SFCLT Purchases 285 Turk for Ambitious Plan to Convert into BIPOC LEHC Homeownership

On July 16th, 2021 SFCLT went into contract with the seller for the purchase of 285 Turk. For SFCLT the purchase of 308 Turk represents an important turning point in our mission to center racial equity, not just at the level of our membership and board, but at the heart of our acquisition process and strategy. This led to the decision to acquire 285 Turk St. with a 95% majority BIPOC community with majority of its residents being Filipino or Indigenous Mayans from the Yucatan Peninusula . Our hope is that 285 will become a model for creating BIPOC cooperatives in San Francisco which offers rare ownership opportunities within reach of people of color of low and moderate income (and primarily those of lower incomes) for whom homeownership is currently completely out of reach with the astronomical price of real estate in SF.

BIPOC Homeownership through the LEHC Model

SFCLT is unique in comparison to other developers and CBOs in the SF affordable housing landscape, because we create cooperative housing rather than merely pursuing the rental model. We really believe that to bring greater community wealth and ownership to BIPOC communities, we must move away from ownership for the few, wealthy, and white, and rentals for the rest, to models which enhance ownership for all and particularly for BIPOC communities who have been historically excluded from homeownership and wealth due to redlining, discriminatory lending practices, and structural racism.

Limited Equity Housing Cooperatives offer several significant benefits of ownership as opposed to rental: stable and secure housing from which tenant owners cannot be evicted; a way to accrue a modest amount of equity and thus savings; an inheritable right to the unit which shares represent.

The LEHC model works on individual ownership of shares in the building which provide the right of occupancy of a unit. In California the LEHC is codified in law, and mandates that share prices are set at a maximum of 10% of the development cost of a unit. In practice, shares are set at between $10-30,000 in order to allow all low- and moderate-income tenants of the building to participate. Furthermore, share prices appreciate by being pegged to an index such as the AMI or CPI anywhere between 1-4%. In essence, LEHCs provide for appreciation which is closer to impact investing or a CDI than to profit windfalls which are the result of the speculative real estate market. This has the effect of preserving affordability for future generations in that future resale prices of shares reflect this moderate appreciation rather than real estate which floats on the speculative market. The legislation on LEHCs in California (CC 817) also ensures that any profit made by residents outside of this appreciation of their initial share value is donated to a charitable or public purpose. This serves to disincentive the sale of LEHC coops at market rate.

Furthermore, LEHCs which are on CLT land have the added assurance of permanent affordability by splitting the title of the land and the structure, while the land trust owns the land, the LEHC as a cooperative owns shares in the structure and leases the land through a 99 year “ground lease.” By splitting the title of the land and structure, the CLT ensures oversight over the LEHC to ensure that it remains permanently affordable for future generations, as well as, offering the LEHC coop support in the form of critical technical, legal and financial assistance to provide initial start-up assistance, as well as, to ensure its social, financial, and physical sustainability and longevity over time.

There is a lot of research which shows that LEHCs on CLT land are far more successful in the long run than their independent counterparts due to the critical support that CLTs provide. In SFCLT’s portfolio there are several projects which have yet to reach LEHC conversion but are on their way, and the latest 285 Turk St. acquisition is intended to become an LEHC from its outset providing an important opportunity to its 95% BIPOC residents with ownership opportunities in their cooperative and all the benefits mentioned above of stable and secure housing; an inheritable right to the unit that shares represent, and savings from accruing modest equity in the unit.

For CLTs and local governments, LEHCs also provide the advantage of creating affordable ownership opportunities which utilize a hybrid of funding sources: 1) cooperative equity from individuals from the sale of shares 2) equity provided by the CLT; 3) private loans from banks and 3) public funding from local, state and federal sources which can come in the form of soft and hard debt. SFCLT’s LEHC Columbus United is an important case study in its unique combination of funding sources utilized for acquisition (thus leveraging public funds through individual contributions and private loan), as well as the social, financial and physical sustainability of the LEHC model.

