8.C.
City Council Meeting - FINAL
- Meeting Date:
- 12/16/2025
- From:
- Jennifer Mikelson, Housing Planning Manager
TITLE:
Consideration and Approval of Contract: Loan Documents for Western Hills Apartments by Housing Solutions of Northern Arizona
STAFF RECOMMENDED ACTION:
Approve the loan documents totaling $1,160,000 for the Western Hills property by Housing Solutions of Northern Arizona, using Adaptive Reuse Bond Program funds.
Executive Summary:
Staff is requesting Council's approval of a loan for Housing Solutions of Northern Arizona (HSNA), a non-profit organization that responded to an open call for applications for funding and were eligible for an award of $1,160,000 for the acquisition of the Western Hills property for their 100% affordable adaptive reuse project.
- Unit count: 29
- Income Level Served: average of 80% AMI, maximum 100% AMI
- Loan Amount: $1,160,000 ($40,000 per affordable unit)
- 0% interest and no payments required during 30-year loan term
- Loan forgiven at 30 years of compliance
Financial Impact:
Project Name: Western Hills Apartments
Cost: $1,160,000 ($40,000 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: $1,160,000 ($40,000 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 as recommended.
2. Amend the loan per Council direction.
3. Reject staff recommendation.
2. Amend the loan per Council direction.
3. Reject staff recommendation.
Background and History:
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. Housing published the online application for funding on September 9, 2025. Housing Solutions of Northern Arizona submitted an application on September 22, 2025. Staff determined the project passed all Program requirements and was eligible for an award. Staff provided HSNA with a notice of funding reservation on September 25, 2025.
Project Details
Housing Solutions of Northern Arizona is prepared to purchase the Western Hills property, located at 1580 E Route 66 with financing provided by AZ One Credit Union. HSNA is expected to close on the property on December 23, 2025. This project is another local example of a motel being converted to long-term rental housing. Rent for each of the 29 units 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 HSNA, a promissory note, a declaration of restrictive covenants, and a deed of trust. The City will sign a subordination agreement confirming the City’s loan is subordinate to the first mortgage lender. All documents were prepared by the City's external legal counsel and reviewed by the awardee and their lender.
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. Housing published the online application for funding on September 9, 2025. Housing Solutions of Northern Arizona submitted an application on September 22, 2025. Staff determined the project passed all Program requirements and was eligible for an award. Staff provided HSNA with a notice of funding reservation on September 25, 2025.
Project Details
Housing Solutions of Northern Arizona is prepared to purchase the Western Hills property, located at 1580 E Route 66 with financing provided by AZ One Credit Union. HSNA is expected to close on the property on December 23, 2025. This project is another local example of a motel being converted to long-term rental housing. Rent for each of the 29 units 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 HSNA, a promissory note, a declaration of restrictive covenants, and a deed of trust. The City will sign a subordination agreement confirming the City’s loan is subordinate to the first mortgage lender. All documents were prepared by the City's external legal counsel and reviewed by the awardee and their lender.
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.