Report Prepared by: Leah Brown, Management Analyst, Development Services Department
Title
SUBJECT: Adoption of a Resolution Authorizing the Submittal of a Joint Application and Participation in the State of California Housing and Community Development (HCD) Homekey+ Grant Program with Up Holdings California, LLC and UP Mercy Village LP for an Amount not to Exceed $30,000,000
REPORT IN BRIEF
Considers adopting a resolution authorizing the submittal of a joint application for participation in HCD Homekey+ Grant Program with Up Holdings California, LLC and UP Mercy Village LP for an amount not to exceed $30,000,000.
RECOMMENDATION
City Council - Adopt a motion:
A. Adopting 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,
B. 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; and,
Body
ALTERNATIVES
1. Approve, as recommended by staff; or,
2. Approve, with modifications; or,
3. Deny the request completely; or,
4. Refer to staff for reconsideration of specific items as requested by Council; or,
5. Continue to a future City Council meeting (date and time to be specified in the motion).
AUTHORITY
Charter of the City of Merced, Section 200.
CITY COUNCIL PRIORITIES
As provided for in the 2024-2025 Adopted Budget and the City Council’s Pro-Housing Policies.
DISCUSSION
The State of California HCD has issued a Notice of Funding Available (NOFA) for funding under the Homekey+ Program. A copy of the NOFA is attached. This funding program is highly competitive, and awards are awarded based on a first come basis. Applications are being accepted until the funds are exhausted. Awards are expected to be made in Summer 2025.
Housing stability is vital to mental health wellness and wellbeing. Safe, affordable housing, paired with supportive services to address behavioral health challenges, can provide California’s most vulnerable residents with the foundation they need to thrive.
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.
Homekey+ is modeled on HCD’s successful Homekey program, which emphasizes the acquisition and rehabilitation of existing buildings, or other project types including new construction, that can be quickly converted or constructed for permanent affordable housing, generally within 12 months of award. Since its inception, Homekey has funded 250 projects and over 15,300 affordable homes. Homekey+ will move quickly by making awards on a rolling basis, as applications are received. Applications will be assessed on project readiness, experience in developing and providing supportive services to eligible prospective tenants/residents, funding commitments that provide long term sustainable support (particularly BHSA ongoing funding), and project location, among other criteria.
Homekey+ will provide applicants the flexibility to take advantage of opportunities available within their specific communities that will result in the speedy acquisition and availability of new homes with a focus on cost containment. It will also finance new construction for projects that can be built quickly in a cost-efficient manner. Examples of eligible uses include acquisition and rehabilitation of existing sites (e.g. hotels/motels, apartments), commercial properties, master leasing, new construction, and the purchase of affordability covenants.
The target population that Homekey+ 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 projects uses and audience for the Mercy Village project on Park Avenue.
The project, called 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 is in North Merced near Merced High School, in the City’s Infill Development Opportunity Zone (development fees), 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, they closed escrow on the land and submitted for 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 Up Holdings 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 Up Holdings 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.
That brings us to the current request for Council to authorize this joint application for Homekey+ grant program funding to complete the funding stack needed for the Mercy Village project to break ground.
IMPACT ON CITY RESOURCES
Homekey+ funding is currently not included in the Fiscal Year 2024-2025 adopted City Budget. The approval actions by the City Council provides authorization to apply for the grant. The grant application will be for an amount up to $30,000,000. If awarded, staff will come to back to Council to accept and appropriate the funding.
ATTACHMENTS
1. Homekey+ NOFA
2. City Council Resolution 2025-06