Replicating the Columbus United Cooperative in 285 Turk

The Columbus United Cooperative, a 21 unit building in the heart of Chinatown, was incorporated in 2009. CUC was the result of a deep and intense tenant struggle to resist potential eviction on the heels of another important tenant struggle which happened on the same block at the infamous I-hotel where its majority Filipino tenants were being forcefully evicted. The I-hotel case raised the profile of the struggle at CUC by quickly bringing political and media attention to this second battle of a majority Chinese residents fighting for their homes and metaphorically, for the soul of Chinatown. SFCLT founders dove in to try to find a way for the tenants to acquire the building in a pre-Small Sites funding era where public dollars were relatively scarce. SFCLT got creative in their search for financing and found a way to acquire the building and convert it to an LEHC utilizing a number of funding sources.

The total development costs of CUC which includes acquisition, pre-development, and rehab costs totaled to a whopping $7,614,379. 51% of thus funds came from City of San Francisco’s Seismic Loan Program; 28% from the Low-Income Investment Fund (a private bank); 10% grant funding from the City of SF; 4% from the Asian Law Caucus (for the commercial office space on the ground floor); 3% Coop equity from the 21 households living in the building; 3% a Federal Home Loan Bank loan; 1% SFCLT equity contribution.

An important aspect of the CUC budget was a stable bi-lingual (Mandarin/English) resident coordinator filled by Junli Dai (now our Operations Manager) who was a newly arrived immigrant from China at the time. The assistance which Ms. Dai provided to the Co-op was critical to its social, financial, and operational/maintenance success both in its initial phases, as well as, to date, as the CUC Board slowly took on the responsibilities of operating the Co-op with regard to its legal governance, its resident services, property management, and financial planning.

Thus an integral part of the plan in acquiring 285 Turk is to try to replicate the CUC model as much as possible: 1) in benefiting POC communities with ownership opportunities within reach for those of low and moderate income; 2) to prevent the displacement of the historical communities of particular cultural districts of San Francisco; 3) in the unique combination of funding, as well as, in 4) the critical support that a resident coordinator, whose salary is built into the acquisition budget itself, which plays a critical role in ensuring the sustainability of the project over the short and long-term.

Our Community Partners in Leveraging the LEHC Model

The Mayor’s Office of Housing and Community Development (MOHCD) provided SFCLT over the last three years with both project-based grants and an operational capacity building grant which has allowed us to scale up our ability to leverage COPA and advance the LEHC model in San Francisco. The MOHCD grant was the result of the success of Columbus United; the recognition of our need to increase our capacity to better support our existing communities; and the necessary phase of strategic and business planning needed to make further acquisitions under COPA and the Small Sites program after an explosive period of growth in a very short time.

In particular, the relationship with MOHCD deepened in 2015 when MOHCD approached us about purchasing 308 Turk, a 90% BIPOC majority building in the heart of the Tenderloin district, from a private equity investment firm which was in appalling condition. By working with community partners in the area, in particular the Filipino Community Development Corporation we were able to successfully build trust with the residents, a large majority of whom, as mentioned are Spanish monolingual indigenous Mayan descendants from the Yucatan, in order to organize the tenants and to move forward with the purchase.

The relationships we have built with our partners has been critical to identifying communities under threat of displacement, tenant organizing and providing critical social services. These partnerships are with: 1) other CDCs and CBOs in SF such as Without Walls CDC and Bishop & SOMCAN; 2) tenant rights and tenant organizing organizations in San Francisco such as the Housing Right’s Committee (HRC) and statewide like Tenants Together, as well as, 3) neighborhood organizations and coalitions such as the Council of Community Housing Organizations (CCHO) and the San Francisco Anti-Displacement Coalition (SFADC).

SFCLT has the confidence that it can succeed together with its partners, and its plan to replicate Columbus United at 285 Turk, and to fill a much needed gap in homeownership opportunities for BIPOC communities in San Francisco.