|
MARKET
PLACE, February 2004 I started selling apartment buildings in Santa Monica in 1979. Yes 1979, the year rent control went into effect. I was positive that I just did not understand what was going on in Santa Monica. Every time I did a proforma on an apartment building transaction, it simply did not make sense that the rents never went up even when a tenant moved out! I knew that I just had to be missing something and remember repeatedly asking for clarification of my misunderstanding only to have it confirmed that this really was the case and then I just could not understand why anyone would buy an apartment building in Santa Monica. Prior to even entering into a transaction with a prospective buyer I would (and still do) confirm that the buyer is aware that the subject property is under Santa Monica Rent Control Jurisdiction and I would even put the MAR’s (Maximum Allow Rents) and the original registration form into escrow. Additionally, I would spell this out in the purchase contract and make it part of the buyer’s due diligence to do their own independent investigation as to what this means. 25 years later, we have had the privilege to resell many of the same properties over again. In many cases, while the owners changed, the tenants remained the same. Despite the harsh realities of rent control, apartment buildings still went up in value based on appreciation and supply and demand. While the city continually made development, redevelopment and even remodeling increasingly more difficult and economically unfeasible; the supply was so limited and values just increased based on demand alone. When the Vacancy Decontrol Law (Costa-Hawkins) went into effect in January 1996, rents could be increased 15% on vacant units with an additional 15% during the next 2 years on the same unit if it was vacated, and then in January 1999 vacated units could actually be at market rents. Santa Monica Rent control is still alive and well. I often need to clarify this when selling agents that do not know the history of rent control state that there is no longer rent control in Santa Monica. Unless a building is exempt from rent control, units still remain under rent control even units that are at market rents. The annual increases which are set by the rent control board are still historically low and have never taken into consideration all the other operational increases (insurance, maintenance, code enforcements, etc.) TORCA (Condominium Conversion) came and went; that was such a wonderful opportunity for owners and tenants and changed the demographic breakdown of the city creating affordable home ownership and actually allowed owners to make a profit (what’s wrong with that?) Unfortunately, the revival of the recent initiative for Condo Conversion was not passed. Often, when we are selling an apartment building, tenants will inquire about purchasing their units. The number of the old rent control tenants is diminishing as the years move on. Still, throughout the city, many units are still occupied by the “entitled” rent controlled tenants. Most of us know all the stories, many of the tenants have survived their owners, they live in rent controlled units, often make a good salary and have a sense of “ownership” in the building they live in; the mentality of something for nothing. When reselling a building that we have previously sold, I often meet with these same tenants again and again; they are like bad relatives that overstay their welcome and you can’t divorce them! I recently negotiated with a long term rent controlled tenant on behalf of the owner; this tenant was given such an amazing deal and of course she was a professional, had a good income and was entitled to make something for nothing, not to mentioned that she remained belligerent throughout the entire process! Yes, those tenants are still alive and well but they are finally becoming the minority. Still, it is that small minority that can ruin it for the majority of good tenants. My prayer is that these old rent controlled tenants become owners to renters just like themselves. 25 years later, I still don’t understand rent control. I have truly lived though it, as a tenant, an owner and a broker specializing in Santa Monica apartment buildings. It has really been a privilege to sell these apartment buildings over the years and in many cases take the owners out of their misery. It has also been a privilege to enable owners to actually make a decent return on their money. It has been an honor to resale the same buildings and a test of character to reunite with the infamous old rent controlled tenants. To be able to do business and survive in such a volatile environment and still provide a professional service in spite of it all has been very rewarding but by far the biggest and best return of all has been the great relationships which been cultivated and that has been a priceless return and the best investment of all. |