Council approves letters of intent for affordable housing proposals aimed at obtaining state grant funding

City Council last week unanimously approved sending “letters of intent” for affordable housing proposals the city recently received, aimed at applying for state grant funding.

Councilmembers voted 4-0 on May 14 to approve sending letters of intent for proposals that responded to the city’s local housing trust fund (LHTF) notice of funding availability (NOFA) for affordable housing projects. Mayor Pro Tem Alex Rounaghi recused himself due to his prior employment at Related California.

Although there was some concern from the public about the proposal descriptions and locations, staff and councilmembers emphasized that no project plans have been submitted and, if that were to ultimately occur, they would go through a rigorous formal process, which could potentially modify the project or site.

They will do their due diligence for any potential project, said Mayor Sue Kempf.

This is the first real discussion they’ve had about affordable housing and potential proposals, Kempf noted. They don’t have any detailed information; they’re just trying to see if they can get money from the state. Any potential future project could be very different and located on a different site, she added, it’s very fluid at this point. There’s more to come on this topic, she noted.

“There will be a lot of work (to do),” Kempf said. “How we are in Laguna, we talk about things for a long time, so we’ll have a lot of discussions on this going forward.”

There have been several agenda items on the Local Housing Trust Fund the city recently created, noted Councilmember Bob Whalen, which has been an effort to try and enhance the opportunities in Laguna Beach.

“As a community, I think we share the recognition that we need to do more than we currently have done,” in terms of local affordable housing, Whalen said.

The council approving the item does not mean the proposal described will be built, he emphasized.

“This is a preliminary agreement outlining intent. It is a non-binding document that sets the stage for further negotiations and formal agreements. So, in the context of issuing letters of intent, (it) allows the involved parties to express commitment to funding and project(s) without being legally bound to do so,” Whalen explained. “What we’re really doing here is the first tiny step, just to create potential eligibility for funding, but it’s all subject to all of that playing out down the road.”

This is not going to bind the city, legally, to anything, Whalen reiterated. It gives them the flexibility to decide whether or not to proceed with these sites and, if they go forward, it will be a robust process.

“I think we need to take advantage of the opportunity to see if the state will give us grant funding,” Whalen said.

It’s a preliminary agreement to look for funding from the state for affordable housing, agreed Councilmember George Weiss.

“This is not a done deal,” he said.

There hasn’t been any affordable housing built in the city for more than 30 years, he noted.

Any project will go through a very intensive process of review, Weiss pointed out. There’s no guaranteed number of units, he added, because they have to go through that process to determine what will fit on the property, along with adequate parking.

“I do support affordable housing, but we have to do it right,” Weiss said, “and we have to be sensitive to the neighborhood’s concerns – and we will be.”

Council established the Laguna Beach LHTF, and adopted administrative guidelines and Uniform Multifamily Regulations at their April 9 meeting. They also authorized the city manager to issue the notice for funding availability to solicit proposals from qualified developers desiring to partner with the city to carry out affordable housing projects. The NOFA was released on April 10 with a May 7 deadline.

The city NOFA noted that up to $5 million could be available for such projects, half from various city funding sources and the other half in matching grant funds from the California Department of Housing and Community Development. The city anticipates HCD will issue a notice of funding availability for its Local Housing Trust Fund grant program this month. The state department scores grant applications based on several components, including project readiness. Issuing letters of intent (also called “pre-commitment” letters) will increase the competitiveness of the city’s LHTF grant application under HCD’s scoring criteria.

City staff expect to submit a LHTF grant application to HCD in June and should know if it’s approved (and if so, for what amount) by the fall.

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Photo by Mary Hurlbut

In response to the city’s notice for funding availability for affordable housing projects, they received a proposal for 340 St. Ann’s Drive, the Neighborhood Congregational Church property

Laguna Beach received two responses from the NOFA and last week’s action authorized the city manager to issue letters to both: West Development Ventures/Fullerton Development Partners for an amount not to exceed $3 million and Related California for an amount not to exceed $5 million.

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The response from West Development Ventures/Fullerton Development Partners requested funds for a residential project with 24 units with a mix of studios and one-bedrooms at 31729 and 31735 Coast Highway (formerly occupied by Italian restaurant Ti Amo by il Barone). The proposal identified affordability for very-low and low households and targets the senior population. If approved, it’s estimated to be completed by June 2026.

The response from Related California requested funds for a mixed-use project with 72 units with a mix of studios, one-bedrooms, two-bedrooms and three-bedrooms at 340 St. Ann’s Drive (the Neighborhood Congregational Church property). The project would provide 100% affordable housing, and would target large households/families, persons with disabilities and homeless persons. The project completion date is estimated for May 2028.

Neither proposal identified a commitment of at least 30% of funding for extremely low-income households, a requirement of the state’s LHTF grant funding. Staff recommended to issue the letters of intent for both, but with additional clarification of the percent required for extremely low-income households.

