Saturday, May 15, 2021
Uncategorized Finally, the myth of the poor landlord is exposed

Finally, the myth of the poor landlord is exposed

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48hillsbroke

By Tim Redmond

JULY 7, 2014 – Finally, a local landlord (my neighbor, on my very same street, no less) has said what so desperately needed to be said about San Francisco landlords: They aren’t poor, or oppressed, or suffering:

Speaking on behalf of 100 percent of small landlords, all the “mom and pop landlords” everyone is so worried about don’t need so many rights. We didn’t build anything. We didn’t sacrifice and work hard to make our investment so crazily valuable. We didn’t execute a visionary and shrewd business plan or invent the greatest app. We don’t do the cool things that make San Francisco desirable. If we were good at being landlords, we would do it somewhere it takes skill to be a landlord, like Richmond or Detroit.

Being a landlord in San Francisco is like being a coke dealer in the 80s. People are basically throwing money at you for doing nothing. It’s like finding a cauldron of gold doubloons buried in your backyard. It’s pretty sweet.

That’s right: Unless you bought your property ten minutes ago, the value of your San Francisco real estate has appreciated, and will continue to appreciate. And if you have tenants under rent control, you aren’t losing money – you might not be making as much as you could if you evicted them, but not many landlords in this city actually lose money on their investments.

Here’s why:

When Nato Green bought his place in Bernal Heights ten years ago, he had to show a bank that his income, and the income from his rental unit, would be adequate to pay the mortgage and the property taxes. If there was tenant in the unit, the existing (rent-controlled) rent went into that figure.

If you own a building and the rents are way below market, it’s because either (a) you bought a long time ago, when the price you paid for the building was much lower or (b) you bought recently, and the rents were adequate to cover the mortgage. If they weren’t, you wouldn’t get a mortgage.

Unless (c) you have a lot of investment capital – that is, you’re a speculator – and you bought a building where the rents don’t cover the property taxes and mortgage because you intend to kick the tenants out and flip it.

Why would a business person – and landlords are business people – pay $1 million for a four-unit property, take on a $4,000 a month mortgage and $2,000 a month in property taxes and utilities, if the rent you get from each unit is only $1,000?

You wouldn’t. The bank would turn you down. If we didn’t have the Ellis Act, and you couldn’t kick those tenants paying rent-controlled rents out, the building wouldn’t be worth as much money. The owner would have to sell for less.

In other words, if speculators trying to get rid of long-term tenants were halted, the price of housing – that is, the price of buying a building with tenants in San Francisco — would come down. It would have to.

If you buy a building as a long-term investment – that is, if you want to be in what Green calls the world’s easiest business, being a San Francisco landlord –then over time, the building will appreciate, and over time, it’s likely that some of the tenants will move and you’ll be able to charge higher rent. And all that happens while your costs are largely fixed: the mortgage is fixed. Thanks to Prop. 13, the property taxes can’t go up.

So you have an asset that gets more and more valuable every year, with operating costs essentially flat, and revenues over time increasing … it’s a great deal.

Which is why I have always wondered about the premise of the Ellis Act: Why would anyone who is in the business of being a landlord in San Francisco want to go out of that business? It’s a gravy train.

And if you don’t like it, you can sell to someone else who does – and again, unless you bought the place ten minutes ago, it’s worth a lot more than what you paid for it.

There are plenty of good landlords in town, who have rented units at below-market rate to tenants in communities in the Mission, the Western Addition, Bayview … people who treat their renters more or less as family. They are wonderful, and they are part of the reason there are still low-income communities in San Francisco.

But they are not, by and large, losing money. To lose money you have to be paying more in mortgage, taxes, maintenance and utilities than you are taking in from rent. The law allows landlords to pass on maintenance costs to tenants. Most tenants pay their own PG&E bills, and water and garbage are not the much money for a small building.

Yes: Landlords, of all sorts, good and evil, could be making more profit if they were able to clear out longterm tenants. But there’s a difference between losing money and not making as much profit as you could.

