'Call Your Lawyers': New Rules, No Guidance For 12,000 Philly Affordable Housing Units

Amid the hubbub surrounding Philadelphia’s primary elections, a bill was quietly passed that could have massive implications for affordable housing preservation in Philly.

On May 4, the city council passed the People’s Preservation Package, a pair of bills introduced by District 3 Councilmember Jamie Gauthier targeting the estimated 12,000 subsidized rental units across the city with affordability contracts expiring in the next 10 years.

One of the bills simply directs the city to build a database of all subsidized housing units and their contracts’ expiration dates. The other is Philly’s own version of what is popularly known as a tenant opportunity to purchase act, or TOPA, applying only to rental properties of four or more units at the end of their affordability contracts.

The bill is light on specifics for how to implement and administer the new rules, by Gauthier’s own admission. But when Mayor Jim Kenney either signs the People’s Preservation Package or lets it sit on his desk long enough for it to become law, it will take immediate effect.

Washington, D.C., is the only major municipality in the country that has a functioning TOPA program, as it has for over 40 years. A lobbyist for a local landlord organization has an urgent piece of advice for any Philly landlords who may be affected.

“Call your lawyers,” Apartment and Office Building Association Vice President of Government Affairs Katalin Peter said to Bisnow upon being informed of Philly’s new law. “Really, truly, call your lawyer or your lawyers, because they’re going to have their hands full figuring this out.”

Responsibility to administer Philly’s TOPA program would ostensibly fall to one of two offices: the Department of Planning and Development or the Philadelphia Housing Development Corp. A timeline for assigning that responsibility has not been set. 

“A lot of these laws, you have to keep working on them,” Gauthier said.

Any law that applies to the sale of a property is a layer of compliance required to obtain title insurance, a key cog in the real estate transaction machine, Peter said. But until the city figures out how its own version of TOPA will actually function, compliance is a likely guessing game. Beyond causing headaches for owners, that could work against the program’s goals.

“It’s very foreseeable that if Philly doesn’t learn D.C.’s lessons, it will have the same experience in terms of end runs or moves where the purpose of the law gets defeated,” said Joel Cohn, legislative director for the district’s Office of the Tenant Advocate.

Backlash, Then A Bill

Gauthier introduced the People’s Preservation Package in direct response to the multiyear controversy at University City Townhomes, a 70-unit affordable development at 39th and Market streets in her district, she told Bisnow. 

Owner IBID Associates told tenants in 2021 it was not renewing its affordable contract at UC Townhomes and would look to sell the land in the heart of the neighborhood’s life sciences corridor, initially giving less than a year’s notice to vacate the property. An uproar ensued, exacerbated by University City’s history of displacing Black neighborhoods in favor of life sciences construction, for which UC Townhomes was a concession 40 years ago.

As Townhomes residents, many of whom had Section 8 vouchers, struggled to find new places to live, some of them camped out in protest of IBID’s decision to sell. They were joined by some local housing advocates and students from nearby University of Pennsylvania and Drexel University.

Gauthier’s initial response to the situation was to wield her councilmanic prerogative and pass an affordable housing zoning overlay and demolition moratorium targeting the property. After IBID Associates threatened a lawsuit, the two sides negotiated for months, eventually reaching a settlement this spring. IBID agreed to pay $3.5M and transfer a slice of the property to the city, which will solicit developers to replace the units set to be demolished.

“This is definitely an issue I had been thinking about since I started in office, but going through that two-year fight over [UC] Townhomes, I wanted to come out of that not just with an equitable resolution, which I think we achieved, but with a solution for all the other units and families that may be at risk due to affordable subsidies,” Gauthier said.

At least 12,000 subsidized units in Philly are on affordability contracts set to expire in the next 10 years, Gauthier’s office said. Few, if any, of those units’ occupants are aware of how tenuous their living situation could be if their landlord decides to sell to a market-rate landlord.

Aside from creating a database of all subsidized housing in the city, Gauthier’s solution is City Council Bill 221017. Under the bill, owners must give at least 130 days’ notice of their intent to sell to six different parties: their tenants; the relevant district council member; all registered community organizations whose territory includes the property; the city’s legal aid organizations; and the heads of the Philadelphia Housing Authority and the Department of Planning and Development.

The notice must be sent via both certified mail and email, and include the name, address and contact number for the property’s owner and a designated contact person. When an owner seeks to end an affordable housing contract by paying off certain kinds of loans ahead of time, at least one year’s notice is required.

After giving notice, owners are not allowed to take any action toward selling the property for 45 days, giving a tenant organization, the city or a designated third party an exclusive window to make a purchase offer. After the 45-day window, the owner must notify the same six parties when it receives a bona fide offer to purchase the property, initiating a 60-day window for the tenant organization, city or designee to match it.

The owner must either accept the matching offer or enter into good faith negotiations with the tenant organization, city or designee within 60 days. If that timeline is met, but no deal is reached 90 days after the matching offer is made, the owner is then free to do what it wishes with the property.

