Want to sell an apartment building in Colorado? This bill would let your city have first dibs

Hart Van Denburg/CPR News
Old and new Denver: new apartment construction in the Uptown neighborhood along 17th Avenue, September 27, 2022.

Local governments would gain the power to intervene in the sale of apartment buildings and other multi-family properties under a bill proposed at the state legislature this week.

The bill would give cities and counties the “right of first refusal” to buy those buildings when they go up for sale. The idea is to give cities a better chance to preserve existing lower-cost housing, said state Rep. Andrew Boesenecker, a Democrat sponsoring the bill.

“It really creates a fair chance for our local governments to be able to be competitive in this market against hedge funds or private equity firms that oftentimes buy up multi-family housing and (place residents in) a precarious situation,” he said in an interview.

Under the bill, a local government would be first in line to buy multifamily properties. As long as the city can match the value of the highest competing offer, it would get to purchase the property.

The city would be required to maintain the property as affordable housing for at least 50 years.

“Those protections, I think, really make it so that if there is a destabilizing event, be it a sale or a foreclosure even, that the local government can step in and preserve that affordable housing,” Boesenecker said.

How the bill would work

The change would apply to properties with five or more units in most areas, or three or more units in rural and resort areas. It also would apply to properties that had received affordable housing funds in the past.

If the owner wanted to sell such a building, they would have to notify the local government. The property then would be listed on the private market as usual, with the owners soliciting bids from all types of buyers. 

Meanwhile, the city would have 14 business days to decide whether it’s interested in buying the property.

If the city did want to buy, it would have 90 business days to make an offer, and another 180 business days to match the value of the highest private offer and close the deal.

Developers and their allies oppose the bill

Development interests are objecting to the bill, warning that it would just create another obstacle to building housing. Deals could take months longer to complete if cities are allowed to intervene, said Drew Hamrick, senior vice president of government affairs for the Apartment Association of Metro Denver.

“It’s a problem,” Hamrick said. “Interest rates move dramatically in nine-and-a-half months. Nobody wants to do all the expensive due diligence (to buy a property) when they don’t know whether or not they’re going to be able to buy the place,” he said. 

Hamrick added: “This will have a very chilling effect on all sales of multifamily and. more importantly, people’s willingness to come into this state and develop and build it.”

How the law could have helped one housing authority close a deal

Peter LiFari, the CEO of Maiker Housing Partners, the Adams County housing authority, gave an example of a recent transaction where the law could have helped him.

A 100-unit building had gone up for sale in the county. It was “naturally occurring” affordable housing, he said — an older building where rents had stayed relatively low.

A private bidder had offered $18 million. LiFari could only put together $14.5 million with debt financing. But if he’d had a few more months, he said, he could have applied for grants and loans from the state’s affordable housing sources, which have been expanded by hundreds of millions of dollars recently, including through Prop. 123.

The bill could preserve affordable housing “by slightly slowing the process” and giving cities time to access “the funds that Coloradans have voted for,” he said.

The bill helps make cities more competitive

Under the bill, the private buyers would still have an alternate option to still close a deal. If a private buyer is willing to provide similar affordable housing commitments as the local government, they could be allowed to buy the property instead.

Housing advocates argue that cities need help to compete in the property market. Often, large private buyers can make all-cash offers, and they can waive inspections — making their more attractive

City governments usually can’t make those kinds of sacrifices, which means they often lose out even if they make an offer of equal value, LiFari said. The bill would put public bodies on equal footing by requiring sellers to accept their offers, even if they’re using debt financing, LiFari argued.

If a local government used its right of first refusal, it would have to keep rent at the property below 80 percent of the area median income (AMI) in most places, or 120 percent of AMI in rural counties and 140 percent of AMI in resort counties. Those restrictions would stay in place for 50 to 100 years.

The bill doesn’t apply to sales and transfers between family members or through a will, among other exceptions.