BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 454
                                                                  Page  1

          Date of Hearing:   August 4, 2010

                                Felipe Fuentes, Chair

                   SB 454 (Lowenthal) - As Amended:  May 27, 2010 

          Policy Committee:                             Local  
                       Housing and Community Development      8-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              


          This bill deletes the sunset date on three sections of law  
          requiring the owners of affordable housing to provide notice to  
          tenants and governmental entities before converting a property  
          to market rate, and makes related changes to the noticing  
          requirements. Specifically, the bill:   

          1)Repeals the January 1, 2011 sunset date on current-law  
            provisions that: (a) require affordable housing owners to  
            provide notice to tenants and governmental entities before  
            converting a property to market-rate apartments; (b) require  
            affordable housing owners to provide notice of a "bona fide  
            opportunity to submit an offer to purchase" to tenants, local  
            and state governments, and potential preservation purchasers  
            at least 12 months prior to conversion; and (c) provide an  
            exemption from noticing requirements if specified conditions  
            are contained in a regulatory agreement recorded against the  

          2)Adds the requirement that the "bona fide opportunity to submit  
            an offer to purchase" notice indicate whether the owner: (a)  
            intends to maintain the current number of affordable units and  
            level of affordability; (b) has an interest in selling the  
            property; and (c) has executed a contract or agreement of at  
            least five years' duration with a public entity to continue or  
            replace subsidies to the property, and to maintain an equal or  
            greater number of units at an equal or deeper level of  
            affordability, and, if so, the length of the contract or  


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          3)Exempts from specified financial disclosure requirements  
            developments in which 25% or less of the units on the property  
            are subject to affordability restrictions or a rent or  
            mortgage subsidy contract.

           FISCAL IMPACT

           Minor and absorbable costs to the Department of Housing and  
          Community Development to approve notice forms and maintain lists  
          of prospective preservation purchasers (various special funds).

           1)Rationale  . The bill is intended to preserve affordable housing  
            and mitigate the impact of conversions on tenants, by making  
            permanent and modestly expanding the current-law noticing  
            requirements. The author indicates that these noticing  
            requirements are the centerpiece of the state's affordable  
            housing preservation strategy, which is important given that  
            preserving existing affordable housing is much less expensive  
            than constructing new units. The notice requirement also  
            ensure that tenants are informed of how they will be affected  
            if the property does in fact convert to market rate.  

           2)Background.   Since the 1960s, developers have constructed at  
            least 425,000 units of affordable rental housing in California  
            with the assistance of federal, state, and local subsidies  
            that require owners to maintain rents at affordable levels for  
            specified periods of time. The affordability restrictions on  
            assisted units typically last 30 to 55 years, depending on the  
            program.  Once affordability obligations expire, owners may  
            preserve the affordability of the units by renewing assistance  
            or by refinancing with new public subsidies, or they may  
            convert the development to market rate.  Under some federal  
            programs, owners can also terminate affordability restrictions  
            early by prepaying the underlying mortgage or opting out of  
            the rental assistance contract.  

            According to the state-chartered California Housing  
            Partnership Corporation, California has already lost more than  
            20,000 units of housing affordable to low-income households to  
            such market rate conversions, and 82,000 more units are  
            considered at risk of conversion in the next five years.  

            Existing law requires that a property owner cannot convert an  


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            affordable property to market rate without first providing  
            notice to tenants, local and state governments, and potential  
            preservation purchasers (those who may wish to purchase the  
            development in order to preserve the affordability  
            restrictions).  The owner must provide a first notice at least  
            12 months prior to conversion, and a more detailed notice six  
            months prior to the conversion. 

            During this one-year notice period, current law also provides  
            preservation purchasers with limited priority to purchase the  
            property if the owner is inclined to sell.  Prior to or  
            concurrent with the delivery of the 12-month notice described  
            above, the owner must notify prospective preservation  
            purchasers who have contacted the owner directly or who are on  
            a list maintained by HCD of the opportunity to submit a  
            purchase offer.  In addition, the owner must provide HCD and  
            the local government with information on the number of  
            affected units, bedrooms, and tenants and on the ages and  
            incomes of these tenants.  

            In general, an owner is exempt from both the notice  
            requirements and priority purchase provisions if he or she or  
            a successor owner agrees to retain existing tenants and extend  
            the affordability of the units for at least 30 years.

           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081