‘Best Practices’

In announcing the bills' passage, Gauthier's office said the tools they created were "based on best practices" not just from D.C., but Chicago and Boston as well. Neither of the latter two have a comparable program in place. 

The closest thing to TOPA in Chicago is a pilot program created in 2020 for only naturally occurring affordable housing within the Woodlawn neighborhood. No landlords or tenants of eligible buildings have so much as indicated interest in making use of the program to date, its administrators told Bisnow. Boston hasn't even gotten that far.

"There has never been an effort to pass TOPA in Boston," said Mathew Thall, president of the Massachusetts Association of Housing Cooperatives President and steering committee member for its TOPA coalition. 

Chapter 40T of Massachusetts’ General Laws, which applies to expiring subsidized affordable properties, does mandate a two-year notice, an exclusive negotiating window and a right to match a market offer for the state’s Department of Housing and Community Development, a tenant organization or a designee. But unlike Philly’s law, it does not mandate sellers to accept those offers.

Even without teeth, the law has had an effect.

Through June 2020, 14 properties totaling 1,640 units (1,307 of them affordable) were purchased through Chapter 40T, all by third-party designees, according to a report on the program’s first 10 years by Massachusetts’ Community Economic Development Assistance Corp., which aided DHCD in administering the program and provided low-interest loans to some designee buyers.  

The owners of two affordable properties rejected matching offers from designees and sold to private buyers across the law’s first 10 years, resulting in the loss of 200 combined units, according to the 3-year-old CEDAC report. That outcome may have become more common since the study was released, Thall said.

“There have been many instances in which the nonprofit [designee] comes with a precommitment of funding from the city, and the landlord just refuses to negotiate with them,” Thall said. “So [a mandate] in those instances would put the teeth into the public sector’s willingness and readiness to finance these deals.”

State senators and representatives from Boston and nearby city Somerville have proposed the statewide legislation necessary for individual municipalities to enact full TOPA laws, but the fourth and most recent attempt to pass the bill was not voted on before the end of last year’s legislative session.

When asked to clarify the claims made in its announcement, Gauthier’s office responded with a statement noting that it took piecemeal elements from various states and cities as inspiration for individual components of the People’s Preservation Package.

“We felt Chicago was a case study for its work with existing affordable housing providers; Massachusetts and Denver for its use of both notification systems and right of first offer; Montgomery County, Maryland for its matched agreement of sale; and Washington, D.C. and San Francisco for their tenant and community purchase opportunities,” the statement read in part. “But there are many others as well.”

The Chicago program that Gauthier’s office referenced is the Preservation Compact, a strategic network of nonprofits and pseudo-governmental agencies that identifies expiring affordable housing contracts and coordinates the usage of a suite of financing tools to preserve properties’ affordability — none of which involve a TOPA-like component.

“The [Chicago] Housing Authority, the city, local [community development financial institutions], etc., work together years in advance to identify what buildings would be at risk of losing affordability and work together to avoid that outcome,” Chicago Department of Housing Director of Policy, Research, and Legislative Affairs Daniel Hertz told Bisnow. “Most of the time, that works.”

In 2015, Denver passed an ordinance giving the city or a designee 90 days to match private purchase offers that would end a property’s affordability window. While tenants must be notified, they do not have a right to purchase or select a designee to do so.

D.C. is the obvious touchstone for any TOPA law, having been in place in some form since the 1970s as a right exclusive to tenants and tenant organizations before the sale of any rental building. For over 30 years, neighboring Montgomery County, Maryland, has had a similar law for any sale or action that would convert rental housing to another use.

In the past 10 years, the District of Columbia has added a second exclusive window for itself before owners can sell their properties on the open market, Cohn said. 

In mid-May, city council held a hearing to add a third window specifically for community land trusts, which have been landing deals as tenant designees in the past couple of years.

“If neither the tenants nor the mayor exercise their rights to purchase, the legislation would give community land trusts a third bite of the apple,” Cohn said.

Not Ready For Primetime?

As Gauthier guided the People’s Preservation Package through council, she was surprised at the lack of reaction from the real estate industry.

“We didn’t hear a lot, which was different — not because we normally hear a lot, but because [former Councilmember-at-large Derek] Green tried to do this a few years ago and there was a lot of pushback,” Gauthier said. “But we didn’t get much pushback at all. There were a few comments from the [Pennsylvania] Apartment Association, but we tried to address their comments with amendments.”

Perhaps real estate interests were paying more attention to the primary election in the weeks leading to the bill’s passage, or perhaps they did not want to publicly oppose legislation so closely connected with the UC Townhomes controversy, as Gauthier speculated. But affordable housing landlords across the city will soon be subject to a law that, if nothing else, stretches out the timeline for selling their buildings — the single biggest headache associated with TOPA in D.C., AOBA’s Peter said.

For a TOPA program to function, it needs essentially its own bureaucracy to facilitate and enforce the notification of tenants and necessary parties, not to mention the vetting of designees and monitoring of the sale process, program advocates and administrators in other jurisdictions said. 

