Extracted text (via pymupdf)
10142 characters
{00597822.1}
City Council Report
Date:
March 23, 2026
To:
City Council
From:
Candace Cannistraro, Deputy City Manager
Subject:
Approving and Authorizing a Resolution for the City Manager to enter
into an Option to Lease and Option to Purchase, Ground Lease and
Option to Purchase, and Purchase and Sale Agreements for a Senior
Affordable Housing Project Located in Downtown Mesa
(City Council District No. 4)
Purpose and Recommendation
Staff recommends that City Council approve a resolution authorizing the City Manager
to enter into an option to lease and option to purchase agreement, ground lease, and
purchase and sale agreement for the development of approximately 0.92 acres of City-
owned land located near the southwest corner of the intersection of University Drive
and Center Street (APNs 138-59-029, 138-59-027, and 138-59-026) (collectively, the
“Property”). The lease option would grant Developer an exclusive option to enter into
a long-term ground lease for the Property for the development of a senior affordable
housing project, which may be exercised only if Developer receives a Low-Income
Housing Tax Credit program (“LIHTC”) award during the 2026 or 2027 LIHTC
application cycles. If a ground lease is executed, it would require the Developer to
maintain affordable senior housing on the Property for 50 years and would also grant
Developer the option to purchase the Property during the term of the ground lease
beginning at year 25.
Background
Helix Apartments, LLC (“Developer”) is an affiliate of Commonwealth Development
Company, which has experience developing affordable housing developments across
the U.S., including several in Arizona. In 2024, the City endorsed Commonwealth’s
application for LIHTC with the State of Arizona for 62 units of senior affordable housing
on the subject Property (“Project”). Commonwealth received favorable responses to
the proposed Project during its community outreach. City HOME funds were also
identified for the Project to provide gap financing and to earn additional points on the
LIHTC application. Despite a strong application and favorable community response,
the Project narrowly missed the LIHTC funding cutoff.
The Property in question is in an ideal location for senior affordable housing due to its
proximity to the downtown senior center and transit. It is just off the northeast corner
of the senior center in downtown Mesa, across a residential road, making traveling to
the senior center easy and convenient for residents.
{00597822.1}
2
On November 5, 2024, City Council approved the purchase of the Property with a
purchase price of $2.1M. Federal funding was used for the purchase from the
Neighborhood Stabilization Program (“NSP”). The City received NSP funding in 2009
and 2011. NSP was developed to address the negative impacts of foreclosures and
vacant properties. During that time, in accordance with NSP requirements, the City
purchased foreclosure and/or blighted properties with the NSP funding, renovated
them, and resold them under market value to income-eligible individuals.
NSP has been inactive for many years, but there remained some program funding
available. The remaining NSP funds were a combination of original funds and program
income, for a total of $1,920,268. The remaining funding of $184,554 for the purchase
of the Property was from a developer reimbursement of federal HOME Investment
Partnership Program (“HOME”) dollars.
Discussion
Seniors are one of the fastest growing populations of homeless individuals. This
opportunity allows the City to receive a public benefit in the development of much
needed affordable senior housing by leveraging the Property’s proximity to the existing
senior center for development of approximately 62 senior housing units that would
have at least 50 years of affordability restrictions tied to the use of the Property. It
should also be noted that, Commonwealth Development Company has developed a
partnership with Aster Aging, located in the downtown senior center, to provide
programming services for the Property residents.
If approved by City Council, the City would enter an option to lease and option to
purchase agreement (“Option Agreement”) with the Developer. The Option Agreement
would grant Developer an exclusive option to enter into a long-term ground lease for
the Property (“Lease Option”), which may be exercised only if Developer receives a
LIHTC award during the 2026 or 2027 LIHTC application cycles. Approval of the
Option Agreement would provide the Project with a competitive advantage (additional
points) in the LIHTC application process that is given to projects leasing land from a
government entity. In addition, if Developer wants to apply for HOME funding towards
the Project, the Property would also be required to pass an environmental review prior
to exercise of the Lease Option, but that review would not be required if the Developer
chose not to apply for the HOME funding.
