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City Council - 10/03/2023 - Workshop APPROVED MINUTES CITY COUNCIL WORKSHOP & OPEN PODIUM TUESDAY, OCTOBER 03, 2023 CITY CENTER 5:00 – 6:25 PM, HERITAGE ROOMS 6:30 – 7:00 PM, COUNCIL CHAMBER CITY COUNCIL: Mayor Ron Case, Council Members Kathy Nelson, Mark Freiberg, PG Narayanan, and Lisa Toomey CITY STAFF: City Manager Rick Getschow, Police Chief Matt Sackett, Fire Chief Scott Gerber, Public Works Director Robert Ellis, Community Development Director Julie Klima, Parks and Recreation Director Jay Lotthammer, Administrative Services/HR Director Alecia Rose, Communications Manager Joyce Lorenz, City Attorney Maggie Neuville, and Recorder Sara Aschenbeck Workshop - Heritage Rooms I and II (5:30) I. NATURALLY OCCURING AFFORDABLE HOUSING (NOAH) MULTIFAMILY ACTION PLAN AND TENANT PROTECTIONS – JONATHAN STANLEY, COMMUNITY SERVICES MANAGER Getschow introduced Jonathan Stanley, Community Services Manager, to provide an update on Housing Task Force initiatives including preservation of Naturally Occurring Affordable Housing (NOAH) and tenant protections. Stanley stated NOAH is comprised of privately owned, unsubsidized multifamily housing that can’t command rents on par with recently constructed multifamily buildings due to building age, physical condition, and lack of amenities. NOAH is a valuable but at risk resource being lost at local and national levels. The metro area is losing 1,300 NOAH units each year. The Arrive Eden Prairie apartments are an example of lost NOAH. A new owner purchased the building, made several upgrades, and increased rent. New ownership often comes with a decline in the quality of management, new criteria for screening residents, and pursuit of eviction without cause. The City is a high rent community and has a high stock of two bedroom and family units, qualities most at risk. At least seven multifamily properties in the City have changed ownership since 2015. Case asked if single family homes are considered NOAH. Stanley confirmed NOAH is almost exclusively categorized as multifamily rental units. Stanley explained the benefits of preserving NOAH including avoiding tenant displacement and extreme cost burdens, reducing construction waste, maintaining low debt and affordable rents, avoiding high regulation that accompanies subsidies, and preserving a high quality of life for renters in opportunity areas. The ideal structure to preserve NOAH includes a partnership of owners, operators, and developers that are mission-oriented, have a proven track record, and are looking to create a social benefit. Timing is difficult as corporations can make all cash offers to quickly purchase multifamily properties. Narayanan asked if renters ever join forces to purchase a property City Council Workshop Minutes October 3, 2023 Page 2 with assistance from their city. Stanley noted renters often lack the capital necessary to purchase a multifamily property. Stanley outlined strategies for preserving NOAH. These best practices were created after consulting non-profit developer AEON, community development financial institution Greater Minnesota Housing Fund, and staff from comparable surrounding cities. Strategies include identifying NOAH inventory ahead of time, contacting owners to gauge interest in selling to a NOAH preservation group, promoting the City’s willingness to contribute financially and technically, leveraging inspections staff to address building condition and management issues, providing investment in the form of direct equity instead of administering a loan, and ensuring local funds are ready to be deployed quickly. Stanley stated the Greater Minnesota Housing Fund raised almost $50 million to preserve NOAH funded by socially motivated investors. AEON uses its own financing power to purchase and provide capital planning. These are institutions the City would partner with to preserve NOAH. The historic $1 billion State legislature housing investment package provided $150 million for statewide NOAH preservation. Despite the large amount of capital spent the number of properties saved is relatively small. Preserving NOAH is expensive but has a clear community benefit. Stanley noted the City knows it’s existing housing stock better than a potential buyer and should strive to identify and preserve NOAH in high opportunity areas. The City should focus on preserving buildings with the following criteria: built in 1990 or earlier, a class of ‘B’ or ‘C’ as estimated by City Assessor, a minimum of 50-units, at least 60 percent of units are affordable, and a maximum estimated market value of $140 thousand per unit. An estimated 17 properties in the City meet these criteria. Example properties include Shadow Green Apartments, Sterling Ponds, and Edenvale Apartments. Modest upfront and ongoing repairs plus upgraded curb appeal is ideal, but large scale improvements are prohibitive to saving NOAH. Stanley stated a thorough and accurate needs assessment must be commissioned before purchasing NOAH. New owners might rush to purchase and preserve NOAH and then find costly necessary repairs detrimental to keeping rent low. Low quality NOAH is less likely to be threatened due to expensive investments necessary to bring to market standards. Nelson asked if City inspectors keep low quality buildings from deteriorating. Stanley stated that is correct, but in-unit inspections might not address large scale building condition. Gerber added the City has over 11,500 inspectable occupancies. There aren’t any inspectable multifamily occupancies considered unlivable. The City utilizes both recurring, preventative