Consideration and Approval of Ground Lease Agreement between the City of Flagstaff and Housing Solutions of Northern Arizona, Inc. for the development of affordable rental housing.
 

1. Approve the ground lease with Housing Solutions of Northern Arizona, Inc.
2. Authorize City Manager to execute the ground lease

Approval of this 99-year lease will allow Housing Solutions of Northern Arizona, Inc. (HSNA) to proceed with final grant documents from the Arizona Department of Housing to construct and operate an affordable rental project on City property located at 2240 N. Izabel Street (APN# 109-11-151D). Council approved a lease option with HSNA (GEN-2022-118-AG1) prior to applying for funding in 2022. 

This affordable rental development would qualify for fee waivers/reimbursements under the Incentive Policy for Affordable Housing (IPAH), which is funded by the general fund.
A ground lease fee of $100 will be collected from HSNA annually.

A Lease Option (GEN-2022-118-AG1) with Housing Solutions of Northern Arizona, Inc. was approved in March 2022.
Prior Council action included a 2018 Purchase and Sale Agreement (GEN-2018-123-AG1) for this property but was not put into effect.
 

1. Make changes to the draft ground lease; or
2. Provide alternative direction on the use of the property located at 2240 N Izabel Street.

Project Information
If this ground lease is approved and final loan docs with ADOH are executed, HSNA will begin the work of developing the City’s first ever affordable rental project on leased City property. HSNA will construct 11 three-bedroom apartments, which will provide permanent, affordable housing for low-income households. HSNA property managers will connect tenants with community-based resources and case management support as needed. Resources may include physical and mental health services, food resources, transportation support, etc. A portion of the Izabel Street Community Garden will be relocated to make room for one of the apartment buildings. The portion of the garden that will remain in place will be fenced off during construction to prevent soil disturbance. A mitigation plan detailing further soil preservation efforts and remediation requirements will be developed between Sustainability staff and HSNA.

Terms of the lease:

• 99-year lease term
• $100 annual lease fee
• State funding requires a 15-year compliance period;
  • Project will serve households earning up to 30% AMI, including formerly homeless households and domestic violence victims.
• After the 15-year period, the lease requires the project serve an average 80% AMI, with no tenant exceeding 100% AMI.
• Preservation of the Izabel Street Community Garden

History of Parcel
In 2018, per Council direction, Housing staff conducted a procurement process (RFP 2018-02), to find a development partner to construct and operate 100% affordable multifamily rental units across three City owned properties. One of the properties was located at 2240 N Izabel Street, adjacent to the BMX Park and the Izabel Street Community Garden in Sunnyside. Concurrent with the procurement process, staff rezoned the .87 acre property from Public Facility to Medium Density Residential in January 2018 (Ordinance 2018-04). By March of 2018 the City had selected Brinshore Development LLC as a development partner and entered into a purchase and sale agreement for City property (GEN-2018-123-AG1). The developer intended to use Low Income Housing Tax Credit (LIHTC) funding to construct the scattered site project. The City stipulated that the community garden be retained onsite. During site planning the garden was shifted 90 degrees counter-clockwise to align with the floodplain and split from the main parcel (new APN# 109-11-151E). A site plan for two 2-story buildings containing 11 three-bedroom units and a leasing office was approved by Planning & Development staff in March 2019. The original site and building plans for the project have expired and will need to be updated through the City’s Interdepartmental Staff review process.

In September 2019 the City received a withdrawal letter from Brinshore, indicating there was not sufficient funding to complete the project, and their Low-Income Housing Tax Credits were returned to the Arizona Department of Housing (ADOH).

Two years later, ADOH announced a grant funding opportunity as pandemic-era relief funding became available. Local housing non-profit HSNA contacted Brinshore about reviving the multifamily rental project on Izabel Street, and Brinshore generously agreed to donate plans to HSNA. Council approved a Lease Option (#GEN-2022-118-AG1) for the property in March 2022 prior to HSNA’s application for funding. The lease option memorialized HSNA and the City’s intention to pursue a long-term lease of City property if sufficient funding to construct the project was obtained. In February 2023, HSNA was notified of their conditional award of over $8 million in funding for the project. Staff processed two one-year extensions of the Lease Option while awaiting funding approval and development of the ground lease. Staff is bringing forward the attached ground lease for Council approval so that final funding contracts may be secured between HSNA and ADOH.

 

Livable communities Safe and Healthy Community

Policy E&C.9.2. Construction projects employ strategies to minimize disturbed area, soil compaction, soil erosion, and destruction of vegetation.
Policy NH.3.3. Increase the availability of affordable housing for very low-income persons, through innovative and effective funding mechanisms.
Policy NH.5.1. Provide adequate resources for families with children experiencing homelessness.

HA-1: Create housing options for households at all income levels and family sizes occupied by local residents.
HA-2: Connect people to equitable housing solutions.

Create 5.9: Prioritize the development of City of Flagstaff owned land designated for affordable housing and evaluate other City-owned parcels for affordable and mixed-income housing.
Connect 3.2: Encourage neighborhoods, housing types, and building practices that increase health.