The story of how a nun played private equity's game and created affordable housing in the Bay Area

• Conor Dougherty is an economics reporter at The New York Times. He previously spent a decade in New York covering housing and the economy for The Wall Street Journal. He grew up in the Bay Area and lives with his family in Oakland.
• The following is an excerpt from his new book, "GOLDEN GATES: Fighting for Housing in America."
• In it, he tells the story of Sister Christina, a nun who runs the Catholic nonprofit St. Francis Center and presides over a portfolio of 10 buildings with 87 apartments.
• Sister Christina purchases buildings with money from foundations, corporations, and other sources, and then deed restricts them as affordable forever.
• In this instance, the building right across the street from St. Francis was being sold - and Sister Christina was eventually able to buy it.
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Sister Christina was sitting at her desk, next to a bookcase decorated with pictures of smiling children and a woodcut that read "Peace," when a call from private equity intruded in her life. Sister Christina Heltsley was a nun who ran a Catholic nonprofit called the St. Francis Center, which sat in North Fair Oaks, an unincorporated piece of San Mateo County just a few miles from Facebook's headquarters.

The call was from a man who worked for a Los Angeles private equity firm called Trion Properties. He said his company had just bought the building across the street from her - a 48-unit apartment complex called the Buckingham Apartments. It was one of the largest buildings in the vicinity and home to dozens of low-income Latino families who depended on St. Francis's food pantry, clothing donations, and immigration counseling, and sent their kids to an adjoining school.

Sister Christina felt her insides drop. She knew where this was going and that the families who lived across the street were as good as gone. She spent the next few months hustling for extra donations and trying to find homes for displaced tenants and having cartoon steam come out of her ears whenever she heard the phrase "underperforming asset." Still, she never accused Trion of lying. The demand for mid-market rentals has flooded the value-add investing space with capital that upgrades and flips properties like the Buckingham apartments. They saw an opportunity and went for it.

Housing troubles were, of course, nothing new. Still, the indignity of losing a building that was directly across the street and filled her office window, of having a group of investors from LA straight-up declare their intention to rid North Fair Oaks of the people she'd dedicated her life to helping - that was too much to take. That October, Sister Christina and the Buckingham tenants and 400 angry neighbors marched in front of the building and down El Camino Real holding signs that read "Stop Displacement Now" and "Trion Please Don't Evict My Family" and chanting, "Esta es nuestra casa. ¿A dónde vamos a ir?" (This is our home. Where are we going to go?). The renovations moved forward regardless.

Words like "homeless" do not appear in investor newsletters or the various how-to books and blogs and podcasts that surround the apartment investing industry. The language is of math and euphemisms. Run-down old buildings are "vintage," and renovating them is "value- add" investing. A building with families headed by low-income nannies and construction workers who can easily be replaced is "an underperforming asset." Handing out eviction notices is "re-tenanting" and raising rents by 50 to 100% is "stabilizing." The trade press routinely writes number-choked articles about floating mortgage rates and the "professional management practices" that allow an investor to buy an old building and double its value and operating income in a few years, without ever once mentioning what happens to the people who lived there.

Sister Christina's office was still across the street, so she watched the daily renovations and from her window could see displaced tenants carry their belongings out of their apartments. To the eyes of an investor, things that looked better were better. Sister Christina did not see the same things they did. She saw lipstick on an ugly process and a violation of the "moral mortgage" that comes with owning someone else's home.

As the executive director of the St. Francis Center, Sister Christina presided over a portfolio of 10 buildings with 87 apartments whose value on the open market would be well into the tens of millions. But they weren't on the open market. Sister Christina bought them with money from foundations and corporations and loans and rich people, then set them aside, worked down the debt, and deed restricted them as affordable forever. She had in a sense removed them from capitalism, but she did it by operating inside real estate's twisted web.

She got money from the same tech companies that her tenants accused of being the agents of gentrification. She got loans from the same banks that financed investors who flipped apartment buildings. One of St. Francis's board members was also on the board of the California Apartment Association, the state's biggest landlords' group and a fierce opponent of rent control. As always, she followed the St. Francis Center's motto - "Compassion, not judgment"- and didn't dwell on the institutional hypocrisies, which would only distract her from the mission of expanding her portfolio and insulating the neighborhood from rising rents.

The St. Francis Center first got into housing in 1997, buying a 24-unit apartment complex back when Silicon Valley was swelling with new techies during the dot-com boom. Sister Christina kept expanding it, another building here, another building there. Morality was a competitive tool. Sister Christina found many of her buildings by persuading local property owners to sell apartment buildings to the St. Francis Center in quiet, off-market transactions instead of auctioning to the highest bidder. Her sales pitch was, "It's the right thing to do." And with the right owner, it worked.

In the real estate lingo that she now spoke as fluently as any broker, Sister Christina was an "opportunistic buyer." Go slowly. Don't covet. Find deals. Such are the rules of value purchasing, and most of the time she followed them with the discipline of a careful investor. Buckingham was an exception. She wanted it back so badly that she volunteered she would pay whatever the market price, and had always let it be known that when Trion was finally ready to flip the 180 Flats, she would still be an eager buyer.

Her portfolio of former trap houses and small apartment buildings didn't yield much cash, but as homeless camps multiplied and Bay Area housing costs spiraled into a political crisis, institutions and wealthy donors were becoming much more generous and had vastly expanded the St. Francis Center's buying power. Once the 180 Flats had gotten an exterior paint job and the gray faux-wood floors and track lighting had been installed, online rents for the studio, one-and-two-bedroom apartments were listed in the $2,000 to $3,000 range. That was enough to rationalize a purchase price of $21,750,000, and in September 2018, the St. Francis Center paid it.

Buckingham's new neon "180" address sign was still there during the grand re-opening, but the name "180 Flats" had been replaced with a black block-lettered sign that read "La Casa de Sobrato." It was a sunny fall day, and the St. Francis Center's supporters sat in neat rows of metal folding chairs to watch John Sobrato and people from Facebook's community relations team participate in the big ribbon cutting. The street was lined with foreign-model sedans and a Tesla Model 3. There were two sheriffs' SUVs nearby. They weren't there to carry out any evictions but rather to block the intersection for the big party.

From "GOLDEN GATES: Fighting for Housing in America" by Conor Dougherty. Copyright © Conor Dougherty, 2020. Published by arrangement with Penguin Press, a member of Penguin Random House LLC.