REPORT TO COUNCIL
SUBJECT
Title
Approve an Extension of the Exclusive Negotiating Agreement and Short-Term Lease with MidPen Housing Corporation for 295 S. Mathilda Ave. and Provide Direction on Project Parameters
Report
REPORT IN BRIEF
Staff has prepared an extension to the Exclusive Negotiating Agreement (ENA) with MidPen Housing Corporation (MidPen) for the development of an affordable housing project at the City-owned property at 295 S. Mathilda Ave. for a period of six months, with one six-month option to extend. Staff is requesting Council direction on four project proposal alternatives that respond to concerns from Councilmembers and the community. Extension of the ENA and direction on project parameters will enable the City to complete negotiations for a Disposition and Development Agreement (DDA) and long-term Ground Lease with MidPen within six to 12 months.
BACKGROUND
On August 8, 2023, City Council approved the Assignment of Purchase and Sale Agreement and ENA with MidPen for 295 S. Mathilda Ave (RTC 23-0770). Pursuant to the Assignment and ENA, the City would purchase 295 S. Mathilda Ave. (the “Property”) from the owner, Wells Fargo Bank, and enter into negotiations with MidPen for the development of an affordable housing project on the Property. The City and MidPen entered into the Assignment and ENA on August 30, 2023.
On September 15, 2023, City purchased the Property for $7,325,000 using City Housing Mitigation Funds (HMF) and entered into a Short-Term Lease with MidPen for the Property.
On August 13, 2024, City Council awarded $1.5 million in City HMF to MidPen for predevelopment work related to the development of affordable housing on the Property (RTC 24-0863). Approximately $730,000 in costs have been incurred for architectural drawings and environmental review; however, the City has not disbursed any funds to date.
In February 2025, MidPen requested an extension of the negotiating period to continue community engagement activities and make further progress on their proposed design. The City approved a six-month extension of the ENA, with one additional six-month option, bringing the new expiration date to March 15, 2026. The Short-Term Lease with MidPen was also extended to expire concurrently with the ENA.
On September 9, 2025, a City Council Study Session was held to provide an update on negotiations with MidPen (RTC 25-0891). During the Study Session, MidPen addressed Council questions regarding parking, mobility programming, the viability of a senior project, and the inclusion of smaller unit sizes in the project.
EXISTING POLICY
Council Policy 2.3.3 Strategies for Affordable Housing and the Use of Housing Mitigation Fees: Encourage private/non-profit partnerships on City-owned sites available for housing development so that part of the site may be developed for low to moderate income housing.
Housing Element
GOAL H-2: Assist in the provision of affordable housing to meet the diverse needs of Sunnyvale’s lower- and moderate-income households.
Program H6: Affordable Housing Development Assistance. In addition to local funding, City staff shall provide direct staff assistance for 100 percent affordable housing developments throughout the predevelopment, entitlement, and development process.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines section 15262 (feasibility and planning studies). This action is further exempt from the definition of a project pursuant to CEQA Guidelines section 15061(b)(3) because it can be seen with a certainty that there is no possibility that it may have a significant effect on the environment. When an application is submitted for development review, it will be reviewed pursuant to CEQA to assess its potential environmental impacts.
As part of the City’s acquisition of the Property, an environmental assessment determined that the Property was formerly the site of a gasoline service station during the 1970s. Gasoline service stations are considered a recognizable environmental condition and are associated with on-site underground storage tanks (UST). Two potential USTs were noted during radar testing of the Property, but their presence was not confirmed. The potential for soil vapor intrusion was also noted, but further testing did not indicate that any intrusion has taken place. Nevertheless, due to the potential risk, environmental consultants recommend that future buildings be constructed at grade and incorporate a vapor barrier membrane to mitigate potential hazards.
DISCUSSION
Exclusive Negotiating Agreement
Pursuant to the terms of the ENA, on September 15, 2023, the City and MidPen began an 18-month Negotiating Period to negotiate a DDA and long-term Ground Lease for the future development of the Property.
The ENA requires that at least 40% of the housing units developed on the Property be used for affordable housing for households with incomes below 60% of Area Median Income (AMI), and that at least half of those units be affordable to households with incomes below 50% of AMI. Additionally, the ENA acknowledges the City and MidPen’s intent to set aside no less than 25% of units for unhoused individuals and households. Aside from these specifications, the ENA does not set forth other project parameters such as the number of units, building height, or parking requirements. These parameters are subject to ongoing negotiations between the City and MidPen.
