REPORT TO CITY COUNCIL
SUBJECT
Title
Action on Amendment No. 9 to the Exclusive Negotiation Agreement and Amendment No. 7 to the Amended and Restated License Agreement with Habitat for Humanity East Bay / Silicon Valley for an Affordable Homeownership Development Project at 3575 De La Cruz Boulevard to Extend the Agreements for an Additional One Year.
Report
BACKGROUND
The City selected Habitat for Humanity East Bay / Silicon Valley (Developer or HHEBSV) in 2018 through a competitive process as the developer for a City-owned affordable housing site at 3575 De La Cruz Boulevard. The City is working with the Developer through an Exclusive Negotiation Agreement (ENA) for the development of a family-oriented, affordable homeownership development. However, due to design challenges, limited funding sources, and interest rate volatility, the Developer has been unable to secure all of the necessary funding for the Project, and the City and the Developer have not reached an agreement on the terms for a Disposition and Development Agreement (DDA) as contemplated in the ENA. Therefore, staff is requesting a one-year extension of the ENA to allow the Developer more time to secure funding and for staff to prepare a DDA and Amendment No. 7 to the Amended and Restated License Agreement (License). The current ENA and License expire December 30, 2025.
The State, through the CalHome program, has committed to fund a portion of the project. The developer is working on additional funds through a possible 2026 state housing bond which could supply new affordable housing funds to the County, federal grants, and any remaining opportunities to fully fund the project. The developer is working in good faith to secure funds, and therefore staff is recommending the Exclusive Negotiation Agreement be extended until December 2026.
The Property is currently a vacant 0.7-acre site and was previously developed with a City Fire Station, which was demolished in 2010. An 80-foot PG&E easement containing transmission lines supported on top of 100-foot-tall PG&E lattice towers is located along the Property’s eastern edge. Surrounding land uses include light industrial buildings to the south, single-family residences to the east and north, and Montague Park to the west on the opposite side of De La Cruz Boulevard. Golden State Baptist College is located to the southwest of the project site, also fronting on De La Cruz Boulevard, adjacent to Montague Park. The site is also within close proximity to Montague Elementary School.
Proposed Project
The proposed project is the construction of 15 new units (previously 13 units) of affordable housing at the site, available to a diverse range of mixed-income families earning between 50 percent (previously 60 percent) and 120 percent of the Area Median Income (AMI). The units would be developed as a mix of townhomes and flats, using a cohesive design that maximizes cost efficiencies while providing homes that are attractive, energy efficient, and durable. The conceptual site plan is intended to maximize the number of affordable homes while strategically addressing various site
constraints, including positioning the new homes to minimally impact the adjacent property owners and provide a transition to the industrial park to the south.
Exclusive Negotiation Agreement (ENA)
On April 9, 2019, the City Council approved an Exclusive Negotiation Agreement with the Developer for the site (Attachment 1). The ENA provided an initial negotiating period of 18 months, commencing on the date the Agreement was fully executed, which could be extended for two additional periods of six months each by the City Manager upon presentation of a written request from the Developer, together with a schedule of tasks to be accomplished during the additional period. As allowed under the ENA, the City Manager previously granted two six-month extensions for the ENA (Amendment No. 1 and Amendment No. 2) on December 14, 2020, and July 12, 2021, respectively.
Since that time, four additional six-month extensions were signed extending the ENA until December 30, 2023. Because the ENA was set to expire on December 31, 2023, and project financing was not yet secured, the City agreed to extend the ENA through December 30, 2024, with an additional twelve-month extension option through December 30, 2025.
DISCUSSION
This project has required multiple extensions to address design challenges, secure entitlements, and to close the funding gap. The funding gap as of November 2025 is $4,000,000. The project continues to make progress and received full entitlements at a Development Review Hearing (DRH) on February 1, 2023. It is important to note that affordable homeownership projects cannot access tax credit equity or tax-exempt bond financing, which are available to rental projects. As a result, these projects are more sensitive to interest rate fluctuations, and recent interest rate increases have significantly impacted feasibility.
