Building a Local Housing
Preservation Ecosystem: Tenant
Opportunity to Purchase (TOPA)
and Local Policy
November 29, 2018
Danilo Pelletiere, Senior Policy Advisor
Erin Wilson, Development Finance Division

1

TOPA OVERVIEW AND
HISTORY OF DC’S POLICY
2

The Context of DC’s Preservation Ecosystem• DC is a federal district with home rule
– Practically, DC is a city, a county, and a state• DHCD finances affordable housing, provides
neighborhood based services grants, andadministers portions of the rent stabilization andcondominium conversion process.
– DC also has a separate housing authority and a housing
finance agency• Along with LIHTC, CDBG, HOME, etc. DC has many
local programs– DC Housing Production Trust Fund $100 million a year
– Local Rent Supplement Program funds over 3,000
households

3

DC’s Preservation Programs• Mayor Bowser’s Housing Preservation StrikeForce found DC government was too reactive
and made 6 recommendations– Establish a Preservation Unit in DHCD
– Create a Public-Private Preservation Fund
– Create a Small Properties Preservation andAffordability Program– Implement the District Opportunity to Purchase Act(DOPA)– Advance preservation under the Tenant Opportunityto Purchase Act (TOPA)– Allow low income senior renters to age in place.
4

TOPA – DC’s special sauce?

• The Rental Housing Conversion and Sale Act of1980, as amended (D.C. Law 3-86) (the Conversion
Act).
– The Tenant Opportunity to Purchase Act (TOPA) isincluded under the Conversion Act, and regulates theconversion of use, sale, and transfer of rental housing inDistrict of Columbia. Tenants:• Have the opportunity to invoke their rights to purchase• Have first rights of refusal• Receive offer of sale notices• Receive notices of the transfer and the conversion ofproperty to cooperatives or condominiums• The District Opportunity to Purchase Act (DOPA).
– This act empowers the Mayor with the right to purchasebuildings with five or more rental units of which 25 percent
are deemed as “affordable” subordinate to TOPA
5

Making a Right a Reality

In order for the opportunity to purchase under TOPA to
be an exercisable right you need policy and programs
to support it:1) Technical assistance and help in organizing
tenants.
–DHCD assists ~ 10 nonprofits with CDBG funds and afew of these (incl. HCS) explicitly work on TOPA.

2) Facilitate financing that can accommodate TOPA
timelines and low income rent levels.
– DHCD Development Finance Division and other sources
6

TOPA FINANCING

7

DFD Mission
DC DHCD
Development Finance Division (DFD)

Provide timely and compliant gapfinancing in the preservation andproduction of affordable housing andcommunity facilities.

8

DFD Program Areas• Affordable Housing Financing (5+ Units)• Production (New Construction)• Preservation (Substantial Rehab)• Community Facilities Financing• Tenant Opportunity to Purchase
Assistance (TOPA) Acquisition Financing

9Project Selection• Consolidated Affordable Housing RFP• DHCD-owned Land Dispositions• Acquisition Financing for TOPA Projects

10Acquisition Financing for TOPA Projects• First Right to Purchase Assistance Program- Codified in DC law and regulations• Funding for acquisition, soft costs, critical repairs• Current funding source:- Local Housing Production Trust Fund
- $10 million budgeted for TOPA acquisitions peryear

11Eligible Projects• Demonstrate TOPA rights legitimately triggered• Tenant Association (TA) members received a TOPA Notice• Building of 5 or more units• Income qualified• At least 50% of households meet the low-moderate incomedefinition• 50% or more of members of TA are interested inpurchasing

12

Ownership Structures
1. Limited Equity Cooperative
2. TA forms Joint Venture with affordable housingdeveloper and holds a percentage ownershipinterest
3. Tenants assignment of TOPA Rights to affordable
housing developer•

Development agreement for affordability

13

Development Team Capacity• If TA proceeds as a LEC must have criticaldevelopment team members in place:• Housing counselor / TA provider• Development consultant• Tenant’s attorney• Management agent (by closing)

14

TOPA / HPTF Funding Terms• Up to 125% of acquisition price or appraised value• Acquisition• Reasonable soft costs• Critical repairs as supported by a Physical Needs
Assessment• Interest rate
• 0% for LECs
• 3% for developers• 75% cash flow payment• 40 year loan term
• 40 year affordability requirement
15Application Requirements• Online application• Until Oct. 2017, rolling applications were accepted• Required information:• Site control – purchase & sale agreement• Zoning compliance• Development budget, including plan for rehab• Third Party Reports• Phase I Environmental Site Assessment• Appraisal• Physical Needs Assessment• Evidence of going through TOPA decision-making
process16

Successes – Preservation of Affordable Housing• Effective lever for affordability in the District• Over 1,400 units purchased through DHCD TOPAAcquisition funding in 26 projects since 2015
• 10 Limited Equity Cooperatives – 247 units• 16 projects where tenants assigned their rights –1,172 units

17

Successes – Tenant Empowerment• Tenants have a say in deciding what happens
when their building is slated to be sold ordemolished• TOPA enables tenants to form cooperatives andcondo associations that provide ongoingownership

18

Challenges – Timeframe + Ownership Structure
TOPA Timeframe• TOPA purchase deadlines→ Nearly all projects require full or partial bridge
loan, which adds cost
Limited Equity Cooperative/Condo structure• Stable coop/condo governance is critical→ Need technical assistance on front end→ Need long-term assistance – ongoing challengefor DC• Need resources prior to application for acquisition
funding→ Requires predevelopment funding
19

Challenges – Long-Term Financial Feasibility• Ownership structure→ Residents must understand pros/cons of each
option and make an informed, communitydecision• Affordability mix→ How will affordability mix agreed to at acquisition
impact the ability to complete a rehabilitation?
• Residents willingness to “raise their own rent”→ Especially for cooperatives→ Developer’s affordability commitments to TA must
be realistic
20

Challenges – Rehabilitation Strategy•

Most properties purchased through TOPA havesubstantial rehabilitation needs→ Most projects return to DHCD through thecompetitive RFP for additional funding, but only
1/3 of applications are funded→ What is the plan if the project’s rehab is notfunded?
→ Must plan rehabilitation strategy at acquisition21

Challenges – Small Buildings•

Difficult to assist small buildings• No assistance for buildings between 2-4 units• Lack of economies of scale→ Increased costs

22

Critical Program Elements•

Need an affordable housing funding source foracquisition and rehabilitation•

Resources to support tenant capacity•••

Technical assistance is keyPlan for LEC capacity support long-term (assetmanagement, governance)
Require inclusion of professional development teammembers•

Consider a framework to prioritize properties at riskof affordability loss•

Consider purchase timeframes carefully –•Balance property owner rights with objective of preserving
affordability
23