California Puts up $500 Million for Community Ownership Against Big Real Estate
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California Puts up $500 Million for Community Ownership Against Big Real Estate

Mariachi member crossing street with guitar near Mariachi Plaza

Boyle Heights (Photo by Laurie AvocadoCC BY 2.0)

At Mariachi Plaza in Boyle Heights, just east of downtown Los Angeles, mariachi bands play all day and into the night. Visitors still come to listen and hire them for weddings, quinceañeras, and other family or community events.

Some of the mariachis still live right across the street, where the East LA Community Corporation converted the historic Boyle Hotel into affordable rental housing more than a decade ago.

Born in Boyle Heights, Fanny Guzman Ortiz is no mariachi, but she still vividly remembers moving into her apartment at the former Boyle Hotel. After two years of living without their own home, her kids immediately laid down on the floor and didn’t want to leave, even though Guzman Ortiz needed them to go out with her to buy some furniture.

“I was gifted because I was able to find affordable housing in my neighborhood,” says Guzman Ortiz, a mother of five. “It’s very important to have stability. What my community did, the folks that fought and advocated for affordable housing, is how I was able to become a sustainable mother of five, with my youngest daughter having special needs.”

Guzman Ortiz today is working to provide that same gift of stable, affordable housing to others in Boyle Heights and nearby, as a community organizer for Fideicomiso Comunitario Tierra Libre. As a community land trust, the organization is a nonprofit entity that aims to acquire land and take it off the real estate market in perpetuity, putting control into the community’s hands to develop or preserve it as rental or for-sale housing, community space or commercial space that they can afford.

Boyle Heights is still around 93 percent Hispanic, and 76 percent of Boyle Heights residents are renters, with a mean household income half that of LA, according to UCLA Center for Neighborhood Knowledge. More than 60 percent of Boyle Heights residents today are rent-burdened, up from 44 percent in 1990. Around a third of Boyle Heights residents spend more than half their monthly income on rent. New development along the planned LA Bioscience Corridor has Boyle Heights residents concerned speculators will continue picking off properties unit by unit.

Too many of her neighbors, says Guzman Ortiz, have already been pushed out of the neighborhood or into the streets because of deep-pocketed speculators swooping in to acquire distressed properties and jacking up rents. But now there is something hopeful on the horizon — the state of California just set aside $500 million for organizations like Fideicomiso Comunitario Tierra Libre to acquire properties along the path to foreclosure, to prevent them from falling into the hands of speculative investors.

“I don’t see any other way of protecting those foreclosed homes or those families at risk because of the pandemic,” says Guzman Ortiz. “Every time there’s a catastrophe, people are displaced. We just want to prevent tenants or small landlords losing their homes to corporations. It makes an impact on the mental state of the person to lose their home, an emotional trauma, but it doesn’t get talked about much.”

Leading the charge in the state legislature for the $500 million was State Senator Nancy Skinner. During the last financial crisis a decade ago, she remembers feeling alarmed to see private equity firms swooping into auctions of foreclosed homes in her district. As state assembly member at the time, she represented parts of the East Bay Area she still represents today, including the cities of Oakland and Richmond — areas that were some of the hardest hit by foreclosures back then.

“I would tour parts of my district during the financial crisis and in Richmond I watched houses foreclosed, and corporations would come in and just buy up whole blocks,” says Skinner. “And there were news reports of companies like Blackstone buying up whole neighborhoods in Sacramento.”

Indeed, across the country, Blackstone and other firms like it eventually acquired hundreds of thousands of distressed homes through foreclosure auctions or from Fannie Mae, Freddie Mac and HUD. These were properties of one to four units, which the federal government classifies as single-family homes — and instead of selling them back to homeowners, they converted them into market-rate rentals. The largest of those firms, a former Blackstone subsidiary known as Invitation Homes, held more than 82,000 properties at its peak, according to the New York Times, making Blackstone the largest private residential landlord in the country.

And corporate landlords, new to the game, came in unaccustomed to some of its basic tenets like providing major appliances or regular maintenance and upkeep. Not that they were particularly inclined to take on such costs.

“As renters you would expect landlords to be responsible for basic maintenance and including big appliances,” says Skinner. “These entities weren’t even providing them in some cases, and not taking care of the landscape at all. If you had a pest problem they would force you to cover that cost. That was their whole orientation to maximize profit. As these homes became a whole asset class it became about how to milk the most out of these assets and the way to do it was to spend the least they could on them.”

With real estate in distress again during the COVID-19 pandemic, Blackstone has been at it again, this time going beyond single-family housing to a wide variety of struggling properties.

Fearing another wave of foreclosures in the wake of the pandemic, last fall Senator Skinner championed the passage of SB 1079, dramatically changing the way foreclosure auctions work in California.

Among other changes, SB 1079 prohibits the bulk auction of foreclosed 1-4 unit residential properties. Bulk auctions are more attractive to investors; instead of negotiating property by property, they can buy dozens, sometimes hundreds or even thousands of properties at a time. It works better for the lenders, too — after foreclosing on a bunch of homes, they can shove the properties off their balance sheets more efficiently in bulk.

