As COVID-19 Reshapes the Real Estate Landscape, MEDA Triples Down on Preservation

As COVID-19 Reshapes the Real Estate Landscape, MEDA Triples Down on Preservation

Photo: November 2016 photo of residents of 10-unit MEDA Small Sites property at 3329 20th St. in San Francisco’s Mission District.

by Director of Community Real Estate Karoleen Feng

In the initial four months of the ongoing COVID-19 crisis, there have been catastrophic economic and health consequences for our Mission District Latino community. Our families disproportionately lost their jobs, with few able to work remotely. Those still employed are mostly essential workers in public-facing jobs, compelled to take the risk to earn money for food and rent while potentially sacrificing their family’s health. The pandemic is combined with the issues of systemic racism and inequity of opportunity coming to the fore.

In our pre-Covid-19 world, the affordable-housing crisis had already displaced thousands of households from communities of color such as the San Francisco’s Mission District, long a welcoming neighborhood for Latino immigrants. MEDA launched its Community Real Estate program just six years ago as a proactive, aggressive response to the unprecedented gentrification and subsequent displacement of low-income people of color. We pivoted from four decades of direct-services delivery to also becoming an affordable-housing developer, establishing a now 18-person team that in a contracted period has preserved or produced a pipeline of 1,254 homes and 100,000+ square feet of affordable commercial space.

Preservation as an integral part of the equation
Since the year 2000, the Mission had seen unprecedented gentrification that translated to the loss of  8,000 Latinos — over 25 percent of this community. One preservation strategy to turn that trend was the City of San Francisco’s Small Sites Program, which offers nonprofits, such as MEDA, the opportunity to purchase and refurbish four- to -25-unit buildings with rent-controlled tenants vulnerable to no-fault eviction by speculators. Our Small Sites portfolio is now at 32 apartment buildings comprising 256 households and 27 small businesses; the bulk of these properties are in the Mission and adjacent neighborhoods with large Latino immigrant populations. Looking to achieve all-the-greater impact, we focus on buildings that meet the following three criteria:

  1. The building houses families with children in Mission District schools;
  2. The building is along the Mission Street corridor, long the commercial lifeblood of the neighborhood; and/or
  3. The building features a legacy business that serves the low-income community. 

Over one-third of the families who have been able to stay in their homes are Latino and/or low-income residents. These are housecleaners. Artists. Teachers. At least 15% of our families are seniors — some of our most-vulnerable neighbors — who faced being permanently forced out of San Francisco and the community they love and helped create over many decades.

In 2019, we began sharing our anti-displacement model across San Francisco: We targeted neighborhoods where we could either partner with community-based developers to build their capacity to preserve affordable housing, or we worked with the City of San Francisco to develop future capacity in the neighborhood. 

Strategies making a difference
A number of innovative strategies have been developed and implemented. These include:

Community-based developer capacity. Displacement is place-based. That’s why a community-based developer cannot solve the housing crisis by simply focusing on the preservation of homes. In reality, they are part of an ecosystem of support for families — an ecosystem that includes arts & culture, education, jobs and the social determinants of health. MEDA’s tried-and-true strategy provides the case for investing in local capacity. Based on strong advocacy, the City of San Francisco set aside over $3 million in 2019-2020 to build the capacity of local place-based organizations to preserve apartment buildings. In addition to the individual organization investments, MEDA is working to refine the model for organizational growth, legislation and defining of the market by our teaming up with the San Francisco Housing Accelerator Fund (HAF) and the Coalition of Community Housing Organizations (CCHO) to continue the Housing Preservation Lab, a cohort of current or aspiring community developers.

Real estate funding. Real estate development showcases different timing and risks. While the total investment in keeping a home in San Francisco could add up to $600,000 per unit, the timing of when the funds are needed for this investment happens in three stages:

  1. Initially, funds are needed to simply secure the building when offers are made so that we put the building into purchase and can sign a sales contract. We use foundation program-related investment (PRI) funds for the initial offer stage.  
  2. Subsequently, money is required to actually purchase the building, which may necessitate additional funds for rehabilitation. We use HAF funds — set up by San Francisco to be more flexible and faster moving than their government funds — for such acquisition and rehabilitation. 
  3. Permanent funds are then needed to refinance the acquisition and rehabilitation for the long-term ownership of the building. We use a first mortgage with a permanent lender and City of San Francisco funds for this long-term ownership.  

