Community & Economic Development Committee (ced)
March 27, 2023

Attachment A
1 ATTACHMENT A – DRAFT COPA PROGRAM PROPOSAL DESCRIPTION AND STAKEHOLDER POSITIONS San José Community Draft Opportunity to Purchase (COPA) Proposed Program Framework Important Notes: This document outlines proposed parameters for a proposed COPA program. If passed by City Council, the program parameters would be defined in three places: 1) the COPA ordinance; 2) COPA program regulations, to be developed after the Council was to approve the program; and 3) in conditions of City preservation subsidy loans that would enable Qualified Nonprofits (QNPs) to acquire buildings – both in the competitive funding award priorities and in individual loan terms and conditions.

Program Element Proposal Summary
Applicability
(What properties are
included under this
program?)
Properties that would be subject to COPA
Residential properties with two (2) or more units that were constructed 15 or more years ago (updated annually on a rolling basis) and do not qualify for exemptions.

Exemptions (clarifying definitions to be provided in draft Ordinance and regulations):

A. Owner-occupied properties of up to four (4) units that owners occupied as a main residence in the previous 365 days
B. Close family transactions / inheritances
C. Properties already subject to specified disposition processes, like bankruptcy D. Partial property transfers in which, in effect, control of the property does not change E. Single-family home with one (1) Accessory Dwelling Unit on the property F. 2- to 4-unit properties if the property owner must sell due to a documented need to pay for medical treatment for self or immediate family member
Attachment A
2 Program Element Proposal Summary
Timeline
(What is the process for
this program and how
long does it take?)
Prior to selling a property on the open market, an owner of a property subject to COPA must provide a notice of sale to QNPs certified by the City and respect proscribed timelines.

The proposed timeline under COPA (most sellers would only experience step A below):

A. Letter of Intent: Gives a QNP 15 days from the owner’s notice of sale to indicate they want to make an offer
B. Offer Period: Gives that same QNP 25 days to submit an offer C. Time to Close: If the seller accepts that QNP’s offer, gives the QNP 120 days to secure financing and close the transaction (or a longer timeline otherwise agreed to by both parties) D. Time to Counter-Offer: If the original QNP’s offer is not accepted, owner then markthe ets property as usual. If they get angiver, gives 7 days for the original QNP bidder to make a counteroffer before the owner sells.

Buyers/Qualified
Nonprofits (QNPs)
(Who will be purchasing
these properties and
what kind of
requirements should
they have?)
Required characteristics for potential QNPs
• 501(c)(3) designation
• Demonstrated track record with the successful purchase, development, and operation of restricted affordable housing with at least one (1) completed housing project of similar size and scope of work
Note that the City’s forthcoming Notice of Funding Availability and preservation lending guidelines may have additional experience requirements for potential buyers.

Desired characteristics for potential QNPs:
• Based in San José with the specific mission of serving communities in San José, as documented in the organization’s bylaws or articles of incorporation • Demonstrated track record of positive tenant engagement, local community engagement, and housing policy advocacy
QNPs can partner to fulfill desired characteristics
Attachment A
3 Program Element Proposal Summary
If QNPs have the required characteristics but lack the desired characteristics, a QNP may satisfy the requirements for tenant engagement and specific commitment to San José by partnering with a local community-based organization (Community Partner).

QNP recertification
City staff will re-certify QNPs regularly to ensure that organizations only remain QNPs if they regularly close on transactions for which they submit letters of intent and if they effectively manage properties acquired through COPA.

Affordability
(What residents will
benefit from this
program?)
All properties: COPA transactions should not result in the displacement of current tenants for reasons of income eligibility.

Rental properties – a program designed to help very low- and low-income renters:
• Target incomes for households served: 31-80% of AMI
o For a one-person household in 2022, this translates to an annual income of $35,371 to $94,320
o For a four-person household in 2022, this translates to annual incomes of $50,551 to $134,800
• Portfolio goal: The Housing Department would set an overall portfolio goal of an average 50% AMI income targeting across all COPA-purchased projects supported by City funding • Annual Rent Increases:
o Rent increases for very low- and low-income renters in properties purchased via COPA would be capped at the annual percentage increase allowed under the City’s Apartment Rent Ordinance (i.e., 5% as currently implemented), or the restricted affordable rents as required by any applicable affordable housing funders, whichever is lower o Over-income existing households would be allowed to stay in their apartments with gradual rent increases for up to 3 years until their rents (net a reasonable utility allowance) reach the target of 30% of their household income.

Attachment A
4 Program Element Proposal Summary
Homeownership:
• Some properties may be suitable for converting from rental to homeownership, potentially under an alternative homeownership structure such as a limited equity cooperative • Target incomes for households served: 60-120% of AMI
o For a one-person household in 2022, this translates to an annual income of $70,741 to $141,480
o For a four-person household in 2022, this translates to annual incomes of $101,101 to $202,200
• If a QNP acquires a property via COPA and later wants to sell the property, it would be required to first offer to sell the property to tenants before offering the property to third parties. • City funding and underwriting guidelines would identify details needed for QNP proposals to convert properties to homeownership structures after initial purchase via COPA Tenant Engagement
(How are residents
going to be engaged
during the acquisition
process and afterwards?)
Tenant engagement proposal
• Pre-acquisition period:
o Owners must provide tenants with a notice of their intent to sell before listing a property on the open market.
o QNPs and/or their Community Partners would be required to reach out to tenants to introduce the QNP, get to know the property, garner support, start renter income verification, and educate renters on basic rules under affordable housing. • Transaction period: QNPs and/or their Community Partners would be required to have ongoing communication with residents, especially about any major changes anticipated for the property or property management policies, such as significant rehabilitation plans and the need to submit income information each year.
• Post-acquisition: QNPs and/or their Community Partners would be expected to have ongoing communication with residents about the property operations, tenant lease provisions, and any other issues on which tenants need information. Tenants would receive support and capacity building for resident organizing, the formation of tenant associations, and future conversions to homeownership if proposed and approved in advance by the City.

Attachment A
5 Program Element Proposal Summary
Education,
Enforcement, and
Incentives
(How will COPA be
administered and
regulated? How does the
City encourage
participation in this
program?)
Outreach and education plan
• COPA would go into effect one year after the ordinance passes, or when QNPs are qualified, whichever is later.
• This timing would allow for extensive outreach and education before any potential enforcement, the completion of program regulations, and the prequalification of a pool of QNPs.

Enforcement with an emphasis on education
• Due to limited staff capacity, staff will focus on educating interested parties and residents to spread knowledge about how to comply with the COPA program. • Staff envisions a complaint-based process for enforcement that will proceed with the following enforcement steps:
o First Offense: Written letter of warning to seller.
o Second Offense: Fine imposed on the seller.
o Third Offense and more: Scaled increase of fine imposed on the seller. • Private rights of action would also be possible if a property owner displayed repeated, knowing violations of the ordinance after being educated.

Incentives
• Staff recommends inclusion of strong language on QNP’s collaboration with property owners to incentivize them to facilitate 1031 Exchanges or other tax-advantaged transfer structuring and timelines.
• Staff is also investigating other potential incentives for QNPs to make transactions more economically feasible, including possible City construction tax breaks as part of property rehabilitations.

Implementation
• Property owners must notify the San José Housing Department, in addition to notifying QNPs and tenants, that they intend to sell their property.
• The City’s website should be able to be programmed with an interface to help property sellers easily notify the City and QNPs, and for program notices to be sent.

Attachment A
1 Stakeholder Positions on COPA Program Elements
The following tables capture a summary of positions articulated by stakeholders during staff’s lengthy outreach process. Positions are organized according to each element of the draft program, also and for homeownership options.

Timelines
Stakeholder positions on COPA Timelines
Affordable housing advocates’ position:

Increase timelines
Real estate stakeholders’ position:

Reduce timelines
• Longer timelines are important for ensuring
that QNPs have sufficient time to consider
the property and make an offer.
• QNPs interested in facilitating conversions
of properties from rental to ownership
models need more time to conduct initial
tenant engagement and financial feasibility
analysis.
• Longer timelines allow QNPs to conduct
significant tenant engagement and ensure
renters are satisfied with the plan the for
property.
• Longer timelines before property owners
can list their property on the open market
expose property owners to additional risk.

This is especially true for parts of the
timeline that property owners can’t opt out
of.
• Market movement may occur between the
moment when a property owner notifies
QNPs and the moment when they are
permitted to list their property on the open
market.

Applicability and Exemptions
Stakeholder positions on Applicability and Exemptions
Affordable housing advocates’ position:

All rental properties should be subject to
COPA
Real estate stakeholders’ position:

A few rental properties as possible should be
subject to COPA
• Single-family homes should be included
due to the large number of renters who
live in these properties and who are not
covered by rent stabilization
• Properties in foreclosure should be
eligible for purchase under COPA
• Properties with 2- to 4- units should not be
subject to COPA because of the fast
transaction timelines for these properties
• Properties that are unlikely to be acquired
by nonprofits should not be subject to
COPA, e.g., properties with 50 or more
units
• Owner-occupied properties and properties
being transferred to family members
should not be subject to COPA
Attachment A
2 QNP Criteria
Stakeholder positions on QNP Criteria
Affordable housing advocates’ position:

QNP criteria should be expansive to
maximize the number of organizations that
can acquire and preserve affordable housing
in San José
Real estate stakeholders’ position:

QNP criteria should ensure that QNPs who
submit offers can reliably close on a property
• Emerging nonprofit housing providers in
San José should have the opportunity to
utilize COPA, especially if they are local
organizations
• Nonprofit housing providers who lack
sufficient experience should be able to
hire consultants instead of in-house
experience to assist with acquisition,
management, and/or rehabilitation as
needed
• QNPs who lack sufficient experience in
real estate may not be able to close escrow
after submitting an offer, requiring a
property owner to re-list their property
property, and further increasing total time
on market
• If QNP offers are not reasonable and in
line with the market, COPA would just
delay listings without any possible gain
Affordability
Stakeholder positions on Affordability
Affordable housing advocates’ position:

Properties acquired through COPA should
have the deepest levels of affordability
possible
Real estate stakeholders’ position:

No position
• The City should focus the COPA program
on those at the highest risk of
displacement, especially extremely lowincome and very low-income renters N/A
Tenant Engagement
Stakeholder positions in Tenant Engagement
Affordable housing advocates’ position:

COPA should be a tool for expanding renter
families’ knowledge and agency in the
property acquisition process
Real estate stakeholders’ position:

Tenant engagement should not interfere with
negotiations between a buyer and seller
• Renter families should have the right to
determine whether the property continues
to be managed as rentals or undergoes a
tenure conversion when a property is
being acquired by a QNP
• Property owners should retain control of
their property during the acquisition
process, and potential buyers contacting
existing renters could disrupt the sales
process
Attachment A
3 • The City should require QNPs to conduct
extensive outreach and receive tenant buyin regarding the future operating plan for the property (and should have ample time
to do so during the closing period)
• If renters know their property is up for
sale early in the process, it maximizes the
amount of time they to must plan for their
families and potentialstartsart searching
for a new apartment.

Education and Outreach
Stakeholder positions in Education and Outreach
Affordable housing advocates’ position:

Staff should implement COPA as soon as
possible so that COPA can prevent the
displacement of renters’ families
Real estate stakeholders’ position:

Staff should conduct proactive outreach on
COPA to reduce the need for enforcement
• Renter families at risk of displacement
need COPA to be implemented as soon as
possible so that QNPs can acquire more
properties sooner
• There should be broad outreach to renters
such that people at risk of displacement
are widely known about the opportunities
presented by COPA
• Staff outreach would be most effective if
done with community-based partners in
venues appropriate for each neighborhood
and population
• Additional outreach and education to real
estate stakeholders would reduce the need
for enforcement actions
• Professional associations can be good
avenues for outreach and engagement
Enforcement
Stakeholder positions in Enforcement
Affordable housing advocates’ position:

Strong enforcement mechanisms must be in
place to ensure that
Real estate stakeholders’ position:

Staff should de-emphasize enforcement and
provide incentives for compliance
• Without enforcement mechanisms, renter
families at risk of displacement may miss
their opportunity to have the property they
live in be acquired by a QNP
• Property owners should incur a penalty on
their first offense, not just a warning,
• Property owners should not be penalized
if they unknowingly do not comply with
COPA
• City should help property owners to avoid
inadvertent errors in informing QNPs of
property sales
Attachment A
4 Stakeholder positions in Enforcement
because some property owners do not own
multiple rental properties
• Third-party enforcement, likely through
nonprofit legal services providers, is
important
• Real estate professionals do not want to be
at risk of non-compliance
Incentives
Stakeholder positions on Incentives
Affordable housing advocates’ position:

No position
Real estate stakeholders’ position:

Property owners should receive incentives to
voluntarily comply with COPA
N/A • Incentives should be provided to make
complying with COPA and selling to
nonprofits more attractive to property
owners.
• Incentives should be prioritized over
enforcement mechanisms.

Effective Date of Ordinance
Stakeholder positions on Effective Date
Affordable housing advocates’ position:

The process to receive information about
properties should be consistent
Real estate stakeholders’ position:

The process to notify QNP’s should be
simple, user-friendly, and maximize ease of
compliance
• A centralized system would make it easier
for QNPs to quickly learn which
properties are up for sale
• San José’s policy should address
shortcomings identified in San Francisco’s
COPA, including that QNPs in San
Francisco can’t track program
effectiveness because there is no
centralized repository of COPA notices
• Property owners did not want to send out
multiple emails to individual nonprofits
and to worry about being found liable if
there were typos in an email address
• The City should provide a technology tool
that would help QNPs to quickly respond
to listings, thereby potentially reducing
the number of days to wait in upfront for a
possible QNP Letter of Intent to make an
offer
Attachment A
5 Compatibility with Homeownership Models
Stakeholder positions on Homeownership Models
Affordable housing advocates’ position:

COPA should support transitions to
ownership opportunities for tenants
Real estate stakeholders’ position:

None
• QNPs should be required to offer renter
households living in their properties the
right to purchase after several years
• A future right to purchase QNP owneded
by tenants may be acceptable to lenders
that could underwrite it as an alternative
repayment scenario,asif the window for
tenant purchases is not too close to the end
of the loan term
Attachment B
1 ATTACHMENT B – Additional Background on COPA

The City Council’s direction to work on anti-displacement measures began with the 2014-2023 Housing Element. On January 27, 2015, the City Council adopted the 2014-2023 Housing Element. Three Housing Element policies (H-1.16, H-1.18, and H-2.1) and Workplan item #34 are consistent with developing programs and policies to fight low-income residents’ displacement, as follows:
• H-1.16: Identity, assess, and implement potential tools, policies, or programs to prevent or mitigate the displacement of existing low-income residents due to market forces or infrastructure investment.
• H-1.18: Develop tools to assess and identify neighborhoods and planning areas that are experiencing or that may experience gentrification to identify where anti-displacement and preservation resources should be directed.
• H-2.1: Support local, state, and federal regulations that preserve “at-risk” subsidized and rental-stabilized units subject to potential conversion to market-rate housing and that will encourage equitable and fair policies that protect tenant and owner rights • Program #34: Consider proposed policies or ordinances to protect low- and moderateincome residents in market‐rate and deed‐restricted affordable housing from displacement.

The proposed COPA program is a product of several years of Council-directed research on solutions to address residential displacement. This history is summarized below.

On March 7, 2017, the City Council established Council Priority Item #13: Anti-Displacement Tenant Preference to set aside affordable housing units to prioritize residents being displaced that live in low-income neighborhoods undergoing displacement and/or gentrification. (This has since been renumbered to Priority #10.)
On June 12, 2018, the City Council prioritized the issue of displacement again within the Housing Crisis Response Workplan, Item #9: Develop Anti-Displacement Strategies.

San José was Part of the National PolicyLink Anti-Displacement Policy Network (ADPN) In November 2018, San José applied for and was chosen to participate in the PolicyLink AntiDisplacement Policy Network (ADPN), a 14-month learning cohort of 10 U.S. cities working to address urban displacement. The San José ADPN team members included the following: City Councilmember Magdalena Carrasco and staff, Housing Director Jacky Morales-Ferrand and staff, and Planning Building and Code Enforcement Director Rosalynn Hughey and staff; Working Partnerships’ Dereka Mehrens, Jeffrey Buchanan, and Asn Ndiaye; Law Foundation's Nadia Aziz and Michael Trujillo; and Planning Commissioner/Executive Director of Silicon Valley Bike Coalition, Shiloh Ballard.

In January 2020, the San José ADPN team released its co-written report entitled “Ending Displacement in San José: Community Strategy Report” (Community Report). The intention of the report was to center the values, lived experiences, and solutions requested by the residents Attachment B
2 most impacted by displacement in San José. The San José ADPN team assessed the gaps in the City’s current housing policies, studied new anti-displacement tools, and worked hard to facilitate meaningful listening sessions in the community with displaced households and in neighborhoods most impacted by development and displacement. The San José ADPN team collaborated with outreach partners SOMOS Mayfair and AV Consulting to reach community members in a culturally competent and inclusive manner to elicit high-quality information.

While City staff was part of the San José ADPN Team, the Community Report is a coalition report, not a City document. However, City staff were key contributors to the displacement analysis in the Community Report, and research, data, and some recommendations from the Community Report are referenced in this memorandum. The Community Report was used to launch the expanded stakeholder outreach conducted by the Housing Department.

Other Council and Committee Actions Have Focused on Displacement and Directed the Housing Department to Explore a Community Opportunity to Purchase Act On October 1, 2019, the City Council held a study session on the topic of displacement in San José. The study session brought together academic, housing advocates, and real estate industry perspectives to provide a common understanding of the issue of residential displacement in San José. (Small business displacement was also part of the study session.) On September 22, 2020, Council accepted the Housing Department’s Anti-Displacement staff report 1 and approved the 10 recommendations of the Citywide Residential Anti-Displacement Strategy. 2 “Explore the development of a COPA policy” is the third recommendation in the antidisplacement workplan.

In the final action on the City’s Anti-Displacement strategy, Mayor Liccardo and several other councilmembers directed the Housing Department to consider a COPA policy that would exempt single-family homes, duplexes, and properties with more than 50 units. 3 The Housing Department subsequently researched the share of properties which would be affected by these exclusions and ultimately concluded that duplexes and properties with more than 50 units should be covered under COPA. The rationale for this determination can be found in Analysis Section D.

From April 2021 to October 2021, staff and consultants facilitated 16 formal meetings of two different advisory committees – one of technical experts in a variety of areas, and one open to the public and community organizations as well as technical experts – to co-design a COPA proposal. (More details are found in the Analysis section.) 1 https://sanjose.legistar.com/View.ashx?M=F&ID=8772026&GUID=C6ADD217-83DD-4F7E-B480- 056B228DCAF1
2 https://sanjose.legistar.com/View.ashx?M=F&ID=8772030&GUID=CABC65D7-A63C-4E4B-9010- 6A2ED1D7E3BC
3 https://sanjose.legistar.com/View.ashx?M=F&ID=8801284&GUID=9118DFD0-3F03-42B1-AB64- B1CBBE4FF8A2
Attachment B
3 On October 25, 2021, Housing Department staff presented an update on the COPA program to the City Council’s Community and Economic Development Committee.4 Committee members directed staff to do additional public outreach regarding the COPA program. Since receiving the City Council’s guidance, staff conducted an additional 12 public meetings, including 10 public meetings online and 2 public meetings in person, with an additional 582 total in attendance (308 individuals). Total public participation in designing the COPA proposal since spring 2021 has been extensive, with 1,072 meeting attendees (approximately 480 individuals) since early 2021.

Between March 2021 and September 2022, staff presented 13 status updates on COPA program development to the City Council’s Community Economic Development Committee and Neighborhood Services and Education Committee.

In addition, staff has kept the City Council apprised of its progress on the COPA program.

Between March 2021 and September 2022, staff presented 13 status updates on COPA program development to the City Council’s Community Economic Development Committee and Neighborhood Services and Education Committee.