Economists talk about “opportunity cost,” which relates to the difference between what an asset is worth and what you are earning from it, and on a theoretical level, if you could be making $4,000 a month from an apartment and you’re only making $2,000, you’re opportunity cost is $2,000. But that’s not money out of your pocket; it’s not even a paper loss.

It’s said that the worst thing that can happen to an American is to see his or her neighbor get rich. Until the person next door had a fancy new car, we were fine with the one we had. And since some landlords are getting richer than others, a lot of small landlords are crying poor.

But I don’t think that’s the reality. If anyone knows a landlord who is actually losing money every month – not a speculator who overpaid for a property and is losing a little with the expectation of making more, but an actual long-term landlord who wants to stay in the business but can’t make it in San Francisco – I’d love to talk to that person. I’ve been asking for years; nobody’s ever contacted me.

Again: Not making as much as the guy down the street doesn’t mean you are losing money. Under unregulated capitalism, it’s necessary to maximize the value of every asset, but the San Francisco housing market never operated under the normal rules of capitalism. Since demand is unlimited, no matter what the supply, there’s government regulation.

And under that regulation, with all of those rules, and all of the hassle that comes with them, landlords are doing just fine.

I like Green’s basic idea:

There is no way to make San Francisco affordable again without making real estate less profitable. Every homeowner and landlord has a ballooning financial stake in the gentrification gravy train never stopping. If the city enacted a policy that brought housing costs down, all of our property would be less valuable and we’d profit less. I’m fine with that, but let’s stop bullshitting ourselves about it. We want more and cheaper housing, which means the only part of the equation to cut is profit. However we get there, there is no other way.

And that’s why we hear about “poor landlords.”

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.

90 COMMENTS

  1. You have no idea what you’re taking about! The “nice guys” I was referring to are owners who own 1 bldg, and live in it themselves, prior to 1994, when rent control was imposed on almost all rentals in SF. Noting to do with “shadowy” LLC’s (watching too many James bonds movies lately.)

  2. Yes, and in fact many thousands of rental units are held vacant by their owners. I have seen estimates as high as 30,000.

    What does it say about a policy like rent control when an owner would rather keep a building empty rather than collect rent? It says that owners fear being stuck with the tenant from hell so much he would rather forsake all his income.

    And if Ellis were no longer an option, even more units would be held off the market out of a fear that the owner may never get it back again if he rents it out.

    And this is where Tim really misses the point. Owners hate rent control not principally because of the control of rents, but because it means the owner can get a life sentence for offering a month-to-month tenancy.

  3. I’d argue that gentrification brings many benefits as well Whether you like it or not is highly subjective. But FWIW I think the Mission is far better now than 15-20 years ago.

  4. I’m not very interested in debating whether buying a home is a right or a privilege. But owning a building certainly comes with rights. Indeed, the ownership of property is nothing other than the ownership of a set of rights.

    And a fundamental property right is that you cannot force me to rent out a building if I do not want to.

    Leno’s bill sought to prevent a new owner from Ellis’ing for five years. That was deemed to be an unreasonable hardship, which is why his bill failed.

    The real key to preventing Ellis evictions is to make being a landlord more attractive, so that rent-controlled building in SF compare favorably with other alternate investments, which currently they do not.

  5. Mossy, you could make that argument about any business. Why should taxes go up, by that same argument?

    Note however that I don’t think controlling rents in terms of the profit is a good idea. Only that it is a fairer idea than rewarded people who never move.

    Maybe you could pass a law that rents can never go up. Or even that they must go down. But it won’t help you because it would simply mean more landlords quitting and less rental housing available.

    You want us to provide homes but you don’t want us to make any money doing it? Good luck with that.

  6. Wrong, the reasons there never used to be Ellis evictions were twofold:

    1) Originally rent control allowed much more reasonable rent increases – 7% and then 4%. Now it’s pennies.

    2) When multiple OMI’s per building were allowed, there was little need to Ellis. When OMI’s were limited to one per building, we saw more Ellis evictions but less OMI evictions.