The Option Agreement sets forth the material terms of the transaction agreed to by the
City and Developer, including the terms of the Lease Option and certain minimum
terms for the Ground Lease and Purchase Option (defined below). If the Lease Option
is exercised, Developer and City would negotiate and enter into a ground lease for the
Property (“Ground Lease”) that would include an option for Developer to purchase the
Property, subject to certain requirements being met (“Purchase Option”), including the
parties entering into a purchase and sale agreement for the Property whereby, if the
terms are met, the City will sell the Property to Developer (“Purchase Agreement”).
{00597822.1}
3
The minimum material terms outlined in the Option Agreement to be included in the
Ground Lease and Purchase Option are generally as follows:
a. A 50-year initial lease term with an option for Developer to renew for
an additional 25-year term.
b. An annual rent of $1,200 during the construction phase of the Project,
increasing to $23,999.88 upon issuance of a certificate of occupancy.
It should be noted that an annual rate of $24,000 is the maximum rent
allowed by the Arizona Department of Housing for Developer to
receive points for leasing the land from a governmental entity. The
revenue received from the annual rent would help defray City’s
oversight costs regarding the Project. The annual rent would
increase to fair market value if the lease is renewed for an additional
25 years.
c. The Project must consist of 62 multifamily units for seniors with
incomes between 30% and 60% Area Median Income, with affordable
unit rents determined in compliance with LIHTC and HOME
regulations.
d. The City will waive up to $100,000 in permitting fees. The waiver will
not include any impact, capacity, water meter, or right of way fees. A
fee waiver from a municipality provides extra points during the LIHTC
application process.
e. The Project units must remain affordable for 50 years, with the
affordability period extended for any length of time for which the lease
is extended (i.e. if the Ground Lease is renewed for the additional 25-
year period, the affordability period will also be extended). This is
significantly longer than the minimum LIHTC affordability of 15 years.
Agreeing to a longer affordability period provides extra points during
the LIHTC application process and ensures a longer public benefit in
the provision of affordable senior housing.
f. Developer has an option to purchase the Property at the fair market
value of the land beginning at year 25. If the Property is purchased
prior to the expiration of the 50-year Ground Lease term, the City
would record a restrictive covenant against the Property to keep it
affordable for the remainder of the guaranteed 50-year affordability
period. If the Ground Lease expires without Developer exercising its
Purchase Option, ownership of all improvements reverts to the City.
g. Developer shall maintain a partnership with a social services agency
that provides services to seniors residing at the Property.
h. Developer shall comply with all LIHTC and HOME requirements with
failure to do so constituting default under the Ground Lease.
If the Developer is not awarded LIHTC in the 2026 cycle, they retain the option to lease
through the 2027 cycle. If Developer is awarded LIHTC, they are required by the State
{00597822.1}
4
to submit building plans to the City by December 31st of the award year and to begin
construction by December 31st of the following year. If Developer is not successful in
either the 2026 or 2027 LIHTC cycles, the Lease Option will expire, and the City will
consider other options for the use of the Property.
Alternatives
Other options for the use of the land could be considered. Prior developers have
considered this site for market rate housing and were not able to move forward and
the site has been vacant for some time. The City purposefully acquired this site in the
hopes of the development of senior affordable housing next to the senior center
through a private/public partnership that would benefit the public.
Fiscal Impact
The fiscal impact is positive for the City; if the Lease Option is exercised, following the
issuance of the certificate of occupancy for the Project, the City would receive
$23,999.88 per year in lease revenue for the term of the Ground Lease, which is in
addition to the construction sales tax paid to the City during the construction of the site,
and on-going utility sales once occupied. The City would also receive the fair market
value for the land if the Purchase Option is exercised and, if it is not, ownership of the
improvements would revert to the City.
Construction costs for development of the property and on-going operational costs are
the responsibility of Commonwealth.
Coordinated With
City Manager’s Office, Community Services, and the City Attorney’s Office