Displacement has also become a significant and reoccurring topic in other San José initiatives:
• The Countywide 2020-2025 Community Plan to End Homelessness has emphasized protecting residents from evictions, displacement, and housing discrimination as ways to prevent homelessness.
• The 2016 Analysis of Impediments to Fair Housing cites displacement of lowincome residents as an impediment to fair housing. • The VTA BART Phase II TOD Corridor Strategies and Access Planning Study specifically analyzed neighborhood vulnerability to displacement at the planned BART station areas. The study found residents in neighborhoods surrounding the planned downtown and Five Wounds BART stations are more likely to be low-income renters and particularly vulnerable to displacement.
• The Diridon Station Area Plan community engagement process revealed housing and displacement as the top issue of concern by those who participated in the engagement process. The Affordable Housing Implementation Plan for the Diridon Station Area also will include a “three Ps” framework and will likely contain some compatible or similar strategies to this Citywide Residential Anti-Displacement Strategy.

City initiatives and reports also have cited COPA as a priority. These include:

Multiple City plans and initiatives in the past three years have called for the City to pursue or adopt a COPA Program. These include:
4 https://sanjose.legistar.com/LegislationDetail.aspx?ID=5152386&GUID=B751E6D2-EA01-4AF6-B442- 752CDC3FB8FD
Attachment B
4 • Community organizations and City staff co-authored the San José ADPN public/nonprofit team’s “Ending Displacement in San José: Community Strategy Report” in January 2020, which recommended that San José pursue a COPA program. • The City’s Charter Review Commission final report, approved on April 11, 2022, recommended that San José pursue a COPA program. 5
• The COVID Recovery Task Force report, approved by City Council in December 2022, recommends that the City adopt a COPA program and adequately fund affordable housing preservation as part of the City’s homeownership strategy. 6 5 https://sanjose.legistar.com/View.ashx?M=F&ID=10710023&GUID=B384951D-1D2C-4BA0-AD64- DFF86C472568 6 https://sanjose.legistar.com/View.ashx?M=F&ID=11494873&GUID=7AD5D0AA-CB21-4074-848D4E50E5AEB9A9 Attachment C
1 ATTACHMENT C – Public Outreach and Stakeholder Engagement Summary The proposed COPA program was developed by Housing Department staff with extensive stakeholder and resident feedback in multiple phases between the spring 2021 and winter of 2023. This attachment reviews staff’s work with structured working groups, public meetings, and stakeholders. At the end is a summary of all meetings and number of attendees.

In the first phase, the Housing Department formed two Anti-Displacement Working Groups, a Technical Advisory Committee, and a Stakeholder Advisory Committee, which provided input into the initial draft of the proposed COPA program. In the second phase, the Housing Department held a round of public meetings and held open a public review period to gather feedback on the proposed COPA program. Housing Department staff also met with stakeholders individually, often multiple times, to hear their insights on key aspects of program design and further refine the program. After a hiatus on COPA due to staff capacity limitations and the need to work on the state-mandated housing element, Staff resumed stakeholder engagement in a third phase of public outreach. In total, 65 meetings were held, about 480 total people participated, and approximately 50 different organizations were represented.

Phase I: Working Groups
When City Council approved the 10 recommendations of the Citywide Anti-Displacement Strategy in September of 2020, including COPA, City Council also provided direction to form an Anti-Displacement Working Group to develop those recommendations. The proposed COPA program is the first recommendation developed in the working group model. To form an AntiDisplacement Working Group meant to develop a COPA program proposal, City staff released a Request for Proposal and hired a consultant, Baird + Driskell Community Planning. Baird + Driskell Community Planning facilitated the first phase of community engagement to develop a draft COPA program proposal, consisting of 16 working group meetings that were attended by approximately 170 people. At each meeting, staff presented components or parts of the policy, provided examples of sample practices from other cities, and offered San José-specific data to ground it in the local context. A copy of the Baird + Driskell report that describes the working group community engagement process can be found in Attachment F.

Preparation for the Anti-Displacement Working Group began in the spring of 2021. At that time, restrictions on group gatherings and precautions due to COVID were in effect at both the City and County level. In lieu of meeting in person, meetings were planned to be held monthly, online via zoom. The Anti-Displacement Working Group consisted of two parts, the SAC, and the TAC.

The Technical Advisory Committee (TAC)
The TAC was intended to be a small group of subject matter experts representing relevant stakeholders. It dove in deeply into the details necessary for designing the program. Group members were invited based on the depth and diversity of their experiences and the constituencies they represented. included roughly 25 regular members who typically met twice each month from April to October 2021. Members were encouraged to attend every meeting but were not required to. TAC members were invited and encouraged to attend SAC meetings and a Attachment C
2 dedicated group did so. Housing Department staff invited stakeholders to join based on their subject matter expertise to convene a group with well-balanced interests. Housing Department staff decided the TAC would be by invitation only to develop trust among members and encourage collaboration and honest feedback. To build and maintain institutional understanding of the topic, new members were not accepted once the process started.

The TAC had members representing private industry interests who regularly voiced concerns about the policy itself. Housing Department staff attempted to address the apprehension by continuing conversations in outside meetings and seeking legal opinions to share with the group.

Many policy decisions attempted to address these concerns, but some members of the TAC nonetheless remained doubtful of the utility of the program and advised against its adoption. On the other hand, some members of the TAC committee representing policy, tenant, and community organizations supported the overall goals of the program. Many of those members continued to offer feedback and concerns about whether the program would be inclusive to lowest-income residents and whether the program would be adequately funded. Overall, TAC discussions were polite and productive.

Originally, the TAC was intended to develop policy recommendations to then present to the SAC for additional feedback. It became clear early on that the group was unlikely to reach consensus, so the facilitators sought to gather the range of opinions and understand the interests of all parties.

TAC Meeting Topics

Meeting Date Topic
TAC #1 4/22/2021 COPA Landscape Analysis and Best Practices TAC #2 5/12/2021 Process and Timeline
TAC #3 5/27/2021 Applicability
TAC #4 6/25/2021 Qualified Nonprofits
TAC #5 7/22/2021 Affordability and Financing
TAC #6 9/10/2021 Tenant Engagement and Ownership
TAC #7 9/30/2021 Education/Outreach and Enforcement
TAC #8 10/8/2021 Draft Framework, Implementation

Stakeholder Advisory Committee (SAC)
The SAC was intended to be a broad and diverse group, open to the public, that would include stakeholders from the public as well as those with expertise in housing policy and real estate.

SAC meetings were held monthly in the evenings between April and October 2021 and attendance ranged between 20-70 people per meeting. Housing Department staff invited over 400 individuals who were signed up for the Anti-Displacement Policy Distribution list serve.

Outreach also targeted community organizations, including groups with relevant culture competencies and organizations representing tenants and property owners. 7 SAC meetings were 7 A full list of the organizations that were represented can be found in the full consultant engagement summary:
https://www.sanjoseca.gov/home/showpublisheddocument/91743/638031643187570000 Attachment C
3 open to public, and outreach for the meetings was conducted in English, Spanish, and Vietnamese.

Beyond interpretation of the presentation, all SAC meeting activities to gather participant input on the program were designed so Spanish and Vietnamese speakers could share their thoughts in their native or preferred language. This included having language-specific breakout rooms for small group discussion and having bilingual facilitation during interactive activities.

Additionally, post-meeting feedback surveys were offered in all three languages. While there were Spanish speakers who used the interpretation, there were no Vietnamese speakers who needed the service.

SAC Meeting Topics
Meeting Date Topic
SAC #1 4/29/2021 COPA Landscape Analysis and Best Practices SAC #2 5/20/2021 Process and Timeline
SAC #3 6/17/2021 Qualified Nonprofits
SAC #4 8/19/2021 Affordability and Financing
SAC #5 9/23/2021 Tenant Engagement, Ownership and Enforcement SAC #6 10/14/2021 Draft Framework, Implementation –
Education/Outreach, Enforcement
SAC en Español (Spanish language
meeting)
10/28/2021 Tenant Engagement, Ownership and Enforcement, Draft framework

Key Takeaways

Generally, building owners or their representatives wanted to make sure that the program did not adversely affect the private housing market and caused as little burden as possible. Landlords helped Housing Department staff understand the complexity of the market, including its fast pace. One of their biggest concerns was that a slow timeline would prevent owners from selling quickly, while the market is hot. They also wanted as much certainty in the process as possible, articulating a concern about nonprofits expressing interest but not being able to complete the purchase and the potential for tenants disrupting the transaction process. Real estate industry representatives were apprehensive about including small properties in the program (e.g., 1-4 units). They pointed out small buildings sell quickly and are more likely to be owned by landlords with fewer properties. Small-time landlords often do not know the rules in as much detail as larger landlords and there are fewer avenues to educate them. Overall, while many real estate representatives may still have opposed the program, they also voiced support for home ownership opportunities through the program and some saw the Community Opportunity to Purchase Act (COPA) as a way for interested owners to sell their properties and work with their tenants to protect affordability in the long run.

Representatives of low-income renters were generally positive about the program and excited about its potential impact. They felt it gave their communities hope for stability and possible homeownership. They have suffered from housing insecurity and displacement and want the Attachment C
4 program to apply to as many homes as possible. They prefer to include investor-owned singlefamily homes as well as duplexes, in addition to larger buildings. Tenants and their advocates felt it was important that income targets are set low enough to better reflect the varying incomes in the City, which would benefit as many at-risk residents as possible. Tenant advocates wanted to ensure that nonprofits were responsive to the community and that the program supported tenant organizing and empowerment. They also advocated for appropriate organizational and capacity-building support for community partners to eventually become qualified nonprofits.

Nonprofit developers talked about the need for funding to make the program a possibility. They also asked for clear policies and procedures to align the program with their missions and business models. Generally, developers discussed the need for a timeline that allowed them to do their due diligence and present to their Boards of Directors before making an offer. Nonprofit developers wanted as much clarity as possible between different roles (Qualified Nonprofits who act as the developers, Community Partners who do the outreach, and the City). Additionally, they sought a clear pathway for new developers to participate in COPA and smaller nonprofits wanted technical assistance so they could build capacity to participate.

Side/Stakeholder Meetings
In addition to TAC and SAC meetings, all participants were invited to contact Housing Department staff to discuss any additional feedback or questions or share proposals to the program. Housing Department staff also sought out meetings with certain stakeholders for deeper discussions of program details, sometime in preparation for, or in response to feedback received at a TAC or SAC meeting. Stakeholders with whom staff have met included industry professionals and representatives: realtors, brokers, small apartment building owners, small apartment building property managers, for-profit developers, lenders, community-based organizations, affordable housing developers, tenant advocates, community advocates, policy organizations, and leaders.

Response to Key Concerns
Housing Department staff presented and sought feedback on draft programmatic elements at each Anti-Displacement Working Group meeting. Questions and concerns raised guided the design and development of the draft COPA program proposal. A summary of changes or program design made in response to some of the key concerns raised:

Key Concern Programmatic Element
Proposed timelines will create undue
delay, and potentially cost sellers lost
profits.

Staff underscore that most properties will only
experience a 15-day delay because most properties
will not receive a letter of intent, and the total delay for property owners that do receive a letter of intent
will be a maximum of 40 days.

Owners will be forced to sell their
properties for less than market value.

Process allows for QNP to express interest, submit an
offer and match a subsequent offer. At their complete
and absolute discretion, an owner can decline any
offer and will be able to sell their property on the open market.

Attachment C
5 Key Concern Programmatic Element
COPA could interfere with 1031
exchange timelines, thereby denying
buyer/seller tax benefits.

Inclusion of strong language on QNPs collaboration
with property owners to facilitate 1031 exchanges or
other tax-advantaged transfer structuring and timelines There is a lack of local tenant
organizations to facilitate tenant and
buyer ongoing relationship and
operation.

Partnership model of acquisition and operation
amongst QNP and community partner to provide local
knowledge and support.

COPA transactions would result in
displacement of current tenants due
to income eligibility.

Existing residents would not be evicted from their
units based on income if their income is outside of the program’s target affordability restrictions.

COPA would not result in
homeownership because of the large
per family subsidies needed to make
homeownership affordable to very
low-income homebuyers.

Higher income range for COPA properties that are
converted to homeownership opportunities - 60% to
120% of Area Median Income.

The program lacks sufficient
protocols around tenant engagement
and outreach to tenants regarding
sale/purchase of their home.

Tenant involvement in transaction period and postacquisition.

Housing Department staff hoped to strike a balance amongst stakeholders to develop a COPA program that eased concerns and offered solutions to displacement. Unfortunately, not all concerns were addressed, and many stakeholders were unable to negotiate their interests.

Housing Department staff acknowledged that many were left unsatisfied with the proposal and continued the community engagement process, in the form of public meetings and a public review period, to draw out concerns and further refine the proposed program.

Phase II: Public Outreach (Summer 2021 - Spring 2022)
During Phase II of public outreach, 65 meetings were held (7 of which were public meetings, over 500 people participated in either a public meeting or a one-on-one meeting with staff, and 50 different organizations were represented. The Housing Department also created a webpage to provide background information, meeting notifications, past presentations, and a FAQ8 in the summer of 2021.

Housing Department staff also made a concerted effort to reach residents that represent the demographics of the City of San José, including Vietnamese and Spanish speaking residents. In September of 2021, Housing Department staff tabled at a Moon Festival event held at Yerba Buena High School in San José. Approximately 60 people visited the booth. Visitors asked questions about the program and were provided information on how to track the COPA policy development progress. The Housing Department partnered with the organization Viet Unity to host a meeting on February 2, 2022, in Vietnamese, to present the draft COPA program and receive feedback.
8 https://www.sanjoseca.gov/home/showpublisheddocument/94493/638113834995870000 Attachment C
6 Once the draft COPA program description was released on November 30, 2021, the Housing Department held open a public review period so that residents could provide feedback on the proposed program. The public review period ran from November 30, 2021 to February 1, 2022.

The Housing Department notified 9,154 email recipients of the public comment period and public meetings. These recipients were subscribers to City email list servs including those for anti-displacement, general interest, rent registry landlords, affordable housing advocates and COPA interest lists. Email notifications were also sent to neighborhood leaders and prior meeting participants. Social media was also used to provide notification of the public comment period and public meetings.

During the public review period, a series of 7 public meetings were held to present the draft COPA program description and gather feedback. These meetings were similar in content and included an overview of the draft COPA program followed by time for questions and answers.

Meeting presentations and recordings were posted the COPA webpage. Over 300 people attended a meeting, 192 of which had not attended a prior meeting. Meeting participants provided 228 questions or comments. Here is a summary of public meetings:

Meeting Date Topic
Public Meeting #1 12/08/2021 Draft COPA Program Overview and Q&A Public Meeting #2 12/15/2021 Draft COPA Program Overview and Q&A Public Meeting #3 1/7/2022 Draft COPA Program Overview and Q&A Public Meeting #4 1/12/2022 Draft COPA Program Overview and Q&A Public Meeting #5 1/24/2022 Draft COPA Program Overview and Q&A Public Meeting #6 1/26/2022 Draft COPA Program Overview and Q&A Public Meeting #7 in Vietnamese 2/9/2022 Draft COPA Program Overview and Q&A

Key Takeaways
• Concerns regarding the oversight of QNPs including failure to operate properties adequately or default on loans.
• Concern that there will not be enough QNPs with capacity to purchase properties.

Questions about alternate paths to qualification or alternative ownership models to increase likelihood more residents would be able to benefit from program. • Concerns regarding the lack of clarity of institutional funding availability for property purchases and program operation.
• Concerns that emphasis on potential financial loss on property sales overshadows real world impacts of displacement on individuals, families, and communities. • Support for a program that preserves housing as cost effective compared to costs of building new housing.
• Support for a program that offers tenants at risk of displacement, the ability to stay in their homes, and the opportunity to own their home.

Attachment C
7 Phase III: Public Outreach (Spring 2022 – Spring 2023) Following a five-month hiatus in 2022 while three senior Policy Team staff were needed to work full-time to help create the state-mandated Sixth Cycle Housing Element, the Housing Department updated the COPA website and FAQs in fall 2022.

The Housing Department resumed public outreach on COPA in November 2022. Staff held 5 more public meetings between November 2022 and February 2023 to present the revised draft program and solicit feedback. These meetings were attended by 270 people. During this period, 8 people emailed the department, 132 questions/comments were received during meetings, and 1 comment letter was received. Email notices were sent to 5,274 recipients.

The chart below summarizes key concerns that Staff heard during Phases II and III of public outreach and revisions to the draft COPA program that were made in response.

Key Concern Programmatic Element
Proposed letter of intent and offer
timelines will create undue delay and
burden on property owners.

City will create a web interface for property
owners to notify QNPs; the same interface will
allow QNPs to specify which property types that
they’re interested in and will automatically notify
property owners if there are no QNPs interested in
their property type, potentially reducing the letter
of intent period to fewer than 15 days for some
property owners.

Qualified nonprofits, which must use
structured financing to close deals, need
more than 60 days to close escrow.

Closing period revised from 60 to 120 days for 2-
to 4- unit properties, and from 100-120 properties
for all other properties.

Property owners who are unlikely to ever
get an offer from a qualified nonprofit
are going to be unnecessarily required to
observe COPA waiting periods.

Applicability revised to exclude properties which
have been built in the last 15 years, which are
likely to be more expensive and therefore less
attractive to qualified nonprofits
There are contingencies under which a
property owner may need to sell their
property very quickly if they need cash
immediately.

Applicability revised to exclude properties with 2-
to 4- units if the property owner has a medical
need with documented expenses that require them
to sell the property
Tenants may not know that their property
is about to be purchased by a qualified
nonprofit housing provider, limiting their
involvement and knowledge of the
acquisition process.

Property owners required to notify tenants of their
intent to sell at the same time as they notify
qualified nonprofits. Tenants also to be informed
of their rights in the event of a change of
ownership, both to nonprofit and for-profit buyer.

