COPA (Community Opportunity to Purchase Act): What Is It? Why Is it Important?
What is the problem? And what is the need?
Rent-controlled apartments have become a prime target for speculation. Until recent years, when long-term landlords sold their buildings, their primary market was to other investors seeking ongoing rental income. Now, however, speculators and cash buyers swoop in to buy these rent-controlled buildings, evict tenants through Ellis Acts, Owner Move-ins, harassment tactics, or simple "buyouts," and flip the units for extraordinary profits renting them at market rates or converting them to STRs, TICs and condominiums.
On the other hand, the sale of a rental building can present an opportunity for the community, through locally-based affordable housing nonprofits, to protect the existing residents and preserve those units as permanent affordable homes. The City recently implemented an acquisition program which has resulted in the preservation of dozens of buildings, in many cases saving tenants from the threat of Ellis Act evictions. However, a clear pathway does not exist to allow nonprofits to buy those buildings, even if they have the means to match the seller's price. A speculator or cash buyer can get in and position quickly to out-maneuver a community entity wishing to buy the building in the tenants’ interest. There is a need to balance the field so the community can adequately compete without disadvantage on the open market in acquiring rental buildings when they are put up for sale.
In April 2019, the San Francisco Board of Supervisors passed with a unanimous vote the Community Opportunity to Purchase Act (COPA). COPA is an innovative policy designed to stabilize communities by preventing displacement and preserving affordable housing. There are several successful precedents in other cities that have accomplished something similar, most notably in Washington DC, which has had a first-right of refusal ordinance for over 30 years. There are also local policies in various forms like this in Chicago, Seattle and Boston.
What would an “Opportunity to Purchase” do?
The Community Opportunity to Purchase Act applies to the sale of any non-condo residential building of 3 or more units. It would give qualified nonprofits a right of first offer at the front-end, and a right of first refusal at the back end—over multi-family residential buildings (and vacant lots), for the purpose of creating and preserving permanently affordable housing. Applicants are prequalified by the City as bona-fide nonprofits with a mission to create permanently affordable housing for low- and moderate-income residents, and a demonstrated capacity to effectively acquire and manage residential property at multiple locations in San Francisco.
COPA requires sellers to notify the qualified pool of nonprofit organizations of their intent to sell. Potential nonprofit buyers have a limited time (25 days) to work with tenants and exercise their first right of offer and, if accepted by the seller, enter into a Purchase-Sale Agreement. While a seller is not required to accept the offer, the qualified nonprofit also has a right of first refusal to match a competing offer. Sales are defined to include partial transfers within LLCs.
At closing, deed restrictions will be placed on the building, restricting the building to affordable housing "for the life of the building," with a mean value of all rents paid in the building not to exceed 80% of Area Median Income. The building could also eventually be transferred to tenant ownership under a Limited Equity Cooperative or other model, as long as permanent affordability deed restrictions are maintained. The ordinance includes incentives, including a partial exemption from the City’s transfer tax and the potential for qualified nonprofits to facilitate sellers’ efforts to obtain federal tax benefits.
***Updated June 20, 2019