Marin County has allocated $500,000 from its affordable housing fund to rescue people who loaned Two Valleys Community Land Trust money for an affordable housing project in Forest Knolls.

The allocation is part of a multipart plan involving the Marin Housing Authority’s below market rate program. The agency’s board of commissioners, which includes all five Marin County supervisors, approved the plan on June 17.

“This is really a collaborative effort by many partners who have made something out of something that was going totally sideways,” said Supervisor Dennis Rodoni.

In March 2023, Two Valleys Land Trust, formerly the San Geronimo Affordable Housing Association, purchased a property at 6956 Sir Francis Drake Blvd. for $850,000. The property, built in 1924, had long operated as an unpermitted triplex with six bedrooms and three bathrooms.

Jeff Kelly, the homeownership program manager at the Marin Housing Authority, told commissioners on Tuesday that “junk” had been piled on the property, “and to top it off there was a failed septic system that was putting the nearby creek at risk.”“When a property gets to that condition, no lender will touch it,” Kelly said. “Your buyer pool is very limited to all cash buyers.”

That was where Two Valleys Land Trust came in, he said.

“They were able to put together a community bridge loan to meet the sellers halfway so that they could acquire it,” he said.

However, the trust’s financing plan built on the assumption that it would be able to get county approval for at least three dwellings with a total of five bedrooms, said Hal Russek, the trust’s executive director.

Marin County Environmental Health Services determined that the site could legally support only three bedrooms because of septic system limitations.

“The clock was ticking on $480,000 dollars in bridge loans that we raised from community supporters,” Russek said. “We thought this whole process was going to go a whole lot faster, and they’d get their money back.”

Kelly said the bridge loans were coming due in July.

In June 2023, supervisors allocated $99,185 in federal housing grant money to aid in the rehabilitation of the project. Then in December of that year, supervisors approved a $150,000 grant from the affordable housing fund to repay a portion of the bridge loans and allocated $150,000 in Measure W revenue to be used to rehabilitate the property.

Approved by Marin voters in November 2018, Measure W increased from 10% to 14% the transient occupancy tax that short-term visitors to western Marin are required to pay when renting accommodations. Half of the revenue from Measure W is earmarked for community housing in western Marin, while the other half is reserved for fire and emergency services there.

The county’s affordable housing fund guidelines state that allocations should be limited to $50,000 per dwelling but may be increased to $100,000 per dwelling in some circumstances.

According to the staff report to supervisors, the $500,000 grant to the Marin Housing Authority “is not considered in the per-unit calculation of funds typically awarded for affordable housing projects as it comes from a separate source managed by MHA and will be repaid in 5 years.”

Now all of the previous grants to the project, plus another $500,000 from the county’s affordable housing fund, are being transferred to the Marin Housing Authority’s below market rate program. The authority in turn is loaning the land trust $500,000 for five years at a low 2% interest rate.

Most of the $500,000 will be used to repay the community members who loaned Two Valleys Land Trust money.

“Marin Housing is stepping in as a financial intermediary,” Kelly said, “to make the community whole and give Two Valleys a five-year runway to stabilize the project.”

The other $300,000 will be used to continue rehabilitation of the property, which will be overseen by the Marin Housing Authority. Kelly said the determination that the site can only support three bedrooms has required a redesign of the project. The authority has engaged the services of Rebuilding Together East Bay Network, a Berkeley nonprofit, to do the work.

The plan is that once the land trust finds alternative options to refinance the project and repays the loan, the Marin Housing Authority will be able to use the $500,000 for other below market rate program projects.

Inclusionary zoning ordinances enforced by various Marin jurisdictions require developers of new residential projects above a certain size to sell a percentage of the dwellings at below-market rates. The Marin Housing Authority’s below market rate program oversees many of these dwellings. Its portfolio includes 86 homes for ownership and 72 rentals.

“This is the first project where we’re going on the offensive and actually creating new units in rural West Marin,” Kelly said. “We’re hoping that this is the beginning of a great partnership between all of us because there are going to be more projects in the San Geronimo Valley like this one.”