  7. And rent control is a weapon of class warfare from below, without which there would be no need for Ellis.

    Ellis is a leveller and a balancer/

  8. Dean, your “chopping up” phrase is totally inaccurate. It is the same units as before and they are still used residentially. The only difference is that the residents are owners and not tenants, which is surely a good thing.

    And again, there is no change of use as you claimed.

    Finally there is no loophole in the Ellis Act. It is working exactly as intended, allowing an owner (ANY owner) to leave the rental business.

  9. The Ellis Act eviction “crisis” is fabrication when you look at the actual numbers from the SF Rent Board. In a City with ~172,000 rent controlled apartments, only 216 units were Ellis Acted (from 3/1/13-2/28/14). Of those 216 units, the majority were vacated (via the Ellis) so an owner (or relative) could move in (because there was no OMI option). That comes out to .001256% of rent controlled units. Hardly a crisis.

    The elephants in the room; rent control and a no-growth / NIMBY-ism mentality are the real problems. Focus on those issues; not taking away private property rights.

    Its time for means testing. All those Google employees don’t need a subsidy to rent do they?

  10. an investment should never “guarantee” a profit unless it tightly regulated a la a public utility. lets agree that ain’t happening for a variety of reasons.

    the fact is that property owners have no right to expect any sort of return on their investments. tenants are paying a rate that both parties agreed was fair at the time the lease’s execution. i assume that whoever signed that lease thought that the rents were sufficient to cover operating expenses.

    if somoene decides to buy the building knowing full well its cash flow and expenses then complains that they’re not making enough, well then tough titties. if the price you paid was very high in part based on an expectation that you could make added profits by displacing the current residents, i don’t see why the law should cater to that.

  11. I am not sure if you are purposely misreading the above contributor, but BUYING property (especially when you plan to use it as a business and already have a place to live — e.g. that unfortunate Pos(t)er boy Mr. Young) IS a privilege, not a right. How silly.

    You may also want to re-read Leno’s bill, as it did not “ban new owners from Ellising” in order to move themselves and their family in or anything, just to flip the property after dumping its human contents (in order to NO LONGER be the owner). And there is nothing legislatively stopping long-term landlords from Ellising their buildings (and increasing their profit margin exponentially). And yet, overall, they do not.

  12. And if you follow the shadows, you will also find that many of what you have decided are “small nice guy LLCs” are actually just groups of speculators limiting their personal liability and poor reputations through assigning each property they scoop up a distinct LLC.

  13. I think the better frame is that the Ellis Act is a weapon of class warfare from above.

  14. I know this isn’t the main point of your comment, but are aware that Frisco is and has been for decades the term that many (most?) black San Franciscans use to refer to their city? Many have been displaced by the very dynamics we’re discussing here, and your derision at calling it “Frisco” adds insult to injury.

  15. A 5 year holding period would likely drive down the price of a properties with low paying, long term tenants. But it would also increase the price of properties delivered vacant. This would create a powerful incentive to evict before selling.

  16. Sam, we’ve had rent control since 1979. For nearly 20 years after that, Ellis was barely used. Landlords bought buildings with rent controlled tenants all the time in order to be landlords. You keep saying that landlords won’t buy buildings with rent control tenants but there isn’t a shred of evidence to support that. Rent control is factored into the sale price. That’s Tim’s point.

    BTW, landlords aren’t subsidizing anyone. They are being asked to play by the rules that existed when they purchased the property.

  17. Careful about relying on Vince Young’s story. He’s a realtor who owns other property who wouldn’t even need the Ellis Act for what he claims he wants to do, if one even believes his assertions. He bought an apartment building and now claims his only option is to Ellis?

    I wish testimony before Senate committee’s was required to be given under oath.

    Let’s be clear: the Ellis Act is never a family’s “only option.”

  18. Sam, I recommend that you read the Ellis Act and its legislative history before commenting further. Your post is totally inaccurate. Where are you getting this “reasonable use” standard? Certainly not in the Ellis Act or the sponsor’s statements in support of the Act.

    And yes, TICs are “chopping up” the property by contract rather than by recorded deed. This was the cute idea that speculators came up with to avoid condo conversion limits and tenant protections in the 1990s.

