After Setbacks, City Kickstarts Affordable Housing Project

Millbrae is one step closer to fulfilling it affordable housing requirement after years of negotiations with a nonprofit.

On Tuesday, the city signed an agreement with Pacific West Communities, a developer that will step in to refurbish the Dolores Lia apartment complex into low-income housing after nonprofit BRIDGE Housing, the previous owner, failed to bring the project to fruition.

In December 2006, the Millbrae Redevelopment Agency analyzed possible projects to satisfy a state law requiring that 15 percent of all housing built in a redevelopment project area, which is a zone designated to combat blight, be sold to lower income residents.

In an effort to fulfill part of this mandate, the agency entered into a contract on Feb. 12, 2008 with BRIDGE Housing, a nonprofit that specializes in affordable housing development. BRIDGE estimated the Dolores Lia project, located at 1275 El Camino Real, would cost about $10.8 million, including the $5.85 million for acquisition of the property.

Millbrae loaned BRIDGE $5 million to purchase and renovate the 27-unit building into condominiums, while banks and investors fronted the rest. Upon the sale of the condos, BRIDGE would first repay its investors and then $1.8 million to the city. The remaining $3.2 million would fund mortgages for low-income residents.

But shortly after the transaction, even before construction workers hammered a single nail, BRIDGE wanted to renege on the deal.

“The financial and housing crisis of late 2008 had a significant impact on the feasibility of the initial affordable condo conversion plan,” said Cynthia Parker, president and CEO of BRIDGE Housing.

Yet, it took three years of negotiations between the city and BRIDGE to transfer the project to a new entity.   

“Nobody foresaw that the process would take this amount of time, but there have been a lot of moving parts, including unprecedented and unpredictable market conditions, staff changes and competing priorities,” Parker said.

On Sept. 8, 2009, a year and half after it bought the property, BRIDGE deviated from the original project scope. It would now rent instead of sell the units, as it deemed the latter financially impractical in a down economy, and subsequently agreed to repay Millbrae only $1.3 of the original $1.8 million.

From September 2009 to November 2010, the city council did not publicly discuss the project. Presumably, a high turnover rate in the Millbrae Community Development Department halted public discourse  – three directors in three years. 

About a year later, city staff decided to seek other nonprofits to adopt the project.

“BRIDGE was probably also getting a lot of pressure from investors,” said Councilman Paul Seto. “We could have pressured them a little bit, too. It’s both [the city’s and BRIDGE’s] fault for it taking so long.”

Eventually, in January 2011, the city found another potential owner, HIP Housing, also an affordable housing nonprofit. But HIP requested a city investment of $1.4 million to undertake the Dolores Lia renovations, in addition to the $5 million originally allocated.

“This was obviously not the best deal for the city, we would have needed to come up  with the $1.4 million right away,” said Millbrae Community Development Director Farhad Mortazavi. “We needed to find the best deal for the city, and a nonprofit just didn’t work for us.”

About a month ago, Pacific West Communities, a private for-profit developer based in Idaho, approached the city proposing that it would only need an additional $700,000 instead of the $1.4 million HIP requested, and the city would defer payment until project completion.

Before signing with Pacific West, Millbrae considered other scenarios. One proposal would have been to completely scrap the conversion and sell the Dolores Lia project, incurring a loss of about $1.45 million and not fulfilling its affordable housing requirement. 

In another, the city would remodel and manage the project without outside help, but a limited budget and staff, and significant upfront capitol, prevented the city from pursuing this option.

City staff indicated Pacific West was the only viable option, and on Tuesday signed a loan for $5.7 million.

Millbrae is obligated to provide 452 affordable units by 2014, and thus far has produced 56, excluding Dolores Lia, according to city documents.