Report Prepared by: Leah Brown, Management Analyst, Development Services Department
Title
SUBJECT: Authorization to Accept and Appropriate the Homekey+ Conditional Grant Award of $28,257,013 for the Mercy Village Project in Partnership with UPholdings and Self-Help Enterprises
REPORT IN BRIEF
Considers authorizing the acceptance, and appropriation of the $28,257,013 Homekey+ conditional grant award for the Mercy Village project located at 3015 Park Avenue with partners UPholdings and Self-Help Enterprises.
RECOMMENDATION
City Council - Adopt a motion:
A. Accepting the Homekey+ Conditional Grant Award in the amount of $28,257,013; and,
B. Appropriating an increase to revenue in the amount of $28,257,013 in Fund 2017-Homekey Fund and appropriating the same for this affordable housing project; and,
C. Authorizing the use of pooled cash until reimbursement from the grant is reimbursed; and,
D. Authorizing the Finance Officer to make any necessary budget adjustments; and
E. Authorizing the City Manager or Deputy City Manager to execute any necessary agreements, to accept the award with HCD’s stipulations, upon City Attorney’s approval as to form.
Body
ALTERNATIVES
1. Approve, as recommended by Staff; or,
2. Approve, subject to conditions other than recommended by Staff (identify specific findings and/or conditions amended to be addressed in the motion); or,
3. Deny; or,
4. Continue to a future meeting (date and time to be specified in the motion).
AUTHORITY
Charter of the City of Merced, Section 200.
CITY COUNCIL PRIORITIES
Fiscal Year 2025-2026 Adopted Goals and Priorities, Housing & Homelessness.
DISCUSSION
On January 21, 2025, City Council authorized the submission of a joint application and participation in the State of California Housing and Community Development (HCD) Homekey+ Grant Program with UPholdings for the Mercy Village project.
Homekey+ is the permanent housing component of the Behavioral Health Infrastructure Bond Act, part of Proposition 1 passed by California voters in March 2024. With funding allocated from the Bond Act, the California Department of Housing and Community Development (HCD), in partnership with CalVet, has expanded the successful Homekey Program to help support the development of permanent affordable housing with supportive services for veterans and individuals with mental health or substance use challenges who are at risk of, or experiencing, homelessness. Prop 1 authorizes approximately $2 Billion.
The target population that this Homekey+ project will serve are veterans, homeless, chronic homelessness or those at risk of homelessness, and those with a behavioral health challenge. The goals of the program fit with the intended project’s uses and audience for the Mercy Village project on Park Avenue.
Mercy Village includes 65 affordable permanent supportive housing units, a manager’s unit, and a community/office area within a three-story building on a 1.54-arce parcel, generally located on the west side of Park Avenue, between Olive Avenue and Alexander Avenue. The parcel is at 3015 Park Avenue in North Merced near Merced High School, in the City’s Infill Development Opportunity Zone, close to shopping, services, and bus transit lines.
In November 2021, the developer requested Permanent Local Housing Allocation (PLHA) funding for the project, as well as a Density Bonus. In January 2022, the City Council of the City of Merced authorized the funding commitment of the 2019 and 2020 PLHA funds of $1,324,969 and approved the Density Bonus. That same month, they received a commitment letter from the Housing Authority of the County of Merced setting aside 65 project-based vouchers (PBV) for the project. PBVs subsidize the rent for qualifying individuals, so that they will pay no more than 30% of their income towards rent.
In 2023, the developer closed escrow on the land and submitted building permits. They also established the Limited Partnership for this project called UP Mercy Village, L.P. In January 2024, the City Council took action to authorize the Regulatory Agreement with UP Mercy Village, LP setting up terms of affordability in support of the PLHA loan, which was used for the purchase and predevelopment costs.
As a side note of interest, in December 2021, the City Council authorized a joint Homekey application with UPholdings for another affordable housing project at 1213 V Street. This project was awarded over $24 Million in Homekey funding and the City committed ARPA funding as well. Subsequently, the City, with UPholdings management and development team, worked diligently over the next 19 months, and in December 2023, the 1213 V Street project opened its doors to provide 96 permanent supportive homes for the formerly homeless population in Merced.
In January 2025, Council adopted Resolution 2025-06, a Resolution of the City Council of the City of Merced, California, authorizing a joint application and participation in the Homekey+ Program and authorizing the City Manager to execute the Standard Agreement and any related documents; and, authorizing the City Manager to execute the Standard Agreements if selected for such funding and any amendments thereto, and any related documents necessary to participate in the Homekey+ Grant Program.
Following the significant destructive wildfires in Los Angeles in late January 2025, HCD made changes to their original resolution requirements, therefore a revised resolution (Resolution 2025-15) was presented and approved by Council, and the original resolution was rescinded. The intent of the grant and resolution remained the same.
In November 2025, the City was sent the attached Conditional Award Commitment and Acceptance of Terms and Conditions Homekey+ program. The Council had previously authorized the City Manager to accept the grant if awarded, therefore the City was able to efficiently return the Acceptance of Terms and Conditions of Conditional Award. At that time the award was under a media and public announcement embargo until the release by the Governor. On December 24, 2025, the Governor announced the award and the City is now able to publicly announce the award.
IMPACT ON CITY RESOURCES
There is no impact on City resources other than possibly releasing some reimbursable funds prior to the state funding the award. The grant funds will need to be accepted and appropriated for use in the accounts established for Homekey+ by the Finance Officer.
ATTACHMENTS
1. City Council Resolution 2025-15
2. Conditional Award Commitment and Acceptance of Terms and Conditions Homekey+ Program