March 2022) to the seller, which will still apply towards the purchase price and will be non-refundable. The City will have two (2) options to extend under Amendment No. 5 if needed: 1) if the first 30 day extension option is exercised, then closing would extend to September 30, 2023 or sooner and the City will deposit an additional $50,000 that will be non-refundable and applied towards the purchase price, and 2) if the second 30 day extension is exercised, then closing would extend to October 30, 2023 or sooner but no additional deposit would be required.
RECOMMENDATIONS
Staff recommends that the City Council adopt the resolution that approves and authorizes the City Manager to execute Amendment No. 5 to the PSA for the Nimitz Motel.
BACKGROUND
On March 21, 2022, the City Council approved the existing PSA to acquire the Nimitz Motel for a total estimated cost of $6.235 million: $6.15 million sales price plus an estimated $85,000 in closing costs. Upon opening escrow, the City deposited $184,500 from its Affordable Housing Trust Fund.
On April 18, 2022, the City Council approved submittal of a Project Homekey 2.0 application to the State Housing and Community Development Department (HCD) to convert the motel into a short-term navigation center with shelter for approximately 3 to 5 years. During the interim period, the City and its nonprofit partners would 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 permanent supportive housing model, the City would ensure the navigation center and shelter at the Property would be relocated to a new, permanent site.
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. The City contracted in early 2022 with AutoTemp, an experienced relocation firm, to ensure the City complies with State and federal relocation requirements. City staff will return to publicly seek City Council approval on how much additional relocation funding assistance is needed for eligible motel guests and AutoTemp will manage the relocation assistance process. To date, AutoTemp has estimated only 3 households who may be eligible for relocation as longer-term motel guests.
The City submitted its Homekey 2.0 application to the State HCD in early May 2022. The City partnered and co-applied with local nonprofit service provider, Building Futures, and partnered with the nonprofit housing developer, Eden Housing, Inc. Due to the high volume of applications and highly competitive nature of the Homekey 2.0 grant application process, State HCD informed the City in Summer 2022 that it was not awarded Homekey funding.
Under the original PSA approved by City Council in March 2022, the City had the right to exercise up to three (3) 30-day extensions with additional deposits from the City Affordable Housing Trust Fund not to exceed $75,000. The City executed all three extensions as follows, along with extending the PSA effective date to March 15, 2023 under Amendment No. 4:
• Amendment No. 1 - extension through August 29, 2022 and additional deposit of $25,000.
• Amendment No. 2 - extension through September 28, 2022 and additional deposit of $50,000.
• Amendment No. 3 - extension through October 28, 2022. (Note: the $75,000 deposits became non-refundable after Amendment No. 3 and shall be applied towards the purchase price at close of escrow.)
• Amendment No. 4 - City Council approved on October 17, 2022 an extension of the PSA through March 15, 2023.
Analysis
Extending through Amendment No. 5 the due diligence and escrow period under the existing PSA in order to re-apply for the next Homekey 3.0, which is expected to open its Request for Funding Proposals (RFP) in late March 2023, will ensure the Navigation Center project remains on track. Since late Summer 2022, City staff and its nonprofit project partners have continued to work on acquiring the Nimitz Motel and enhancing the next Homekey funding application (a summary of such work is provided below):
• Contracted with Andrew Hening Consulting to lead the Homekey 3.0 application process for the City and its partners. Hening Consulting has experience in helping jurisdictions in Marin and Sonoma Counties successfully receive State Homekey funding.
• Formed a new development team and entered into a new partnership agreement. While Building Futures remains as the supportive services provider for the Homekey project proposal, the City has brought on two experienced regional nonprofits in place of Eden Housing: Allied Housing (Allied) and Housing Consortium of the East Bay (HCEB). Allied Housing, based in Fremont, has extensive experience in permanent supportive housing for the homeless in the Bay Area, and will serve as developer for the interim navigation center/housing phase and the long-term permanent supportive housing phase. HCEB will serves as property manager of the interim navigation center/housing phase.
