EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: July 18, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Benjamin Toney, Partnership for the Bay’s Future Fellow Karen Camacho, Housing & Economic Development Manager
SUBJECT: East Palo Alto Opportunity to Purchase Act ("EPA OPA") Update Recommendation
Provide direction concerning whether and when to return with an ordinance titled “East Palo Alto Opportunity to Purchase Act” (“EPA OPA” or “Ordinance”) and clarify desired Ordinance components.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
• Promote Housing, Economic and Workforce Development
Executive Summary
This report arises from direction City Council provided March 1, 2022, to continue research on components of EPA OPA, including the Right of First Refusal (“ROFR”). In summary, staff recommends that the Ordinance not include ROFR for single family homes, considering concerns about its potential impact on single-family home prices in East Palo Alto. Staff also recommends that the Ordinance include a clause on 1031 Exchanges that requires Potential Eligible Purchasers to work with parties seeking 1031 Exchanges to facilitate those exchanges and enable the achievement of associated tax benefits. Furthermore, staff seeks Council direction on any other components of a potential Ordinance that should be added, modified or eliminated. For further background information, please follow the Discussion Guide in Attachment 1.
Glossary
Potential Eligible Purchasers – A Tenant, Non-Profit Housing Provider, or the City in cases where OPA applies.
Rightsholders – A Tenant, Non-Profit Housing Provider, or the City in cases where OPA applies; this term is used when speaking about one of the specific rights that OPA grants.
Right of First Offer – The right to make the first competitive offer to purchase a property.
Right of First Refusal – The right of a Potential Eligible Purchaser to match a ThirdParty Offer.
Third-Party Offer – An offer submitted by a party other than a Rightsholder/Potential Eligible Purchaser.
1031 Exchange – A capital gains tax deferral strategy for investment property transactions which enables investors to defer taxes if certain IRS rules are met.
Background
The City of East Palo Alto (City) is considering an Opportunity to Purchase Act ordinance (“EPA OPA” or “Ordinance”) to combat displacement and promote community stability by providing pathways to homeownership and a mechanism to preserve affordable housing through increasing opportunities for tenants to purchase the homes they live in when landlords decide to sell. As proposed, EPA OPA would give tenants, affordable housing providers, or the City notice and the first opportunity to purchase a residential property when the owner decides to sell.
In October 2018, the City Council set housing preservation (preserving and extending deedrestrictions on 200 units) as a key goal in its 5-year Affordable Housing Strategy. In January 2021, City Council adopted its Council priorities, one of which included advancing the concept of a Tenant or Community Opportunity to Purchase Act (“TOPA/COPA”) and other homeownership opportunities. Since mid-2019, City Council and staff have worked toward these affordable housing goals. The City gained more capacity to pursue these goals by receiving the Partnership for the Bay’s Future (“PBF”) Challenge Grant from 2020-2022 (“Challenge Grant”) and the PBF Breakthrough Grant (“Policy Grant”).
EPA OPA may be helpful in addressing the City’s preservation goals for many reasons.1 Firstly, it has been vetted over multiple years through rigorous and ongoing community engagement including the voices of low-income families, landlords, homeowners and other community members. Second, it is timed in coordination with regional efforts to preserve homes and provide homeownership opportunities for low-income households. For example, in March 2023, the Metropolitan Transportation Commission (MTC) published its draft TransitOriented Communities (TOC) Policy guidelines, which highlight Tenant/Community Opportunity to Purchase policies as an affordable housing preservation approach.2 Third, local and regional organizations are committed to participating as technical assistants, missiondriven developers and community outreach and education specialists to facilitate implementation of EPA OPA if approved.
Summary of Outreach and Input Process
Between August 2020 and September 2021, the City and community partners conducted outreach and obtained community input that helped design a potential Ordinance. Between October 2021 and March 2022, the City Council held six City Council meetings, five of which were public hearings, and staff held office hours and a community meeting for additional public input. In 2023, the City conducted two additional meetings facilitated by Peninsula Conflict Resolution Center (PCRC), a neutral party that partners with community members to engage and collaborate on complex issues; a Community Forum on May 30, 2023, and a Policy Discussion on June 13, 2023.
