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Background
The Anderson Hotel opened its 68 doors in 1923. Developed by local businessman J.L. “Jeff” Anderson, the hotel initially catered to high-end clientele, including visitors preparing for trips to the nearby Hearst Castle. The Anderson family managed the hotel for decades and in 1978 they transitioned the property into affordable housing for seniors and individuals with disabilities by entering into a Section 8 project-based rental assistance (PBRA) contract with the U.S. Department of Housing and Urban Development (HUD). HASLO assumed the HUD Section 8 PBRA contract and operations in 2001 under the terms of a 20-year master lease that included two ten-year renewal options with the private owner.
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The Challenge
Trouble arose in January 2021 when HASLO was facing the imminent expiration of the master lease and the HUD Section 8 PBRA contract. Anticipating this expiration, HASLO had engaged the California Housing Partnership (the Partnership) in 2019 to help initiate negotiations to buy the property from the private owners. Unfortunately, the negotiations failed. When January 2021 arrived, the private owners of the property accepted a purchase offer from market rate developers who intended to opt out of the HUD contract and end more than 40 years of continuous use as affordable housing.
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The buyers planned to convert the Anderson Hotel Apartments to a boutique hotel, potentially displacing its elderly and disabled residents who called it their home. The city’s escalating rental prices of more than $2,500 per month coupled with a critical shortage of housing affordable to low-income households, meant that losing these homes could push many of the residents into homelessness.
Thanks to long-standing relationships with the National Housing Law Project (NHLP) and the California Department of Housing and Community Development (HCD), the Partnership was able to help HASLO bring in much-needed help. Upon investigation, NHLP and HCD quickly discovered that the owners had failed to comply with the State Preservation Notice Law (Notice Law), which requires that owners provide notice (1) to tenants and public entities regarding the expiration of rent restrictions, and (2) to qualified affordable housing developers of the opportunity to purchase and preserve the property as affordable housing before accepting offers from non-qualified entities.
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“We worked collaboratively with HCD and HASLO to ensure all of the tenants were protected throughout the process. HASLO was an important and willing partner in this preservation effort.”
Kate Walz, Associate Director of Litigation, National Housing Law Project
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Working with local legal aid advocates, tenants, and NHLP, HCD took action. On January 22, 2021, the Department issued a letter to the owners alerting them of their obligations under the Notice Law and warning that should the sale and conversion proceed as planned, the court could issue an injunction to stop the sale and require the owner to pay attorney fees to the state and private parties. | |
With the clock ticking on the new purchase option, Partnership finance experts Diep Do and Tony Kouot continued to lead the acquisition financing strategy concluding that a combination of HCD’s Homekey funding and federal 9% Housing Credits would work best and prepared for the impending applications. | |
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Another Bump in the Road
The Partnership’s Housing Finance team studied the regulations for each funding source preparing to apply and realized there was a critical misalignment between the programs that could derail the entire plan, namely that the plan to secure Housing Credits through the At-Risk set aside, which is designed for exactly this kind of scenario, could not proceed due to this challenge: under the California Tax Credit Allocation Committee (CTCAC) Regulations, a project is disqualified from the At-Risk set aside if it has existing affordability restrictions with a remaining term of more than five years. Under Notice Law, HCD requires a 30-year regulatory agreement be recorded at the time that a qualified entity acquires the property. Neither agency could provide an exception, which forced the Partnership to pursue a legislative solution to this conundrum.
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Resolution & Impact
The preservation of the Anderson Hotel represents the culmination of years of collaborative effort between HCD, HASLO, NHLP, the Partnership and tenant advocates. This coordinated approach saved 66 long-term affordable homes, a critical win given San Luis Obispo County’s severe affordable housing shortage. Without this intervention, it is likely that senior residents would have been displaced resulting in desperate housing situations and even homelessness for some.
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“The Anderson Hotel is a cornerstone solution in the San Luis Obispo community when it comes to providing better affordable housing options and supporting those at risk of homelessness. That is why I worked to secure $2 million through the Congressional Community Project Funding program for its renovation last term, as well as additional federal support through the American Rescue Plan. As a veteran of local government, I know firsthand that a difficult community issue like housing and homelessness can only be solved by all levels of government working together. The Anderson Hotel is a textbook example of the good we can do when we get local, state, and federal agencies all working together.”
Congressman Salud Carbajal
California, District 24
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Anderson Hotel Grand Reopening
L to R: Michael Burke, Director of Construction & Development (HASLO), Ken Litzinger, CFO, (HASLO); Tony Kouot, Senior Financial Consultant, California Housing Partnership
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This case study was prepared by California Housing Partnership Communications Manager, Siera Beal, with assistance from Associate Research Director, Danielle M. Mazzella, Managing Director, Diep Do and President & CEO, Matt Schwartz, as well as contributions from HCD, HASLO and NHLP.
Property images provided by HASLO.
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The California Housing Partnership creates and preserves affordable and sustainable homes for Californians with low incomes by providing expert financial and policy solutions to nonprofit and public partners. Since 1988, the Partnership's on-the-ground technical assistance, applied research, and legislative leadership has leveraged $35 billion in private and public financing to preserve and create more than 93,000 affordable homes.
Visit us at www.chpc.net.
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