inspections and complaint-based inspections. Stanley stated the Housing Task Force recommends Council take the following actions: • Approve the Housing Task Force action plan report, • Direct Staff to contact property owners to gauge interest in selling, City Council Workshop Minutes October 3, 2023 Page 3 • Direct Staff to submit a legislative request to move pooled Tax Increment Financing (TIF) into the Affordable Housing Trust Fund, • Direct Staff to apply for a State match for affordable housing trust funds when available, and • Pass a tenant protection ordinance protecting residents from unexpected ownership turnover. Narayanan inquired if a new owner would be prevented from reselling a property for a profit if they received financing assistance from the City. Stanley responded the organizations the City would partner with are mission-oriented with a long history of commitment to community benefit and would not resell NOAH for profit. Stanley outlined the draft tenant protection ordinance for the City, which would serve as a backstop if NOAH could not be preserved. Tenants would be protected from rent increases, re-screening using new eligibility criteria, and eviction without cause. Notice must be provided to the City and tenants within 30 days of rental license application. Tenants would receive a 90 day protection period to find new housing if they cannot afford the increased rent. Brooklyn Center, Bloomington, Golden Valley, St. Louis Park, and Richfield have enacted tenant protection ordinances. Case inquired when the 90 day period would begin. Neuville responded upon issuance of the rental license. Case asked who is responsible for notifying the tenants when the building is purchased. Neuville responded the landlord is responsible. Stanley noted noncompliance with the tenant protection ordinance could be cause for suspension or revocation of a rental license. Case asked if surrounding cities are having success with tenant protection ordinances. Stanley stated he has not heard of any new owners unwilling to comply, or instances where a city has imposed fines for noncompliance. Case asked when surrounding cities enacted tenant protection ordinances. Stanley said four to five years ago. Case stated 90 days was not a long period of time for tenants to find new housing. It would also disrupt school years for school aged children. Narayanan inquired if the EP Foundation is involved with affordable housing. Stanley stated the Foundation is working on a campaign to destigmatize affordable housing stereotypes. Toomey asked if Edendale would qualify as NOAH. Stanley specified Edendale is not considered NOAH as it is project-based section eight housing. Narayanan noted many of the Edendale residents were not originally from Eden Prairie, and asked if the City could give priority to applicants from Eden Prairie. Stanley responded those types of strategies are often incompatible with fair housing laws. Getschow asked if the Council would like to vote on a tenant protection ordinance. Case stated he is comfortable voting on a tenant protection ordinance but would like more information before deciding on a NOAH action plan. Case asked Staff to prepare a case study on Foutain Place, a NOAH building which sold five years ago. Case noted his interest in how management quality, building quality, and rent changed after the sale. If a new owner upgrades the property and raises rent, the rent may again return to an affordable level after a few years due to building age without City intervention. Stanley stated Case’s speculation regarding NOAH properties again becoming City Council Workshop Minutes October 3, 2023 Page 4 affordable after a change in ownership was interesting, and he would compile research for the Council. Freiberg asked if the City has a plan to save affordable single family homes. Case added out of state corporations purchasing affordable single family homes is increasingly problematic. Getschow noted there is a growing number of out of state companies purchasing single family homes as rental properties. Gerber stated the City has the option to inspect any property with a rental license. All units are inspected upon application for a rental license, and then on a five year rotation afterwards. If the City receives a complaint the unit is inspected sooner. The City is extremely focused on education before resorting to levying fines for noncompliant rental owners. Nelson questioned if the City could shorten the time between inspections. Case asked if out of state owners or corporate owners could be inspected more frequently. Neuville noted those are both possibilities. Tenant education is also important as State law has many tenant protections. Narayanan asked if neighbors could complain about a run down rental property. Gerber noted it is more difficulties if the complaint comes from an individual not occupying the unit, however there are ordinances regarding outside appearance that can be used to allow a City inspector inside a rental unit. Case noted the Council had reached a consensus about voting on a tenant protection ordinance. The Council would also like further information on surrounding cities tenant protection ordinances. Narayanan asked for an update on the progress of affordable housing task force items. Stanley stated the tenant protection ordinance and NOAH action plan was the third and fourth of the seven identified action areas. Narayanan stated it is important to communicate progress to the public. The Council thanked Stanley for his time. Open Podium - Council Chamber (6:30) II. OPEN PODIUM III. ADJOURNMENT