April 4, 2023 - From the April, 2023 issue

Bass & Feldstein Soto on Skid Row Housing Trust Receivership

Preceding a thorough autopsy on the implosion of Skid Row Housing Trust, the City of LA stepped in to place the troubled nonprofit’s 29 buildings—totaling 2,000 units of critical housing supply—into a Public Health and Safety Receivership led by California Receivership Group’s Mark Adams. TPR shares this excerpt from the press conference where Los Angeles Mayor Karen Bass and City Attorney Hydee Feldstein-Soto outline the still troubling crisis, announce the receivership, and underscore the growing challenges of preserving and maintaining the city’s dwindling supply of accessible & affordable housing stock.

“This is a big step for LA. We've never done this. We've had two public safety receiverships in our history…This is a massive undertaking. If this works, ladies and gentlemen, we may find a solution to replenish and rehabilitate our housing stock for years to come. “ —Hydee Feldstein-Soto

Mayor Karen Bass: Today we are here to discuss the Skid Row Housing Trust. First, I want to make it clear that this is a locked-arm effort. That has been the theme of this administration over the last 110 days. Myself, city departments, and especially City Attorney Hydee Feldstein-Soto and her deputies all stepped up to secure this emergency response.

I cannot say enough about our city attorney and the way we have worked together from day one. We meet regularly. She has been a full partner and is dedicated to solving the crisis of 40,000 people on our streets every day. What I believe and what I said from the beginning is that it takes every level of government, it takes all of Los Angeles and certainly all of Los Angeles’s leaders to address this crisis.

I also want to acknowledge more the Los Angeles Housing Department, and especially the work of Che Ramirez and Jenna Hornstock. They have provided financial assessment and code enforcement services to this effort. Also, thanks to the law firm of Latham and Watkins for stepping forward as pro bono counsel to the Skid Row Housing Trust to help get us to where we are today. And to Mark Adams who will serve as receiver is also contributing much of his time pro bono.

We are going to be just as bold when it comes to preserving housing as we are about building housing because as we scale our programs to house Angelenos, available housing is a must. From day one, we launched Inside Safe and we got more than 1,000 Angelenos out of tents and into temporary housing. We are not going to solve this problem until we can reach the scale to get tens of thousands of people off the street. Frankly, 29 buildings is the type of scale we need to get to if we're going to be able to house 47,000 people.

We approach this crisis from the stance that failure is not an option. Losing nearly 2,000 units of housing would be devastating to Skid Row. It would be felt citywide and undoubtedly people would lose their lives. As we scale our programs to bring Angelenos inside, like Inside Safe, we need to ensure that our housing supply meets their needs, and that's what today is about.

My office and city departments have been working over the past month to address the urgent livability concerns to keep people housed. We had to engage the fire department to carry disabled Angelenos out of their homes because the elevator in the building broke down twice. We coordinated food for those who couldn't leave their homes, and LAHSA stepped did with relocation vouchers. The city acted to provide security for the safety of residents there as well. The Housing Department worked closely with the City Attorney, the City Clerk, and the City Council to act quickly to provide desperately-needed security services to protect residents and the properties.

While we did that, we were looking for a lasting solution. That's what we are announcing today. The City Attorney and my office have worked on a legal strategy that is going to go into effect today to put Skid Row Housing Trust under new leadership to stabilize the situation, move properties into the control of entities capable of operating them in the long term, and to identify potential city funds to rehabilitate and keep units and buildings alive.

When we house Angelenos, we do our best to ensure that they are housed near the communities they live in. We will not be able to house and help residents in Skid Row if we abandon the housing in Skid Row. I think oftentimes that Angelenos don't realize that Skid Row, with all of the problems that it has, is an actual community.

Let me just talk about my partner standing next to me, who I mentioned earlier, our city attorney. Again, I just want to be very clear about the instrumental role that she has played every step of the way, not just today with the Skid Row Housing Trust, but from day one, with her true commitment to end homelessness in Los Angeles. Let me introduce our city attorney, Hydee Feldstein-Soto.

