Appendix 1

Steps to Prepare for Future Conversion of Affordable Rental Housing to Cooperatives

The following outlines initial steps and high-level considerations to convert properties from affordable rental housing to zero- or limited-equity housing cooperatives (LEHCs).

Assess LEHC financial feasibility: Model a 15-year operating pro forma under an LEHC conversion scenario to determine long-term financial feasibility, coop “maintenance fees” (which will replace contracted rents), and equitable share price structure. The analysis should consider achieving a critical mass in the total number of LEHC units to achieve operational efficiency and effective cooperative governance. The pro forma should include critical annual operational components, including typical operating expenses, reserves to fund major capital improvements, and applicable LACDA (or other lender) regulatory fees. This pro forma analysis will help assess the impact of annual fluctuations in expenses on increases to maintenance fees, directly affecting affordability. The cost of cooperative conversion should also be conducted as part of this analysis. Costs of conversion may include financing costs (in the event debt is added or restructured), marketing and shareholder selection expenses, and legal fees. Sources of funding to pay for cooperative conversion costs must also be identified.

Resident engagement: Develop training and educational curricula on CLTs and LEHC operation and governance to engage tenants during the rehab phase. Formalize a democratic decision-making process among tenants to encourage self-determined housing outcomes with goals including, but not limited to: establishing an informal, democratically elected resident association to serve as the decision-making body for the future LEHC; developing standard cooperative bylaws to be adopted at coop conversion; and planning and facilitating a formal voting day among building residents to either remain affordable rental housing or pursue conversion to an LEHC.

Development of CLT and CDC partner expertise: Concurrently, the CLT and CDC ownership group should engage with legal counsel and other technical assistance providers to draft documents and determine processes for cooperative conversion. This work includes but is not limited to: developing the LEHC regulatory agreement and/or adapting the original Grant Agreement(s) to be compatible with LEHC ownership structure— this includes conveyance of the agreement to the LEHC entity and right-sizing the county’s fees and compliance requirements to align with an LEHC structure; bifurcation of land and improvement ownership (if necessary); filing property tax exemption; formation of LEHC corporation and filing of documents with State Attorney General; and conveyance of the improvements and ground lease to the LEHC corporation.

After properties convert to cooperatives, the CLT is likely to play a technical assistance role including: facilitating meetings and coop board elections; monitoring compliance of share sales; assistance in securing grants, loans, or other financial tools for recapitalization events; and connecting cooperatives to relevant services such as environmental resiliency programs, purchasing insurance policies, property management trainings, legal counsel, and resident association and shareholder financial trainings.