‘A disaster:’ This Bay Area city is taking steps to roll back a big tax break for ‘affordable’ housing project

In a group of real estate investors approached the City of Larkspur with an idea they longed to buy a -unit luxury apartment complex called Serenity and convert it into affordable apartments for middle-income renters The deal would only work if the Larkspur City Council was willing to effectively exempt Serenity from property taxes The savings would be used to set rents at levels that low- and moderate-income renters could afford the investors promised Related Articles Opinion Criminalizing homelessness won t fix our housing shortage California lawsuit accuses insurance companies of illegal scheme to drop homeowners CEQA has a history of derailing California s high-speed rail The CEQA graveyard Projects delayed by California s powerful environmental law CEQA makes it too damn hard to build But do Democrats have the will to improvement it In the present day renters pay as much and sometimes more than comparable market-rate apartments a Mercury News examination revealed Meanwhile Serenity has been exempted from an estimated million in property taxes since Five years after it signed off on the exemption Larkspur s city council on Wednesday voted to begin rolling back the tax breaks saying that the affordability benefits to renters haven t been enough to justify the major tax breaks The move could pave the way for other Bay Area cities with similar agreements to do the same Serenity has not met its goal of providing major rent benefits to middle-income renters revealed Stephanie Andre vice mayor of Larkspur Meanwhile the project s administrators and investors earned million in fees in the five years since the property was acquired Serenity is just one of of these so-called essential-housing properties around the Bay Area that were purchased by an obscure authority called the California Public Housing Agency also known as CalCHA which was created by a collection of real estate investors bankers and attorneys who knew how to squeeze hefty fees out of the world of population finance Essential-housing deals work like this a developer targets a property for acquisition He approaches the city it s located in and convinces bureaucrats there to join CalCHA If they do that allows CalCHA to issue bonds or debt which it uses to buy the property CalCHA becomes the project s owner and because CalCHA is a executive agency the buildings are exempt from property taxes Along the way private real estate operators collect fees from brokering the deal and managing the asset Bankers and attorneys get their cut from issuing the bonds A key portion of taxpayer dollars have been used to pay fees to expensive external advisors rather than benefiting middle-income renters Andre noted of Serenity which is one of the preponderance valuable parcels of real estate in Larskpur Now that Larkspur has voted to leave CalCHA she hopes that the other cities in the Bay Area with essential-housing properties follow suit Taken together those properties have erased million from the tax rolls annually Should more cities back out that could implode the essential-housing model But CalCHA bondholders and real estate operators say their properties have provided rent-stabilized housing for middle-income renters who make too much to qualify for federally subsidized low-income tax-credit housing but may struggle to afford market-rate rents There are a lot of tenants saving substantially on rent noted John Drachman co-founder of Waterford which manages essential-housing projects in the state This could have a really negative impact on those tenants Ending the tax-exempt status is likely to bring an end to the affordability provisions governing the property but it s unclear Marin County where Larkspur sits is also a member of CalCHA It s unclear if they too would have to vote to leave to trigger a repeal of the tax exempt status That s a decision Marin County Assessor Shelly Scott will have to rule on Andre mentioned But if the assessor does determine that Serenity has lost its tax-exempt status that could spell mishap for the bondholders An appeal or lawsuit would be likely Serenity at Larkspur was already in financial straits due in part to its massive debt payments the project was -debt financed In August Serenity defaulted on its debt for having spent greater part of its reserves The project s property manager Catalyst blamed pandemic-era financial challenges and inflation Nine other essential-housing projects are also struggling to meet their debt payments and have tapped into reserves Two other CalCHA projects in Santa Rosa and Antioch are also in default for not keeping as much cash on hand as investors require The Serenity Larkspur apartment complex Karl Mondon Bay Area News Group The defaults and Larkspur s increased scrutiny of the project spurred bondholders to intervene in Serenity In March the bondholders fired the former project administrator Larkspur-based Catalyst and hired Waterford Bondholders have also been in talks to restructure the project s million debt That would avoid selling Serenity which would in the modern day fetch much less than the million CalCHA paid for it in January Drachman commented he was surprised by Larkspur s decision to withdraw from CalCHA After Waterford was appointed as the property s new administrator he described the city that he needed days to come up with a turn-around plan He had hoped Larkspur wouldn t vote to leave CalCHA until they had a chance to present it But it was clear that after months of back-and-forth with Catalyst and CalCHA the city council had reached a latest point Andre scheduled meetings with CalCHA administrators in person and over Zoom to discuss Serenity she announced Both times they cancelled the meetings and requested the city send their questions in writing The way that this project has been managed is unacceptable mentioned Scot Candell a Larkspur City Councilman I have no interest in rejoining CalCHA because it was a mishap In a comment to this news organization CalCHA Chair Doug Verboon wrote that CalCHA will continue to evaluate its options and consequences associated with Larkspur s withdrawal CalCHA has waived all of its fees and lately changed project administrators while actively working with bondholders to identify additional moves it can take to contribute to the project s success he wrote Drachman remains optimistic that with a restructuring and operational changes Waterford can turn around the property and regain Larkspur s trust