    As for your final point, who is talking about a hundred laws? This loophole to the Ellis Act should be plugged. Frankly, if the court had done it by upholding McTIC we wouldn’t even be having this conversation, but some judges couldn’t bear the thought of protecting rent controlled units, so they invented a bizarre constitutional protection for TIC owners who want to create condo-lite units unregulated by local law.

    As for the comment that one can’t sell a building with rent control tenants in SF, I think all readers here know that’s hogwash.

  19. Tim, you obviously don’t own since your understanding of how a mortgage works is intensely flawed. The rent goes towards your mortgage it does not define if you get a loan or not. What defines that is your down payment and your income. Rental income is only part of that income not the income entirely. So your A-C scenarios are wholly inaccurate.

  20. Tim R- you sure like your blog, but why don’t you ever take the time to respond to any comments?

    And as for long term tenants getting evicted by speculators, I have news for you: you will see more and more owners ellising a low rent bldg, and just sitting out the 5 years so they can get back to market rents. At some point that is a viable buy and hold strategy, given the absurdity of some tenants hoarding super low rent units. It won’t be just TIC flippers, but long term property owners as well.

    Another point about speculators- you sure seem to hate them, but they are providing affordable market rate housing with TIC’s. The city is so expensive now that a $500-700k TIC is considered affordable middle class housing.

    As for ALL small property owners making money, that is just plain wrong. There are numerous LL’s who were not aggressive about raising rents (nice guys) and got royally screwed by prop I in 1994, when their 2-4 unit owner occupied bldgs went under RC without their ability to do anything about it. Forward 20 years and some of those guys were forced to sell (to speculators, no less!) because of this.

    You want some direct proof? Just talk to Noni Richen of SPOSFI and I’m sure she can get you names.

  21. Yes, this is another view which doesn’t conflict with mine. However, I have to disagree about the Mission being undesirable until recently. I guess you’d have to define “recently”. The same thing happened a couple of years after I moved to San Francisco in 1995. The dot-com bust and 9/11 did much to further spread gentrification. Also, undesirable to which demographic? I think generations of Mission dwellers would also disagree.

  22. It not easy to move into a multi unit family using the OMI process. Just ask the Young Family that testified at the Senate hearing on June 18 2014. The family’s only option was the Ellis Act.
    Please note that there is no conversion of use when you Ellis act a building. It is still a “x” unit rent controlled building in San Francisco.

  23. Again, one more time, if a building is not viable then it will not survive regardless of the existence of speculators.

    If I am getting 2% on my building and the market is at 6%, then the business cannot endure.

    If you really care about seeing a vibrant rental sector you should be seeking to make investing in rental buildings MORE attractive, and not less.

    IOW, the current problems are the results of your policies, so more of those same policies won’t fix the problem

  24. Many other areas of SF have already been gentrified, so you don’t see so many Ellis/TIC migrations in Pacific Heights or Cole Valley.

    The Mission has a large percentage of multi-unit buildings AND it has been cheap and undesirable until recently.

    We see more Ellis/TIC conversions there simply because there are more eligible buildings there.

    By the way, Ellis doesn’t apply to single family homes or condos, but only to multi-units, so the desire for a SFH is not driving Ellis conversions

  25. Charlie, i wasn’t claiming to know what you personally think is in the interests of SF, assuming that people could even agree on that.

    I was explaining why a building with low rents is not attractive to investors because that is what drives it closing as a business.

    To understand why we see rental buildings being vacated, you must understand how investors think.

  26. There are only plenty of willing landlords to buy buildings with reasonable rents. And luckily that is most of them because luckily most tenants actually wish to progress with their lives and not squat in the place they rented as a student.

    The problem here is that unfortunate minority of buildings where all the tenants have been there forever, the rents are not viable, and nobody in their right mind would want to buy the business.

    The problem with rent control is that makes luck a factor. As a LL, get turnover, and you can do well. Get unlucky and you are stuck subsidizing a bunch of people for life, and that is something the city should do and not private individuals whose only crime is not get lucky.

