Two Chicago officials made a political calculation last year when they aligned with progressives to approve a pro-tenant measure, a policy that gives tenants the first chance to buy their buildings when their landlord decides to sell.
Their calculus abruptly flipped this summer, following an outcry from the real estate industry, which has consistently pushed back on housing initiatives introduced under Mayor Brandon Johnson since his 2023 election struck fear into the city’s business community.
Not only did the industry shell out big bucks to beat Johnson’s signature campaign proposal to hike real estate transfer taxes on sales of $1 million and more at the ballot box last year, but this summer it pushed two Chicago City Council members to pull their wards out of the so-called tenant’s right of first refusal pilot program after they initially supported the rule.
The backlash against the program follows landlord complaints that it kills deals to sell or refinance their buildings, and get title insurance, by delaying closings and injecting uncertainty into the process. Their objections threaten a political achievement advanced by progressive officials with the stated goal of stabilizing housing costs for tenants in rapidly appreciating urban areas.
But the recent events are also a symbol of the shifting power dynamic between the real estate industry, public officials and a left-leaning voter base.
“It used to be that the realtors would get their ordinance passed because they had relationships with the mayor or a majority of the alders, and then we would come running to them crying for amendments,” said Traolach O’Sullivan of Palenque LSNA, one of the Chicago groups that supported the tenant purchasing program. “Now, they’re coming to us for amendments. So yes, we want to hear valid concerns and make sure this is an effective ordinance, but we have a lot more leverage.”
As debate over the Chicago program’s future plays out, other major cities are revisiting or considering similar policies.
The newfound influence of groups like Palenque comes as Washington, D.C., home to the nation’s oldest Tenant Opportunity to Purchase Act, known as TOPA, reconsiders its role in the market; New York is not for the first time toying with the idea of starting its own program; and San Francisco nears its sixth year of working with its version.
Taken together, the efforts underscore the state of pro-tenant policies and to what extent localities pay attention to the repercussions they have on property owners.
The Chicago way
The about-face in Chicago shows that even once the local politics are in action, regular market operations can gum up the program. Among the concerns: Multifamily brokers could have a harder time lining up lenders and buyers to work with sellers, especially considering that Fannie Mae and Freddie Mac face restrictions in taking on multifamily loans tied down by TOPA rules.
Sellers worry they can no longer pull off fast deals, and 1031 exchange buyers fret they’ll get cut out of transacting within the timelines they need for tax purposes. Because of the rule, sellers now have to give tenants between 30 and 90 days to form an association before selling a building to a third party, and then the tenant association gets another 60 to 120 days to secure financing, depending on building size.
“These are not timelines we’re used to dealing with,” said Interra Realty broker Joe Smazal, who sells North Side multifamily properties. “Sometimes a seller needs to move quickly, whether it’s a loan coming due, a death in the family, settling a divorce. It’s not going to have positive results and there are unintended negative consequences that outweigh anything positive we might see from it.”
Furthermore, longtime building owners who came into windfalls as neighborhoods within Chicago’s pilot program jumped in value worry about seeing their equity drained as the pool of potential buyers shrinks due to the rule, industry experts said.
Recent events are also a symbol of the shifting power dynamic between the real estate industry, public officials and a left-leaning voter base.
At first, Chicago aldermen Gil Villegas of the 36th Ward and Felix Cardona Jr. of the 31st were proponents of the city’s TOPA pilot, which only applies to multifamily building owners in neighborhoods on the city’s Northwest Side.
But within months of it going into effect this year, they wanted their wards removed from the program, claiming it stalls sales and makes securing mortgages difficult for property owners and would-be buyers. The rest of the Chicago City Council obliged. The pilot zone included portions of the officials’ wards, so most of the program is still going. The move looks to be a gambit for at least one of them to prove his bona fides with the real estate industry.
“You’re not going to meet two aldermen that are more friendly to the real estate industry and trying to get people to invest in the city of Chicago,” Villegas said in a July conference call held by the Neighborhood Building Owner’s Alliance, a trade group.
Opponents have focused on logistical snags in the program: The TOPA rule is interfering with buyers’ ability to get loans backed by Fannie and Freddie, as well as title insurance, according to comments made on the conference call.