Attachment C
8 Figure 1: Summary of all Advisory Committee and Public Meetings, 2021-2023 Meetings / Type Date Year Time of Day Estimated
Attendees
Advisory Committee Meetings

1. TAC #1 April 22 2021 Afternoon 23

2. SAC #1 April 29 2021 Evening 76

3. TAC #2 May 12 2021 Afternoon 20

4. SAC #2 May 20 2021 Evening 39

5. TAC #3 May 27 2021 Afternoon 22

6. SAC #3 June 17 2021 Evening 29

7. TAC #4 June 25 2021 Afternoon 16

8. TAC #5 July 22 2021 Afternoon 16

9. SAC #4 August 19 2021 Evening 41

10. TAC Q&A August 26 2021 Afternoon 14

11. TAC #6 September 10 2021 Afternoon 14

12. SAC #5 September 23 2021 Evening 110

13. TAC #7 September 30 2021 Morning 17

14. TAC #8 October 8 2021 Afternoon 17

15. SAC #6 October 14 2021 Evening 30

16. SAC en Español (Spanish language
meeting) October 28 2021 Evening 6
Total, all TAC and SAC meetings 490
Public Meetings

1. Public Meeting #1 December 8 2021 Evening 34

2. Public Meeting #2 December 15 2021 Afternoon 41

3. Public Meeting #3 January 7 2022 Afternoon 38

4. Public Meeting #4 January 12 2022 Afternoon 56

5. Public Meeting #5 January 24 2022 Evening 61

6. Public Meeting #6 January 26 2022 Evening 69

7. Public Meeting #7 (Vietnamese language
meeting) February 9 2022 Evening 13

8. Public Meeting #8 November 14 2022 Afternoon 85

9. Public Meeting #9 (Gardner Center) November 17 2022 Evening 37

10. Public Meeting #10 January 18 2023 Afternoon 67

11. Public Meeting #11 (Mayfair Community
Center) January 25 2023 Evening 46

12. Public Meeting #12 February 27 2023 Evening 35
Total 582
Tabling at community events

1. Moon Festival at Yerba Buena High School September 21 2021 Daytime 60 Attachment C
9 Figure 2: Summary of Stakeholder Meetings on COPA, 2021-2023 Stakeholder Meetings Date Year Time of Day Attendance

1. Realtors April 5 2021 Afternoon 2

2. CAA/Brokers April 13 2021 Afternoon 2

3. Realtors April 20 2021 Afternoon 2

4. Vietnamese American Roundtable May 4 2021 Afternoon 1

5. Consultant June 7 2021 Afternoon 1

6. Lenders June 18 2021 Morning 4

7. SF COPA Staff June 23 2021 Afternoon 1

8. Small Property Manager June 1 2021 Afternoon 1

8. Small Property Owners July 14 2021 Morning 1

9. Policy Organizations July 14 2021 Afternoon 6

10. Small Property Owners July 14 2021 Afternoon 2

11. Policy Organizations August 4 2021 Morning 4

12. Neighborhood Leader August 10 2021 Morning 1

13. Small Property Developer August 16 2021 Afternoon 1

14. Tenant Advocate August 24 2021 Morning 1

15. Consultant September 20 2021 Afternoon 1

16. Affordable Housing Developers September 29 2021 Morning 16

17. Lender October 8 2021 Morning 1

18. Small Property Managers October 13 2021 Afternoon 7

19. AACSA October 13 2021 Afternoon 1

20. Lenders December 8 2021 Afternoon 2

21. CAA/SCCAOR December 16 2021 Afternoon 8

22. CAA January 5 2022 Afternoon 1

23. Lenders February 7 2022 Afternoon 2

24. MidPen Housing September 28 2022 Afternoon 1

25. LISC October 19 2022 Afternoon 2

26. Eden Housing October 19 2022 Afternoon 2

27. South Bay Community Land Trust October 25 2022 Afternoon 3

28. Community Vision CDFI November 8 2022 Afternoon 1

29. Bay Area Housing Finance Authority November 8 2022 Afternoon 1

30. CAA November 17 2022 Morning 1

31. First Community Housing November 17 2022 Afternoon 1

32. Genesis LA December 1 2022 Afternoon 1

33. MidPen Housing December 12 2022 Morning 2

34. Charities Housing January 27 2023 Morning 5

35. SCCAOR January 27 2023 Afternoon 1

36. BAHN February 13 2023 Afternoon 8

37. SV@Home Developer Roundtable February 15 2023 Afternoon 24 Total Attendance 122
Attachment D
1 ATTACHMENT D – Detailed Breakdown of QNP Activities by Phase in COPA Timeline The table below presents a list of all activities that a QNP must conduct in order to successfully acquire a property and indicates during which phase of the COPA timeline each of these activities would be completed. Staff recommendations for each phase of the timeline have been made based on the understanding of the typical number of days that a QNP would need to complete each of these activities, weighing also how longer timelines could represent a more significant burden for property owners.

Phase # of
Days
QNP Activities
Statement of
Interest Period
**REQUIRED

FOR ALL

PROPERTIES

COVERED
UNDER
COPA**
15 Assess interest in property
• Initial assessment of property from address/listing including the following:
o Where is the property located? Is it in an area of
interest/related to mission/vision of org? Relative
location to other properties owned by QNP?
o QNP talks to their broker
o Look at comparable sales, publicly available
information about site and neighborhood
o Windshield survey of site and neighborhood
o Talk to potential community partners about interest in property
o Talk to any known community stakeholders
o Who lives in the property/neighborhood? Are these
populations in alignment with the organization’s target service populations?
• Run initial financial feasibility (multiple scenarios, phased through acquisition, holding, and permanent)
• Internal decision with organizational leadership about whether to pursue the property and whether staff have the bandwidth and organizational resources to take it on
If interested in property
• Initiate conversations with potential acquisition lenders, assess availability of funds, timeline for application process • Initiate conversation with City, other potential perm funders about timing and availability of funds
• Contact potential vendors for due diligence, ask for
bids/estimates, line up availability
• Initiate Board of Directors approval process to submit offer • Draft and submit letter of interest
Attachment D
2 Phase # of
Days
QNP Activities
Offer Period
**Required
ONLY IF a
QNP submits
Letter of
Interest**
25 Submitting an offer
• Get Board of Directors approval to submit offer
• QNP’s broker to draft offer
• Negotiations and counteroffers as appropriate
Due diligence
• Select vendors for due diligence, confirm availability and have everything ready to go if offer accepted
• Community partner to initiate outreach to tenants
Apply for acquisition funding
• Select acquisition lender, reconfirm their interest, keep them updated, make sure that they are ready to go if offer is accepted • Begin preparing loan application
Closing Period
Applies ONLY
IF Seller
agrees to sell
the property to
the QNP
120 Due diligence
• Site access for due diligence vendors, including environmental assessment (Phase 1, LBP, and asbestos) and physical needs assessment
• Request any available rent rolls and property financial information
• Walk site with contractor
• Community partner meets with tenants, as available; inform tenants and collect tenant information, as appropriate
• Vendors complete all reports
• Update financial feasibility based upon updated property and tenant information
Apply for acquisition funding
• Submit loan application
• Acquisition lender commissions appraisal
• Lender completes internal review process, including
underwriting of proposed project scenarios
Note: The timelines regulated by COPA would not preclude a buyer and QNP from negotiating a longer set of timelines for the property, if mutually agreed upon by both properties.

Attachment E
1 ATTACHMENT E – COPA’S HOMEOWNERSHIP COMPATIBILITY
Homeownership traditionally has been an effective strategy for creating residential stability and preventing displacement. COPA could support different types of ownership as follows:

COPA Could Create Pathways to Ownership for Renters by Providing Support to QNPs for Tenure Transitions.

Based on the findings of the consultant memo from Street Level Advisors on ownership options (immediately following this section in Attachment G) as well as internal staff research, staff anticipate that COPA could support QNPs in converting properties from rental to ownership models in different ways. However, most of the support for homeownership in properties acquired through COPA would be set forth in future Notifications of Funding Availability for homeownership properties.

Due to the relatively short timelines specified by COPA, the primary pathway for homeownership under COPA would be through initial QNP acquisitions of rental properties, followed by offer of option to convert to an ownership model within several years of acquisition.

This is because each part of the COPA timeline would need to be much longer to support direct tenant acquisitions. To balance the interests of property owners and renters at risk of displacement, staff have recommended that COPA timelines remain relatively short. However, if the renters of a property subject to COPA desire to try to purchase the building or their units, and if a QNP acquires the property, the City could provide financial support to convert the properties from a rental to a tenant ownership model after the initial property acquisition.

QNP Decisions to Engage in Tenure Conversions for Properties Acquired Through COPA Would be Voluntary
COPA would not require QNPs to convert to ownership models because this could deter affordable housing providers from acquiring properties through COPA. Staff anticipate that most properties would operate as rentals after acquisition for several reasons. 9 However, staff believes that QNPs’ voluntary conversions of properties from rental to ownership models should be supported. The staff recommendations above could potentially encourage conversions from rental to ownership tenure after initial acquisition, as the San Jose market gradually increases in experience and resources to support such conversions.
9 These reasons include that there are few nonprofit housing providers (and potential QNPs) in the San José area that have experience converting rental properties to ownership condos or housing cooperatives. Converting a property from rental to ownership, and collective tenant decision-making to opt for such a conversion, can take many months or years. Accommodating these conversions would fundamentally change the COPA proposal and greatly lengthen timelines. Existing renters in many properties likely have incomes too low for them to buy a home, and likely lack savings for large down payments. Finally, converting properties’ tenure from rental to ownership requires significant legal and technical resources, as well as lenders in the market that fund this type of project. It will take time for organizations the San José market to gain the technical expertise and resources to support conversions to ownership.

Attachment E
2 According to the consultant’s memo, QNPs would need financial assistance and potentially certain expertise technical assistance to convert a rental property to a tenant ownership model.

This would likely be provided by the City or other public lenders. The City could additionally support tenant organizing and education around property conversions, which would also require financial investments. As a result, staff anticipate that most of the details around support for conversions would be established by a future City Notice of Funding Availability for housing preservation. COPA would primarily support alternative ownership models, rather than traditional homeownership models, for lower-income families.

QNPs Would Also be Eligible to Convert Rental Properties to Limited Equity Housing Cooperatives During or After COPA Acquisitions.

In limited equity housing cooperatives, residents purchase shares of a residential property rather than purchasing their unit outright.10 Limited equity housing cooperatives are an important model to consider because of the high cost of residential properties in our market. Currently, a potential homebuyer would need to have an annual income of $186,140 to purchase a medianpriced condo in San José. The traditional homeownership model therefore is only viable for families above moderate-income. In contrast, a limited equity housing cooperative model could better serve existing residents who have incomes below 60% of AMI and who may not qualify for a traditional mortgage. They could still access many of the benefits of ownership, although they would receive a reduced amount of ownership equity under this model.

Because COPA is a policy targeted towards displacement prevention for lower-income residents, ownership proposals must be suited to their needs. Alternative ownership models noted in the consultant memo below are likely to be most appropriate for these residents because most lowerincome renter families will likely not be able to individually qualify for a large enough mortgage or have enough savings for a down payment.

QNPs That Acquire Properties via COPA Using City Subsidies Would be Required to Offer The Properties to Renters when They Eventually Decide to Sell the Building.

A forthcoming affordable housing preservation Notice of Funding Availability would obligate QNPs which acquire properties through COPA and which receive funding from the City of San José to fulfill certain requirements. One such anticipated requirement is that in the event of an eventual resale, QNPs would be required to provide the right of first offer to renters prior to advertising the property to other potential buyers.
10 https://localhousingsolutions.org/housing-policy-library/limited-equity-cooperatives/ Attachment E
3 COPA Teamed with City Funding Could Encourage New Property Owners to Provide EquityBuilding Features with Rental Stability to Allow Families to Capture Benefits Typically Associated with Homeownership.

For properties that are not suitable for conversions from rental to ownership models, or where renters are not interested in an ownership model, staff recommend considering renter equity models in which renters receive some of the wealth-building benefits of homeownership while continuing as renters. Under these models, a portion of the rent that renters pay to the property owners is set aside into an investment vehicle that renters can access when needed. Renter equity models in other cities and states have been successfully created by both public sector and community development financial institutions.11
The Street Level Advisors memo follows.
11 See https://localhousingsolutions.org/housing-policy-case-studies/building-wealth-and-community-for-renters-incincinnati-oh/ and https://nextcity.org/urbanist-news/colorado-ballot-initiative-prop-123-affordable-housing Attachment E
4 To: Kristen Clements and Josh Ishimatsu, City of San José From: Rick Jacobus, Street Level Advisors
RE: COPA Ownership Strategies
Date: January 19, 2023
Executive Summary
Right to purchase policies are preservation strategies that promote the transfer of property ownership into the hands of tenants and/or affordable housing developers by enabling tenants to exercise a first right of purchase. One key question for right to purchase policies is the form of ownership that will result from the transfer. This memo outlines several potential legal and financial strategies for structuring tenant ownership/tenant control of existing buildings. The memo outlines concerns and considerations related to each model and recommends that San José plan to support a range of models under different circumstances as no one model is appropriate for every case. The following table provides a high-level summary of the models considered.

Ownership
Model Description Advantages Concerns/Challenges
COPA Rentals
City-approved nonprofit
agencies purchase and
manage buildings as
permanently affordable
rental housing.

Faster transactions, no need
to create new resident
ownership structure, ability to
leverage outside housing
funding.

Lack of tenant asset building and resident
control over management, difficulty finding
nonprofits willing to own small buildings,
high cost of buildings and need for
significant renovations.

Limited
Equity
Housing
Cooperatives
(LEHC)
Tenants form a
democratically controlled
cooperative corporation that
owns the building.

Homeownership opportunities
for low-income families and
individuals, resident control
over housing quality and
conditions, ability to build
equity.

Need for leadership development and
ongoing oversight of coops, lack of access
to Low-income Housing Tax Credit
Financing. Co-op formation can take 2-5
years even when residents have professional
support.

Attachment E
5 Below Market
Rate (BMR)
Condos
Tenants buy their own unit
individually as
condominiums.

Providing a familiar form of
homeownership, resident
control over housing quality
and conditions, opportunity to
build equity through mortgage
paydown and appreciation.

Need for lengthy regulatory approval
through the California Department of Real
Estate, need for individual residents to
qualify for a mortgage, required building
inspections can trigger unexpected costly
repairs.

Tenants in
Common
(TIC)
Residents share ownership
of the whole building and
share responsibility for joint
mortgage.

Ability to be set up quickly
with no new corporation or
subdivision map, security of
housing and housing costs
over the long term, resident
control over housing quality
and conditions, opportunity to
build equity.

Difficulty for residents to qualify for TIC
mortgage, residents responsible for each
other’s mortgage payments, won’t work
with LIHTC or most other affordable
housing funding programs.

Community
Land Trust
(CLT)
A nonprofit organization
holds ownership of
buildings on behalf of
tenants with some degree of
resident involvement in
management.

Ability to retain affordability
of housing over time, some
degree of resident control
over housing quality and
conditions.

Residents don’t have legal ownership or
generally build equity. Many residents are
not interested in participating in
management.

Permanent
Real Estate
Cooperative
(PREC)
Multi-building corporation
formed to provide
homeownership like
experience but with access
to Direct Public Offering
financing.

Providing a sense of
ownership, resident control
over housing quality and
conditions, opportunity to
build equity through
ownership of shares in PREC
Very new model, relatively untested
Requires creation of new PREC
corporation. Complex securities regulation
for Direct Public Offering to investors.

COPA Rentals
This approach involves city-approved nonprofit housing agencies purchasing buildings and managing them as permanently affordable rental housing. Some advantages of this option include faster transactions, no need to create a new resident ownership structure, and the ability to leverage outside housing funding. However, some limitations include the lack of tenant asset building and resident control over management, as well as the difficulty of finding nonprofits willing to own small buildings. These structures are typically financed through a combination of bank loans and public subsidies, but the high cost of buildings in California and the need for significant renovations can make it challenging for nonprofits to purchase buildings without significant public subsidy.

Limited Equity Housing Cooperatives (LEHC)
Cooperatives offer another option for tenant ownership of buildings purchased with City funding. In this structure, tenants form a democratically controlled cooperative corporation that owns the building. Advantages of this option include homeownership opportunities for lowincome families and individuals, resident control over housing quality and conditions, and the ability to build equity through mortgage paydown and appreciation. However, disadvantages include the need for leadership development and ongoing oversight of coops. The building is financed through bank loans and public affordable housing subsidies, and in practice, LEHCs often require more subsidy from local sources to serve lower income residents, due to the lack of access to federal Low-income Housing Tax Credits.

Attachment E
6 Below Market Rate (BMR) Condos
In this structure, tenants each buy their own unit individually. Advantages of this option include providing a familiar form of homeownership, resident control over housing quality and conditions, and the opportunity to build equity through mortgage paydown and appreciation.

However, disadvantages include the need for lengthy regulatory approval through the California Department of Real Estate, the need for individual residents to qualify for an individual mortgage, and that required building inspections can trigger unexpected costly repairs. In this model, the building is financed through individual mortgages and the city can restrict equity/preserve affordability through deed restrictions if appropriate.

Tenants in Common (TIC)
Under a Tenants in Common (TIC) structure, residents share ownership of the whole building and share responsibility for joint mortgage. Advantages of this option include the ability to be set up quickly with no new corporation or subdivision map, security of housing and housing costs over the long term, resident control over housing quality and conditions, and the opportunity to build equity through mortgage paydown and appreciation. However, disadvantages include difficulty for residents to qualify for TIC mortgage, residents responsible for each other’s mortgage payments, and it won’t work with LIHTC or most other affordable housing funding programs. The city can restrict equity/preserve affordability through deed restrictions if appropriate. TICs have been popular in San Francisco and Berkeley where local regulations limit the number of buildings that can convert to condominium ownership, but TICs lack some of the features that provide protection to residents and to their lenders, and buyers pay higher mortgage rates.

Hybrid Models
Two newer models offer residents an enhanced ‘sense of ownership’ under structures that are legally still rental housing.

A Community Land Trust (CLT) is a nonprofit organization that holds land for long-term community use, including affordable housing. CLTs often own land under single-family homes but many CLTs also own and manage rental properties. These rentals can look and feel like any other nonprofit rental, or they can be set up to provide some of the feel of ownership. The San Francisco Community Land Trust is one of the 8 community organizations that have been certified by the City of San Francisco to participate in COPA purchases. The new South Bay Community Land Trust may be able to play a similar role in San José. The CLT is a membership organization with reserved seats on its board of directors for tenants, which provides some power to tenants who otherwise have no formal legal ownership rights. Residents in these buildings earn no equity.

A Permanent Real Estate Cooperative (PREC) is a new model that was created to provide an alternative to the Limited Equity Housing Cooperative. The model was designed to “simulate homeownership as closely as possible” while still offering a more centralized and easily financeable organizational structure. A PREC is incorporated as a consumer cooperative (like REI) but not as a LEHC under California law. This difference allows a PREC to include investor members who are not residents. The East Bay PREC sells shares for $1, which gives the investor Attachment E
7 a vote in the cooperative but no right to occupy a unit. The EB PREC also issue bonds to finance the purchase and rehabilitation of the property, and the bonds are backed by the rental income.

The model is relatively untested and requires ongoing support for resident governance.

Recommendations
The report recommends building local capacity to support COPA transactions using several of the models explored. Depending on the building size and the tenant’s financial capacity different approaches may be appropriate. The following table summarizes these recommendations.

Building
Type Approach Description Considerations
20+ Unit
Buildings
Nonprofit rental with
resident option to purchase.

City approved nonprofit
developer purchases building
and operates it as rental
housing. Residents retain an
option to purchase later as a
LEHC under certain
conditions for a specified
period (ex. 5 years).

Allows for quick action to preserve
affordable buildings; gives residents time to
consider ownership options and organize a
cooperative if they want; successfully
preserves affordability whether residents
later pursue ownership. Some potential
nonprofit owners may choose to offer hybrid
models that provide a greater sense of
ownership.
20+ Unit
Buildings
Limited Equity Housing
Cooperative
Tenants form a co-op
corporation and purchase the
building. In rare
circumstances with patient
sellers, direct purchase by coop may be possible but
interim ownership by an
approved nonprofit developer
may be more common.

Residents can earn modest equity gains over
time; residents can directly control building
management, maintenance, and monthly
costs. City can ensure quality management
by requiring a Land Trust or other nonprofit
to play a permanent support/stewardship
role and requiring use of an experienced
property management firm.
4–19-unit
buildings with
low income
(<60% AMI)
tenants at high
risk of
displacement Hybrid rental (CLT, PREC)
Nonprofit buys buildings and
holds them for the benefit of
the tenants, structures a
program to offer many of the
benefits of ownership under
an otherwise rental
arrangement.

Many experienced nonprofit sponsors are
unwilling to own small rental properties
because they may never pencil out
financially. If an organization were to take
this role on, some level of start-up or
operating support would be necessary. Many
of the low-income tenants at greatest risk of
displacement are living in buildings of this
type.
4–19-unit
buildings –
most tenants
have strong
credit and
middle income
(80-120%
AMI) Condo Conversion
While condo conversion will
take longer than a typical
market sale of a rental
building, some sellers may be
willing to wait in exchange
for a higher price. The city
could support these
transactions by offering
shared equity second loans to
buyers with the amount based
on their income.

For tenants who are able to obtain individual
mortgages, condo conversion provides a
path to traditional ownership and wealth
building. City second loans could preserve
affordability by recapturing a share of
appreciation. For tenants that were unable to
qualify/afford to purchase their building,
relocation support would be necessary.

Relocating more than a few tenants would
be impractical due to the expense.
1–3-unit
buildings – all
Tenants-in-common with
plan to convert to Condo.

Tenants would quickly form a
TIC to purchase the property.

Provides an immediate path to ownership for
the somewhat rare building where the
Attachment E
8 Additional Recommendations – Capacity building and financing Developing a COPA policy alone will not be sufficient to support building conversions. The City will need to provide targeted capacity building grants as well as project financing for properties that preserve affordable housing. The following table summarizes these recommendations.

Recommendations Description
Preservation Project
Predevelopment Funding
Issue an RFP to select one or more local nonprofits to receive multi-year contracts for staffing the conversion process and conducting predevelopment activities. This includes hiring experienced real estate developers for evaluating the feasibility of purchasing eligible properties and providing tenant outreach, education and organizing support.

