HomeMy WebLinkAboutTransmittal - 12/30/2022ERIN MENDENHALL
Mayor
DEPARTMENT of COMMUNITY
and NEIGHBORHOODS
Blake Thomas
Director
CITY COUNCIL TRANSMITTAL
Lis (Dec 30, 2022 15:19 MST)
Lisa Shaffer, Chief Administrative Officer
Date Received: 12/30/2022
Date Sent to Council: 12/30/2022
TO: Salt Lake City Council DATE: December 30, 2022
Dan Dugan, Chair
FROM: Blake Thomas, Director, Department of Community and Neighborhoods
SUBJECT: Update on Community Land Trust report.
STAFF CONTACT: Blake Thomas, Director, Community and Neighborhoods, 801-718-7949,
blake.thomas6b,slc og v.com
DOCUMENT TYPE: Written briefing
RECOMMENDATION: No action needed
BUDGET IMPACT: None
BACKGROUND/DISCUSSION:
One of the Administration's goals in 2022 was to complete a study on how to expand upon the
City's existing Community Land Trust (CLT) overseen by the Housing Stability Division in the
Department of Community & Neighborhoods (CAN). Through a request for proposal process,
CAN consulted with GCI and Urban3 to study and provide a report on strategies to expand the
impact of the CLT. Their report focused on a Public Asset Yield (PAY) model to generate
revenue that could be put toward more aggressively expanding the CLT program or other public
benefits. The report outlines scenarios and considerations for implementing a PAY model.
CAN's consultants would welcome the opportunity to brief the City Council on the findings and
recommendations in the report.
As currently operated, the City's CLT is not a traditional model where homes are developed and
placed into a land trust. Rather, the majority of the 17 single-family homes in the CLT are
existing homes that are associated with the City's Homebuyer Program. To maximize
affordability, homebuyers purchase a CLT housing unit with a City -issued mortgage and lease
the land from the City at a below -market rate. When the homeowner decides to sell, the City has
the option to repurchase the housing unit and distribute a portion of the accumulated equity to the
SALT LAKE CITY CORPORATION
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P.O. BOX 145486, SALT LAKE CITY, UTAH 84114-5486 TEL 8o1.535.623o FAX 801.535.6o05
homeowner through a shared equity model. The housing unit is then sold at an affordable rate to
a new family with a mortgage provided by the City through the Homebuyer program.
The CLT report outlines opportunities for the City to expand the City's CLT-related activities to
potentially include multi -family and mixed -use projects; public asset development; and revenue
generation that can be reinvested into housing or other public benefits.
Attachments
Appendix 1 — Public Asset Yield Playbook Report
Appendix 2 — Public Asset Yield Presentation
Appendix 1
Public Asset Yield Playbook
Public Asset Yield Initiative and Salt Lake City's Community Land Trust
A. Existing Framework
Salt Lake City (the "City") has an existing Community Land Trust (CLT) that was established in
2017 in support of Growing SLC, the City's five-year moderate income housing plan, which
states: "In order to preserve the ability to develop affordable housing in the future, the City will
create a Community Land Trust and work with its institutional partners to purchase land and
entrust it for future development." Since its establishment, the CLT has acquired 17 residential
properties. The CLT's goal is to keep housing affordable, but it is limited in its impact and does
not offer a source of perpetual revenue to invest into increased housing affordability.
B. Proposed Structure
The question regarding a funding source to initially pay for such purchases or the proceeds to
purchase at scale, however, is not addressed in the above discussion. This is where a Public
Asset Yield (PAY) initiative could prove fruitful. Accordingly, a discussion of the PAY initiative is
provided below.
C. Public Asset Yield Framework
The first step in developing the City's Public Asset Yield (PAY) initiative is to inventory City -
owned real estate assets and prioritize them for inclusion in the initiative. Policymakers will
need to determine the priorities for each real estate asset and define any parameters that
should guide the future use of the properties, classifying them into one of the following
categories: Legacy Assets, Policy Assets, Yield Assets, and Hybrid Assets. These asset
classification options are discussed below.
