Report Prepared by: Kimberly Nutt, Housing Program Supervisor, Development Services Department
Title
SUBJECT: Authorizing a Letter of Conditional Commitment Reservation of up to $1,756,934 of the City’s U.S. Department of Housing and Urban Development (HUD) Home Investment Partnership Program (HOME) Funding to Linc Housing Towards Construction of an Affordable Rental Housing Project
REPORT IN BRIEF
Considers authorizing a conditional commitment reservation letter to be signed by the City Manager and issued to Linc Housing, developer of the future “I Street, Merced” Apartments, a 54-unit affordable housing project to be located over five combined parcels (pending lot merger) for up to $1,756,934 of the City’s 2021, 2022, and 2023 allocations of HUD HOME funds.
RECOMMENDATION
City Council - Adopt a motion:
A. Authorizing a Conditional Commitment Reservation letter to be provided to developer Linc Housing, for the pending 54-unit affordable housing project, for up to $1,756,934 of the City’s HUD HOME funding; and,
B. Authorizing the City Manager to execute and issue the subject conditional commitment reservation letter, including any revised letter due to any necessary and minor changes to the reservation amount or other administrative reasons, and all related documents.
Body
ALTERNATIVES
1. Approve, as recommended by Staff; or,
2. Approve, subject to conditions other than recommended by Staff (specify findings and/or conditions to be amended 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; and, the Code of Federal Regulations (CFR) that regulates HOME funding (24 CFR Part 92) and related financial management regulations (2 CFR Part 200).
CITY COUNCIL PRIORITIES
Council Goals and Priorities in support of affordable housing.
DISCUSSION
City staff requests consideration of authorizing the issuance of the attached draft Conditional Commitment Reservation Letter to Linc Housing, the developer of the future 54-unit affordable housing project to be located over a combined five parcels (to be tentatively addressed as 1823 I Street, Merced) to set aside a total of $1,756,934 of multi-program year HOME funding that has been set aside in their respective annual plan years towards construction or rehabilitation of affordable housing.
Developer Selection Process - Review and Current Status
In early 2021, at the appeal of both the public and City Council, City staff began looking for ways to streamline and resourcefully fund the development of vitally needed affordable housing units in the City of Merced.
One of those ways was in issuing a Request for Qualifications (RFQ) in April 2021 to solicit interest from potential affordable housing developers in creating a pre-qualified, ready resource of developer partners whom the City could call upon when appropriate Federal, State, or other funding sources are available and can be matched with a viable project.
Around the same time, the City also issued an Request for Proposal (RFP) to solicit affordable housing developer interest in former Redevelopment Agency (RDA) parcels that were (and still are) under the purview of the Housing Successor Agency (HSA) that the State required the City to dispose of for affordable housing development purposes.
Linc Housing submitted proposals for both the noted RFQ and RFP solicitations and, since, has entered into a long-term escrow process for ownership transfer of the five HSA-owned parcels it was awarded through the Housing Successor Agency RFP (1815 I Street, 1823 I Street, 205 W. 18th Street, 211 W. 18th Street, and 202 W. 19th Street). Though the original expected 365-day escrow period has passed, the Exclusive Negotiating Agreement (ENA) allowed the escrow process to be extended automatically if Linc Housing has not yet obtained all the necessary capital and subsidies needed to perform their project financial closing and begin construction.
Currently, Linc Housing is looking to make another attempt at applying for the competitive 9% tax credit award from the Federal Tax Credit Allocation Committee (TCAC) in order to secure those necessary subsidies. The application deadline is April 7, 2026 - the day after this 4/6/2026 Council meeting.
Requested HOME funds
In order to raise their “tiebreaker” score and be more competitive against many other very good applicants and to help foot the bill on what are now higher construction costs since they began this process back in 2021, Linc Housing is requesting use of a portion of the City’s HOME funds.
Housing Division staff has reviewed available HOME funding from the program years of 2021, 2022, and 2023, and has determined the $1,756,934 would be available to Linc Housing. This amount is what remains from the total of all 2021, 2022, and 2023 uncommitted HOME funds, after subtracting approximately $35,000 for Housing’s staff hours spent on the project (Activity Delivery Costs - ADC, approximately 2%).
The amount available to Linc Housing includes portions of the City’s HOME allocation that are required, initially, to be reserved for Community Housing Development Organization (CHDO) projects. After two years, these 15% CHDO Reserves can be converted to regular HOME entitlement funds upon the City’s request. Recently, HUD granted this request for the subject years of funding and are now being made available to Linc.
The 2021, 2022, and 2023 HOME funds carry an expenditure deadline by HUD of September 30 of the years 2029, 2030, and 2031, respectively (8-years).
Program year 2024 and 2025 HOME funds are also available (an approximate total of $886,000). However, the developer is choosing not to request the newer funds, since that would trigger requirements of the Build America, Buy America (BABA) Act, which would drive the cost of building materials up by approximately $700,000, according to their cost estimates, leaving them with only a net amount of approximately $186,000. The BABA Act became effective beginning with the 2024 HOME funds.
Federal Environmental Clearance
Housing staff is currently working with Linc Housing’s environmental consultant team in preparing the necessary Environmental Assessment in compliance with the National Environmental Policy Act (NEPA). As the three-story project is located in the center of the Downtown Historic District, staff is also consulting with both the State Historic Preservation Officer (SHPO) and the local Merced County Historical Society in order to determine if alteration of the project’s proposed architecture and colors will be more aesthetically acceptable, given the locally designated Historic Property directly across the street from the project site.
The Conditional Commitment Reservation Letter stipulates that the requested HOME funding’s use for the project is contingent upon the issuance of NEPA environmental clearances (AUGF) by HUD and the Office of Public and Indian Housing (PIH), the latter for the use of Housing Authority-issued project based vouchers.
IMPACT ON CITY RESOURCES
This funding commitment will use HOME grant funds from the Annual Plan program years of 2021, 2022, and 2023 (FY 2021-22, 2022-23, and 2023-24).
The total amount (allocation plus program income) from each of the HOME grant years is broken down as follows:
Year Amount:
2021 $ 378,633.75
2022 557,067.67
2023 821,232.58
Total: $ 1,756,934.00
There is no budget appropriation action needed at this time.
Staff is coordinating the preparation of the necessary regulatory and grant/loan agreements with the City’s consultant, RSG Solutions. Upon approval by Council of those agreements at a later Council date, appropriation action would thereafter be taken, if needed.
ATTACHMENTS
1. Draft HOME Conditional Commitment Reservation Letter - Linc Housing