Tenant Support and
Organizing
Any of the ownership models will require significant time engaging with tenants individually and in groups prior to purchase. To build adequate capacity, the City will need to enter a multi-year contract with one or more community-based nonprofits.

Small Project
Stewardship Support
Develop alternative mechanisms to provide supplemental funding for property and asset management, tenant support, and ongoing monitoring of smaller buildings. This includes budgeting for stewardship, providing a fixed per-unit conversion fee for successful conversions, and setting aside funding for direct operating grants for qualifying nonprofits. tenants have
strong credit
and middle
incomes (80-
120% AMI)
After the initial purchase,
residents would work with a
lawyer to complete a condo
conversion.
residents would all meet lending criteria.

Allows eventual conversion to more
traditional (and appropriate) form of
ownership.

Attachment E
9 Opportunity to Purchase Policies
Right to purchase policies are preservation strategies that promote the transfer of property ownership into the hands of tenants and/or affordable housing developers by enabling tenants to exercise a first right of purchase. The process is generally as follows: landlords intending to sell multifamily housing are required to give prescribed notice to tenants, and then allow a specified amount of time for tenants to express interest, make an offer, and secure funding.

One key question for right to purchase policies is the form of ownership that will result from the transfer. Washington DC’s Tenant Opportunity to Purchase (TOPA) policy was adopted in 1980 and provides multiple paths to homeownership for building residents. The majority of TOPA purchases have involved conversion of buildings into Limited Equity Housing Cooperatives, but other DC tenants have purchased their buildings as condominiums either with or without affordability restrictions. DC’s program also allows tenants to vote to designate a nonprofit or for-profit developer to purchase their building and continue to operate it as rental housing.

The process of creating cooperatives or condominium ownership structures adds significant time and risk to the process of purchasing multi-family properties (which would be challenging enough in any event). As a result, when San Francisco adopted its Community Opportunity to Purchase (COPA) legislation in 2019, they focused on direct purchase by approved communitybased nonprofit organizations. Under COPA, a set of pre-qualified nonprofits (with or without the support of building tenants) are given the option to make a first offer on multi-family buildings before they are sold on the market. San Francisco has provided critical operating support for staffing at several nonprofit organizations and has created financing tools to enable these organizations to undertake quick transactions. As a result, nonprofits have used COPA to acquire dozens of buildings, but none have been tenant led and none, so far, are likely to result in homeownership for residents.

As San José explores development of a COPA policy, it would like to plan a pathway to homeownership for at least some properties. This memo outlines several alternative ownership models which could be implemented as part of COPA. This report is not intended to serve as a feasibility study. Each of the models described below involve significant financial and legal constraints which will limit their applicability. This memo provides a high-level summary of some of those constraints but, if the city decides to pursue any of these paths to ownership, it makes sense to develop more detailed financial feasibility projections and to work with lenders and other stakeholders to outline, in more detail, the likely financing gaps.

COPA Rental Structures
First, it is worth noting some of the benefits and limitations of the rental options for comparison.

A. Non-profit rental
City approved nonprofit housing agencies purchase buildings and manage them as permanently affordable rental housing.

Attachment E
10 Advantages: Disadvantages/challenges:
• Relies on existing nonprofit capacity
• generally faster transactions
• relies on existing financing programs
• Does not require creating new resident
ownership structure
• Ability to leverage outside housing funding
(eventually)
• Reliable asset management and capital needs
planning
• No tenant asset building
• No resident control over management
• Hard to find nonprofits willing to own small
buildings
Who owns the buildings?
Under San Francisco’s COPA, the City, through a public application process, designated 8 community-based nonprofit organizations which may receive notices from property owners and could negotiate purchases prior to market sales of multi-family buildings. These buildings, like nonprofit owned buildings acquired under DC’s TOPA program, are generally purchased by an LLC created and controlled by a 501(c)3 sponsor. The sponsor will typically be a locally controlled nonprofit led by a racially diverse board of directors including representatives from low-income communities.

How are they financed?
In each building, existing tenant rents will be used to support a bank loan. The amount of money that can be borrowed is dependent on the level of the rents. The higher the rents, the more money is available each month for loan payments which enables the building owner to borrow a larger loan. Because this is true for any buyer of an apartment building, the sales price for a building will generally correspond to the level of rents. It might be possible (and there appear to have been examples in DC) for a nonprofit to purchase a building without any public subsidy, relying almost exclusively on rents to support a private mortgage large enough to finance the whole purchase.

However, in practice, this is unlikely for three reasons. First, multi-family buildings in California are typically selling for prices well more than what would be suggested by the current rents. When a private buyer pays more than today’s rents can support, this is because they expect that they will be able to either significantly increase rents on the current tenants or successfully evict those tenants. This ‘eviction premium’ can be very significant in gentrifying communities. A nonprofit purchasing a building with no intention to raise rents or evict tenants generally can’t pay the market price without significant public subsidy. Second, the current rents may be unsustainably high for some vulnerable tenants and a nonprofit purchaser may find it necessary to lower some rents to reduce rent burdens. Third, lower rent apartment buildings often suffer from very significant deferred maintenance. Many buyers will plan to fully renovate a building after purchase. For a speculative buyer, a big renovation only helps with increasing rents and turning over tenants. But for a nonprofit attempting to stabilize existing tenants, paying for renovations can be a major challenge.

As a result, nonprofit TOPA/COPA purchases typically require several sources of public subsidy in addition to a bank mortgage. In San Francisco, this funding has come almost exclusively from the city’s Small Sites Program. In DC it comes from the City’s Housing Trust Fund. San Attachment E
11 Francisco has been investing more than $300,000 per unit preserved. In DC, the costs are lower but still generally higher than the amount that DC invests into new construction of affordable housing units.

For larger buildings, nonprofit ownership creates an opportunity to access Low-income Housing Tax Credits (LIHTC). This is the most significant federal affordable housing subsidy program and, for eligible projects, can provide more than half of the cost of a project. Using tax credits, significantly reduces the amount of funding needed from local government – allowing a city to support more units. However, the LIHTC program is complex and generally competitive and it is very hard to use in preservation projects and only possible to use in larger properties. Even for projects where LIHTC would be appropriate, tax credits can’t be secured quickly enough for TOPA/COPA transactions. In DC, however, a few TOPA projects have been initially financed with entirely local funds and then refinanced several years later with LIHTC financing. Often TOPA buildings require significant renovation, and this strategy often involves a nonprofit buying the building and operating it without renovation while pursuing tax credit refinancing to repay some of the initial city funding and pay for renovations. For larger properties, this is the most efficient strategy for managing limited city subsidy funds. But it does not offer tenants any ownership opportunity.

How do tenants benefit?
For tenants, the primary benefits are stable housing and limited rent increases. Tenants generally have little say in management of nonprofit housing. Tenants generally have no equity or asset building opportunities in these buildings but it is worth noting that living in stable housing with below market rents often provides tenants with the opportunity to build assets through other means including by saving money that would have otherwise gone to rent.

How are properties managed?
Nonprofit buildings are generally managed by third party property management firms.

Generally, each building requires an on-site resident manager who lives in one of the building units.

Nonprofits have struggled to adapt this management structure for small buildings. Scattered smaller buildings are more difficult and more expensive to manage. Many of California’s most experienced housing nonprofits started out developing small rental properties but have stopped pursuing smaller properties because of the management issues. A small building may require as much management as a larger building but provide only a fraction of the revenue to pay for management. San Francisco’s Small Sites Program has been led by community-based nonprofits with only limited property management experience. The larger nonprofits that manage the great majority of the City’s affordable housing have, so far, declined to participate in Small Sites development.

What about For Profit rentals?
DC’s TOPA policy also allows tenants to vote to designate a for-profit buyer to complete the purchase on their behalf. DC tenant advocates point out that this provision has been used by real estate investors seeking an advantage in purchasing buildings for speculative ownership. Private purchasers have paid tenants for their votes, purchased buildings and in some cases, later evicted Attachment E
12 the tenants or dramatically raised their rents. In some cases, tenants may have been misled but in others, tenants have clearly understood that they were being paid to ‘buy out’ their rights in their buildings. A 2012 report states that most tenants have received payments of around $20,000 but some have received as much as $100,000. While this outcome is clearly contrary to the intent of TOPA, it is worth noting that, for some tenants, this may be a very desirable outcome. While it offers no long-term benefit for future tenants, the policy treats current tenants as if they were, in some sense, owners already, allowing them to reap some of the immediate profits from development.

Ownership Structures
B. Limited Equity Cooperative
Tenants form a democratically controlled cooperative corporation which owns the building.

Advantages: Disadvantages/challenges:
• Homeownership opportunities to families and
individuals with incomes far below the cut off
for other homeownership programs
• Does not require owners to qualify for
individual mortgages
• Security of housing and housing costs over the
long term
• Resident control over housing quality and
conditions
• Opportunity to build equity through mortgage
paydown and (limited) appreciation
• Incorporation and resident leadership
development take months or years
• Requires new local capacity for leadership
development and ongoing oversight of coops
• Coops have sometimes struggled with long
term asset management and capital needs
planning
• No access to Low-income Housing Tax Credit
Financing
A Limited Equity Housing Cooperative (LEHC) provides a legal mechanism through which tenants can share ownership of a multi-family apartment building without each resident individually obtaining a mortgage. Instead, the tenants buy shares in a cooperative corporation and the corporation buys and finances the building. Resident owners can sell their co-op shares when they move and earn limited appreciation. In addition, co-op residents who itemize their tax returns can deduct their share of property taxes and insurance.

Perhaps the primary financial benefit for co-op residents comes in the form of control over rents.

Co-op residents are often able to benefit from fixed mortgage costs to ensure that rents don’t rise with inflation and sometimes actually decline. For example, Dos Pinos is a 60-unit co-op built in 1985 in Davis. The co-op was developed without affordable housing subsidies and, when it opened, monthly costs in the co-op were like and even higher than comparable rents for nearby apartments. The Dos Pinos Board of Directors (all residents) has prioritized keeping the monthly carrying charges as low as practical while still maintaining the property. As a result, Dos Pinos residents today pay less than half of what nearby apartments cost. Shares in Dos Pinos cost around $33,000 but because the monthly costs are so low, the co-op manages to provide housing for many Very Low-Income residents.

How would a building be financed?
Attachment E
13 Limited Equity Housing Co-ops are generally able to obtain bank loans like other owners of apartment buildings. However, a co-op targeting low-income tenants would have limited monthly cash flow which would limit the size of any mortgage. LEHCs can generally access most sources of public affordable housing subsidy, however, because a Co-op is owned by its residents and not investors, it is not able to benefit from Low-income Housing Tax Credit financing. This means that a LEHC will generally require more subsidy from local sources to serve lower income residents.

HUD offers a mortgage guarantee program specifically for cooperatives (Section 213) but in the current environment the program may not be cost effective.

Washington DC has supported the creation of more than 4,400 LEHC units in 99 buildings12 but coop advocates point out that the TOPA legislation alone could not have generated this result. It was not until DC established its Housing Production Trust Fund about 10 years after adoption of TOPA that coop development became practical. DC’s trust fund has provided the level of local subsidy necessary to make co-ops feasible without access to federal Low-income Housing Tax Credits. DC has been investing roughly $10 to 25 million per year in Trust Fund resources for TOPA projects. In recent years, however, as housing costs have risen and competition for scarce trust fund resources has increased, the city has been financing fewer coop projects in part because they can serve more low-income residents by investing in LIHTC funded projects. And in fact, as prior TOPA Cooperatives have been undergoing refinancing, quite a few have converted to nonprofit rentals specifically to access Low-income Housing Tax Credits to fund renovations without increasing tenant rents 13
How would a building be managed?
Most co-ops are professionally managed by a private property management company like any other apartment building. If the City were to provide public subsidy, they could require professional management as a loan condition.

How would the co-op be governed?
Cooperatives are democratically governed by a Board of Directors directly elected by residents.

Having final say over the key decisions that affect your housing is clearly a benefit of cooperative ownership and every cooperative must invest in building and sustaining resident leadership to support governance of the co-op. Some co-ops put a lot of energy into this effort in hopes that residents will participate in all day-to-day decisions or even self-management. But not all tenants have a strong interest in spending time participating in the details of operations – particularly when things are going well. For larger buildings with professional property management companies, co-op properties end up operating very much like other rental properties. A 2002 study by the California Coalition for Rural Housing found that residents in California farmworker housing placed a high value on co-op ownership even though many reported that they did not feel that they had direct control over decisions. Participation in management is important but shouldn’t be the primary benefit of cooperative ownership. 12https://dhcd.dc.gov/sites/default/files/dc/sites/dhcd/page_content/attachments/Final%20LEC%20Recommendation s_10.21.19.pdf
13 https://www.dcfpi.org/wp-content/uploads/2013/09/9-24-13-First_Right_Purchase_Paper-Final.pdf Attachment E
14 Who would provide start up support and long-term oversight? To ensure long-term success in resident governance, it is critical that the Co-op have access to initial and ongoing training and board support. There have been a few co-ops that have run into serious ongoing management or governance problems. Some co-ops have failed to undertake necessary long term building maintenance. Others have struggled with internal conflict between residents. Some degree of ongoing support can help avoid these challenges. Some property management companies can provide governance support to co-op boards. Other communities have contracted with affordable housing nonprofits or Community Land Trusts to support local cooperatives.

Washington D.C. funds the equivalent of 8 FTE staff to provide direct outreach and resident organizing support under TOPA. This level of staffing support aids with 30 transactions per year. 14 In addition, DC provides operating support grants to several nonprofit organizations that provide tenant support and legal assistance for both start up and ongoing operations of co-ops.

Across the country, many Communities Land Trusts (CLTs) have taken on support and oversight of Limited Equity Cooperatives. The CLTs are generally nonprofit organizations operating multiple housing programs with a neighborhood, citywide or even regional footprint. The CLT retains ownership of the land under the cooperative to protecting the long-term community interest and securing long term affordability but sells or leases the building to the cooperative.

The co-op manages the building independently, but the CLT plays a long-term support and oversight role so that co-op residents are not entirely on their own.

What about tenants that don’t want to buy?
If share prices are set too high, some tenants may be unable to afford their share purchase. State law requires that most tenants in a building purchase shares in the coop at the time of conversion but allows for some units to be occupied by renters who are not members of the cooperative.

How much equity could residents earn?
California’s Limited Equity Housing Cooperative law limits the rate of share price appreciation to no more than 10% annually and initial share prices cannot exceed 3% of the value of a unit.

This limitation means that if share prices are set at very low rates initially, then the equity building that is available to residents will also be low.

Some older cooperatives were organized with resale prices tied to the gradual repayment of the cooperatives mortgage. The resale prices in these projects escalated very rapidly especially during the later years of mortgage repayment and often rose beyond the means of low-income residents.

How would share purchases be financed?
Low-income tenants will find it difficult to come up with the funds to purchase a share in the coop. Many co-ops have addressed this by offering loans to help members buy their shares. But these loans increase the monthly costs that those tenants face. 14 Staff report for Berkeley TOPA Proposal. https://www.berkeleyside.org/wp-content/uploads/2020/03/2020-03- 05-Agenda-Packet-Land-Use.pdf
Attachment E
15 For example, if share prices were set at $20,000 and buyers were expected to invest $500 and borrow the rest from a credit union or similar institution at 5% interest over 5 years, the monthly share loan payment would be almost $370. Lowering the initial share price can make the co-op more accessible. At $3,000 per share the payment would be $47 per month. However, it may be difficult to find a lender willing to manage loans this small. And, importantly, the lower the initial share, the less share price appreciation will accrue to owners. If shares increase at 2% annually, a $3,000 share would increase to only $3,650 after 10 years.

One strategy for partially overcoming this barrier is a ‘matched savings’ grant program. For example, the Federal Home Loan Bank’s WISH and IDEA programs provide 4 to 1 matching grants to low-income first-time homebuyers who save money for homeownership. Generally, the owners save money and receive the match before they buy a house. But the programs can also be used to underwrite the purchase of LEHC shares by tenants who have already moved into a co-op. Grants can be up to $22,000 per family and, at that level, would require $5,500 in savings from the tenant. A co-op could require a low initial investment (say $500) and then a monthly contribution to a share account (say $40 per month) over and above the co-op carrying charges (rent). At this rate, the tenant would pay off their portion of the share price over 10 years and would receive the matching grant. If the share price were to appreciate at a rate of 2%, then at the end of 10 years, the tenant would own an asset valued at $33,500. This kind of program could be developed with more flexible rules with grant support from a corporate or philanthropic sponsor. However, the program requires ongoing access to this grant funding for each new buyer or else the share prices will be prohibitively expensive for lower income buyers.

Is it possible to transition later to co-op ownership?
It is possible for buildings to be purchased initially by a nonprofit partner and held for the benefit of the tenants with the option for a later transition to legal tenant ownership. Vermont enacted a Tenant Right to Purchase law for Mobile Home Parks in the 1980s and several parks were purchased by nonprofits and held for several years while residents organized cooperatives and arranged financing needed to purchase the parks directly. Several Community Land Trusts in the Bay Area have pursued this approach to cooperative development with the CLT buying the building and allowing the residents to play a role in management as if they were owners while working toward the possibility of eventual sale to a Limited Equity Housing Cooperative.

However, very few of these properties have ultimately converted to LEHC. The challenges of conversion are significant and the incentives to convert after the immediate threat of displacement has been removed are limited. One could see this lack of conversion as a failure, but it could also be a success. If the CLTs provide adequate management and limit rent increases, tenants may lack motivation to convert to full ownership and lenders and public partners may be reluctant to prioritize these projects. The potential for future conversion provides a measure of resident accountability to the CLTs as nonprofit landlords without all the expense and risk associated with a full conversion.

It would be possible to structure a COPA program to rely on immediate purchase by nonprofits that are prepared to hold the properties for the long term while providing tenants with an additional measure of power and control by enabling them to vote to convert to co-op at some point in the future. It would be common for a co-op conversion to take 2-5 years for residents to Attachment E
16 complete with adequate support. This would require some degree of additional oversight from the City but would require far less infrastructure than would be necessary if the buildings were set up as co-ops initially.

C. Below Market Rate (BMR) Condo
Tenants each buy their own unit individually.

Advantages: Disadvantages/challenges:
• Provides a familiar form of homeownership
• Security of housing and housing costs over the
long term
• Resident control over housing quality and
conditions
• Opportunity to build equity through mortgage
paydown and appreciation
• City can restrict equity/preserve affordability
through deed restrictions if appropriate
• Requires lengthy regulatory approval through
CA Dept. of Real Estate
• Creation of Homeowners Association can take
months
• Each resident must qualify for an individual
mortgage
• Required building inspection can trigger
unexpected costly repairs
• Condos have sometimes struggled with long
term asset management and capital needs
planning
• No access to Low-income Housing Tax Credit
Financing
• Few other affordable housing programs will
fund condos
Condominiums are the most common form of shared ownership for multi-family housing. When an apartment building is converted to condominium ownership, the owner must file a subdivision map and associated legal documents with the California Department of Real estate. Once approved, the individual apartments in the building become separate pieces of real estate which can be bought and sold and financed individually. In a condo conversion, each tenant would find their own lender. If one tenant failed to pay their mortgage, their lender could foreclose on just their unit without impacting the financing of other tenants.

As with LEHC, forming a condominium can take months (or longer). Forming a condo to purchase a building under COPA will require considerable patience on the part of the seller.

Nonetheless, this has happened several times in DC. Some sellers may be willing to wait for condo formation in exchange for a potentially higher price.

What about building conditions/Fire standards?
San José’s Condo conversion regulations require potential upgrades to sound proofing and compliance with the building code and fire regulations that were in effect at the time the building was constructed (not at the time of conversion). State law also requires that buildings comply with fire codes but doesn’t require buildings to be upgraded the most recent code. However, it is not uncommon for major renovations conducted at the time of conversion to trigger a need for fire code updates which can sometimes be prohibitively expensive. The City does require sound insulation and separate electrical meters at the time of conversion for most buildings.