II. Asset Classifications
A. Legacy Assets
Legacy assets are assets intended for preservation in a legacy state or for a legacy purpose.
Legacy assets could include real estate assets such as watershed lands or other parcels held
subject to a conservation easement, historic structures the City intends to hold and preserve in
their current state, or any other asset for which the present and future use removes the asset
from a PAY consideration.
B. Policy Assets
Policy Assets are assets intended to be utilized to accomplish a policy objective. Policy assets
could include real estate assets such as the City's Public Safety Building and fire stations. These
assets are used to advance important public policy objectives and are not prime for PAY
considerations.
1 Public Asset Yield Playbook
Appendix 1
C. Yield Assets
Yield assets are assets considered purely for their value as PAY opportunities. The City may
utilize various mechanisms or approaches to generate a PAY from Yield assets as discussed in
section IV(B) — Public Asset Yield Implementation Models.
D. Hybrid Assets
Hybrid assets are assets that may accomplish multiple objectives. For example, some assets the
City intends to hold and preserve in a historic state may also have value as policy or yield assets.
One example of a hybrid asset is the Fisher Mansion on the Jordan River Trail which the City
desires to maintain as a legacy historic structure but may also serve policy objectives, such as
providing a community gathering space and a nature center with amenities to assist with
activation of the Jordan River Trail (a legacy/policy hybrid asset). Additionally, the property
could serve yield objectives through the inclusion of on -site retail and recreation tenants who
lease space from the City. Revenues could be used to support related legacy and policy
objectives. This example represents a legacy/policy/yield hybrid asset.
III. Asset Classification Process Guidelines
A specific process could be designed for establishing a PAY initiative program to designate and
carry out the designations of properties, the following should serve as a set of guidelines for
establishing such an initiative.
A. Elements of a Successful PAY Initiative
1. Specific and standardized process for prioritizing, characterizing, and
designating properties for inclusion in the PAY initiative.
2. A PAY Manager that is a City employee to oversee the PAY initiative and
interface with private entities in the development of PAY properties.
3. A private sector asset investment and management partner to develop
concepts, proposals, and opportunities to maximize values.
B. Overview
Following a specific and standardized process for prioritizing, characterizing, and designating
properties, City policymakers should classify publicly owned properties as Legacy, Policy, Yield,
or Hybrid assets. Upon classification each property should be guided through a standard
operating procedure (SOP) for its classification by a full-time PAY Manager, who will develop
and issue RFPs, interface with private sector partners and consultants, and oversee the
properties, as needed.
Because there may not be funding for a full-time position from the outset, existing City staff
should carry the initial responsibility for issuing an RFP and selecting a private sector asset
investment and management partner who will develop concepts, proposals, and opportunities
to maximize the asset's yield or hybrid -yield value. The asset investment and management
partner will select, in consultation with the City and according to City procurement policies,
2 Public Asset Yield Playbook
Appendix 1
such real estate development partners, property managers, and others needed to implement
the City's yield objectives. The City should then form a joint venture entity with the asset
investment and management partner and other parties as needed to implement the yield
scenario on terms negotiated among the parties.
As the joint venture proceeds, the City will receive its significant pro rata return on investment,
which can be reinvested into formalizing the PAY structure within the City by funding a full-time
PAY manager to surface new yield and hybrid -yield opportunities to pursue as candidates for
the PAY process and oversee the successful implementation of the PAY initiative.
Once policymakers determine the PAY process is adequately funded from ongoing annual PAY
revenues, policymakers can direct surplus ongoing annual PAY revenues to other public or
community priorities including affordable housing initiatives, community ownership efforts, and
other identified priorities.
One key facet of the PAY initiative process will be for decision -makers to decide between
various property ownership options to achieve its priorities such as shared equity, community
equity, residential land lease, commercial land lease, and disposition. These ownership models,
along with various considerations, are discussed below.
