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RESOLUTION AUTHORIZING A SUBORDINATION AGREEMENT BETWEEN THE CITY OF STOCKTON, THE SAN FRANCISCO HOUSING ACCELERATOR FUND, AND FAIRVIEW TERRACE STOCKTON LP FOR THE PROPERTY LOCATED AT 2222 SOUTH AIRPORT WAY FOR THE FAIRVIEW TERRACE PROJECT
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Authorizing the execution of a Subordination Agreement between the City of Stockton, The San Francisco Housing Accelerator Fund, and Fairview Terrace Stockton LP for the property located at 2222 South Airport Way to be used for the Fairview Terrace affordable housing project
2. Authorizing the City Manager, or designee, to take all necessary and appropriate actions to carry out the purpose and intent of this resolution.
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Summary
Fairview Terrace is a proposed 76-unit affordable housing project located at 2222 South Airport Way, being developed by Fairview Terrace Stockton Limited Partnership (Attachment A - Vicinity Map, Attachment B - Aerial Map). Fairview Terrace Stockton LP is composed of Mutual Housing California and Stocktonians Taking Action to Neutralize Drugs (STAND). The project is being funded through a combination of City contributions, low-income housing tax credits, and private lending sources.
The original Option Agreement, through which the City sold the property to STAND in 2023, included a provision for the City to repurchase, reenter, and repossess the property should the Buyer (STAND, or their successor in interest) fail to obtain a building permit(s) to construct the development within five (5) years of conveyance. Furthermore, the Option Agreement states that construction must commence within 6 months after obtaining such permit (Attachment C - Option Agreement).
The proposed action authorizes the City to execute a Subordination Agreement, included as Exhibit 1 to the resolution, between the City of Stockton, Fairview Terrace Project LP, and The San Francisco Housing Accelerator Fund (Lender). Execution of the Subordination Agreement would subordinate the City’s interest and rights in the Option Agreement to the pending loan documents with the Lender.
This action will enable the project team to secure project financing for the Fairview Terrace project. Staff recommends City Council approve the execution of the Subordination Agreement.
DISCUSSION
Background
On May 10, 2018, an Option Agreement was executed between the City of Stockton and Stocktonians Taking Action to Neutralize Drugs (STAND) for a proposed development project for the properties located at 2222 & 2224 South Airport Way (Attachment C).
Pursuant to Section 18 of the Option Agreement, the City of Stockton (Seller), has the right to repurchase, renter and repossess the property under these conditions: (a) If the Buyer fails to obtain a building permit to construct a development project within five (5) years following the conveyance of title; or (b) If Buyer fails to commence construction within 6 months after obtaining the building permit. The Option Agreement was originally set to expire on May 10, 2020.
On March 24, 2020, City Council approved Resolution 2020-03-24-1105 (Attachment D), extending the Option Agreement to allow additional time for due diligence. The Extension of Option to Purchase Agreement was executed on April 2, 2020, extending the agreement through May 10, 2023.
On March 14, 2023, STAND submitted a letter to the City Manager requesting to exercise the option to purchase the subject properties. On May 4, 2023, the properties were sold and conveyed to STAND via Grant Deed. This conveyance made the Option Agreement effective as of the purchase date of May 4, 2023. The property owner now has until May 4, 2028, to satisfy the conditions outlined in Section 18 of the Option Agreement.
On January 29, 2024, the City issued a Notice of Funding Availability (NOFA) for several affordable housing funding sources. In response, Mutual Housing California, (Developer) and STAND(Property owner and co-applicant) submitted an application for a housing loan.
On November 19, 2024, Mutual Housing California's Fairview Terrace Apartments project was awarded a $7,037,865 affordable housing loan.
Present Situation
To facilitate project funding, Fairview Terrace Stockton LP engaged with a lender. The San Francisco Housing Accelerator Fund (Lender) has requested subordination of the City’s repurchase rights under the Option Agreement for the subject property.
The Lender has issued a $2,500,000 loan to the borrower, to be secured by a Deed of Trust. As a condition of this financing, the Lender requires that the City subordinate its Option Agreement and all associated rights to the Lender’s loan documents. This includes consenting to the recordation of the Deed of Trust and confirming that the City’s interests under the Option Agreement are subordinate to the Lender's lien.
The project received an award of tax credits needed to complete the funding plan for the project in late September 2025. As a condition of the tax credits, construction must commence within 180 days of award. Approval of the Subordination Agreement will allow Fairview Terrace Stockton LP to secure the private piece of funding from its Lender and proceed with the proposed project.
FINANCIAL SUMMARY
There is no direct fiscal impact to the City as a result of this action. The subordination of repurchase rights is necessary to facilitate external financing for the project.
Attachment A - Vicinity Map
Attachment B - Aerial Map
Attachment C - Option Agreement
Attachment D - Resolution 2020-03-24-1105