About 15 tenants and their supporters gathered last week to celebrate a new affordable housing program at The Meridian, a Canal Street apartment complex on the San Rafael Creek.
Congratulatory speeches flooded the outdoor space next to the leasing office, a place where the tenants once held a rally to protest increased rents and evictions. But this evening, the group happily discussed how their determination brought about positive change. They had organized, formed a tenant union, become educated on housing policy and stood their ground for years.
In fact, it took three years for tenants to reach an agreement with the building owner, Tesseract Capital Group. For the tenants, it finally paid off. The owner converted the building from market rate housing to affordable housing. And Tesseract agreed to terms that go beyond the minimum requirements, bringing substantial benefits to the tenants.
Now, rents may not increase by more than 4% annually, making it the strongest rent control policy in Marin County. Tesseract also agreed to keep robust eviction protections in place, rights the tenants could have lost if the conversion had been executed differently.
The basics of the affordable housing program provide low-income tenants, those earning 80% or less of the area median income (AMI), with rents based on their household income, rather than the amount the market will bear. Some tenants will even see a rent decrease based on the new program.
Certainly, the affordable housing conversion was cause for celebration, especially since the preceding years had often been tough for the tenants.
The saga began in 2022, when Tesseract purchased the 99-unit building at 400 Canal St. in San Rafael. The company soon began increasing rents, attempting to get tenants—who are mostly Latinx and low income—to sign new leases and apply utility charges that were previously covered. Eviction notices and requests for some tenants to relocate were also issued.
“We formed the union because of what was happening to the tenants,” said tenant leader Glendy Barrios, who spoke to the Pacific Sun through an interpreter. “Many tenants were being evicted. And for that reason, we started knocking on doors to talk to all the tenants.”
Tenant meetings followed. Union members demonstrated and filled the seats at San Rafael City Council meetings to speak out about the issues they faced. Supporters stood beside them, including Legal Aid, the Regional Tenant Organizing Network (RTO) and Marina Palma, a local community leader.
In an interview with the Pacific Sun, Derek Flores, Tesseract’s president of development and construction, said the company bought the apartment complex planning to keep it market rate housing. It did not anticipate providing provisions for low-income tenants.
“Our intent was to never evict or displace any residents, but there was a lot of building improvement that we needed to do,” Flores said. “And that aligned with having to offer buyouts to residents to perform building upgrades for deferred maintenance and safety and code upgrades to the building.”
Many tenants had lived in their home for years and didn’t want to move. Initially, when Tesseract issued notices to vacate, some renters didn’t understand their rights under San Rafael’s just cause eviction ordinance and simply left, according to tenant leader Barrios.
“Tesseract operated under a pretty classic playbook,” RTO spokesperson James Huynh said. “But when the tenant unions started to organize to preserve affordability of the building, they were able to win some concessions from the landlord early on.”
For example, Tesseract placed a cap on the amount of utilities that tenants were required to pay. Still, the two sides had a long way to go to see eye to eye. When the union held a rally in front of the leasing office, management didn’t come out to meet with them.
Before Tesseract bought the building, most rents at 400 Canal St. were below market rate. The property was essentially “naturally occurring affordable housing,” resulting in rents remaining relatively low due to the building’s age, location or market conditions, even without rent regulations.
Rent control laws represent another way to keep rents from rising an inordinate amount. Although San Rafael doesn’t have a rent control ordinance, The Meridian fell under California’s Tenant Protection Act of 2019. Still, the state law often doesn’t offer enough protection for low-income renters, some of whom are severely rent burdened, paying more than 50% of their income on housing.
California’s statute limits property owners to annual rent hikes of 5% plus the local Consumer Price Index or 10%, whichever is lower. This year, that rent increase equals 8%, a level that likely strains the pocketbooks of those earning below AMI.
The tenant union, its advocates and the City of San Rafael diligently worked to educate Tesseract about the situation at 400 Canal St. and the low-income Canal neighborhood.
“After gaining a large understanding of the needs of the tenants, the needs of the community, getting a very, very, very deep understanding of the housing needs of San Rafael, we did start exploring an affordable housing conversion,” Flores said.
Tesseract eventually decided to move forward with the program. In return, the company would benefit from property tax welfare exemption. The total tax exemption is based on the percentage of units deemed affordable. Simply put, a conversion of the entire building from market rate to affordable housing would mean that Tesseract would pay no property taxes.
The landlord and the tenant union began meeting to discuss the program, and the union made clear that it wanted tenant protections included in the affordable housing conversion. While it seemed the tenants and Tesseract found a mutually beneficial solution, the devil is in the details.
To facilitate the conversion, Tesseract wanted to use the California Municipal Finance Authority (CMFA), a joint powers authority of public entities across the state. The property owner had previously worked with CMFA on affordable housing projects and had been satisfied with those outcomes.
The tenant union, however, was not interested in CMFA, finding it less transparent than another finance authority.
“The tenants began advocating for Tesseract to work with the Bay Area Housing Finance Authority (BAHFA),” Huynh said. “It’s a regional entity, and they offer a very similar program for buildings and landlords, but they enforce much stronger tenant provisions.”
It took time for Tesseract to switch to BAHFA, but from there, the affordable housing conversion went smoothly. Approximately 80 units are now deemed affordable, and Flores believes they’ll soon reach 100%.
The three-year struggle has now concluded. Flores agreed that management and the tenants went down a patchy road for a while. But in the end, he says they arrived at a great result.
Legal Aid of Marin’s housing policy advocate, Ethan Strull, also agrees. He attended the tenant celebration and praised their success.
“Their tenant-led campaign to make the conversion of their building to affordable housing transparent and tenant-centered sets a new precedent for similar proposals in Marin,” Strull said. “They have demonstrated that when building owners receive tax breaks, tenants must not lose key protections and must gain a comparable benefit.”