A summary of City EPA OPA actions is summarized in Figure 1 below.
Figure 1: EPA OPA Milestones
Date Description
October 2018
City's Affordable Housing Strategy approved with goal of preserving and extending deed-restrictions on 200 units over next five years
June 2019
Council adopted Resolution No. 5128, authorizing the City Manager to submit an application to the Partnership for the Bay’s Future for a Challenge Grant for Housing Protection and Preservation (“Challenge Grant”).1
November 2019 City awarded Challenge Grant. Challenge Grant Fellow began work in February 2020 and continued through January 2022.
January 2021
City Council adopted as one of its Council Priorities, “Advancing the Concept of TOPA/COPA and Other Homeownership
Opportunities.”2
July 2021
Staff provided an update on Challenge Grant progress and received authorization to apply for a Partnership for the Bay’s Future Breakthrough Grant.3
July 2021 –
September 2021
Nine Affinity Group meetings (67 participants) and two Focus Group meetings (19 participants) were conducted to gather community input. Participants consisted of homeowners, tenants, landlords, and real estate agents.
October 2021
Policy & Action City Council item to provide a report on OPA progress and seek direction on development of an ordinance. City staff were directed to bring back a proposed OPA Ordinance for hearing.4
1 See June 4, 2019 staff report: http://eastpaloalto.iqm2.com/Citizens/Detail_Meeting.aspx?ID=1511. 2 See January 23, 2021 special meeting:
http://eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1361&MinutesID=1208&F ileFormat=pdf&Format=Minutes&MediaFileFormat=mpeg4.
3 See July 20, 2021 staff report:
http://eastpaloalto.iqm2.com/Citizens/Detail_LegiFile.aspx?Frame=&MeetingID=1420&MediaPosition=95. 624&ID=1813&CssClass=.
4 See October 5, 2021 meeting:
http://eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1427&MinutesID=1288&F ileFormat=pdf&Format=Minutes&MediaFileFormat=mpeg4.
November 2021
Public hearing for OPA Ordinance. City Council directed staff to hold a community meeting on OPA and return to the next City Council meeting with an updated Ordinance.5
December 2021
Community meeting held via Zoom on December 1, 2021, with 276 participants of which 72 spoke during the public comment portion.6 Staff also hosted virtual office hours for OPA comments and inquiries on December 3 and December 6, 2021.
City Council help a public hearing on December 7, 2021.7 Staff presented on recommended changes to the Ordinance based on City Council direction and community feedback. City Council took over two hours of public comment from 128 speakers and
continued the item to December 22, 2021.
On December 22, 2021,8 staff proposed several amendments to the draft Ordinance first proposed in November 2021. The Ordinance also included edits recognizing the public feedback.
City staff directed to continue the item at the next regular Council meeting in the new year.
January 2022
Staff hosted accessible office hours to receive further community input on January 13 and 14, 2022.
Council held another public hearing on January 25, 2022.9 David Rosen & Associates presented on findings from their analysis on potential impacts of EPA OPA. City Council received further clarification on Qualified Nonprofits and foreclosures. Item continued to March 1, 2022.
March 2022
Public hearing for OPA Ordinance continued on March 1,
2022.10City Council received further clarification on the applicability of the ordinance, staff analysis on the potential impact of the right of first refusal on home prices, and public comment. City Council directed staff to continue to study the Ordinance, and to introduce a revised Ordinance at a later date. The latest version of the Ordinance reviewed by City Council is from the March 1, 2022 City Council public hearing.
March 2023
Affordable Housing Preservation funding conversation on March 21, 2023.11 City Council discussed potential funding sources that would advance affordable housing preservation.
