Downtown residents and struggling business owners seem to cringe
at the idea of Gilroy bailing out South County Housing by
purchasing four townhomes, but flipping properties is not exactly
new for City Hall.
Downtown residents and struggling business owners seem to cringe at the idea of Gilroy bailing out South County Housing by purchasing four townhomes, but flipping properties is not exactly new for City Hall.
In January 2008, before the nation’s leading banks and auto companies started hitting Uncle Sam up for money, the city council voted 6-1 to buy an apartment at the Village Green retirement community near Hecker Pass Road and Santa Teresa Boulevard for slightly less than $300,000. Because the city originally permitted the home as a “below-market-rate” unit – meaning it is reserved for those earning up to 120 percent of the county’s median income, or $88,600 for an individual and $126,600 for a family of four – the restricted deed on the property required the seller to give Gilroy a chance to buy the home and preserve its affordability.
Councilman Dion Bracco voted against the idea, but the city ended up re-selling the unit and absorbing about $17,000 in realtor and title fees that the buyer did not have to pay. Gilroy did this with a total of six Village Green units throughout the past two years, effectively eating more than $100,000 in fees to preserve affordability and oblige county housing standards, according to Housing and Community Development Coordinator Marilyn Roaf. When it comes to the four townhomes in the first phase of South County’s three-phase, 210-unit downtown Cannery project at Lewis and Forest streets, the city would buy a 50-percent stake in each – for a total of $676,046 – and then let the nonprofit manage the units before selling them in 2014.
“Village Green and the Cannery are different types of ventures, but they’re similar,” Roaf said. “The Cannery is like a more prolonged version of Village Green.”
That scares Joe Laguna. He and his wife bought a townhome on Sarafina Way from South County in July 2007, but after the developer sold a handful of neighboring homes at an auction last April, Laguna said buyers have moved in renters instead of people like themselves.
“It doesn’t feel so neighborly sometimes. People are renting them out to people who don’t really care about the neighborhood,” Laguna said. He mentioned sloppy yards and people working on their cars and said he feared that more renters, some of whom may rely on government rent assistance, could bring down the neighborhood further.
“I kind of feel like South County just built the homes, and now they’re checking out,” Laguna said. “We need to look at the long term. What’s this really doing for the rest of the community?”
Roaf said she hoped the city and South County Housing would rent the Forest Park townhomes – all of which are regular, market-rate units – to disabled families or young renters. Yet, extending a helping hand in these times – and giving South County enough liquidity to continue building – seems nonsensical to John Trinchero, owner of JT Auto near IOOF Avenue and Monterey Street.
“The city will buy these units so (South County Housing) can start another phase, but what’s going to happen with that phase,” Trinchero said, adding that he has lost several hundred thousand dollars during the recession and that empty condos around his business mean the city should stay away from real estate.
“My father always told me, ‘Don’t play another man’s game.’ Well, the city’s having trouble running the city, so what do they want to get into the rental market for?” Trinchero asked.
Councilman Perry Woodward is already in that market. He bought a Forest Park townhome last April at the auction and said he has since rented the main house for $2,150 a month – $500 more than what the city expects to bring in if it buys the townhomes.
“Based on what I’m seeing, that seems pretty feasible,” Woodward said.
To understand the financial feasibility of the potential purchase, city officials and South County Housing CEO and President Dennis Lalor said people should look at the history of the Housing Trust Fund, which financed the Village Green purchases and which could foot the bill for the townhomes until the city re-sells them in five years.
The city created the pot in 1999 with seed money from the sale of South County Housing units. Whenever the owner of an affordable unit sells at a fair market price instead of selling to the city, he or she must split the equity profit with Gilroy. Since 1999, Roaf estimated that the fund – which began the fiscal year with a balance of $4.1 million – has received more than $4 million from the market-rate sale of 47 affordable units at various South County developments. With a 50-percent share in the equity, that means the city collected about $85,000 per unit, and collecting interest on those millions throughout the years and distributing loans to first-time homebuyers have augmented the fund.
“Most of the fund’s money came from South County’s projects,” former City Administrator Jay Baksa said. “It’s not really their money, but it was generated by their projects.”
That’s something Roaf said she will reiterate March 2 when the council meets to consider the purchases.
“I may not have made that clear enough before,” Roaf said of the council’s January study session, when councilmembers Bracco, Bob Dillon and Craig Gartman indicated they would not support the real estate investment.
Despite the fund’s history, Bracco said he still opposes the bailout because the money should help first-time homebuyers buy houses and remove them from the bloated market – not purchase four townhomes so that South County Housing can satisfy its other debts and then continue to build out its Cannery Project.
“This money can benefit a large part of the community if we use it right. I don’t believe it’s to hand out to a developer to help out their project,” Bracco said.
Before South County asked for $676,046, Roaf received permission from the council to move $675,000 around within the fund to provide a total of $1,005,000 in loans for 33 first-time homebuyers this fiscal year. Only four buyers borrowed from the city last fiscal year, and the city has historically issued about $250,000 in loans a year.
“Pulling 33 homes off the market helps those that are left instead of helping a developer add more houses to a swollen fiasco,” Bracco said. “You’re actually hurting the citizens of Gilroy who already have houses on the market.”
The transferred money was originally for Village Green-type preservation purchases, but because of such low home prices, Roaf said qualified homebuyers are taking advantage of cheaper inventory. While this means more loan repayments, Roaf said the slow sale of both affordable and market-rate homes means revenue from equity shares is expected to shrink from about $550,000 to less than $160,000 this year.
In addition to loans, the fund also helps disabled homeowners build wheelchair ramps, and homeless and special needs advocacy groups such the Emergency Housing Consortium also receive money for transitional housing units. South County Housing partnered with EHC Lifebuilders to build the 60-unit Sobrato Transitional Apartments, 9369 Monterey Rd., and the city provided a second loan for that project, as well.
Places like St. Joseph’s Family Center, the Gilroy Armory and Community Solutions can access an additional $60,000 in grants and nonprofits can use a separate $120,000 to review fair housing cases, mediate tenant-landlord disputes, and conduct housing studies and homeless censuses.
