A San Francisco developer is turning apartments in the East Bay and North Bay into affordable housing that the area sorely needs. But as the company acquires the properties and renovates and readies the units, existing tenants whose income levels disqualify them for the new apartments are being pushed out.

Reliant Group acquired properties in Hayward, Antioch, Hercules and Napa in March. The properties had a mix of market-rate units, rent-control apartments and affordable dwellings that in some cases were out of compliance. The developer entered into agreements with Antioch, Hercules and Hayward allowing it to move forward with its property conversions. In at least one of those cities, Hayward, it was able to bypass renter protections that place limits on evictions.

Housing advocates and a legal expert said it is unusual, perhaps unprecedented, for a developer to convert existing apartments into affordable housing units and evict tenants, calling it a disturbing trend that others could pursue. City officials counter that creating affordable housing for lower-income residents in their communities is a must and that the alternative to converting these apartments would have been rent increases that effectively pushed out more residents. The developer said the long-term benefits outweigh the short-term difficulties for tenants.

“It’s completely surprising that this is actually allowed to happen,” said Sulaiman Hyatt, an organizer with the Housing Rights Committee in San Francisco. “Everything that they are doing is actually legal, and this is what is so frustrating about this.”

Groups that advocate for low-income tenants say the company is taking advantage of state incentives and the cities’ desperation to add more affordable housing.

Some of those losing their homes are elderly. Willa Pitts, 71, has been living at Leisure Terrace Apartments — the property acquired by Reliant in Hayward — since 1981. The thought of entering the turbulent Bay Area housing market is frightening, Pitts said. She’s concerned about having to pay more rent for something comparable to what she has at Leisure Terrace.

“I’m starting all over again; it’s really difficult,” Pitts said. “To think I have to work until I die in order to be able to afford a place to live, that’s a real dilemma. I’m waking up every day with back pain, and all of a sudden I have to take medication for it. So I think I’m carrying this stress in my body.”

Pitts was served with an eviction notice on April 26 and given 60 days to leave the unit. Instead, she’s stayed and hired an attorney. Her mediation hearing is scheduled for Wednesday.

Housing advocates estimate the conversions will result in close to 900 evictions and that 650 people already have been forced to leave properties in Hayward, Antioch and Hercules. The conversion hasn’t begun in Napa yet.

The properties in the East Bay have a total of 264 units — 84 in Hercules, 112 in Antioch and 68 in Hayward. The Napa property has 105 units. Reliant was able to qualify for about $35 million in state tax credits that allow it to build affordable housing, according to reports from a state committee that administers the Low-Income Housing Tax Credit programs. By receiving local support, it also qualified for housing revenue bonds — $28 million in Hercules, $23 million in Hayward and $31 million in Antioch, city officials said. The bonds are tax-exempt loans from the state allocated by local municipalities.

Reliant Group President Joe Sherman acknowledged the “complexities” in converting market rate housing into affordable, but said, “Ultimately cities are making a trade-off between the current impact on existing tenants and long-term creation and preservation of affordable housing.”

Nonprofits have used state tax credits in the region to acquire properties, rehabilitate them and convert them into affordable housing, said Dan Rossi, former deputy city attorney for the city of Oakland. But even in those cases, there were no evictions, Rossi said. Developers generally took the tenants who were already there and accepted them into the converted units, he said. Then, when new units opened up, applicants would go through the income qualification procedure.

“That certainly flies in the face of the whole idea of the program,” he said of the evictions.

“Reliant used a lot of public money to exploit a tax subsidy loophole and the housing crisis, all of which allowed them to gain access to buy multiple properties in the Bay Area that they would not have otherwise had access to,” Hyatt said. “Housing tax credits are made available to create affordable housing, not to displace hundreds of residents. If Reliant can get away with this, they will continue with this practice, and other corporate landlords will mimic the profit-making business model.”

Gloria Bruce, executive director of East Bay Housing Organizations, an affordable housing advocacy coalition that works with nonprofit developers in Alameda and Contra Costa counties, agreed.

“It’s certainly not the intent of these tax credits or this public source of financing. The people we work with ... they’re either using these tax credits to create new affordable housing or they’re acquiring and preserving homes to make them affordable in the long term. That’s the goal. The goal is not profit. Eviction is an absolute last resort and most of the time, you’re trying to keep people stable,” Bruce said.

