Fruita boards approve agreements to redevelop Family Health West into 62-unit Oaks housing project

The Fruita Housing Authority and the Fruita City Council on unanimous 6-0 votes approved a package of agreements to move the Oaks project from term sheet to construction-ready redevelopment. The agreements approve the redevelopment contract, a restrictive covenant to preserve affordability and a loan-default/assignment agreement that gives the city options to protect long-term affordability.

City and housing authority officials said the plan will convert the former Family Health West property into 62 multifamily rental units restricted to households at 100% of area median income or lower. Dalton Kelly, special counsel to the Housing Authority, summarized the package as “3 agreements” and described how the financing and use restrictions are structured to keep the units affordable so long as the city makes specified future appropriations.

Why it matters: The approvals set concrete steps to add 62 rental units restricted at 100% AMI and create enforcement and contingency tools the city can use if the project’s construction lender faces default. Council members and Housing Authority commissioners said the deal is intended to preserve long-term affordability while allowing limited flexibility if the city cannot deliver future appropriations.

Under the redevelopment agreement, an LLC formed by the developer—805 Otley Avenue LLC, a single-purpose entity set up by Headwaters Housing Partners—will redevelop the property into the Oaks. The financial structure described in meeting materials and by counsel anticipates up to $800,000 of city buy‑down money to hold all 62 units at 100% AMI. As Kelly explained, "$400,000 is already in, and then it would be $200,000 for 2026, which would be delivered upon getting the certificate of occupancy, which is expected 10/15/2026. And then the next two are annually from there: $150,000 for 2027 and $50,000 for 2028." He added the contributions are “subject to appropriation.”

Kelly told the board the agreements include contingency rules if the city does not appropriate a future installment: a predetermined portion of units can be let at market rate to keep the project cash flow positive, but the leases in that scenario must be one-year terms and priced at the 100% AMI equivalent. He also described a loan-default and assignment agreement required by the project lender that gives the city the right to step in to prevent default or to purchase the loan before foreclosure as a last-resort tool to preserve affordability.

The redevelopment documents also create a tenant-selection plan process and a local-employee preference: the tenant selection plan will be drafted by the developer and submitted to the Housing Authority for approval annually, and the agreement includes a preference for households that both meet the AMI requirement and work at least 30 hours per week in Fruita. Kelly said the restrictive covenant that will be recorded later will run 30 years from certificate of occupancy and will “run with the land” to bind future owners.

Council members asked about the project’s funding sources and accountability. City staff said the initial $400,000 contribution is already included in Fruita’s 2025 budget—$325,000 from accumulated lodging-tax fund balance allocated for economic development and housing purposes and $75,000 from leftover American Rescue Plan Act funds. Kelly said the developer must provide annual reports when the city makes contributions, and the Housing Authority retains enforcement rights including inspection of records and units and access to equitable relief through the courts.

The boards also discussed a possible right of first refusal for the city at the 30‑year mark; Kelly said that provision is still under negotiation and would come back to the Authority for approval before the next appropriation if finalized. He characterized that clause as a separate, good‑faith negotiation that is not required to move the current redevelopment agreement forward.

Formal actions: The Fruita Housing Authority approved Resolution FHA 2025-03, authorizing the redevelopment agreement, restrictive covenant and loan-default/assignment agreement for the Oaks project (vote: 6-0). The Fruita City Council then approved a city resolution (Resolution 2025-17) adopting substantially the same redevelopment, financing and AMI restriction terms (vote: 6-0). No amendments were made on the floor.

What’s next: Developers expect a building permit and to close on construction financing; the city will consider future appropriations in the years and amounts set out in the agreements. Staff and the Housing Authority will receive annual reports from the developer when contributions are made. If the city does not make a scheduled appropriation, pre-set fallback rules in the agreements allow a limited number of units to be temporarily rented at market rates to preserve project viability.

The motions passed without recorded dissent: the Housing Authority vote was 6-0, and the City Council vote was 6-0. The agreements and associated documents become effective subject to the technical cleanups and the formal recording of the restrictive covenant when the final conditions are met.