MY TAKE ON PROP 10 AND RENT CONTROL

MY TAKE ON PROP 10 & COSTA-HAWKINS

The Costa-Hawkins Rental Housing Act was passed in 1995 to prevent cities from passing or continuing excessively severe rent control measures. Only 15 California cities have a rent control ordinance, and any city can still pass a rent control ordinance that applies to apartments built before 1995. Costa-Hawkins does not prohibit rent stabilization, but instead it 1) limits rent controls to apartments built after 1995 or those previously exempted, and 2) exempts condominiums and single family homes (more specifically, lots with only one dwelling unit). Costa Hawkins also allows units that have been vacated to be released at the market rent (“vacancy decontrol”). The purpose of Costa-Hawkins was to encourage the new construction of apartments and to support reinvestment into existing apartments. Even before Costa-Hawkins existed, the Los Angeles Rent Stabilization Ordinance applied only to apartments built prior to 1978 and allowed for vacancy decontrol  So why is Prop 10 – an initiative to repeal Costa-Hawkins – up for vote in November?

 

WE NEED TO DO A BETTER JOB OF GETTING THE RIGHT PEOPLE TO RENT APARTMENTS THAT ARE ALREADY CONTROLLED.

Over 80% of the apartments in the City of Los Angeles are already rent stabilized, meaning there are plenty of rent controlled apartments in Los Angeles for tenants to rent. So what’s the issue? Simply put, it’s not a rent control problem, it’s an allocation problem. Many people on fixed incomes continue to rent the other 20%, and many people who are going to move or have high / upward trending incomes live in rent stabilized apartments. It seems that most long term tenants do not see the premium of being in a rent stabilized apartments; perhaps it is time to make tenants initial a paragraph stating, “You acknowledge that you are renting a non-rent stabilized apartment and there is no limit on how high your rent may be raised in the future, versus other apartments that are rent stabilized.” Most landlords don’t even bother to advertise rent stabilization as a feature since tenants don’t seem to care whether the property is rent stabalized or not when they rent.  Here is a line from one of our management companies’ adds: “Rent Controlled: Yes! This building is covered by LA rent-stabilization. If you move in, except in certain very rare circumstances, you would have the right to stay for as long as you want. Even better: Any rent increases would be limited by city law.” Instead of trying to repeal Costa-Hawkins, we should be focusing on educating tenants and getting people who depend on rent control into the housing that suits them. Maybe then we can see that Costa-Hawkins actually works in tenants’ favor, and its repeal would only harm them.

VACANCY DECONTROL BENEFITS EXISTING TENANTS AND THE NEIGHBORHOOD.

As a landlord, I still reinvest in my rent stabilized apartments. Why? Because when tenants move out, I can raise the apartments to market. As a result, I must keep the common areas and exteriors looking good to attract new tenants; I must make improvements to the apartments, I must refurbish and upgrade. Rents are increasing not only because of the late cycle vibrant urban economy, but also because landlords are smoothing ceilings, installing wood-like floors, dishwashers, stainless steel appliances, new vanities, new tile, quartz countertops, in-unit washer dryers, new exterior paint, new landscaping, new common areas floors, repaved parking areas, new plumbing, and new roofs. Without the vacancy decontrol provided by Costa-Hawkins, the common areas and exteriors in many buildings would decay to the point of being barely habitable. Without Costa-Hawkins, the rent stabilized tenant will not get the benefit of the renovations landlords make to attract the new tenant. The rent stabilized tenant will live in a far less desirable home, in a far less desirable neighborhood, and will wonder what went wrong.

 

HARASSING LANDLORDS DESERVE HARSHER PENALTIES, TENANTS DESERVE CITIES’ SUPPORT.

Some rent control advocates argue that vacancy decontrol encourages bad actor landlords to illegally harass tenants to move. While this may be true, we do not blow up the village to eliminate a few bad actors. Instead, we raise the penalties and increase enforcement. We can also increase support to vulnerable tenants – in San Francisco, the city provides free legal counsel to tenants in some cases. The knife cuts both ways here too, as there are also bad actor tenants who abuse the eviction system. There will always be people in this industry, landlords and tenants alike, who try to take advantage of their situation. But using a few shady landlords – who should see harsher penalties – as an argument against Costa-Hawkins and vacancy decontrol, is short-sighted.

LIMITING THE RENT ON VACATED APARTMENTS WOULD CAUSE A DRAMATIC DROP IN ADVERTISED APARTMENTS.