In March, the Hayward City Council unanimously voted to adopt an emergency ordinance amending its just-cause ordinance for tenant evictions to exempt affordable housing conversion projects. The ordinance allowed Reliant to begin the process to evict residents at Leisure Terrace. Eight of the 68 units at Leisure Terrace were rent controlled.

City officials said if they didn’t approve the emergency ordinance that pushed the affordable housing conversion project through, Reliant would have acquired the properties with private financing and significantly increased rent to market levels.

Hayward City Councilman Mark Salinas said he’s served since 2010 and this is the first time he’s come across a project like the one proposed by Reliant.

“If confronted with a decision like that again, I’d approach it with great pause. ... Just because people are paying market-rate rents doesn’t mean they’re rich,” Salinas said. “And I think everybody struggles to pay rent whether you’re market rate or you’re affordable. In retrospect, would I have preferred a better outcome? Sure.”

In January, the Antioch City Council voted to approve Reliant for a revenue bond that would allow them to finance and renovate Villa Medanos Apartments, an affordable multifamily, 114-unit building. The decision meant some tenants whose income levels disqualified them from affordable housing would be evicted, and it was difficult to make, said Councilwoman Lori Ogorchock. But the increasing homeless population was too stark to ignore, she said.

“Our homeless populations are growing out here in East County,” she said. “It’s just astronomical. Everybody needs a house, a roof over their head. It makes it really difficult.”

Ogorchock said she stands by the project. Salinas was less sure.

“The mood around generating affordable housing — it has reached a fanatical state,” Salinas said. “There is a lot of unintentional consequences to generating affordable housing and one unintentional consequence is what we saw at Leisure Terrace.”

Salinas said that Reliant offered some tenants a unit in their buildings in either Dublin or Concord.“They didn’t want to move out of Hayward,” he said. “They didn’t want to move to Dublin or Concord.”

Government subsidies cover much of the funding for fully affordable housing projects. Those projects are generally reserved for renters making a percentage of the area’s median income. In the case of Reliant, residents in the East Bay will qualify for the new units if they make 50% or 60% of the county area’s median household income, which was $96,296 in 2017, based on the most recent figures available. In Contra Costa County, the area median household income is $95,339.

A statewide program, Regional Housing Needs Assessment, sets goals for local jurisdictions on how much housing should be produced. The California Tax Credit Allocation Committee administers federal and state Low-Income Housing Tax Credit programs — in a statewide effort to encourage private investment in low-income affordable housing. In January, Reliant submitted an application for a bond allocation from the California Debt Limit Allocation Committee and tax credits from the California Tax Credit Committee that would allow for the acquisition of Leisure Terrace, and received both.

Reliant then entered into regulatory agreements with the counties in which the properties are located. The agreements require that the properties be used for affordable housing for 55 years — 10% of units must be for people at or below 50% of the area median household income, and 90% of units are reserved for those at or below 60% of area median household income, Reliant’s Sherman said.

Danny Brown, 31, has lived at Leisure Terrace since 1995. He received his first eviction notice on June 20. Brown works part time at Whole Foods and part time as a personal trainer. His fiancee works full time at Whole Foods. With their incomes combined, they didn’t qualify for the new affordable units at Leisure Terrace. Comparable units available for rent in the market had much higher rents than they could afford.

“We applied for an apartment that we found. We were going to go through the whole thing and then with fees, up front, we would have had to spend (more than) $6,000 on the first day just to move in,” Brown said. “I had no idea what prices were until this happened so it was a huge shock for me how much prices actually are out there.”

Brown plans to move in with his fiancee’s parents in Bay Point. The couple pushed back their wedding, originally scheduled for October, to next spring because of financial instability, he said.

Linda Owens, 76, is also a tenant at Leisure Terrace and has been for 13 years. She income-qualified to remain in her unit after initially being told she would have to leave. Owens said she doesn’t trust the company and still worries she will have to leave after her lease ends next year.

“What money would I live off of?” Owens said. “Where could I afford to live? Where could I go? There is no senior housing that is not full. Where would I go ... if they decided they wanted me out of here?”

Editor's note: This story has been corrected to reflect the correct number of rent-controlled units at Leisure Terrace.

Sarah Ravani is a San Francisco Chronicle staff writer. Email: sravani@sfchronicle.com Twitter: @SarRavani