Council approves sale of Portland Apartments; legal edits added to protect affordability in foreclosure

The City Council approved on May 15 the sale and related contract assignments for the Portland Apartments, a 68-unit affordable property near Mirror Lake, subject to revised legal language intended to preserve affordability restrictions if a lender forecloses.

Mark Van Loo, presenting for the city, said the Portland consists of one-, two- and three-bedroom units restricted to households at 60% or less of area median income, with seven units restricted at 35% or below. The current owner notified the city in February of intent to sell. The proposed buyer is Sunrise Affordable Housing Group; the buyer plans a partnership with the Pinellas County Housing Authority to acquire the land in fee simple and ground-lease the project back to Sunrise on a 99-year ground lease. Sunrise expects to pursue tax-exempt bond financing and 4% low-income housing tax credits (LIHTC) in a future resyndication and to undertake a substantial rehabilitation.

Van Loo summarized requested council actions: assignment and assumption of city SHIP and LHALF loans, approval of assignment and assumption of the Workforce Housing Bonus Density and Intensity Agreement (2009) and the 2010 recorded Declaration of Restrictions, subordination of those instruments to the first mortgage lender, and extension of loan maturities from Aug. 1, 2045 to Aug. 1, 2070.

Council members raised detailed legal questions about subordination. Vice Chair Hanawitz asked why affordability covenants would need to be subordinated in foreclosure. Haley Sawyer, attorney for Sunrise, said the buyer does not intend to remove affordability and plans to add deeper affordability through the planned resyndication; lenders, however, require the ability to take title if foreclosure ever occurs, and they raised concerns about transfer-restriction language in the workforce density agreement.

Assistant City Attorney Isabella Sobel said the city’s code requires administrative approval for transfers of properties subject to the workforce housing density agreement and that the city has not previously explicitly subordinated that particular agreement. Her office and Sunrise’s counsel described negotiations with the buyer’s lender (KeyBank) and said a narrowly tailored agreement to allow a lender to take title on foreclosure (while keeping affordability restrictions in place) would address lender concerns without wiping out workforce protections. Counsel said the lender is not incentivized to remove affordability restrictions because those agreements allow the increased density that underpins the project’s value.

Van Loo said the proposed buyer is funding purchase with equity, a new senior loan and plans to assume existing subordinate loans to the city; the financing would be leasehold-mortgage-based because of the ground lease.

The council asked whether subordinating or extending city loans would change affordability; Van Loo and staff said the extended maturity would slow the city’s repayment schedule but would be paired with longer and deeper affordability through the proposed ground-lease structure. Councilmember Richie Floyd and others said the involvement of the Pinellas County Housing Authority and the buyer’s stated plan to pursue LIHTC resyndication mitigated the council’s concerns.

The council approved the sale and related assignments with language revisions negotiated in the meeting to preserve the city’s affordability protections in the event of foreclosure. The clerk announced the motion passed unanimously with Councilmember Garbutt absent.