How would you like to open up Craigslist and find zero apartments listed? That is exactly what could happen if landlords are forced to rent vacated apartments at under market rents. In fact, it has already happened – in Santa Monica, before Costa-Hawkins. If a landlord advertised such a unit back then, he would get hundreds of callers, all desperate to get the deal rent.  Many landlords withdrew their apartment units from the market.   In New York under vacancy controls (which were repealed), some landlords resorted to a black market. You had to pay a broker to help you find a below market rent apartment; someone had to do you a favor; you needed to know someone.   In those days, tenants were advised to check the obituaries to find an apartment. In order to get my Santa Monica rent controlled apartment in the very late 1970’s, I rang door bells; I called managers every week; and I sent letters on how good of a tenant I would be. I even offered to post a six month security deposit (you could do that in 70’s). For a more current example, look at how hard it is to get into a senior housing apartment now, and then imagine that spread across the whole city.

This is the situation we would find ourselves in, post Costa-Hawkins where a City adopts harsh vacancy controls. I do not know exactly who vacancy control protects, just that it causes market disruption. Thanks to vacancy decontrol, you can hop on your computer, go to Craigslist or other rental sites and find numerous rent stabilized apartments any day. But if Prop 10 passes, that may not be the case in cities that pass vacancy controls.

EXTENDING RENT CONTROL TO SINGLE FAMILY HOMES AND CONDOMINIUMS WILL EVENTUALLY LEAD TO OWNERS CONVERTING THEIR RENTAL TO A FOR SALE UNIT.

If rent control is pushed onto single family homes and condos, Owners/Landlords will likely opt to sell rather than rent, as the price to rent disparity increases over time. This process will radically reduce the number of single family homes and condominiums for rent.  In Los Angeles, most renters cannot even come close to affording a single family home and could very well find themselves with severely limited options. Costa-Hawkins is an important safeguard for families who want to live a home but do not have the option of ownership.

NEW CONSTRUCTION IS OCCURRING IN RENT STABILIZED CITIES BECAUSE OF COSTA-HAWKINS.

Some Prop 10 advocates argue that, because new apartment construction is occurring in San Francisco and Los Angeles, rent control does not discourage new construction. But the truth is just the opposite – this new apartment construction shows that Costa-Hawkins has worked. Costa-Hawkins exempted rent stabilization on new construction (for units built after 1995, the year Costa-Hawkins was passed), and froze any previous exemptions. Investors did not believe it at first and thought that such protection would be repealed. Eventually, over the years, investors gained more faith that the new apartments they invested in and built would be exempted from rent control, because their investments were protected by Costa-Hawkins. As long as investors believe that their new investment is protected, they have shown they will invest and build under the right economic environment.

Even the most ardent rent control advocates agree that some period of exemption is needed to encourage development. In the late 1970’s, before Costa-Hawkins, exempting new construction was part of the rent control ordinance.  So would a tweak in Costa-Hawkins, instead of a repeal, be a solution? Maybe allowing  Los Angeles, Santa Monica, and San Francisco to extend rent stabilization to 1995 apartments would increase access to tenants but minimize the negative impact of rent control; the damage to new apartment development would be minor if developers and investors believed that this was a one-time extension and any new apartment investment was truly and permanently exempt. The dampening effects could therefore be lessened with a more liberal and consistent rent stabilization ordinance. Ultimately, we cannot control where new investment dollars go, and those dollars will go where the returns are most attractive given the same level of risk. Every time the rules change, new development is impacted because of uncertainty. The protection of new development is vital to assuring that investors continue to support the housing market, and Costa-Hawkins has been a fundamental aspect of this process.

NEW MULTIFAMILY DEVELOPMENT WILL EVENTUALLY REDUCE RENTS.

Assuming investors continue to feel safe in their new apartment development investments, enough new supply will eventually help lower or limit rent increases. In Los Angeles, a few years of 15,000 – 20,000 apartment completions will eventually contribute to such an outcome. This effect will not be short-lived; history shows us that when there has been a significant increase in new apartment development, the rent decreases will be greater and more enduring. In the 1980’s, the supply of multifamily units surged in Los Angeles and in Santa Monica. These units were primarily condominiums (not subject to rent control and exempted) and not apartments. When the 1990 recession hit, many of these condominiums were converted to rentals. Not only did rents decline but they did not recover until 1998 – seven or eight years later. We have not had anywhere near the level of construction that existed in the 1980’s due to regulatory and zoning restrictions that have significantly raised the cost of new construction and lowered the supply.  Measure JJJ was a game changer and will produce massive amount of new apartment construction if we continue to permanently exempt new construction for rentrol.  We need to encourage development to help lower rents, rather than eliminate the predictability and risk reduction benefits that Costa-Hawkins affords investors of new apartments. It’s also important to note that rents are currently above their historical trend line, meaning a market correction will eventually come. At first, it will come in the form of concessions and stable rents. The trigger will then be a recession, which will cause a sudden sharp reduction in rents. The high rents that many tenants now struggle with are destined to lower, as long as new apartments continue to be built.