“The way the auction process worked in California was really tilted against individual buyers,” Skinner says.

Even though there has been a federal moratorium on foreclosures for most single-family homes since April 2020, lenders were still attempting to conduct bulk auctions of previously foreclosed homes during the pandemic, despite the fact that courts were closed so homeowners couldn’t delay or fight them off.

“When we realized the auction itself was a problem, we wanted to create a level playing field so the tenant, the former owner or just a single person or organization could have an opportunity,” says Skinner.

In addition to prohibiting bulk sales of foreclosed 1-4 unit residential properties, SB 1079 gives existing tenants of auctioned-off properties up to 45 days to come up with a matching bid to acquire the property themselves — or to work with an eligible nonprofit of their choice to let them come up with a matching bid.

In real estate, things tend to move quickly. Local public radio station KQED reported in April how Berkeley public schools employee Jocelyn Foreman had used SB 1079’s new rules to work with a community land trust and acquire the home she had been renting, preventing a large real estate firm from acquiring the home through a foreclosure auction.

SB 1079 may become even more crucial in the months ahead. The turmoil may not get as widespread as it was during the last foreclosure crisis, but the federal moratorium on foreclosures for most homes is set to expire on July 31, and the homeowners still benefiting from that protection are disproportionately lower-income, according to the Federal Reserve Bank of New York.

But not all community land trusts are currently able to move quickly on such opportunities. To acquire her home, Foreman worked with Northern California Land Trust, the oldest community land trust in California, established in 1973. It’s no Blackstone, but the land trust has decades of experience, a portfolio of properties and some cashflow that give it some capacity to move quickly. The Bay Area also has other established land trusts like Oakland Community Land Trust and San Francisco Community Land Trust.

By contrast, Fideicomiso Comunitario Tierra Libre only formed in 2018. It’s one of a handful of mostly newer community land trusts across the LA-area that are also led by Black or Latino community members who, like Guzman Ortiz, often come from the same demographic that each community land trust seeks to protect — demographics that face racial, immigration status and other barriers that limit the financial resources they can bring to the table. For these community land trusts, SB 1079 didn’t mean much without dedicated resources to back it up, but the law gave them a more solid argument for new resources.

“BIPOC-led community based organizations and community land trust efforts are typically excluded from opportunities to expand our work,” says Oscar Monge, associate director at T.R.U.S.T. South LA, a community land trust focusing on neighborhoods just south of LA’s downtown. “SB 1079 was so powerful, but it was a great policy without funding. Now …, we were able to make the justification that this wouldn’t be successful if communities of color don’t have the resources needed to implement this great policy.”

AB 140, a $12 billion housing and homelessness assistance bill passed by state legislators and signed by Governor Gavin Newsom earlier this month, includes $500 million for a new five-year Foreclosure Intervention Housing Preservation Program. The dollars will go out as low-interest loans for eligible organizations, including community land trusts, to acquire and rehabilitate residential properties of up to 25 units — meaning it can also be used to acquire larger properties that aren’t covered by SB 1079.

With many low-income renters hit disproportionately hard by pandemic job losses and unable to pay rent, Monge is concerned the owners of slightly larger buildings where they live may be at risk of foreclosure on those properties.

“We have very diverse buildings in our neighborhoods so we didn’t want to be limited … to four units,” says Monge.

Because it’s a new program, the state’s Department of Housing and Community Development still needs to set up program rules and also contract out one or more community development lenders to facilitate the program on behalf of the state.

“Time will tell whether the agencies can respond fast enough, but the reason I believe the governor agreed to this funding is that no one wants to have homelessness go up due to foreclosures,” says Skinner. “So my sense is the funding we allocated for this program as well as for homelessness services will take priority in the coming months.”

Even still, there may come a need for philanthropy or other funders to play a role if the $500 million is to really support organizations like Fideicomiso Comunitario Tierra Libre. The community land trust recently acquired its first property, with eleven units of housing, ten of which are occupied, just east of Boyle Heights in unincorporated East LA. It was the first property acquired through Los Angeles County’s $14 million Pilot Community Land Trust Partnership Program, which has also supported CLTs like El Sereno Community Land Trust, which has been working to reclaim vacant homes owned by the California Department of Transportation.

The LA county pilot program covered the $1.8 million acquisition price and an estimated $1 million in badly-needed rehab work on the property. But Fideicomiso still needed philanthropic dollars to step in and cover due diligence costs, get project estimates and also put down an “earnest money” deposit with the previous owner during the due diligence period before the county approved its funding and the acquisition could finally close in May.

Everyone expects the state’s new $500 million will require borrowers to cover their own due diligence costs and earnest money deposits before they can receive any funding from the Foreclosure Intervention Housing Preservation Program. Without some help from elsewhere to cover those costs, not all organizations will be able to access the state’s $500 million — or worse, some of those dollars could get left on the table.

“We’re articulating all these concerns to [the Department of Housing and Community Development] to make sure we don’t have a $500 million balance at the end of the five years,” says Monge. “The relationships with foundations and them being partners in this work are still important, first to fund the advocacy — which is not paid for by any real estate — and then to access the public resources once they’re available. We still need their funding to get that work done.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.

Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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