During the Negotiating Period, MidPen was required to complete a community engagement plan, a preliminary planning application, financial analysis, and formal application for planning entitlements. MidPen completed each of these tasks within the timeframe required by the ENA.
The ENA includes the option to extend the Negotiating Period for up to two six-month terms if the City Manager determines that the City and MidPen are making progress toward negotiating a DDA and a long-term Ground Lease. In February 2025, MidPen requested an extension of the negotiating period to continue community engagement activities and make further progress on their proposed design. The City approved an extension of the ENA for a new expiration date of March 15, 2026. The Short-Term Lease with MidPen was also extended to expire concurrently with the ENA.
Project Modifications in Response to Community Feedback
Throughout the Negotiating Period, MidPen received extensive community feedback on its proposed development plan, including concerns about parking, building height, and the target population. Based on this feedback, MidPen has refined the project parameters to respond to community concerns. The current proposal includes the following modifications:
• Reduced building height on Charles Street to three stories with additional step-backs from six to five stories
• Reduced unit count (from 126 to 122)
• Additional mobility programming, such as a no-vehicle tenant preference and transit passes, to mitigate parking demand
Council Study Session Feedback
On September 9, 2025, a Council Study Session was held to provide an update and an opportunity for discussion about the proposed project at 295 S. Mathilda. During the Study Session, Council did not provide formal direction but expressed concerns about the lack of parking, interest in exploring housing options for specific populations (such as seniors, educators, and public employees), and a desire for a more robust mobility plan. Some Councilmembers also expressed strong interest in including smaller unit sizes, such as studio units, microunits, and single-room occupancy units. Other Councilmembers expressed a desire for larger family units, such as three-bedroom units.
Community Meeting Feedback
Following the Study Session, MidPen continued community engagement activities, including a community meeting held on October 2, 2025, to discuss the current project proposal. Despite recent modifications to the project, neighbors were still critical of the project and provided the following feedback:
• More on-site parking is needed
• Smaller unit sizes (studio and one-bedroom units) are preferred
• A senior-only project is preferred
• Fewer units are preferred
Although much of the community feedback was critical of the project as currently proposed, several residents voiced their support for the project and for expanding affordable housing, particularly for families in Sunnyvale. Additionally, the project has been endorsed by advocacy groups including Livable Sunnyvale, Sunnyvale Chamber of Commerce, Silicon Valley at Home, and Greenbelt Alliance.
MidPen Memo and Third-Party Review
Following the September 2025 Council Study Session and October community meeting, City staff continued negotiations with MidPen and commissioned a third party review by Economic & Planning Systems, Inc. (EPS), to evaluate options responsive to Council and the community. MidPen’s analysis focused on parking, building height, unit mix, target populations, and overall project feasibility and competitiveness for funding (included as Attachment 1). EPS’ review of MidPen’s analysis is included as Attachment 2.
Overall EPS concurs with MidPen’s analysis and recommends minimizing changes to the proposed project. Staff’s review of the documents supports the following conclusions:
• A 100% senior project is only feasible with major additional subsidy from the City ($44 million to establish a capital operating reserve to support 20 years of operation).
• A senior preference is not viable due to Federal and State fair housing laws.
• The project could incorporate more smaller units (one-bedroom and studio units) but must retain 25% two-bedroom and 25% three-bedroom units in order to maximize competitiveness for critical Tax Credit Allocation Committee (TCAC) financing.
• Studio units could be added to the project but face higher turnover and vacancy rates than larger units and may weaken the financial viability of the project.
• A reduction in building height is possible, but reductions to the overall unit count could negatively affect the project’s competitiveness for TCAC financing.
• The project’s current 0.5 parking ratio is a common ratio for affordable housing projects near transit.
• The building’s current height on Charles Street (35’10”) could be lowered to 35’.
Staff has prepared a more thorough analysis of MidPen’s memo and EPS’ review (included as Attachment 3).