Hydee Feldstein-Soto: … Thank you Mayor Bass for your leadership, your collaboration, your intelligence, your effectiveness, and your example. If I've been committed from day one, it's only in trying to keep up with our mayor.

I do want to take a moment to reiterate my thanks to Manny Abascal and his team at Latham and Watkins. They've been doing pro bono services, and it's a team of about 10 lawyers, for the last three weeks.

I also want to thank Joanne Cordero and the staff at Skid Row Housing Trust. I personally know how incredibly difficult it is to hang in there and come to work every single day as you're spiraling out of control and in financial trouble. I appreciate everything that everybody has done to try to land this plane safely.

I need to take a minute to thank my own office, because there is zero possibility that we could have done this without the commitment of more than a dozen of my lawyers. They are folks who just really stepped up and stepped in and pulled all-nighters. Lawyers don’t get paid enough in public service to pull all-nighters and work the hours that my office has worked.

 I want to thank the support staff. There’s paralegal by the name of Gabriel Sanchez, who didn’t go home last night to get everything done and get everything ready to file this morning. My own Secretary, Maria Escobar, literally almost spent the night in the Housing Department.

The rest of the executive department and the housing inspectors, the fire department inspectors, Jenna Hornstock, the State Department of Housing and Community Development, Fannie Mae, Freddie Mae, HUD, the County and County supervisors; everybody has come together to try and reach today.

We filed papers this morning for an ex parte application and a petition for what's known as a Public Health and Safety Receivership under California state law. What does that mean? This doesn't change the ownership of the property. This doesn't disturb the secured lenders. This doesn't disturb the tax incremental financing that is so crucial to the success of the properties.

This is a new remedy for the City of Los Angeles, but it is an old remedy to Mr. Mark Adams. He comes in and he stabilizes the buildings. He has the authority to collect the rent. He has the authority to fix the elevator and to fix the leaky roof and to fix the windows that are a problem. He has authority to take care of the criminal activity going on in the property. He can husband resources to do that.

On a building-by-building basis, he will be keeping track of revenues and expenditures so that it isn't a collective per se, but by putting it all under the umbrella of a receivership, you really achieve economies of scale in security services and in the kinds of services the most vulnerable residents need.

These buildings, under the Coordinated Entry System, are among our most marginalized and vulnerable populations. If they lose their housing, there's very little question that they will spill out onto our streets. So everybody involved in this process has had the first and foremost commitment to preserving the affordable housing and the regulatory agreements that ensure that we have 2000 units of housing available and continuing to be available to shelter our population. We are saving precious housing stock.

The judge has not yet set the date, but I believe we will be in court on Tuesday, this coming Tuesday. Be there or be square at 10 o'clock in the morning to ask for the receiver to formally be appointed.

This, to me, is the saving of what was once a paragon for housing and shelter of our most vulnerable and homeless people. This is a result, in part, of the passage of time where tax incentives for financial partners had run out and where the funding for this kind of housing has really diminished and is no longer available.

As we transition, we do need to look at new financial models once we stabilize properties. Financial models that meet the regulatory and affordability covenants, so that we continue to have this housing stock available. I do want to say that as part of this process, we, as a regulatory authority, are asking a receiver. This is not like a commercial receivership. It is not a debt collection measure. It is a regulatory receivership for purposes of preserving the housing.

We researched and found Mark Adams from the California Receivership Group, who is standing here to take on these responsibilities. He is the most experienced health and safety receiver we were able to locate in the State of California, having handled almost 300 properties under this kind of an umbrella. And he has the breadth and the depth of expertise that we think we need.

In closing, I want to thank Mayor Bass, again, for your strong and compassionate leadership and for your support of my lawyers in my office. Also, for your support of the solutions we found. I want to thank my Mercedes Marquez for your absolutely immeasurable knowledge, for your commitment, and hard work and passion and dedication.

This is a big step for LA. We've never done this. We've had two public safety receiverships in our history. One was for a single-family home where the owner had died. The other one was up for a low density duplex or a four-plex. This is a massive undertaking. If this works, ladies and gentlemen, we may find a solution to replenish and rehabilitate our housing stock for years to come.