And even compliance with the building code in effect at the time a building was erected can pose a significant barrier to condo conversion for some buildings. Section 20.170.310 of the city’s Attachment E
17 condo conversion ordinance requires a building inspection and correction of any identified deficiencies prior to proceeding with conversion. It is not uncommon for this kind of inspection to identify significant life safety concerns due to maintenance issues or work that has been performed without a building permit over the years. A key issue relates to the timing of this building inspection. It is often possible to sell a rental property that suffers from significant building code compliance issues. Ideally potential purchasers would conduct their own inspection and identify potential deficiencies, but, in practice, many times these buyer inspections result in reductions to the price but not in work being performed to correct the deficiencies. Since there is no city inspection, there is no mechanism for enforcing code compliance. Because inspection is required for a condo conversion, the inspection creates a public record which generally creates a need to make repairs whether the condo conversion moves forward. This makes pursuing conversion risky for property owners. One response is to conduct a private inspection to evaluate potential compliance issues before deciding whether to pursue condo conversion and only initiating the City inspection once a clear path to conversion (including financing for any likely repairs) has been identified. But this results in a much slower sale process.

What about tenants who can’t or won’t buy?
It is likely that many small buildings would include some tenants who could qualify for mortgages and others who could not. In a market rate conversion, tenants with less strong credit might end up being evicted or relocated but that is not a positive outcome for a TOPA conversion. Even if the city provides subsidy to bring the loan amounts down to an affordable level, each tenant must have a relatively strong credit history, personal savings and have only a limited amount of other debt including credit cards and car loans. The lower the tenant’s income the greater the likelihood that they would face financing challenges.

Condo conversion will work best if all existing tenants want to buy their units and are able to qualify for financing. California law allows creation of a condo unit with a tenant in place who continues to rent but, in the context of a COPA conversion, some third party would need to own and finance any unit that was not sold to the tenant. Theoretically, a local nonprofit could step into this role and, particularly with public subsidy, they might be able to finance a condo that was rented but managing scattered individual rental condos would be challenging and there may be no local nonprofit willing to take this on. The presence of more than a very small number of rented condo units can also make it difficult or impossible to finance other units in a building due to lender rules. FHA, for example requires that at least 50% of units in any converted building be owner-occupied at the time of conversion.

This financing limitation may mean that condo conversion would only be feasible for a small subset of potential COPA properties. Smaller buildings and buildings occupied by higher income tenants would be more likely to qualify. If a local nonprofit was willing to manage scattered individual rental units, it would likely be possible to finance mixed ownership/rental buildings provided that most units were owner-occupied. This strategy would greatly expand the number of possible condo conversion properties.

Allowing some residents to buy their units while others continue to rent could be beneficial (particularly if the tenants retained the option to purchase their units later). Mixed tenure would Attachment E
18 require a nonstandard (and presumably more costly) loan product for the nonprofit to finance the rented units. The City might be able to help build an organization’s capacity to play this role and could help ensure access to an appropriate loan product.

How would buildings be managed?
Every condominium must have a Homeowners Association (HOA) which is governed by a board elected by owners. Most HOAs contract with property management firms to oversee building maintenance and other tasks. Some HOAs, particularly in small buildings, elect to self-manage to save money. If the City were to provide public subsidy, they could require professional management as a loan condition.

Could long term affordability be preserved?
In DC, the TOPA program does not require any long-term affordability restrictions and several buildings have converted to market rate condominiums. However, when residents have required city subsidy to afford condo purchases, the city has recorded long term deed restrictions which require that units remain owner occupied and that they resell at a below market price only to an income eligible buyer. While less effective in preserving long-term affordability, some cities use shared equity second mortgages to preserve affordability. One advantage of shared equity loans in this context would be that loans could be ‘sized’ based on each resident’s financial need. In this way some residents in a building may be able to purchase with little or no public subsidy and retain most of the equity in their unit while others, who receive very deep levels of subsidy would be required to pass that public investment along to other lower income buyers when the sell – while still earning significant equity.

Who would provide start up support and long-term oversight? If San José were to provide subsidy to support below market rate (BMR) condos under COPA, the City could contract with a local nonprofit or legal services organization to aid with the subdivision process. The City would need to develop educational material and possibly a training program for homeowners to ensure that they understand the process and any affordability restrictions. City staff would need to perform some level of ongoing monitoring to ensure ongoing affordability. As with the LEHC model, a Community Land Trust could be used as an intermediary to provide an additional level of ongoing support and oversight to ‘steward’ the long-term affordability of BMR condos.

D. Tenants in Common
Residents share ownership of the whole building and share responsibility for joint mortgage Advantages: Disadvantages/challenges:
• Can be set up quickly. No new corporation or
subdivision map
• Security of housing and housing costs over the
long term
• Resident control over housing quality and
conditions
• Opportunity to build equity through mortgage
paydown and appreciation
• Difficult for residents to qualify for TIC
mortgage
• Residents responsible for each other’s
mortgage payments
• Won’t work with LIHTC or most other
affordable housing funding programs
Attachment E
19 • City can restrict equity/preserve affordability
through deed restrictions if appropriate
Tenants in Common (TIC) offers a different legal structure for groups of residents to co-own a building. TIC residents share full ownership of their building just like a couple might share ownership of a house. They each own part of the whole and neither can sell without the other’s consent. TIC residents generally sign an agreement giving each resident exclusive access to one unit or another but, in fact, they each own a part of every unit. For very small properties (2-4 units?) TICs may offer an alternative to Condo conversion. They avoid many of the bureaucratic issues associated with Condo formation and don’t require an ongoing Homeowners Association (HOA). TICs have been popular in San Francisco and Berkeley where local regulations limit the number of buildings that can convert to condominium ownership.

However, condominium laws and regulations exist for good reason and TICs lack some of the features that provide protection to residents and to their lenders. The CA Department of Real Estate carefully regulates Condos to, among other things, ensure that HOAs set aside reserves for future maintenance expense. TIC owners are on their own and can find it difficult to force their co-owners to pay for needed capital improvements. Lenders treat TIC owners just like they would treat a couple sharing ownership of a single-family home. Each resident is fully liable for the whole loan which can create serious problems. When one resident is unable to pay their share of the mortgage, all residents face foreclosure. The key advantage of a condo structure is that each unit is legally separated, and each owner can pledge their individual unit as collateral for their individual mortgage. This makes the loans safer both for the bank and for the residents. As a result, TICs typically sell for 10-20% less than comparable condos and buyers pay higher mortgage rates. It can also be difficult for homebuyers to find banks willing to provide TIC mortgages for unrelated individuals sharing ownership of a multi-family building. The larger the number of unrelated co-owners, the greater these risks which has generally limited TICs to duplexes or triplexes.

There appears to be no experience with TIC conversions under a TOPA/COPA policy but it seems possible that, for very small buildings it would be possible to structure TIC purchases with the expectation that the building would convert to Condo ownership within a relatively short timeframe. If building financing were provided by a public agency or if a public agency were to provide a loan guarantee, temporary TIC ownership might make some conversions possible where condo conversion would be impractical given the timeframe for purchase and where nonprofit ownership could be impractical due to the property management challenges for very small buildings.

E. Hybrid Models: Ownership Like Experience
Community Land Trust Rental
Nonprofit CLT owns and finances building but develops structure for tenant governance Advantages: Disadvantages/challenges:

Attachment E
20 • Can be set up quickly. No new corporation or
subdivision map
• Security of housing and housing costs over the
long term
• Some degree of resident control over housing
quality and conditions
• Resident participation in governance of CLT
provides additional ‘sense of ownership’
• No resident opportunity to build equity
• Requires ongoing support for resident
governance
• Challenging for CLT to staff property
management of small buildings
A Community Land Trust (CLT) is a community-based nonprofit formed specifically for the purpose of holding land for long term community use including affordable housing. CLTs often own land under single family homes, selling the home to lower income residents and entering 99-year ground leases which restrict the home resale price to maintain affordability. But CLTs also commonly play a similar stewardship role in multi-family buildings. In some cases, CLT hold land and then sell the buildings to their residents either as co-ops or BMR condos. In other cases, CLTs own and manage rental properties. CLT rentals can look and feel like any other nonprofit rental or they can be set up to provide some of the feel of ownership.

The San Francisco Community Land Trust is one of the 8 community organizations that have been certified by the City of San Francisco to participate in COPA purchases but to date they have not purchased any COPA properties. Prior to COPA, they did purchase several buildings through the City’s Small Sites program. The Land Trust refers to these small properties as “coops” though none have formally been incorporated as cooperatives. The Land Trust owns the buildings as any other nonprofit owner would and enters traditional leases with individual building tenants. The CLT is a membership organization with reserved seats on its board of directors for tenants. This direct democratic governance provides some power to tenants who otherwise have no formal legal ownership rights. Residents in these buildings earn no equity.

However, the program is designed to feel like ownership by giving the informal association of tenant’s broad discretion to make the key decisions that impact their building and relying on them to perform limited self-management. Some of these properties are engaged in a process of preparing for eventual LEHC conversion while others have no plans for conversion. The new South Bay Community Land Trust may be able to play a similar role in San José.

Permanent Real Estate Cooperative
Multi-building corporation formed to provide homeownership like experience but with access to Direct Public Offering financing.

Advantages: Disadvantages/challenges:
• Can be set up quickly. No new corporation or
subdivision map
• Security of housing and housing costs over the
long term
• Some equity gain over time
• Possibly declining rents over time
• Some degree of resident control over housing
quality and conditions
• Very new model, relatively untested
• Requires creation of new PREC corporation,
new board, etc.
• Complex securities regulation for Direct
Public Offering to investors
• Requires ongoing support for resident
governance
• Challenging for PREC to staff property
management of small buildings
Attachment E
21 • Resident participation in governance of PREC
provides additional ‘sense of ownership’
The Permanent Real Estate Cooperative (PREC) model was created by the Sustainable Economies Law Center and pioneered in practice by the East Bay Permanent Real Estate Cooperative in West Oakland to provide an alternative to the Limited Equity Housing Cooperative. The model was designed to “simulate homeownership as closely as possible” while still offering a more centralized and easily financeable organizational structure. A PREC is incorporated as a consumer cooperative (like REI) but not as a LEHC under California law. This difference allows a PREC to include investor members who are not residents. EB PREC sells shares for $1,000 to individual investors through a Direct Public Offering (DPO) and provides very limited annual returns (less than 5%) to investors.

They use the money raised in this way to finance the purchase of housing and community real estate. Their first project was a 4-unit apartment building purchased with $100,000 of investor funds (along with other traditional public and private financing). The residents in PREC property are just members of the coop in the same way as other investor/members but they have special rights over management of their building. And just like purchases at REI qualify members for a patronage refund each year, PREC tenants earn a refund each year based on their rent payments (assuming that the building is profitable). These refunds are held in an account for residents and can be paid out when a resident moves out – providing a form of limited asset building – possibly comparable to the returns from a LEHC.

But possibly more importantly for tenants, the PREC model proposes a new kind of lease which they call a “diminishing rent lease” which, they claim, will reduce rents over time as a building’s mortgage is paid off. This declining rent is one of the biggest financial differences between LEHC and nonprofit rental properties. In most nonprofit buildings, rents generally rise with inflation, even when mortgages are paid down. Any extra income is generally used to fund building reserves, or to fund organizational sustainability for the sponsoring nonprofit – which ultimately helps provide affordable housing to other tenants. But in most co-ops resident boards do everything in their power to keep monthly charges low so that initially below market rents often get much lower over time. It remains to be seen whether the PREC model will deliver on this promise. The board of a PREC that owns multiple buildings may be reluctant to lower already low rents in one building even as they face unexpected expenses in another. But the model shows that the elements of homeownership can be pulled apart and it is possible to offer many of the benefits without all the organizational overhead of a LEHC.

Recommendations:

Larger buildings:

For buildings with 20 or more units, conversion to LEHC seems like the best way to offer homeownership. These buildings will also be the most attractive to non-profit rental operators.

The city should plan for two potential paths:

Attachment E
22 Direct to Coop: Because of the uncertainties and challenges with later conversion, it would be simpler to create cooperatives at the time of initial purchase. However, it typically takes many months to a year or more for residents to organize an effective association, negotiate purchase, arrange financing, and form a legal cooperative corporation. Most sellers would presumably not be willing to wait for a co-op conversion process but there are likely some sellers who would agree to a longer time frame either because they are socially motivated to support resident ownership or because they believe that they will be able to get a better price for their building from a cooperative purchase.

In these special cases, a nonprofit sponsor might negotiate a longer purchase timeline with the seller to complete the co-op conversion process directly.

Nonprofit rental with option to convert: More commonly, the sponsor would purchase the building and manage it as an affordable rental while the conversion to co-op was explored. The City could develop a standard attachment to its Affordability Restrictions which provides tenants with an enforceable option to purchase a building as a cooperative. This document would spell out conditions including the level of tenant participation and necessary steps tenants would need to take before any sale but would ensure that tenants could form a co-op at any time and purchase the building at a fixed price based on the nonprofit owner’s costs.

Smaller buildings:

Because of the challenging governance and financing issues, it is less likely that buildings with fewer than 20 units could successfully convert to formal LEHC ownership.

For the (somewhat rare) small properties where the current tenants are all able to qualify for (and afford) a mortgage, condo conversion could offer an appropriate option. However, the time required to complete condo conversion may create a need for a temporary ownership strategy.

For very small properties (2-3 units) where tenants can qualify for loans, Tenants in Common (TIC) ownership may be the best interim ownership option while condo conversion is completed.

For buildings with more than 2-3 units, TIC ownership seems impractical. If sellers of these buildings are not willing to wait many months for condo conversion, a nonprofit could serve as the interim owner. However, the nonprofits most likely to be willing to undertake small sites development may be less interested in investing their limited staff capacity in buildings with tenants that have the financial resources necessary to complete condo purchases.

Mixed ownership/rental provides another option which should be explored. If it were possible it could expand the number of potential buildings and allow the program to meet the needs for more vulnerable tenants, while still offering ownership to some residents.

Even if mixed ownership is possible, most small properties would likely not be appropriate for condo ownership. These properties would need to be financed as affordable rentals. While traditional nonprofit rental should meet most tenant’s needs, in cases where tenants strongly prefer ownership and are willing to play a more active role, the two hybrid models (Community Land Trust and Permanent Real Estate Cooperative) can offer a ‘sense of ownership’ to residents Attachment E
23 in buildings that are more traditionally financed. The City could engage with a nonprofit sponsor to adopt one or the other of these models to the San José context.

The current COPA proposal would exempt single family properties but, if the ordinance is applied to single family properties, fee-simple ownership would be the only appropriate ownership model. It might be possible for a nonprofit to own single family units, rent them temporarily and eventually sell them to homeowners (either the current tenants or others whenever tenants vacate). However, because of the strong demand for single family homes, it may be difficult for nonprofits to finance market rate purchases without increasing rents on current tenants which may make nonprofit ownership impractical.

Summary:

Table 3: Recommended approach for different building types Building Type
Tenant
Mix
Recommended
Approach
20+ Unit Buildings
Most tenants Low-income
(<80% AM)
Nonprofit rental with resident option to purchase.
20+ Unit Buildings
Most tenants low to moderate
income (60-120% of AMI) Limited Equity Housing Cooperative 4-19 Unit buildings Low-income (<60% AMI) Hybrid rental 4–19-unit buildings in
relatively good
condition
Most tenant’s middle income
(80-120% of AMI) with strong
credit Condo Conversion
1–3-unit buildings –
All tenants middle income (80-
120% of AMI) with strong
credit
Tenants-in-common with plan to convert to
Condo.

Building capacity for TOPA conversions:

1. Preservation Project Capacity Building Funding
The city could issue an RFP and select one or more local nonprofits to receive multi-year contracts staff the conversion process. Two roles are key and they could be performed by the same organization or two different nonprofits:

Preservation Sites Pre-development: The city will need one or more experienced real estate developers to undertake the time-consuming task of evaluating the feasibility of purchasing many small properties. While some of this pre-development cost can be recovered through a developer fee at the time of purchase, the timelines and complexity of TOPA are likely to mean that a potential nonprofit sponsor will evaluate many buildings for each one that they successfully purchase and it is unlikely that developer fees will be large enough to compensate for the level of upfront work. San Francisco set aside $3.5 million to fund 3-year direct operating grants to qualifying nonprofits pursuing Small Sites acquisitions. These grants enabled the selected organizations to hire permanent staff dedicated to small sites acquisitions and to pay for other soft costs.

Attachment E
24 Tenant Support and Organizing: In addition to the usual real estate development tasks, a TOPA conversion also requires some level of tenant outreach, education and organizing support. While purchases for permanent nonprofit rental ownership may require less staffing in this area, any of the ownership models will require significant time engaging with tenants individually and in groups prior to purchase, even if the plan calls for a period of nonprofit ownership before conversion to resident ownership. As above, the organization leading this work will invest in many buildings that are not successfully purchased for each one that is acquired.

2. Preservation Project Stewardship Support
Regardless of the model that is implemented, TOPA conversions for smaller buildings will require extra expenses for property and asset management, tenant support and ongoing monitoring – over and above the typical per unit share of rents allocated for management expenses. The lack of economies of scale have been the major barrier to non-profit or tenant ownership of the kind of smaller buildings which make up much of San José’s housing stock. To address this barrier, the City could develop alternative mechanisms to provide supplemental funding for this work including:

Budgeting for Stewardship: Operating budgets for COPA properties should be designed to incorporate an additional line item for COPA stewardship. This annual cost would initially compensate nonprofit sponsors for higher-than-average staffing needs of COPA buildings (including supporting leadership development and tenant involvement in management and preparing for possible later conversion). Once a building converts to tenant ownership, this line item would be used to compensate the nonprofit sponsor (or third party) for ongoing support and monitoring of the Cooperative or HOA. Including these expenses in annual operating budgets will generally require a larger initial investment of subsidy per unit than would otherwise be needed.

Conversion Costs: If the city pursues a policy which relies on initial nonprofit ownership with possible future conversion to tenant ownership, it makes sense to put in place a mechanism to compensate and even incentivize the nonprofit sponsors to complete conversions. One way to do this would be to set aside funding to provide a fixed per unit conversion fee for each unit that is successfully converted to resident ownership. This fee would function like a developer fee, compensating the nonprofit sponsors for the costs of supporting a conversion. The fee can be capitalized into the development budget at the time of initial purchase and held in a reserve until conversion expenses are incurred.

Some portion of the funds should be accessible in advance of conversion to pay for costs like legal assistance and some withheld until successful conversion.

Attachment F
1 ATTACHMENT F – COMMITTED AND PROPOSED LOCAL, REGIONAL, AND STATE FUNDING SOURCES FOR

AFFORDABLE HOUSING PRESERVATION
Committed Preservation Funding Sources Dollar amount Allocated exclusively to San José?
Status
City of San José – unspent funding allocated for
preservation (TBD)
$22 million, One-time Yes 2023
City of San José – initial housing preservation funding commitment
$5 million, annual Yes 2023
Foreclosure Intervention Housing Preservation Program $820,000-$20.5 million, one-time
No Available
2023
Planned/Proposed Preservation Funding
Sources
Dollar amount Allocated exclusively
to San José?
Status
City
Google Community Stabilization and Opportunity
Pathways Fund
TBD Yes Early
deliberation
City of San José – advocates’ goal for annual funding $25-50 million, annual Yes Early deliberation
Regional
Bay Area Housing Finance Authority, REAP 2.0 Grants $3 million, one time No Available Summer 2023
Bay Area Housing Finance Authority, General Obligation
bonds, San José housing preservation set-aside
At least $10-20 million,
annual
Yes Ballot measure
in 2024
State
California Anti-Displacement and Preservation Program $15.5- $31 million, onetimeNo Introduced as SB 225 (2023)
Annual totals (All existing and potential future
funding sources)
Low est.: $5 million
High est.: $75 million
Attachment F
2 The Figure below shows how the impact of COPA could be significant for San Jose’s preservation efforts in a medium- to longterm scenario where regional and state funding is regularly available.