  27. As Tim points out, the speculators are driving up the price. Make their scheme illegal by amending Ellis, and then sellers will price according to rents, and buyers will stay in the rental business. Many already do.

  28. Dean, the problem with your argument is evident. If the city allows Ellis but then refuses any alternative use for the building, then the city is effectively banning Ellis via the back door because it is not realistic to just leave a building empty and rotting forever.

    And in fact the Ellis Act specifically bars a city trying to do such an “end run” around Ellis.

    The reality is that if you are going to allow a property owner to exit the business, and that is what the law mandates, then you have to be able to then put that building to some other reasonable use. And since it is zoned for residence, the obvious solution is to use it for owner-occupation, either as condos or TICs.

    And note that that does NOT involve any “chopping up” as you imply. In most cases the footprints of the existing units are retained. The only real change is from tenants to owner occupiers, which is not a change of use at all. And as a matter of fact and law, TIC ownership structures are not subject to local law but rather are a matter of state law. A TIC is not a sub-division. It is a form of ownership.

    Finally your glib statement that an owner can “just sell” is moot if the building is full of protected low-rent tenants, because nobody will want to buy that as a going concern. The only buyers will be those who also wish to not run a rental business.

    You cannot reasonably pass a hundred laws making landlording unattractive and then whine when they decide to close up shop.

  29. I think it’s because many Mission residents are easy targets for economic exploitation. I don’t see this happening as much in my neighborhood (Lower Haight/Hayes Valley) but that’s because the area is saturated with high rise development. I think Ellis evictions in the Mission are driven by the desire to convert rental units of maybe 4-6 per building to a single family home. Some of the new transplants with lots of cash don’t want to live in a tiny closet paying exhortbant HOA fees, not to mention substandard building designs in new high rises. These people would rather have a detached home so they don’t have to deal with neighbors on the other side of the wall.

  30. Sorry, but your argument assumes there’s a shortage of landlords in SF buying buildings. There isn’t. Landlords who buy rent controlled properties are doing fine, and there are many lined up to buy apartment buildings and profit from renting. Speculators have created a loophole, approved by a terrible court decision, and that loophole distorts the market, changing the calculus so that purchase price is driven up for smaller rental buildings because of speculators. Plug the loophhole and those properties will be valued as the rental properties they are, and like Tim says, the buyers will do just fine. Particularly with vacancy decontrol, the rental business is booming for SF landlords.

  31. The whole idea that Ellis should be used to allow people to clear out buildings so as to convert them to TICs/Condos for owner occupancy is totally flawed. Even the CA Assn of Realtors which sponsored the Ellis Act wrote at the time that the Act “fundamentally and simply permits the owner to cease offering property for rent. It does not permit the owner to change the property to another use.”

    So an owner who buys the building is free to move in, and to move relatives into other units. That’s allowed under local OMI law. Chopping up the building into TICs/Condos to replace renters with other owners was never the intent of the Ellis Act. And the floodgates opened after a bad court decision took away SF’s ability to bar TIC conversions.

    The Ellis Act is not an owner-move-in law. It is a weapon of mass conversion.

    By the way, the comment that Ellis is one’s only option doesn’t fit the facts in SF where an owner who doesn’t want to be a landlord can sell and make boatloads of $.

  32. Jonny, that’s a lot of claims without any explanation, evidence or examples.

    There is of course always a battle between fundamental rights, individual or property, and those who wish to encroach on their rights on the grounds of some alleged public policy imperative.

    No doubt you are aware that various land use laws which SF has passed have been bounced by the courts. While others have been neutralized by the State passing the Ellis Act and the Costa-Hawkins Act, both of which impose limits on how far municipalities can go with takings of property.

    The US has essentially adopted the Anglo-Saxon approach to property rights, and to the law in general. Those who don’t like that will find there are other nations have different approaches which better enable the socialization of land and property, if that is what you seek.

