They say the devil is in the details. No one knows that better than the staff at City Hall. They are so embroiled in details and picayune matters that they are losing control of the City altogether. Many people have asked out loud, "Is this the end of SMRR as we know it?" The problem, of course, is SMRR's insatiable desire to micro-manage each and every event in the City, whether or not it is the City's business. This has put a tremendous burden on City staff to study, report, write up and pass an ever growing supply of new laws. It is clear that staff cannot even enforce the laws on the books now, but they keep up a relentless push to control areas where they have not gone before. We hear complaints that there is no city enforcement of the sign ordinance, i.e. absolutely no prosecution of even one violation. One cannot drive down a street without seeing hundreds of violations of the sign ordinance. Staff simply states that they have no people power to go out and inspect for violations. Zoning codes are likewise forgotten, as well as fence heights, construction work hours, tenant complaints about housing providers, illegal uses of property out of zone, and the list goes on. There just is no will nor energy to prosecute. City Council seems oblivious to this internal breakdown, and like the emperor and his new clothes, Council just keeps adding to laws the heap of old laws, none of them carrying any punch. The Council has just passed a new law which limits how high a fence can be within 5 feet of a driveway, walkway, intersection, unless it is no higher than 24 inches. Like Hitler during the last days of the World War II, the orders being sent out, are simply ignored. This decay is some evidence that SMRR is losing consciousness and will be replaced come November 2002.

THE ECONOMY IS A STRANGE BIRD

Indeed. We sit here stunned by the rise up in real property prices, and the quickness of the sales once a property is listed. Santa Monica is seeing totally record breaking prices for apartment buildings, even in the face of falling rents and growing rental vacancies. The reason is probably the fallout in the stock market from Enron and fears that there will be many more companies with dark secrets going broke. People are moving their money to security. Even Gold has gone up from $256 an ounce to around $296. Everything points to more money leaving the stock market and going elsewhere. Even the government's efforts to bring clarity to the stock market accounting techniques spells doom. It is estimated that pending U.S. legislation which would force more accurate accounting reporting practices would reduce corporation earnings by about 17 percent. What will happen when America wakes up to find that their favorite company actually makes 17 percent less income, and that their stock is 17 percent overpriced? Could America be the next Enron scandal? Does that mean more and more money flowing into real estate investments? Probably, yes.
It appears that people are investing not only in multi-family income, but also single-family homes as well. The return to the single family owner occupied home as a primary investment seems to be back in vogue. According to C.A.R. (California Association of Realtors) the median home price in our state for December 2001 was $276,940. The highest California median home price by region for December 2001 was Santa Barbara South Coast at $522,730. That seems a bit cheap by Santa Monica standards, but it includes condominiums as well.

According to the U.S. Dept. of Commerce, nationwide housing starts (construction of new homes) were up 6.3 percent in January 2002 to a seasonally adjusted annual rate of 1.68 million units, the fastest monthly pace in nearly two years. January's increase in housing starts has been attributed to low interest rates on home mortgages and solid home-price appreciation. Multi-family (apartment building) starts also rallied in January, with a nearly 19 percent gain to 333,000 units. Regionally, starts were mixed, with the Northeast and South posting gains of 8.7 percent and 14.4 percent, respectively, and the Midwest and West registering declines of 0.3 percent and 3.6 percent, respectively. Housing permits, often an indicator of future building activity, also rose in January by a 3.1 percent margin to 1.71 million units, their best pace since January of 2001.
From Freddie Mac's Primary Mortgage Market Survey comes this news. Interest rates for February 2002 are considerably lower than they were a year ago. The 30-year fixed-rate mortgage (FRM) averaged 6.81 percent for the week ending February 22, 2002, down from 6.86 percent the week before. Last year at this time, the 30-year FRM averaged 7.12 percent. The average for the 15-year FRM this week is 6.28 percent falling from last week's average of 6.35 percent. A year ago, the 15-year FRM averaged 6.69 percent. Robert Van Order, Freddie Mac chief international economist, stated that the economy is pulling out of the recession. He predicts that with inflation coming in at a very tame rate of about 1.1 percent year-over-year, the prospect of higher mortgage rates is dim indeed.

Even Paul O'Neill, the Treasury Secretary, has suggested that the U.S. recession that began last March 2002 is already over. "The expansion ... is here and in fact the first quarter is likely to be a fairly good one, as these things go," Mr. Lindsey said in a briefing at the American Enterprise Institute, an influential conservative think-tank. At the U.S. Chamber of Commerce in Washington, Mr. O'Neill told an audience at the that the U.S. was in "the early stages of recovery."

DECISIONS PENDING ON MANY IMPORTANT CASES

By the time this article has been read, there should be decisions published by our State Supreme Court in a number of important decisions. First, our very own interest rate on securities case Action v. Santa Monica Rent Control Board should be either taken up for review by them, depublished, or certified as final.

Second, there is San Remo Hotel v. City of San Francisco. This case attacks the legality of payment of in-lieu fees to remove a building from rent control and the implications of said payment as a "taking" of one property. In San Remo Hotel, the hotel's owners challenge the constitutionality of the city's Hotel Conversion Ordinance, which requires residential hotel owners to pay a fee if they want to change their property's historic use to cater to tourists. The purpose of the 1981 ordinance was allegedly to ensure the retention of affordable housing in San Francisco by using the fee charged to hotel owners to replace the housing stock lost by conversion. The owners of the San Remo paid $567,000 under protest to convert their North Beach hotel. Two years ago, the First District Court of Appeal took their side and, in a ruling written by Justice Lawrence Stevens, first invoked the word "ransom" in regard to the fee. In his ruling, Stevens held that San Francisco had to meet the tough heightened scrutiny standard in showing that its ordinance didn't constitute an illegal taking of property because the law was a "particularized governmental exaction" that applied only to residential hotels rather than the general population. This could be the most important decision of this year. In addition, this is the first published decision wherein we will hear from Justice Moreno, the recently appointed supreme court justice.