• Continued internal meetings among City Human Services Department, Housing Division, and nonprofit partner staff to prepare for the Homekey 3.0 application.
• Because the navigation center and permanent supportive housing are a top City Council priority, City Council and staff have been exploring gap funding, if needed, to acquire the Nimitz Motel. Obtaining State Project Homekey funding this year is still critical to ensuring the proposed interim navigation center/shelter to permanent support housing will be successfully implemented. Project Homekey rules allow the City to be reimbursed for all, or a substantial portion, of local City funds used for acquisition gap funding if the City is awarded Homekey funding next round. The use of one-time City surplus General Fund as gap acquisition funding (for an amount not to exceed $3.2 million) was reviewed at the City Council Finance Committee meeting on February 22, 2023. See Financial Impacts section below for further information.
Previous Actions
• February 9, 2021 - City Council Work Session on proposal for a new navigation center and supportive housing for the homeless.
• March 21, 2022 - City Council approved purchase and sale agreement for acquisition of the Nimitz Motel at 555 Lewelling Blvd.
• April 18, 2002 - City Council approved submittal of application to State Project Homekey 2.0 Round.
• July 18, 2022 - Staff presentation on Project Homekey 2.0 application.
• October 17, 2022 - City Council approved extension of the PSA to March 15, 2022.
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, the City will complete required federal National Environmental Protection Act (NEPA) environmental review for the acquisition of the Property.
Summary of Public Outreach Efforts
• May 24, 2022 - City, along with its nonprofit partners Building Futures and Eden Housing, Inc., conducted a community meeting at the Main Library to present the State Homekey 2.0 application and proposed interim homeless navigation center/shelter to permanent supportive housing project for the Nimitz Motel and to receive public feedback/comments. The meeting was conducted in person at the Main Library and online via Zoom.
Legal Analysis
The City Attorney’s Office reviewed and approved the staff report and resolution and the purchase and sale agreement, including all amendments.
Financial Impacts
Amendment No. 5 to the PSA requires the City to release $75,000 (of the initial escrow deposit of $184,500 from City Affordable Housing Trust Fund transferred in March 2022), which is non-refundable and applied towards the purchase price. If the City exercises the first 30-day option, then the City must deposit an additional $50,000 that would also be non-refundable and would go towards the purchase price. The City will use its Affordable Housing Trust Fund, which has a $400,000 balance currently to pay for the additional $50,000 if the City exercises the first option.
At the February 23, 2023, City Council Finance Committee meeting, the Committee review and recommended allocation of up to $3.2 million in one-time City General Fund surplus to fill the gap funding needed to acquire the Nimitz Motel. If the City is awarded Project Homekey grant funding, the City’s one-time surplus funds used for the gap funding may be reimbursed by Homekey.
Overall, the acquisition of the Nimitz Motel will have no impact to Fund Balance, unless the City is not awarded Project Homekey funding. The City Council has remained committed that the Nimitz Motel is the optimal site to provide interim navigation center and/or permanent affordable/supportive housing for the homeless even if Homekey funds may not be approved again. The acquisition of the Nimitz Motel will be paid for with a variety of approved State, federal and/or local funds that have been previously approved by the City Council or other public agencies for this purpose. Attachment B shows the most current summary of existing acquisition funding sources (which may be subject to change as City staff explores additional State and federal funding sources before it submits its forthcoming Project Homekey grant application).
ATTACHMENTS
• Attachment A: Resolution Authorizing the City Manager to Approve and Execute Amendment No. 5 to the PSA for the Nimitz Motel
o Ex A1: Fifth Amendment to the PSA
• Attachment B: Nimitz Motel Acquisition Funding Sources
• Attachment C: Powerpoint to City Council
PREPARED BY: Tom Liao, Director, Community Development Department