  33. Absentee landlords have historically occupied an ambiguous position in property law – this is what makes rent control ordinances possible in the first place. If I were you, I wouldn’t go shooting my mouth off about what’s “enshrined” in the statutes before I knew what I was talking about. Also, when in the past people have insisted on their “rights” as property owners, it was almost never for very savory reasons – usually having to do with justifying some form of violence against other people in defense of their property. So I would caution against doing that as well.

  34. Yes, to make a claim such that “most” Ellis evicters are speculators would require someone to undertake a painstaking analysis of each individual property, noting who the buyers was, how long they had owned the building and, in many cases, having to do a look-through analysis where the buyer is a corporation, partnership or trust.

    I’m sure there are a few trust-fund activists (Hi, Erin) around with enough spare time to perform such an analysis, although it’s not clear whether their results can be trusted given their obvious bias.

    But as I said before, it really doesn’t matter. If the rent numbers make a building unattractive then the only willing buyer is going to be someone who seeks to change the use of the buildings.

    BTW, there were very few Ellis evictions before OMI’s were limited to one per building. The tenant lobby brought this on themselves when they prevented multiple owners from all living in a building that they own.

  35. I checked out the SFRB most recent statistics and they don’t break out Ellis Act stats (owners who want to move into the entire building vs. “speculators”). See for yourself http://www.sfrb.org/modules/showdocument.aspx?documentid=2700.

    Also like Sam says two owners cannot OMI into both units of a two unit building of both tenants claim a disability. Note that disability is defined differently in OMI vs. Ellis.

  36. Lots of buildings get sold. On my black the last tenant-occupied building was cleared out a few months ago and upgraded homes for sale are being developed there. Just because it is still possible to make money from landlording in SF doesn’t mean it is easy, pleasant or optimally profitable to do so. Owners are voting with their feet.

    If you ban new owners from Ellis’ing, as Leno tried and failed to do, then the only result would be that owners would Ellis and then sell, rather than sell and then Ellis. The same developers would buy the building and convert to TIC’s because the economic argument for doing that is beyond compelling.

    Oh, and property rights are not privileges. They are enshrined in out legal system. That is why Ellis was passed in the first place, because some cities (not SF in that case) were trying to force owners to rent out their buildings against their will.

  37. But you said above that the old time landlords are not doing the Ellis Acts? And really, most landlords are doing fine, otherwise there were be MUCH more selling going on. Those who are selling are selling their buildings in accordance with who lives there, etc. and walking away with a tidy profit for their endeavors. I appreciate the comment made above that property buying is a privilege, not a right. Get rid of speculatory flipping practices, get ride of almost all Ellis evictions – and return them to the Ellis Act’s original purpose. And these abusive invocations of the Ellis Act ARE (and increasingly) happening in other parts of the State. Being a landlord is and has been a profitable venture for so many for so often in San Francisco – especially for those making LONG-TERM investments. I think the problem is that our sense of entitlement, brought on by hearing stories of how rich one can get off property, and seeing how fast tech churns out millionaires around here, has overtaken our moral compass as community members and builders. So I’m sorry, but I think your question is off – I would like to see a more vibrant community period rather than the direction we seem to be headed, rather than prioritizing the profit margins of speculatory flipper (since really, according to you, they are the ones making the big bucks). And now back to work to continue to afford to live in this fair city!

  38. There has been a clear and steady conversion of rental to owner occupied units in my area of the Mission. As a matter of fact, just last month a 3 unit was sold and now the tenants (friends of mine) are leaving – the owners are moving in.

    I doubt this only happens in my neighborhood. The city made being a landlord so unattractive that almost no one buys these smaller properties to remain in the rental business. Ignoring this reality based on a story printed in Vice Magazine (!!!) is foolish.

  39. No, you are wrong about OMI. If two owners buy 50% of an occupied two-unit building then only one of them can OMI. That amendment was passed by Sue Bierman, if memory serves, around 1998 or so.

    Not many property owners have convenient relatives lying around who can do a RMI. The exception might be a mother-in-law type situation but surely you would support families being untied as the older ones need more support?

    The reason the “good” old-school landlords are giving up is because they are getting older, retiring, and probably finding that the rental income can not support them in their old age. The new landlords are more cut-throat because that is what it takes to succeed now.

