Small Sites Acquisition Program and Tenant Opportunity to Purchase

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Page 1 of 21 Office of the Mayor ACTION CALENDAR February 14, 2017 To: From: Subject: Members of the City Council Mayor Jesse Arreguín Small Sites Acquisition Program and Tenant Opportunity to

1 Page 1 of 21 Office of the Mayor ACTION CALENDAR February 14, 2017 To: From: Subject: Members of the City Council Mayor Jesse Arreguín Small Sites Acquisition Program and Tenant Opportunity to Purchase RECOMMENDATION Refer to the City Manager the implementation of the following strategies to preserve existing affordable housing and prevent displacement: 1. Create a Small Sites Program to assist non-profits in acquiring existing properties that considers the following criteria: a. Targets 5-25 unit multi-family buildings, particularly properties with strong potential for conversion to resident ownership, those in which no-fault evictions have been filed, or those at high risk of speculative purchase. b. Allocates $1-2 million from multiple funding sources. Such sources could include Measure A1 and U1 funds, Section 8 vouchers, and the MTC NOAH program. c. Includes administrative guidelines for a streamlined allocation process that will ensure an expedited commitment and funding process. Such commitments could include a letter of commitment from the City when non-profit organizations are placing an option on a property, or a small grant to make a down payment. 2. Review and develop an ordinance modeled after Washington D.C. s Tenant Opportunity to Purchase Act that offers existing tenants the first right of refusal when property owners place rental property on the sale market, which can be transferred to a qualifying affordable housing provider. BACKGROUND On December 15, 2015 Councilmember Arreguin sponsored an item referring to staff the feasibility of a Small Sites Program (SSP). As discussed in the referral response, staff spoke with the City of San Francisco regarding their SSP and identified funding, a streamlined process, staffing, and nonprofit organizations with interest and capacity as key to such a program s success. With the recent passage of Measures A1 and U1, examples from cities that have successfully administered similar programs, and housing non-profits eager to partner, Berkeley is positioned more than ever to address the affordable housing crisis through the development of a Small Sites Program and Tenant Martin Luther King Jr. Civic Center Building 2180 Milvia Street, 5 th Floor, Berkeley, CA Tel: (510) Fax: (510) TDD: (510) mayor@cityofberkeley.info Web:

2 Page 2 of 21 Occupancy Purchasing Program. Additionally, in the early 1990 s Berkeley had a successful Rental Housing Acquisition and Rehabilitation Program, which the Small Sites Program can be modeled after (Attachment 1). Funding for Program and Staffing In November 2016, voters passed Measure A1 in Alameda County, the Affordable Housing Bond, which will provide a total of $580 million regionally - $120 million for Homeowner Program funds, $35 million for Rental Housing Innovation and Opportunity funds, and $425 million for Rental Housing Development Program funds. Of the latter, $200 million will go to regional Alameda County pool allocations and $225 million will go to City allocations, including approximately $15.8 million to Berkeley for rental housing development over its lifetime. Land acquisition programs like the SSP will be funded through the Housing Innovation & Opportunity funds, and will apply along with other countywide projects for funding. An implementation plan for allocations came before the Alameda County Board of Supervisors on January 24 th, and the distribution of allocations are expected to begin the end of In addition to potential Measure A1 funding, there are other sources that can contribute to the development of an SSP. Voters also passed Measure U1 in Berkeley, which will generate funding for affordable housing through an increase in the business license tax for rental property. Also, the Bay Area Consortium of Community Land Trusts has successfully ensured inclusion of the SSP in the Metropolitan Transportation Commission s $10 million Bay Area Preservation Opportunity loan pilot program. MTC is currently working on guidelines. Streamlined Process and Nonprofit Partnerships A streamlined process is crucial to the success of a SSP, either with an expedited funding process and/or an effective commitment process. The City of San Francisco has a 90-day period between submitting an application to the City once an offer has been accepted, and funding. Although San Francisco will not provide a Letter of Interest (LOI) prior to making an offer on a property, a commitment of funding is assumed. A nonprofit then needs to put up to a $10,000 refundable deposit (or 3% of the purchase price max) using a loan or line of credit. To further expedite and confirm commitments, a set of basic guidelines could be established outlining what requirements a project would need to meet prior to receiving an LOI. Adding contingencies allowing the City to deny a loan after the offer could also ensure all requirements are met. Several nonprofits including the Northern California Land Trust, Bay Area Community Land Trust, and People of Color Sustainable Housing Network are committed to partnering with the City of Berkeley however they can to make the SSP and the preservation of existing affordable housing a reality. This coalition in conjunction with the East Bay Community Law Center conducted local market research and modeling after Councilmember Arreguin s initial item referenced the City of San Francisco SSP, which has a somewhat high per unit subsidy of $350K. They discovered the subsidy amount for Berkeley would be substantially less at $ K per unit. This result is Martin Luther King Jr. Civic Center Building 2180 Milvia Street, 5 th Floor, Berkeley, CA Tel: (510) Fax: (510) TDD: (510) mayor@cityofberkeley.info Web:

