by Director of Community Real Estate Karoleen Feng
Contributed to by Johnny Oliver
There’s a difference between being proactive and being reactive. The Small Sites Program is one of our most innovative means to tackle the ongoing displacement of families from the Mission. Because of the dire needs of our families around housing stability, MEDA needed to be at the forefront of solutions to preserve and produce affordable housing in the Mission. Each household saved represents the deepening of roots that have taken hold, keeping the Mission a culturally diverse community and welcoming home for Latino families.
There have been 8,000 Latinos forced from their homes in a decade — that’s over 25 percent of this community. The Mission has been one of the most severely impacted San Francisco neighborhoods in terms of housing instability and evictions, with a paucity of affordable housing having been built to counter the market-rate properties going up all over the ever-popular neighborhood.
One of the ways to preserve affordable housing is by harnessing the powers of the City’s two-year-old Small Sites Program, which allows nonprofits to purchase four- to 25-unit buildings and save tenants vulnerable to displacement. While this program has a diminutive-sounding name, it’s already showcasing a large impact. By the end of 2016, MEDA will have saved 44 households — the longtime homes of teachers, artists, seniors, people of color and even a nonprofit arts organization. At this rate, we could save 200 to 250 homes by 2020, in the same time that it takes to build new affordable housing. As an example of the impact, one of these Small Site properties we purchased at the end of November, is a 10-unit building that is home to nine Latino families in Mission schools. If these families were displaced, their children would have been uprooted from all that they ever known. That will now not happen.
The Small Sites Program in the Mission is essentially a community investment of the purchase of buildings where households are vulnerable to displacement. The dramatic displacement of families from the Mission resulted from the huge profit differential — cap rates are at three to four percent in the neighborhood — from the current tenancy and potential future residents. Buildings have been sold and bought in the Mission and San Francisco based on the assumption that existing tenants on rent control can be removed and replaced with higher-paying tenants or owners. This community investment, which currently is financed by the City’s Small Sites Program, makes up the difference between the market value of the buildings and the income from the apartments rents, thereby ensuring that the sellers get out of the ownership of the building, tenants continue to pay affordable rents and MEDA, as a community-based organization, can stabilize a long-term asset in the neighborhood.
Defining the parameters of the Small Sites Program took a concerted effort over time, with MEDA engaged in numerous in-depth conversations at City Hall, especially at the Mayor’s Office of Housing and Community Development (MOHCD), until the current guidelines were hammered out. These conversations included a number of concerned community-based organizations — Bernal Heights Neighborhood Center, Chinatown Community Development Center, PODER, San Francisco Community Land Trust, San Francisco Housing Development Corporation as part of a Council of Community Housing Organizations — meshing solutions for the needs of the historically underresourced community, with goals for sustainable community assets.
The salient components of what makes this solution successful are:
- Tenant Education and Organizing. With each building, MEDA and our tenants’ rights organization allies prepare residents to be part of the purchase process. The social underpinning for the Small Sites program is the cultivating and strengthening of the tenants’ collective will toward saving their building. In developing a deeper relationship with their neighbors, the tenants become more responsible for the future of the property as their permanent home. MEDA also develops the tenants on the path of financial well-being, by connecting them to asset-building programs ranging from financial coaching and job training to small-business development and computer classes.
- Rents. By participating in the Small Sites Program, rents are adjusted to what is affordable for the residents at the time of purchase. The tenants provide their certified incomes, and if their rents are already at or above 30 percent of their income, they keep their existing rents. This is essential for many lower-income residents (e.g., those who rely solely on Social Security; or families with kids,meaning they have additional monthly expenses). If their rents are less than 30 percent of their income, the rent is adjusted toward the purchase and long-term sustainability of the building.
- Permanent source of City financing. Through advocacy efforts with allies, the City permanently set aside funds from their Inclusionary Housing program for the Small Sites Program. MEDA and allies documented the need and the successful deployment of the pilot funds. This led to additional funds allocated from Prop A, which was a $310 million affordable-housing bond passed by San Francisco voters in November 2015. The City is currently considering countering the displacement effects of market-rate properties by focusing in-lieu fees paid by small developers in neighborhoods where these high-end developments are built. Focusing these funds would have a significant impact on 50+ buildings and 1,000+ market-rate (read: luxury) apartments in the pipeline in the Mission to be built by 2020.
- Right-setting the Community Investment. The size of the community investment per apartment is market feasible and makes public policy sense. After the first pilot year, MEDA and our allies evaluated with the City our data on the market and developed a tiered structure for the level of community investment from the Small Sites Program. The current maximum per-unit Small Sites Program investment is at $350,000 for a property comprising fewer than 10 units, while for 10 to 25 units the investment was set at $300,000 per unit. The City also agreed to increase the subsidy for buildings at risk of Ellis Act evictions to $400,000 per unit (notices must have been given or residents must have proof that they have been threatened with such evictions). Finally, the investment is $150,000 per bedroom for a group or single-room occupancy (SRO) housing. These are amounts that work in 2016-2017 for the San Francisco market. By comparison, the City invests up to $450,000 per unit (for the land and the building) in the construction of new buildings. These properties are crucial to adding to the affordable-housing stock, but take three to five years to build, during which time hundreds of families will be displaced, with less likelihood of return to the neighborhoods in which they have built their lives. The size of the investment not only includes the purchase — it includes funds for at least 20 years of the life of the building.
- Up-front costs. Developer fees need to be set aside for MEDA’s staffing to acquire and rehabilitate the site, plus provide for upfront costs of such items as due diligence. These funds are critical for early cash flow, especially for nonprofits.
- Ready financing for a hot real estate market. Over 2016, we found ourselves losing 15 to 25 percent of the properties on which we were ready to put an offer because of our necessary 90 days to close escrow or because we cannot compete against an all-cash offer. MEDA was limited by our bank account in terms of how quickly we could move. With local money, that showcases trusts in MEDA’s expertise, we are now hoping to accelerate our speed of purchases. In 2017, we will continue seeking more of that money, be it from a Neighbor-to-Neighbor Fund to foundation investment loans from funders that believe in MEDA’s capacity to do this work in the community. It takes only $12,000 in downpayment funds to save a household.
The numbers back up this fact. All strategies are critical for stabilizing our families from displacement — from preserving existing housing to accessing new housing opportunities. While the latter is a needed part of any affordable-housing strategy, as families are still being evicted every day, the odds of winning a below-market-rate (BMR) lottery for an apartment rental can be daunting. This contrast with as the immediacy of a Small Sites Program keeping tenants in place.
The 44 households MEDA will save from eviction this year via the Small Sites Program is 100 percent guaranteed. How so? The vulnerable tenants are identified. The Small Sites property is purchased. The tenants remain in their homes. It’s that direct of an impact.
To preserve a 1920’s or 1930’s building permanently into the affordable housing for our neighborhood in our neighborhood means we are guaranteeing affordable housing for the Mission for as long as we remain owners of buildings.
That’s a win for tenants. That’s a win for our Mission community.
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