To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Approval of a $1,000,000 Community Development Block Grant (CDBG) Loan for Civic Center Apartments, Richmond
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
APPROVE and AUTHORIZE the Conservation and Development Director, or designee, to execute, subject to approval by the County Administrator and approval as to form by County Counsel, loan documents to provide a $1,000,000 Community Development Block Grant (CDBG) loan to 425 Civic Center, LP, a California limited partnership, for the use in the acquisition, conversion and rehabilitation of an existing Motel 6 to become permanent supportive affordable housing, known as the Civic Center Apartments Project, located at 425 24th Street in the City of Richmond.
FISCAL IMPACT:
No General Fund 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:
Project Description
On June 25, 2024, the Board of Supervisors approved an allocation of $1,000,000 in CDBG funds to Novin Development, Inc. (Novin) for the Civic Center Apartments project located at 425 24th Street in the City of Richmond. The project is proposed as a 49-unit acquisition and conversion/rehabilitation project with 48 studio units affordable to and occupied by extremely-low-income households earning up to 30% of the Area Median Income (AMI) that meet the definition of chronically homeless. Each unit is proposed to add kitchenettes that will provide affordable, permanent, supportive housing. All 48 units will be considered County-assisted. The site is currently an operational Motel 6 that is planned to be acquired by the City of Richmond (City) and the City will enter into a long-term ground lease with the Partnership.
The project will use the existing building while making needed upgrades to building systems, repairing/replacing roofing, installing new windows and doors, updating Heating, Ventilation, Air Conditioning (HVAC) systems, and repainting interior and exterior spaces. The existing hotel lobby and manager’s office will also be converted into a community room and kitchen. The existing laundry spaces will be converted to laundry rooms for residents. Room interiors will receive new flooring, paint, bathroom fixtures, and new appliances, including mini fridges and microwaves.
Loan Documents and Ownership Structure
The owner of the property will be the City who will be leasing the property to 425 Civic Center LP. 425 Civic Center LP is a limited partnership between Trinity Center, a California nonprofit public benefit corporation, as the managing general partner, NDC Contra Costa LLC, a California limited liability company, as the administrative general partner, and Novin Development Corp., a California corporation, as the initial limited partner. Together, Trinity Center and NDC Contra Costa LLC are the General Partners. Novin Development Corp. is the sole member and manager of NDC Contra Costa LLC. Trinity Center has a 0.51% financial interest, NDC Contra Costa LLC has a 0.49% financial interest, and Novin Development Corp. has a 99% financial interest in the project.
The CDBG funds will be provided by the County in the form of a 55-year loan. The CDBG loan will be provided to accrue 3% simple interest with annual payments due from surplus cash or residual receipts. Affordability and use restrictions are also incorporated into the CDBG loan documents. The County will have a Regulatory Agreement to require and maintain affordability of the units for a 55-year term. Additional non-County financing for the project include a City of Richmond loan of approximately $5 million dollars and a State of California Project Homekey grant of approximately $14.5 million dollars.
Due to the high construction costs and limited revenue from the restricted rents, the total amount of the financing provided to the project will likely exceed the value of the completed project. Even though the proposed investment from the State Homekey funds 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 State Homekey funds 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.
Through this action, the Director of Conservation and Development, or designee, is authorized to execute subordination agreements and estoppels that are consistent with the subordination terms in the Loan Agreement.
Environmental Review
National Environmental Policy Act (NEPA): CDBG funded projects are subject to NEPA and 24 CFR Part 58 environmental regulations. The NEPA review for this project is complete and the required mitigations will be included in the loan agreement.
CONSEQUENCE OF NEGATIVE ACTION:
The award of Homekey funds from the State HCD requires timely expenditure of funds and completion of the rehabilitation must be completed by July 2025. The CDBG funds are crucial to the project’s financing to start construction and to be able to meet the expenditure and construction completion requirements of the Homekey funds. If the CDBG loan/legal documents are not approved, the project would be delayed and would severely impact the project’s ability to meet the State’s Homekey timely expenditure and construction completion requirements, which could terminate the project.