“Administratively, the apparatus should be very tight in terms of reporting to the jurisdiction in a time frame that corresponds to feasibility and to make sure the law is being complied with,” Cohn said. “There should be a government office that is sort of dedicated to responding to questions and being responsive to concerns that get raised along the way — whether the process is functioning as it should or the law is being followed.”

Employees in Massachusetts’ DHCD dedicate an average of 1,000 hours per year to general administration of Chapter 40T and hundreds of additional hours on each individual property for which a designee is selected to attempt a purchase, CEDAC found in its 2020 report.

The two city entities named in the bill already have their own laundry lists of responsibilities. PHDC manages the disposition of properties from the Philadelphia Land Bank put forth by district councilmembers, perhaps the most important local tool for creating new affordable housing today.

“As is typical with similar citywide code changes, the legislation enables the ‘right’ and the implementation and regulatory details come next,” Gauthier’s office said in an email. “The ‘right’ by itself is just that. We know our work is never done when a bill gets passed; in fact, more often that means our work is just beginning, and we’re looking forward to doing that work with our City, legal, community, and real estate partners.”

Considering that affordable housing tenants are by definition unlikely to be able to pool enough money to buy their buildings, two key elements need to be in place for Philly’s new law to preserve affordability at any eligible property: a third-party designee of either a tenant organization or the city and financial assistance to match market-rate offers.

While the community rallied around UC Townhomes when it was under sudden threat, most communities will need to be made aware of their rights and advised on forming tenant organizations before they have any chance at picking a designee, Chicago Department of Housing’s Hertz, Equity Officer Ugo Ukasoanya and Program Director Aaron Johnson said, based on their experience with the Woodlawn pilot.

“Not a lot of movement has happened with this,” Johnson said of the pilot, enacted in the fall of 2020. “We’ve met internally to figure out the community organizing piece, because a lot of tenants in private buildings don’t have organizations. In order to prevent sales, a lot of that organizing would need to happen now.”

Whether a tenant organization or a city agency selects a designee, there is no process outlined in the law for evaluating that third party’s worthiness. The text only specifies that a designee should be able to demonstrate the experience, financial standing and intention necessary to preserve a property’s affordability long-term. City council does not play any role in reviewing sales and isn’t authorized to do more than advise on the selection of designees under the bill. 

“[Vetting designees] could play out in a number of ways; I don’t think we developed a formula so much as laid out the eligible entities that we know would have the public interest and tenants’ interest at heart,” Gauthier said.

Wherever programs with similarities to the People’s Preservation Package have succeeded in preserving affordable housing, they have been backed with funding for the operation and, often, renovation of properties by designees. CEDAC in Massachusetts received over $4M in grants from the MacArthur Foundation the same year Chapter 40T was passed, while the Woodlawn pilot in Chicago gathers dust.

“Right now the issue is funding for tenants and nonprofits to make the purchase,” Johnson said. “We don’t provide funding so it’s down to finding philanthropic partners.”

Gauthier acknowledged the need for funding in order for her package to fulfill its purpose, but didn’t commit to finding any local dollars to meet that need.

“I think this is a big step forward and creates a pathway for affordable housing providers, tenant organizations and even the city that did not exist before to offer a fair price to take over properties as affordable housing within our neighborhoods,” Gauthier said. “That’s huge. At the same time, this works best when there’s more funding on the table. So [we’ll be] working in particular with state and federal partners to make sure we have more funding for the wherewithal to take over properties.”

In a financing environment that is especially tenuous for affordable housing providers, proof that a designee is capable of coming up with the money necessary to back up a matching offer is necessary to prove the “good faith” component of the law. It also can vanish if interest rates rise or a chain of complex contingencies, common to affordable housing deals, breaks.

“If you’re an affordable housing developer and looking to sell a building, it’s probably because you can’t afford deep updates for an older building or meet sustainability requirements, and you’re looking to offload it,” AOBA Director of Policy Communications Alexander Rossello said. “And in those cases, it’s unlikely another affordable housing developer would be able to purchase those things. So you could wind up trapping the sellers.”

Even though much remains to be done before TOPA can be effectively administered in Philly, affordable housing landlords may feel its effects immediately, AOBA’s Peter said.

Owners and their lawyers will have to constantly monitor the city’s process for setting up its TOPA program to understand how to comply as their properties’ affordability contracts approach expiration. The law will need to be incorporated into title insurance policies for affected properties.

“It becomes a beast,” Rossello said. ‘I’m not sure how much research they did into this, if it’s sort of a ‘ripped from the headlines’ legislation. In these sorts of situations where governments move quickly, you may not have drafted the legislation in a way that addresses all the potential unintended consequences.”

Chapter 40T and D.C.’s TOPA demonstrate the potential of a law empowering jurisdictions and tenants to intervene before a building loses its affordability protection. But all of the exemplars cited by Gauthier show how much work still needs to be done in order for it to be anything more than a temporary — and costly — roadblock for owners attempting to sell their properties. 

“I think it’s a great accomplishment that this thing got passed, but then, somebody’s gotta light a fire under the policymakers to put a system in place and funding in place to make it effective,” Thall said.