But Chicago’s policy shouldn’t trigger Fannie’s restriction, Edwin Ortiz Reyez, senior policy analyst with the city housing department, said. His department has been talking with Fannie and Freddie and it is “confident” any issues will be resolved.
Still, Villegas said the problems should have been worked out before passing the ordinance.
O’Sullivan cast doubt on the new rule’s roadblocks and questioned the aldermen’s motives. “It seems like they’re throwing up a few small flags and hiccups, which are to be expected with an innovative pilot ordinance, and then they’re using that to try to blow up the whole picture,” he said.
Chicago’s saga has bearing for officials in other major markets where similar policies are in effect, or on the table. Though the opportunity-to-purchase rules are about giving tenants the right to buy before they’re given a new landlord, many advocates see them as general tenant-friendly tools because they give residents more negotiating power in the event of a sale. That can prevent sudden rent hikes upon a building’s sale to new ownership.
But proponents and critics alike maintain that the right of first refusal isn’t enough: Reliable public funding and other resources must accompany such policies for them to work.
The period that tenants have to bid on their building can make or break a program. In the Chicago program, it’s the official timeframes that are most problematic for the industry. Because tenants have never been prevented from making traditional offers to buy their buildings, requiring sellers to give them a month — or many — to consider the deal makes the ordinance feel like a punishment for landlords rather than assistance for tenants, owners and brokers say.
Plus, it mandates that tenants get access to certain information about unit rents that can create divisions in buildings, should one be getting a discount that others aren’t, Smazal said.
Without proper infrastructure, TOPA programs falter. Cardona said that because tenants may lack the capital, collateral and credit to buy, the ordinance sets them and their building owners up for failure.
Conundrums for capital
In June, developers celebrated the opening of the first phase of Barnaby & 7th, a Washington D.C. affordable housing development that will eventually include more than 500 apartments.
The developers, which include Gilbane Development, MED Developers, Equity Plus Manager and Housing Help Plus, took over the site in 2018. Tenants of what was then known as Belmont Crossing — 273 residential units across 26 buildings in Washington’s south side — had transferred their right of first refusal to the development team. At the time, some of the existing buildings were vacant and didn’t have working plumbing.
Alexander Marte, a senior development manager at Gilbane, said the deal required a different level of community engagement than a typical development.
“It’s a very human process,” he said. “We really needed to ensure that the tenants bought in.”
This is the trajectory of most TOPA deals in Washington: A tenant association is formed, and it then transfers its purchase rights to a private or nonprofit landlord.
A report by the D.C. Policy Center found that nearly 95 percent of deals where a tenant association has formed resulted in a transfer of purchase rights. While such arrangements mean sacrificing the ability to own their apartments, they give tenants leverage to negotiate for repairs, better rental terms and sometimes buyouts.
Washington enacted its TOPA law in 1980, the first policy of its kind in the U.S. Under the law, when an owner of a residential building with two or more units looks to sell their building, they must first give their tenants a chance to bid. Tenants are given 45 days to form a tenant association and register their intent to purchase their building. They then have 120 days to negotiate with the landlord and make a deposit, and have another 120 days to secure acquisition financing.
Since 2006, Washington tenant associations have negotiated rental or ownership deals across nearly 20,000 units through TOPA, according to a 2023 report by nonprofit Local Initiatives Support Corporation, or LISC, which is a lender on TOPA deals. Of those units, 85 percent were preserved as affordable and 80 percent were renovated as a result of TOPA. The report also credits TOPA, along with preservation funding, for the development or preservation of 16,224 affordable housing units during the period.
The program’s preservation efforts are helped by multiple sources of funding that the city dedicated to these deals. The availability of quick financing early on, as well as longer-term funding that can support managing the building, are crucial.
Critics of the policy argue that it drags out building sales, scares away potential buyers and discourages multifamily investment. Proponents are concerned that potential changes to D.C.’s policy will deter other markets.
“There has always been the criticism of TOPA, the fear that TOPA will discourage development,” said Elin Zurbrigg, deputy director of Mi Casa, a nonprofit that has helped tenants and taken over management of buildings through TOPA deals in Washington. She has not found those criticisms to be valid. A recent report by the Urban Institute and Housing& shows D.C. construction outpacing Maryland’s most populated county, Montgomery, between 2019 and 2023. “Other jurisdictions may also borrow the narrative that TOPA/COPA is just a tool for affordable housing, without honoring the other intentions at its core.”
