WATSONVILLE — The Watsonville City Council on Tuesday unanimously approved a $1.8 million loan to a company that plans to build a 61-unit, multi-family low-income housing development in Watsonville, along with a 30-bed residential and outpatient substance abuse treatment center.
Mid-Pen Housing and Encompass Community Services would work together to develop three parcels at 139-161 Miles Lane, and 201 Kimberly Lane.
One of the parcels now contains a 26-bed residential treatment facility for men, which is operated by Encompass Community Services. Another contains four dilapidated residential units.
In providing the loan to Mid-Pen, the city will use $1 million from its Inclusionary Housing Fund, and $800,000 from the Successor Agency Housing Fund.
The city typically imposes a three percent interest rate on loans, over a 30-year period, Watsonville Community Development Director Suzi Merriam said.
Encompass received a planning grant from the Central California Alliance for Health to rebuild and expand the treatment facility.
Merriam described the proposed facility as a “comprehensive supportive housing campus.”
“It’s an exciting project, and as we get through the process I think it will be a positive for the community,” she said.
Mid-Pen also built the Pippin Orchards apartments at 56 Atkinson Lane, and Sunny Meadows Apartments on Ross Avenue.
The organization operates in 11 counties, and manages more than 8,000 units of housing at 136 properties, much of which is dedicated to people with special needs, said Housing Development Director Betsy Wilson.
This includes after-school programs for children, and care and case management for people with special needs, she said.
“We are a full service developer in the sense that, when we build something we stay there,” Wilson said. “We manage it, we provide services and support for our residents.”
The project is still in its early stages, and receiving the loan is contingent on a successful environmental review and other approvals.
City officials will also look at how it will impact traffic in the neighborhood. It is expected to return to the Watsonville Planning Commission and City Council in the fall for final approval.
Construction is tentatively estimated to start in December 2020, and to be complete by July 2022.
Mid-Pen is holding an informational open house about the project on April 10 at Cesar Chavez Middle School from 5:30-7:30 p.m. It is open to the public.
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In other action, the city council approved a plan to sell a residential apartment building located at 500 Main Street to a buyer that will take over management of the 34 rental units.
The building includes 29 units that are dedicated as affordable, which is part of an agreement approved in 1997 by previous owner Swenson Builders, and assumed by the new buyer, a company called CHIPTHUY500. That agreement ends on Jan. 30, 2028.
At issue with many of the council members Tuesday was that the city cannot assure that the new owner will keep the units as affordable housing once the affordability agreement expires.
“In eight years time when they paid us off, we have no leverage to impose anything to keep these units affordable,” Councilwoman Trina Coffman-Gomez said.
Watsonville City Attorney Al Smith told the council that they couldn’t impose additional requirements on the old agreement.
“It’s a contract we entered into back in 1997,” Smith said. “We can’t enter a new one now.”
Watsonville City Manager Matt Huffaker pointed out that, even if the sale did not go through, and current owner Swenson Builder held onto the property, the affordability covenants would still expire at the end of the eight-year period.
Kathy Oliver of Bailey Properties, which will manage the property, praised Chip Kirchner, one of the partners in the buying agency.
“He is an excellent, excellent landlord,” she said. “He has a lot of compassion for his tenants.”
Kirchner told the council he has no plans to change the number of affordable units, but stopped short of making any promises.
“I can’t guarantee the future,” he said. “I am a businessman, and take the highest return for my capital. But I don’t do it being greedy or stupid or unethical.”
Kirchner said that when he acquires a property, he rents it for a few years and then determines what the “highest and best use is.”
“I can’t look you in the eye and tell you eight years from now I will not change the character of the property,” he said.
Councilman Aurelio Gonzalez, who voted yes, was skeptical of Kirchner’s statements.
“It sounds like he’s just going to flip the property, in reality,” Gonzalez said. “He’s using it for investment. He’s using it as an opportunity in eight years to make another profit. It just does not sit good with me.”
Gonzalez’s comments caused Kirchner to walk out of the meeting.
Attempts to reach Kirchner on Thursday for further comment were unsuccessful.
Councilman Felipe Hernandez also expressed concern about the affordability, and the possibility that rising rent and costs of living could negatively reshape the downtown area.
“Will the tenants stay and will the rents be raised,” asked Hernandez, adding that he lived in one of the units as a student.
“I’m afraid of gentrification, and the downtown is the first to be targeted for gentrification,” he said.
But Councilman Lowell Hurst said that he hopes the new owner will make improvements on the building.
Also known as the Jefsen Hotel, the building was damaged in the 1989 Loma Prieta Earthquake, and sat in a state of disrepair for years.
“I remember the plywood, and I remember the earthquake, and how long that building sat and sat and sat and dragged the rest of the downtown along with it,” Hurst said.
The proposal passed 5-2, with Council members Hernandez and Francisco Estrada dissenting.
