He found a way to create more homes for Bay Area’s workforce. Now comes the backlash

A 200-unit garden-style complex with swimming pool, hot tub and sweeping views of Richardson Bay, the Summit at Sausalito appeared to be just another upscale apartment community positioned to capture the hefty rents that come with the Marin County lifestyle.

But along with the usual marketing hyperbole — “an urban adventurer’s dream,” “amazing outdoor entertainment area”— Pozner discovered something intriguing on the complex’s website: a section called “essential housing” that lays out “maximum incomes” that prospective tenants can earn to qualify for the apartments.

One-third of the complex’s units would rent for $2,325 a month to a single person making 80% of area median income, about $104,000. One-third would go for $2,425 to someone making $130,000, 100% of area median income. And the last third would be available to someone making 120% of area median income, $156,000. While not bargain-basement prices, these rents appeared to be about $800 a month below other options Pozner saw.

“To my surprise I qualified for a rent that was affordable to me,” she said. “I was so grateful because it allowed me to be able to afford to stay not just in California but the Bay Area. It allowed me to continue to do the work I love and stay connected to my personal and professional communities. It’s kind of a dream that something like this was available just when I needed it.”

What Pozner had discovered was a new — and somewhat controversial — model for workforce housing invented by Marin native Jordan Moss, a former UC Davis basketball player who worked in commercial real estate before becoming laser focused on a housing affordability crisis he believed was destroying the state he grew up in.

Rather than try to get into the nonprofit affordable housing business that relies on tax credits and public subsidies to fund, Moss worked with state officials to create the California Community Housing Agency, or CalCHA, a joint powers authority that can issue bonds in order to buy existing properties and, over time, convert them into income-restricted workforce housing. It’s California’s first governmental entity focused exclusively on middle-income housing production.

 He found a way to create more homes for Bay Areas workforce. Now comes the backlash

The Summit at Sausalito apartment complex has a hot tub in the pool area. The development sets discounted rents based on different renters’ income levels.

Lea Suzuki/The Chronicle

The new asset class, which Moss’ Catalyst Housing Group calls “Essential Housing,” is an attempt to create affordable rental housing to the “missing middle” — the nurses, police officers, teachers and civil servants who earn too much to qualify for traditional affordable housing, yet can’t afford market rents in upscale communities like Larkspur or Sausalito.

Here is how it works: Catalyst — or a similar group — finds an existing apartment community to acquire. It then approaches the city or county the property is located in to see if that jurisdiction is interested. If the answer is yes, the city or county joins CalCHA, which issues the bonds to buy the property. Catalyst takes a fee of about 1% of the deal’s cost and gets paid $200,000 a year to manage the asset for the term of the bond, which can last 15 to 30 years. Once the bond is paid off, the city owns the property. So while the properties are tax-exempt, the city ends up owning a valuable asset that, once the bond is paid off, can be sold or borrowed against or made permanently affordable.

Part of the deal stipulates that no current residents of a purchased complex are evicted, so the essential housing is phased in gradually as vacancies arise.

So far Catalyst has partnered with the California Community Housing Agency to purchase 14 apartment complexes, a 4,200-unit portfolio worth more than $2.5 billion, the most recent of which was the $122 million purchase of the Sausalito property. Previous deals between Catalyst and CalCHA include deals in Livermore, Antioch, Larkspur, Santa Rosa, Berkeley, Hercules, Huntington Beach and Dublin.

The model has its critics, however. Matt Schwartz, president of the California Housing Partnership, argues that the model lacks accountability and that the discount that tenants get on their rents is so modest that it doesn’t justify the property taxes that are not being collected.

He faulted Catalyst — and other groups that have jumped on the bandwagon — for overpaying for luxury apartment communities and in the process collecting millions in fees. While the rents are discounted compared with similar upscale complexes, they are often higher than older, less fancy offerings in the same area.

“They drop the rent a few bucks and now rent these apartments with granite counter tops and a swimming pool for $3,000 instead of $3,500,” he said.

