|Richmond Scrutinized for
February 11, 2003
The city has borrowed $35 million to buy a Hilltop apartment complex in a move critics say is too risky
RICHMOND - The city's public housing authority is drawing fire for its decision to sink $36 million into a Hilltop apartment complex that opponents say will not add to the city's affordable housing stock, and could jeopardize more promising projects, including the downtown transit village.
The city borrowed $35 million, and has tapped agency reserves to the tune of $1.4 million, to buy Westridge at Hilltop, a 401-unit building at 2490 Lancaster Drive.
Public Housing Authority director Dan Nackerman said that because financing is coming from low-cost federal bonds, the project can reasonably guarantee an annual profit of $150,000 if rents remain static, and as much as $900,000 with a gradual increase.
But Councilman Tom Butt, who cast the lone dissenting vote against the project last week, is concerned about added exposure to city coffers.
"In essence, the Richmond Housing Authority is becoming a real estate speculator, betting that income will exceed expenses and that inflation will bring added value, with profits ultimately plowed back into good things," said Butt, who noted the city general fund could be liable for annual lease payments of $1 million up to $12 million.
Run by a new joint powers authority, the apartments would become neither Section 8 nor public housing, but "an affordable, near-market property, as it is today," Nackerman said in a memo to the council members.
In two- and three-story stucco and wood buildings, the units range from 470 to 580 square feet. There are three swimming pools and a fitness center on site. Rents top out at $920.
"No real estate investment is risk-free, but we think this is a very safe and conservative investment," Nackerman said. "The general fund will guarantee up to $1 million a year and any shortage in lease payments, but that would be a very rare, catastrophic situation. We intend to hold this as a very long-term investment."
Butt's objections resonated more in the private sector than the public.
"On paper, initially, it looks pretty good," said real estate developer Mark Howe. "With a very small change in rental rates, interest rates, vacancy rates -- and that's a big one, considering the rental-rate war that's going on on the Hilltop -- that can all change."
Although the building is 95 percent occupied, the opening of the Vista Hills units on the Hilltop will alter a long-static rental market, he said.
The Richmond Housing Authority is paying $90,000 per unit, "which is very near the recent high price per rental unit that has been paid in the West County over the last several years," Howe said.
Agency officials say the property will add to the city's low-cost housing stock, maintain existing market-rate rents, create a surplus cash flow the housing authority can use to supplement its federal subsidy, and create a growth in value of investment equity.
Two sources of low-interest bond funding allow the Richmond Housing Authority to purchase at market value but keep the debt service low.
The city's ownership of the apartment complex will create no new housing. Rather, it simply will transfer from private to public ownership.
As it stands, money for affordable housing projects and urban renewal could be lost from redevelopment agencies as Gov. Gray Davis' administration seeks new sources of cash to balance the state budget.
Reach Rebecca Rosen Lum at 510-262-2713 or at firstname.lastname@example.org.