Figure: Estimated Preservation Funding Sources and Anticipated Impact for Affordable Housing Preservation Timeframe Subsidy available Number of homes (units)
preserved
Number of properties
preserved Funding sources
Short-term
(1-2 years)
$5M annually +
$25M one-time [1]
10 annually +
110 one-time
2 annually +
5 one-time
Mostly local (Measure E,
Low, Moderate Income
Housing Asset Fund,
Inclusionary Housing
Ordinance fees, Commercial
Linkage Fees, SB 2 State
Housing Funds, HOME and
Community Development
Block Grant funds)
Medium-term
(6-8 years)
$75M annually* +
$100M one-time [2]
240 annually* +
210 one-time
20 annually* +
5 one-time
Local, regional, and state
Note: All figures should be regarded as estimates based on available data on building rehabilitation costs and on sales prices for apartment properties sold between 2019 and the second quarter of 2022.
[1] Recurring funds potentially available include $5 million in recurring funds allocated from San José's Measure E; one-time funds potentially available include $22 million from already programmed Measure E funds and approximately $3 million from BAHFA REAP 2.0 Funds. [2] Assumes potentially available annual funding of up to $20 million annually from a BAHFA preservation funds set aside for San José and up to $50 million in local preservation funds from Measure E and/or the Google Community Stabilization and Opportunity Pathways Funds or other eligible housing sources. One-time funding sources include up to $20 million from the Foreclosure Intervention Housing Preservation Program, up to $30 million from a proposed state budget item for affordable housing preservation (the California Anti-Displacement and Preservation Program), and up to $50 million that advocates in San José have proposed be made available from local sources (such as the Google Community Stabilization and Opportunity Pathways fund).

Now is an opportune time for San José to adopt a proposed COPA policy. Policymakers across all levels of government are increasingly attentive to the need for housing preservation strategies and funding. COPA would align with funding opportunities that are expected to emerge for housing preservation at the regional, state, and federal levels. In other words, not adopting COPA would mean that San José could miss out on external funding opportunities for affordable housing. As a result, nonprofit housing providers in the City would struggle to compete with offers from investors and would have more difficulty in using available funding.

Attachment G
1 ATTACHMENT G – Opportunity to Purchase Act (OPA) Case Studies This section reviews two of the most well-known opportunity to purchase acts in the United States: the Tenant Opportunity to Purchase Act adopted by Washington D.C. in 1980,15 and the Community Opportunity to Purchase Act adopted by San Francisco in 2019. The proposed COPA program in San José is most like San Francisco’s adopted COPA program, although the proposed program incorporates some significant changes based from lessons learned from San Francisco.

Key takeaways from Washington D.C. and San Francisco:
• The impact of Opportunity to Purchase Act programs scales with the amount of funding allocated to housing preservation. Over 4,000 units have been acquired and preserved via TOPA in Washington, D.C., with over 2,000 of those units acquired since 2015. The large increase in the number of units preserved in recent years coincided with significant new investments that were made in D.C.’s Housing Production Trust Fund. 16 • There has been no evidence in either of these major cities that Opportunity to Purchase Act programs decrease property values. In jurisdictions where Opportunity to Purchase Act programs have been adopted, changes in property values following the passage of these policies have been in line with those in neighboring jurisdictions without Opportunity to Purchase Act policies.
• Subsidies are required to ensure that nonprofit buyers can acquire properties and stabilize and/or right-size renters’ rents. As with all efforts to increase the number of deed-restricted affordable units, acquiring apartment properties and converting them to permanently affordable housing requires public subsidies to cover the gap between sales prices and the debt that can be supported by renter families’ incomes. • Opportunity to Purchase Acts can be used to support the conversion of rental properties to Limited Equity Cooperatives. In Washington, D.C., TOPA has been used to support the conversion of 99 properties from rentals to limited equity cooperatives, providing renter families with the ability to gain ownership stakes in their properties while also guaranteeing their housing stability.17
• Statement of intent periods should be longer than what was proscribed under San Francisco’s COPA to increase program effectiveness. In San Francisco, QNPs have purchased 234 units across 16 properties through the COPA program since 2019.

However, stakeholders in San Francisco report that these numbers would likely be higher 15 Tenant Opportunity to Purchase Acts function similar to Community Opportunity to Purchase Acts except 16 https://mayor.dc.gov/release/mayor-bowser-unveils-unprecedented-400m-investment-housing-production-trustfund 17 https://shelterforce.org/2020/07/24/giving-tenants-the-first-opportunity-to-purchase-their-homes/ Attachment G
2 if QNPs had more than 5 days to respond to property owners’ letters of intent to sell.18,19 In response to this feedback, Housing Department staff are proposing a 15-day period for QNPs to issue a Letter of Intent that they plan to submit a purchase offer on a particular property listing.
• In San Francisco, neighborhood-focused affordable housing providers are the most active QNPs to have utilized COPA to date.

Note that several other jurisdictions in the Bay Area, including Berkeley, Oakland, East Palo Alto, and Mountain View, have either proposed Opportunity to Purchase Acts or are actively exploring such policies.

Washington D.C.

Adopted in 1980, Washington D.C.’s TOPA prevents the loss of the City’s affordable housing stock. In the three years before its passage, the City lost 8,000 units and had 6,000 units pending conversion. 20 The alarming rate in which the city was losing its affordable units meant that thousands were at risk for rent hikes and evictions. TOPA was enacted to give tenants the first rights to purchase their buildings to stabilize the city’s neighborhoods and prevent displacement of long-term residents. The policy provides right of first refusal to tenants and qualified nonprofits and provides right of first purchase only to tenants. TOPA applies to all property types and provide extensive timelines for tenants to register interest (15-45 days), negotiate and place an offer (90-135 days), and close on the property (90-240 days). 21 These long timelines reflect the fact that the policy is targeted towards tenant acquisition opportunities, given that tenants require ample time to execute purchases because they are non-professionals in the property acquisition and property management fields.

As of 2019, Washington D.C. preserved 4,400 through TOPA, with 80 percent of those units preserved after 2002. 22 The improved efficacy of the program over the last two decades is due in large part to the City’s increased investment in housing preservation efforts. For example, D. C’s Housing Production Trust Fund (HPTF), a fund to help preserve and produce affordable housing was established in 2002, and in 2004 the City began allocating Community Development Block Grant (CDBG) funding to nonprofits to provide organizing and technical assistance to tenants receiving TOPA notices. Most recently, the City has committed a record $400 million to HPTF 18 Housing Department staff interviews with San Francisco stakeholders, June – July 2022; see also San Francisco Chronicle, Jan. 24, 2020: https://www.sfchronicle.com/bayarea/article/City-officials-want-landlord-to-delay-sale-of76-15002958.php 19 Stakeholders in San Francisco also report that the COVID-19 Pandemic reduced the impact of the COPA program passed in late 2019. Listings of multifamily property sales slowed during this period, as property owners responded to declining rents by holding properties that may have otherwise been put up for sale. As a result, fewer buildings were available for purchase by nonprofits than would have been the case in a normal year. 20 https://code.dccouncil.us/us/dc/council/laws/docs/3-86.pdf 21 https://cnhed.org/wp-content/uploads/2021/01/Opportunity-to-Purchase-Policy-Options-for-the-City-ofMinneapolis.pdf 22 https://dhcd.dc.gov/sites/default/files/dc/sites/dhcd/page_content/attachments/Final%20LEC%20Recommendations_

10.21.19.pdf
Attachment G
3 for the 2022 fiscal year. 23 D.C. also continues to explore public and private partnership to fund building acquisition through the Housing Preservation Fund. 24 Between 2015 and June of 2021, over 2,000 units were purchased through D.C.’s Department of Housing and Community Development (DHCD) TOPA acquisition funding across 26 projects. 25In Fiscal Year 2014, one-third of all multifamily transactions went through TOPA. 26 San Francisco
San Francisco adopted a COPA policy in June 2019 that gives qualified nonprofit organizations the right of first offer and the right of first refusal to purchase multifamily residential buildings with three or more units. The City’s policy provides five days for qualified nonprofits to register interest, 25 days to make an offer, and an additional 60 days for due diligence.

The evidence from San Francisco confirms that it is faster and less expensive to preserve affordable units where families are already living through COPA rather than build new affordable housing developments. The Mayor’s Office of Housing and Community Development (MOHCD) reported that as of December 2022, 234 residential units have been preserved through COPA. At time of acquisition, the average city loan for these projects was valued at $334,000 per unit. 27 For comparison, the total cost per unit in affordable housing projects built between 2018 and 2020 in San Francisco was more than double, at about $675,000. 28 Funding for projects acquired through COPA is generally provided in two phases. To ensure that QNPs can close quickly on their offers, QNPs typically receive an initial acquisition loan from the San Francisco Housing Accelerator Fund, an independent nonprofit that functions as a public-private partnership, although some acquisition loans have been provided directly by the Mayor’s Office of Housing and Community Development. This acquisition loan is subsequently “taken out” by permanent financing one to three years after the initial acquisition occurs, which typically includes a bank loan and a long-term loan issued by a public agency.

Program efficacy (in terms of number of units preserved) has been limited for several reasons.

San Francisco’s COPA program went into effect six months before the onset of the COVID-19 Pandemic, which resulted in a major disruption to the multifamily residential market and a slowdown in transactions. Additionally, under San Francisco’s COPA policy, qualified nonprofits only have five days to express interest in a property once a seller has issued a Notice of Sale. If no qualified nonprofit responds within five days, the seller may immediately advertise and offer the building to other purchasers. While this timeframe is intended to limit the disruption of real estate transaction timelines, housing specialists have reported that the short timeline reduces COPA’s effectiveness.
23 https://mayor.dc.gov/release/mayor-bowser-unveils-unprecedented-400m-investment-housing-production-trustfund 24 https://content.govdelivery.com/accounts/DCWASH/bulletins/28ee155 25 https://dccouncil.us/wp-content/uploads/2022/02/dhcdatt.pdf 26 https://dhcd.dc.gov/sites/default/files/dc/sites/dhcd/publication/attachments/Greysteel- %20D.C.%20Multifamily%20Market%20Statistics.pdf
27 Data source: San Francisco Mayor’s Office of Housing and Community Development. 28 https://www.spur.org/sites/default/files/Low-Income_and_Moderate_Income_Funding_Gap_Memo.pdf Attachment G
4 Despite these challenges, five qualified nonprofits have acquired 16 properties via COPA since the policy went into effect in September 2019. Nine of the sixteen properties were acquired by one organization, the Mission Economic Development Agency, highlighting the importance of locally based organizations with a deep commitment to preserving or improving the affordability of housing for their community members.

The available data from San Francisco does not suggest any relationship between COPA being adopted and any changes in property values. Figure 19 below shows the average sales prices per unit for 2-unit properties in San Francisco (which were not subject to COPA) versus 3- and 4- unit properties (which were subject to COPA). If adopting COPA in San Francisco had led to decreases in property values, the data would presumably show a decline in property values for 3- and 4-unit properties relative to the value of 2-unit properties. The data shows that property values per unit were already trending downward for 3- and 4-unit prior to COPA being approved, but shortly after COPA went into effect this trend reversed and property values per unit for 3- and 4-unit properties increased in line with 2-unit properties. The COVID-19 Pandemic resulted in greater fluctuations in average sales price for 3- and 4-unit properties, but by Q3 of 2021 the average price per unit for these properties had returned to the values seen in the beginning of 2021.

Figure 3: Average sales price per unit for properties subject to COPA (3- and 4-plexes) versus properties not subject to COPA (duplexes) in San Francisco, 2019 Q1 – 2021 Q3 Source: Multiple Listing Service, 2019-2021
Attachment H
1 ATTACHMENT H – Additional Data and Analysis
This section provides additional detail and support for the findings covered in the body of the memorandum. It reviews additional evidence on the impacts of displacement, reviews data on how displacement disproportionately affects communities of color, and reviews root causes for higher displacement risk.

I. Displacement disproportionately impacts communities of color As discussed in the analysis included in the main body of the memo, communities of color are disproportionately impacted by displacement. Figure 1 below shows a more detailed data set for Figure 5 in Analysis Section A, showing the breakdown of proportion of population by race/ethnicity for each more different UDP displacement risk category. The data indicates that of the residents who are living in tracts that are “probably” or “definitively” undergoing displacement, roughly half are in the areas that are “probably” undergoing displacement while the other half life in areas that are “definitively” undergoing displacement. This is true across all racial and ethnic groups. The Urban Displacement Project notes that their estimates of displacement should be considered conservative.

Figure 4: Share of San José Residents Living in Neighborhoods Undergoing Displacement or Probable Displacement by Race/Ethnicity, 2019
Displacement
Category
All
People of
Color [1]
White,
NonHispanic
Hispanic
or
Latinx
Black,
NonHispanic
Asian,
NonHispanic
Vietnamese
[2]
Total,
All
Groups
1 Income Group
Displacement [3] 5% 1% 7% 4% 3% 6% 4%
2 Income Groups
Displacement [4] 13% 5% 20% 11% 8% 12% 11%
Probable
Displacement 14% 7% 18% 15% 10% 16% 12%
Total Living in
Areas
Definitively or
Probably
Undergoing
Displacement 32% 13% 45% 30% 21% 34% 27%
[1] “People of Color” are defined as all who self-report their ethnicity as Hispanic/Latinx and/or their race as being something other than white. Note that racial/ethnic groups in this chart are not mutually exclusive. [2] Vietnamese are also accounted for in the “Asian Non-Hispanic” group. [3] Refers to census tracts where only very low-income households (those earnings < 50% of Area Median Income) are being displaced
[4] Refers to census tracts where low-income households (those earning between 50-80% of Area Median Income) as well as very low-income households are being displaced.

Source: Staff analysis of 2019 5-Year ACS Estimates, using Urban Displacement Project California Displacement Risk Model data, 2022.

Attachment H
2 II. Current racial disparities in displacement risk can be traced in part to the City of San José’s historically discrimination against communities of color This sub-section provides additional historical context for data showing that people of color are at higher risk of displacement in San José.

The historical actions of both the federal government and local San José city government were explicitly racist and denied homeownership and wealth-building opportunities to communities of color in San José, creating a moral imperative for the city to address these past harms.

COPA explicitly seeks to stabilize historically disinvested communities, especially communities of color, considering historical government actions against these communities. Prior to the federal Fair Housing Act of 1968, various racially discriminatory practices in the real estate industry were promoted and/or enabled by government actors. For example, assessors for the Homeowners’ Loan Corporation, a federal agency, worked with City of San José staff in the 1930s to develop maps with four categories of investment risk based on the racial composition of each neighborhood. These maps directly and indirectly shaped public and private investment in neighborhoods in the ensuing decades. Additionally, in San José, the period between World War II and 1968 coincided with a massive expansion in the City’s housing stock and in its physical geography. However, this expansion in the housing stock occurred overwhelmingly in areas that the City annexed and zoned for single-family homes, at a time when homeowners of color were either explicitly excluded from government-backed lending programs for single-family homes or were unable to afford the cost of this housing type. For more information on the history of housing discrimination in San José, see the City’s Assessment of Fair Housing.29 Past city actions have disproportionately favored white communities in San José and further exacerbated racial disparities in household wealth in the city.

In the 1960s and 1970s, federally funded highway projects bulldozed through primarily Latinx neighborhoods in San José to provide access to new residential subdivisions that were primarily financially attainable for white households. These infrastructure investments significantly improved access between newer suburban neighborhoods and employment centers, thereby increasing their desirability and value. In contrast, neighborhoods through which major highway projects passed experienced many negative outcomes, including residents’ physical displacement from their existing neighborhoods as homes were demolished to make way for highways, 30 as well as ongoing pollution from additional vehicle traffic for residents living near the new highways. Furthermore, residents who were displaced during these projects were promised they would be offered replacement housing, but this obligation was never fulfilled.

The legacy of historical government-backed discriminatory practices is a persistent wealth and income gap between white and non-white households, especially Black, Latinx, and Indigenous households.

White households that were able to purchase homes through New Deal programs and especially during the post-World War II period were able to pass down these assets and/or intergenerational wealth to their children and grandchildren. However, both locally and nationally, households of 29 https://www.sanjoseca.gov/home/showpublisheddocument/88089/637941041956670000 30 https://historysanjose.org/exhibits-activities/online-exhibits/welcome-to-eastside-art-history/ Attachment H
3 color were explicitly or implicitly excluded from much of this wealth-building, resulting in disparate access to homeownership opportunities for households to this day for their descendants. Given that homeownership has been one of the primary vehicles for wealth building in the U.S. since World War II, racial exclusion during this period was a major contributor to a significant wealth gap between white households and non-white households, especially Black, Latinx, and Indigenous households. 31
Because Black, Latinx, Indigenous, and Asian households were restricted from specific neighborhoods in the post-war period by law, or in later decades, by price, this also locked in other specific advantages for mostly white households. Many of the neighborhood features associated with upward mobility were primarily located in the highest resource neighborhoods where non-white households were largely unable to purchase homes. For example, district-based school systems in which well-resourced schools have higher graduation rates and which provide greater opportunities for students to attend college are, and historically have been, located in these neighborhoods. With better educational opportunities, children growing up in wellresourced neighborhoods tend to be better positioned to access white-collar and professional jobs into the present day.

III. Racial disparities in displacement risk and other metrics are related to historical and contemporary disparities in homeownership rates
This section shows how COPA’s goals of preventing the displacement of lower-income renters will disproportionately benefit those who were most harmed by the legacy of governmentendorsed and/or government-abetted discrimination, and who are today most at risk of displacement. It reviews data on racial and ethnic disparities on two variables which are highly related to displacement: household income and homeownership.

Displacement risk is higher for lower-income renters since their housing costs are more unstable than those of homeowners and because lower-income households are more likely to be housing cost-burdened. Within the context of historical race-based discrimination in housing markets and the snowballing impacts of this for current San José residents, high housing costs relative to incomes fall the hardest on people of color. Figure 2 shows that 56% of Latinx households and 55% of Black households are housing cost burdened or severely housing cost burdened in San José, as compared with 43% of non-Hispanic white households. This means that a higher share of households of color have a displacement risk factor than is true for non-Hispanic white households.
31 https://www.forbes.com/sites/brendarichardson/2020/06/11/redlinings-legacy-of-inequality-low-homeownershiprates-less-equity-for-black-households/?sh=5bcb6f552a7c Attachment H
4 Figure 5: Share of Housing Cost Burden by Race and Ethnicity, 2019 The higher incidence of housing cost burdens for Latino/a/x, Black, and other people of color is related to the fact that these groups tend to have lower incomes than non-Hispanic whites. Figure 3 below shows that a significantly larger share of households of color in San José have incomes under $100,000 today. Hispanic/Latino/a/x households and African American households are roughly 1.5 times as likely to be earning incomes under $100,000 than non-Hispanic white households.
2% 1% 2% 2% 1% 1%
22% 23% 20% 18%
29% 36%
21%
32%
21% 23%
27% 18%
56%
44%
57% 58%
43% 45%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Not Housing Cost
Burdened
Severely Housing Cost
Burdened
Housing Cost Burdened
Not Computed
Attachment H
5 Figure 6: Share of Households Earning Below $100,000 Annually by Race/Ethnicity of Householder, 2021
Note: Data for households identifying as races other than non-Hispanic white may also include those self-identifying as Hispanic/Latinx.

Source: American Community Survey, 2021.

The rate of homeownership decreases as a function of income, meaning lower income households – who are disproportionately households of color – are less likely to be homeowners.

Only 33% of households in San José earning between 0 and 30% of Area Median Income own their homes, whereas 71% of households earning more than the Area Median Income own their homes (Figure 4). 32 The high sales prices of homes, condos, and townhomes means that many lower income households are unable to access homeownership in San José and are likely to continue to be renters.
32 The Area Median Income was $102,500 for a household of one in 2019. 30% of Area Median Income was therefore $30,750.
59%
64%
33%
53%
36%
55%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Black/ African
American
American Indian,
Hawaiian, or
Pacific Islander
Asian Other/ Bi- or
Multi-Racial
Non-Hispanic
White
Hispanic/Latinx
Attachment H
6 Figure 7: Renter/Homeowner Status by Household Income Level, 2019 Source: Comprehensive Housing Affordability Strategy, 2015-2019 The rate of homeownership in San José is lower among households of color than it is of white households, contributing to higher displacement risk for people of color.

