FROM:
Development Services
SUBJECT:
Title
Adoption of Resolution 2026-084 Approving Purchase and Sale Agreement - Water of Life Community Church Property Acquisition.
End
RECOMMENDATION:
Recommendation
1. Approve the Purchase and Sale Agreement and Joint Escrow Instructions (“PSA”) between the City of Fontana and Water of Life Community Church, a California nonprofit religious corporation (“WOL”), for City’s acquisition of Lot C (APN 1100-091-71-0000) and Lot D (APN 1100-111-51-0000).
2. Approve the Lot C Ground Lease (“Ground Lease”) between City, as landlord, and WOL, as tenant, for WOL’s continued use of Lot C following closing.
3. Approve the Public Benefit Use Covenant requiring continued operation of CityLink Social Services on Parcel 1 for a period of fifteen (15) years.
4. Approve the Binding Memorandum of Understanding (“MOU”) relating to the Put Option for City’s potential acquisition of the Parcel 2/project property upon a qualifying triggering event, subject to the terms and limitations set forth therein.
5. Authorize the City Manager, or designee, to execute the PSA, Ground Lease, Public Benefit Use Covenant, Binding Memorandum of Understanding, escrow instructions, closing documents, and any other ancillary documents necessary to complete the transaction, subject to approval as to form by the City Attorney.
6. Authorize the City Manager, or designee, in consultation with the City Attorney, to take any actions necessary to comply with or confirm an exemption from the Surplus Land Act (SLA), including making any modifications to the Ground Lease in connection with complying with or confirming an exemption from SLA, before final execution and delivery of the Ground Lease.
End
COUNCIL GOALS:
• Provide a diverse range of housing types and levels of affordability while addressing homelessness in the community.
• Support the City's efforts to expand transitional housing and supportive services for individuals experiencing homelessness.
• Promote partnerships with community-based organizations that provide homeless services.
DISCUSSION:
WOL owns and operates the CityLink Campus, a transitional housing and homeless support facility located at 16029 Arrow Boulevard in the City of Fontana. WOL is pursuing construction financing in connection with the future development of transitional residential and mixed-use project and related improvements on a portion of the CityLink Campus, together with related entitlement approvals, including a proposed lot line adjustment. WOL also owns the parcels identified as APN 1100-091-71-0000 ("Lot C") and APN 1100-111-51-0000 ("Lot D"), which are subject to the proposed acquisition.
The City and WOL are parties to that certain Promissory Note dated March 22, 2023 (“Note”), secured by a deed of trust, recorded March 30, 2023, under which Note, the City, as lender, loaned Water of Life Community Church the original principal amount of $3,040,000 in connection with the development of the CityLink project. Under the proposed PSA, rather than paying cash consideration for Lot C and Lot D, the City will forgive, cancel, and satisfy all outstanding amounts due under the Note, including unpaid principal, accrued interest, default interest, late charges, and any other sums due as of Closing. The Note will be deemed paid and satisfied in full simultaneously with, and conditioned upon, recordation of the grant deed conveying Lot C and Lot D to the City.
The proposed transaction includes four related but independent documents:
1. the PSA,
2. the Ground Lease,
3. the Public Benefit Use Covenant, and
4. the Binding Memorandum of Understanding regarding the Put Option.
PSA
The PSA governs City’s acquisition of Lot C and Lot D. The Ground Lease governs WOL’s post-closing leaseback of Lot C. The Public Benefit Use Covenant requires continued CityLink Social Services on Parcel 1. The MOU separately addresses a Put Option tied to WOL’s construction financing for the Parcel 2/project property. The transaction is intended to support secular public purposes, including City’s acquisition of real property interests and the continued operation of services for homeless, disadvantaged, and other vulnerable populations, and is not intended to fund religious worship, religious instruction, or sectarian purposes.