So is a repeal of Costa-Hawkins really the answer for tenants? It will limit the number of available units, will lead to deteriorated housing, will discourage new development and will not help with high rents. We should instead consider merely tweaking the law, upping the penalties for harassing landlords, loosening zoning for multifamily, providing affordable housing incentives (such as that from Los Angeles Measure JJJ for transit locations and the opportunity zones), and working to direct the appropriate tenants into the already available supply of rent stabilized apartments. These changes, alongside the inevitable market corrections, could provide a better, long-lasting impact for all tenants’ benefit.

CLARE Foundation snags 9,178 sq ft at 2644 30th St in Santa Monica

2644 30th Exterior, former McDonnel Douglas ResearchFacility

PMI is excited to welcome the CLARE Foundation to 2644 30th Street for their corporate offices. The CLARE Foundation is an addiction and behavior health treatment nonprofit with over 50 years of experience! CLARE leased a 9,178 square foot creative office space for nine years. Clare is one of the key local providers of addiction recovery services and transitional housing for homeless and is playing an important role in solving the homeless crisis facing Los Angeles County.

Interior

The CLARE Foundation offers outpatient treatment programs for guests that seek to build a support system from the comfort of their own community. It also provides an on-site residential program that can range from a one to three month stay depending on the guest’s needs. CLARE boasts a qualified, multidisciplinary team of medical professionals that range from addictionologists to psychiatrists. These professionals provide the guest clinical support as needed. As part of its program, the CLARE Foundation offers an extensive alumni support group packed with extracurricular social activities to help create a healthy environment for sober, clean living.

2644 30th Street is a creative office building originally used by McDonnell Douglas to design air craft and also served as Google’s first Los Angeles office.  This “Think-Tank” type building is nestled in a residential setting, contiguous, to the north by a niche shopping center featuring a Il Fornaio restaurant, several fast food restaurants, and a boutique health food oriented market.

James and Dave Wilson at Lee & Associates represented the landlord and Stephanie Makabi at the Trimak Group represented the CLARE Foundation.

Announcing Completion of Vintage Four-Plex at 1013 N New Hampshire in East Hollywood

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We have completed construction at 1013 N New Hampshire, a four-unit apartment complex in East Hollywood. This property is located right at the intersection of 3 hot neighborhoods in LA; Silver Lake / East Hollywood / Los Feliz and within walking distance of the popular Sunset Junction as well as the Metro subway around the corner.

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Each unit within the four-plex has been to completely refinished and equipped with modern amenities, brand-new stainless appliances, hardwood floors throughout and in-unit washer and dryer. Each of the 3 bedroom, 2 bathroom units have an efficiently designed layout redesigned to maximize living space, emphasizing natural light, and accentuating architectural elements. The property is privately enclosed with bamboo and a beautiful new redwood fence.

The two ground floor units showcase large private patios with string lights and lush landscape.  These private patios are an example of privatizing the common front yards.   One of the upper units features a private patio, complete with acacia wood patio tiles and festive string lights.

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We also converted the front closet in both upper units to a fourth bonus room. This bonus room could be used as an office, music or art studio, or a children’s room.

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Due to the young, technology driven demographic, we have also included the innovative Ring Video Doorbell system in each unit for additional convenience.  This amenity offers tenants the ability to see who is at their front entrance gate via the Ring application on their smart phone.  Tenants will have the ability to answer this video doorbell when they are out of their home as well.

Residents at properties like ours are typically young creatives or professionals that are looking to be located within walking distance of various amenities that are cultural and diverse.

 

Burton Snowboard Signs Lease for Downtown Santa Monica Store

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PMI Properties is proud to announce that Burton Snowboards has signed a lease for the ground floor of our property at 1460 4th Street. Tenzer Commercial Brokerage  represented the landlord.  Jones Lang LeSalle IP represented the tenant Burton in consummating the lease. The suite consists of 5,695 square feet of retail space.

Burton Snowboards is the largest manufacturer and retailer of Snowboards in the world.  Burton designs, manufactures, and markets a full line of snowboarding equipment, clothing, and related accessories. Although snowboarding did not become a well-recognized sport until the early 1990s, Burton began manufacturing snowboards and bindings in 1977, when the company’s founder started making his own boards in a borrowed woodworking shop in Stratton, Vermont. From these modest origins, Burton developed into a flourishing enterprise with offices in Europe and Japan that serve customers in 27 countries. Recognized as an industry pioneer, Burton controlled roughly 40 percent of the U.S. snowboarding market during the late 1990s, more than any other company in the world.

