Site of Berkeley balcony collapse sold, with promise of affordable housing

K Street Flats was quietly purchased last fall by an obscure Central Valley housing agency that owns several Bay Area apartment buildings.

The K Street Flats apartment complex at 2020 Kittredge St. was quietly purchased last fall by a housing agency in the Central Valley that converts market-rate apartments to “missing middle” affordable housing. Credit: Kelly Sullivan

The downtown Berkeley apartment complex where six Irish students died in a 2015 balcony collapse has quietly become part of an emerging and controversial affordable housing strategy.

K Street Flats, the 176-unit development formerly known as Library Gardens, was sold last fall to an obscure public agency based in the Central Valley that pledges to provide housing for workers who are often priced out of expensive cities such as Berkeley.

Called the California Community Housing Agency, or CalCHA, it uses municipal bonds to buy market-rate apartment buildings, then offers rent discounts to make their units affordable to tenants who fall into the “moderate” income range — a category that in Berkeley includes some who make upwards of $100,000 per year. The agency is one of three joint powers authorities that have bought dozens of buildings around the state in recent years to provide “missing middle” homes for teachers, firefighters and others who can’t afford market-rate apartments, but make too much to qualify for lower-income units that are often the focus of efforts to build affordable housing.

“It’s solving for a failure of the market right now to deliver the housing that we wish was getting built,” Ben Metcalf, managing director of the Terner Center for Housing Innovation at UC Berkeley, said of the agency’s strategy.

The Berkeley City Council voted to join CalCHA last year. As a result, the city could one day own K Street Flats — governments that partner with the agency have the option to acquire its buildings during the latter half of the 30-year bonds used to fund their purchases.

Rents at the 2020 Kittredge St. complex have fallen since the new owners took over. But Metcalf and others say it’s not always clear that cities get a good deal from their partnerships with CalCHA, because its discounts come at the cost of removing apartment buildings from local property tax rolls.

K Street Flats tenant Alex Merenkov shared this 2021 photo of a partially collapsed floor in another tenant’s apartment. Credit: Alex Merenkov

And then there’s the question of whether Berkeley should take over one of the city’s most notorious buildings — a structure where defects in the construction of its balconies, which led to the deadly collapse, prompted state regulators to revoke the license of the contractor who built it.

The tragedy also led to new state laws requiring inspections of balconies and expanding access to contractor records, and a plaque honoring the six people who died in the collapse now stands in Civic Center Park. An informal chalk memorial also occupies a patch of the sidewalk outside K Street Flats, and includes a seventh name — Aoife Beary, who was seriously injured in the 2015 collapse and died at 27 in January following a stroke.

Problems at the complex, which was completed in 2007, have continued over the years, according to long-time tenant Alex Merenkov, who has complained to city officials about a range of issues with the building, including the partial collapse of another renter’s bedroom floor last spring.

“None of us know to what degree this property is going to hold up,” Merenkov said. “If I was the city, I would probably not buy this property.”

New owner cuts rent for moderate-income tenants

CalCHA is officially part of the government of Kings County, but many of the properties it owns are far from the agency’s headquarters in Hanford. Since 2019, it has bought apartment buildings in Larkspur, Sausalito, Dublin, Santa Rosa and other Bay Area cities.

Metcalf said CalCHA and two other entities, the California Municipal Finance Authority and the California Statewide Communities Development Authority, have emerged as players in the state’s housing landscape over the past three years. Their purchases “really took off” in 2021, Metcalf said, when historically low-interest rates made their tax-exempt municipal bonds especially attractive.

CalCHA bought K Street Flats from the real estate investment firm BlackRock, which had owned it since 2007.

The Kings County Board of Supervisors, which functions as the agency’s board of directors, approved the deal to buy K Street Flats at an Aug. 31 meeting that lasted less than three minutes; CalCHA announced its purchase in a one-sentence press release on Oct. 7, stating it had partnered with a firm called HCF Development to issue $127 million worth of bonds for the acquisition. Real estate news website The Registry reported the complex sold for $100 million.

Current tenants may stay as long as they wish under CalCHA’s ownership, and the sale doesn’t affect existing below market rate units, which make up 20% of K Street Flats’ apartments. As tenants move out and the complex’s formerly market rate apartments turn over, though, income caps require that new renters make between 80% and 120% of area median income. Berkeley’s area median income is just over $95,000, so that range covers individuals earning anywhere from $77,000 to $115,000 annually.

