SOQUEL >> A high profile low-income housing development in Mid Santa Cruz County has been put on hold since at least April, and though project and political leaders now say things are moving in the right direction, rising costs and extended timelines have put a strain on the relationship between the county and its partner developer.

In response to a recent inquiry from the Sentinel about the status of the Park Haven Plaza project within his district, Supervisor Manu Koenig expressed a sense of cautious optimism that was echoed by leadership from the project’s developer, Novin Development.

A series of unexpected delays and soaring costs have ballooned the project’s budget to a growing $8 million funding gap, but Novin’s president, Iman Novin, told the Sentinel he has applied for federal tax credits and is in talks with other potential lenders and investors that could help fill the financial hole and get construction up and running once again.

In the meantime, project leaders are drawing up plans to “weatherize” the structures already on site in order to protect them from inclement conditions and to make the exterior more presentable as neighbors continue to complain about the loose, mismatched tarps draped over the three-story frame.

“We’re not out of the woods yet, but there’s reason for hope,” Koenig told the Sentinel Thursday.

The 36-modular unit project at 2838 Park Ave. targets veterans, transition-age youth and families and is one of four county developments that received funding from California’s Project Homekey. The state program, designed to address the homelessness crisis, awarded the project $10.7 million in 2022, which was met by another $2.2 million from the county for predevelopment and development costs, according to county documents.

But a pair of letters exchanged between the county and Novin, who are partners in the project, indicate the relationship has soured somewhat as the project sputtered in recent months.

In a letter sent to Novin on April 29 that was obtained by the Sentinel, the county’s Human Services Department Director Randy Morris expressed “serious concerns” regarding Novin’s performance on the project to date. Though the county and Novin had been holding weekly project meetings for years, Morris and his team appeared to be in the dark on issues ranging from when construction actually began to what Novin’s plans were to close the funding gap.

Morris requested answers to a series of 10 questions about timelines, cost overruns, financial statements and more by May 30, or else county staff would consider asking the county Board of Supervisors to explore “any and all available legal remedies.”

Novin met this deadline with a detailed response letter that appeared to satisfy — at least temporarily — some of the county’s most pressing concerns.

“The County and other project partners are actively working with the developer to secure the resources necessary to complete the project as quickly as possible in a competitive funding environment,” Robert Ratner, director of the county’s Housing for Health Division, told the Sentinel in a statement Wednesday. “County staff meet with the development team on a weekly basis to help the developer fulfill their obligation to complete and operate the project.”

History of issues

Construction began in mid-2022 and, according to the terms of the Homekey grant, had to finish by June 1, 2023, with an intention to have the units occupied by Aug. 30 of that same year. However, Novin failed to meet those deadlines, resulting in four requested extensions from the state. Similarly, the terms of the county’s loan dictated a two-year construction period, which was also missed.

In a statement posted to Novin’s project website from this April that echoed some of what it shared in its private response to the county, the developer wrote that it had hit a series of unforeseen challenges that caused costs to skyrocket and forced a construction pause at least until the fall. Obstacles listed by Novin included brutalizing winter weather from 2023, labor shortages and scheduling challenges, significant factory failures by the supplier FactoryOS, modular transport difficulties and supply chain backlogs, inflation, Pacific Gas and Electric connection and supplier procurement delays.

As a result, Novin ran into trouble with its construction lender, Low Income Investment Fund, which requested plans to solve the project’s funding gap. Additionally, Novin was sued in February by the project’s bond issuer, Atlantic Specialty Insurance Co., for a breach of the parties’ indemnity agreement for failing to deposit project collateral. Novin wrote in its May letter that it believed the demand was premature given efforts to solve the funding gap and Iman said Monday that he is working with an attorney to resolve the case.

According to the May 30 letter, construction was approximately 70% complete and included more than $16 million in expenditures. Iman told the Sentinel that the total project budget is approximately $34 million, with $11 million of that supplied through private funds.

Closing the gap

Though he recently failed to obtain a $2 million grant from a San Francisco-based affordable housing investment group, Iman wrote to the Sentinel last week that he planed to seek assistance from public and private partners to get things moving again.

“We are submitting a 9% tax credit application on July 8th and expect to hear back on awards by September 30th, 2025,” he wrote. “We are optimistic about getting an award based on our initial self-score. We are also making good progress with other potential public and private funders with new lender and investor interest and ongoing conversations with State HCD.”

Koenig said Novin and the county are also attempting to secure Round 2 Project Homekey funding that was left over from the first round a few years ago.

“It’s worth noting that there is Homekey funding left over because not all projects statewide were able to get off the ground,” said Koenig. “The post-COVID timing of these awards turned out to be extremely challenging for construction projects across the board due to soaring inflation and natural disasters.”

Meanwhile, the weatherization and beautification work are expected to cost about $1 million and the county, Novin and a private construction lender are working to rapidly put together plans to complete exterior siding, stucco and window work that could start as soon as this summer.

Mixed signals

Koenig ended in a place of optimism Thursday, which was in contrast to his comments to the Sentinel the day before. Koenig said Wednesday that the “county is pretty frustrated to say the least,” and criticized Iman for a lack of honesty and transparency.

Koenig told the Sentinel that early in the development process, Iman received $6.8 million loan from a business owned by his father, Abe Novin, who also owns the land on which the modular units have been established. But after receiving the OK from county authorities and launching the construction process, Koenig said that loan was pulled back out of the project’s funding plan.

Desperate to see the project finished, Koenig questioned why that loan couldn’t be used to close the gap.

In the April letter, Morris and the county asked a similar question and inquired about the status of the loan and if it had been used to improve the budget forecast.

In his response, Iman explained that because a loan from the Low Income Investment Fund had not come through, his father agreed to loan the $6.8 million as an interim measure to ensure the project could close on the Homekey grant and its state mandated expenditure deadlines. His father’s loan acted as a bridge that funded early-phase project costs, so once the Low Income Investment Fund money came through, the $6.8 million was drawn back out.

Iman declined Thursday to comment further on his father’s loan.

Koenig spoke with Iman Thursday, the day after his comments to the Sentinel, and he said he emerged from that conversation “optimistic that with all partners working collaboratively we’ll get the project done.” He added that he also recently connected with county staff about the Park Haven effort and said they conducted an in-depth review, continue to meet with Novin and are considering any and all options to complete the project.

According to Iman, the interior of the units are already complete and if Novin is awarded the tax credits this September, doors could open by mid 2026.

“We want to ensure the best possible outcome for the project,” Koenig concluded.