Modesto council approves Homekey application to convert El Capitan Motel into 49 supportive housing units

The Modesto City Council on Feb. 4 approved resolutions authorizing the city to apply to the California Department of Housing and Community Development (HCD) for Homekey Plus funding to convert the El Capitan Motel at 1121 Needham Street into 49 units of permanent supportive housing, with a total project cost not to exceed $22,896,000 and a Community Development Block Grant (CDBG) loan to El Capitan Homekey LP not to exceed $3,007,163.

Staff said the project would reserve 24 units for veterans and 24 units for people with behavioral-health needs, with one on-site manager unit, and would include supportive services provided on site through partnerships with Stanislaus County Behavioral Health and Recovery Services and the county’s veterans services agency. “At this point in time, we anticipate there's 3 units that have long term stayers, which we'd have to work with relocation assistance for,” Jessica Hill, director of community and economic development, said during the presentation.

Jessica Hill told the council the capital costs are approximately $14,000,000 for acquisition and rehabilitation, about $2,200,000 for predevelopment and soft costs, and $1,000,000 for contingency, yielding a total capital figure she listed as roughly $17,400,000. The application will request operational subsidies and reserves from Homekey in the amount of $5,400,000. Local commitments identified in the staff report included $922,000 from the community system of care and $500,000 from Behavioral Health and Recovery Services; the staff report said the city would provide a proposed CDBG loan of up to $3,000,000 as a local match, contingent on award.

Hill also described occupancy and rent assumptions for the HCD application: the project targets households at or below 30% of area median income and, she said, “the most a household would be able to pay would be $547,” with the remainder of operating costs expected to be covered by the requested Homekey operating reserves and other subsidies. She told the council the state released the Homekey Plus application in January, award announcements are anticipated in summer 2025, and construction would be required to be complete within 12 months of award.

Public comment included concerns about how Homekey projects fit within broader homelessness spending. Diane Kruse urged the council to ensure funds produce permanent housing and asked why earlier tiny-house investments had not resulted in completed projects. Council member Rickey, who moved the motion, said the proposal addressed a difficult segment of the homeless population. “I support this,” he said. Council member Wright seconded the motion.

The council voted to approve two companion resolutions authorizing the Homekey application and participation in the program and authorizing execution of a memorandum of understanding with El Capitan Homekey LP. The clerk called the roll; individual members voted “Aye” as recorded and the clerk announced the motion carried with Council member Alvarez absent at the time of the vote.

If the city receives the Homekey award, the agreement with El Capitan Homekey LP would include the city’s conditional CDBG loan and will require subsequent program documents and agreements to be negotiated and executed as required by HCD. Staff said the loan and city commitments would be contingent on the state award and on final agreements.

The council’s action directs the city manager or designee to submit the required application materials and to negotiate and execute required program documents if the award is granted.