California Treasurer John Chiang on Wednesday slammed two out-of-state public pension funds for what he called a shameful ploy to eliminate 79 affordable housing units in a massive San Fernando Valley housing complex.
At a news conference outside the 390-unit San Regis apartments in Van Nuys, Chiang castigated building owners for asking a judge to end a 55-year affordable housing covenant after only 15 years.
The complex, he said, is owned by the Colorado Public Employees Retirement Assn. and the Utah State Retirement Investment Fund.
"These public funds, which pay their bills on the backs of taxpayers and public servants, should be ashamed of their craven greed," Chiang said. "Their hubris will deepen the affordable housing crisis afflicting Angelenos. This cannot be done and they're not going to get away with it."
The owners filed a lawsuit in October that Chiang said attempts to "exploit an unintended legal loophole" in the company's contract with the city of Los Angeles to terminate the affordable housing covenants.
"At stake is not only taxpayer funds, but the welfare of hundreds of poor families, seniors and veterans," said Chiang, who has announced his bid for governor in 2018.
On Monday, the treasurer’s office filed a cross-complaint seeking a court declaration that the 55-year covenant will remain in force. Los Angeles City Atty.
"Affordable housing is beyond scarce in Los Angeles, and we're fighting to preserve every unit that's been set aside for that purpose," Feuer said in a statement Wednesday.
An attorney representing the building's owners declined to comment on the matter Wednesday, saying he lacked authorization. The lawyer, Stephen A. Tuggy, of the law firm Locke Lord, also declined to say whether the pension funds owned the building. In court filings, the owner is listed only as San Regis LLC.
The dispute hinges on the $23.6-million city-issued tax-exempt bond that a former owner obtained for the 2001 purchase of the complex at 15454 Sherman Way. A bond authorization agreement with the California Debt Limit Allocation Committee required the owner to maintain 79 of the units at prices affordable to people making 50% or less of the area's median income.
San Regis LLC purchased the complex in 2005 and is now planning to sell it, according to its filing. The firm contends that its contract with the city provides for the affordable housing commitment to terminate when the tax-exempt bonds are paid, which would likely occur upon sale. It wants to restore the affordable units to market rates to obtain a better price for the building.
"The lingering uncertainty on this issue caused by the city and CDLAC clouds title to the project and impinges on the ability of San Regis to market the project and receive full fair market value," the lawsuit said.
In the cross-complaint, the treasurer contends that commitment to maintain affordable rates for 55 years is inseparable from the project, and any "ambiguity" in the city contract results from a failure to reference the commitment that all parties understood to be in force. It asks the court to "reform" the agreement.
It remained unclear Wednesday how large an impact the case could have on the supply of affordable housing. Chiang said about 2,000 buildings across the state have units committed to long-term affordable housing under the tax-exempt bond financing mechanism that was used to purchase the San Regis in 2001.
But the lawsuit hinges on San Regis' contract with the city. The state's cross-complaint attributed the ambiguity to a "drafting error" in the city's contract. It wasn't clear Wednesday whether the same ambiguity affects other city contracts with owners of bond-financed housing.
Jeree Glasser-Hedrick, executive director of the Debt Limit Allocation Committee, said the stakes are high. New affordable housing costs about $370,000 per unit, so the loss of 79 units would represent a $28-million blow to the affordable housing program, Glasser-Hedrick said.
"We're fighting this at the granular level and we're trying to save every unit that we can," she said.