Proposal Alternatives
In response to feedback and conversations with City staff, MidPen has developed four proposals for Council consideration and possible direction. Each proposal is responsive to community and Councilmember feedback, with varying emphases on building height, number of units, unit size, and parking. Aside from the Current Proposal, each proposal alternative is in the initial design stage, and the final unit count may be subject to minor modifications. Attachment 4 includes a comparative matrix of project parameters for each proposal. A summary of each proposal is below.
Each proposal is financially feasible and would be roughly as competitive from a TCAC financing perspective, although Proposal C requires significant additional public subsidy due to increased construction costs. Currently the City has committed $7,325,000 towards the acquisition of the Property and $1,500,000 towards predevelopment costs for the project.
A. Current Proposal
• Six stories along Mathilda Avenue, three stories (35’10”) along Charles Street
• 122 units
• Mix of one-, two-, and three-bedroom units
• 65 parking stalls (0.53 parking ratio)
• $20,325,000 total anticipated City funding request
• Considerations: Greatest number of units, lowest per unit City subsidy, strong neighborhood concerns about parking and height.
B. Five-Story Building Without Studios
• Five stories along Mathilda Avenue, three stories (35’) along Charles Street
• 102 units
• Mix of one-, two-, and three-bedroom units
• 65 parking stalls (0.64 parking ratio)
• $19,425,000 total anticipated City funding request
• Considerations: Mitigates some height concerns, lowest number of units, slightly improved parking ratio, second highest per unit subsidy.
C. Five-Story Building With Studios
• Five stories along Mathilda Avenue, three stories (35’) along Charles Street
• 110 units
• Mix of studio, one-, two-, and three-bedroom units
• 65 parking stalls (0.59 parking ratio)
• $19,425,000 total anticipated City funding request
• Considerations: Mitigates some height concerns, slight reduction in units, slightly improved parking ratio, second lowest per unit subsidy, includes studio units.
D. One-to-One Parking Ratio
• Six stories along Mathilda Avenue, three stories (35’) along Charles Street
• 110 units
• Mix of one-, two-, and three-bedroom units
• 110 parking stalls (1:1 parking ratio)
• $23,675,000 total anticipated City funding request
• Considerations: Mitigates some parking concerns, highest cost and per unit subsidy, slight reduction in units, significant redesign required, increased environmental risk, community concerns about height.
• Please note that this proposal would include a partially subterranean parking garage and a slight reduction in units from the current proposal to achieve a 1:1 parking ratio. As a result, construction costs would increase by approximately $3.3 million and MidPen’s anticipated City funding request would increase by an equal amount. Additionally, unlike other alternatives, this proposal would require below grade construction. Due to the Property’s former use as a gasoline service station and the known potential for USTs on the Property, this proposal has an elevated risk of environmental hazard.
Of these proposal alternatives, Proposal C is the most responsive to Council and neighborhood feedback related to height, smaller unit sizes, and parking. Proposal C reduces the height of the building to five stories, incorporates 24 studio units, and provides a slight improvement in the parking ratio. These modifications allow the project to reduce its height while still maximizing the number of units. Although studio units may experience higher turnover and vacancy rates, their inclusion in the project provides a greater diversity of unit types and is responsive to Councilmember and neighborhood comments.
Proposal C is also viable from a financing perspective and would make efficient use of City HMF funds. Proposal C retains the required larger unit sizes so that the project will still be able to compete in the Large Family category for TCAC financing. Additionally, when compared to the Current Proposal, Proposal C reduces the anticipated City funding request by $900,000 and only modestly increases the anticipated City funding amount per unit by approximately $10,000 per unit.
Although the other proposal alternatives have individual strengths, they do not match the all-around responsiveness of Proposal C. Proposal A continues to face concerns related to height and parking. While Proposal B incorporates the reduced five-story building height, it is not responsive to comments requesting the addition of studio units. Proposal D responds to neighbor parking concerns but does not address building height or the inclusion studio units. Proposal D is also the most costly and has an elevated risk of environmental hazard.
Extension of ENA
MidPen has made consistent progress throughout the extended negotiating period, but due to community concerns, additional time is needed to finalize project parameters before entering into a DDA.
As MidPen has already begun the Planning entitlement process, the current proposal could be modified without significantly delaying project progress. With Council direction on any of the above Proposal Alternatives, MidPen is prepared to quickly modify its current proposal and enter into a DDA with the City within six months. As such, staff recommends a six-month extension of the ENA and a six-month short-term Ground Lease . Both documents would include an option to extend the term by up to six additional months, subject to City Manager approval.
