To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Approval of $2,000,000 CDBG Loan and Related Documents for the Riverhouse Hotel Project in Martinez
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
1. APPROVE a loan of Community Development Block Grant (CDBG) funds in the amount of $2,000,000 to Eden Development Inc., and Riverhouse Associated L.P., a California Limited Partnership (Developer), for use in the rehabilitation of the Riverhouse Hotel project located at 700 Alhambra Avenue in the City of Martinez.
2. AUTHORIZE the Conservation and Development Director, or designee, to execute loan documents between the County and the Developer to evidence the $2,000,000 CDBG loan into an existing loan agreement, deed of trust and promissory note.
FISCAL IMPACT:
No General Funds Impact. CDBG funds are provided to the County on a formula allocation basis through the U.S. Department of Housing and Urban Development (HUD).
CFDA #14.218.
BACKGROUND:
On May 9, 2023, the Board of Supervisors (the “Board”) approved the Contra Costa County Annual Action Plan for FY 2023/24 CDBG funds (the “Action Plan”). Originally, the Developer was awarded $2,000,000, in CDBG funds, under the affordable housing category, for the acquisition and rehabilitation of Riverhouse Hotel. The Riverhouse Hotel is located at 700 Alhambra Avenue in the City of Martinez, and as proposed, 75 affordable rental apartment units would be rehabilitated.
On January 21, 2025, the Board approved a Substantial Amendment to the County’s FY 2023/24 Annual Action Plan to amend and revise the scope of work to specific items that may be completed on a smaller scale in 2025. The revised scope of work, as proposed, includes: parking lot improvements to address accessibility and compliance with the Americans with Disabilities Act; replace the security gate for improved clearance; perimeter fencing and landscape improvements; interior painting and flooring in common areas; brick restoration; cornice reroofing; soft demolition in current first floor commercial spaces; sewer lateral replacement; interior stairwell painting and flooring; and emergency lighting repair and/or replacement.
The CDBG loan is being made to finance the construction costs and related project soft costs associated with the rehabilitation activities for Riverhouse Hotel, and it is intended to maintain the supply of affordable rental housing in the County.
The CDBG funds will be provided by the County in the form of a 55-year loan. The County’s CDBG Program Guidelines for Affordable Housing detail CDBG rates to accrue 3% simple interest with annual payments due from surplus cash or residual receipts. Affordability and use restrictions are incorporated into the CDBG loan documents. The CDBG Loan Agreement, Promissory Note, and Deed of Trust are attached in their substantially final form and will be executed in a form approved by County Counsel. The County’s loan will be subordinate to the existing State of California Housing Rehabilitation Program loan and the County may be requested to sign estoppel agreements to the effect. This action of the Board includes authorization of the DCD Director, or designee, to execute estoppel certificates and subordination agreements consistent with the subordination terms contained in the CDBG Loan Agreement.
The recommended action includes authorization for the Director of the Department of Conservation and Development, or designee, to execute any and all documents and to take any and all actions necessary to implement the activities authorized under the Loan Documents, including execution of loan amendments or modifications for the purpose of agreeing to reasonable extensions of time deadlines.
Due to the high construction costs and limited revenue from the restricted rents, the total amount of the financing provided for the project will likely exceed the value of the completed project. Even though the proposed equity investment from low-income housing tax credits is substantial compared to the amount of long-term debt, the partnership agreement will have numerous safeguards of the investor's equity. These safeguards essentially subordinate the County’s debt to the investor’s equity. Therefore, the County CDBG funds may not be fully secured through the value of the property. However, the CDBG program funds are granted, not loaned, to the County, so the County general fund will not have any exposure as a result of this loan. The County structures its investments as loans rather than grants in order to maintain involvement in the financial team in the event the project experiences any serious issues over the 55-year term.
National Environmental Policy Act (NEPA): CDBG projects are subject to NEPA and 24 CFR Part 58 review. The NEPA review for this project has been completed.
CONSEQUENCE OF NEGATIVE ACTION:
HUD requires timely expenditure of CDBG funds, precipitating this request. If the recommendation is not approved, the needed rehabilitation to the affordable rental building will be delayed, which would severely impact the preservation and habitability of the units.