Sunday, April 21, 2024

The city’s Housing Authority has rediscovered some rights of purchase at 12 Prince St. and two other buildings. (Photo: Sue Reinert)

The agency that provides affordable housing to some of the city’s poorest residents is about to snag a real estate deal to die for. The Cambridge Housing Authority is poised to buy a Cambridgeport condominium for $99,840.

That’s not a typo, and the apartment isn’t a studio; it’s a three-bedroom unit with 960 square feet of living space.

The story of how the authority came to buy Unit 7 at 12 Prince St. for a song is suitably complicated. It starts in the 1970s, when rents for most Cambridge apartments were capped under a rent control ordinance and real estate values were low. The Riverside Cambridgeport Community Corporation, a now-defunct affordable housing agency and neighborhood advocate, sold three dilapidated buildings in Cambridgeport to the housing authority in 1974. They contained a total of 30 apartments.

The properties, at 12 Prince St., 120 Pleasant St. and 35-47 Lopez St., became condominiums. CHA, as owner, rented the condos to existing tenants as well as other low-income families and individuals. Tenants paid no more than about 30 percent of their income as rent, the public housing standard.

There was one important difference from public housing. The authority acquired the buildings under a federal program intended to encourage homeownership by poor tenants. With money from the U.S. Department of Housing and Urban Development, CHA rehabilitated and operated the properties, and set aside a portion of each tenant’s rent payment for purchase of his or her apartment at a reduced price.

Distracted over the decades

In the depressed real estate market then, federal officials didn’t worry much about tenants who bought their condos under the Turnkey III program reselling them for big profits, CHA general counsel Susan Cohen said. So they required tenants buying their units to sign a loan promising to pay the authority the difference between the purchase price and market value – if they resold their condo at a profit within five years. After five years, they owed nothing.

No one took advantage of the homeownership opportunity for close to two decades. “For many years the buildings were operated purely as rental housing, and no one purchased a unit,” Cohen said. Meanwhile, rent control was outlawed statewide in 1996 (buildings of more than 12 units were the last to expire, at the end of the year) and Cambridge rents and property values exploded. “By the time tenants were eligible and interested in purchasing their units, it was clear that as originally conceived, there could be a windfall to tenants because of the rapidly escalating market in real estate in Cambridge,” Cohen said.

CHA developed a new tenant agreement capping the resale price of Turnkey III units for at least 30 years and giving the authority an option to buy back a unit at the restricted price if a bank planned to foreclose, along with other restrictions. Trying to be fair, Cohen said, officials decided not to change the original contracts with existing tenants and apply the stronger resale restrictions only to those “who moved in subsequently,” she said.

Sympathy for buyer, not bank

Fast forward to 2019: The authority no longer owns any of the Turnkey III apartments and apparently saw no reason to keep an eye on them. Then the authority got a telephone call from a woman who said she was about to buy 12 Prince St. Unit 7 at foreclosure and wondered about the resale and foreclosure restrictions. It came as a complete surprise, Cohen said.

The unwitting tipster galvanized the authority to assert its right to buy Unit 7 at the maximum resale price of $99,840. At a meeting of its commissioners last month, board members expressed some sympathy – and gratitude – to the unnamed prospective buyer who did herself out of an amazing deal and helped the authority get it. There was no sympathy for the bank – the huge Deutsche Bank, which loaned $340,000 to the owner of Unit 7 in 2006.

In 1997, the authority had sold it to the original tenants for $18,308, according to real estate records.

The authority plans to close on the apartment by the end of this month and will rent it to a low-income tenant after discussions with trustees of the condo association, Cohen said.

Rediscovering assets

The surprise spurred the authority to do “a comprehensive review of the status” of Turnkey III units, Cohen said. Officials will “develop an approach for going forward when that is complete,” she said.

So far, the authority found one other unit at 12 Prince St. that may be subject to repurchase at a restricted price, because the owner allegedly isn’t living there and it’s vacant, Cohen said. Among the three Turnkey III buildings, there are another 11 units subject to the stronger resale agreement, and all owners appear to be in compliance with their agreements, she said.

Some of the remaining 17 Turnkey III apartments that had weaker agreements have slipped far outside the realm of affordability, most of them quickly. For example, the original tenant of a condo at 12 Prince St. covered by the less stringent agreement bought her unit from the authority in 1993 for $52,059 and sold it in 2001 for $251,000.  It has since been resold twice, the most recent in 2014, for $544,000.

“It’s very hard to make homeownership programs work when you’re in such a high market,” Cohen said. “Given the values now, there’s really nowhere to go where we would have a supply” of lower-priced housing.

Offer for higher earners

The authority is proposing a new homeownership venture for the small number of public housing tenants with relatively high income – more than 120 percent of the area median, or $135,950 for a family of four. These families met lower income limits when they moved in, and they are entitled to stay although their income now exceeds the cap.

Although the authority has increased their rent to the maximum and offered some incentives to get them to leave, most apparently have not. According to the latest proposed CHA plan for its operations in the 2020 fiscal year, higher-income tenants still don’t earn enough to pay market prices in Cambridge.

The public housing agency is proposing to offer up to 10 families a year more help, such as matching family savings up to $48,000, giving them help from a realtor, and homeowner training and education. 

Besides assisting tenants to buy homes and freeing apartments for new low-income applicants, the effort could save the authority money. That’s because higher-income families reduce the amount of money it can raise for renovations under the Rental Assistance Demonstration program that rehabs properties – by about $150,000 for each “over-income household,” the CHA plan says.