8.C.
City Council Meeting - FINAL
- Meeting Date:
- 12/02/2025
- From:
- Jennifer Mikelson, Housing Planning Manager
TITLE:
Consideration and Approval of Contract: Loan Documents for The Lantern by Flagstaff Shelter Services
STAFF RECOMMENDED ACTION:
Approve a forgivable loan in the amount of $1,100,000 to Flagstaff Shelter Services for The Lantern: a Hotel to Housing Project, a transitional housing/adaptive reuse project, and approving the related loan documents, including the Funding Agreement, Promissory Note, Deed of Trust, and Restrictive Covenants.
Executive Summary:
Staff is requesting Council's approval of a forgivable loan to Flagstaff Shelter Services, a non-profit organization that responded to an open call for applications for funding, in an amount of $1,100,000 for their transitional housing project (The Lantern), which is a 100% affordable adaptive reuse project.
- Unit count: 103
- Income Level Served: up to 30% of the Area Median Income (AMI)
- Loan Amount: $1,100,000 ($10,679.61 per affordable unit)
- 0% interest and no payments required during the 30-year loan term
- Loan forgiven at 30 years of compliance
Financial Impact:
Project Name: The Lantern: A Hotel to Housing Project
Cost: $1,100,000 ($10,679.61 per affordable unit)
Account Number Budgeted: 411-13-105-0353-4-4290
FY Budgeted Amount: $2,934,664
Grant Funded: n/a
Funding Source: Housing Bond (Prop 442) – Adaptive Reuse Bond Program
Cost: $1,100,000 ($10,679.61 per affordable unit)
Account Number Budgeted: 411-13-105-0353-4-4290
FY Budgeted Amount: $2,934,664
Grant Funded: n/a
Funding Source: Housing Bond (Prop 442) – Adaptive Reuse Bond Program
Policy Impact:
None
Previous Council Decision or Community Discussion:
Council Approved the Adaptive Reuse Bond Program by Resolution 2025-44 on September 2, 2025
Options and Alternatives to Recommended Action:
1. Approve the loan documents as recommended.
2. Amend the loan documents per Council direction
3. Reject staff recommendation
2. Amend the loan documents per Council direction
3. Reject staff recommendation
Background and History:
Housing Bond
Proposition 442 identified four affordable housing spending categories, including "repurposing existing available buildings into rental units."
Adaptive Reuse Bond Program
Approved by City Council on September 2, 2025 (Resolution 2025-44), the Adaptive Reuse Bond Program is intended to provide funding to developers of eligible projects adaptively reusing Flagstaff’s existing building stock for the creation of affordable housing, serving households averaging 80% AMI, with a maximum household income of 100% AMI.
Application Process
The Program offers a simple and non-competitive application process, with funds awarded to applicants on a pass/fail basis. Housing published the online application for funding on September 9, 2025. The first application received was from Flagstaff Shelter Services on September 10, 2025. Staff determined their project passed all Program requirements and was eligible for an award.
Project Details
Flagstaff Shelter Services purchased an old hotel located at 2440 E. Lucky Lane in April 2023 using funding from the Arizona Department of Housing. After various delays and unexpected rehabilitation costs, the project is set to receive a certificate of occupancy in early November 2025. While operating as Transitional Bridge Housing, rent will not be charged at The Lantern. Once the property is transitioned to Permanent Supportive Housing, rent will be calculated at 30% of household income for the duration of the 30-year loan term.
Loan Documents
Attached loan documents include a funding agreement between the City of Flagstaff and Flagstaff Shelter Services, Inc., a promissory note, a declaration of restrictive covenants, and a deed of trust. All loan documents were prepared by the City's external legal counsel and reviewed by the awardee. The City Attorney is in the process of reviewing the documents and final documents will be attached prior to City Council approval.
Proposition 442 identified four affordable housing spending categories, including "repurposing existing available buildings into rental units."
