To: Board of Supervisors
From: John Kopchik, Director, Conservation and Development
Report Title: Approval of Restructured $2,625,998 CDBG Loan(s) and Approval of New $2,000,000 CDBG Loan, $1,000,000 HOME Loan, and $1,000,000 Measure X Housing Loan for the Riverhouse Hotel Project in Martinez
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
1. APPROVE a loan of (i) Community Development Block Grant (CDBG) funds in the amount of $2,000,000, (ii) HOME Investment Partnership Program (HOME) funds in the amount of $1,000,000, and (iii) Measure X Housing Funds in the amount of $1,000,000 to Riverhouse Hotel, L.P., a California limited partnership (Developer), for use in the acquisition and rehabilitation of the Riverhouse Hotel project located at 700 Alhambra Avenue in the City of Martinez (the Property).
2. CONSENT to the assignment of two outstanding CDBG loans to the Developer that the County previously loaned to the current owner of the Property, Eden Housing, Inc. (Eden), having an original principal value of $2,625,998 (the Existing Loan).
3. AUTHORIZE the Conservation and Development Director, or designee, to execute loan documents between the County and the Developer to evidence (i) the $2,000,000 CDBG loan, (ii) the $1,000,000 HOME loan, (iii) the $1,000,000 Measure X loan (together, the New Loans), and (iv) the restructuring of the Existing Loan to be coterminous with the New Loans.
4. FIND, as the responsible agency, that on the basis of the whole record before the County, including the California Environmental Quality Act (CEQA) review prepared by the City of Martinez, as the lead agency, that the development is statutorily exempt under CEQA Guidelines Section 15183; and DIRECT the Conservation and Development Director, or designee, to file a Notice of Exemption for Riverhouse Hotel with the County Clerk; and pay any required fee for the filing.
FISCAL IMPACT:
No General Funds impact. CDBG and HOME funds are provided to the County on a formula allocation basis through the U.S. Department of Housing and Urban Development (HUD). Measure X Housing funds are part of the County General fund and derive from a countywide, 20-year, ½ cent sales tax approved by Contra Costa County voters on November 3, 2020.
CFDA - CDBG 14.218 and HOME 14.239.
BACKGROUND:
Existing CDBG Loans
On April 1, 2012, the County loaned $625,998 to Eden. The funds were used by Eden to acquire the Property and to rehabilitate the existing facility, which provides 75 units of multifamily rental housing to very low-income households (households earning between 30% and 50% of the area median income (AMI)) and low-income households (households earning between 50% and 80% of the AMI). On March 1, 2025, the County loaned $2,000,000 of CDBG funds to Eden to enable Eden to address accessibility issues and replace a security gate, as well as fund soft costs associated with the rehabilitation of the building.
New County Loans; Project Description
The new County loans, totaling $4,000,000, will be used to rehabilitate the facility and increase the number of housing units from 75 to 84. Once the rehabilitation is complete, the development will serve extremely low-income households (households earning no more than 30% of the AMI) and very low-income households (households earning between 30% and 50% of the AMI). One of the 84 units will be designated as a property manager’s unit.
Of the 83 affordable units, there will be 75 County-assisted units as follows:
|
|
Extremely Low-Income Units (0%-30% of AMI) |
Very Low-Income Units (30%-50% of AMI) |
|
Studio Units |
36 County-Assisted Units (6 HOME-Assisted Units, 5 Measure X-Assisted Units, 25 CDBG-Assisted Units) |
37 County-Assisted Units (5 Measure X-Assisted Units, 32 CDBG-Assisted Units) |
|
One-Bedroom Units |
0 |
2 County-Assisted Units (1 HOME-Assisted Unit & 1 Measure X-Assisted Unit) |
|
Total Units |
36 |
39 |
Loan Documents and Ownership Structure
To carry out the proposed rehabilitation, Eden has formed a new limited partnership, Riverhouse Hotel, L.P. Eden currently owns the property and leases the ground to Riverhouse Associates, an affiliate of Eden. Immediately prior to the closing of the new loans, the existing ground lease will be terminated and the new limited partnership, Riverhouse Hotel, L.P., will acquire the property and all the improvements. To enable the Developer to carry out these plans, the County must consent to the transfer of land and approve the assignment and assumption of the existing loans provided by the County.
The New Loans will be provided in the form of a 55-year, residual receipt loan with a zero percent interest rate. Eden has requested a reduction of the interest rate for the New Loans and has stated it is necessary because the standard County interest rate of three percent would result in a steeply negative investor capital account and exit taxes in year 15. Reducing the interest rate to zero percent interest will mitigate the investor’s negative capital account and materially reduce the investor’s projected exit tax lability at the end of the 15-year compliance period, which will increase the financial feasibility of the project. The previously provided $2,000,000 CDBG loan will continue to bear interest at three percent simple interest and the previously provided $625,998 CDBG loan will bear interest at the applicable federal interest rate at the time of the transaction closing. There may be some loan repayments if the project has a surplus cash flow (also known as “residual receipts”) during the operation of the project.
Affordability and use restrictions are incorporated into the attached County loan documents. The existing Regulatory Agreement recorded on the property will be terminated, and a new Regulatory Agreement will be executed and recorded to reflect the updated terms and the extended term of affordability. The County will have a Regulatory Agreement with a term of 55-years. Additional non-County financing for the project includes funds from the State of California Housing Rehabilitation Program, funds from the State of California Portfolio Reinvestment Program, a seller carryback loan, deferred developer fee, 4% tax credits, and tax-exempt bonds issued by the County as a conduit issuer where Riverhouse Hotel L.P., not the County, is responsible for making the principal and interest payments on the bonds (a separate item on this October 21, 2025 Board agenda addresses the bonds).
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, HOME and Measure X funds may not be fully secured through the value of the property. However, the CDBG and HOME program funds are granted, not loaned, to the County, and the Measure X funds are allocated to DCD for expenditure, 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 and Director, 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 and HOME funded projects are subject to NEPA and 24 CFR Part 58 environmental regulations. The NEPA review for this project is complete and the required mitigation actions are included in the development loan agreement. The County, as a responsible agency under CEQA, concurs with the City of Martinez’s CEQA determination and will file the appropriate notice with the County’ Recorder’s Office.
Build America Buy America Compliance
The CDBG funds require compliance with Build America Buy America enacted under Division G, Title IX of the Infrastructure Investment and Jobs Act signed into law on November 15, 2021, implementing regulations at 2 CFR 184. All of the iron, steel, non-ferrous metals, lumber, and composite building materials utilized in federally funded projects with an aggregate of $250,000 or more of funds for the total project cost, funds, must be produced in the United States in a manner that complies with the Build America, Buy America Act. The CDBG funds provided are allocated out of the 2024 Program Year CDBG Grant Agreement between HUD and the County or from previous program years.
CONSEQUENCE OF NEGATIVE ACTION:
Without the approval execution of the County loan documents, the project will not be able to start construction on the rehabilitation. If the project doesn’t close and begin construction by November 2025, the project will be required to forgo the 4% tax credits and tax-exempt bonds that the project’s financing depends on.