What Happens In San Francisco Won’t Stay in San Francisco

6 min read

City and Bank of America team for housing transformation

Hometown love endures? Yes. And contributes to significant accomplishments.

A recent example: North Carolina-based Bank of America Merrill Lynch (BAML), one of the world’s largest financial institutions, was born as “Bank of America” in San Francisco in 1904 and headquartered there until purchasing Merrill Lynch in 2010. The city of San Francisco, the San Francisco Housing Authority and their developer partners have selected BAML as lender and tax credit investor to repair and preserve 1,400 public housing units in the city. Completion is scheduled between August 2016 and April 2017.

The stakes are high in human terms. Approximately 3,000 people, will experience, “the transformative rehabilitation of their homes they’ve been hoping for over years, even decades,” says Olson Lee, Director of the Mayor’s Office of Housing and Community Development, Stakes also are high because at approximately $770 million, this the largest and most complex deal to-date under the U.S. Department of Housing and Urban Development’s new Rental Assistance Demonstration (RAD) Program, created in 2012 to, among other things, provide public housing authorities a way to preserve and improve properties and address the backlog of deferred maintenance.

Hometown roots clearly show. Maria Barry, a Bank of America Merrill Lynch Community Development Banking Executive, emphasizes “our long-standing dedication to the San Francisco market.” This dedication has included “more than $654 million in economic development financing from 2001 to 2014 and financing 36% of all Low-Income Housing Tax Credit (LIHTC) units in the city.” The Bank of America Foundation, she adds, “has also provided $1.5 million in grants and scholarships to community development non-profits over the last three years.”

San Francisco Mayor Ed Lee says Bank of America Merrill Lynch, “has provided an historic level of resources for this project, which has allowed us to achieve a rehabilitation scope that will truly be transformative for our public housing residents. BAML’s commitment was apparent from well before the city and its partners issued the lender/investor RFP, and their due diligence demonstrated a keen appreciation for the challenges inherent in the work and the importance of achieving success. We attribute that to the bank’s roots in our city, to their commitment to affordable housing here in the San Francisco Bay Area, and to a dedicated Community Lending staff that understands why we are dedicated to keeping our diverse communities strong.”

But the $770 million dollar deal is, of course, business, not nostalgia, and the hometown ties make dollars and cents sense. “The bank had strong relationships with many of the developers, having previously collaborated on many successful projects in San Francisco,” says Barry. Such strong relationships are crucial because the deal involves seven developers and 14 projects at 15 properties scattered around the city.

Bank of America Merrill Lynch’s winning bid includes approximately $350 million in construction financing; $300 million in Low-Income Housing Tax Credit Equity; $20 million in subordinated, forgivable debt; $5 million for predevelopment loans; and $100 million in permanent financing from Freddie Mac.

This deal is in some ways unusual, says Freddie Mac Vice President David Leopold. “The senior mortgage debt to total development cost on this portfolio is particularly low. That is a testament to the strong partners in this deal, particularly the City of San Francisco which has contributed considerable resources to ensure this vital affordable housing stock is improved and preserved. Our role at Freddie Mac is to provide the financing package that maximizes the value of the subsidy sources available. We are pleased to have done that here using our Tax-exempt Loan Product with a variety of terms and amortization schedules customized to each of the 14 transactions.”

A focus on tenants is clear in the winning bid’s $2.2 million to provide services to public housing residents, and $500,000 to Enterprise Community Partners to assist the RAD developers.

“We will fund services to tenants, which is an innovative way to help the residents succeed in their new housing,” says Barry. These services, she explains, “will ensure a smooth transition in and out of affordable housing, helping them acclimate to the changing environments. It will also provide wellness services for residents who suffer from post-traumatic stress disorder (PTSD) and help build community between the residents.”

Enterprise, says Barry, “leads the effort to change how public housing is managed, engaging with residents in decision-making, implementing thoughtful anti-poverty strategies and increasing accessibility for public housing residents to the broader community and its resources. Enterprise will also provide ongoing support and communication to the residents after the RAD conversion is complete.”

The ultimate goal: complete all renovations “without,” Barry emphasizes, “displacing any residents and maintaining current affordability levels in all units.” Enterprise and Bank of America, Barry adds, “have worked together on such innovative and creative programs for more than 20 years.”

“I am confident” says Freddie Mac’s David Leopold, “that the tenant-oriented elements of this project, putting the needs of affordable housing tenants first, will remain a priority throughout the entire process. And beyond that, there are multiple lessons.

“The first is that there is efficiency in scale and uniformity of process. The City of San Francisco RFPed 14 RAD deals at once and negotiated in a consolidated fashion, which both saved them money and attracted more aggressive capital.

Adds Leopold, “Another is the importance of strong leadership. The city stepped-up to take on a tremendously ambitious challenge of modernizing its public housing stock with a new program (RAD) in a very short time frame. They committed significant resources and brought together all the stakeholders necessary to get it done. Once completed, I think we will look back with amazement about what the city was able to accomplish for its public housing residents.

“A final lesson is the importance of amassing the right team. The city brought in Enterprise and other partners early to leverage more technical expertise and to ensure the tenants’ needs are kept at the forefront.”

From the city’s perspective, all of this was built upon old-fashioned apartment-by-apartment, building- by-building grassroots involvement. “First,” says Mayor Lee, “we conducted extensive outreach to tenants, to make sure that they were being heard and their diverse needs were being met. At the community level, we engaged eight different development teams led by community- based nonprofit developers.”

For the City of San Francisco, all of this is only Phase 1 in RAD-supported efforts to transform distressed public housing. Phase 2 calls for nearly $1 billion focused on another 2,000 housing units. But everyone expects that long before then, what happens in San Francisco won’t stay in San Francisco. “The housing crisis is not unique to San Francisco,” says BAML’s Barry, “and this project creates a model for high-impact change for other cities to follow. We’d like to build on this experience by taking this model to other cities that want to make systemic changes in the way they view affordable housing. We also want to show what can be done.”

And, says San Francisco Mayor Lee, Chicago and New York have already approached him to learn from what is happening in San Francisco.