Two sides of a coin

Times Staff Writer

WITH apologies to David Letterman, the Top Five reasons why landlords hate rent control are:

No. 1. As private citizens, they believe they shouldn't be forced to do government's job of providing low-cost housing.

No. 2. In few sectors of private enterprise does a city tell a business how much it may charge.

No. 3. Rent-control buildings sell for less, even in high-rolling realty days.

No. 4. Capping what they may collect in rents translates to capping what they can spend on maintenance and repair -- and then they get dinged for lousy upkeep.

No. 5: It's virtually impossible to evict undesirable tenants from a rent-controlled building; owners of buildings not under rent control can boot them out for nearly any reason.

For their part, owners of rent-controlled properties feel that everyone hates them. If this were a fairy tale, they'd be the big bad wolves that prey on little old grandmas, which is actually pretty close to what they often are accused of doing. But, they argue, nothing could be further from the truth. They say the perception of landlords as bad guys out to make a buck at the expense of tenants' health and safety flies in the face of their daily reality: running and maintaining a business with a marginal financial return and the government calling every shot.

"These units," said Malcolm Bennett, president of the Apartment Assn., California Southern Cities, "are more a pain in the neck than they're worth."

Despite that, there are some landlords who are proud of their role as affordable-housing providers, but like other business owners, they expect to make money on their investment.

Bennett, who owns five four-unit apartment buildings in South-Central L.A. and manages 1,500 other units across the city, believes that the original idea of preserving inner-city housing and keeping costs down was admirable, yet he questions the fairness of a system that holds one private-sector group responsible for subsidizing housing costs, when that should be the job of government.

"Cities don't tell grocers how much to charge for milk, automakers how much to charge for cars, or homeowners how much to sell their properties for," Bennett said. "But they tell us how much to charge rent."

In 1979, after the Rent Stabilization Ordinance took effect, the most a Los Angeles landlord could raise the rent was 7% per year. The rate then dropped to 4% or 5% for eight years. For the next 13 years, the allowable increase was 3% per year; since July 1, 2006, it's been 4%.

Michael Tramontin, an owner and manager of office buildings and apartment units in Los Angeles, says he understands why those who owned properties before 1979 are bitter about being forced to comply -- they had no choice. Later buyers knew what they were getting into, he said, and if they run their businesses wisely they can profit.

"If you increase something by even 3% or 4% a year for many years, you can make money," he added.

Maybe yes, maybe no, owners say. It depends on the number of tenants paying market rates in a rent-controlled building. Under the state's 1995 Costa-Hawkins Rental Housing Act, landlords may charge as much as the market will bear for units vacated under most circumstances; the rules about yearly increases apply thereafter.

Some Westside owners, in particular, complain that longtime renters get a lifetime break, even when they easily can afford market rates. Rent-control laws do not require financial-means testing, so professionals, for example, could still be living in rent-controlled units they secured when they were struggling students. Also, some renters secretly sublet their cheap units for market rate, flouting the terms of their contracts, landlords say.

Carl Lambert, an owner of rent-controlled buildings, recently gave a Santa Monica tenant $30,000 in relocation fees -- nearly five times the city-mandated amount for a two-bedroom unit -- to move out. The longtime tenant had been paying $800 a month for his two-bedroom apartment with an ocean view, worth $3,000 a month today.

The unit, on Ocean Avenue just steps from the beach, features mahogany doors, kitchen and living room built-ins and hardwood floors. Lambert was allowed to evict the tenant because a family member was taking over the apartment. Relocation fees are not required for similar evictions outside of the rent-control law.

In an identical unit in the building, a recent tenant was paying about $900 a month while charging $1,000 for one of the bedrooms she rented out on the side, Lambert said.

Selling rent-controlled buildings is no cakewalk, either, said Bruce Bernard, who has bought and sold scores of such buildings in Los Angeles. He recently got his asking price of $6.5 million for a 42-unit building in Hollywood that was not under rent control. One mile away, he also recently sold a 20-unit rent-controlled building with similar amenities for $2.3 million, which was $1.1 million less than his listing price.