    It is rent control itself which is driving out the good landlords by creating a situation where there is a war of attrition between landlords who want turnover and tenants who are desperate to stay put.

    In other cities it is still like you say – LL’s treat their tenants as customers and compete with each other to offer the best deal. the exact opposite of cities with rent control.

  40. Ah – Why would one owner need to OMI more than one unit? That makes no sense to me. If there are two owners, they can OMI more than one unit. And they CAN move in their relatives. And they CAN go to court to challenge tenants’ disability claims (but that is rare and since the State Law is clear, probably unwise). But let’s be real, in the case of these Ellis evictions, more landlords than tenants have access and means to lawyers, so the deck is stacked. But I appreciate your comment: “Many old-time landlords do not want to Ellis.” That is and of itself is so telling; I cannot even count the amount of old-time San Franciscans (a great many of them landlords and building owners) I personally know who express how offended and appalled they are by the Ellis acting of our most vulnerable populations of these speculators/developers (since they really aren’t developing anything, this seems like a misnomer?). The mere anticipation of such abuses (which have ad nauseum come to pass) is what caused there to be ANY safeguards around disabilities, etc. in the Ellis Act and the OMI/RMI in the first place.

  41. If you are the owner of a building with low rents and wish to exit that business as a result, then you only have two choices. Either Ellis yourself or sell. And if you well, no “real” landlord is going to buy your building because it is not viable.

    So speculators are performing a useful service by being a buyer of last resort for buildings that have been rendered non-viable because of rent control. They provide liquidity to the market and, crucially, provide affordable home-buying opportunities to current SF tenants by creating TIC homes for sale.

    Buildings get Ellis’ed because the numbers don’t work, and not because of who owns them.

    If you really want to see a more vibrant rental sector why wouldn’t you want to see being a landlord as a more profitable endeavor? Then you would see zero Ellis evictions as in the rest of the State. And zero flippers and speculators.

  42. I, for one, appreciate the courage of Nato Green speaking on his own behalf and for Tim Redmond explaining how mortgage-receiving, etc. works. Mr. Green is, in my understanding, a native San Franciscan, a landlord, and a family person who is *actually* INVESTING in San Francisco. Having seen him before making public comment at government meetings, I see him as someone who has shown care for and interest in maintaining what makes San Francisco great – diversity of its scenery, including population.

    What I don’t understand is why there isn’t a legal distinction between actual landlords such as Mr. Green (whose business model is maintaining profitable properties with tenants as customers/workers creating those profits… and like all businesses, there are good and bad ones) and these occupant-and-property-flipping speculators who are wreaking such havoc on SF’s housing market. In my understanding, the business model of these speculators, such as the rather poorly named “Urban Green Investments,” is precisely to AVOID ever acting as landlords or even “investing” in anything for longer than a New York second. Seems to me that people who ACTUALLY want to be home owners would resent these speculators for driving up housing prices, since they essentially appear to act as scalpers helping to create and then post up at the sold out concert known as SF’s housing market. I saw that, based on information provided by the Rent Stabilization Board, there are actually very FEW actual landlords invoking the Ellis Act – seems to be almost entirely speculators.

    For those of you who insist upon pretending that speculators and synonymous with actual landlords (I still don’t get why), I challenge you to get a single one of them, such as Urban Green’s CEO David Palmer McCloskey or his quite-silent partner Peter Lynch (https://antievictionmap.squarespace.com/dirty-dozen-worst-evictors#/david-mccloskey-urban-green/), to be as courageous as Mr. Green, to speak publicly on their own positions so that a dialogue may occur, rather than skulking in the shadows, trying to large-scale quietly evict our elders to make a fast buck that they do not appear to reinvest in San Francisco. Good luck with that.

  43. Perhaps a more reasonable approach to rent control would be to relate rents to profits. Landlords would be entitled to set rents to give them a minimum return, but there would also be a cap on profits, this preventing egregious profits.

    That would ensure that we don’t get these “dead” buildings that are not viable and therefore must be closed down.