3 Page 3 of 21 also comparable to the City s per unit subsidy expectation for large new-construction projects that leverage Low-Income Housing Tax Credit financing. Tenant Occupancy Purchasing Program To promote homeownership and the preservation of affordable rental housing in Washington D.C., Council passed the Rental Housing Conversion and Sale Act in 1980 ( A major element of this legislation is the Tenants Opportunity to Purchase Act (TOPA), located in Chapter IV, which offers tenants of existing units the first right of refusal when their landlords decide to place rental property on the market. Landlords must provide tenants with a legal notice of their opportunity to purchase, called an offer of sale. It must include the asking price and all information on the building s maintenance, including operating expenses, utility consumption, capital expenditures for the past two years, and the floor plan. If a third-party has already offered to buy the property, the landlord must provide the tenant with a copy of the contract. If a tenant decides to purchase they must form and register a tenant organization or association for the building if one does not already exist. This model has seen tremendous success in Washington D.C., resulting in over 1,000 units made permanently affordable since Under a TOPA framework, many property sales on the open market happen more quickly than they might through a SSP. To maximize affordable housing opportunities during this crisis, a SSP and TOPA should be implemented in tandem. FINANCIAL IMPLICATIONS Undetermined cost to the City based on four potential funding streams: Alameda County s Innovation & Opportunity Fund ($35 million); Metropolitan Transportation Commission s Bay Area Preservation Opportunity Pilot Program ($10 million); City of Berkeley General Fund allocation from increased revenue from Business License Tax on Rental Property (estimated $2 to 3 million annually); City of Berkeley Housing Trust Fund (TBD). ENVIRONMENTAL SUSTAINABILITY No adverse effects to the environment. CONTACT PERSON Jesse Arreguin, Mayor Attachments: 1. Resolution No. 56,532-N.S. Authorizing the City Manager to Adopt Program Guidelines for a Rental Housing Acquisition and Rehabilitation Program. 2. Anti-Displacement through Resident Control/Community Co-Ownership Bay Area Consortium of Community Land Trusts Martin Luther King Jr. Civic Center Building 2180 Milvia Street, 5 th Floor, Berkeley, CA Tel: (510) Fax: (510) TDD: (510) mayor@cityofberkeley.info Web:

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18 Page 18 of 21 Attachment 2 Bay Area Consortium of Community Land Trusts Anti-Displacement Through Resident Control / Community Coownership After reviewing the City staff s report of San Francisco s Small Sites Acquisition program, we thought it would be important to build upon that description with how such a program could be employed in the East Bay context, particularly here in the City of Berkeley. Subsidy Amounts First, while SF s program has relatively high per unit subsidy of $350K, our market research and modeling for Berkeley indicates that a subsidy of $100K to $200K per unit would be effective. This is on par with the City s anticipated per unit subsidy for large, new-construction projects which leverage LIHTC financing. Fighting Displacement Most critically, a Berkeley Small Sites Program would provide the opportunity for the City to stem the displacement of current residents many of whom are very long term residents of this city, and whose loss erodes the fabric of the community and neighborhoods in which they have spent their lives. While larger redevelopment projects offer right-of-return, very few households actually return after relocation. It is too much of a disruption. Most affordable housing developers prefer not to own/manage projects smaller than 30 units. Thus, these smaller properties are falling through the cracks. The current wave of displacement is undermining the diversity which has made Berkeley special. Our Small Sites model directly remedies that by permanently preserving the affordability of rent-controlled units through the durable land control mechanism of the Community Land Trust model. The model also preserves the character of the immediate neighborhood, while increasing the stock of permanently affordable ownership housing. Affordability in Perpetuity - Community Control of Land Additionally, our model (linking Bay Area Community Land Trust, Oakland Community Land Trust, Northern California Land Trust, and SFCLT) uses resident ownership/control to improve the stabilization of these properties (as well as reducing on-going management costs). By converting rentals into resident controlled (or owned) properties with existing tenants the model bolsters the residents investment in the neighborhood through pride of ownership. And most importantly, we are converting land which would often otherwise be transferred to absentee investors into a community owned and controlled resource through the Community Land Trust model. The Small Sites model can, of course, be used by other non-profit housing developers, but our emphasis is on maximizing the community s (i.e. the City s) return on investment through subsidy retention, with permanent affordability. Leverage of Subsidy San Francisco Community Land Trust Northern California Land Trust Bay Area Community Land Trust Housing Land Trust of Sonoma County Oakland Community Land Trust Community Land Trust Association of West Marin Preserving Affordable Housing Assets Longterm, Inc.

