News

Rent control rumored to be driving apartment sales

Sales in Mountain View are soaring, but is Measure V the cause?

Mountain View's rent-control program has already survived political and legal trials -- but what about the business test?

An increasing number of apartment owners appear to be cashing out rather than working under the new restrictions. If the trend continues, some say it will lead to a cascade of redevelopment spearheaded by large corporate buyers. This scenario would result in older apartments being phased out and replaced with new housing that is exempt from rent control.

Those looking at the data with a more critical eye point out that sales of apartment buildings are up throughout the South Bay, and that the number of buyers indicates a healthy interest in investing in Mountain View housing, regardless of rent control.

To take one example, Fremont residents Ann and Paul Lethers decided in June to sell their 18-unit complex on Del Medio Avenue in Mountain View, which they created from separate purchases of two adjacent nine-unit buildings. They say they had to make a significant cut to their sales price, getting about $7.55 million for the property, which is subject to rent control. It's no small sum, but it's a loss compared with what they spent on purchasing one of the two apartment buildings in the complex a couple of years ago, Ann Lethers said. Now her family wants to get out of the apartment business in Mountain View.

"Only rich people or corporations can buy these apartments now," Lethers said. "My feeling is the rich are getting richer, and small fish like us are getting squeezed out."

The buyer of the complex is listed as Forest Casa Real LLC, but Lethers identified the buyer as a local billionaire, though she declined to give a name.

For tenants, the news is bittersweet. Everyone seems to agree that they had good relations with their landlords -- that is, up until last late year when the Lethers family tried to evict their tenants just before the city's rent control law was implemented.

But in some ways, renting from the new owner feels like a step backward, said Martin Cortez, a Del Medio tenant. His neighbors had to complain for weeks before maintenance workers would repair broken appliances, clean the property or take out the trash. Their annual rent is capped, but Cortez said he feels as if the writing is on the wall that the apartments will be redeveloped.

"All around us they've torn down buildings and are in the process of new developments," Cortez said in an email. "I'm sure they're going to make a ton of money in the near future."

Rent control applies only to older buildings. Thanks to the state law known as Costa-Hawkins, apartments that were first rented out after January 1995 are exempt from local rent control regulations.

Sales surge

Plenty of other sales are occurring in Mountain View, according to industry professionals who describe the activity as a direct result of the Measure V rent control law passed by voters last year. For more than a year, landlords and others have fiercely protested efforts to regulate Mountain View's rental market, saying the new rules would fall hardest on small independent property owners. Sales of apartments in Mountain View this year have been the most brisk in recent memory, said Adam Levin, senior director at the realty firm Marcus & Millichap.

Just the specter of rent control in the days leading up to the election caused Mountain View's affected apartments to drop in value by 25 percent, or about $100,000 per unit, Levin said. Even though it is a buyer's market, he says many of his clients were inclined to sell. He reports that his team's sales in Mountain View have tripled since last November..

"Rent control stigmatizes a city -- nobody likes to be told what they can do with their buildings," Levin said. "It's really bad for the rental stock in Mountain View. The only people who can pay the prices now are developers. You're going to have apartment buildings being scrapped."

Tracking this trend isn't easy, since many of the reported deals remain private or haven't been finalized yet. As of this week, there were eight apartment properties listed on LoopNet, one of which is too small to fall under the city's rent restrictions.

As for sales, a total of 24 apartment buildings have been sold so far in 2017, according to officials with real estate analytics site CoStar. If that activity continues at the same pace, the number of sales is expected to surpass 40 properties by the end of the year, said CoStar market economist Jesse Gundersheim. That's a huge increase, he said, when compared with 11 apartment building sales in 2016 and 12 in 2015.

"Apartment sales in Mountain View are on pace to reach historic levels in 2017," Gundersheim wrote in an email to the Voice. "This is far above the (market's) historical average of 21 sales annually since 1990."

For opponents of Measure V, the news that landlords were looking to get out of Mountain View comes as a "told you so" moment. Like nearly all his colleagues on the City Council, Mayor Ken Rosenberg warned that the rent control measure would be too rigid and inflexible for landlords.

