The Marin Post

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The Marin County version of the 1980's S&L Crisis?

The Marin IJ has cheerfully reported that "Marin County has joined a new joint powers authority, founded to help create more homes for people who earn too much to qualify for typical low-income housing and too little to afford today’s spiraling rents." Their report includes enthusiastic comments from our Marin County Supervisors, who seem eager to jump right in, apparently considering themselves to suddenly be experts in housing, finance, and real estate development.

To read the entire article CLICK HERE.

The scheme includes the creation of a JPA with the lofty title of the California Community Housing Agency (CalCHA). It was formed by the Kings County Board of Supervisors in order to issue California tax-exempt bonds throughout the state, to finance the conversion of market rate properties to what they claim is more "affordable" rental housing (but nothing like low-income housing).

The new agency is located in the most unlikely place possible, in the heart of Kings County, California (1,392 square miles in size and population of approximately 152,000). Unlike Marin County or most of the Bay Area, Kings County is predominately an under-developed, agricultural community located north of Bakersfield (according to the U.S. Census, the largest industries are agriculture, forestry, fishing, and hunting).

One has to wonder, why in the world, of all places, does the CalCHA spring up in Kings County, which is hundreds of miles from what are normally considered areas suffering from high prices and the state's housing crisis? Could it be to generate revenues for a County that is having a hard time making ends meet?

The CalCHA website states,

The California Community Housing Agency ("CalCHA") intends that market participants receive and use it for purposes of the independent registered municipal advisor exemption to the SEC Municipal Advisor Rule. CalCHA has retained an independent registered municipal advisor. CalCHA is represented by and will rely on its municipal advisor GPM Municipal Advisors, LLC ("GPM") to provide advice on proposals from financial services firms concerning the issuance of municipal securities and municipal financial products.

So, to put this in plain English, Kings County is exploiting an SEC loophole that allows it to create a pass-through agency under the direction of a hired third-party, for-profit financial "advisor," to underwrite tax-exempt, municipal bond deals for other agencies, to finance private developer-owned housing projects, without any direct liability for the outcomes, presumably for a participation in points and fees (the terms of financing appear to be on a case by case basis).

The CalCHA's first project is called the Annadel Apartments in Santa Rosa, which is a brand new development. I called the property rental agents and they described it as a "privately-owned, high-end, luxury housing" property.

Look at the photos of this development. So, I ask you why, with all the problems we face in our county with homelessness, families without enough nutritious food for their children, and the endlessly ignored, sub-standard public housing the county manages in Marin City, is THIS what our county supervisors are really "excited" about?

We're going to use taxpayer-backed debt, underwritten by a third party, for-profit investment advisory firm, to fund private, for-profit developers building housing.

Gosh, what could possibly go wrong?

Following the Silverado Savings & Loan financial crisis in the 1980's and early 1990's, as a registered federal Resolution Trust Corporation contractor, a firm I owned evaluated the physical and financial condition of defaulted, multi-family properties (in 7 states) for institutional investors (GE Capital, La Salle Partners, Property Company of America, etc.), in order to structure "workout" proposals / offers to the RTC on R.E.O. ("real estate owned)" property portfolios.

Properties in default were privately-owned, backed by federally insured bonds (i.e., taxpayers) that had been optimistically underwritten, had failed to generate stabilized revenues, and had generally been abandoned by management. Some developments were never even completed when the recession hit.

Existing tenants were usually forced to move out as a condition of the refinancing terms, equity holders lost everything, while debt holders -- the federal government (taxpayers) that made the poorly underwritten loans made by the S&Ls -- got "crammed down" to next to nothing. The properties eventually sold for pennies on the dollar in the subsequent "work-outs."

In the end, "project-based" debt on multi-family development was disallowed on federally-funded, multi-family projects because of the unprecedented default rate in the economic downturn.

Now, our County Supervisors, in particular Connolly, Sears, and Arnold, are thrilled to participate in another highly-leveraged and predictably poorly underwritten financing scheme that portends the exact same result.

When you have no skin in the game -- other than taxpayer's money -- and the deals are "fee-driven," it tends to invite sloppiness, fudging of facts, and to borrow a phrase "irrational exuberance."

Some people never learn.