Opinion: TOPA Needs Capital to Succeed

This article excerpt is reprinted from Shelterforce Magazine.

At LISC, we were pleased to see recent reporting on Washington, D.C.’s Tenant Opportunity to Purchase Act (TOPA) by Roshan Abraham in Shelterforce/Next City, including his article on the unique model pursued by the Baldwin House collective (“How ‘Tenant Stewards’ are Using TOPA to Form a Co-op”). Abraham uplifts the vision and purpose of this unique co-op, but emphasizes their uncertainty about how they will be able to pay back the loan that allowed them to make the purchase.

As a provider of critical loans for TOPA purchases, we were sorry to see this capital portrayed as a threat. While it’s legitimate to worry about how to pay back a loan, as a lender, too often we see understandable wariness about debt presented as a blanket indictment of capital financing. Such indictments are misguided, when non-extractive finance is critical to inclusive prosperity in low-income communities and communities of color, including for co-ops.

TOPA provides D.C. tenants the right to buy their buildings when they go up for sale and can be an incomparable resource for preventing displacement. But for TOPA to reach this potential, capital isn’t the problem—it’s the solution. Rights alone don’t pay the bills.

TOPA Needs Affordable Capital

Housing preservation purchases typically involve an acquisition loan that then needs to be refinanced with a long-term mortgage. Depending on building conditions, the purchasers may also need a construction loan for rehab and sometimes a bridge loan to cover any delays in securing long term financing.

LISC DC’s experience, along with resident data from TOPA developer Mi Casa Inc., suggest that tenant purchasers are often lower-income and working-class people of color and immigrants, and many have minimal credit histories. Because of systemic inequities in banking, credit, and wealth-building opportunities, as well as racialized real estate valuation and risk analyses, conventional lenders won’t lend to tenant purchasers, let alone at affordable interest rates or with flexible repayment terms—even when tenant associations bring powerful organizing and development teams with legal and technical expertise to the table.

Without readily available acquisition financing, tenant purchasers are not able to meet their TOPA deadlines, and buildings are often sold to market-rate developers that raise rents, neglect repairs, and buy out, push out, and evict tenants at higher rates. In D.C., LISC helps deliver that financing. Public dollars from the D.C. government backstop the Affordable Housing Preservation Fund to offer lower interest rates and flexible repayment terms, including no payments out of pocket until construction is complete and then interest-only payments until new residents move in and the building is stabilized with reserves in hand. For the Baldwin House collective, patient financing is allowing them to complete an impressive capital campaign from an array of donors.

Certainly, more public funding is needed to lower debt costs and enable deeper affordability. Absent incredible fundraising, few organizations will be able to raise the millions of dollars needed to buy a multifamily building quickly enough to compete with deep-pocketed investors. Even successful recent crowdfunding efforts for tenant and community ownership have still relied on some acquisition debt as new owners work to finalize permanent financing. Affordable capital gives preservation purchasers time to raise these funds, and the repayment of acquisition loans allows lenders to revolve capital to other preservation purchasers, in ways that benefit communities more broadly. LISC DC’s Affordable Housing Preservation Fund interest rate is currently 5 percent, which is lower than what conventional banks and even credit unions are offering in this moment of high interest rates.

Community development financial institutions (CDFIs) like LISC overcome inequities in access to capital through relational lending and low-cost, patient, and mission-aligned capital. Baldwin House actually illustrates how TOPA paired with preservation financing has had extraordinary success in preserving high-quality affordable housing and building tenant power in D.C. Financing, in this case ours, enabled tenants to take the first step in realizing their dream of permanent affordability and collective accomplishment, after every other lender they had approached said no and their TOPA rights were nearing expiration. Baldwin House bought their building and is moving toward realizing their vision, which includes both fundraising and identifying a permanent financing strategy.

Historically, affordable cooperatives have worked with their development teams to apply for such financing from D.C’s Department of Housing and Community Development, coupled with a private mortgage, although recent District budget cuts and an emphasis on new construction projects present challenges to all cooperatives seeking these funds. The acquisition loan affords groups time to strategize complementary funding sources given these hurdles. Baldwin House is demonstrating that this form of cooperative, collective effort can yield significant private fundraising at scale.

TOPA Is Successful

While the total number of building-wide purchases is modest, DC’s TOPA has had meaningful impact. The Coalition for Nonprofit Housing and Economic Development (CNHED) found that TOPA helped create 425 tenant associations that have used the law to successfully negotiate outcomes for 19,170 units sold between 2006 and 2020. TOPA has created most of D.C.’s 4,400 limited-equity cooperative units. Overwhelmingly, tenants prioritized housing quality and affordability in their negotiations, with nearly 15,000 units—about 12 percent of all rental apartments in D.C., according to CNHED—receiving repairs or renovations, and over 16,200 units kept affordable through subsidies or by extending rent control. Nearly two-thirds of D.C. renters are people of color, and Black households disproportionately rent rather than own their homes, which also makes TOPA an important tool for racial equity. Not only does it help prevent displacement of tenants of color, but the right of first refusal provision helps protect against seller bias and gives Black, Latine, and immigrant tenants a uniquely empowering seat at the table.

As Abraham notes, the pace of co-op formation in particular using TOPA has slowed in recent years. There are many challenges: public subsidy that hasn’t kept pace with supercharged real estate values; deferred maintenance dating back to redlining; buyout offers that can be seen as an easy exit; and lack of practice with cooperative governance and decision making. But these are challenges that all preservation projects face. They aren’t specific to TOPA and point to a need for more investment in housing and in cooperative ecosystems. In fact, TOPA has spawned just such an ecosystem in D.C., which is another of the policy’s lasting legacies. To realize the promise of TOPA requires support for tenant organizing, legal and development support, and organizational development and capacity-building. It also requires increased funds for building acquisition, repair, and long-term property and asset management.

Though TOPA remains a bulwark against displacement in a fast-gentrifying city, its implementation could of course be strengthened. D.C. tenants, co-op members, advocates, and practitioners have made many actionable recommendations on how to strengthen tenant purchase. We recently released a report that makes similar recommendations for other communities, drawn from LISC DC’s 42 years of success as a TOPA lender, and insights from San Francisco Community Opportunity to Purchase Act (COPA) practitioners. We find that TOPA and COPA are effective preservation policies that connect government, mission-driven lenders, tenants, community groups, and developer partners. Such collaborations may also be instructive for new social housing programs and social housing development authorities proposed by some jurisdictions.