DEJA VU

If the rental housing industry could pick the last place it would want a public relations nightmare to occur, it would be Sacramento. But thanks to a Japanese billionaire named Gensiro Kawamoto, that is exactly what we have.

Some years ago, Kawamoto built hundreds of single family homes in the suburbs of Sacramento that he has been renting ever since. Recently, in a blunder of gigantic proportion, he delivered eviction notices to tenants in 570 houses simultaneously, announcing his intention to leave the rental business and sell the houses. This precipitated a backlash of invective from tenants, tenants’ rights activists, media, and local and state government officials.

The story, as chronicled in the Sacramento Bee, twists and turns like a Balzac novel. It all starts in early February with Notices to Quit going out to 570 homes. Government officials began pondering what they could do in response. A state senator proposed legislation that would require landlords to give tenants sixty-days notice prior to eviction. (Due to the Kuehl bill this requirement is already in force in Santa Monica, West Hollywood and Los Angeles.) Local officials proposed relocations fees on landlords evicting tenants. Governor Gray Davis sent a letter of protest to the Japanese government and asked for their help. State Senator Debra Ortiz proposed legislation that would extend the affected tenants leases by one year.

Kawamoto began a public relations offensive in Sacramento portraying his virtues and creating a plan to assist tenants to purchase their homes. In a naive plea for sympathy, he said that although he is a billionaire, he needed the money. The local apartment association went into damage control mode. It denounced the actions of the foreign tycoon and asked other local landlords to waive fees and to offer the first month’s rent-free to evicted tenants.

Tenants, many of whom were young professionals, mounted their own media campaign. Kawamoto was said to have once complained to Forbes Magazine that they had underestimated his wealth and was also said to have angered residents of Honolulu by purchasing houses there while refusing to exit his Rolls Royce. Tenants cited the hardships of finding comparable housing in the tight rental market, decried the non-responsiveness of the owner’s revolving door of management companies, but had to concede that they had enjoyed below market rents for many years. A “service and action fair” was held at a local community center for tenants to seek help form local attorneys, lenders and landlords.

A lawsuit was filed to stay the evictions, in response to which Kawamoto gave tenants who had not moved 90 more days to relocate. Meanwhile, with millions of dollars of commissions at stake, local brokers began walking a public relations tightrope by courting the owner for the listings on the houses while attempting to avoid sinking in the quick sand of negative publicity surrounding the story. In the “better rich than smart” category a local broker commented after Kawamoto locked himself in the brokerage company’s bathroom, “ He’s a billionaire and can’t undo a simple lock”.

A proposal by a local development company to buy the entire portfolio of houses, presumably at a discount, was rejected by the owner. (Darwinian rules can always count on Developer A to attempt to capitalize on the woes of Developer B.) But efforts by a non-profit housing concern to purchase 80 of the houses in on going. (Were non-profit housing groups in existence in Darwin’s day?)

The story is still unfolding, but the ending will not be a happy one for the rental housing industry. We have read and lived this story before with a different cast of characters. A shortage of housing, occasioned by governmental obstacles and community opposition to development, combined with a strong economy leads to rising rents primarily on vacant units which people principally notice and oppose when they are forced from the comfort of a below market rental. Tenant activists are reenergized by an unsympathetic villain, in this case a foreign billionaire, and are abetted by a ready, willing and politically kindred media. Government officials quickly count heads and find many more renters than owners and bingo, restrictive legislation results, which, of course, exacerbates the problem in the long run. But most elected officials’ concern for the long run is limited to their pensions and other benefits.

What is particularly troubling about this crisis, is that, although it involves a blip on the screen of the totality of the state’s housing, it is happening in the back yard of the State Legislature where policy can be made affecting the rental housing industry throughout California. But due to the housing shortage and rising rents the only question was not why did this happen, but when would it?