Colorado cities and counties would have the ability to snap up apartment complexes and convert them to affordable housing, rather than be sold to private bidders, under a new bill set to be introduced in the House in the coming days.
Supporters cast the measure, which is being pushed by Fort Collins Democrat Rep. Andy Boesenecker, as a way for local governments to rebuild public housing, both within the existing market and within standing neighborhoods. If an owner in Denver, for instance, were to accept a $50 million private offer for a 25-unit apartment complex, the city would then have a window to decide whether to step in and exercise their right of first refusal. If they do, they have another window to match the offer and close the deal. Once that’s done, the city would then be required to keep its new units affordable based on local income levels while capping rent increases.
The bill applies to any development with three or more units in rural-resort settings or five or more units in urban areas. There are exemptions, like for the transfer of property to spouses or family, and local governments could waive the right entirely if the private buyer agrees to keep the units affordable. The proposal expands upon a similar bill sponsored successfully last year by Boesenecker involving mobile home parks and is part of a broader push by legislators to increase Colorado’s affordable housing stock.
To finance the deals, governments could braid their own revenues with money controlled at the state level, like Proposition 123 funds or dollars allocated by the legislature in recent years. They could then turn any new properties over to their housing authority or to another “political subdivision,” which Boesenecker said could include school districts.
It’s a market-based solution, the lawmaker said, that allows local officials into what are often closed-door negotiations: The prices that local governments would have to match would be set and agreed upon by the private buyer and seller first.
“It gives local governments a reasonable chance to compete,” he said Tuesday.
The Colorado Municipal League, which represents local governments across the state, is still studying the bill and has not taken a formal position on it, its executive director told the Post.
“What we’ve seen in the market is that a hedge fund or private equity firm can come in with cash, and that offer is immediately advantageous (compared) to a financed offer that a local government can put together. So in the bill, as long as the asking price is the same from either the person looking to buy and the local government, in reality, the seller still stays in the driver’s seat.”
A similar program was introduced in a Maryland county a decade ago, but the bill — if passed — would make Colorado the only state in the country with a right-of-refusal requirement, supporters said.
It’s the latest in a constellation of housing measures contemplated by lawmakers this year. They cover a broad range of pro-tenant policy objectives, from extending eviction protections to limiting fees and allowing local authorities to enact rent control. Gov. Jared Polis has listed housing as a top priority this year, though his focus appears to center on land-use reform.
Some housing industry groups have already signaled their opposition to this latest proposal. Rachel Marion, the CEO of the Denver Metro Commercial Association of Realtors, said the bill would have “extreme chilling effects” on the housing market in Denver. Her primary concern, shared by the Colorado Apartment Association, centers around the size of the windows that local governments would have to swoop in and close a deal.
As the bill’s written, qualifying unit owners would have to provide notice to local authorities that they plan to sell their property. Those authorities would then have two weeks to decide whether they planned to exercise their right of first refusal. If they do, they have 90 business days to make an offer and another 180 after that to close the deal.
Those timelines are delays that will make developers leery of shifts in the economy like interest rates, Marion said. She and Drew Hamrick, a senior vice president of the apartment association, both said they’d prefer a requirement that private developers must notify local governments of an impending sale, without the right of first refusal.
But Peter LiFari, the CEO of the Adams County housing authority Maiker Housing Partners and supporter of the bill, said the underlying issue isn’t just local governments being in the dark about negotiations.
“First off, it’s very rare we could ever make a full cash offer for valuations of multifamily assets,” he said. “A lot of deals are being paid with all cash. The other element is we have a duty to our constituents to ensure we’re not buying a lemon. So we have to move through our inspection period, do required due diligence, ensure the asset is safe and the investment is sound. In the private market, those have been waived in the pursuit of acquiring an asset quickly so the return can be what they desire.”
LiFari views the proposal in grand terms, as the start of an affordable housing renaissance in Colorado that could help reshape public housing over the coming decades. Whereas public housing was previously stigmatized, red-lined and isolated into prescribed corners of cities, he said Boesenecker’s bill would allow future units to be more fully integrated into existing communities, with rent collected from the properties used for their upkeep.
“Prior public housing required Congress to allocate resources to pay for it; they never did that,” LiFari said. “We are now in the driver’s seat.”
This story was first published by The Denver Post, a BusinessDen news partner.