"Gee, who could have seen this coming?" Rosenberg wrote in an email to the Voice. "I was never a proponent of rent control and my most oft-cited reason had to do with 'unintended consequences.'

"Well, here we are," Rosenberg said.

Reason for skepticism

Is rent control really so odious to landlords that it's driving them out of town? There's reason to be skeptical, according to some.

Gundersheim, the CoStar economist, pointed out that his data doesn't show that Mountain View's sell-off is unique. While apartment building sales are up in Mountain View, 2017 is shaping up to be a boom year across the South Bay. So far this year, there have been 250 apartment sales across the region, which already surpasses the numbers for all of 2016. As for the reported drop in sale values, Gundersheim said his data showed the average per-unit price for Mountain View apartments is actually up 11 percent this year.

Tenant advocates said that reports of landlords pulling out of Mountain View are being overblown. Long before rent control was passed, property owners were flipping and redeveloping apartment buildings, so that really isn't anything out of the ordinary, said Daniel Saver, a senior attorney with the Community Law Clinic of East Palo Alto. If anything, the robust apartment sales prove that rent control isn't deterring people from investing in Mountain View, he said.

He said he suspects that landlords and others are exaggerating the sales data in order to sway future policy decisions.

"This is making a mountain out of a molehill," Saver said. "These rumors are little more than smoke and mirrors to deflect attention from (landlords') longstanding practice to destabilize the community for a quick profit."

Redevelopment on the horizon?

Real estate agents, city officials and developers say the apartments are being purchased to be redeveloped. In particular, they anticipate that older apartments will be converted into townhouses that will be sold as ownership units.

For investors, a key component of this plan is buying up older apartments on properties zoned R-3 by the city. This zoning designation is typically for rental apartments, but it also allows townhouses. This would be an advantage for developers looking for a workaround to the rent control rules since they wouldn't need to change the land-use designation for the property, which can be a difficult and expensive proposition.

As for what would happen if a landlord tries to demolish rent-controlled apartments, even city officials say they aren't sure.

"These are brand new things for everyone," said Mountain View Housing Director Wayne Chen. "We're thinking through these issues and trying to figure out how they apply, but we might not have answers right away."

Chen said his department's staff is aware that many private parties are closely watching how city officials administer the rules. In fact, some developers are reportedly holding off on finalizing sales because they want to first see how the city's policymakers respond to projects redeveloping rent-controlled apartments. If those terms are agreeable, the potential buyers say they will immediately move to close escrow on the property.

Under state law, landlords are explicitly allowed to evict tenants if they want to go out of the rental business, but city officials can place conditions on this. For example, Mountain View already forces developers to compensate tenants who are displaced by redevelopment. Other cities also force new housing projects to offer displaced residents the first choice on any new rental units that are built.

Similarly, a plan to demolish rent-controlled units would first have to go before the City Council or city staff for approval.

It's anyone's guess whether council members would seek to preserve older rent-controlled apartments. Even before the election, city officials had signaled support for redevelopment projects that would tear down older apartments. For example, a massive project proposed at 777 W. Middlefield would build more than 700 new apartments, but it would require demolishing about 200 rent-controlled units.

It's a very complicated issue, said Councilman Lenny Siegel.

"It really depends on the property," he said. "But if it was apparent that housing was being torn down simply to evade rent control ... then I would vote against it."

Comments

4 people like this
Posted by Jerry
a resident of Gemello
on Aug 14, 2017 at 4:54 pm

"Just the specter of rent control in the days leading up to the election caused Mountain View's affected apartments to drop in value by 25 percent, or about $100,000 per unit,"

"The only people who can pay the prices now are developers."
""Only rich people or corporations can buy these apartments now,"

If prices are dropping then how can only the rich buy them?


62 people like this
Posted by eric
a resident of another community
on Aug 14, 2017 at 5:06 pm

@Jerry-- its not that "the rich" are buying them. Big developers who are just looking at the land value are taking advantage of a shift in valuations. A building that would have been too expensive to make sense out of buying just to tear down is now priced so the bean counters say, bring on the bulldozers. Their deep pockets mean they can handle the cost of the massive new building-- out of reach of the mom and pop owners. New building is exempt from rent control so rents go way up.