Burton has approximately 30 company owned retail stores, five of which are considered flagships stores.  In addition, Burton Snowboards are sold in over 4000 non-company owned stores world wide.
The 4th and Broadway store will be one of the five company flagship stores.  In addition to snowboards and snowboard accessories, Burton will sell surfboards.  Burton is relocating from a 10,000 square foot store on Melrose in West Hollywood.

The property, located on 4th and Broadway, is located in a prime area one block from  the famous retail hub, Santa Monica’s Third Street Promenade and across the street from the bustling Santa Monica Place mall as well as adjacent to yoga clothing retailer Lululemon. Its proximity to other retailers and abundance of foot traffic makes it a prime location for an apparel and board shop like Burton.

PMI Welcomes Several New Tenants

 

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1460 4th Street Santa Monica, CA

 

Bay Mutual Financial

Bay Mutual Financial, a world-class and full-serviced investment firm, has leased 914 square feet of space with PMI located in the heart of downtown Santa Monica at 1460 4th Street.

Co-founded by Martin W. “Bud” Pernoll in 2004 after a long and distinguished career at Morgan Stanley and Wachovia Securities, Bay Mutual Financial provides comprehensive consulting solutions for corporations, individuals, institutions, foundations and non-profit organizations.

Tenzer Commercial Brokerage Group, Inc., represented both the landlord and tenant consummating the five year and one month lease.

1460 4th street is a creative office building located on 4th and Broadway in Santa Monica, CA. It’s conveniently located right next to Santa Monica’s world famous 3RD Street Promenade.

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4223 Glencoe Ave., Marina Del Rey, CA

Wee Care Inc.

Wee Care Inc., an innovative childcare service management company has leased 1,623 square feet of creative office space with PMI located in prime Marina Del Rey, CA at 4223 Glencoe Avenue.

, Wee Care  empowers caregivers and educators to create sustainable home daycare businesses.Lee & Associates WLA (James Wilson) represented the landlord and Lee & Associates WLA (Dylan Mahood) represented the tenant consummating the two year lease.

tempCFO, Inc.

tempCFO, Inc., a savvy outsourcing company for accounting, financial and tax solutions that specializes in meeting the needs of small and medium-sized businesses, has leased 1,182 rentable square feet of space with PMI located in sought-after Marina Del Rey, CA at 4223 Glencoe Avenue.

Lee & Associates WLA (James Wilson) represented the landlord and Jeff Gerlach of CBRE represented the tenant in consummating the three year lease.

 

4223 Glencoe is a creative office building called Marina Studios near Glencoe and Maxmella in Marina Del Rey.  It is a perfect alternative for smaller creative tenants who desire proximity to both Playa Vista and Venice as well as adjacency to lofts and numerous restaurants and coffee houses.

 

 

Westside Pavilion Will Become Mostly Office Space – Why Competition Is Good in the Long Run for Our Nearby Office Building

10951 Pico Boulevard Near the Westside Pavilion

We have a small 25,000 square foot office building a couple of blocks from the western end of the Westside Pavilion (the Landmark Theater side).  The office building has a central location, is close to the freeways and the Expo Line, and is surrounded by a ton of amenities.  However, in the office world that is not enough.  The property is not near any other office buildings.  Office tenants like to be near other office tenants including competitors, vendors, customers and suppliers. Central locations help businesses find employees, reduce transport time to visit vendors and customers, and can help define the business’ image.  In real estate, the “Agglomeration Economies” are the cost reductions or savings that come about from efficiency gains associated with the concentration or clustering of firms/producers or economic activities and the formation of a localized production network. 

Despite the advances made in telecommunications–office tenants still prefer to collaborate in a physical world.

Currently, 10951 Pico is in an agglomeration dessert.  However, with 500,000 square feet of creative office, Hudson is likely to bring a major tenant as well as many other significant businesses and the needed agglomeration  to make the location more desirable.  The restaurant businesses will also benefit from a more robust lunch and after work business.

Hooray for competition.  You can read how agglomeration economies can even occur in one building :http://www.pmiproperty.com/wp-content/uploads/2014/09/Wall_Street_12.pdf

The article about Hudson’s plan for the Westside Pavilion is below

Source: Westside Pavilion will become mostly office space – Curbed LA

Los Angeles Apartment Market Rent Growth Depends on When You Measure From

Since the bottom of the recession in 2009, we estimate that market rents have grown at a 5% growth rate. However, if you measure from the previous peak in 2008, rent growth as of December 2017 is only 2.25%. I assert that the peak to peak measure is a more accurate reflection of long term rent growth. Based on a 38 year internal rent study, Los Angeles apartment rents have grown over 4%. However, that time period includes many high inflation years that distorts the number upwards.