Schwartz said the model “could give affordable housing a bad name.”

“The main thing that concerned us is the claim that these luxury apartments were suddenly made affordable to moderate households, but when you look at the covenants and binding agreements there is no requirement that rents stay (affordable) and no third-party entity to monitor it,” said Schwartz. “It’s all, ‘Trust me, this is what we intend to do — it’s all going to be to the benefit of the community.’”

Larry Florin, who heads up the nonprofit Burbank Housing in Santa Rosa, also criticized the lack of oversight in the model.

“When I build affordable housing using a public subsidy I have to sign a regulatory agreement which is recorded against the property, and have to produce compliance reports audited by public agencies,” he said. “There is no such mechanism in these.”

Florin said that Catalyst “over-paid and over leveraged” the property it bought in Santa Rosa and had to dip into reserves to service the debt. Moss said that the property — the first one Catalyst purchased — ran into the same issues during the pandemic as other landlords — a significant number of tenants stopped paying rent due to the pandemic — but that since then the community has stabilized and has plenty of reserves.

While San Jose is the one prominent city that took a pass on the model —city staff concluded “the risks and costs of joining outweigh the potential benefits” — other municipalities have jumped onboard.

 He found a way to create more homes for Bay Areas workforce. Now comes the backlash

The Summit at Sausalito apartment complex offers workforce housing with rents scaled to income levels.

Lea Suzuki/The Chronicle

Bay Area Council Senior Vice President of Public Policy Matt Regan, who is on the Catalyst board, said that Moss “has created a new asset class of housing.” He compared its impact to the effort over the last decade to pass legislation to make accessory dwelling units faster and easier to build.

“The housing conundrum we find ourselves in is so intractable that we need to come up with new ideas to get out of it,” Regan said. “That is what Catalyst has done.”

In just two years, Regan said, Catalyst has created a portfolio that will allow thousands of middle-class California families to stay in the state.

“At the end of the day it’s voluntary — nobody is forcing cities to do it,” Regan said. “The cities have their own very grown-up analysts who can look at this and see if it’s right for them.”

Moss grew up in Sausalito and Mill Valley, but his social life was centered in Marin City, which for many years was the only place in Marin County where Black families could rent or buy property. Marin City, where Moss went to school through eighth grade, is a rare pocket of diversity in the Bay Area’s most segregated county.

Marin County Supervisor Stephanie Moulton-Peters credited Catalyst with volunteering to house public housing residents when Golden Gate Village, a public housing community near Summit at Sausalito will be renovated.

“I honestly think Jordan is one of the those people who genuinely wants to be of help to the community in Marin City and Marin County generally,” she said.

Eden Housing President Linda Mandolini, who sits on the board of Catalyst, said preserving existing housing and building from the ground up are both important. She said the concept of using joint powers authorities to create middle-income housing is a way to “acquire housing that’s being pushed to even higher rents and lessen the impact on the tenants by limiting the amount rent can be increased.”

“The JPA structure, used effectively, can leverage property tax exemptions with public sector ownership, and at the same time lower rents in markets that have faced never-ending onslaughts of rent increases,” Mandolini said, adding that the model takes nothing away from the “very scarce and oversubscribed resources used for very low-income and low-income housing.”

She said Eden Housing is looking at a deal that would take advantage of the CalCHA model.

Another Catalyst board member, investor and nonprofit director Cedric Bobo, said eventually government regulation will catch up with the model and put some guardrails in place that will assuage some of the concerns of critics. One Assembly bill that would have imposed restrictions on the model was introduced but died in committee.

“The reality is Jordan is not just building a business, he is building a sector,” said Bobo.

But Bobo said the fact that companies can make money from the model through fees is not a bad thing, considering workforce housing is in such high demand.

“I don’t know how to scale pity,” said Bobo. “There has to be some element of self-interest.”

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen

Article source: https://www.sfchronicle.com/bayarea/article/affordable-workforce-housing-17333913.php

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