IV. Ownership Options
There are various property ownership options the City can consider in order to achieve its
priorities, such as shared equity, community equity, residential land lease, commercial land
lease, and disposition. While all these options are worthy of consideration for City -owned real
estate, certain ownership options are better suited for properties with certain conditions and
desired outcomes. These ownership options can be further categorized as either Retained
Ownership and Public Asset Yield Implementation models, and either high-level or low-level
City involvement models. These are defined below.
A. Retained Ownership Models
For real estate assets with a low present value in a neighborhood where real estate values are
appreciating quickly, the City should strongly consider options where it maintains a percentage
share of the future development in order to fully benefit from value appreciation. The City
might also consider shared equity or community equity models in which adjacent community
members participate in the ownership share to provide them with a hedge against increasing
real estate prices.
In many instances where a city is looking to retain ownership of an asset, the default is often a
residential or commercial land lease. While such an arrangement may work in some cases, this
approach should not be the default for retained ownership. In neighborhoods with fast
appreciating real estate values, a land lease arrangement forces the private developer to
assume the risk of the pace of neighborhood improvements, which is often difficult to finance
3 Public Asset Yield Playbook
Appendix 1
and leaves the City and community members out of upside benefits in later years that come
from neighborhood improvements. Whenever a land lease option is being considered, the City
should also consider a model that preserves the City's percentage ownership in the
contemplated development.
B. Public Asset Yield Implementation Models
In contrast to retained ownership models, Public Asset Yield Implementation models often take
a more aggressive approach, with the goal of yielding a public return on investment that can be
reinvested to further build the PAY initiative and address community needs. Public Asset Yield
Implementation models can allow for high- or low-level City involvement throughout the
process, each with various benefits and drawbacks.
Where strong legacy or policy considerations exist, the City may opt for an asset development
approach that affords a greater ongoing role for Salt Lake City policymakers to shape the asset
yield opportunity. While such an approach yields greater ongoing influence for policymakers, it
will likely decrease the amount of the yield on an asset that could otherwise be available for
different community benefit purposes. Options listed under "High-level Public Sector
Involvement" afford a more active and ongoing role for policymakers, while options listed
under "Low-level Public Sector Involvement" allow policymakers to set core objectives and
direction at the outset, and then allow the subsequent asset development to proceed as a
privately led project. Implementation models presented below are in order of greatest
policymaker involvement to least involvement. There is no right or a wrong approach to
ownership options, but there are trade-offs to consider with each implementation model.
1. High-level Public Sector Involvement
For assets where legacy or policy considerations are significant, an increased role for
policymakers may be justified. There are various options for public asset yield efforts with a
high level of public sector involvement, with benefits and tradeoffs to each approach. It is
worth noting that there is an opportunity cost to a high level of public sector involvement if the
City seeks to scale its Public Asset Yield initiative. There is a finite bandwidth of policymakers
and staff to manage high-level involvement in Public Asset Yield initiatives, and the City will end
up leaving community benefit opportunities on the table if every yield opportunity is done with
high-level ongoing involvement from policymakers and staff.
a) Public -led Asset Development
In a public -led asset development approach, the public entity drives the development,
may hire the developer, and plays an active and ongoing role in the development. Such
an approach is justified where a strong public policy or legacy objective is at the
forefront driving the project. For example, the development and construction of the
Eccles Theater on Main Street had strong policy objectives of activating Main Street and
attracting first run touring Broadway shows, with the related objectives of activating
Regent Street and making Salt Lake City's downtown more walkable. Related private
sector developments were critical to generate an incremental tax yield to help fund the
construction of the Eccles Theater, and Salt Lake City was actively involved in advancing
4 Public Asset Yield Playbook
Appendix 1
the private development of the 111 South Main office building.
The main benefit to this approach is the ability of policymakers to make key decisions
and stay in control of asset development at all stages. Some of the tradeoffs include a
greater likelihood the city will be responsible for unforeseen risks related to cost
increases on the project or interest rate fluctuations. Additionally, such an approach
may slow the timeline for the project completion and consequently increase the cost
and decrease the yield available for community benefit.
b) Public -private Partnership Asset Development
Under this approach, a private -sector asset investment and management partner
assumes a greater role in the asset development, but the public entity still maintains an
active and ongoing role, usually through an extensive design review approval process.
