It has recently come to the attention of Santa Monica city officials that the Dorchester House which is a luxury condominium complex located at 1040 – 1044 4th Street has violated its Development Agreement (DA) because 15 of its first floor units are not being used for affordable housing purposes.
A DA is agreed to by Santa Monica and a developer when the developer offers the city public benefits in exchange for being permitted to develop their project with parameters that are outside of the of the City’s zoning standards.
Real estate attorney Stanley Epstein learned of the violation and brought it to the attention of city officials because he was considering purchasing an upstairs unit in the building. Through his research he found out that developer, Harris Toibb, entered into a Housing Incentive and DA with the city in 1982, which would permit him to build 41 condominium units that did not comply with the city zoning codes at the time if he offered the public benefit of 15 deed restricted affordable housing rental units. Eight of these units were supposed to be for those with low-income and the other seven were supposed to be for moderate-income tenants. However, despite the deed restriction on these 15 units the information indicates that 14 of them are improperly occupied by the owners of the respective condo units. The other unit is being rented at a rent that is $600 above the affordable housing range and was listed for sale at $519,000.
Epstein told the Mirror that the during the purchase of a condo unit the title company will tell the escrow agent if a deed restriction exists and if it does the escrow agent must tell the buyer. If the buyer has a lawyer the lawyer will tell them. Epstein stressed that “every one of the buyers (of the 15 affordable units) took a calculated risk that the affordable housing lease restriction would not be enforced” when they purchased their unit at market rate. If they expected it to be enforced the price would have been about 20 percent of what they paid due to the low income they could expect to receive if they rented their unit to an affordable housing tenant and the resulting insignificant cash flow.
Also equally at fault, according to Epstein, are the lenders “since they knew of the restriction” as well. He mentioned that the Bank of America is currently investigating its loan. The lenders are at risk of losing more money than the owners.
The Mirror also spoke with Deputy City Attorney Gary Rhodes about the issue. He said his office is investigating the allegations and because at this time he “doesn’t know how many violations are occurring.” However, once their investigation is complete they will decide whether any legal action is necessary. Rhoades also mentioned that the Dorchester DA was one of the first DAs the city entered into and that the affordable housing laws were different at that time. In addition, the Dorchester DA is unusual because it is the “only situation in the city where condos are designated as affordable units.”
Planning Commissioner Ted Winterer also discussed the issue with the Mirror. He stated that the lack of enforcement of DA agreements “has been a big issue in this town for many years and only right now is a light being shown on it.” A study by the City’s Planning Department was sent to the City Council as an Information Item on February 23 about DAs that were out of compliance but the Dorchester House was not on the list. He also noted that according to the state government code DAs should be reviewed annually by the city and therefore, its up to the planning department to get annual reports on the status of compliance of the DAs.
Winterer feels it’s important that the community knows “these contracts will be honored by the developer and their successive owners. There’s doubt about that given the existing DAs have not been audited annually as required.” Winterer also noted that thus far, the discussion by the City Council on the Dorchester has been done in closed session. In his view it is imperative that the Planning Commission and the City Council have a pubic and transparent discussion about what went wrong in terms of the lack of enforcement by city staff of DAs. This also important because there are so many future DAs currently being proposed by developers because the Expo Light Rail will be coming to Santa Monica in 2015.
Epstein emphasized that “if the city doesn’t do the right thing which would be to evict all the units’ owners now in occupancy who knew that they had no right to the occupancy I will seek measures to enforce the obligation of these unit owners to rent their units at affordable rents.”
Mirror Contributing Writerhannah@smmirror.com