Irvine City Council members approved a new program buying up apartment buildings in the city to lower rents on two apartment complexes, but the final benefits to the city won’t be felt for years to come.
The two projects are centered on the Toscana and Royce apartment complexes, which hold just over 1,000 apartment units altogether. The Catalyst Housing Group will take over the Toscana apartments while the Waterford Property Group takes over the Royce building.
In a phone call Monday afternoon, city manager Oliver Chi said the primary benefits of the deal to the city are taking over both apartment buildings in 35 years and the limited savings available to residents now.
“It’s not a traditional affordable housing deal, you’re not getting the same type of rent restrictions, the project sponsors are making a lot of cash up front without having to build anything,” Chi said. “The flipside, though, is you do get commensurate value, the property tax the city would give up is fairly modest and you’re getting some commensurate value based rent controls.”
According to the staff reports, the city of Irvine will be giving up $6.8 million over the next 35 years, with other agencies’ including the county and school districts lost revenue comes to a total of $74.4 million in property tax over that same span.
The Royce is pitched as a luxury apartment complex on its website, showcasing a variety of amenities including a “pet spa,” golf simulator, conference center, multiple rooftop entertainment areas and pools, while Toscana offers amenities such as a fitness center, four jacuzzis, and clubhouse.
While the projects are run by different companies, the end result for tenants and the city is almost exactly the same.
First, the developer gets a state joint powers authority to issue a bond, in this case the California Statewide Development Authority and the California Municipal Finance Authority.
Those bonds provide the money to purchase the property and upgrade the facilities that’s then repaid over the next 35 years.
The rent revenue ultimately pays back the bonds, which between both projects total over $800 million. No state or local tax dollars go toward the bonds according to Chi.
The state agencies then purchase the properties and the developers manage them over the lifetime of the bond, on the condition that they keep the rent for the apartments between 80 to 120% of the area’s median income, ensuring the rents do not skyrocket faster than their tenant’s income.
According to US census data, that means to qualify to live in the building, families would have to bring in anywhere from $90,000-$133,000 to be considered eligible for a spot.
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Cesar Covarrubias, executive director of the Kennedy Commission, a nonprofit focused on expanding affordable housing in Orange County, said that while these types of projects help, they don’t fill the need for extremely low income residents.
“I think there are benefits, you’re providing some housing, but there are some risks that are not being addressed,” Covarrubias said in a phone call with Voice of OC Tuesday morning. “It’s a break for someone in the middle income category, but the biggest need in our country is at low, very low and extremely low … Those are families making anywhere from 30,000-$80,000.”
After 15 years, the city has the option to buy the building for itself or automatically receive it free of charge in 35 years.
In exchange for arranging the deal, Catalyst is set to receive $10.2 million and Waterford will take in $9.8 million upfront.
The projects are aimed at helping those with too much income to qualify for existing affordable housing, but not enough to keep up with increasing rent prices, according to a report by city staff.
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City officials also laid out some concerns that the city would have to take over the apartment building in 35 years, opening up a question for future city councils of whether they would take over managing an affordable housing complex or sell the building and potentially displace hundreds of residents.
While Chi said the current council hopes to convert the buildings into even more affordable housing in the future, that decision is out of their hands and left to a future council.
These types of housing arrangements are becoming increasingly common in California.
Just last year, Catalyst alone received over $1.4 billion in bonds to buy housing across the state in similar deals that paid out millions up front, according to the California Community Housing Agency’s website.
A report commissioned by the city of Long Beach for a similar project by the Waterford Property Group questioned what actual benefits the city might reap, saying the project wouldn’t help the city due to “modest affordability benefits, a financial structure that is misaligned with city interests, and a return on public investment that does not provide clear justification for participation.”
To read the full report, click here.
That report wasn’t made public until after the Long Beach City Council voted to approve the project in February 2021.
According to data provided by the city of Irvine and compiled by the Kennedy Commission, while the city has produced over six times the state mandated requirements for moderately affordable housing, it produced less than half the required low and very low housing options.
To review the data for Irvine and other OC cities, click here.
While the city council is touting the project as new affordable housing, it doesn’t actually create any new housing or count toward the city’s affordable housing construction requirements.
The buildings are already both over 95% occupied by residents paying the current rent, and both developers promised in their paperwork that no existing residents would be displaced or see an immediate rent increase due to their taking over the building.
“If you’re arguing we need more supply, this isn’t impacting the supply,” Covarrubias said. “These are mostly investors here to make a profit, and it’s not being analyzed very diligently.”
Chi said that while the project doesn’t create any new housing, the city’s expectations of high turnover in the complexes will help them reach more people.
Noah Biesiada is a Voice of OC Reporting Fellow. Contact him at nbiesiada@voiceofoc.org or on Twitter @NBiesiada.