Community Opportunity to Purchase (COPA). With the building of developer capacity and the needed real estate funding secured, community-based organizations become competitive with market-rate investor-developers in the goal to acquire and rehabilitate buildings. One initiative that has compelled sellers to work with MEDA, especially in a hot market, has been San Francisco’s Community Opportunity to Purchase Act (COPA), which since September 2019 has offered qualified nonprofits five days to put in a letter of interest before a building is marketed. If such a letter is written, the nonprofit then has 25 days to put in an offer. Even if that offer is not accepted, and the property hits the market, the nonprofit then has the right to counter any offers that the seller is considering, on the same terms.    

Next steps based on COVID-19’s changing of the real estate landscape
In our April 2020 reflection on San Francisco’s COPA, Associate Director Johnny Oliver shared insights on what can be done in the new reality. Highlights include:

  • Legislation to protect residential and commercial renters who have subsidies. Such legislation must be connected to covenants for affordability; therefore, if landlords receive rental revenue from government support of renters, MEDA strongly advocates that this revenue have clauses attached that give governments the right to purchase and use the value of the vouchers to support a portion of said purchase. (Read of proposed California legislation here.)
  • Prioritization of preservation funding. MEDA believes that the likely economic collapse of the multifamily rental market will have significant negative effects on tenants; therefore, local, county and state funding should be shifted and balanced to support acquisitions and rehabilitations of buildings housing vulnerable low-income renters. 
  • Capacity-building of local nonprofits so they are ready to receive these assets. The infrastructure of nonprofits remains strong; however, becoming an affordable-housing owner can be daunting, and takes a strategic shifting of organizational priorities and finances. MEDA has seen this with our own transformation from solely being a direct-services provider to tackling affordable housing starting in summer 2014 (with 1,254 units preserved or produced). While such large-scale organizational changes will not happen overnight for other organizations, especially as an immediate response to the current economic downturn, capacity-building is vital within three to five years (if not sooner) so that our local, place-based nonprofits are best positioned to take on these assets.

Tackling financing and funding challenges
As communities come together to heal during these challenging times, capital generated both within and by communities of color should be redirected to communities of color for the acquisition of the buildings and to build local capacity to own the buildings. This is especially true of African American communities. Some ideas include:

  • With the Coronavirus Aid, Relief and Economic Security (CARES) Act for local governments, millions of dollars earmarked for those affected by COVID-19 could be directed for real estate funding to keep those who are affected by the pandemic housed or to permanently house those who would otherwise be unhoused. 
  • With banks and corporations offering new commitments to Black communities, now is the time to call on those investments in our neighborhoods which have seen unprecedented displacement. The San Francisco Bay Area is one of the largest markets and, with the Community Reinvestment Act (CRA), banks are required to invest more directly in this market. Technology companies have been a significant factor in the displacement of families from our inner urban areas of the region. Many in tech, particularly in mobile delivery and online presence, have significantly gained from shelter-in-place. Banks and corporations can both directly and through foundations fund the different stages of real estate development with very-low-cost funds. Initially, the investments have been for small businesses that are close to permanently shuttering, but now is also the ideal time to determine how these investments can translate into real estate investments, especially for mixed-use buildings with ground-floor retail in communities of color.
  • Let’s harness the power of flexible rapid-acquisition funds supported by local jurisdiction guarantees. With HAF,  San Francisco created an entity that could move more quickly in disbursing funds for real estate acquisitions; the City has underwritten potential buildings and timed out their permanent financing while waiting for bonds and other capital sources. The Partnership for the Bay’s Future, the Kaiser-Enterprise Housing for Health Fund or Silicon Valley Housing Trust Apple Affordable Housing Fund could be aligned with future local government funding.

Conclusion
COVID-19 has created innumerable challenges in communities of color, and housing insecurity has grown. We must all watch closely for trends in the real estate market, as we devise innovative strategies and funding streams so that not just speculators take advantage of price drops.

Now is the time to act.

  

 

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