Consideration and Approval of Contract:  Adaptive Reuse Bond Program Loan Documents for Urban Lofts by 2705 N 4th St, LLC
 

Staff is requesting Council's approval of a loan for the developer of the Urban Lofts project, who responded to an open call for applications for funding and is eligible for an award of $640,000 for renovation purposes for their affordable adaptive reuse project.

• Unit count: 16 affordable, 1 market rate
• Income Level Served: average of 80% AMI, maximum 100% AMI
• Loan Amount: $640,000 ($40,000 per affordable unit)
• 0% interest and no payments required during 30-year loan term
• Loan forgiven at 30 years of compliance

Project Name: Urban Lofts
Cost: $640,000 ($40,000 per affordable unit)
Account Number Budgeted: 411-13-105-0353-4-4290
FY Budgeted Amount: $706,986
Grant Funded: n/a
Funding Source: Housing Bond (Prop 442) – Adaptive Reuse Bond Program

Council Approved the Adaptive Reuse Bond Program by Resolution 2025-44 on September 2, 2025

1. Approve the loan as recommended
2. Amend the loan per Council direction
3. Reject staff recommendation
 

Housing Bond
Proposition 442 – authorizing the use of $20 million dollars of general obligation bonds for "Creating Rental and Ownership Opportunities for Residents of Flagstaff" was approved by the voters in the November 2022 General Election. Proposition 442 identified four affordable housing spending categories, including "repurposing existing available buildings for rental housing.”

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 who are adaptively reusing Flagstaff’s existing building stock for the creation of affordable housing, serving households at an average of 80% AMI, with a maximum household income of 100% AMI.

Application Process
The Program offers a simple non-competitive application process, with funds awarded to applicants on a pass/fail basis. The Housing Investment section published an online application for funding on September 9, 2025. AXXO Holdings submitted an application for funding on January 15, 2026. Staff determined their project passed all Program requirements and provided the developer with a notice of funding reservation on February 5, 2026.

Project Details
Last winter, the developer purchased an empty office building located at 2705 N Fourth Street with financing provided by Foothills Bank. The developer is proposing to convert the office building into 16 affordable rental housing units, plus one market-rate unit. The unit mix will include one studio, 14 one-bedrooms and 2 two-bedrooms. Rents will be affordable to workforce households earning an average of 80% of the area median income, with a maximum 100% AMI for the 30-year loan term. The City’s Current Planning Section approved the Urban Lofts site plan on August 14, 2026. The developer is planning to begin renovations once this loan closes.

Loan Documents
Attached loan documents include a funding agreement between the City of Flagstaff and 2705 N 4th LLC, a promissory note, a declaration of restrictive covenants, and a deed of trust. All documents were prepared by the City's legal counsel and reviewed and accepted by the awardee.
 

Livable Community: Actively support attainable & affordable housing through City projects & opportunities with developers.
 

Policy HA.4 Further the development and rehabilitation of affordable and accessible rental opportunities for residents at all income levels
HA.5 Support the development of ownership and rental units that are priced below market rate
HA.6 Provide long-term affordability through permanently affordable housing models and public/private partnerships.
Policy NE.2 Include a range of housing options for all income levels in neighborhoods.
 

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.

 

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. 
 

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