It always seemed impossible, until it was done — on January 18, 2022.

That’s the day that San Francisco Community Land Trust (SFCLT) closed on the $9.4 million acquisition of a building with 40 apartments in the heart of one of the country’s most notoriously competitive real estate markets.

Community land trusts (CLTs) like SFCLT seek to be vehicles for community-controlled real estate development, pulling land out of the conventional market and maintaining it in perpetuity as affordable housing, commercial, industrial, agricultural or cultural space.

But CLTs face many of the same barriers to capital across the country. Banks and other lenders aren’t as familiar with the CLT model. Many CLTs lack an extensive track record or deep pockets of their own that can otherwise convince lenders to open up their coffers. And public sector funding often moves slowly or comes with requirements that don’t mesh well with the CLT model.

SFCLT made this $9.4 million acquisition with zero public dollars and just two private lenders — including a credit union. The pandemic had something to do with it. But so did philanthropy, as well as a raft of policies that are slowly shifting the financial landscape in favor of CLTs.

“All of these things translate into a landscape by which these lenders become more comfortable with us,” says Saki Bailey, executive director at SFCLT.

The building is 285 Turk Street, at the southeast corner of the intersection with Leavenworth Street, in San Francisco’s Tenderloin neighborhood — a last bastion for many low-income households in the city. A bevy of community-based organizations here serve those households as well as many living on the streets, struggling to hold onto the neighborhood some have called home for decades.

Built in 1923, a building like 285 Turk would normally be covered by the city’s rent control regulations. But in 1985 the city allowed the owner to take it out of rent control after “substantial” investments to rehab the building. The tenants were never informed that the building lost its rent-controlled status, which was a shock for everyone to learn in 2017 after San Francisco real estate mogul Neveo Mosser acquired the building and sought immediate rent increases of 5-25%.

Tenants resisted. One organizer called 285 Turk, “the domino that won’t fall … stopping the whole Tenderloin from being gentrified.” But rents in the building eventually started rising.

The building needed — and still needs — plenty of work. More than a handful of units aren’t in good enough condition to rent out at all, let alone justify much higher rents. In order to sell the building for profit, Mosser needed at least some of that work to get started and higher rent rolls to show the building could eventually pay for the debt taken out to pay for those renovations. All that takes time.

SFCLT set its sights on acquiring the building whenever Mosser finally decided to sell it. 285 Turk is subject to San Francisco’s relatively new Community Opportunity to Purchase Act, or COPA. Passed in Spring 2019, the new law gives city-approved nonprofit groups the first crack at buying multifamily buildings when they go up for sale — in efforts to prevent them from falling to the hands of private equity investors or for-profit developers. Until COPA passed, the only place across the country with a similar law was Washington D.C., which passed its Tenant Opportunity to Purchase Act back in 1980.

In San Francisco, COPA has enabled nonprofits like the Mission Economic Development Agency, Chinatown Community Development Center and SFCLT to intercede on behalf of tenants and acquire buildings that otherwise would have gone to market. Nearby San Jose is now exploring a similar law.

The building finally came up for sale in early 2020.

“It was perhaps bad timing on the part of the seller,” says Keith Cooley, director of asset management at SFCLT. “There were no takers. But we knew there were private equity firms circling, because of that exemption from rent control.”

The world’s largest private equity firms like Blackstone had learned a lot after snatching up hundreds of thousands of distressed single-family homes after the last financial crisis. They had billions of dollars standing by — they call it “dry powder,” as in gunpowder — to buy up properties hit hard by the COVID-19 pandemic. But they wanted to wait and see just how far prices would fall first. They were still largely waiting things out last year, but selective acquisitions are proceeding.

Cooley says the asking price for the building dropped in late 2020, and a private equity firm did finally make an offer for 285 Turk.

But it was not good timing for SFCLT, in the midst of the pandemic and the holidays. The land trust wasn’t able to put an offer together under the deadlines COPA gives nonprofits to intercede. Those deadlines can also make it challenging to access public dollars to make a credible purchase offer for a building of this size — the process to secure sufficient local government housing subsidies or federal Low-Income Housing Tax Credits can take too long.

But the offer from a private equity firm fell through, and by early 2021, SFCLT put in a bid to acquire 285 Turk for $9.4 million — 75% of which came through a combination of loans from Self-Help Federal Credit Union and the Local Initiatives Support Corporation (LISC), with the rest coming from grants and donations to SFCLT. The owner accepted. (Editor’s Note: LISC is also a funder of Next City.)

Until now, SFCLT had relied on public funding for all of its acquisitions. The land trust has been one of the more active nonprofits under the city’s Small Sites Program, which provides deeply discounted city loans for approved community-based nonprofits to acquire buildings with between five and 25 residential units where tenants are at risk of displacement.

The Small Sites Program has helped nonprofits acquire at least 40 buildings with 350 total units so far, though it has also run into some challenges around those units remaining vacant even now, during the pandemic.

“You need to have this very deep city-CLT partnership to make the model succeed,” Bailey says. “We were fortunate in that we developed right before the period in which the Small Sites formed as well as COPA, and I think those two mechanisms really catalyzed the ability of our CLT to develop and expand.”

