New Sonoma County housing fund to lend $20 million in PG&E settlement money for large-scale projects
A new Sonoma County housing fund spearheaded by local elected officials is set to lend over $20 million in PG&E settlement cash to support planned projects in Santa Rosa and outlying areas starting early next year.
The fund is touted by officials as the key to jump-starting large-scale developments that will put a dent in the region’s chronic housing shortage and invigorate Santa Rosa’s downtown core.
It’s being launched by a joint city-county agency called the Renewal Enterprise District, or RED, which was created in 2018 in large part to aid the region’s rebuilding effort a year after the North Bay firestorm. The blaze burned over 5,300 homes in the county, including more than 3,000 within Santa Rosa, representing about 5% of the city stock at the time.
The district is led by a four-person board comprised of Supervisors Chris Coursey and David Rabbitt, Councilwoman Victoria Fleming and Councilman Jack Tibbetts.
In March, Santa Rosa and Sonoma County officials each committed $10 million to the district from the $244 million PG&E paid the jurisdictions for damages as a result of the 2017 wildfires.
The goal is to help finance large market-rate and affordable apartment buildings near job centers and public transit by providing piecemeal loans of up to around 10% of a project’s total cost.
Tibbetts, the district’s current board chair, said even that relatively small amount can make a big difference for projects in Sonoma County that struggle to compete for financing with developments in more populated parts of the Bay Area.
“We’re in this weird market where it’s getting expensive to build here, but our rents aren’t high enough to see the rate of return many of these banks are expecting,” he said.
Because lenders tend to view the North Bay as a less “proven” market for large, market-rate apartment buildings, banks often end up offering developers smaller construction loans, Tibbetts said.
The hope is that the fund can then come in to “bridge the gap” in financing.
And if the fund helps a handful of large local projects cross the finish line, Tibbetts said, they can serve as successful comparable properties, or “comps,” for developers to point to when seeking capital.
Ideally, that would change financiers’ perception of the county’s real estate market and convince them to offer more attractive loans.
“We don’t have many comps in downtown Santa Rosa,” Tibbetts said.
The fund is set to officially launch in the first few months of next year. District staff say there’s already significant interest from developers and expect to quickly lend all of the money, potentially to help finance four or five projects of around a hundred units.
The nonprofit fund will be separate from the district and have its own independent board to oversee lending.The board will be made up of three government-appointed directors by the city, county and district, as well as four independent directors, which are being appointed through a community recommendation and outreach process.
So far, appointed directors include Michelle Whitman, the district’s executive director and the former longtime aide to ex-supervisor Shirlee Zane; Veronica Ferguson, the former Sonoma County administrator; and Todd Sheffield, a retired chief executive of Santa Rosa-based Community First Credit Union.
The fund is getting off the ground as Santa Rosa has made new efforts to attract denser development and reshape its downtown core. Last year, the City Council updated its downtown plan with more lenient zoning and design restrictions in hopes of building 7,000 new homes by 2040.
There are currently at least seven projects in the city’s construction pipeline that could lead to over 700 new units. They include two large developments at 1 Santa Rosa Ave. and 420 Mendocino Ave. near The Press Democrat building.
Another seven-story, 107-unit project is already underway at 888 Fourth Street. It’s being built by local developer Hugh Futrell, who has had by far the most success getting larger, mostly market-rate apartments completed in Santa Rosa.
Futrell, however, is skeptical of the “well-intentioned” fund, arguing there’s already sufficient private money available for projects by developers with a proven track record. He added that interest rates on the fund’s smaller “gap funding” loans are well below the industry standard for market-rate developments, amounting to an unnecessary public subsidy for projects that have no guarantee of actually getting built.
“I don’t minimize the difficulty of building (local) projects, but nonetheless, it’s factually clear that it can, and is, being done,” Futrell said.
“I’m really not willing to take anything that’s so obviously inconsistent with the public interest,” he added.
In response, Whitman, the district’s director, said the fund was carefully designed in consultation with a financial advisory firm, public officials, housing developers and multiple financial institutions ― and since its loans will need to be repaid on a regular schedule, they shouldn’t be considered subsidies.
“The RED Housing Fund will be risk averse,” Whitman said in an email. “Credit worthiness and ability to pay will be strongly considered prior to loan underwriting.”
When it comes to affordable housing projects, which rely largely on public grants and low-income tax credits, some local nonprofit developers say the fund could provide an advantage in applying for those incentives.
“The key is in being able to bring in local money,” said Efren Carrillo, policy director at Santa Rosa-based Burbank Housing. “That is one of the major important aspects to bring in state or federal resources.”
As the fund lends out money, it will also seek out donations from local nonprofits and companies. This week, it was approved to receive two new grants, including a $1 million contribution from Kaiser Permanente and a $200,000 gift from the Sonoma County Community Foundation.
Coursey, the district’s vice chair, said he’s optimistic about receiving additional donations. He described the fund as an incremental but effective step toward alleviating the region’s housing shortage.
“You’ve got to start somewhere, and you can’t get to the end unless you get to the beginning first,” he said.
You can reach Staff Writer Ethan Varian at email@example.com or 707-521-5412. On Twitter @ethanvarian