A small, informal memorial to the victims of the 2015 balcony collapse occupies a patch of pavement outside K Street Flats, the site of the tragedy. A seventh name was added to the memorial when 27-year-old Aoife Beary, who was injured in the collapse, died in January. Credit: Kelly Sullivan

K Street Flats’ website today lists one- and two-bedroom units available to rent from $2,342 to $2,999 per month. Two blocks away, studio units at Varsity Berkeley, a complex that opened in 2015, start at $3,200 per month; five years ago, Berkeleyside reported rents at K Street Flats ranged from $2,995 to $4,000 per month.

No one from CalCHA or HCF Development, which lists a Washington, D.C., phone number on its website, responded to multiple requests for comment from Berkeleyside.

City of Berkeley officials declined an interview request for this story. But in response to written questions, senior community development project coordinator Mike Uberti described CalCHA’s acquisition strategy as a complement to more conventional efforts to build new affordable housing — which can often be a long and expensive process. In 2019, the Bay Area Council Economic Institute estimated that building affordable housing in Alameda County cost more than $700,000 per unit on average.

“Typically, it is less costly and takes less time to acquire and convert market rate units to affordable than it does to construct new affordable units,” Uberti wrote in an email.

The challenge for cities such as Berkeley is that state and federal funding sources, which typically help them build new affordable housing, often can’t be used to acquire existing buildings, Uberti said.

Alex Merenkov, a tenant at K Street Flats for over a decade, said he has watched the building deteriorate under several property management companies. Merenkov said he hopes its new owners, the California Community Housing Agency, will be better landlords. Credit: Kelly Sullivan

CalCHA, on the other hand, arranges and finances its own deals, allowing cities to boost their supply of affordable units without having to put up the money to buy or build them. Then, starting in year 16 of the bonds, the city can acquire the property by taking over its outstanding debt — which, according to Uberti, can be paid off with rental income.

“This model is an alternative way to defer costs on a large property that the city could not otherwise acquire with current upfront funding costs and obligations,” he wrote.

Key question: What makes a good deal?

Cities aren’t getting affordable housing for free when they partner with CalCHA, however. County records show K Street Flats was assessed more than $1.4 million in property taxes last year. Now that the building is considered affordable housing, that bill will go down to zero.

A Forbes investigation into CalCHA’s practices last year called attention to its purchases of amenity-rich luxury apartment complexes in other Bay Area cities, questioning “whether the often-modest rent discounts being offered to middle-income tenants will ever make up for the lost tax revenue.” Joint powers authorities such as CalCHA, Forbes wrote, often function as “shell companies that are run by a handful of financiers and lawyers.” And while the investigation did not specifically examine K Street Flats — which lacks the saltwater pools or yoga studios that attracted scrutiny at other CalCHA buildings — it noted the agency’s deals have netted millions of dollars in fees paid to firms involved in buying and managing its real estate portfolio.

There is little state oversight of CalCHA and other entities like it, Metcalf said, and few standards for evaluating “what makes a good transaction” as they buy up more properties. The question, he said, comes down to whether the rent discounts are deep enough to accomplish the goal of housing middle-income tenants, and are worth forgoing the building’s property tax revenue.

“You want to know that this has some actual benefit,” said Metcalf, who declined to comment specifically on the K Street Flats purchase. “If those rents are now affordable to somebody who is squarely a moderate-income household, that’s pretty encouraging.”

In his written comments, Uberti emphasized the value of K Street Flats’ rent discounts is likely to grow over time.

“This acquisition will allow rents to be tied to incomes rather than the market, which has historically [risen] faster than incomes,” he said.

Still, Metcalf said that for now, “Every city is having to do this public benefit test for themselves.”

Tenant Alex Merenkov pointed out trash and grime in a stairwell at K Street Flats in January. Credit: Kelly Sullivan

As for Merenkov, the K Street Flats tenant, he hopes the new owners can turn the troubled building around — but after more than a decade there, he isn’t optimistic.

Merenkov described Sequoia Equities Incorporated, a Walnut Creek property management firm CalCHA contracted with to manage the complex, as “slightly better” than the revolving door of companies he dealt with in the past, who he accused of harassing him and other below market rate tenants. Still, Merenkov rattled off a long list of complaints about K Street Flats’ condition, ranging from a recurring cockroach problem in his unit to warped floors and poorly secured entryways that allow for package thefts and other problems. Sequoia Equities Incorporated did not respond to multiple requests for comment.

“We haven’t really seen anything happen” since CalCHA bought the building, he said.

Tenants have heard new property managers promise improvement before, Merenkov said, but “we don’t know to what degree that’s a bunch of BS.”

Nico Savidge is Berkeleyside's senior reporter covering city hall. Email: nico@berkeleyside.org. Twitter: NSavidge.