To: Housing Advisory Commission
From: Commissioner Thomas Lord
Subject: Advice regarding apartment sale first right of refusal
Date: 1 March 2018
Recommendation to the HAC
Ask City Council to make a timely referral to the City Manager concerning the implementation of the "Small Sites Program".
This referral asks the City Manager, in drafting the ordinance, to allow for the possibility that the purchaser of a small site may be the City of Berkeley itself, or a corporation under the majority ownership and control of the City of Berkeley.
The remainder of this memo is a draft for the HAC's referral to City Council. Please see the "Background" section below if you are unfamiliar with the Small Sites Program.
Recommendation (to City Council)
Refer to the City Manager these directions concerning the implementation of a Small Sites Program in Berkeley:
Ensure that the City of Berkeley may directly purchase properties under the Small Sites Program.
Ensure that any corporation designated by the City and in which the City maintains a majority (controlling) ownership may directly purchase properties under the Small Sites Program, even if that corporation is for-profit (e.g. a California B corporation).
In implementing recommendation (2), do not weaken the qualification requirements for non-profit corporations which are not majority owned or controlled by the City. Additionally, purchases made by the City itself or a corporation controlled by the City should not be constrained with respect to future rental prices.
Background
On February 14, 2017 the City Council referred implementation of a Small Sites Program to the City Manger. On November 28, 2017, the Small Sites Program was assigned the highest priority among all affordable housing policy projects.
While the draft details of Berkeley's program remain to be seen, the model that inspired Berkeley's gives tenants a first right of refusal to purchase an apartment that they live in. Tenants may transfer the right to a non-profit organization that is dedicated to preserving the property as affordable housing.
Recently, Councilmember Bartlett and Mayor Arreguín have indicated publicly that the Small Sites program is an area of active work.
Rationale
Ensuring that the City itself, or a City-controlled corporate entity is eligible to purchase Small Sites is a legally trivial addition to any imaginable program, thus the costs to the City should be negligible.
The potential benefits of consolidating Small Site ownership in this way are large. Consolidation of ownership:
Allows consolidation of property management giving rise to scale-based cost savings by eliminating redundant expenditures such as on accounting and legal services, purchases of materials needed for routine maintenance and repairs, and day to day building management (including advertising available units and qualifying and accepting tenants).
Allows for cross-subsidies between properties. If one small site currently houses moderate or above-moderate tenants it may generate a significant net income. It is potentially of great benefit for Berkeley's affordable housing goals to transfer some of that net income to properties occupied by low or very low income tenants -- properties that may need subsidy. Consolidated ownership under the City of Berkeley allows such cross-subsidy to occur in tax-efficient ways.
Allows for the development of a Berkeley land bank and flexible pool of housing which can adapt to changing economic needs, adding to Berkeley's strength in the face of changing conditions.
Lastly, making sure that the Small Sites Program allows the City to acquire these properties does not require the City to buy them and does not prevent private non-profits from buying them. Nothing is detracted from the originally stated goals of the program by these changes. New possibilities are opened up.