As of last month, "qualified non-profits" will have the first crack at multi-unit buildings in the City of San Francisco. When owners intend to sell their multifamily residential property, a vetted pool of organizations will be the first to come to the trough, courtesy of COPA.
Before you start singing the hymns of Barry Manilow's Copacabana, we are referring to the City's newly minted Community Opportunity to Purchase Act, a law aimed to give preferential treatment to non-profits committed to preserving the City's affordable stock by providing these entities the first chance of making an offer to scoop up a residential building with at least three rental units or a vacant lot zoned for at least three rental units. Notably, unpermitted "in-law" units do not count under the legislation, and several other nuances apply.
Those groups coronated as a qualified non-profit not only get an unprecedented glimpse into the pending sales of multifamily properties before they are readily available to buyers on the open market. They also have the subsequent right to match an offer from a private buyer. In legalese, this is called the "first right of refusal." In other words: When a rental property is up for sale, non-profits have first dibs. And if another buyer can make a sweeter offer, the non-profit can make the same offer or best it to become the new landlord.
The proposal has been hard-won. It first made its way on our radar in April when, after four years of community organizing, the chief architect of the measure, Supervisor Sandra Fewer, celebrated a victory in a Board of Supervisors' Budget and Finance Subcommittee. Fewer touted COPA as one incremental step in solving San Francisco's housing shortage woes. Conceding that the legislation was far from a total solution, she nonetheless said, "COPA will provide affordable housing non-profits with a critical tool to stop the bleeding."
Sharing a pent-up frustration over an affordable housing dearth, the Supervisor's colleagues unanimously agreed in an 11-0 vote, but laws are always cleaner on the page than in real life. After the ink dried, COPA would take a more circuitous route, with lingering concerns remaining on many fronts. This is only befitting for a law that has been anything but tidy in its implementation.
The little engine that could
Although COPA was given the full nod of the Board of Supervisors in April and was scheduled to go into effect in June, the Mayor's Office of Housing and Community Development (MOHCD), the agency tasked with declaring regulations and picking a list of qualified non-profits, was given a breather by being afforded a 90-day extension.
Meanwhile, landlords were left in a standstill, waiting to hear what the rules of the road would be if they decided to sell their investment property after COPA went into effect.
Attorney Daniel Bornstein, a practitioner in landlord-tenant law who hosted an event at the Fort Mason Center covering the key provisions of COPA, commented on the challenges non-profits faced to qualify to use COPA: "Meeting the threshold of a 'qualified non-profit' is a high bar," he says. "Non-profits do not merely have to have the wherewithal to purchase an apartment building in the City, which is obviously a very substantial investment in the state of our market. They also have to show a level of commitment in managing properties, and have kind of a 'charter,' if you will, a mission statement, to provide affordable housing, and so that's a very tall hurdle to cross."
These rigid criteria made for a list of non-profits you can count on two hands. You can view the inductees of the rather exclusive club here.
(Translation for those of you who are enterprising: We'll give you a pat on the back if you decide to set up a non-profit, but your goodwill alone will not give you an advantage in buying multifamily buildings, unless you have a demonstrated commitment as a provider of affordable housing and have some experience on your belt managing these dwellings.)
An only in San Francisco moment? Almost, but not quite.
Although there are material differences, COPA is loosely modeled after Washington, D.C.'s Tenant Opportunity to Purchase Act, a policy which gives tenants first right of refusal if the property they reside in has a For Sale sign. As home to one of the highest concentrations of limited-equity tenant co-ops in the country, D.C.'s law has been heralded as an effective tool against displacement, but it has been the object of numerous lawsuits.
Not to be outdone, Berkeley has also jumped on the bandwagon.
Along with cheers for the improved ability to preserve affordable housing, there is a chorus of informed owners and organizations who point out the legal and practical questions about buyers' and sellers' rights and obligations when a multifamily property changes hands.
Charley Goss, the Government Affairs Manager for the San Francisco Apartment Association, didn't couch his words in an April 3 Board of Supervisors' Budget and Finance Subcommittee meeting, calling the legislation "illegal and unconstitutional." Goss argues the City's funds can be better applied elsewhere: "The City should be spending money to build new affordable housing units, not shuffle ownership of existing ones."
In the public forum, Charley Goss also floated an ominous hint at pending litigation by saying the SFAA would be "exploring its legal options." Although some legal observers had erroneously predicted that COPA would be tested in the courts before the law was implemented, it's more than a whispering possibility as owners and their advocates experience the real-life consequences of being ensnared in a new regulatory regime.
When prodded for updated comments on COPA, the SFAA directed us to a library of online resources. In its online magazine, it reiterates the "San Francisco Apartment Association and other industry groups are reviewing options to have the courts look at the ordinance."
For now, COPA will add new layers of complexity to an already complicated regulatory regime. Bornstein warns that liability can await sellers and real estate brokers if qualified non-profits get left out of the loop when an eligible property is on the eve of being listed or feel slighted in subsequent negotiations.
Bornstein's main advice for sellers? "Get tethered to a real estate broker that understands the nuances of the ordinance," he says, noting that documentation is specialized, timelines are unforgiving, and sellers and their agent must act in good faith by engaging with organizations in the letter and spirit of the law.
He predicts, though, that many multi-unit properties will be overlooked by the non-profits entitled to get first shot at them, particularly the smaller duplexes, triplexes, and fourplexes. "To get the ball rolling, sellers must notify the QNC [qualified non-profit] of the intent to sell," Bornstein says on the initiation of the process.
If the organization raises its hand and expresses an interest within five days of being notified, that's where it can get complicated. But Bornstein hastens to note that if a qualified non-profit does not come to the table within that five-day window, the sellers' obligation is done and the transaction can proceed as a traditional sale.
This doesn't escape Noni Richen, head of the Small Property Owners of San Francisco. She suspects qualified non-profits will attempt to scoop up larger properties, and the regulations will only serve to add more red tape and aggravation to mom and pop landlords.