The Crescent City Council took the first step on Monday toward transforming the vacant lot that was the El Patio Budget Motel into low-income housing for seniors.

Council members unanimously approved an exclusive negotiating agreement with DANCO Communities of Arcata toward the development of the housing project at 655 H Street.

The agreement will allow DANCO to conduct additional research and pursue funding for the project while knowing the city won't be trying to sell the property to another buyer, said City Manager Eugene Palazzo. The development of this housing project will help the city meet the requirements of its housing element, he said.

The housing element, which is part of the city's general plan, addresses the housing needs of Crescent City residents. It is required by the state Department of Housing and Community Development, Palazzo said. In a June 2012 letter, Housing and Community Development determined that 77 more units need to be added to meet the residential need in Crescent City.

DANCO representatives propose to build a facility with one and two-bedroom units that would rent for $320 and $520 a month, said Vice President Chris Dart. The facility will house at least 25 units and be three stories tall.

"I've done some preliminary market research, and there's definitely a need for this type of senior housing in the community," Dart said. "The homes we build are high quality. It's a really nice service to have high quality affordable housing in your downtown."

Building the facility is expected to cost about $5 million, Dart said, and will create local construction jobs.

Councilwoman Kelly Schellong told Dart that Crescent City has a resolution on the books encouraging contractors to obtain local employment.

DANCO approached city officials with the idea of building senior apartments at 655 H Street in February and sent a letter of interest in March, Palazzo said. The city's Redevelopment Agency purchased 655 H Street in 2011. The motel itself was burned down as part of a fire department training exercise, Palazzo said.

"We did research on DANCO," Palazzo told City Council members. "They've done 20 or so projects with about 600 or so units in Humboldt County."

If the company decides to move forward with the project, DANCO's development plans will go to the Planning Commission for approval, Palazzo said. DANCO would also come to the City Council for a disposition and development agreement since the city owns the property, he said.

Under the exclusive negotiating agreement, DANCO will pay for all city costs, including staff time, and for any environmental reports needed to build the project, Palazzo said.

The funding sources DANCO can pursue include competitive low-interest loans and grants from the U.S. Department of Housing and Urban Development and the U.S. Department of Agriculture. Palazzo said the developer will pay for staff time if someone needs to evaluate their loan application.

DANCO can also pursue funding through tax credits and federal HOME grants, Dart said.

DANCO representatives looked to Crescent City as a potential site for low-income senior housing because of its poverty level and low vacancy rates, Dart said. The company chose the former El Patio Motel site because of its location in the downtown area. The project DANCO envisions is similar to its three-story Plaza Point senior housing building in downtown Arcata, he said.

"We're at the initial stage here," Dart said. "The exclusive negotiating agreement helps us get ready for the first HOME grant."

In addition to the Plaza Point apartment building in Arcata, DANCO Communities has recently built townhouses for low-income families in Fortuna and cottages for seniors in Fort Bragg.

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