For the reasons discussed in the Section II of Attachment B, households who amassed wealth through their properties in the 1950’s, 60’s, and 70’s were far more likely to be non-Hispanic white. As a result, families of color were less likely to be able to pass on intergenerational wealth to their family members or heirs than white households.33 Many households today afford down payments with the assistance of intergenerational wealth. It is in this context that the homeownership rate is significantly higher for non-Hispanic white households (66%) in San José than it is for Black, Latinx, and Indigenous, and other non-white groups (Figure 5). 33 https://www.forbes.com/sites/brendarichardson/2020/06/11/redlinings-legacy-of-inequality-low-homeownershiprates-less-equity-for-black-households/?sh=5bcb6f552a7c 67%
56%
47% 44%
29%
33%
44%
53% 56%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0-30% of AMI 30-50% of AMI 50-80% of AMI 80-100% of AMI Greater than 100% of AMI
Renter Households Homeowner Households
Attachment H
7 Figure 8: Housing Tenure by Race of Householder
Cost burden and severe housing cost burden are acute among lower-income renters Housing cost burdens are most acute for lower income renters in San José. Housing is unaffordable to 82 percent of very low-income households and 84 percent of extremely lowincome renter households in San José, as shown in Figure 6 below. 34,35 34 ¨Very low income” households are defined by federal and state housing agencies as those with household incomes below 50 percent of the area median income (AMI), while “extremely low income” households are defined as those with incomes below 30 percent of AMI. AMI is the median income of all households in each county and is adjusted for the number of people living in each household. AMI in Santa Clara County was $125,200 for a family of four in 2018, so the maximum income for a household considered “very low income” at this time was $62,600 and the maximum income for a 4-person “extremely low income” household was $37,560. These household income are significantly higher than what most people colloquially consider to be “very” or “extremely low income.” However, city staff are utilizing these official definitions for the purpose of this memo and in designing the proposed COPA policy because various government-administered housing finance programs utilize these income designations for program eligibility, including those that might eventually partially subsidize property acquisition in a city COPA program.
35 The U.S. Department of Housing and Urban Development defines housing to be affordable when renter households are paying no more than 30 percent of their incomes towards housing costs. Households are considered “housing cost burdened” if they pay more than 30 percent of their income towards rent and “severely housing cost burdened” if they pay more than 50 percent of their income towards rent.

Attachment H
8 Figure 9: Share of Renters who are Housing Cost Burdened by Income Level, 2014-2018 Extremely
Low-Income
(<= 30% of
AMI [1])
Very LowIncome
(<= 50% of
AMI)
LowIncome
(<= 80% of
AMI)
Total, All
LowerIncome [2]
Percent Cost Burdened (paying
more than 30% of income
towards housing costs)
84% 82% 58% 76%
Percent Severely Cost Burdened
(paying more than 50% of income
towards housing costs)
64% 37% 14% 43%
[1] AMI = Area Median Income.
[2] For the purposes of this memo, “lower income” refers to all households earning up to 80% of Area Median Income.

Source: CHAS, 2014-2018.

Lower-income renters today are unable to achieve housing cost stability via homeownership because they are priced out of the sales market.

Historically, many families in San José and throughout the U.S. have been able to lock in relatively stable housing costs and dramatically reduce their risk of displacement by becoming homeowners. However, as home prices have increased dramatically in San José over recent decades, homeownership has become out of reach for a growing share of renters in San José. As of September of 2022, the median price for a home in San José was $1.45 million, and the estimated household income needed to afford a median priced home in San José is about $160 per hour, or $333,494 annually, while the minimum wage in San José is only $17 as of 2023, or $34,000 annually. As a result, only one in eight families can afford a median-priced singlefamily home in San José as of Q1 2023. 36 Additionally, saving for a down payment has become more challenging as a higher share of renter families are paying higher shares of their incomes towards rent. These data points highlight the reality that many lower income renter families and even moderate-income families will very likely be forced to continue renting indefinitely if they continue living in San José because they are priced out of the sales market.

In addition to lower-income renters, undocumented individuals are at high risk of displacement both due to their higher likelihood of working in informal arrangements and due to their precarious status within the United States.

Data on undocumented households is notoriously difficult to come by due to the risks associated with disclosing ones’ undocumented status and, by consequence, undocumented individuals’ reluctance to participate in surveys and censuses. However, it is well-understood that there are many undocumented families in San José, and that many are very low income and working lowpaying jobs due to their limited opportunities to work in formal arrangements.

Federal inaction on immigration has meant that many undocumented residents of San José are long-time residents. Business owners in San José include undocumented people, underscoring 36 https://www.sanjoseca.gov/home/showpublisheddocument/92214/638047084728700000 Attachment H
9 how undocumented people are important to the fabric of the community and their displacement risk affects the larger collective.

Undocumented households are at a particularly high risk of displacement not only because they are highly likely to be lower-income renter households, because many are unwilling to report landlords who attempt to evict them or increase their rent illegally out of fear of involving local authorities. Additionally, many may not understand their rights due to lack of familiarity with the City’s policies or with English-language resources that can help them understand their rights.

IV. Lower income renters live throughout San José, and renters at risk of displacement therefore live through the City
This section displays data on the neighborhoods with renters who would be most likely to benefit from COPA. There are lower-income renter households living in every Council District, but Council Districts 3, 5, and 7 have the highest shares of lower-income renters.

Citywide, about 30% of renter households have annual incomes below $50,000 and 44% of renter households have incomes below $75,000. Council districts 3, 5, and 7 have a significantly higher share of renter households with incomes below $50,000 than the citywide average. Figure 7 below shows that there are especially high numbers of households earning below $50,000 per year in Council Districts 3 (56%), 5 (56%), and 7 (66%).

When considered along with the data in Figure 15 (Section V) indicating that 84% of all San José households earning below $50,000 annually and 75% of all households earning between $50,000 and $75,000 annually are housing cost-burdened, this data strongly suggests that lower income residents who are housing cost-burdened and at risk of displacement live throughout San José.

Figure 7: Lower-Income Renter Households by San José City Council District Total
Number of
Renters
Total
Renters
Earning
Under
$50,000
Total
Renters
Earning
Under
$75,000
District 1 20,735 4,811 7,837
District 2 12,214 3,062 5,049
District 3 22,860 9,687 12,855
District 4 20,164 3,467 4,753
District 5 11,551 4,598 6,518
District 6 25,421 7,986 11,696
District 7 12,086 5,757 7,977
District 8 5,219 1,577 1,946
District 9 15,024 3,473 5,370
District 10 9,323 2,359 3,622
Source: American Community Survey, 2016-2020.

Attachment H
10 Renter households of any income are distributed throughout the city, with the largest concentrations generally living in the northern half of the City.

Figure 8 below shows that in numerical terms, very large numbers of renter households live in Districts 1, 3, 4, and 6. While many of these households may be above the income targets established by COPA, it is important to note that the presence of many renters in these areas indicates that there is significant rental housing stock in these areas. As newer buildings age and eventually become affordable to lower-income households, the rental housing stock in these neighborhoods may gradually become appropriate for COPA acquisitions.

Figure 10: Number of renter-occupied households by census tract Source: American Community Survey, 2016-2020
Data on the share of renters living in each neighborhood tells a somewhat different story. The neighborhoods with the highest shares of renters (Figure 9) fall within Council Districts 1, 3, 4, 5, 6, and 7, and certain pockets of District 4. These neighborhoods include some in Downtown San José; in East San José from the border of Downtown to Alum Rock; in the Rincon and Golden Triangle areas of North San José; and in the Winchester, Paseo de Saratoga, and Stevens Creek neighborhoods of West San José.

Attachment H
11 Figure 11: Share of Renter Households by Census Tract Source: American Community Survey, 2016-2020
Displacement risk is highest for the lowest income renter households, who currently tend to be concentrated in neighborhoods within Districts 3, 5, and 7.

Of the census tracts with high shares of renter households, some tracts have much higher shares of households that are earning below $50,000 per year – and therefore at higher risk of displacement -- than others (Figure 10).

Attachment H
12 Figure 12: Share of Renter Households Earning $0 to $49,999 annually A moderate share of renter households in many areas of the City are earning between $50,000 and $75,000 per year.

Figure 11 below shows the share of renter households earning between $50,000 and $75,000. A renter household of one person with an income within this range is still considered low income; larger households who are earning incomes in this range could be considered either very low income or extremely low income depending on the number of people in the household.

Attachment H
13 Figure 13: Share of Renter Households Earning $50,000 to $74,999 annually Households earning between $75,000 and $99,999 annually are relatively evenly distributed throughout the City.

While households who earn between $75,000 and $99,000 are not commonly thought of as being at risk of displacement, households in this income category are considered low income or very low income (depending on household size) according to official definitions. Additionally, the data presented in Figure 15 (Section V) indicates that around half of households in this income category are housing cost burdened. Some households in this income category could potentially be served by COPA if their household income (adjusted for household size) is below 80% of AMI.

Figure 12 shows between 5 and 25% of renter households in many neighborhoods throughout the city have incomes between $75,000 and $100,000.

Attachment H
14 Figure 14: Share of Renter Households Earning $75,000 to $99,999 annually V. Housing costs have grown faster than incomes for lower income households in San José, exacerbating displacement risk.

Housing costs have grown significantly over the last 20 years across the region and are now among the highest in the nation,37 with significant negative implications for lower-income households whose wages have stagnated. Silicon Valley witnessed a tremendous amount of growth within the tech industry within the last two decades as tech firms added thousands of high paying jobs. As new workers arrived in the region, demand for housing increased. While new construction of market-rate housing has addressed some of this new demand, a share of these higher-income workers compete for housing with moderate- and lower-income households in what were historically “naturally occurring affordable housing” options. In summary, rents have increased even in older properties.

The increase in housing costs has not been accompanied by a commensurate increase in wages for lower- and middle-income San Joséans. While the median income in San José increased over 37 https://www.apartmentlist.com/research/national-rent-data Attachment H
15 the last 20 years and is much higher than in other parts of the country, the local median income increase occurred only because of income growth for the highest income earners in the area.

Wages for households earning below the median income decreased between 2000 and 2019 after adjusting for inflation, as shown in Figure 13. In contrast, incomes for higher income earners increased significantly for the City’s highest income earners since 2000. As a result, higher income households are much more likely to continue being able to afford housing in San José, whereas lower- and middle- income households face difficult decisions about the financial sacrifices they must make to continue living in the area.

Figure 15: Change in Earned Income for Full-Time Wage and Salary Workers in San José, 2000-2019
While the growing gap between incomes and housing costs is a crisis that the entire Bay Area faces, the problem is most acute in the Santa Clara County. Rent growth in Santa Clara County outpaced income growth at a rate faster than in any other Bay Area county between 2010 and 2015, shown in Figure 14 below. San Mateo County had the second highest growth in housing costs relative to median incomes, corroborating the relationship between fast employment growth across Silicon Valley and steep housing cost increases in the area. Change in earned income, 2000-2019 Income percentile
Attachment H
16 Figure 16: Change in median gross rent compared to change in median incomes in ninecounty Bay Area, 2010-2015 Source: SPUR, 2017. “Room for More”
While San José has been successful in producing a significant number of new deed-restricted affordable housing with below-market rate rents, these units have also been deeply insufficient to meet the growing demand for below-market rate housing options that serve the city’s lowerincome residents.

As housing costs have increased, lower income households are significantly more likely to be housing cost burdened than they were ten or even five years ago.

In the context of rising housing costs and declining incomes for lower income groups in real terms, lower income renter households in San José are much more likely to be housing costburdened than they were ten or even five years ago, as shown in Figure 15. The share of renter households earning between $50,000 and $75,000 annually who were housing cost burdened nearly doubled between 2010 and 2020. Similarly, the share of renter households earning between $75,000 and $100,000 who were cost burdened nearly tripled during this time.

Households in these income categories may have shrinking discretionary incomes, which can result in less opportunities to save money for things like a down payment on a house.

It is important to observe that rates of housing cost burden are consistently highest for the lowest income households (those earning between $0 and $50,000 annually). This is particularly concerning because extremely low-income families who pay high shares of their income towards housing costs often must forgo other necessities, such as building emergency savings or even paying for medical care or food.

Attachment H
17 Figure 17: Share of Cost Burdened Renter Households by Income Range, 2010-2020 Note: Income categories not adjusted for inflation.

Source: American Community Survey, 2010-2020.

It is in this context that 48% of renter families overall in San José are housing cost burdened, meaning they pay more of their monthly income towards housing costs than is considered advisable by the U.S. Department of Housing and Urban Development (HUD). Figure 6 in Section III shows similar data with the rates of housing cost burden and severe housing cost burden for the HUD-defined income groups (e.g. “low income,” “very low income,” and “extremely low income.”)
Property turnover can lead to displacement for households that are already housing cost burdened.

A landlord’s decision to sell their property can create a housing emergency for renter families.

This is because investment-motivated buyers may have strong incentives to take actions that increase their return on investment, including by levying rent increases that renter families cannot afford. There are numerous blogs, guidance articles and industry magazine articles on multifamily ‘repositioning’ and ‘value-add’ financings that all focus on rent increases as a core strategy. 38 Anecdotally, there is evidence that investors are buying properties in San José above fair market value under the assumption that they will raise rents to the extent allowable by law.

High purchase prices are backed by large amounts of debt that require higher rents to pay the debt. Property owners who purchase above market value therefore understand that they will need to raise rents or, as tenants move out, re-rent their units at higher rental rates to service the debt on the property.

While the City’s Apartment Rent Ordinance (ARO) regulates how much rent can increase and protects renter families from dramatic rent spikes, families living in properties owned by return38 Examples: “Repositioning Your Investment Property for BIG Profits,” http://apartmentvestors.com/blog/repositioning-big-profits; “The Three-Step Repositioning Process For Adding Value To Your Multifamily Properties,” https://jakeandgino.com/what-is-the-rat-race-and-how-you-canexit-this-race-2/. 79% 83% 84%
39%
54%
75%
17%
25%
51%
2% 5%
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2010 2015 2020
$0 - $50,000 $50,000 - $75,000 $75,000 - $100,000 $100,000 and above Attachment H
18 driven investors can gradually be displaced by price increases even in ARO properties. For example, a family earning $50,000 per year initially paying $1,500 per month in a rent stabilized building that experiences legally allowable rent increases of 5% for five consecutive years would pay an additional $414 per month towards rent after five years. In other words, the amount of money this household pays towards rent would have increased from 36% of their annual income to 46% of their annual income.

Additionally, ARO excludes certain properties, including duplexes and single-family homes and all rental units first occupied after 1979. Families living in some ARO-exempt properties are only protected by AB 1482, a state law that limits annual rent increases to no more than 10 percent or the equivalent of CPI plus inflation, whichever is lower. 39 However, for the many families who are already housing cost burdened, renter families may not be able to afford an additional rent increase near 10 percent and can therefore be displaced by price increases.

Although relatively uncommon, existing residents can also be displaced by no-fault evictions under the Ellis Act or when apartment buildings owners decide to redevelop properties. Even a single Ellis Act eviction or property redevelopment can impact many families. For example, in 2017 a multifamily apartment building known as The Reserve was approved for redevelopment into new apartment buildings. As a result, over 200 families (and a total of over 600 residents) of the building were displaced. 40
When San José’s lower income families are forced to look for new housing options, they may find few or no options that fit in their budgets. Existing city policies stabilize rents in specific types of properties for as long as the families continuously occupy their units, but the rent can be reset at market rate when that household leaves the property in a process known as “vacancy decontrol.” Over time and as market-rate rents increase, vacancy decontrol contributes to a landscape where a shrinking share of rental units are affordable to lower-income residents. For example, between March of 2019 and August of 2022, tenants vacated over 20,000 units out of about 100,000 rental units in San José (Figure 16). In other words, in a span of roughly three years, about one-fifth of the City’s rental units became eligible to have their rents reset at market rate. 41
39 Renter households living in single-family homes are not protected under AB 1482 unless the home is investorowned. 40 https://sf.curbed.com/2016/7/7/12120678/eviction-san-jose-reserve-apartments-silicon-valley 41 Source : City of San José Rent Registry and Multiple Housing Roster.

Attachment H
19 Figure 18: Number of voluntarily vacated housing units, March 2019 - August 2022 (with projections through June 2023)
*Data from this period reflects the initial status of a unit at the time that property owners first registered their property with the City’s rent registry. Units may have been vacated prior to these dates. ** Data from this period may reflect a higher-than-typical number of voluntary vacancies due to the COVID-19 Pandemic, which caused many people to move residences due to job losses and the widespread adoption of workfrom-home policies. *** 1,601 units were voluntarily vacated between July and August of 2022. Projections through June 2023 assume that units will be vacated at the same rate between September 2022 and June 2023 as were vacated in the first two months of the fiscal year.

Source: City of San José Rent Registry, 2022.

Property turnover can therefore result in both a household-level impact in that renter families may be priced out of their homes, as well as a broader city-level impact as vacated units gradually become unaffordable to lower-income households via vacancy decontrol. These findings highlight the need for policies that intervene during the moment when property owner decides to sell their building.

San José will not be able to build enough new affordable units to address the urgency and scale of affordable housing need, and additional affordability solutions are therefore needed.

As the previous sections have described, thousands of households in San José are housing cost burdened and thousands of rent stabilized units turn over each year, meaning that their rents are eligible to be re-set at market rate. At the same time, Figure 17 shows that an average of only about 100 new affordable units are built every year in San José due to a relative scarcity of affordable housing production funding. While the average number of new units was higher in the last four years (236 units/year), the number of units built during this period still falls far short of what would be needed to address San José’s affordability needs. This data highlights the need for as many solutions as possible to improve affordability citywide. 1,746
10,601
9,272
1,601
9,606
0 2,000
4,000
6,000
8,000
10,000
12,000
March 2019 - June 2020* July 2020 - June 2021** July 2021 - June 2022 July 2022 - June 2023 *** Number of units voluntarily vacated Projected number of units, Sep. 2022 - June 2023 Attachment H
20 Figure 19: Affordable Housing Production Totals During Previous Four Quarters, 2010- 2022
Source: San José Housing Market Update, 2022 Q3
VI. Displacement leads to significant, well-documented negative consequences on a societal and household level, especially for children
Residential displacement damages the environment as workers who can no longer afford to live in San José are forced to commute longer distances to their jobs Because residential displacement can force working households to move to more distant locations, workers who are displaced due to high housing costs commute long distances to retain their livelihoods. A 2021 study commissioned by Caltrans found that large numbers of recent-in movers from the inner Bay Area to the Central Valley have higher rates of “super-commuting,” meaning commuters are traveling 50 miles or more per day to work. 42 This finding confirms that high housing costs in the inner Bay Area result in negative environmental consequences as households are increasingly forced to commute from the Central Valley to reach their work locations in job centers like San José.

Displacement hurts local businesses when workforces can no longer afford to live near job sites Displacement threatens small businesses, particularly because it threatens immigrant communities who are regular patrons of the City’s ethnic-specific businesses. In the San José metro area, immigrants constitute 48% of all small business entrepreneurs and contribute to the economic vitality and overall quality of life to the neighborhoods they are in. 43 They provide 42 See “Displacement and Commuting in the Bay Area and Beyond: An Analysis of the Relationship Between the Housing Crisis, Displacement, and Long Commutes.” https://www.metrans.org/assets/research/psr-20- 03_boarnet_final-report.pdf 43 Staff analysis of data published in New American Economy research report, August 2020. https://research.newamericaneconomy.org/wp-content/uploads/sites/2/2020/08/COVID_SanJose.pdf 183
0 0 0 0 0 0
95 0
348
298
106
192
0 50
100
150
200
250
300
350
400
Q3
2010
Q3
2011
Q3
2012
Q3
2013
Q3
2014
Q3
2015
Q3
2016
Q3
2017
Q3
2018
Q3
2019
Q3
2020
Q3
2021
Q3
2022
Average: 94
units/year
Attachment H
21 unique and culturally relevant services and goods, create jobs, foster relationships between neighbors, and strengthen the community. The displacement of lower-income residents inevitably weakens the small businesses that support them. As demographics and needs change, small businesses are either forced to shift their services or close, further eroding the community’s diversity and cultural identity. The emotional toll of displacement and living with the threat of displacement is significant, affecting mental wellbeing, sense of belonging and community cohesion.