5 See November 15, 2021 meeting:
http://eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1431&Format=Minutes . 6 See December 1, 2021 community meeting recording at: https://vimeo.com/652516489. 7 See December 7, 2021 meeting:
eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1460&Format=Minutes 8 See December 22, 2021 meeting:
eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1464&Format=Minutes 9 See January 25, 2022 meeting:
eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1486&Format=Minutes 10 See March 1, 2022 meeting:
eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1489&Format=Minutes 11 See March 21, 2023 meeting:
eastpaloalto.iqm2.com/Citizens/SplitView.aspx?Mode=Video&MeetingID=1962&Format=Agenda May 2023 Community Forum with PCRC (a neutral party) on May 30, 2023.12 June 2023 Policy Discussion with PCRC (a neutral party) on June 13, 2023.13 July 2023 City Council Policy Discussion
City Council Direction at March 1, 2022 Public Hearing
At the last EPA OPA public hearing on March 1, 2022, City Council sought a comparative analysis on the Right of First Refusal’s (“ROFR”) impact on property values, with the potential of eliminating tenants’ right to use ROFR when purchasing a single-family home (“SFH”). For SFHs, ROFR is proposed to be a five-day period that gives a tenant living in the home an opportunity to match a market offer after the owner first rejects the tenant’s initial offer. The ROFR is proposed to be a 20-day period for properties with 2 or more units.
City Council also directed staff to provide an overview of various housing preservation models that could help achieve the affordable homeownership goals under the Ordinance. This overview is provided in Attachment 3. Additionally, across several city council meetings, requests for identifying funding sources to implement the potential policy have encouraged staff’s search for information on local, regional, state, and federal funding sources to close the gap needed for residents to complete a purchase. Staff provided an overview of these opportunities at the March 21, 2023, City Council Meeting. Staff will provide further discussion of housing preservation models that could be implemented under EPA OPA and funding opportunities if/when the Council considers a proposed EPA OPA for adoption.
The purpose of this staff report is to present the research requested and, to seek additional feedback that may help shape a new proposed Ordinance.
Analysis
Summary of Community Feedback – 2023 EPA OPA Engagement Efforts On May 30, 2023, and June 13, 2023, the City and Peninsula Conflict Resolution Center hosted community engagement events to address misinformation and to continue to engage the community for feedback on the potential Ordinance. The community engagement events were also prompted after direction from Council at the March 1, 2022 public hearing to continue to address misinformation before an Ordinance was presented before City Council again. The impact of misinformation was also discussed briefly on March 21, 2023 during a City Council Policy and Action item on Affordable Housing Preservation Funding.
Over 120 attendees showed up in person to the Community Forum and over 110 attended the virtual Policy Discussion. In addition to addressing misinformation, the City sought continued feedback, questions, and suggestions to locate a middle ground that balances the preferences of multiple perspectives within the city and achieves the Council objectives of supporting local homeownership, advancing affordable housing preservation and addressing displacement of long-time residents of East Palo Alto.
12 See link to Community Forum presentation under “Past Meetings” at:
https://www.cityofepa.org/housing/page/east-palo-alto-opportunity-purchase-act-epa-opa-0. 13 See link to Policy Discussion presentation under “Past Meetings” at:
https://www.cityofepa.org/housing/page/east-palo-alto-opportunity-purchase-act-epa-opa-0.
Major takeaways from these events include: interest in the details of how the policy is expected to function, transaction timelines, and opportunities for funding and financing; concerns about misinformation; major concerns about the effect on property values; and strong resistance among homeowners and real estate agents against the Right of First Refusal for Single Family Homes. More details about the community input are included in the PCRC Report in Attachment 2.
Research Summary
1- Right of First Refusal (ROFR)
1A - ROFR for Single Family Homes (SFHs)
Figure 1: Timeline and Process for ROFR (SFHs)
ROFR reshapes the conventional selling process by entitling a local Rightsholder to match a market offer a property owner selling their property (“Seller”) is considering accepting. The EPA OPA process for SFHs that was last considered by the City Council provides tenants, affordable housing providers, or City (also referred to as “Potential Eligible Purchasers” or “Purchasers”) with a 30-day period to signal interest in purchasing a property, and a 30-day period to make an offer (also referred to as “First Offer”). This aligns with the existing 60-day noticing requirement under CA Civil Code 1946.1 for properties with tenants that are on a month-to-month lease (CA Civil Code 1946.1 does not delay sellers from marketing a home for sale, it requires that landlords provide tenants a 60-day notice before terminating a lease and requiring a tenant to move).