More dramatically, Santa Monica landlord Lambert got zero offers on his 15-unit rent-controlled building listed for $890,000 just before the 1994 Northridge earthquake. The temblor shoved the building off the foundation, resulting in all of the tenants vacating the red-tagged structure. Despite $500,000 in needed repairs and not a penny of rent coming in, Lambert quickly sold the building after it was legally rent decontrolled -- for $950,000.

"It was worth more with all that damage and no rent control than the day before the quake, when it had paying tenants. What does that tell you?"

Hard as it is to sell rent-controlled units for a market-rate profit, owners of those buildings face more urgent daily concerns: covering rising insurance, taxes, upkeep, water, plumbing, landscaping and other costs with 3% or 4% annual rent increases. The result often is that repairs are not made in a timely fashion.

James Stephens bought his apartment complex near the Hollywood Bowl four years ago. The 12-unit rent-controlled building, constructed in 1964, needed a major pool renovation and other costly repairs. With one-third of his tenants in 2002 paying rents well below market rate -- $709 for a one-bedroom unit and $1,200 for a two-bedroom -- he ended up eating most of those costs. His rents now range from $709 to $1,500.

"There are things you absolutely have to do, whether you can afford it or not," said Stephens, who does most of his own building maintenance to save money. "It often takes a long time to pay back a loan."

The Rent Stabilization Ordinance allows owners to "pass through" half of the costs of capital improvements to tenants. For example, when an owner replaces a roof for $20,000, he or she may divide half of that cost by the number of units in the building and charge the tenants of each unit up to $55 per month -- spread out over multiple years -- to cover the cost of the repair.

Even so, Stephens said, "sometimes you get killed" economically.

Landlords complain that some renters, hip to the strict Rent Escrow Account Program -- which allows them to pay the city up to 50% of their rent and landlords nothing while units with health or safety violations are being brought up to code -- deliberately ruin buildings to avoid paying full rent.

Attorney Harold Greenberg, who owns buildings and represents landlords, recalled a tenant who took a sledgehammer to the walls of his apartment, then reported the damage to the city, getting a rent discount while repairs were underway.

Bennett said he fixed a broken pole in the parking lot of one of his buildings and tenants subsequently rammed their cars into it five more times. Bennett finally closed the lot.

"We pay for repairs and pay for the inspections," said Jim Clarke, manager of government relations for the Apartment Assn. of Greater Los Angeles. "We've become the housing department's cash cow."

Worst of all, many landlords say, is their inability to give the boot to undesirable tenants. While owners of buildings free of rent control can evict tenants easily, landlords of rent-controlled buildings can evict a tenant only for specified reasons such as when the landlord or a relative moves into a unit, if a tenant fails to pay the rent or violates the terms of the rental agreement and does not address it.

If a renter is a boisterous 24/7 partyer or deals drugs, for example, and trashes an apartment, a landlord must prove just cause by filing detailed reports and lining up witnesses to the offense, owners say.

"Who will come forward?" Clarke asked. "They're afraid of retaliation."

In a perfect world, attorney Greenberg said, owners of rent-controlled properties should receive tax incentives, grants and loans to rehab their buildings, and tenants' and landlords' responsibilities should be equal under the law. Maybe then there would be less resentment on both sides. After all, they need each other.

"A landlord without a tenant is bankrupt," Greenberg said, "and a tenant without a landlord is homeless."



Renting in L.A.

* More than 60% of Los Angeles households rent. The national average is 33%.

* Only San Francisco and New York City have higher rents on average than Los Angeles.

* The average turnover time for L.A. apartments is five years.

* Nearly half of L.A. renters spend more than 40% of their income on housing; 29% spend more than half. Under federal guidelines, 30% spent on housing is considered affordable.

* Los Angeles' overall vacancy rate is 2.7%. Nationally, it is 9.9%.

Sources: RealFacts, Reis, L.A. Housing Department, city of Los Angeles, HUD, Census Bureau

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