2 people like this
Posted by Kyle
a resident of Monta Loma
on Aug 14, 2017 at 10:42 pm

Hopefully we cash in on some higher property taxes. Great news!


63 people like this
Posted by Jes' Sayin'
a resident of Another Mountain View Neighborhood
on Aug 14, 2017 at 11:33 pm

What happens when you try to control market forces by laws. The law of supply and demand trumps every time. Remember when Nixon set wage and price controls and how badly that turned out?


90 people like this
Posted by Hugh Janus
a resident of Shoreline West
on Aug 15, 2017 at 8:59 am

So one of the (many) unintended consequences will be that more of the lower-rent crap apartments around town will be torn down and…….. here we go…….. replaced with more expensive housing that people can't afford.

Isn't liberal progressive socialism fun?! Oh well, but at least they tried (and will try again and again until everything is ruined). And this is why liberalism is unsustainable.


14 people like this
Posted by Sustainable
a resident of Monta Loma
on Aug 15, 2017 at 9:13 am

@Hugh,

You're entirely right, liberalism is not sustainable. Our capitalist system has ground down the poor to feed the rich, and socialism is the only way to guarantee the basic rights of all people. We should be replacing those old apartments being torn down with true public housing.


72 people like this
Posted by george drysdale
a resident of another community
on Aug 15, 2017 at 9:39 am

Silicon Valley high school students are the best in the nation. Most take college prep economics (basically economics 101 in college) in order to graduate. The slower students take economics classes which shows you how to keep your check book straight, etc. Rent control is the most studied subject n economics. It is literally like bombing your community (financially and morally). Mountain View is to become a feast for students of history, economics and psychology. I'd hate to be defending rent control on the commission. There will be an initiative overthrowing rent control after the feast. Education is everything. Mountain View is now a province of Venezuela. Noack is doing a good job. San Jose has been put on notice.
George Drysdale going to provide a good belly laugh for Silicon Valley


10 people like this
Posted by Here we go again
a resident of Another Mountain View Neighborhood
on Aug 15, 2017 at 10:33 am

Another duplication of an existing online article, another re-starting of a discussion that was already underway for several days: Web Link

I guess people commenting here don't bother first checking the Town Square page before commenting, even though this website has a well-known longtime history of duplicating online copies of articles.


14 people like this
Posted by William Hitchens
a resident of Waverly Park
on Aug 15, 2017 at 3:59 pm

Makes perfect economic sense. Rent control will make it impossible for owners of rent controlled properties to make a decent return on their investments, or maybe even profits, so it makes sense for them to sell. I approve of this trend because it will help to rid MV of old, unsightly buildings along streets like California, Latham, and Escuela (to name a few) and replace them with attractive, modern, upscale buildings. I hope that most of these replacements will be owner-occupied housing like condos and town houses, and not just more apartments. Also, as someone else pointed out, it will significantly increase MV's property tax income.


4 people like this
Posted by Excellently complete article
a resident of Rex Manor
on Aug 15, 2017 at 4:16 pm

Here is the key point:

> Gundersheim, the CoStar economist, pointed out that his data doesn't show that Mountain View's sell-off is unique. While apartment building sales are up in Mountain View, 2017 is shaping up to be a boom year across the South Bay.

While sales are up they are inline with the overall countywide increase in apartment building sales.

Once again, the jury is still out on what the long-term impact of rent stabilization on Mountain View apartment property values.

However, we DO know the short-/medium-term benefit to the Mountain View residents: A major expense is not going to increase at an unsustainable rate.

I will happily trade a speculative 'scary' story in the future to stop a present day tragic REALITY. I only became a homeowner because I had stable rent.


120 people like this
Posted by Anyone listening?
a resident of North Whisman
on Aug 15, 2017 at 4:58 pm

Clearly, the same people who thought rent control was a brilliant idea, still are unwilling to listen to and understand the economics of what's in store: a frenzy for developers, and insanely high prices new apartments will cannibalize most of what remains of older apartments.