As shown in Figure 1, Rightsholders/Potential Eligible Purchasers would have 30 days from being notified that the property will be for sale to inform the Seller of their interest to buy the property. If interested in purchasing the property, Rightsholders would have an additional 30 days from the date of expressing interest to make a purchase offer. The Seller could either accept or reject the Rightsholder’s offer. If the Seller rejects the Rightsholder’s offer, the Seller could market the property for sale. Note that the Seller can receive as many offers as the market would provide. If the Seller accepts an offer from the open market (also referred to as “Third-Party Offer” or “accepted offer”) after rejecting a Rightsholder’s offer, the Rightsholder could have the ROFR; that is, the right to match the Third-Party Offer. If a Third-Party Offer is higher than 115% of the amount offered by the Rightsholder, the Rightsholder would not have ROFR.
For a single-family home, if the Third-Party Offer is less than or equal to 115% of the amount offered by the Rightsholder, the Rightsholder would have 5 days from the date the Seller accepted the Third-Party Offer to match the price and terms of the accepted offer to exercise the ROFR. The Seller would receive the same purchase price and terms of the offer they accepted; however, the Rightsholder would be the purchaser instead of the Third-Party.
Concern about the impact of ROFR on property values prompted City Council to request further research. Homeowners and real estate agents have expressed concerns that other jurisdictions have not applied OPA onto single-family homes because of potential negative effects on home prices.3 As of yet, no estimated effect of ROFR on home prices has been identified. In jurisdictions where OPA has been approved with a ROFR clause, property values continue to trend in positive directions (see Figures 1 and 2 below), which may be a result of several market conditions that impact home prices, as explained in the David Rosen and Associates Report.4 Property values in jurisdictions that have passed OPA ordinances with ROFR clauses (including Washington DC which originally included single family homes) demonstrate continued property value growth after adoption and implementation. In addition to other market factors, this pattern may also be influenced by funding and financing support that bolsters the demand of rights-holding Purchasers.
Figure 2: Housing Price Index in Washington, DC
& Metropolitan Washington Area (1995-2017)
Source: D.C. Policy Center Report.14 Note that year 1995 begins at Index 100. 14 See Yesim Sayin Taylor, “Taking Stock of the District’s Housing Stock,” D.C. Policy Center, March 2018, available at: https://www.dcpolicycenter.org/wp-content/uploads/2018/03/DC-Policy-CenterHousing-Report.final_.March25.pdf.
Figure 3: Average Sales Price Per Unit in San Francisco for Properties Subject to COPA (3- and 4-plexes) vs. Properties not Subject to COPA (duplexes), 2019-2023 Community members have expressed concern that ROFR may reduce demand among some buyers who are sensitive to the perceived risk of their offer not being the final offer accepted, or who find the OPA procedural requirements unfavorable.6 The analysis under Section 1C below describes the Ordinance amendments the City Council has made to mitigate these concerns.
1B - Other Policies’ Mitigation of ROFR/Property Value Relationship Typically, OPA policies mitigate concerns about the impact of ROFR on property values by constraining the universe of qualifying properties, prioritizing the Right of First Offer, or by adjusting the timelines and terms of the exercise of ROFR.
Among 11 national examples listed in the Opportunity to Purchase report by the Coalition for Non-Profit Housing and Economic Development (CNHED) and Local Initiatives Support Corporation (LISC) Twin Cities,7 nine jurisdictions include and two omit ROFR. The City of San Jose recently rejected a non-ROFR COPA policy to prioritize addressing visible homelessness.
Active policies or proposals elsewhere in the Bay Area include San Francisco, Oakland, and Berkeley. Mountain View8 and South San Francisco9 have also recently discussed exploratory processes for Opportunity to Purchase, but policy language discussing ROFR is not yet available.
Comparing timelines for Right of First Refusal, national examples vary in the time window allotted for exercising the right by applicability. A summary of the ROFR timelines is illustrated in Figure 4 below.
