Home Foreclosure Long Beach plans to use bonds to increase housing stock for middle-income renters • Long Beach Post News

Long Beach plans to use bonds to increase housing stock for middle-income renters • Long Beach Post News


In Los Angeles County, the average median income is $80,000 for a household of four; four-person households would qualify for these units if they earned between $64,000 and $96,000 per year. (For a complete list of median incomes by household size, Click here.)

Long Beach and other cities have tried to increase the area’s housing stock for middle-income people, which often isn’t attractive to developers because it doesn’t come with financial incentives like low-income housing and does not attract high rents like luxury housing.

Last year, the city explored a pilot program with the state by issuing $144 million in bonds to buy the 216-unit Oceanaire luxury apartment building Downtown and lease its units at lower rates.

As part of the deal, Waterford, the operator of the building, remained administrator of the project and is expected to receive $11.5 million over the next 15 years through fees from rent payments, and the city could choose to buy the building at the 15 or 30 year mark.

However, Long Beach and other tax agencies will not collect property taxes on the property for the duration of the transaction, which the consultants say is one of the drawbacks of these types of transactions.

A November letter from CSG Advisors, HR&A Advisors, and the California Housing Partnership to California governments described the pitfalls of these types of deals as more deals spring up in the state:

  • The bonds issued are unrated, which means that creditors have not determined the risks and value of the bonds, as well as the probability of default.
  • Many provisions of the agreements to date are not enforceable by the local government, such as the amounts charged for rent and the duration of those discounted rents.
  • The repayment of the bonds depends on the increase in rents.
  • And there is often no entity legally responsible for the property, leaving tenants with no one to turn to with concerns over repairs and other issues are among the issues cited in the letter.

The way the bonds are structured is risky, the letter says, and points to a 2019 project in Santa Rosa that has already failed to meet revenue projections and led to talks to restructure the bonds less than two years after the start of the project.

The letter provided several examples of how financing similar to the Oceanaire deal, with more secure underwriting measures, either failed or required a government agency to step in and take over ownership. The letter noted that between 2016 and 2018, the Illinois Finance Authority purchased five existing apartment portfolios for $170 million in BBB-rated bonds or higher and all five defaulted in 2019.

Part of the problem is that the bonds being issued don’t require upfront rents to cover the repayment of the bonds and actually require affordable housing rents to increase to do so.

If rents do not increase to cover more than just the interest portion of the bonds, the property could go into foreclosure. In the case of the Oceanaire, if it falls into foreclosure, the city may have to pay off its debt before it can sell the property, which could eat away at the revenue generated from the sale that was supposed to offset decades of lost property taxes. .

“As organizations with decades of experience in housing finance throughout California, we believe that deviating from the normal underwriting standards of all major banks and federal entities creates serious risks,” the letter states. . “The bigger the gap, the bigger the risk. In particular, we believe that relying on future growth in net operating income to pay down debt is extremely dangerous.

While the Long Beach City Council voted last year to enter the pilot program with Waterford, it wasn’t the only entity that lost property tax revenue.

County, school districts and local colleges that rely on tax revenue will also lose the Oceanaire Project and others like it, the letter says, noting that the city’s share is often five to eight times less than other tax entities. who don’t. have a say in the matter. Long Beach is expected to lose $8 million during the pilot program, while other agencies will lose a total of $43 million.

Some recommendations that may eventually become part of Long Beach policy in the future would be to charge a “welcome fee” paid by bond buyers who would recoup the city’s share of property taxes.

Rents for any project acquired through this process could also be tied to state income limits, not to exceed 30% of a household’s income, which is the federal standard for rent charges, and be subject to an act restriction for 55 years. , all of whom were absent from the Oceanaire purchase.

Oceanaire rents have been standardized, with studios costing as little as $1,841 per month and three-bedroom units up to $3,941 per month.

The city may also be able to count units acquired through this process and reserved for those earning less than 100% of the area’s median income as part of their Regional Housing Needs Assessment goals.

Long Beach aims to create 26,502 total units by 2031, of which 4,158 are supposed to be for moderate-income households. Below Assembly Bill 787, which was signed into law in September, Long Beach could create 25% (1,040) of its moderate-income units through vesting and deed restrictions.

City Council is expected to receive an update on the policy in the coming months, when it may vote to approve guidelines for any future city acquisitions of new or existing rental units.

State program could ease pressure on construction of moderate-income housing

Long Beach has room for projected housing needs, but current zoning protects wealthier areas from density