This slightly stepped -back approach reduces the project risks to the public entity while
maintaining a greater degree of control to shape the ultimate outcome of the asset
under development. Like the public -led asset development approach, this approach may
slow the timeline for the project completion and consequently increase the costs and
decrease the yield available for community benefit.
2. Low-level Public Sector Involvement
For assets where legacy or policy considerations are minimal and yield objectives are high, a
decreased role for policymakers is justified. There are various options for PAY efforts requiring
low-level public sector involvement with benefits and tradeoffs to each approach.
a) Land Lease to Private Developer
The City may negotiate a long-term land lease (or ground lease) with a developer who
intends to utilize the public asset for a market development. The yield to the City from
such a long-term land lease can support important community benefit priorities.
Policymakers may negotiate appropriate terms, such as legacy, policy, land use, or other
stipulations on the use of the property and the rate and term of the land lease. Such an
approach is the lowest risk and most predictable method for achieving a yield on an
asset. The City is not at risk for any downturns in the market or underperformance of
the project. In exchange for the low -risk nature of this approach, the City sacrifices any
upside of the project over the long-term. The attractiveness of this approach depends
on the terms the City is able to negotiate with a private partner.
b) Passive Ownership Interest in Private -led Asset Development
An alternative to a long-term land lease is for the City to negotiate a shared percentage
ownership interest in a privately led PAY project. Policymakers may negotiate
appropriate legacy, policy, land use or other stipulations on the use of the property.
Through this approach, in exchange for the commitment of public -owned real estate,
the City receives a passive ownership interest in a private development alongside other
private investors in the project. Such an approach is more likely to catalyze the
activation of underutilized publicly held real estate by de -risking private investment in
5 Public Asset Yield Playbook
Appendix 1
the PAY project. The City may receive a lower return in the early years of project
development but also participate in the upside of a project over time.
In this approach, the City also stands to benefit from an increased yield due to
community improvements around a project such as improved roads or transit and an
increase in open space. This equity ownership approach may be especially desirable in
neighborhoods where the long-term growth and desirability forecast is positive or
where the City expects to take actions, such as expanding transit access or constructing
desirable new public amenities or open spaces that will enhance the value of the
opportunity overall.
3. Land Sale
Depending on the property in question and the desired outcomes, the City may identify
public assets to sell on the private market. The proceeds from such a sale can be
reinvested in other Public Asset Yield projects or directly fund desired community
benefits. This approach can provide a one-time influx of funding, but in the process,
control of outcomes and long-term upsides of projects are forfeited.
C. Potential Benefits of New Structure
Cities are oftentimes in the best position to improve the value of city -owned real estate
through community investment. Unfortunately, cities often lack the resources to make the
investments that are needed to spark the changes in communities where under-utilized city -
owned properties have their greatest potential.
Short on resources, policymakers might be tempted to sell city -owned real estate to private
development. Assets are sold based on their present value, investments are made to improve
the community and real estate values in the neighborhood improve to the sole benefit of
private developers as neighborhoods gentrify and residents are displaced.
Under the proposed PAY structure, the City retains an ownership interest in its real estate
assets while using dividends from property improvements to make community investments,
such as purchasing additional housing units for inclusion in the CLT. As neighborhoods improve,
the City captures the benefit of increased property values through dividend payments and can
make a proportional investment in the community, including home ownership incentives and
support for existing community members to remain in the neighborhood.
V. Going to Scale with a Public Asset Yield initiative
When Salt Lake County undertook the effort to inventory and map all government -owned
assets within the Salt Lake valley in 2018, assets were valued at roughly $10 billion. Improving
the community's return on those assets even slightly could provide the resources to address
some of the major challenges facing the region, such as increasing the availability of affordable
housing and making investments in our transportation infrastructure, without raising taxes.
