They’re the missing middle: that segment of the public who make too much money to qualify for low-income housing but not enough to afford high market rate rents, such as teachers, first responders, nurses, journalists, young professionals and administrative assistants.

As the city’s Housing Director William Huang describes it: “They are stuck in the middle.”

In Pasadena, some of that missing middle — current and future — just got a tad thicker in the pocketbook.

That’s because a statewide housing authority spent $335.1 million in investor-backed bonds to buy two Class-A apartment complexes — the 340-unit Westgate Apartments Phases II and III on DeLacey Avenue and The Hudson, a 173-unit complex on East Walnut Street — this week. The city is a partner in the transaction.

Amid a relentless housing crisis, this deal isn’t like many others. The stars aligned just about right to make it happen. Think low interest rates and a pandemic economy. The result was lower rents — immediately — at those properties.

Just how much lower? Take the Westgate, for example, where the current monthly rent is $4,490 for a three-bedroom unit, according to a city staff report. Under the deal, if you’re making 80% of the area’s median income — bam! Rent drops to $2,628. If you’re making 100% of the area’s median income, it’s $3,284, and 120% of the area’s median income, it’s still less than market rate at $3,941.

Westgate Apartments, at 231 DeLacey Ave., Pasadena.

The decreases in rent are similar for other sized units. So, for instance, under the apartments new form of ownership, a studio apartment at the Westgate would fall from a current rent of $2,314 to $1,841 for those making 80% of the area’s median income.

The low- to moderate-income range for a family of four in Los Angeles County is $90,080 to $135,120, according to a city staff report. According to the census using 2019 figures, the median household income in Pasadena is $83,068.

What makes the transaction unique is how rents are tied to the median income, say city officials and principals in the deal. That’s in contrast to a market where rents and rent hikes are out of whack with what many people make and the rate at which their own wages rise — which is really slow in some sectors.

“It addresses the root cause of the affordable housing crisis, that housing affordability has been increasing at a much faster rate than people’s incomes,” said Huang, fresh off the City Council’s unanimous approval of the transaction on May 24.

At the core of the acquisition is a fledgling joint effort by the California Statewide Communities Development Authority, which in conjunction with other agencies and cities is pursuing and acquiring low- and moderate-income housing “opportunities” across the state.

Moderate income generally lands at households earning between 80% and 120% of the area median income.

From a city of Pasadena staff presentation

In contrast to a typical market transaction, here, the joint-powers authority of the two agencies finances the deal by issuing government purpose revenue bonds. That effectively negates property tax obligations, which owners typically pass onto tenants through rents.

Without having to pay the property tax, the joint-powers authority can “restrict” rents — in this case, and under this agreement, for a period of 30 years. Although the city foregoes the property tax, it gets an equity stake in the property. So, once the bond matures, the city owns the property and can sell it for millions.

Officials say the approach is unique, and set apart from rent control and Section 8 housing. It’s not necessarily new, but the staggered income targeting is, Huang said, ushering in a first-of-its-kind model in Pasadena, and one of two such projects in the San Gabriel Valley. The other is a 261-unit complex in Monrovia, said Jon Penkower, managing director of the CSCDA, which touts a city membership in the authority of 530 members.

Other areas where the authority is engaged on projects include Anaheim, where the authority recently received approval for 1,107 units, and 507 units in Glendale.

“It’s the property tax exemption that’s what makes this work,” Penkower said.

For the “missing middle,” there just aren’t any more options, he added. Most affordable housing funding is reserved for those making below 60% of the area median income.

“It’s incredibly challenging,” Penkower said, referencing the lack of subsidy for moderate-income housing.  “I don’t know how else they can do it.”

A 2018 study by the state found that of California’s 6 million renter households, 3 million pay more than 30% of the income on rent, and nearly 30% — about 1.7 million — put more than 50% of their income toward rent. All that while home ownership rates were at their lowest since the 1940s, the study found.

From Pasadena staff presentation.

Under the state’s affordable housing goals, Pasadena had been asked to plan for more than 9,400 new units in the next eight years — 600 times more units than the previous eight-year cycle. And, like many cities in the region, it missed those earlier marks, though Pasadena made more progress than any of its neighbors.

Still, Pasadena appealed the higher benchmarks in October. The Southern California Association of Governments, which administers the state’s Regional Housing Needs Assessment, denied the appeal.

While officials say the “missing middle” transaction is a model for future innovative ideas in the housing marketplace, they acknowledge that low interest rates and a pandemic pause in buying of such properties certainly didn’t hurt. In the case of Pasadena, an advantage is that the projects are already built and occupied.

Officials also said that not everyone at the Pasadena complexes acquired under the deal is a moderate-income renter. About one-third are eligible. The other two-thirds don’t get displaced; they can stay and pay market rates. But if they leave, under the agreement, they must be replaced by an income-eligible household, Huang said.

While housing for those in poverty remains a massive issue, maintaining housing in the city for people who work in that missing middle population remains hugely important.


“This is exactly the area we want to build, and to get more affordable housing,” Huang said. “It doesn’t make sense to build more affordable housing an hour away.”Huang noted that these complexes are in the heart of the city, within transit-oriented districts, close to rail stations and close to where jobs are.

This was a “sweet spot,” he said.

SOME DETAILS

  • What: Acquisition of Residences at Westgate (340 units) and The Hudson (173 units)
  • By whom: The California Statewide Communities Development Authority (CSCDA)
  • Approval: The city needed to sign off on the deal, greenlighting the bond financing, and allowing the acquisition to take place. It foregoes property tax revenue but retains an equity stake and is entitled to proceeds from the sale of the property when the bonds mature.
  • Who will manage: Waterford Property Company, which manages more than 2,000 affordable rental units, will be responsible for tenant selection, compliance with regulatory agreements and general operations.