Consequences of ENA Expiration
If the ENA and Short-Term Lease expire, the City may still pursue an affordable housing development on the Property through a competitive RFP process. If an RFP process is pursued, the future affordable housing development would be delayed by approximately three to five years relative to MidPen’s current schedule.
Based on the City’s most recent affordable housing RFP process for the Block 15 site (now known as Meridian), the RFP process would last approximately one year from the start of the RFP to the selection of a developer. Once a developer is selected, the predevelopment and planning entitlement process must start anew. A conservative estimate is that this process will take approximately two years. Assuming the project is exceptionally successful in securing gap financing and low-income housing tax credits, it may commence construction by 2031 and welcome residents by 2033.
If an RFP is issued, it is very likely that the affordable housing units will not be counted towards the City’s current 6th Cycle 2023-2031 RHNA, which requires building permits to be issued by December 31, 2030.
FISCAL IMPACT
An additional Extension of the ENA and Short-Term Lease would have minimal direct fiscal impact. Per the terms of the Short-Term Lease, MidPen pays $1,000 per month in rent, which is deposited in the City’s Housing Mitigation Fund. If the ENA and Short-term Lease are not extended, this income would no longer be received.
As noted above, the City has also awarded the project $1.5 million in City HMF for predevelopment expenses. Although no funds have been disbursed at this time, MidPen has incurred approximately $730,000 in costs for architectural drawings, environmental review, and other predevelopment work. If the ENA is not extended, the current project would not move forward while the City would continue to be obligated to reimburse Midpen for the incurred costs.
If the ENA is not extended, the proposed affordable housing project would be stalled and construction costs for a future project would escalate. Significant delays caused by another RFP process would lead to increased construction costs and may increase future requests for City HMF funds.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Ave. (during normal business hours), and on the City's website.
ALTERNATIVES
Exclusive Negotiating Agreement and Short-Term Lease:
1. Authorize the City Manager to negotiate and execute the Extension to the Exclusive Negotiating Agreement and the Extension to the Short-Term Lease between the City of Sunnyvale and MidPen Housing Corporation for the real property located at 295 S. Mathilda Ave.
2. Do not approve the Extension to the Exclusive Negotiating Agreement and the Extension to the Short-Term Lease between the City of Sunnyvale and MidPen Housing Corporation.
Project Parameters:
3. Direct Staff to negotiate with MidPen on Proposal C.
4. Other action as directed by Council.
STAFF RECOMMENDATION
Recommendation
Alternatives 1 and 3: Authorize the City Manager to negotiate and execute the Extension to the Exclusive Negotiating Agreement and the Extension to the Short-Term Lease between the City of Sunnyvale and MidPen Housing Corporation for the real property located at 295 S. Mathilda Ave. and Direct Staff to negotiate with MidPen on Proposal C.
JUSTIFICATION FOR RECOMMENDATION
Alternatives 1 and 3 allow the City to build upon its existing negotiations with MidPen and over two years of progress that MidPen has made on their current proposal for an affordable housing development at 295 S. Mathilda. Based on feedback from Councilmembers and the community, MidPen has developed several proposal alternatives to address concerns related to parking, height, and the desire for smaller unit sizes. Alternative 3 would direct Staff to continue negotiations with MidPen to develop a proposal that addresses these concerns by reducing height, incorporating studio units, and slightly improving the parking ratio. These modifications can be made without sacrificing the project’s overall viability or financing competitiveness. Alternatives 1 and 3 will enable the City to deliver on the 295 S Mathilda project and expand the supply of affordable housing with a trusted community partner.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
_X_ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Ryan Dyson, Housing Specialist 2
Reviewed by: Amanda Sztoltz, Housing Officer
Reviewed by: Sherine Nafie, City Property Administrator
Reviewed by: Dennis Jaw, Assistant Director of Finance
Reviewed by: Matt Paulin, Director of Finance
Reviewed by: Trudi Ryan, Director of Community Development
Reviewed by: Connie Verceles, Deputy City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. MidPen Memo in Response to City Study Questions
2. EPS Review of MidPen Memo
3. City Staff Analysis of MidPen Memo and EPS Review
4. Project Proposal Comparison Matrix