With 40 residential units, 285 Turk wasn’t eligible for support from the Small Sites Program. But the program has helped SFCLT build a portfolio and a track record that helps make private lenders more comfortable about working with it. Before 285 Turk, the land trust owned a dozen buildings, home to around 200 residents — more than 70% of whom are Black, indigenous or other people of color.

“They were able to demonstrate the track record of having acquired and managed a portfolio of properties already,” says Jeremy Hofer, senior business development officer at Self-Help Federal Credit Union. “This represented a jump in the size of a project for them but working with their management we were able to get comfortable with them jumping up to this size of a property.”

It’s still rare for private lenders to work with community land trusts across the country, even mission-oriented private lenders like Self-Help or the Local Initiatives Support Corporation. Both of these lenders are federally certified community development financial institutions, or CDFIs. But even with CDFI certification and the doors it opens to federal and philanthropic support for financing community development, CDFIs all across the country have still been hesitant to work with CLTs.

“If CDFIs are going to parallel the same risk tolerance as [other lenders], that to me is problematic,” says Tony Pickett, CEO of Grounded Solutions, a national network that supports CLTs and other shared-equity housing models across the country.

Self-Help also faces the same regulatory landscape as other banks and credit unions — so it has to navigate regulators’ perceptions of risk in addition to its own.

Regulators scrutinize each and every loan banks and credit unions make since their last examination, which can be anywhere from a few months to more than a year prior. The goal of each examination is to ensure “safe and sound” practices at each institution that holds our deposits. Banks or credit unions are extremely hesitant to test their regulators’ limits when it comes to the kind of projects that are on their books when examination time comes.

But those limits aren’t as hard and fast as it can often seem. They can and have evolved over time, as new industries or new business models emerge and some lenders establish new regulatory precedents that others eventually follow. Depending on how regulators respond later to Self-Help making this acquisition loan to SFCLT, it could open up the door to any credit union or even banks making similar loans to other similarly situated CLTs in the future.

And while it can be challenging to work with regulated financial institutions, they have the ability to offer lower interest rates and longer loan terms than unregulated financial institutions precisely because they hold deposits and also have access to the Federal Reserve system.

Self-Help has worked with land trusts in its home state of North Carolina, but Hofer says 285 Turk is the largest acquisition by a land trust that Self-Help has financed so far. While the credit union has had plenty of experience lending to nonprofits for affordable and mixed-income housing, Hofer says the land trust model represents a different approach.

To make this loan to SFCLT, Self-Help has to anticipate what regulators look for in any commercial real estate acquisition loan, including financial metrics as well as the borrower’s track record and management capacity.

Sufficient “management capacity” for a commercial real estate operation can be expensive or hard to keep on the typical nonprofit salary a CLT can offer.

“Recruiting and retaining people can be challenging when you need high-level commercial real estate talent at nonprofit wages,” Hofer says. ”I think by doing these exciting deals and showing these benefits, ideally we can attract more young real estate professionals into nonprofit development.”

Bringing on a second lender like LISC reduced the loan-to-value ratio for Self-Help, which helps to keep the loan within the credit union’s guidelines for financial metrics. And with SFCLT’s existing portfolio and prior track record, experienced staff and a third-party property manager that has worked successfully with buildings even larger than 285 Turk, this loan passed muster.

“One of our goals is to ensure regulators can be confident in the quantitative and qualitative approaches in Self-Help’s underwriting, enabling land trusts to more easily access finance from regulated lenders in the future,” Hofer says.

Regulated as well as unregulated financial institutions also still abide by the rule that you need money to get money. SFCLT contributed $1.37 million in equity as part of the overall financing package for acquisition and renovations at 285 Turk.

For traditional developers, equity can come from personal or friends and family wealth, or out of profits generated from previous investments. For a CLT, equity typically has to come from public dollars or donated dollars, because the model is designed to own properties in perpetuity — meaning the trust can’t ever sell the property to get at least some of that money back.

SFCLT got its equity for 285 Turk from a bevy of local donors attracted to a message rooted in wealth creation for Black, indigenous and other people of color — who make up 95 percent of the current residents at 285 Turk.

The land trust plans to convert 285 Turk into a limited-equity housing cooperative, creating homeownership opportunities for existing residents that can be passed down to future generations or sold, but with resale restrictions that guarantee homeownership opportunities for future low-to-moderate income buyers. Instead of selling the deed for the property to the co-op, the land trust will extend the co-op a 99-year lease, similar to how most CLTs extend single-family homeowners a 99-year lease. It was this plan that really ruled out using city dollars for this project — Bailey says the city’s rules around its funding programs as well as its property tax rules don’t currently work with creating housing cooperatives.

“The real impetus to use private financing was staying away from the city’s restrictions for conversion into affordable homeownership,” Bailey says.

But it was the potential to create wealth for 285 Turk residents that appealed to the 22 donors (so far) who contributed as little as $20 to SFCLT for this project — including individuals as well as some smaller foundations in the Bay Area.

“I think this can provide a model for other CLTs around the country,” Cooley says. “They don’t have to get public subsidy and they don’t have to rely on Low-Income Housing Tax Credits, which is a big thing.”