Those other intentions include providing tenants with more agency when their buildings go up for sale. Tenants getting a chance to negotiate for certain terms upon a building sale can quell fear of rapid real estate price appreciation in neighborhoods they’ve lived in for years.
The D.C. Policy Center report found that TOPA delays deals, on average, by between five and six months, though this timeline has stretched to more than a year in some cases. These are the kinds of postponements that scare away certain buyers or result in deals breaking apart, brokers said. The report also concluded that TOPA is likely more effective in smaller and older buildings, given that tenant associations were largely formed in buildings with fewer than 50 units and that were built before 1978 (meaning that they are subject to the city’s rent control).
The report argues that TOPA creates uncertainty and subdues investor and lender interest in new construction and major renovations. It also found that private lenders have little interest in providing financing to tenant purchases of buildings.
“I think we’ve had our law for so long, and we’ve changed it so many times, we’ve lost what the plan is,” Emilia Calma, one of the report’s authors, said.
Mayor Muriel Bowser’s administration agrees that the law needs to be rejiggered. The mayor has pushed for reforms to TOPA, including a temporary exemption for newly constructed buildings and certain affordable housing projects. The measure would also ensure that refinancing and recapitalizations don’t trigger TOPA. The City Council approved the measure on a first reading in July, meaning it heads for another vote in September.
Untouchable in NYC
The idea to take over their Bronx apartment building was floated early on during hallway conversations among tenants.
The owner, James Giddings, had just bought 700 East 134th Street for $4 million and quickly started warning tenants to expect rents to surge.
“The writing was on the wall: Your rent is going to double over the next couple of years,” Courtland Hankins III, a tenant, said.
Hallway chats in 2017 morphed from laments about the rent hikes to regular meetings among tenants. Over the next five years, several factors came together — including, critically, a nonprofit that secured private financing to buy the building with the intent to eventually transfer it to the residents — that put them on the path to ownership.
New York doesn’t have a TOPA policy on the books, so Hankins and the other tenants went through this process without a playbook. A version of the policy, which would apply to all rental buildings, has been introduced in the state legislature each year since 2021, but never came to a vote in either chamber. The City Council has repeatedly considered a separate measure that would give nonprofits the first opportunity to buy residential buildings with three or more units.
For the second time, the City Council held a hearing on the latter, known as the Community Opportunity to Purchase Act, as part of a broader package of “social housing” bills. During the hearing in June, City Hall argued that a version of this would need to be narrowly tailored, perhaps to just the city’s most distressed buildings, to avoid disrupting the housing market.
Landlord groups opposed the policy for assuming nonprofits are inherently better landlords. The New York Apartment Association, which represents rent-stabilized property owners, said the window for nonprofits to bid on apartment buildings, 120 days, was far too long and would add costs and delays to every transaction. The group pointed to San Francisco’s COPA policy, which limits the bidding period to 30 days, as a more reasonable approach.
In an interview, Kenny Burgos, CEO of NYAA, pointed to the level of distress in rent-stabilized buildings across the city.
“The most difficult part of all this is the financing, and those facts don’t change no matter whoever buys the building,” Burgos said.
Without a TOPA policy, convincing their landlord to sell East 134th Street took years, a pandemic and a state law that dramatically changed the appeal of rent-stabilized buildings. By 2022, the landlord wanted out, and in his view, he was unfairly pressured to do so.
“These are not timelines we’re used to dealing with.”
Giddings tried to prove to the state housing regulator that current and future vacant rent-stabilized units could be rented at market rates. This required showing that the building was mostly vacant in 2005 and underwent gut renovation. This process, combined with the prospect of dealing with individual tenants in housing court, drove Giddings to sell the building for $2.6 million, two-thirds of what he’d paid for it, to the Urban Homesteading Assistance Board, or UHAB, a nonprofit that will eventually turn the building over to the tenants.
“No market buyers would touch the building under the circumstances,” Giddings said in an email.
He said that granting tenants the right of first refusal could unfairly tip the scales in their favor. “I can imagine that it would make sense for tenants to create issues and make a building unattractive in order to get an owner to think about selling,” he said. “If tenants then have a right of first refusal it could be a death spiral.”