    The current system is like a lottery which a landlord wins if his tenants move out, and which a tenant wins if he grimly clings to the same home for decades no matter how unpleasant and inappropriate that is.

    It’s hard to imagine anyone choosing to implement a policy that looks like what we have ended up with in SF where, it seems, almost nobody is happy, and where landlords and tenants are incentivized to behave badly towards each other.

  44. No, only one OMI per building is allowed. You are thinking of a RMI (relative move-in). not many of those happen.

    I agree the definition of disabled is fairly clear but there are certainly tenants who try and claim that so they can cling onto a unit. There is some fraud on both sides.

    Oh, and the reason why many of the Ellis evictions are done by the same actors is simple and harmless enough. Many old-time landlords do not want to Ellis, but the only buyers for their building are developers/speculators. Ellis happens not because of WHO owns the building but because the numbers do not crunch.

  45. people simply don’t understand how put upon we re rentier housing providers are. i mean people are falling over themselves to pay us so that we can make our payments on assets that are appreciating astronomically through no effort of our own. and now you’re telling us we can’t take even greater advantage of this manna from heaven?

  46. “Ellis,” perhaps you will want to review the language of the Ellis Act? The State Law sets out the parameters for what constitutes a disability – it seems pretty detailed and clear to me. Apparently you have never had migraines that are truly debilitating. Perhaps you should look at the abuse of the original intent of the Ellis Act by speculators’ (and in some cases, landlords’) attorneys. Seems like a better place to start. If you look at the figures compiled from the Rent Board, there are actually not that many *actual* landlords invoking the Ellis Act – mostly speculators. So your argument falls short. And not only one unit can be OMI’ed, Sam – one can move in one’s aging parent, etc. Plus let’s try to remember the property-buying is a privilege, not a right. Whereas housing one’s population is a greater moral imperative.

  47. Tim, you demonstrate a fundamental misunderstanding of the landlording business, and piggybacking onto some landlord who says what you want to hear (and calls the city “Frisco”, yuk) doesn’t change that.

    If I have a million to invest, I look at alternatives and will chose the option that has the best reward to risk/effort/hassle ratio. So if a Marin or Peninsula rental building (or SF building that is exempt from rent control) yields 6% and a SF rent-controlled building yields 4%, then I will normally choose the former. It will appreciate by the same amount, still enjoys Prop 13 protection, still has the same tax breaks but is better in two important ways:

    1) I can raise the rent to market every year
    2) I can upgrade my customers if and when I wish to

    In SF, those two benefits are not present so I need to be compensated extra for taking on that extra risk and hassle. And if that extra compensation isn’t there then clearly the SF building will not be chosen by any rational landlord.

    And that is why rent controlled buildings are being lost, converted, merged, demolished, Airbnb’ed or converted to TICs or condos. Why? Because people like you have gotten laws passed that makes being a SF landlord unattractive RELATIVE to being a landlord elsewhere.

    That is not to say that SF landlords don’t make money. Generally they do, and they should because they commit a lot of capital and take on a lot of risk. But even so, most of the returns come in the form of appreciation, which you cannot tap into until you Ellis/sell. As a going concern, many buildings are only profitable year-on-year because of some tax breaks.

    If i own two buildings and one is rent-controlled and one is not, then it makes far more sense for me to live in the rent-controlled building and rent out the other, even if I’d prefer ti the other way about. Insane laws leads to insane behaviors, and you bear some of the responsibility for these laws of unintended consequences.

  48. True. And also only one unit can be OMI’ed and that becomes the so-called “owner’s unit” even though it may not be the biggest or the best.

    So if you buy a building and want to live in another unit, then Ellis is your own option. The “one OMI per building” rule that tenant activists wanted has the absurd effect of leading to more evictions than would be necessary merely to live in your desired home.

  49. The Ellis act is used by many people as a way to move into their apartment when the current OMI rules do not apply (i.e. Move into two units with “disabled” tenants in each) please note that “disabled” is often abused by tenant lawyers. It can mean having high blood pressure, migraines, arthritis etc…).

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