If all goes according to plan, the Northern California Land Trust hopes to emerge from Chapter 11 bankruptcy in mid-September. It would mark the end of a turbulent time for the Berkeley nonprofit, whose mission is to purchase distressed properties and convert them into permanently affordable housing. The land trust had operated successfully for 31 years, until an ambitious but ill-timed project sent the organization tumbling toward financial ruin. Not until recently was the organization able to get back on its feet, albeit in full survival mode.
The trouble started in 2008. At that time, staff members were in high spirits. They'd just acquired a Goliath of a property in West Oakland — the 19,500-square-foot Noodle Factory warehouse — and drafted an ambitious plan to transform it into thirteen affordable housing units for artists, along with a cafe and theater. The owner, Dana Harrison, wholeheartedly believed in the land trust's philosophy of "limited equity" or "limited appreciation" housing, meaning the property it owned would appreciate in value at the same rate that income increased in the surrounding area. And because she shared those values, Harrison essentially bequeathed her building to the organization. She wouldn't recoup any money until the land trust sold all of those condo units, and figured out what to do with the theater. Although the project was risky enough to ultimately put the land trust about 25 percent over-budget, it still seemed like a solid investment.
And then, everything went sour. The one thing that land trust staffers didn't anticipate when they embarked on the Noodle Factory project was the impending subprime mortgage crisis. That's not to say they didn't exercise caution, said Executive Director Ian Winters. "We started on this at the end of 2005, and in our internal budget we assumed that the market could fall by up to 25 percent," Winters explained. "But we had other people from the real estate industry telling us we were nuts and that the market was going to go up 50 percent, and that we were going to be rolling in money. That it would ultimately go down by 75 percent was pretty impossible to plan for."
It turned out the organization didn't have any trouble finding buyers for the condos, even with its rather stringent requirement that residents not only be low-income (meaning they earn less than 80 percent of the median income in the area), but that each also be a working artist. Since the "working artist" title seemed a little nebulous, the land trust set up a jury to decide who ultimately got in. According to fellow staffer Francis McIlveen, Winters had buyers lined up in 2007. Construction was substantially complete in September of 2008, and in December, the newly-revamped Noodle Factory got its certificate of occupancy. All of the units were spoken for. Some people had already signed purchasing contracts. Some units even had backup buyers.
But no one could get a mortgage. What followed, McIlveen said, was a "perfect storm" of catastrophes, most of which tied into the collapse of the financial markets. It ultimately led the land trust to file for Chapter 11 bankruptcy last year, and reduce its staff from the equivalent of eight full-time to about two full-time. The organization still manages 81 units, as it did before the purchase of Noodle. But it operates on a skeletal framework.
The Noodle Factory was a catalyst for the land trust's undoing. The "working artist" strictures left a fairly narrow margin of people who would qualify to buy the units, and most of them were the type who would have a hard time securing loans. McIlveen said that some of the artists' incomes varied widely from year to year, and many of them didn't have established credit. Under most circumstances, they'd face difficulty buying property. In 2008 and 2009, all bets were off.
The Noodle Factory cost $4.2 million to fully renovate — when you add in soft costs like interest, subdivision, and insurance, Winters said. He added that after the collapse of the condo loan market in 2009, the land trust repeatedly tried to modify, buy out, or refinance the construction loan. But the lender wouldn't accept any new offers. The Noodle Factory was reappraised at $1.5 million in January of 2010, and the bank was unwilling to write down a loss. In June 2010, it went into foreclosure.
Yet, McIlveen says the land trust might have weathered that loss, had it not been for a few other contributing factors. One was a major cash-flow crunch, caused by a sudden lapse in rental income. Tenants at several of the land trust's properties were unable to pay rent for several months, either because they had lost jobs or faced some other extenuating circumstance. The other problem was a staff crunch, which also traced back to the financial collapse. Around the same time it acquired the Noodle Factory, the land trust was knee-deep in another project at Mariposa Grove, a small co-housing community and garden in Oakland. The members wanted to purchase their units, using the land trust as a facilitator. It seemed like a reasonable goal, until the underwriter, Washington Mutual, got into major financial trouble in the fall of 2008. That forced the Mariposa housing units into escrow for long periods of time — thirteen months, in one case. Two staff members, including McIlveen, had to devote all their time to what might have otherwise been a simple project. That put a lot of strain on the organization.
"Part of the bigger picture was this drain on staff resources," McIlveen said. "Noodle was a sinking ship, and we might have been able to get it afloat again. But in fall of 2008, I had to devote most of my time to this other project at Mariposa Grove, which eventually did succeed."
Organizations like the land trust ride a pretty thin line. They depend partly on donor largesse, and partly on economies of scale, which makes it possible to subsidize larger, grander projects like the Noodle Factory. "We've always focused on in-fill, small vacant lots, and blighted properties," McIlveen said, explaining how the organization finds and draws in property owners like Dana Harrison, an ex-corporate powerhouse-turned-Burning Man utopist. Because of her devotion to arts and affordable housing, Harrison was willing to take a risk on the land trust model. "We've been successful at finding and attracting very philanthropic property owners who sell properties to us at a discount," McIlveen said. "That's a part of the subsidy. The other part is being able to get down-payment-assistance financing for the buyer."
In an ideal world, it would all work out. But in a bad market, it's incredibly hard to align all the pieces. Moreover, it's difficult for the land trust to survive any kind of strain on its staff resources — even, say, if someone has to take extended sick leave — because it's a hard organization to staff in the first place. Anyone who works there has to have real estate and developer know-how, but also be of the do-gooder, utopian mindset.
Despite all those perils, the land trust is soldiering on. Currently, the nonprofit has in its portfolio one single-family home, 18 limited-appreciation condo units, 42 rentals, 19 limited-equity housing units, and 6 units of commercial space that includes a community garden. It's in survival mode, but ready to come up for air and strategize the next phase.
Seven Days - April 24, 7:24 AM
Seven Days - April 21, 2:12 PM
Seven Days - April 20, 2:30 PM
Seven Days - April 18, 6:25 PM
Seven Days - April 18, 4:35 PM