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Octus on Credit: Cali workforce housing bonds continue to teeter, despite high occupancy

Marvis Gutierrez

Issuers in California borrowed roughly $10 billion for more than 45 essential housing deals from 2019 through 2021, flooding the market with unrated, highly leveraged real estate that converted existing private properties to publicly owned workforce housing units. 

The new structure of many of these bonds were a sandbox, and unique to California – the influx of converted workforce housing meant to be a balm to the worsening housing crisis in California.

To date, through our research and reporting there are seven projects Octus is tracking in acute distress drawing from their coverage reserve funds. And there are three that outright defaulted on their debt service coverage ratio covenants – Serenity at Larkspur, Mira Vista Hills, Annadel Apartments– and a fourth project teetering on the edge, failing to meet its mezzanine debt service coverage ratio this fiscal year, Westgate Phase 1-Pasadena.

You would assume these projects are struggling with occupancy– but many of are nearly fully occupied, projects across the board averaging over 90% occupancy. And it shows how there’s still a need for this housing

And as the story unfolds, the Octus Municipals team will continue to report on developments in the workforce housing bond market.