The county and cities throughout the region for months knew they had a shot at roughly $61 million in state money set aside for homeless housing projects in San Diego County if they applied by Jan. 31.
Yet the deadline came and went without any submissions from the San Diego region, the state’s housing department confirmed to Voice of San Diego. Local governments will instead forego the money reserved for San Diego to compete with other regions across the state before the latest round of funds run out.
Regional leaders including San Diego Mayor Todd Gloria pledged to aggressively pursue the Project Homekey funds to help move more homeless San Diegans off the street. The city in 2020 won nearly $38 million in Homekey dollars to quickly buy two hotels to permanently house hundreds of homeless residents while a hoped-for county proposal fell apart, leading some county officials to promise they wouldn’t miss the opportunity next time.
But officials at the county and the cities of San Diego and Escondido said housing projects they were eyeing for the state’s second round of Homekey funding didn’t come together despite significant efforts. Now they are hoping to settle on viable projects as part of a statewide competition that offers less certainty that San Diego projects will be funded.
Project Homekey is an initiative championed by Gov. Gavin Newsom aimed at using federal COVID relief funds and state dollars to convert hotels and other properties into thousands of permanent homes for homeless Californians. The program requires government agencies to submit requests to the state to pursue those projects and allows them to partner with developers and nonprofits to make those projects happen.
“We rigorously pursued opportunities, and we will continue to look for every opportunity we can,” said Nathan Fletcher, chair of the Board of Supervisors.
Stefanie Benvenuto, chair of the San Diego Housing Commission board, struck a similar tone.
“I’m disappointed that we don’t have a project to submit, but it wasn’t for lack of effort and interest,” Benvenuto said. “Nothing panned out.”
The challenges may continue unless there are changes to the Homekey initiative – and despite the region’s pressing need for supportive housing projects for people now living on the streets.
A handful of local affordable-housing developers told Voice of San Diego that the state program’s required quick construction turnaround and continuing pressure to focus on hotels despite significant market changes since Homekey debuted in 2020 stymied potential projects.
While Homekey can fund other kinds of projects, developers said the requirement to move quickly on renovations inspired a continued focus on hotel purchases.
That presented challenges for local governments that needed relatively quick cooperation from developers and existing property owners.
County spokeswoman Sarah Sweeney said the county worked with 11 developers it had hoped to partner with, including one who submitted a proposal for five developments. The county ultimately decided none of the projects were workable.
One project and property that looked promising, for example, was sold to another entity and thus not available for Homekey, Sweeney wrote in an email.
And Rob Van De Hay, Escondido’s deputy city manager, said the North County city had two properties in mind but the owners ultimately decided against selling.
The San Diego Housing Commission, meanwhile, said it couldn’t finish due diligence on two projects it still hopes to pursue with a single developer who is new to San Diego.
Gloria said last week he was eager for the city to secure Homekey dollars but said past city real estate failures have underscored the need for the city to ensure it conducts proper due diligence.
Indeed, elected leaders learned after the fact that a broker who helped the city buy one of two hotels it purchased in 2020 with the help of Homekey funds had an allegedly criminal conflict of interest and that the agency had relied on a pre-pandemic appraisal to assess the value of the property.
Housing commissioners and others have since urged more scrutiny of projects before the agency moves forward.
“While this development is disappointing, we still intend to apply for state funds through the competitive process,” Gloria said. “I believe we’ll be successful in that regard, but we’ll have done so with properties that have been fully vetted and are less likely to present problems after the transaction is completed.”
At least a few cities – El Cajon, Chula Vista and San Marcos – told Voice of San Diego they decided against applying for state funds altogether to focus on other priorities.
Some affordable-housing developers also decided to sit out the Homekey program.
A handful of developers told VOSD that the current dynamics of the real estate market and requirements of the Homekey program kept some who wanted to pursue projects unable to do so.
They said the program’s requirement to finish any needed upgrades within a year of receiving Homekey funds, the need to focus on hotels due to the program’s required turnaround time and the associated risks for developers trying to pull together a project that will work over the long haul gave them pause.
“It’s not just matter of getting Homekey money,” said Ted Miyahara, CEO of the San Diego Community Housing Corporation. “You’re upgrading these properties and then you have to operate them in perpetuity, more or less.”
Miyahara said his development nonprofit looked at multiple hotel properties in hopes of partially funding a rehabilitation project with Homekey dollars.
Yet Miyahara said his team never submitted proposals to the city or county of San Diego because it couldn’t come to terms with any owners.
“We’ve pursued assets, gotten as far as sending out letters of intent to owners and were unable to come to terms on purchasing the assets,” Miyahara said.
Rebecca Louie, chief operating officer at Wakeland Housing and Development Corporation, said her nonprofit looked closely at a property in Escondido and responded to the county’s August request for qualifications before the sale fell apart.
The struggle, Louie said, has been to find a hotel at a reasonable price point that a developer can also afford to renovate within a year.
“It would be great if we could bring these state funds into the county,” Louie said. “It would be great if we could find projects that fit these programs because there are such limited resources for affordable housing to begin with.”
Benvenuto and Housing Commission spokesman Scott Marshall acknowledged the city has recognized those challenges too – and is hoping to work through them so it can submit pitches to the state.
For one, Marshall wrote in an email, Residence Inn hotels like those the commission purchased with Homekey Funds more than a year ago aren’t available anymore.
“It is clear that the market has tightened considerably and the opportunity for again acquiring high-end extended-stay hotels that are zoned to be used as apartments is not likely to be seen in this or future rounds of Homekey unless market conditions change considerably,” Marshall wrote in an email. “However, other hotel property types may also be viable.”
Given the challenges, the Housing Commission is already preparing for Homekey’s third round.
Late last month, the commission posted a notice on its website urging developers to begin preparing projects ahead of the expected release of another round of state funds this summer.
“Based on experience with the competitive application process for previous rounds of Homekey funding, SDHC understands that a key determinant to receiving Homekey funds is the readiness of the proposed project, including an early date for completion of the project and occupation of the project,” the agency wrote.