Few Apply for Conversions : Lack of Takers Chills Projected ‘Condo Fever’
When Santa Monica voters approved a controversial plan to convert apartments to condominiums, there were predictions that landlords and tenants in the tightly controlled rental market would be gripped with “condo fever.” After one year, however, residents appear to be giving the measure the cold shoulder.
Santa Monica officials said they have received applications to convert 16 apartment buildings to condominiums since last June. If all of the proposals are approved, 170 apartment units will be sold within the next several months.
“With one exception, all of the (apartment) projects have been in the four-to-six-unit range,” said Paul Silvern, the city’s planning director. “Out of all the dwelling units in the city, this represents a tiny percentage.”
Silvern said he does not expect the pace to accelerate much in the near future. With Santa Monica’s rent control law being challenged in the courts and the state Legislature, apartment owners are being told that restrictions that have kept rents below market value may be lifted in the next couple of years.
James Baker, an apartment industry spokesman, said many landlords are waiting to see if they receive some “relief from this oppressive system” through the courts or bills that would remove local control over rents. Generally, the condominium conversion plan is most useful for landlords looking to make a quick exit from the apartment business, Baker added.
“This is an escape hatch for those owners who find Santa Monica’s brand of rent control economically or emotionally unendurable,” Baker said. “I certainly don’t think the plan is any kind of bonanza for apartment owners.”
City Councilman Dennis Zane, a tenant activist who supported the plan, said he was pleased by the relatively small number of conversions. Zane called the conversion rate “comfortably slow,” adding that it allows officials time to identify problem areas.
“We tried to make this an opportunity for renters across all income categories,” said Zane, speaking for the city’s tenant faction. “This wasn’t just an upper-income program.”
The conversion law, passed last June, represents an unprecedented compromise between apartment owners and tenant activists, two groups that have bitterly opposed one another over the city’s stringent rent control law.
Under the plan’s guidelines, two-thirds of an apartment’s residents have to approve a conversion and 50% have to agree to purchase their units. Tenants and landlords negotiate prices. Unsold units remain under rent control, and low-income people can obtain special loans to purchase their apartments.
Of the 16 conversion applications reviewed by the city planning commission, 12 have received initial approval. Four of the buildings are north of Wilshire Boulevard and officials said that prices have varied according to the size, condition and location of each apartment unit. In general, converted units are selling for less than new condominiums, officials said. The lowest price on record is $50,000, a third of what a comparable condominium might sell for.
“The biggest problem with the process is the actual negotiation,” said Paul DeSantis, a promoter of the plan. “There’s so much animosity built up between owners and tenants and it leads to a lot of mistrust. . . . But it has still helped a number of tenants get property at very low prices.”
Because of the difficulty in reaching agreements, most of the conversion applications are being filed by people from small apartment buildings. The first conversion application came from Kenneth Blasor-Wilson, owner (with his brother and father) of a four-unit apartment building on Virginia Avenue.
In Blasor-Wilson’s case, the conversion was something of a family affair. He and his wife occupy one unit. The other tenants are his brother, his sister and a friend, who agreed to purchase the two-bedroom units for about $80,000 each. Blasor-Wilson said he expected to win full approval for the conversion within a couple of months. As the pioneering apartment converter, Blasor-Wilson gave the plan mixed reviews.
“It has not been painless and it has not been cheap,” Blasor-Wilson said. “I wish I didn’t have to do it. But I can’t continue to lose money on this thing as an apartment building. I was kind of forced into a corner.”
Blasor-Wilson, who has been working to win approval for his conversion since September, said the process should only be considered as a last resort.
“If someone is losing money as an apartment owner I’d recommend it as a way to get out from under a pretty harsh rent control law,” he said. “Unless you want to torch your building and go to jail for arson there’s nothing else you can do.”
The reluctance of many landlords to sell has surprised residents who expected to quickly capitalize on the conversion plan. Last year, officials predicted that the city’s two largest apartment buildings--the Santa Monica Shores and the Champagne Towers--would be among the first to convert. But residents at those buildings said their overtures have been rejected.
A resident of the Champagne Towers, at 1221 Ocean Ave., who asked not to be named called conversion a “dead issue.” John Armer, who has helped lead the conversion campaign at the Santa Monica Shores, at 2720 Neilson Way, said “nothing is happening,” despite repeated efforts to negotiate a settlement.
Armer said that residents met with Larry Kates, owner of the Shores, in December. At that time, Kates reportedly told the tenants that he favored the plan and was open to discussing prices for the beach-front apartments.
“We all felt at the time that we were in a win-win situation,” Armer said. “Since that time, however, we haven’t been able to reach him. There we were, all talking about how we could make this thing happen. Then all of the sudden there was nothing.”
Kates, who gave $200,000 to the pro-conversion campaign last year, declined to discuss the Shores. Armer contends that Kates is stalling because he now believes that restrictions on rents, which currently range from about $300 to $800 a month at his building, may be lifted. Armer said that Kates continues to hold more than 100 of his 530 units off the market. Arner’s wife, Trudy, added that the twin buildings are rapidly deteriorating from neglect.
“Santa Monica is getting to be terribly abused and our building is no exception,” Trudy Armer said. “This building does not represent quality any longer. What you have is the beginning of a slum. It’s just incredible.”
Tenants in Ocean Park’s Copeland Cove, a five-unit building located at 722 Copeland Court, are pursuing a different solution to the condominium conversion problem. After unsuccessfully negotiating for a traditional conversion, residents decided to purchase the building outright and convert it themselves.
Tenants of the yellow stucco two-story building formed a general partnership earlier this year and reached an agreement with the owners shortly afterward. Bill Sloane, one of the negotiators, said he expect to close the deal this week. Under the agreement, the average price of each apartment unit is less than $100,000, Sloane said, adding that the tenants expect to spend about $80,000 on improvements when the apartments become condominiums.
“I would say that we have gotten a deal,” Sloane said. “We paid more for this building than it would be worth as an investment property. But if you look at the individual units being converted to condominiums, we’re definitely getting a bargain.”
Sloane said the tenants initially had trouble finding financing for the project because many bankers thought the arrangement was unorthodox. Ultimately, they received a new construction loan from First Federal Savings Bank of California. Sloane said he was excited to see the plan working out, but described the overall process as a major headache.
“There are a lot of legal, real estate and financial complications,” Sloane said. “This deal could have fallen through a thousand times without the people in the partnership. We’re not low-income people. We’re basically professionals who are trying to get into the housing market. But without our expertise, this thing never would have flown.”
While apartment buildings with 5 to 15 units have dominated the conversion scene so far, there is one big exception to the rule--the Cloverfield Apartments, 1959 Cloverfield Blvd., a 62-unit building occupied mostly by low-income tenants.
Under the supervision of the Community Corporation of Santa Monica, the tenants are buying the building as a limited equity co-operative. Neal Richman, the community corporation housing director, said the tenants formed a nonprofit group, elected a board of directors and applied for subsidies to help finance the project, which is expected to cost about $2.2 million.
“The co-operative group will purchase the property,” Richman said. “The building will be run on a nonprofit rental basis until it’s rehabilitated. . . . Each tenant will be like a stockholder. The residents will own the building, but their board of directors will hold title to the property.”
In the future, officials said they expect to see more creative conversions, such as those at the Copeland Cove and the Cloverfield apartments. At this point, however, concerns that the conversion law would result in a dramatic decline of apartment buildings seem unfounded.
“As far as losing rental units, you’re talking about nothing,” said DeSantis, whose agency handles about two-thirds of the conversions.