“With each of these proposals, no specific project application has been submitted at this time. Each of these projects would have to go through their respective entitlement processes, building permit processes and CEQA as well,” said Housing Program Coordinator Jennifer Savage.

Letters of intent are a preliminary funding commitment, Savage explained. It’s contingent on the city receiving funds from the state department of Housing and Community Development.

“It does not guarantee that the projects will proceed nor does it commit the city to any approvals, entitlements, or agreements,” she said.

Each letter will explain that the preliminary funding commitment is subject to, and contingent upon, the city receiving $2.5 million in matching grant funds from HCD. If the state department does not approve the city’s application or awards less than the amount requested, Laguna Beach can terminate or reduce the preliminary funding commitment at its sole and absolute discretion.

Both letters will also note that:

–The letter is not a guarantee from the city that the proposed project will proceed.

–The recipient is responsible, at its sole cost and expense, for securing any and all permits, entitlements, discretionary approvals and environmental reviews for the proposed project.

–The city is not obligated to approve any of the foregoing.

–Nothing in the letter constitutes the city’s approval of any subsequent agreements (e.g., promissory note, deed of trust, affordable housing regulatory agreement).

“A letter of intent serves as a preliminary agreement outlining the intent of parties involved in a potential transaction. It’s a non-binding document that sets the stage for further negotiations and formal agreements,” the staff report explains. “In the context of city-funded development projects, issuing letters of intent allows the involved parties to express commitment to pursuing the funding and project without being legally bound to do so. This flexibility is crucial, especially in complex projects where uncertainties exist regarding funding, permits and other regulatory requirements.”

On Dec. 12, 2023, the council directed staff to conduct additional analysis with representatives from the Housing and Human Services Committee and, if feasible, return with the appropriate document(s) to establish a local housing trust fund.

HHSC completed extensive research and concluded that a LHTF would provide valuable funding to facilitate the development of affordable housing in Laguna Beach.

A housing trust fund acts as a critical financial resource to tackle housing challenges within a community. More specifically, a housing trust fund is a pool of money set aside by the city to support various initiatives aimed at making housing more affordable, accessible and sustainable. This funding can be used for a variety of purposes, including loans or programs.

According to staff, in the context of the state’s LHTF grant program, a housing trust is: “a public, joint public and private, or charitable nonprofit organization,” which was established by “legislation, ordinance, resolution (including nonprofit articles of incorporation), or a public-private partnership organized to receive specific public, or public and private, revenue to address local housing needs.”

On March 27, HHSC discussed the local housing trust fund idea and added input on the recommendations in the draft resolution, LHTF program application, administrative guidelines and other related documents.

Out of the 15 people that spoke during public comment, a few were in favor of moving forward with the process in the hopes of obtaining grant funds from the state for potential affordable housing projects. Some speakers reiterated that the letters of intent do not create any obligation by the city.

Although most commenters lived near the Neighborhood Congregational Church and raised objections with the potential project at the site. Speakers specifically mentioned the impacts to views, property values, traffic and parking, and that it could possibly displace the Montessori preschool. Many urged the council to find an alternate location. Several were also concerned that this was the first time they had heard of the proposal.

The neighbors had a lot of great questions and concerns, Whalen said, and they’re understandable.

“We have a lot of the same questions you have,” he said.

No projects have been formally submitted, Whalen pointed out, they haven’t seen any plans yet. If it ultimately gets submitted, any project will go through a formal process, which will include addressing parking, safety, views and all the other issues raised by public speakers. It will be a series of meetings over a period of time, he added.

“What will ensue from here is a tremendous amount of public input,” Whalen said. “You’re right, this is sort of the first time this has surfaced and it’s surfaced publicly at this time because we’re trying to take an opportunity to get matching funds from the state of California.”

Those funds might be for this project or a different project, he added.

The city has five years to expend the funds and they can submit alternate projects/locations, Savage confirmed, answering a councilmember question.

With respect to the Neighborhood Congregational Church location, it makes sense to take the opportunity to see if the city can get the funding from the state, Whalen said, and then work through all of the issues.

In a statement emailed to Stu News Laguna, Rev. Rod Echols of NCC said the church has experienced declining membership and the underutilization of its facilities in recent years.

“The members of NCC have been on a several year journey, exploring how to better use our Laguna Beach property to deepen equity and benefit for our community,” he said.

That includes a process of evaluating how to reduce the size of the church space to allow for affordable housing.

Echols said NCC has entered into an agreement with Related California, to continue evaluating the financing and the development of a 100% affordable housing project, “complete with an onsite spiritual center.” It’s still in the “very early stages” of the process, he added.

Answering another councilmember question at last week’s council meeting, Savage confirmed that if a buyer for the Ti Amo property approaches the city and wants to purchase it for another use (since council recently agreed to move ahead with selling the site), the city could decide to sell it without having to do any kind of “unwinding” process from the letter of intent.


Sara Hall covers City Hall and is a regular contributor to Stu News Laguna.

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