And with that, thank you very much. I'm happy to take any questions on the process or on how we're going to be going forward.

Press Question: Most of these buildings are needing an incredible amount of rehab. Do you, as a city, have a sense of how much you'll need to spend to make that rehab possible?

Hydee Feldstein-Soto: What we have asked for in court is for preliminary authorization for the receiver to advance up to half a million dollars, which we estimate is enough to cure the dangerous needs and to develop a rehabilitation plan, building by building, and the cost for each building.

Some buildings may need very little and some of them are under letters of intent to transfer to financially responsible parties already. We in the city do not want to stand in the way of that. We're more than happy to facilitate that process where there is someone who can step up and ensure that the buildings don't fall back into disrepair.

Other buildings will require more time and more funding. There are 12 properties where I believe the only financing left on the property is the City of Los Angeles and the State Department of Housing and Community Development.

Press Question: That's $500,000 a month or year?


Hydee Feldstein-Soto: It's $500,000 to get to the point where we can give you a more definite number. It may not take that much. That is enough to feel comfortable that we can address the fire of orders.

Okay, as you know, there are nine buildings that have a fire orders because those are the most dangerous conditions. They need immediate attention. We have a number of urgent repair orders, whether it's the elevators or, in some cases, other dangerous conditions like leaky roofs, which with the rain that's been happening, creates a real problem.

Our receiver is going to take care of things that are a threat to life before he takes care of the threat to property. Then, we will have a plan going forward for which buildings need to stay in the receivership for longer term and what it's going to take to get them that

Press Question: What are the lessons learned from this situation to make sure that doesn't happen again, that we don't have to fall into this situation. Also, some people may see this and say the city can't afford to do this. If you can elaborate a little bit more. 

Hydee Feldstein-Soto: Well, let's start with the city can't afford it. The beauty of the Public Health and Safety Receivership is that our receiver draws upon his own CAL Receivership Group on lines of credit to advance the funding that is required. The court grants a super priority lien on the property, so the city is not coming out of pocket for any of these expenses. At the end of the day, there might be a role for us to play in providing permanent financing, but as of today, there is no commitment and we're not in a place where we can't afford to. We're really acting in a way where the assets themselves can support a lot of the work that needs to be done.

I think for the lessons learned, one of my earliest clients was Sandy Sigoloff from Invest in Peace and he used to say, “there's always lessons learned, and he who speaks the minute after it happens is a fool.”

 So I'm going to step back and say yes, we need to learn lessons. Some of them are inherent in the time limits that we put on affordability covenants and on the tax credit financing because when the timing expires, oftentimes things just start to spiral out of control and we don’t have a Plan B. Part of the lesson is to develop a Plan B. What does that Plan B look like? I don't know.

Press Question: Does Mayor Bass want to say anything about that? Big picture, how this doesn't happen again? It seems as if you see this as an opportunity a little bit?

Mayor Bass: Well, the big thing for me is that in order to house people and to address our problem, which is 47,000 people. That was the count from last year, it might even be more today. I'm really worried about another spike in homelessness because of the eviction moratorium and the COVID supports going away.

So to me, this is an example of how we can get, to scale, 29 buildings. We need to look for opportunities like this around the city where we could make big purchases. Obviously, I don't want to look for buildings that have been in total disrepair, but what I'm saying is it's an example of how we need to scale a mass of buildings.

Hydee Feldstein-Soto: I want to address one thing that the mayor said, and this is a really important message with this much press to get out. It's really important for tenants to understand this. Even if you have all of your COVID-19 paperwork in place, even if you have a defense under the just cause ordinance; if you are a renter or a tenant in the city and you get served with a three-day notice to pay rent or an unlawful detainer complaint, please, please answer.

Why? Because if you don't go to court and you don't answer, there will be a default judgment entered against you. It doesn't matter that all your paperwork is in place, you will be evicted. Help us help you and don't ignore the notices.

The housing department has resources on their website. My office is putting out a pamphlet and a flyer. The mayor's office is too. We are available to help navigate the process. We cannot represent and do not represent individual tenants or residents, but we can get out the word as to how important it is to know your rights and to respond and get help.