19 Bay Area Consortium of Community Land Trusts Our coalition has successfully ensured inclusion of the Small Sites model in the MTC s NOAH (naturally occurring affordable housing) revolving loan program (aka Bay Area Preservation Opportunity), whose pilot program will be a $10M fund. This program will provide critical longer-term gap financing for projects up to $100K per unit, over 7-10 year term. We look forward to working with the City to create an effective Small Sites program which will preserve existing housing, at-risk of loss to speculators, and create housing assets affordable in perpetuity. Page 19 of 21 Specific Components of the Anti-Displacement Strategy Multi-pronged strategy to permanently preserve existing housing which is de facto affordable due to longer-term tenancies under rent-stabilization (i.e. rent-control ). 1. Creation of Small Sites Acquisition program funded with revenue from new Business License Tax a. Target 5 to 25 unit multi-family rental properties with special emphasis on projects with good potential for conversion to some form of resident ownership or control; and on properties which are at high risk of sale to rent speculators (and the attending pressure to displace long term tenants). b. Feasibility i. $100K to $200K in per unit subsidy average subsidy can be reduced by allowing internal-subsidy in project (i.e. a wider mix of income limits, eg. Up to 120% AMI for some units). ii. leveraged by anticipated funding from the Bay Area Preservation Opportunity (aka NOAH fund) from MTC. Up to $100K per unit in deferred payment financing iii. increase City staffing by at least 0.5 FTE for program. Given potential funding of $1.5 to $2M, a reasonable assumption would be 2 to 3 projects in initial 2 years (v.s. 10 projects in two years for SF s SSP). San Francisco Community Land Trust Northern California Land Trust Bay Area Community Land Trust Housing Land Trust of Sonoma County Oakland Community Land Trust Community Land Trust Association of West Marin Preserving Affordable Housing Assets Longterm, Inc.

20 Page 20 of 21 Bay Area Consortium of Community Land Trusts iv. Quick response time is critical either with short deployment/funding process; or quick & effective commitment process. 2. Creation of a TOPA type program a. By creating a right of first refusal for existing tenants, which can be transferred to a qualifying affordable housing provider, the City can build in a time-buffer in the sale/escrow process to ensure that at-risk properties can be acquired and preserved as permanently affordable housing. Even with SSP funding, many sales of properties on the open market can & do happen much more quickly than SSP type, government sponsored funding can be deployed for acquisition. 3. Emphasize need for local community control of the land a. By using the Community Land Trust model to hold title to the land, and enforce 99-year, renewable affordability restrictions, we can ensure affordability in perpetuity to low income residents of Berkeley. But more importantly, this model ensures that the use of the properties are consistent with, and accountable to, the surrounding community and neighbors. Through local community member representation on the governing boards of CLTs, the use and governance are guaranteed to remain directly accountable. 4. Resident Involvement Control and Ownership a. This campaign seeks maximum accountability and responsiveness to the needs of the community by devolving governance and day-to-day decision-making to the residents of the properties. This can be done on a spectrum of property interest: from simply having resident involvement in the day-to-day management of the property, to resident control through a formalized property management or master-lease with a tenant-established coop, all the way to formal ownership of the improvements/building by a tenant owned limited-equity housing cooperative. 5. Leveraging Resources & Capital San Francisco Community Land Trust Northern California Land Trust Bay Area Community Land Trust Housing Land Trust of Sonoma County Oakland Community Land Trust Community Land Trust Association of West Marin Preserving Affordable Housing Assets Longterm, Inc.

21 Page 21 of 21 Bay Area Consortium of Community Land Trusts a. The Community Co-Ownership Initiative helps residents and small community groups to stabilize their homes and communities by providing tools to co-own homes and community real estate at high risk of displacement by using a scalable, integrated program that follows the life cycle of a project. b. The Initiative leverages the strength of the broad grass roots resident organizing and fundraising through the People of Color Sustainable Housing Network (POCSHN) with the financing and technical resources of the Small Site Acquisition model developed by NCLT and our partners in the Bay Area Coalition Consortium of Community Land Trusts. For Additional Information: Francis McIlveen & Ian Winters Northern California Land Trust p: x369 francis.mcilveen@nclt.org ian.winters@nclt.org Hewot Shankute & Jassmin Poyaoan Community Economic Justice Clinic EBCLC hshankute@ebclc.org jpoyaoan@ebclc.org Rick Lewis Bay Area Community Land Trust rick@bayareaclt.org Lina Buffington & Marissa Ashkar People of Color Sustainable Housing Network lina.buffington@gmail.com marashkar@yahoo.com San Francisco Community Land Trust Northern California Land Trust Bay Area Community Land Trust Housing Land Trust of Sonoma County Oakland Community Land Trust Community Land Trust Association of West Marin Preserving Affordable Housing Assets Longterm, Inc.

Mayor Jesse Arreguín and Councilmember Kate Harrison

Page 1 of 8 Office of the Mayor ACTION CALENDAR May 30, 2017 To: From: Subject: Members of the City Council Mayor Jesse Arreguín and Councilmember Kate Harrison Housing Related Referrals RECOMMENDATION