Report Prepared by: Leah Brown, Senior Planner, Development Services Department
Title
SUBJECT: Approval of a Fee In-Lieu Agreement with Devonwood Apartments, LP, for a One-Time Infrastructure Contribution of $579,415
REPORT IN BRIEF
Approval of a Fee In-Lieu Agreement with Devonwood Apartments, LP, for a One-Time Infrastructure Contribution of $579,415 in Lieu of Community Facilities District No. 2003-2, Special Taxes for APN 058-220-048, through June 30, 2039.
RECOMMENDATION
City Council - Adopt a motion:
A. Approving the Fee In-Lieu Agreement with Devonwood Apartments, LP, for APN 058-220-048, providing for a one-time infrastructure contribution of $579,415 and exemption from CFD special taxes following payment through June 30, 2039; and,
B. Authorizing the acceptance of funds; and,
C. Authorizing the City Manager to execute the agreement, subject to City Attorney approval as to form; and,
D. Authorizing the Finance Office to make necessary budget adjustments.
Body
ALTERNATIVES
1. Approve the agreement as recommended; or,
2. Direct staff to seek modifications and return to Council; or,
3. Continue the item for additional information; or,
4. Deny the agreement.
AUTHORITY
Charter of the City of Merced, Section 200.
CITY COUNCIL PRIORITIES
As provided for in the 2026-2027 Adopted Budget and the City Council’s Pro-Housing Policies.
DISCUSSION
Devonwood Apartments, LP, owns the affordable housing development commonly known as River Canyon Apartments at 1535 Devonwood Drive, APN 058-220-048. The development is within Community Facilities District (CFD) No. 2003-2, which was established to provide services funded through special taxes.
River Canyon Apartments opened to lower-income residents in 2025 and provides 156 affordable one-, two-, and three-bedroom units on approximately 5.90 acres on the south side of Devonwood Drive, between Loughborough Drive and Austin Avenue. The gated development includes five (5) three-story apartment buildings, a single-story office and clubhouse, open space, a swimming pool, and parking, with primary and secondary access from Devonwood Drive. The units serve acutely low-, extremely low-, very low-, or low-income households with incomes ranging from 0% to 60% of Area Median Income (AMI). The development’s affordability restrictions are secured by deed restrictions for 55 years.
On January 16, 2024, the City Council adopted Resolution 2024-12 (Attachment 1), approving financing transactions and related documents supporting Devonwood Apartments, LP, in the approximate total amount of $10,082,829. The City’s financial assistance package consisted of:
• A $2,375,314 Community Development Block Grant (CDBG) loan to the sponsor for site acquisition;
• A $1,309,538 American Rescue Plan Act (ARPA) grant of Coronavirus Local Fiscal Recovery Funds to the sponsor;
• A $1,329,318 Public Facilities Financing Program (PFFP) impact fee reduction;
• A $1,222,925. water and sewer connection fee loan to the developer; and,
• A $3,845,734 HOME Community Housing Development Organization (CHDO) loan to the sponsor.
At the same meeting, the Council approved Density Bonus #23-02, reducing minimum parking requirements and granting concessions from certain multifamily development design standards to allow construction of the 156-unit complex. The Council also approved the associated environmental determination based on prior environmental review, including Initial Study #20-32 for General Plan Amendment #20-01 and findings under CEQA Guidelines Section 15162.
During project planning, staff anticipated that the owner could qualify for an annual welfare exemption based on the development’s affordable housing status and applicable eligibility requirements. Under the applicable CFD exemption provisions, qualifying welfare-exempt properties are exempt from CFD special taxes while the exemption exists and is available. Since issuance of the Certificate of Occupancy, the owner has applied for and received the applicable exemption.
Approximately one year ago, the owner voluntarily approached the City and offered to make a one-time infrastructure contribution. The proposed Fee In-Lieu Agreement formalizes that contribution and establishes certainty regarding the development’s CFD special-tax obligations through June 30, 2039. If approved, the City would receive an upfront infrastructure contribution, while the owner and its financing partners would have certainty regarding CFD special-tax obligations during the agreement term.
Under the agreement, the owner would pay the City $579,415. The agreement expressly characterizes this payment as an infrastructure contribution associated with the development, rather than a CFD special tax or a prepayment of CFD special taxes.
Upon payment, the owner and development would fully satisfy their obligations concerning CFD special taxes otherwise applicable during the agreement term. The City would take reasonably necessary and legally permissible actions to implement and maintain the exemption.
The agreement would commence on its effective date and expire on June 30, 2039. This fixed expiration date represents 15 years from issuance of the development’s Certificate of Occupancy and would not change based on when the agreement takes effect. The payment and release provisions would remain effective following payment through that date. The agreement does not establish a permanent exemption or determine the development’s CFD special-tax obligations after June 30, 2039.
The owner, successors and assigns, lenders, investors, and title insurers may rely on the agreement as evidence of the payment and exemption. Assignment generally requires City consent; however, the owner may assign the agreement in connection with a transfer of the development without City consent. Amendments must be in writing and signed by both parties.
Staff recommends Council approval to authorize the City to enter into this agreement, accept, and appropriate the $579,415 contribution. The agreement would secure funding that the City would otherwise not collect through CFD special taxes while the development qualifies for the applicable exemption.
IMPACT ON CITY RESOURCES
The agreement provides for a one-time receipt of $579,415. Following payment, the development would be exempt from CFD special-tax levies through June 30, 2039. Beyond 2039, the owner would again need to apply for a welfare exemption annually or pay the CFD special taxes.
This item requires at least five affirmative votes for approval.
ATTACHMENTS
1. Resolution 2024-12
2. Devonwood Apartments LP - In-Lieu Fee Agreement