Here's what's happening:
Most of these older apartment buildings that fall under rent control, are owned by private, middle class families. They are selling because this is their lifesavings and the property values are based on rental income and potential rental income. So overnight, these peoples' property values and equity dropped dramatically. The only way to avoid further financial loss is to get out while they can and invest what's left in an area where they their property values will hold, rather than depreciating (relatively) with time. For owners, it's extremely stressful, as they don't have the overhead or the economies of scale to support the additional legal costs incolved in rent control, much less the massive property depreciation and other drains on the middle class owners.

The people who are now investing must pay all the overhead costs and be "the bad guys" who evict tenants prior to destroying the building and rebuilding. These small, older properties are run by small landlords who live nearby, have compassion for their tenants, and work hard to retain good tenants. They don't have the capital, or access to the amount of capital required to rebuild. They also don't have the heart for it. So they're out, or they're broke. A long, slow draining of their life savings. The implementation of rent control has unfairly targeted an demonized small family owned businesses. The ONLY INVESTORS IN THESE RENT CONTROLLED PROPERTIES are large corporations with the huge overhead required to leverage the costs of vacancy and rebuilding without the benefit of rental income to support the costs. The only small investors who would buy these properties are fools.

Once the existing tenants win the lottery, they will move out. The buildings will be torn down, new ones will go up. The new ones are exempt from rent control. The tenants who were evicted won the lottery. So what? Now the only apartments available are three times the cost of their market value rent. This is because the only apartments available are luxury units, owned by large corporations that can afford vacancies, so they won't be lowering rents much even in a bad market.

The rent control is a recipe for destruction of beautiful old buildings, some just old, but still loved. These will be replaced by larger buildings with smaller, more compact, expensive living units.

Get it?


121 people like this
Posted by mvresident2003
a resident of Monta Loma
on Aug 15, 2017 at 5:32 pm

mvresident2003 is a registered user.

No, they're not listening and no, they don't get it. All "they" see is a perceived reduction in immediate rent. Unfortunately and through no fault of their own....they were sold a story by do-gooder/idealistic organizations who are pushing social agendas and using them as Guinea pigs and "fall guys".

And I wouldn't doubt that large developers are behind it as well as they know ultimately they'll benefit.

It's sad, all around.


5 people like this
Posted by Apartment dweller
a resident of Another Mountain View Neighborhood
on Aug 15, 2017 at 7:46 pm

I live in a rent controlled apartment but I agree rent control was a terrible idea.
However I am more than fine with it, if it helps, as one of the posters above noted, to get rid of old apartments along California/Latham/Escuela. First, middle class neighbors from SFHs in the area would hopefully be able to send their kids to Castro Elementary again. Also, increased property taxes revenue will hopefully make all schools, including Castro, better.


2 people like this
Posted by Interesting
a resident of another community
on Aug 16, 2017 at 1:17 am

Interesting. Forest Casa Real is a local real estate investor with some savvy. See www.corporationwiki.com/California/Palo-Alto/forest-casa-real-llc/45960518.aspx and look at the Key people. Loads of properties.

So doesn't this sale indicate Rent Control encouraged his investment in the property? Also, selling a property after 2 years isn't exactly an earth shattering rebuke from the Fremont owner. Not like a long time investor sold out in disgust. The long time investor was the buyer.


2 people like this
Posted by Landlord propoganga
a resident of Another Mountain View Neighborhood
on Aug 16, 2017 at 8:46 am

Landlords are gearing up for the repeal of rent control next year with largely FAKE stories about how it "does not work."


12 people like this
Posted by george drysdale
a resident of another community
on Aug 16, 2017 at 10:26 am

The reason for the sell off of apartments in the South Bay was because the San Jose city council set a new rent control up with the helper "just cause evictions." You want investors in apartment houses, not refugees. California is way different from other states in regard for property rights and wanting more housing. Rent control is the single greatest cause of the low supply of rentals in the Bay Area, demand is high but political will is corrupt. Again, the Mountain View city council understands this except for the one cynic. People forget economics but they can be refreshed in their thinking as I did when I got rent control out of Capitola. Now we have the internet to remind but you do need teachers because some people rationalize their own selfish behavior all the time George Drysdale a social studies teacher


62 people like this
Posted by Fed up landlord-SOLD
a resident of Another Mountain View Neighborhood
on Aug 16, 2017 at 8:44 pm

Layer economic obsolescence on top of the functional obsolescence many property owners already experience seven days/week with their 50+ year old properties, and the picture becomes very clear about the future of MV's more affordable rental units. Spend money upgrading the apartments with new copper plumbing, grounded electrical circuits, fire sprinklers, replacing failing sewer lines and adding cosmetic/functional updates or turn the land over to a developer to scrape and rebuild as row houses for sale? It's a very simple decision. Live with a modest return on investment forever, with no hope of capital appreciation, or move on. Better opportunities are aplenty elsewhere.