There is evidence that the displacement of families with children is a major factor in declining local school enrollment
Demographic data suggests that families with children may experience displacement from San José at higher rates than families without children. The share of San José households that have children under 18 declined from 38% in 2000 to 33% in 2020, a 13% decrease. See Figure 5 below. Similar trends in many cities across the Bay Area are widely attributed to high housing costs, which make the region prohibitively expensive for many families with children to stay in the area. 44,45
Figure 20: Share of San José Households with Children Under 18, 2000 - 2020 2000 2010 2020
Percentage
change
2000-2020
Total households 276,598 300,111 324,340 +17%
Family households with
children under 18 105,935 111,514 105,775 0%
Share of households with
children under 18 38% 37% 33% -5%
Source: U.S. Census 2000, American Community Survey 2010-2020 Families’ inability to afford housing in San José is also borne out by school district enrollment data, particularly in the areas of the City that have high residential displacement rates. While school enrollment in San José (and across the Bay Area) is declining partially because of demographic trends as households have fewer children, the decline cannot be explained by demographic trends alone. Educators and school district officials report that residential displacement of families is one of the key causes of declining enrollment, as families report having to move to lower-cost areas.

Further, county and city school enrollment data strongly suggest that children from lowerincome families are leaving the area at a much faster rate than that of higher-income families.

Across Santa Clara County, total enrollment declined by 12% between the 2014-15 and the 44 https://www.sfchronicle.com/bayarea/article/Bay-Area-kid-population-17331003.php 45 https://sanjosespotlight.com/silicon-valley-housing-crisis-linked-to-declining-school-district-enrollment-studysays/ Attachment H
22 2012-22 academic years. However, enrollment in public schools across Santa Clara County has declined significantly faster (-15%) than in the County’s private schools (-5%). This is a significant finding because public school students are much more likely to be lower income than those enrolled in private schools.

Recent data on school enrollment from San José also suggests that school district enrollment is declining faster in neighborhoods that the Urban Displacement Project has identified as experiencing displacement (Figure 18). This includes the Mount Pleasant Elementary School District (-38%), San José Unified School District (-29%), the Franklin McKinley School District (-27%), and the Alum Rock Union Elementary (-26%). Although enrollment has declined in almost all San José elementary school districts, the rates of enrollment decline in these school districts are all significantly higher than the county average. They are also higher than rates of decline in wealthier areas of the city, including Cambrian (where enrollment increased by 42%) and Union Elementary (-1%).

Note that there are several factors contributing to declining school enrollment aside from residential displacement, including declining birth rates. Additionally, it has been suggested that as children are graduating from local schools, fewer families are moving to other areas or downsizing than was historically true, meaning that fewer homes are available to younger families with children.

Figure 21: San José Elementary School District Enrollment, 2014-2022 Source: SV@Home Analysis of California Department of Education Public Schools and Districts and Enrollment Multi-Year Summary by Grade, 2022.

Children who undergo displacement have negative educational outcomes, including learning delays and lower school completion rates
For children who experience residential displacement, the negative consequences for their socioemotional development and educational attainment are serious and well-documented. Displaced children experience more absences, lower school completion rates, and increased educational Attachment H
23 delays or behavioral problems.7 According to the National Network for Youth, children are an overlooked segment of the population experiencing housing instability, including homelessness (which can be an outcome of residential displacement):
“Frequent mobility can increase anxiety and is associated with lower student achievement. When students change schools frequently, it is difficult for educators to identify their needs and ensure proper placement. Parents may also have difficulty identifying the difference between academic or social difficulties that result from the stresses of homelessness and mobility.”46
It is worth noting that as the housing affordability crisis affects public school enrollment rates, there are negative impacts for the entire community. For example, the Alum Rock School District recently voted to close two middle schools because enrollment was projected to decline to 6,600 by 2027, a nearly 50 percent decrease from the 2011-2012 school year. 47 Children who remain in San José are impacted by school closures that sometimes force them to attend more distant schools and are also hurt when their classmates and friends are no longer able to continue living in the city.

Residential displacement leads to racial/ethnic re-segregation Although data on the exact number of San José residents displaced does not exist, recent years’ Census data show net migration48 patterns where higher-income individuals constitute most annual net migration into the City and where there has been a net loss of lower-income individuals. Per Figure 6, below, these trends have become more pronounced in the past several years. This finding is relevant for racial resegregation because a higher share of people of color has lower incomes, as shown in Section III. Data in Figure 3 in the Analysis section of the main memo also confirms that people of color disproportionately live-in displacement risk areas, further consolidating that low-income out-movers in Figure 6 are likely disproportionately people of color.
46 National Network for Youth homepage, accessed Dec. 9, 2022. https://nn4youth.org/learn/education/ 47 San José Spotlight, May 4, 2021. https://sanjosespotlight.com/alum-rock-trustees-vote-to-close-two-san-josemiddle-schools/#:~:text=Facing%20a%20deficit%20of%20more,the%202021%2D22%20school%20year 48 Net migration is the number of persons who moved into the City minus the number of persons who moved out of the City and does NOT include changes in population due to births or deaths or due to changes in classification of individuals (e.g., changes in individual income from the prior year are not accounted for) Attachment H
24 Figure 22: Net Migration of Individuals, Aged 15-years and Older, by Annual Income 2016 2017 2018 2019 2020 TOTAL for 5-
year Period
Individuals with annual
incomes greater than $75,000
2,162 2,924 3,251 3,469 3,594 15,400
Individuals with annual
incomes $50,000 to $74,999
928 742 681 -237 -983 1,131
Individuals with annual
incomes $49,999 and lower
3,131 717 -1,220 -1,307 -2,390 -1,069
TOTAL net migration,
individuals aged 15-years
and older
6,221 4,383 2,712 1,925 276 15,462
Source: American Community Survey, 5-Year ACS data per respective year.

Research from several sources confirms that the region is becoming more segregated as lowincome households, who are disproportionately people of color, move out of high-cost metros like San José. A 2016 report from Urban Habitat found a significant regional out-migration of Black and Latin households to outlying areas of the Bay Area or to neighboring counties such as San Joaquin and Stanislaus.49 Further, a 2018 study from the California Housing Partnership and the Urban Displacement Project found that rising housing costs have led to large increases in Black and Latin households living in segregated areas with high concentrations of poverty. 50 Between 2000 and 2015, the study found a 15 percentage point increase in the number of Black households and a doubling of the number of Latinx households living in segregated and high poverty neighborhoods in the Bay Area. Another report published in 2018 by the Termer Center 51 found that low-income out-movers tended to move to other areas of California such as the Central Valley. Low-income movers reported fewer options for employment, education, and access to health care compared to where they had previously lived. The report also found that Latinx and Black residents make up a disproportionately large share of low-income out-movers.

This research shows that without policy intervention, the current trend of displacement may result in more segregated and less racially diverse communities. 49 Urban Habitat, “Race, Inequality, and the Resegregation of the Bay Area,” 2016. https://urbanhabitat.org/resource/race-inequality-and-the-resegregation-of-the-bay-area/ 50 California Housing Partnership Corporation and the Urban Displacement Project, “Rising Housing Costs and ReSegregation in the San Francisco Bay Area,” 2018. https://chpc.wpenginepowered.com/wpcontent/uploads/2019/02/CHPC_UDP_RegionalReport_FINAL2.pdf 51 Romem, Issi; Kneebone, Elizabeth; Disparity in departure: who leaves the bay area and where do they go? https://ternercenter.berkeley.edu/disparity-in-departure Attachment I
1 ATTACHMENT I – CONSULTANT SUMMARY OF COPA WORKING GROUP This attachment contains the executive summary of a consultant report on the two AntiDisplacement Working Groups. The full consultant report can be found on the Housing Department’s COPA Webpage. 52

SUMMARY
Community Opportunity to Purchase
Advisory Committees Meetings
1/25/2022

1. Executive Summary In 2020, San José’s City Council charged the Housing Department with developing a Community Opportunity to Purchase proposal that would give qualified nonprofit organizations the right to make an initial offer and the right of final offer to purchase certain residential properties that come up for sale in the city. The goal of the proposal is to prevent tenant displacement and promote the creation and preservation of affordable rental housing.

In response, city staff applied to the Partnership for the Bay’s Future to have a fellow, Mr. Aboubacar “Asn” Ndiaye, help develop the program. The city also released a Request for Proposals and hired Baird + Driskell Community Planning to facilitate the community engagement process.

The city formed an Anti-Displacement Working Group to gather feedback from stakeholders and residents. The Anti-Displacement Working Group consisted of two subgroups, both of which met monthly via Zoom. The groups were:

1. Stakeholder Advisory Committee (SAC) – 7 meetings. The SAC is a broad and diverse group, open to all, that includes stakeholders from the public as well as those with expertise in housing policy and real estate. Most SAC invitees had expressed interest in the city’s AntiDisplacement work or had attended previous outreach events. All SAC meetings offered interpretation in Spanish and Vietnamese.

2. Technical Advisory Committee (TAC) – 9 meetings. The TAC is a smaller group of subject matter experts representing relevant stakeholders and dove more deeply into the details necessary for designing the program. Group members were invited based on the depth and diversity of their experiences and the constituencies they represented.

At each meeting, staff presented components or parts of the policy, provided examples of sample practices from other cities, and offered San José-specific data to ground it in the local context. After the presentation, participants offered input.

Almost 170 people participated in the meetings and attendance was diverse. The Working Group included community members and leaders from all council districts across the city and included voices of those who will be directly impacted by the policy: apartment owners, tenants, housing providers, developers, realtors, and housing advocates. Attendees were approximately evenly split between owners and renters 52 https://www.sanjoseca.gov/home/showpublisheddocument/91743/638031643187570000 Attachment I
2 and evenly distributed in age ranges. City staff tracked who attended the meetings and who commented, ensuring participation by all interest groups.

Originally, the TAC was intended to develop policy recommendations to then present to the SAC for additional feedback. It became clear early on that the group was unlikely to reach consensus, so the facilitators sought to gather the range of opinions and understand the interests of all parties.

Key Takeaways
Generally, building owners or their representatives wanted to make sure that the program did not adversely affect the private housing market and caused as little burden as possible. Landlords helped city staff understand the complexity of the market, including its fast pace. One of their biggest concerns was that a slow timeline would prevent owners from selling quickly, while the market is hot. They also wanted as much certainty in the process as possible, articulating a concern about nonprofits expressing interest but not being able to complete the purchase and the potential for tenants disrupting the transaction process. Real estate industry representatives were apprehensive about including small properties in the program (e.g., 1-4 units). They pointed out small buildings sell quickly and are more likely to be owned by landlords with fewer properties. Small-time landlords often do not know the rules in as much detail as larger landlords and there are fewer avenues to educate them. Overall, while many real estate representatives may still have opposed the program, they also voiced support for home ownership opportunities through the program and some saw the Community Opportunity to Purchase Act (COPA) as a way for interested owners to sell their properties and work with their tenants to protect affordability in the long run.

Representatives of low-income renters were generally positive about the program and excited about its potential impact. They felt it gave their communities hope for stability and possible homeownership. They have suffered from housing insecurity and displacement and want the program to apply to as many homes as possible. They prefer to include investor-owned single-family homes as well as duplexes, in addition to larger buildings. Tenants and their advocates felt it was important that income targets are set low enough to better reflect the varying incomes in the city, which would benefit as many at-risk residents as possible.

Tenant advocates wanted to ensure that nonprofits were responsive to the community and that the program supported tenant organizing and empowerment. They also advocated for appropriate organizational and capacity-building support for community partners to eventually become qualified nonprofits.

Nonprofit developers talked about the need for funding to make the program a possibility. They also asked for clear policies and procedures to align the program with their missions and business models.

Generally, developers discussed the need for a timeline that allowed them to do their due diligence and present to their Boards of Directors before making an offer. Nonprofit developers wanted as much clarity as possible between different roles (Qualified Nonprofits who act as the developers, Community Partners who do the outreach, and the City). Additionally, they sought a clear pathway for new developers to participate in COPA and smaller nonprofits wanted technical assistance so they could build capacity to participate.

Links to meeting summaries are provided in the appendix.

ATTACHMENT J
1 ATTACHMENT J - FREQUENTLY ASKED QUESTIONS ABOUT COPA

FREQUENTLY ASKED QUESTIONS
Please note that the City of San José does not currently have a COPA program in effect.

All aspects of a proposed program are in still in development. This FAQ gives information about the process and some of the factors under consideration in the development of the DRAFT program. The City Council would need to approve a COPA program.

1. Why is COPA needed?
The moment at which an apartment owner sells their property can create a housing emergency for renter families who call that place home. This is because currently, buyers of apartment buildings are almost always investors whose primary interest in buying property is to generate a financial return. To do so, investors often rehabilitate properties and raise rents significantly. These rent increases can cause financial stress for existing residents and, especially for lower-income renters, greatly increase their risk of being displaced from San José.

COPA would open opportunities for other kinds of buyers to make fair value offers on residential buildings occupied by tenants at risk of displacement. Under COPA, families would gain pathways to permanent residential stability because these cityvetted buyers would be required to make all units in the building permanently affordable.

COPA is an important building block within a larger affordable housing preservation system the City is helping to create. Affordable housing preservation efforts are highly effective at addressing residential displacement because they maximize the likelihood that families can stay in their homes and neighborhoods where they already live. Buying existing housing and restricting its affordability is also more cost-effective, faster, and environmentally friendly than building new affordable housing.

2. How would COPA help San José to promote racial equity in housing? People of color – especially Latino/a/x and Black families – are disproportionately at risk of displacement from San José due to the long legacy of housing discrimination perpetrated by the government and private sector actors. By consequence, 47 percent of Latino/a/x households and 45 percent of Black households in San José lived in areas experiencing ongoing displacement or at-risk of displacement, according to data from the Urban Displacement Project. 53
COPA is an anti-displacement strategy that will primarily benefit renters, lower-income households, and housing cost-burdened households, who are all disproportionately people of color in San José.
53 Urban Displacement Project Typologies Race Data, Race by Census Tract, June 2020

ATTACHMENT J
2 3. What would COPA change?
With COPA in place, San José would grow its local restricted affordable housing stock and help prevent the displacement of families who currently live here. COPA would support permanently affordable rentals and wealth-building opportunities for lower-income households.

COPA would increase opportunities for mission-driven housing organizations to preserve existing housing in the local market by doing two things: creating defined time windows for Qualified Nonprofits to make offers to buy properties; and by increasing transparency in real estate listings for buyers seeking to create long-term restricted affordable housing.

COPA would create defined time windows for mission-driven housing organizations to make offers and, if an offer is accepted, to complete the purchase. This is needed because unlike traditional buyers, mission-driven housing organizations need to carefully determine on a case-by-case basis what funding a property qualifies for from a combination of governmental, private, and philanthropic sources, while guaranteeing that the units will remain permanently affordable to existing tenants.

COPA would additionally help mission-driven housing organizations learn about properties that are going up for sale. Many multifamily properties are not even listed publicly somewhere before they sell. Estimates are that 50% or more of sales occur ‘off listing.’54 COPA would give a better chance for teams of experienced mission-driven housing organizations and local community partners to buy buildings, keep tenants in place, and turn those homes into permanently affordable housing.

4. What kinds of properties would COPA apply to?
Under the drafted COPA proposal, COPA would apply to all properties citywide with 2+ units that were built more than 15 years ago. This date of applicability would be updated each year.

COPA would not apply when a property owner seeks to transfer their property to a direct relative. COPA would also not apply when an owner sells their owneroccupied property of 4 units or fewer, or when selling only a partial ownership share in a property.

5. What would COPA require property owners to do?
COPA would require property owners to give City-approved mission-driven housing organizations (called “Qualified Nonprofits") the right to make a first offer on a property and, if the seller is negotiating with another party, the right for the Qualified Nonprofit to make a final counteroffer. Sellers need to observe a prescribed process for allowing Qualified Nonprofits to make an offer, including by (1) notifying the City and QNPs that they are ready to sell their property, (2) waiting for a Letter of Interest to Make an Offer from a Qualified Nonprofit (and if applicable, waiting for the offer), and (3) if also 54 https://www.wealthmanagement.com/multifamily/market-sales-gain-traction-cre-owners-and-buyers

ATTACHMENT J
3 negotiating with a third-party seller, giving time for a final counteroffer. For more information on the applicable COPA timelines and process, please see the process flowchart provided on the City of San José’s COPA website.

6. What impact will COPA have on property owners?
Property owners will retain their right to accept or decline any purchase offer made on their property. They will continue to set the terms and conditions of sale.

Additionally, property owners retain their right to transfer their properties to direct family members, as COPA would not apply in this situation.

COPA would require owners to follow a prescribed process with defined timelines.

However, in return, COPA could provide some benefits to property owners. Because COPA would increase the audience receiving sales listings, property owners may find the program expands the number of buyers interested in their properties. Owners could also increase the likelihood of their existing renters remaining in place if they sell to a Qualified Nonprofit.

7. Could COPA support homeownership for lower-income residents? COPA could support alternative paths to ownership that serve a greater diversity of residents than today’s homeownership market. While it would require public subsidy and capacity building with local organizations, future Qualified Nonprofit buyers could include limited equity cooperatives and community land trusts. These organizations can resell units or whole properties to existing tenant families at reasonable costs.

Additionally, rental buildings acquired under COPA could eventually be converted to ownership opportunities.

Buildings that continue to function as rental properties after a COPA acquisition could also include asset-building features for its residents. For example, a portion of rent could be placed into an investment vehicle, allowing renters to gradually accrue assets as an alternative to building equity through traditional homeownership.

8. How will COPA be funded?
For offers to be made through COPA, Qualified Nonprofits must be able to access affordable housing subsidies, which are essential to the success of COPA and all affordable housing preservation efforts. Similar to the City's programs that currently fund new construction of affordable housing, the City of San José could use existing funding sources such as Measure E and potentially commercial linkage fees to fund the acquisition and rehabilitation of buildings housing under COPA. These same sources may also be available to pay for program administration. The City plans to issue its first acquisition/rehabilitation Notice of Funding Availability in 2023.

Like San José, many cities across the state are now developing housing preservation programs and are advocating for more sources of funding. Within the next few years, there is additionally a strong possibility that the City’s funds will be able to leverage forthcoming regional and state funding sources for housing preservation efforts.

ATTACHMENT J
4 9. Does COPA affect 1031 exchanges?
COPA would have no impact on property owners looking to use a 1031 exchange strategy while selling a property subject to COPA. In a 1031 exchange, property owners have 45 days to “swap” their property for another property to receive a deferral of capital gains tax. However, this 45-day period only begins when the sale of the original property has been completed. The timelines regulated under COPA prior to closing will therefore not impact the property owner’s ability to complete a 1031 exchange, whether selling to a Qualified Nonprofit or to another party.

COPA would also not have a significant impact on “reverse 1031 exchanges” in which third-party buyers seek to acquire properties in San José that are subject to a COPA process. Real estate industry specialists in San Francisco, which adopted a COPA program in 2019, have reported that COPA has not resulted in complications for reverse 1031 exchanges for property owners or buyers.55 This is because properties can only be advertised to third-party buyers following the Letter of Intent period (and offer period if an owner receives a Letter of Intent). This means that third-party buyers, including those seeking reverse 1031 transfers, discover properties for sale at a different part of the listing process. By that time, Qualified Nonprofits would either have passed up on an opportunity to make an offer – freeing up the property for another offer – or they would have made an initial offer by the time that a third-party buyer seeking a reverse 1031 transfer were to learn about the property in question.

After the Letter of Intent and offer periods, transactions would proceed in a substantially similar manner to what would occur without COPA. Buyers seeking a prospective reverse 1031 exchange would be able to reliably enter contract on the property and complete a transaction after the waiting period.
55 Interview with San Francisco broker, July 2022.