Local affordable housing units that rely on some kind of federal subsidy are unlikely to convert to market rate in the near future, according to a recent report by City Staff.

About 1,014 affordable units rely on funding from the United States Department of Housing and Urban Development (HUD). Depending on the terms of that funding, HUD supported units could be in jeopardy of converting to market rate, but according to the city’s Housing Division, current units are protected by prescient actions by past councils and vigilance by current regulators.

According to the report, Santa Monica’s HUD-assisted at-risk housing consists of 12 properties with 1,014 affordable residences. Eleven properties house seniors or people living with disabilities and one property serve families. The homes comprise about 23 percent of the entire deed-restricted supply and about 72 percent of the units are more than 30 years old. For-profit companies own three buildings and the other nine are owned by nonprofit organizations.

HUD assisted housing can be at risk when HUD issued loans are repaid in full, state loan obligations are fulfilled, rental subsidy contracts laps or City imposed affordability requirements expire.

“When mortgage loan repayment occurs or when a rental subsidy is not renewed, the properties are at risk of converting to market-rate rents upon vacancy, of staying affordable but not with deeply targeted income levels or, when rental subsidies are not renewed, of operational feasibility issues related to cash flow,” said the report.

Five of the 12 HUD-assisted properties in Santa Monica could convert to market rate sometime in the next 15 years. Of the properties with the potential to turnover in the next 15 years, three are operated by nonprofit organizations that have told officials they plan to continue operating as affordable housing with no intent to convert to market rate.

Two properties are privately owned but in both cases, City Hall has strong legal protections in place. Santa Monica has a policy of preserving 100 percent of the HUD assisted housing and past councils have provided financing to the properties with contingencies attached. In the case of Barnard Park Villa, a privately owned property that could convert to market rate in 2026, the city can purchase the property upon expiration of the HUD requirements for just $1 all but ensuring continuation of the affordable housing at that location.

Ocean Park Villas is the second privately owned facility and has the earliest possible conversation date at 2019. However the city has a purchase option on the property of $1.5 million.

Staff said Santa Monica would have to find a way to finance the purchase, but assuming money is available, the contract will allow City Hall to maintain affordability levels on the property.

The report cites Neilson Villa as an example of successfully preserving housing. The facility had an option to convert to market rate last year but the City’s contingency allowed for a 50-50 buy in with the private owner.

“The new contract terms with Neilson Villa approved by City Council on August 25, 2015 extends affordability for 55 years, leverages public and private financing with no impact on the City’s budget, creates housing opportunities for households on the Housing Authority’s wait list (which has local preference), establishes an owner-funded rental subsidy reserve, facilitates upgrades to the aging property, and brings the City into a stronger oversight role,” said the report.

Staff said early the agreement can act as a blueprint for future actions. Staff said the deal worked due to early communication with the owners long before federally required notices were issued, the city’s previously imposed conditions, interaction with tenant advocates, and utilization of additional HUD programs.

While the immediate risk of losing affordability in these buildings is low, staff said that developing strategies in collaboration with HUD, owners and residents is key to preserving affordability.

editor@smdp.com

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