6 Public Asset Yield Playbook
Appendix 1
While maximizing the utilization of individual parcels can drive important policy objectives like
creating new affordable housing units, moving the needle and making a statistically measurable
difference in the City's housing affordability crisis requires scalability of this effort. Scalability
can be achieved by continuing existing public asset development initiatives underway.
Several City -owned parcels with high policy and yield potential are already known to the City
and private interests. The City could continue to bring forward these parcels to accomplish the
previously identified policy objectives and to think creatively about potential yield
opportunities. We encourage the City to consider the various PAY implementation models
detailed in this report to determine which approach will maximize the long-term policy and
yield objectives of the City and the communities it serves. Below are policy framework
scenarios to expand the City's CLT to include PAY initiative as described above.
VI. Recommendations
A. Seek to Maximize Public Benefit in All Transactions Involving Public Real Estate
In transactions involving public real estate, evaluate the potential of each asset to meet a
hybrid classification and maximize the public benefit derived from the asset. Explore
opportunities to maintain ownership of public real estate and derive ongoing revenue yield to
support policy objectives relating to housing affordability.
B. Public Asset Yield Private Sector Opportunity Partner Approach
To begin scaling PAY efforts, we recommend supplementing current public asset development
work already underway with a complementary PAY initiative for public -held real estate where a
lower -level of public sector involvement could be justified. Many of these parcels are not
currently known to key policymakers and the public but have incredible potential to drive policy
objectives and create a yield to support community benefits. Identifying, assessing, and
modeling these opportunities at scale requires a new approach.
For assets where legacy or policy considerations are less significant and the primary public
benefit is maximizing the yield potential of an asset, policymakers may select a private sector
partner who is enabled to seek out public real estate asset development opportunities. Such a
partner can surface opportunities for policymakers to evaluate and determine any desired
legacy and policy objectives and the appropriate level of ongoing public sector engagement and
oversight of an opportunity before granting the private sector partner authorization to execute
on the opportunity pursuant to terms agreed upon by the City and the private sector partner.
This new approach can be utilized immediately to help alleviate the current affordable housing
crisis.
C. Building the Community Land Trust through PAY
With limited funding for the purchase of units for inclusion in the CLT, the City's current CLT has
little opportunity for impact or growth. Coupling the CLT with a PAY initiative, however, has the
7 Public Asset Yield Playbook
Appendix 1
potential to unlock future funding for increased purchase of residential units to be included in
the CLT and in a potential limited or shared equity cooperative. Understanding which assets
have the potential to yield a return using one of the various property ownership models
outlined above, can create a funding source for the purchase of additional housing units for
inclusion in the CLT. As yield increases, rent -to -own units and for -sale units can be purchased by
the City and converted into a funding stream that would allow for increased acquisitions while
helping households find housing stability and build wealth through shared equity in the
cooperative.
VII. Conclusions
The City has elements in place to create significant impacts on the lives of residents. However,
the impacts of these programs, such as the CLT, are limited because a significant, dedicated
funding source has not been identified for the expansion of the programs. Using the PAY model,
new funding sources could be realized, with a portion of the funding allocated to the expansion
of the CLT, among other community benefits. The PAY model is not without hazards, however,
and care should be taken to ensure that benefits of engaging in such a model are realized by
the community.
There are numerous public assets sitting underutilized and even costing the public money.
While it is not essential to maximize gains, turning underutilized funding sinks into productive
funding sources has the potential to significantly impact the city. Initially, these benefits may be
recognized through freeing up existing funding for more productive uses. Rather than boarding,
fencing, and securing properties, those funds could be put toward community services and
amenities or expanding the CLT program. As the PAY model expands, lease, rent, and dividend
proceeds can be collected and reinvested in the community. The CLT can be aggressively
expanded, more affordable housing can be created and protected, transit and active
transportation infrastructure can be expanded, and other amenities can be imagined.
8 Public Asset Yield Playbook
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