After 50+ years owning a large complex providing needed affordable housing, the wrecking ball is moving into position. 100+ residents will soon be scrambling for new housing. You can thank your neighbors who voted for Measure V.

Measure V promoters and the RHC should at least be required to study and hopefully understand the very basics--Real Estate Principals 101: Economic & Functional Obsolescence. Measure V has brought housing obsolescence to Mountain View overnight. To borrow a phrase from Shark Tank, "I'm out." Good luck Mountain View.



Like this comment
Posted by Not so Fast
a resident of another community
on Aug 16, 2017 at 9:52 pm

What about 1696 Villa Street? There are 19 affordable apartments that will be torn
down for that project. In return, Prometheus will build 240 new apartments and also provide 30 affordable units, located nearby, and also a large park nearby too.

So 19 affordable units would become 30 affordable units, and also 240 market rate
units would be added. You can bet Prometheus will make a bundle on that.


18 people like this
Posted by Perseus
a resident of Another Mountain View Neighborhood
on Aug 16, 2017 at 11:13 pm



"So 19 affordable units would become 30 affordable units, and also 240 market rate
units would be added."


It seems like you may be conflating the terms 'affordable' and 'rent controlled'. The two terms are not necessarily equal. As used in your sentence above, 'affordable' is a pretty nebulous term...but one thing it FOR SURE does not mean, is rent controlled.


11 people like this
Posted by george drysdale
a resident of another community
on Aug 17, 2017 at 10:35 am

One last word on the production of housing. The most basic chart in economics where supply intersects with demand. On the internet, it's complicated. "Dead weight loss." That's what "affordable housing" amounts too. Labor is well aware of it's negative effects. Talk to the labor council of construction workers. With rent control you have the customer setting prices, remarkable. But it sure gets votes for unscrupulous politicians. Mountain View's city council is set up to get a straight A report card in economics. George Drysdale a social science teacher


Like this comment
Posted by The Business Man
a resident of Another Mountain View Neighborhood
on Aug 17, 2017 at 1:11 pm

The Business Man is a registered user.

In response to george drysdale

You stated this statement:

“With rent control you have the CUSTOMER SETTING PRICES, remarkable.”

What you as an economics promoter failed to understand, the CUSTOMER always dictates the PRICES IN THE MARKET. Only where there is market manipulation does this fact not exist.

Just observe this information:

“Prices can change for many reasons (technology, CONSUMER PREFERENCE, weather conditions). The relationship between the supply and demand for a good (or service) and changes in price is called elasticity. Goods that are inelastic are relatively insensitive to changes in price, whereas elastic goods are very responsive to price….

Of course, most markets are imperfect; they are not composed of unlimited buyers and sellers of virtually identical items who have perfect knowledge. At the other end of the spectrum from perfect competition is monopoly. IN A MONOPOLY, THERE IS ONE SUPPLIER OF A GOOD FOR WHICH THERE IS NO SIMPLE SUBSTITUTE. The supplier does not take the market price as a given. INSTEAD, THE MONOPOLIST CAN SET IT. (Monopoly’s twin is monopsony, in which there is only one buyer, usually a government, although there may be many suppliers.)”( Web Link)

It would seem your promoting that the market should be dictated by a MONOPOLY or an OLIGOPOLY of suppliers defined as:

What is an 'Oligopoly'

Oligopoly is a market structure in which a small number of firms has the large majority of market share. An oligopoly is similar to a monopoly, except that rather than one firm, two or more firms dominate the market. There is no precise upper limit to the number of firms in an oligopoly, BUT THE NUMBER MUST BE LOW ENOUGH THAT THE ACTIONS OF ONE FIRM SIGNIFICANTLY IMPACT AND INFLUENCE THE OTHERS.( Web Link)

Another term is a CARTEL. Anyway the existence of a monopoly or an oligopoly in effect ELIMINATES THE FREE MARKET VALUE CORRECTION PROCESS. I cannot understand why you do not understand this.