Figure 4: Right of First Refusal Execution Timeline
Jurisdiction Baltimore DC DC Montgomery
County, MD
Takoma
Park, MD
Property Type (SFH) (SFH)15 (2+ units) (4+ units) (SFH) ROFR
Window 30 Day 15 Day 15 Day 60-90 Day
50-200
Day
Jurisdiction San
Francisco
Chicago Prince
George's
County
EPA OPA EPA OPA
Property Type (3+ units) (10+ units) (20+ units) (2+ units) (SFH) ROFR
Window 5 Day 90 Day 60 Day 20 Day 5 Day
1C - Existing Mitigation Strategies in EPA OPA
EPA OPA attempts to mitigate concerns about a ROFR effect on SFH properties through multiple policy mechanisms.
1) Firstly, it dramatically reduces the universe of qualifying properties through multiple exemptions for both property type and transfer type. See the exemptions list in the Discussion Guide.
2) EPA OPA also restricts the timeline of ROFR execution for SFHs to a five-day window to ensure that contending Potential Eligible Purchasers accelerate the purchase process if and when they select to exercise ROFR.
3) Council also responded to ROFR concerns with a cap on when ROFR applies. ROFR only triggers if the accepted Third-Party Offer is less than or equal to 115% of the Potential Eligible Purchaser’s highest rejected First Offer – competing third parties can circumvent ROFR by augmenting their offer and outcompeting the Rightsholder.
City Council Considerations for ROFR
Council and Staff originally included the Right of First Refusal for the public purpose of supporting local homeownership and addressing displacement, by giving local Potential Eligible Purchasers a tiebreaker advantage for offers that they can match. ROFR functions under the premise that a Seller, when faced with two offers of substantially equal prices and terms, may be open to a tiebreaker advantage to support the public benefits of local homeownership, housing stability, and anti-displacement.
Community feedback emphasizing the concern that ROFR can impact property values returned in both recent sessions of community feedback. Considering that there remains a genuine concern regarding the effect of ROFR on home prices that staff cannot invalidate staff recommends that the Council removes the Right of First Refusal from a potential EPA OPA.
Additional Research and Analysis for City Council Feedback Property Tax Revenue
15 DC’s TOPA ordinance allows the Right of First Refusal for Single Family Homes for elderly tenants or tenants with disabilities.
In the past, City Council has expressed concerns in potentially losing property tax revenue when residential properties are purchased and preserved through EPA OPA by qualified nonprofit organizations under, for example, the welfare exemption.16 Attachment 1 provides an overview of the David Rosen & Associates’ findings on the impact of a potential EPA OPA on property tax revenue. Upon further research, staff found the following:
1) Property tax revenue decrease is likely to be marginal. The total volume of properties that could be purchased under EPA OPA would likely represent nominal percentage of the city’s total potential property taxes. Moreover, not every property purchased under EPA OPA would qualify for property tax exemption (e.g., ownership properties that house owner occupants cannot qualify for welfare tax exemption) and funding availability limits the number of welfare tax exemption transactions that can be expected annually. 2) For properties that transact through the EPA OPA process and qualify for a welfare tax exemption, the City may evaluate any property tax change against resources coming into the City as both an investment into anti-displacement objectives and investment into rehabilitation of the housing stock. For example, a project that captures subsidy or preservation financing resources to preserve low-income units is a public benefit and investment for the City. As an example case study, one property in East Palo Alto (see Attachment 1) on the list of substandard housing reported in the City of East Palo Alto’s 2023-2031 Housing Element had an estimated valuation of approximately $965,000 with a Countywide Tax Rate of 1% and approximately $9,650 due in property taxes in Fiscal Year 2022-2023. These property tax funds would be distributed to multiple agencies17 including San Mateo County and Ravenswood City School District (RCSD), and the City would receive approximately 16%, or $1,544.
If the City received support for affordable preservation (e.g. Foreclosure Intervention Housing Preservation Program or FIHPP financing, which offers up to $500,000 for multifamily and $600,000 for single family acquisition and rehabilitation18) to purchase the property and the property qualified for a welfare tax exemption, the tax exemption trade off may be worthwhile to the City. In this example, the City would lose $1,544 per year in General Fund property taxes, which can be worthwhile if the community could receive for example $300,000 (lower than the maximum) in external financing support that can enable rehabilitation of property and stabilization of households. Considering the entire $9,650 in property taxes lost by all recipients (County, RCSD, etc.) in this example, it would take many years for the community to receive the equivalent of the example $300,000 value of financing in property taxes. It should be noted that the number of transactions where this situation occurs will be influenced by the volume of funding and financing that is available.
