Van Nuys apartment owner drops plan to convert affordable units to market rate

The owner of a 390-unit apartment complex in Van Nuys has dropped its attempt to roll back rent restrictions on a fifth of those units.

The Los Angeles City Council on Wednesday approved a settlement agreement requiring the owner, San Regis LLC, to retain affordable rents on 78 units of the complex on Sherman Way.

The firm sued the city and California in 2016, seeking court approval to convert the units to market rate, claiming that the restrictions a former owner agreed to in accepting a city loan in 2001 would expire when the loan was repaid.

City Atty. Mike Feuer and state Treasurer John Chiang countersued, contending that the owner was trying to take advantage of a loophole in the city contract to get out of a 55-year commitment.

Under the agreement, the firm has obtained new financing to pay off the city loan and executed a new 55-year covenant to maintain rents on 20% of the building’s units affordable to low-income tenants.

“The settlement reached between San Regis, the city, and the state shows how creative thinking can solve a problem in a way that benefits everyone,” Feuer said in a statement. “Now, without any further cost to city taxpayers, 78 units of greatly needed affordable housing in the Valley will be preserved for decades longer than originally planned.”

Chiang signed off on the agreement in June. The city’s action was held up by budget hearings and the July council recess.

“We fought for a year and a half and remained steadfast to keep these 78 homes affordable because we’re in the grip of a housing crisis and every affordable home counts,” Chiang said. “We can’t afford to lose one, let alone 78 units. Keeping these apartments affordable represents a victory for the elderly, veterans, the disabled and the working poor.”

Housing advocates and lawyers, as well as religious and neighborhood leaders, joined Chiang and Feuer in demanding that the apartment complex’s owners maintain the affordability of the units, Chiang said.

Locke Lord LLP, the law firm representing San Regis, did not respond to a request for comment.

The dispute hinges on a $23.6-million tax-exempt bond issued by the city that a former owner obtained for the 2001 purchase of the complex at 15454-60 Sherman Way. A bond authorization agreement with the California Debt Limit Allocation Committee required the owner to maintain 78 of the units at prices affordable to people making 50% or less of the area’s median income.

San Regis LLC, which included the Colorado Public Employees’ Retirement Assn. and the Utah State Retirement Investment Fund as investors, purchased the complex in 2005.

According to its filing, it planned to sell the complex. It asked the court to affirm that the affordable housing commitment would terminate when the tax-exempt bonds were paid, which would likely occur upon sale. It wanted 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.

State officials said the legal theory represented a threat to the affordable housing program because up to 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.

The units at the Van Nuys apartments would cost $28 million to replace with new housing, Jeree Glasser-Hedrick, then executive director of the Debt Limit Allocation Committee, said at a 2016 news conference.

“We’re fighting this at the granular level, and we’re trying to save every unit that we can,” she said.

In the cross-complaint, the treasurer contended that commitment to maintain affordable rates for 55 years was inseparable from the project and asked the court to reform any “ambiguity” in the city contract.

doug.smith@latimes.com

Twitter: @LATDoug

UPDATES:

7:05 p.m.: This article was updated with a comment from state Treasurer John Chiang and additional background.

This article was originally published at 3:35 p.m.