The end result is that your political position is that the CUSTOMER must not have any power over the market, The SUPPLIER must DICTATE the market. That is NOT FREE-MARKET, IT IS MONOPOLISTIC OR OLIGOPOLISTIC, and is ANTITHETICAL TO OUR CAPITALISTIC FREE MARKET AND MUST BE PREVENTED AT ALL COST.


Like this comment
Posted by Affordable Housing
a resident of another community
on Aug 17, 2017 at 2:16 pm

Affordable Housing is defined in state law related to very low income and low income tenants. Effectively it's a lower priced housing than any rent control system, since it adjusts the rent of each tenant based on household income.

With the rising income levels of the tech elite, it's particularly important in an area like Mountain View to provide some housing for the less fortunate.

So, it has zero effect on market priced housing, because it serves a different customer base who would otherwise not even participate in the local market.


64 people like this
Posted by Chuck
a resident of Monta Loma
on Aug 19, 2017 at 11:52 am


Thou shall not mess with the free market.

Its going to be Biblical when the whole man made affordable rental housing thing crashes.

Mountain View renter residents have no idea of the financial opportunities that are available outside their little bubble city.
The moneys moving folks as landlords bulldoze their buildings for the dirt that lies under them and reinvesting elsewhere. The land is worth more now without a rent controlled building sitting on it.
Everyone renting better get ready to pony up $500K to buy there $1.5M slice of pie in the American dream.
Absolute stupidity on the part of the renting voters.
This is as stupid as having the government administering health care. Affordability is going to skyrocket.


63 people like this
Posted by Bernardo
a resident of North Whisman
on Aug 19, 2017 at 5:14 pm

Thank you voters

I am a renter in Mountain View that just got notice of the sale of our apartment building to a developer. Our building is going to be torn down in April of next year. They called it red tagged for demolition.
I pay $2350 per month in rent for my 2 bedroom and my landlord always fixed everything making it a nice home for my 3 children for the last 11 years. I am looking to move but can't find anything. We have 65 families here like us in these buildings and I saw 6 apartments for under $3000 per month that are available that are not good. Where are we all going to move?
I am so sad that Mountain View is being torn down and rebuilt into houses for the rich because of the new law.
I saw my friends evicted from apartments last year because of this new law and people like us are going to have to move in the future because of this to.
What have you done to the not rich people?


4 people like this
Posted by Sustainable
a resident of Monta Loma
on Aug 19, 2017 at 6:04 pm

Sorry, Bernardo, but unless you tell us what building this is, we all must conclude that this is simply fake news from landlords.


7 people like this
Posted by Chuck
a resident of Monta Loma
on Aug 19, 2017 at 8:35 pm

[Post removed due to disrespectful comment or offensive language]




32 people like this
Posted by Thomas
a resident of Monta Loma
on Aug 20, 2017 at 2:33 pm

Hey Sustainable,
Wake up, this is only the beginning.
Chuck nailed it.


60 people like this
Posted by ResidentSince1982
a resident of another community
on Aug 20, 2017 at 4:36 pm

ResidentSince1982 is a registered user.

Red tag is a specific term used in the case of a building not safe for occupancy. They don't red tag buildings in advance to take effect 8 months in the future. Something is fishy in some way about that statement. Are they kicking people out now as they should do if the building is that dangerous? Really, I too would like to know what property the resident is living in. 8 months allows time for a proposal to the city to building something new there, maybe, if the ground work has already been laid, which implies that the redevelopment was already planned before the sale.

As for the purported result, it's not so terrible. Development has been happening all over the city. So they tear down 65 units, and building 350 new ones. Isn't that what Google wants?


54 people like this
Posted by True
a resident of Blossom Valley
on Aug 22, 2017 at 2:56 pm

True is a registered user.

Weird....I seem to remember a number of public comments at Council meetings and on these message boards alluding to just this being a likely consequence of rent control.

Hate to say we told ya so but.....


Sorry, but further commenting on this topic has been closed.

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