Adaptive Reuse Bond Program
Approved by City Council on September 2, 2025 (Resolution 2025-44), the Adaptive Reuse Bond Program is intended to provide funding to developers of eligible projects adaptively reusing Flagstaff’s existing building stock for the creation of affordable housing, serving households averaging 80% AMI, with a maximum household income of 100% AMI.
Application Process
The Program offers a simple and non-competitive application process, with funds awarded to applicants on a pass/fail basis. Housing published the online application for funding on September 9, 2025. The first application received was from Flagstaff Shelter Services on September 10, 2025. Staff determined their project passed all Program requirements and was eligible for an award.
Project Details
Flagstaff Shelter Services purchased an old hotel located at 2440 E. Lucky Lane in April 2023 using funding from the Arizona Department of Housing. After various delays and unexpected rehabilitation costs, the project is set to receive a certificate of occupancy in early November 2025. While operating as Transitional Bridge Housing, rent will not be charged at The Lantern. Once the property is transitioned to Permanent Supportive Housing, rent will be calculated at 30% of household income for the duration of the 30-year loan term.
Loan Documents
Attached loan documents include a funding agreement between the City of Flagstaff and Flagstaff Shelter Services, Inc., a promissory note, a declaration of restrictive covenants, and a deed of trust. All loan documents were prepared by the City's external legal counsel and reviewed by the awardee. The City Attorney is in the process of reviewing the documents and final documents will be attached prior to City Council approval.
Connection to PBB Priorities and Objectives:
Livable Community: Actively support attainable & affordable housing through City projects & opportunities with developers.
Connection to Regional Plan:
Goal LU.9. Focus reinvestment, partnerships, regulations, and incentives on developing or redeveloping urban areas.
Goal NH.3. Make available a variety of housing types at different price points, to provide housing opportunity for all economic sectors.
Policy NH.3.1. Provide a variety of housing types throughout the City and region, including purchase and rental options, to expand the choices available to meet the financial and lifestyle needs of our diverse population.
Policy NH.3.3. Increase the availability of affordable housing for very low-income persons, through innovative and effective funding mechanisms.
Policy NH.3.5. Encourage and incentivize affordable housing.
Policy CC.2.10. Educate the community and developers on the benefits of adaptive reuse and create policies to incentivize the reuse of historic buildings to maintain their integrity.
Goal NH.3. Make available a variety of housing types at different price points, to provide housing opportunity for all economic sectors.
Policy NH.3.1. Provide a variety of housing types throughout the City and region, including purchase and rental options, to expand the choices available to meet the financial and lifestyle needs of our diverse population.
Policy NH.3.3. Increase the availability of affordable housing for very low-income persons, through innovative and effective funding mechanisms.
Policy NH.3.5. Encourage and incentivize affordable housing.
Policy CC.2.10. Educate the community and developers on the benefits of adaptive reuse and create policies to incentivize the reuse of historic buildings to maintain their integrity.
Connection to Carbon Neutrality Plan:
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.
HA-4: Protect people from housing discrimination and remove housing barriers.
HA-2: Connect people to equitable housing solutions.
HA-4: Protect people from housing discrimination and remove housing barriers.
Connection to 10-Year Housing Plan:
Goal: Create housing options for households at all income levels and family sizes occupied by local residents.
Create 1: Incentivize the creation of affordable units through various programs and mechanisms.
Preserve 1: Encourage the adaptive reuse of buildings.
Goal: Protect people from housing discrimination and remove housing barriers.
Protect 2: Ensure affordable housing is a part of every Flagstaff neighborhood and work to address disparate impact as part of any development or redevelopment.
Create 1: Incentivize the creation of affordable units through various programs and mechanisms.
Preserve 1: Encourage the adaptive reuse of buildings.
Goal: Protect people from housing discrimination and remove housing barriers.
Protect 2: Ensure affordable housing is a part of every Flagstaff neighborhood and work to address disparate impact as part of any development or redevelopment.