“Potential buyers would make lowball offers, buildings would get a reputation, no buyers would be interested and maybe the tenants would pick up the building for a great price,” he added.
But not every building’s tenants have the resources to buy their property or manage it once the deed is signed. Hankins said tenant-led takeovers require significant training, as well as shaking off a tenant mentality: For instance, residents were reminded they shouldn’t file complaints about the building to the city because they’d essentially be reporting on themselves. It was now up to them to address property issues.
“What tops everything is the ability to organize, stay organized, stay united throughout the process,” he said. “When you do that, you create your own luck.”
Property owners and tenants agree on at least one aspect of TOPA and COPA policies: That their efficacy relies on dedicated public funding and a sophisticated network of nonprofits that can either take over these buildings or help properties transition from private to tenant ownership.
“You cannot do it without the government fully backing that path,” Hankins said.
While New York’s attempts at both the state and city level to enact a wide-ranging tenant-offer program have failed, a bill passed this year did give a specific subset of tenants — those in affordable housing projects that undergo a partial condo conversion — the right of first refusal. This could serve as a sort of test case.
Julia Duranti-Martinez, senior program officer with LISC’s community research and impact team, said she was hopeful that COPA was gaining momentum in New York City because during a hearing this year, the Department of Housing Preservation and Development seemed open to implementing a version of the policy, albeit one limited to the city’s most distressed buildings.
That limitation, however, could create more challenges for nonprofits, she said.
“There is a long history of nonprofits taking over the most distressed buildings,” she said. “It adds to the overall costs to organizations that are already operating on thin margins.”
At the same time, New York Assembly member Zohran Mamdani’s win as the Democratic nominee for mayor could help bolster priorities of tenant advocates, who played a big part in raising Mamdani’s profile.
Survival mode
Will nonprofits save the day? That’s the path San Francisco opted for with its COPA policy, which grants qualified nonprofits the right to first refusal if the majority of tenants want to go this route.
Since 2019, the model has been used to keep 436 units of housing affordable in a city that has seen multiple waves of venture capitalism and gentrification beginning with the dot-com boom of the ’90s and again in the 2010s, according to Kyle Smeallie, policy director of the San Francisco Community Land Trust.
Buildings purchased through this model are then owned and operated by the nonprofit, but rents are maintained at a rate often more affordable than the for-profit market, Smeallie said. COPA is housed within San Francisco’s Small Sites Program, which aims to prevent tenant displacement and loss of affordable housing by granting local nonprofits loans to acquire and preserve buildings, according to the city’s website.
“COPA really is a very effective tool in making sure we’re aware of the properties that are going on the private market, and it gives us an opportunity to work with the residents themselves, as well as resident organizers, to see if residents are interested in the land trust intervening,” said Kristen Villalobos, who is the land trust’s acquisitions director and a licensed broker.
This approach comes with hurdles.
The real estate industry came out against COPA when it was being passed in 2019, Villalobos said, and it only made it through with some concessions. For example, nonprofits have to match all terms of a seller’s offer, not just the price they are offering. The land trust recently had to walk away from trying to buy a building because another buyer came in offering a “two-week close, all cash, no contingencies,” she said.
“I think that there was a fair amount of trying to make it as friendly to sellers as possible in order to avoid so much pushback that it wasn’t able to be passed,” Villalobos said.
San Francisco’s COPA timeline is also shorter than other such programs, giving nonprofits just 30 days to decide if they want to activate their right of first refusal.
But the main challenge over the years has been maintaining a stable source of funding, Smeallie said. The land trust has purchased 16 buildings through the Small Sites Program and used COPA to buy four of them, one of which was a four-unit building at 1130 Filbert Street in the heart of Russian Hill.
Patricia de Larios, a longtime resident there, helped organize her neighbors to get the land trust to buy the building in 2022.
“Once it was established that we had 30 days, which is no time at all, we just all had a collective nervous breakdown because we were absolutely sure that we were going to get Ellis-Acted,” de Larios said, referring to legislation that allows landlords to evict tenants if they plan to remove their building from the rental market. But after de Larios got City Hall involved, and she and Villalobos educated the tenants on some of the odder points of COPA, the land trust was able to secure enough funding.
“This has been a collective effort and we’ve gotten closer as a result,” she said.