 Press Question: Miss Feldstein-Soto, briefly encapsulate how a trust like the Skid Row Housing Trust can even get to the place where you have to put it into receivership.

 Hydee Feldstein-Soto: There was a time in my life when I was a bankruptcy lawyer. I think the last time that I actually did that was in 1992. The only thing I can tell you is it's about always having something. Liquidity is something that is very difficult to manage. It's endless in many ways because as soon as you lose the trust of your vendors, people stop providing you with credit. As soon as they stop providing you with credit, you don't have the ability to buy more services and you get further in the hole. And the downward spiral is something I’ve seen happen many times in my career.

The way we've managed our coordinated entry system in Los Angeles is we've created buildings of the most vulnerable and most marginalized populations. So it only gets more and more expensive to operate the buildings as that population ages. When HACLA sees that units are not in good repair, they stop advancing, even the $400 in rent that these units cost.

Without that rent money, they can't maintain the buildings because it's more disrepair. It is a vicious cycle. I think that the individuals, particularly in the interim housing, and the staff that's now there, have done their level best to hold things together with band aids and baling wire.

So we are here to provide support and to really exercise an extraordinary remedy to build on what they would keep and get back to a place with units are habitable.

 Press Question: How long do you expect the rehabilitation work to take? Are we talking months or years? Then secondly, where will the tenants go in the meantime? Would they get priority housing over people currently living on the streets?

 Hydee Feldstein-Soto: One of the things that we've asked our receiver to look at is consolidation of tenants in some of the better buildings to enable the rehabilitation effort to focus on the buildings that are in greatest disrepair. As you know, it is always something that takes an awful lot of outreach. People have to be sure that the place they are going is going to be comfortable for them as well.

So the first thing to do, most of these buildings don't have security. They don't have an onsite property manager. They don't have the services that many of the tenants need, whether it's food services or the community room is empty. There's no delivery of any kinds of services. We started conversations and we're hoping the County will help us with some of the mental health services and delivery services that the residents are going to need.

Give the receiver a couple of weeks, we're expecting the timeframe to be months, not years. And we're hoping that a number of the buildings, those that still have tax credit financing available, will be out much earlier.

 Press Question: The people that have been moved out, or some of whom have been moved out, are they going to be brought into the Inside Safe program? Is there a possibility of that or is this going to be totally separate? Then, once most of the buildings are refurbished, is there a chance that any of those tenants will be moved back into these buildings?

Just want to follow up on that as a lot of these buildings, as we've talked about in the past, have just one bathroom on some of these floors. These are some of the things we've been talking about in the big issues with shelter and congregate housing. Is that going to be addressed and refurbished?

 Mayor Bass: Let me ask Chief of Housing and Homelessness Solutions, Mercedes Marquez, to answer that.

 Mercedes Marquez: Yes. You know, once you're in receivership, and I'm an attorney too, those tenants also gain another level of rights as the assessment is done. As the judge reviews it all, the judge will make decisions about the preferences for those residents. They come into another category.

In the meantime, some have been relocated. These are SROs. Folks that are living in there don't want to leave their home, even though there are these issues. The fact that it's an SRO and they share bathrooms, for many of these residents, they have community here and they don't want another living situation. They want one that is healthy and habitable, but the situation of community they actually enjoy.

Whether or not folks are coming to Inside Safe or not, Inside Safe is much more focused on candidate resolution. You know, there are other resources, both within LAHSA and the city housing department, that we are looking at to be able to accommodate these residents.

As the city attorney said, there are many vacancies in these buildings. That is among the big reasons why they have spiraled so quickly because of the habitability issues and the safety issues.

We are able to consolidate some of these tenants from one to another, at least temporarily. It's done all the time and it’s called checkerboarding. It's not an unusual thing, when you own a lot of buildings, to add them onto those services. This would be temporary, but it is a way to move people within their community and make their home safe and then be able to bring them back.

This isn't about necessarily a permanent relocation. In fact, we're looking to stabilize the progress. We're talking about rehab and keeping people safe. That rehab of this nature is not at all unusual in LA for multifamily housing.



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