MOU
The MOU is intended to assist WOL’s construction financing by providing a limited Put Option framework. If a qualifying lender default occurs and continues beyond applicable notice and cure periods such that the lender may accelerate the loan or exercise remedies against the property or project, WOL can require City to purchase the Parcel 2/project property pursuant to the MOU. City’s total exposure under the MOU is capped at $12,000,000, all in, and the construction loan principal is capped at $11,000,000 unless City approves otherwise. The MOU confirms that City is not a borrower, guarantor, indemnitor, lender, loan party, successor borrower, or party to WOL’s construction loan documents. City’s payment obligation, if triggered, is limited to the capped acquisition obligation expressly set forth in the MOU. The MOU is intended to create only a capped acquisition obligation and not a guaranty, loan assumption, pledge of City’s full faith and credit, pledge of tax revenues, gift of public funds, or indebtedness in violation of applicable law.
Public Use Covenant
The Public Benefit Use Covenant will be recorded against Parcel 1 only, and not against Lot C, Lot D, Parcel 2, or the project property. The covenant requires continued operation of CityLink Social Services for homeless, disadvantaged, and other vulnerable populations within the City for a period of fifteen (15) years. The covenant includes annual compliance certification rights, supporting records rights, default remedies, and transfer restrictions requiring City’s prior written consent.
Ground Lease
At closing, City will lease Lot C back to WOL under a 55-year Ground Lease for parking and related church, ministry, and ancillary uses, subject to City’s reserved rights for public agency training operations and related governmental purposes. During years 1 through 14, Base Rent is $12,000 per month, but is reduced to $1 per year so long as CityLink Social Services continue at the CityLink Campus and WOL is not in default beyond applicable notice and cure periods under the Public Benefit Use Covenant. If services cease and are not cured within applicable notice and cure periods, Base Rent reverts to $12,000 per month until services resume and WOL is no longer in default. Beginning in year 15, rent resets to $1 per year for the remainder of the lease term. If CityLink Social Services cease more than three times during years 1 through 14 beyond applicable notice and cure periods, WOL permanently loses the rent reduction for the remainder of years 1 through 14.
Because the Ground Lease has a term longer than fifteen (15) years, the City has considered the SLA. The Ground Lease is part of City’s concurrent acquisition and leaseback of Lot C and is limited to continued parking and related uses. The Ground Lease does not approve development or demolition on Lot C. Staff believes the Ground Lease may fall within the statutory exclusion for leases on which no development or demolition will occur, but the City Manager, or designee, in consultation with the City Attorney, will be authorized to take any actions necessary to comply with the SLA or confirm the applicability of any exclusion or exemption before final execution and delivery of the Ground Lease, including modifications to the Ground Lease reasonably necessary to confirm that no development or demolition of Lot C is authorized or will occur under the Ground Lease.
Approval of the proposed agreements will allow the City to complete the acquisition of Lot C and Lot D while furthering the City's long-term objectives relating to transitional housing, homeless services, public benefit uses, and future development opportunities.
FISCAL IMPACT:
The consideration for City’s acquisition of Lot C and Lot D under the PSA consists of City’s forgiveness, cancellation, and satisfaction of all amounts owed under the March 22, 2023 Promissory Note as of the closing, including unpaid principal, accrued interest, default interest, late charges, and any other sums due thereunder. The original principal amount of the Note is $3,040,000.
City Council approval will also authorize the appropriation and reservation of funds in an amount of $12,000,000 for the potential acquisition obligation under the MOU, payable only if the Put Option is validly exercised and the conditions in the MOU are satisfied. The MOU creates a potential future acquisition obligation if the Put Option is validly exercised following a qualifying triggering event. City’s aggregate exposure under the MOU is capped at $12,000,000, inclusive of all purchase price, lender payoff, closing costs, lien-release costs, attorneys’ fees, enforcement costs, indemnity amounts, and all other amounts payable by or recoverable from City under or in connection with the MOU. Customary escrow, title, and closing costs will be paid in accordance with the PSA.
MOTION:
Approve Staff Recommendation.