The CalHome Program provides grants to local public agencies and nonprofit corporations to enable low- and very low-income households to become or remain homeowners. In November 2025, Habitat for Humanity East Bay/Silicon Valley received notice of a conditional $2.6M award from the State Housing and Community Development department. This award reduces the remaining capital stack for the project and the developer hopes to source the remaining project funding requirements with the next 12-24 months. The funding gap since receipt of this conditional award is $4,000,000.
The Developer started reaching out to the County Office of Supportive Housing for Measure A funding once entitlements were approved for this project but were repeatedly delayed taking the project up to the Board of Supervisors while the County addressed other funding applications. Ultimately, in late 2024, the Developer was informed by the County that there were no more funds available from the County, and a potential state bond measure in 2026 was the best chance for accessing County funding.
Recently, the Developer also reached out to the federal government attempting to source a Community Project Funding (CPF) grant for this project, but they were denied access to the CPF program due to Congress not passing a new budget. The Developer continues to pursue alternate funding sources, including advocating for a new multi-county bond measure on the 2026 ballot and they remain in discussions regarding potential alternate federal funding methods. The developer is also active in lobbying the State to fund additional affordable homeownership programs.
Once additional funds are secured, a senior construction lender will be able to complete underwriting and issue a commitment for a senior construction loan. That loan would be paired with a permanent take-out loan, which will repay the construction loan as the homes are sold. The feasibility of the project will depend on prevailing interest rates at the time of the loan commitment. When both the construction and permanent loan commitments are in place, City staff can present a DDA to the City Council for consideration. However, the exact timing for these commitments remains uncertain due to interest rate fluctuations. The Developer is currently targeting a financing closing in late 2027.
Staff recommends extending the ENA for an additional one year until December 2026. This extension will provide the Developer additional time to secure funding commitments in a climate of scarce affordable housing subsidies and to allow time for staff to prepare a DDA for Council consideration. The amendment to the ENA allows the City to terminate the ENA at any time during the extended term if the City determines that the Developer is not making sufficient progress on securing the necessary additional funds or that the project is financially infeasible.
Staff also recommends amending the License Agreement with the Developer to align with the ENA extension. The License Agreement provides temporary right of access and sets terms around access to the property for activities related to due diligence, such as conducting property surveys, geotechnical, environmental, and utility studies. The License Agreement would extend access through the proposed extension to the ENA term.
Implementation of the Developer’s proposal for 3575 De La Cruz Boulevard would achieve the City’s objective for the development of a mix of affordable housing project types throughout the City, and provide a relatively unique-small scale, family-oriented development. As proposed, the project achieves many of the goals and objectives of the City’s Request for Proposals for the property, including alignment with community interest in terms of the development program and City standards for financing and affordability. The Developer was also selected based on their well-established history in the production of affordable housing.
Conclusion
Staff is recommending the City Council approve Amendment No. 9 to the ENA extending the negotiating period under the ENA by one (1) year and Amendment No. 7 to the Amended and Restated License Agreement with Habitat for Humanity East Bay / Silicon Valley to allow more time to secure funding and for staff to prepare a DDA for the City Council’s consideration within the next year. The proposed amendments are included as Attachments 3 and 4.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
There is no cost to the City for these agreement amendments other than administrative time and expense.
COORDINATION
This report has been coordinated with the Finance Department and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Approve and authorize the City Manager to execute Amendment No. 9 to the Exclusive Negotiation Agreement (ENA), and Amendment No. 7 to the Amended and Restated License Agreement with Habitat for Humanity East Bay / Silicon Valley for the Development of 3575 De La Cruz Boulevard extending the term of each agreement by one (1) year, in final forms approved by the City Attorney.
Staff
Reviewed by: Afshan Hamid, Director of Community Development
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Original Exclusive Negotiation Agreement with HHEBSV
2. Original License Agreement with HHEBSV
3. Draft Amendment 9 to the Exclusive Negotiation Agreement with HHEBSV
4. Draft Amendment 7 to License Agreement with HHEBSV