S.F. supervisor proposes big funding boost for housing acquisition program

Laura Waxmann-San Francisco Business Times

November 2nd, 2021

A total of 109 apartment buildings are currently on the market in San Francisco, but a shortage of funds and outdated regulations are hampering acquisitions through a program in which the city helps nonprofits buy and preserve small rental buildings, according to advocates working to secure these buildings as permanently affordable housing.

The available buildings comprise more than 1,065 units. Meanwhile, apartment sales and prices are below pre-Covid-19 levels, according to an Oct. 28 report from the Housing Stability Oversight Board — an advisory body to the Board of Supervisors — that I’ve obtained. These market conditions create a window of opportunity for the city to help meet its affordable housing preservation goals. 

However, the city’s Small Sites Program — an acquisition and rehabilitation loan program for small multi-family rental buildings that was launched in 2014 — is unable to respond to many requests for loans to acquire buildings through the program because of a shortage of money, according to District 5 Supervisor Dean Preston. On Tuesday, he announced legislation to create a $64 million emergency acquisition fund that he hopes will allow the city to scoop up of “hundreds of these units” in the current fiscal year.

Preston’s legislation for an Emergency Acquisition Plan would direct revenue generated by Proposition I — an increase in the transfer tax for high-end transactions that is projected to raise $128 million this fiscal year — to fund the Small Sites program. 

Prop. I was approved by voters last November, and the San Francisco Board of Supervisors last year unanimously approved a resolution for half of the revenue generated by the measure to be used for rent relief in the wake of Covid-19, while the rest would be used to fund permanently affordable social housing. Preston's legislation would make half of the Prop. I funds — or $64 million— available for the Small Sites Program. It will be considered by the Board’s Budget and Finance Committee on Nov. 17.

If approved, it would become the Small Sites program's first permanent funding source.

“Unless the city acts now, we will see thousands of residents put at risk as their buildings are sold to speculators,” said Preston on Tuesday. “We’ve been through this before, but this time we have not just an opportunity, but an obligation, to use Prop. I funds to prevent displacement due to the pandemic.”

The hope is that Preston's legislation will free up capacity and funding for the city to act quickly. Another city law passed in 2019 — the Community Opportunity Right to Purchase Act, or COPA  — is intended to preserve the city’s affordable housing stock by taking rent-controlled buildings off the speculative market. The law gives local non-profit organizations the right of first offer and first refusal for large residential buildings hitting the market.

It was an attempt to avoid a repeat of the city's experience from the Great Recession more than a decade ago. As real estate values declined, “institutional investment firms, armed with cash, bought as much property as they could,” resulting in the “consolidation of private real estate ownership previously unseen,” according to Preston’s office. 

But affordable housing providers and organizations say requests for the city to fund purchases under the Small Sites program have been stalled or met with pushback. They say that the program has been largely infused with one-time funding sources since its inception, but did not receive an allocation in the recent budget process. While the program does receive funding from inclusionary housing fees paid by market-rate developers, approvals of purchases slowed during the pandemic, and the currently available funding has been whittled down to approximately $12 million.

Raquel Redondiez, director with the cultural advocacy group SOMA Pilipinas, said that another issue preventing acquisitions lies in “outdated guidelines that the city is imposing” regulating the cost of the units slated for acquisition through the program.

“I know first hand of sites where funding is available but there is a delay in implementation,” said Redondiez, adding that the current funding is “enough to be able to capture some of these small sites."

The limited funding and disagreement over how it should be spent is causing the city to be more discerning in buildings it acquires through the program, but housing providers say that the lack of clarity on what type of buildings the city is prioritizing for acquisition is leaving some tenants at risk of displacement.

Smaller buildings have a higher per-unit cost than larger buildings, said Fernando Marti, co-director of the Council of Community Housing Organizations, adding that if the goal is save people's homes that have been targeted for eviction, "you might say it makes sense to pay higher per unit cost per building."

But that is not the message that providers have gotten from the city.

"What we have heard more recently from the city team is that they would rather focus on maximizing the number of units rather than focus on the program's priorities, which have always been an anti-displacement strategy," said Karoleen Feng, director of community real estate for the Mission Economic Development Agency (MEDA), a nonprofit housing developer.

"We have been able to purchase a couple of larger buildings, but as it became less clear where the city was prioritizing its funding, we became more connected to the current guidelines, which focus on prioritizing displaced residents," she said, adding that MEDA began requesting funding for buildings in which tenants were at immediate risk of displacement.

"We said no to quite a few buildings over course of 2021, including a portfolio in the Fillmore that would have included three buildings, because the city was not being clear about where to put their money. That was in April and we would have been able to keep a number of African American households in place," she said.

One of the buildings that MEDA approached the city with this summer was a small apartment building on Sycamore Street in the Mission District. The buildings tenants— multigenerational Filipino families who have been living there for 35 years— were served with an Ellis Act eviction after it changed hands.

I’ve obtained a letter penned in August by more than a dozen community organizations requesting that Mayor London Breed and Eric Shaw, the director of the Mayor’s Office of Housing and Community Development, to use the Small Sites program to acquire the Sycamore building, but that request has been “stalled and in limbo” for months, according to a source with direct knowledge of the negotiations who requested anonymity. The source said that the building's new owner was agreeable with a sale to the city.

A spokesperson for the city would not address the Sycamore situation directly, but said in an email on Tuesday that the Small Sites program is a "core component of MOHCD’s affordable housing preservation strategy," and that its regulations were developed "in a manner to allow for the appropriate financial due diligence and residential engagement to ensure the sustainable operations of each project."

"MOHCD has made a series of investments to increase the capacity of nonprofit and community based organizations. In addition, we have expanded the tools and systems to accelerate the preservation and acquisition of sites in the (program) including the San Francisco Housing Accelerator Fund and repurposed Preservation and Seismic Safety Program (PASS) funds," the spokesperson said. "MOHCD continues to invest in a comprehensive anti-displacement strategy as well, which includes full legal representation through our Tenant Right to Counsel Program. We are committed to ensuring households who face potential eviction receive all coordinated and MOHCD funded housing related services."