In total, the requested rent hikes would have increased annual profits by $170,000 on a property already generating more than $1 million in net income, according to the petition filings. The move to increase rents spurred protests by Del Medio tenants, who said the higher cost would force them out of their homes and possibly the Bay Area.
Last month, city hearing officer Jil Dalesandro sided largely with those tenants by rejecting nearly all of the Del Medio Manor owners' claims for increasing apartment rents. She said that the bookkeeping submitted by Del Medio was flawed and included numerous ineligible expenses.
In response, both sides in the case ended up filing appeals against the decision to the Rental Housing Committee. Lindsay and her partners argued various costs for running their business were unfairly excluded when they deserved consideration. Among her complaints, she took aim at the decision to reject a so-called Vega adjustment, a special increase intended for severely underpriced units operating at a net loss. She criticized how a whole category of "junior one-bedroom" units at Del Medio were downgraded to studios.
In her decision, Dalesandro had argued that Del Medio's junior one-bedroom units were essentially studio apartments with just an accordion door to serve as a partition.
Speaking before the rental committee on Monday, Lindsay blasted Dalesandro's decision for dismissing years of cashier's checks, invoices and accounting submitted by her business to prove its expenses. Lindsay alleged that the city was downplaying her expenses by lumping together her on-site manager, property management firm and administrative costs. City officials were capping how much of her labor costs could be reported as legitimate expenses, she said, insisting they were holding her to a completely different standard than what was normal for the apartment industry.
"How can exclusion of these expenses be considered part of a fair rate of return?" Lindsay said. "We feel like guinea pigs in a flawed process, and this committee has a duty to review these flaws."
Meanwhile, tenant attorneys raised their own grievances, saying that Dalesandro needed to provide more evidence to reinforce her decision, especially if it was later challenged through a lawsuit. They asked that she clarify how she calculated Del Medio's maintenance costs, income and expenses. While the tenants largely supported the decision, it would help for the rental committee to have more analysis, said attorney Margaret McBride of the Community Legal Services of East Palo Alto.
"The question before you is straightforward: Was the hearing officer's decision supported by the evidence?" she said.
It was a complex case further complicated by the Rental Housing Committee's narrow role in the appeal. Attorneys advised the committee they could only review the specific issues being appealed in the hearing officer's decision, and they weren't supposed to relitigate the entire case or introduce new evidence.
Rental Housing Committee members had plenty of questions regarding the hearing officer's decision, but their legal counsel warned they should be very cautious about second-guessing her. Any changes made to Dalesandro's decision would need to be supported by "substantial evidence," which would require poring through hundreds of pages of submitted documents. Instead, Karen Tiedemann, attorney for the RHC, recommended the committee should first ask Dalesandro to elaborate on any decisions that they found questionable. Even if the rental committee disagreed, they should still sign off on Dalesandro's decision if a reasonable person could reach that same conclusion, Tiedemann said.
But was the hearing officer's ruling grounded entirely in evidence? Committee member Tom Means didn't think so. He and other members seized on the argument made by the hearing officer that the Del Medio apartments were not actually underpriced, given their age and their proximity to the noisy Caltrain tracks.
"That's making what I think is a biased inference," Means said. "You can't just say you don't get an adjustment because they're over by the tracks. I think she just made an easy decision."
City staff pointed out that the nearby train tracks were just one among a series of reasons cited by Dalesandro for why the apartments shouldn't be expected to fetch a market-rate price.
The committee also pressed for more information on why the hearing officer shot down certain expenses as possibly unnecessary. For example, Dalesandro eliminated a $44,000 resurfacing job for the Del Medio parking lot. The landlord failed to prove it was essential, and tenants were claiming the same lot was repaved just two years earlier, she wrote in her decision.
In the end, the committee agreed to ask Dalesandro to clarify most of her points. For example, Dalesandro had poked holes in a variety of Del Medio's claims, including that they earned $1.62 million in 2015, and spent $333,000 on maintenance that same year. But the rental committee was equally skeptical of alternative figures that Dalesandro apparently believed were more accurate. They also indicated that some funding paid to the California Apartment Association could be legitimately counted as operating expenses, so long as it wasn't used for lobbying.
In their decision, the Rental Housing Committee asked Dalesandro to provide more evidence, or modify her ruling on nearly all of the 10 issues raised in the appeal.
This story contains 970 words.
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