16 Owners of properties which serve a charitable purpose can apply for a welfare tax exemption, which can be a key component of maintaining financial feasibility for affordable units. 17 https://www.smcgov.org/tax/where-do-my-taxes-go
18 See “Foreclosure Intervention Housing Preservation Program Final Guidelines,” California Department of Housing and Community Development, January 4, 2023, pg 32, available at:
https://www.hcd.ca.gov/sites/default/files/docs/grants-and-funding/2022-Foreclosure-InterventionHousing-Preservation-Program-Final-Guidelines.pdf. 1031 Exchanges
Community members have raised concerns about the potential impact EPA OPA may have on 1031 Exchanges, a tax break when real estate is sold. Staff looked further into this concern, and found that the current EPA OPA timeframes in some case may and in some cases may not conflict with 1031 Exchanges for the following reasons:
1) 1031 Exchange time limits are measured from when the property to be sold (“relinquished property”) closes. If an owner of an EPA OPA-applicable property wishes to conduct a 1031 Exchange, the 45-day time window in which they must designate a replacement property, and the total 180-day period during which they must complete the purchase of said property to qualify, both begin upon closing of relinquished property.
2) If a Third-Party Purchaser wishes to conduct a 1031 Exchange by selling one investment property and purchasing another investment property for which EPA OPA applies, listing and marketing begin once the EPA OPA Seller has rejected the offer(s) from Potential Eligible Purchaser(s). Thus, 1031 Exchange purchasers will be able to view marketed properties once the Right of First Offer has been applied. For sales of relinquished properties which correspond with the closure of Right of First Offer, 1031 Exchange procedures should be minimally impacted because the nomination timeline corresponds with the beginning of marketing.
3) A property that is not listed and marketed for up to 60 days due to EPA OPA could potentially miss out on potential offers from buyers looking to conduct a 1031 Exchange if those buyers don’t know about the property and therefore don’t designate the property as a potential 1031 exchange property within the 45-day window which is required. However, in cases where Potential Eligible Purchasers waive the Statement of Interest by day 15 after notification, the Seller is released from EPA OPA requirements and could list and market the property with little delay.
Figure 5: EPA OPA Timeframes as of March 1, 2022 Ordinance 1 unit 2-3 unit 4 unit
Statement of Interest 15-30 Day 15-30 Day 15-30 Day
First Offer 30 Day 60 Day 90 Day
First Refusal Match 5 Day 20 Day 20 Day
Closing 30 Day 90 Day 120 Day
To reduce further concerns regarding 1031 Exchanges, staff recommend adopting language in the Ordinance similar to the San Francisco COPA’s language that explicitly require involved parties to the maximum extent possible to work to enable smooth processes for 1031 Exchanges so as to minimize disruption. The following is language adapted from San Francisco’s COPA:
“Any Potential Eligible Purchaser that Purchases a Residential Building under the right of first offer set forth in Section 14.26.090 shall, to the maximum extent permitted by law and otherwise feasible, be obliged to work with the Seller in good faith to facilitate an exchange of real property of the kind described in 26 US. C. § 1031, for the purpose of facilitating the Seller's realization of any federal tax benefits available under that section of the Internal Revenue Code.” In addition, City Council may direct staff to, in coordination with community partners, develop a “1031 Exchange Best Practices for EPA OPA” implementation toolkit and educational packet for various audiences including Purchasers, Sellers, and Third-Party Purchasers to ensure that EPA OPA processes run as smoothly as possible.
Recommendations and Request for City Council Feedback
Staff is seeking City Council direction to further revise the March 1, 2022 draft Ordinance, to start developing implementation toolkits, and to conduct outreach and education that is centered on key implementation components.