Third, is Drouet v. City of San Francisco. This case decides what defenses, if any, a tenant has to an Ellis eviction. Fourth, is a court of appeal decision in Hanerfeld v. City of Berkeley. This case deals with the City's power to require a Housing Provider to allow the tenant to sublet. The Housing Provider in this case argues that forced subletting is a taking of property without just compensation. This case will have great impact here in Santa Monica.

Fifth, there is a U.S. Supreme Court decision which should be coming down soon, Tahoe Sierra Preservation Council v. Tahoe Reg'l Planning Agency, which will decide the legality of moratoriums on construction. Tahoe dealt with a 3 year moratorium as a possible "taking" of the owner's property. On the US Supreme Court's calendar is Franconia Assocs. v. United States No.01-455 (Cert. granted Jan. 4, 2002). This case should decide whether a Takings claim arises when Congress enacts a law alleged to abridge a contractual right established between the citizen and the government. In other words, can the government override its contracts with a citizen by passing a law.

Finally, there are a group of cases coming along with issues dealing with taking and vacancy decontrol. Cashman v. City of Cotati, N.D. Cal. C99-3641 WHO; 9th Circuit 00-16846. Park owners alleged that City's mobile home rent control ordinance did not substantially advance the legitimate state purpose of preserving affordable housing because the ordinance's vacancy control provision would permit mobile home sellers to sell their homes at a premium. After originally invalidating the ordinance, the district court has since filed an order stating its inclination to vacate its judgment. Additional litigation also ensued from the city's effort to remove the case to state court. See City of Cotati v. Cashman, 90 Cal.App.4th 796 (2001) (finding that city's litigation filed in state court did not amount to a "SLAPP" action.) Montclair Parkowners Association v. City of Montclair (C.D. Cal. CV 98- 6723 R(AJWx); 9th Cir. No. 99-55083. Park owners alleged that City's mobile home rent control ordinance did not substantially advance the legitimate state purpose of preserving affordable housing because the ordinance's vacancy control provision would permit mobile home sellers to sell their homes at a premium. A similar action was tried in state court, in which the city prevailed. See 76 Cal.App.4th 784 (1999). The Ninth Circuit will determine whether abstention (Younger) should apply. Chevron v. Cayetano, 224 F.3d 1030 (9th Cir. 2000). This opinion arises out of Hawaii, which, in order to stabilize the price of gasoline, has placed a price regulation on the amount oil companies can charge to lease service stations to their tenant operators. Chevron claimed that the regulation effected a taking. Chevron based this claim on an earlier case decided by the Ninth Circuit: Richardson v. City and County of Honolulu, 124 F.3d 1150, 1158 (9th Cir. 1997), cert. denied, 119 S. Ct. 168 (1998). The price control mechanism in Richardson was found to be a taking the tenants could realize a "premium" in the sale of the lease to another party that was directly attributable to the lower rent. In Richardson, however, the city did not elect to challenge the assumption that a premium occurred. In Cayetano, the state produced its own expert to show that no premium exists. Thus, the Ninth Circuit ruled that there is a factual matter that should proceed to trial.

ELLIS ACT UNDER ATTACK . . . ONCE AGAIN

They say one good turn deserves another, and so Sheila Kuehl is at it again. This time she is trying to get passed into law yet another amendment to the Ellis Act. This latest version will prohibit an owner from raising rents in his/her building for 5 years from the date the Housing Provider first filed removal application with the rent control board. This means that even though an owner would have to wait 2 years after the tenants left to go back into the rental market, if the owner did start to re-rent, the rents would be frozen thereafter until 5 years elapsed from the filing of the Ellis notices with the Board (i.e. approximately 2 to 3 years after the Housing Provider came back into the rental business). ACTION anticipated more erosion of Ellis protections, and has prepared to file a series of lawsuits which seek to enhance the Housing Provider's rights to use a property once it has been Ellised. For those of you who are thinking of Ellising your properties this year, be sure to check out the pending law (and follow the changes to it). Kuehl is attempting to have these changes apply retroactively to all buildings which have been Ellised (and not brought back into business) since January 1, 2001. In other words, to any building Ellised, wherein the first re- rental of the building does not happen until January 1, 2003.

CHECK YOUR INSURANCE POLICIES
FOR COVERAGE FOR "POLLUTANTS"

Well, the insurance companies are at it again, and this requires your immediate attention. Many insurance policies exclude coverage for damages caused by "pollution" and these companies are getting very creative in arguing that commonly used chemicals are actually pollutants. The case of MacKinnon v. Truck Insurance Exchange decided January 15, 2002 sides with the insurance company to deny a property owner coverage. This case arose out of an exterminator's use of a pesticide to kill bees on the property. The pesticide allegedly resulted in the death of a tenant. The tenant's parents sued, and the owner's insurance company refused to defend arguing that the pesticide was a pollutant and thus the loss was excluded from coverage. Therefore, each and every property owner should sit down with their insurance agent to be sure that their policy has no exclusion for pollution, and if it does, look for another policy. Already, owners are worried that pollution exclusion may deny coverage to lead paint, toxic mold and other ordinary problem areas. Having an insurance policy with these types of exclusions is false security. It provides no defense for major loss issues.