• Staff Recommendations: Policy –
Considering feedback from community engagement, further changes to the OPA Policy, including removal of the Right of First Refusal for single-family home timelines, may be useful in responding to community concerns while fulfilling the City’s commitment to the Affordable Housing Strategy and local homeownership goals. Other changes include adding a clause regarding 1031 Exchanges, and any additional changes Council may wish to include. Please see Figure 6 below for a summary of changes that have been made to the EPA OPA Policy between October 2021 – March 2022. Please also see Figure 7 for an overview of what the new EPA OPA timelines would look like if ROFR is eliminated per staff's recommendation, compared to the March 1, 2022 Ordinance timelines in Figure 5 above.
Figure 6: Draft EPA OPA Ordinance Revisions
between October 2021 – March 2022*
Affordability Affordability limit to include Low-Income Households for future vacancies added to Section 14.26.120.B
Affordability Affordability requirements factor when public funds support purchase
Applicability/
Exemptions
Exemptions added: Owner-occupied 1–3-unit properties
regardless of ADUs, properties owned by East Palo Alto
residents, Family Transfers (including nieces and nephews), Foreclosures due to state law, Health Emergencies
Other Eliminate appraisal process for both SFH and multifamily properties
Enforcement Increase contract purchase deposit from 1% to 3% Implementation Council, not City Manager, certifies and re-certifies Qualified Non-Profits
Implementation Owners, in addition to buyers, can pursue legal action to enforce ordinance
Implementation City Council, not City Manager, approves Administrative Guidelines
ROFR Clarified that ROFR is triggered by Seller’s intent or attempt to accept a Third-Party Offer, as differentiated from receipt of an offer
ROFR Create 15% ROFR cap19
Timelines Timelines reduced overall to 90 days (SFH) to 280 days (Larger Multifamily)
Timelines Statement of Interest Period reduced to from 30 days to 15 days, with contingent 15 additional days if applicable.
Timelines Allow for further shortening of timelines with consent from both parties when there is only one Potential Eligible Purchaser Timelines ROFR timeline reduced to 5 days for SFH; to 20 days for QNP or City purchase
Timelines Potential Eligible Purchasers must submit timely letter of interest in order to submit First Offer; ROFR only applies in cases where First Offer is submitted accordingly
*Note that to-date, the latest draft EPA OPA Ordinance City Council has considered is the March 1, 2022 version.
Figure 7 provides an overview of potential EPA OPA timelines if City Council goes with staff's recommended removal of the ROFR for single-family homes.
Figure 7: EPA OPA Timeframes with Staff's Recommended Ordinance Amendments
1 unit 2-3 unit 4 unit
Statement of Interest 15-30 Day 15-30 Day 15-30 Day
First Offer 30 Day 60 Day 90 Day
First Refusal Match Not Applicable 20 Day 20 Day
Closing 30 Day 90 Day 120 Day
Next Steps
If Council wishes to move forward with exploring a COPA and/or TOPA ordinance, staff will return to Council with an updated draft Ordinance as well as proposed administrative guidelines, and an implementation plan that outlines funding, community education, and marketing strategies that the City will implement if the Ordinance is adopted.
As a reminder, the Administrative Guidelines will contain an outline of how EPA OPA works in practice, address “gray areas” for scenarios not explicitly referenced in the ordinance, set threshold criteria to fulfill the ordinance’s intent, and promote program uptake. Key topics of the Administrative Guidelines include qualification of nonprofits, transfer exemption procedures, assignment of rights procedures, noticing and disclosure requirements, prohibited conduct, 19 When a Seller Rejects First Offer(s) and lists to market conventionally, ROFR will apply to any accepted Third-Party offer less than or equal to 115% of the highest rejected First Offer. In this way, ROFR applies to a limited set, and Sellers can avoid ROFR when Buyers make exorbitant offers. and more.
Fiscal Impact
There is no fiscal impact associated with this staff report. If adopted, there will be costs related to the implementation of an EPA OPA ordinance. As discussed above, the City’s award of a Partnership for the Bay’s Future Breakthrough Grant partially mitigates that cost by adding dedicated staff capacity from the Policy Grant Fellow, who will support with the mechanisms associated with potential implementation.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website and at the San Mateo County Library located at 2415 University Avenue, East Palo Alto.
Environmental
The proposed action does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment.
Attachments
1. Discussion Guide
2. PCRC Report
3. Affordable Housing Preservation Models