The Eastsider has a nice summary of the protest NELA Alliance did against gentrification in Highland Park yesterday.
I’ve already written about where we come down on this issue.
Today, I just want to add that I am grateful to the The Eastsider, the commentors on the Eastsider, and to the protestors themselves for carrying out this debate in a peaceful, respectful way.
We have been receiving media inquiries and I thought I’d take the time to share my thoughts here.
We have learned a lot, both from our day-to-day business and also the reaction to our agent’s bike tour in Boyle Heights, about the human impact of gentrification, in general, and our business model, in particular.
We understand that losing one’s home is scary and painful. And we know that, even if you’re not losing your home, seeing your neighborhood change rapidly around you can be disorienting, at a minimum.
That said, having considered the issues carefully, we come down on the side of those who believe that housing ought to be subject to the free market, just like most other things we consume. So, we will continue to conduct our business in a way which is lawful (of course) and also respectful of the feelings of the people whose lives are affected.
We recognize that other people disagree and that’s fine; we’re glad we live in a country where those disagreements can be had in a peaceful, civil manner.
Finally, some unsolicited advice for people who are concerned about the prospect of losing their homes (in Highland Park or anywhere else):
- If you rent, you should immediately determine whether you are protected by LA’s Rent Stabilization Ordinance. In general, buildings with two or more units built prior to 1978 are protected and those built after are not. To find out whether your building is protected, either look it up on zimas.lacity.org or ask the Housing Department;
- If your building is covered by the RSO, you are in reasonably good shape. There are circumstances in which you can be forced to move, but those circumstances are pretty rare and you would be entitled to a large payment (somewhere between $9-19,000, depending upon your age, income, etc.). You may also be able to negotiate for more, depending on your specific circumstances. If you need help understanding your rights, you can always call the Housing Department.
- If your building is not covered by the RSO (which many in Highland Park are not), you should strongly consider moving to one that is. I know moving is painful and expensive, but, as a tenant in a non-rent control building, particularly if your original lease has expired, you are in danger! The owner of your building can require you to move out in 60 days and there is not much you can do.
- If you have decent credit, an on-the-books job, and have (or can get from family) as little as $15,000, you should strongly consider purchasing your own home or small apartment building. There is a government program called FHA through which the federal government can help you buy with as little as 3.5% down. You may not be able to afford to buy in Highland Park, but, if not, you should consider doing so in other, more affordable neighborhoods close by.
We hope that everyone will accept the above information / advice in the helpful spirit in which it is intended.
Have spoken with a ton of people over the past few days who are sort of happy Geoff Palmer’s partially-built apartment building burned down.
Obviously being happy about a fire is kind of weird. But no one got hurt (that I know of) and many people loath Palmer’s buildings because they’re ugly and anti-social (in the sense that they are designed as fortresses protecting their inhabitants from the neighborhood).
I have to admit that I’ve been walking around thinking about the fire as an act of righteous architectural vigilantism.
But that view is wrong.
I dislike Palmer’s buildings for the same reasons everyone else does
But he has built thousands of apartments. If you care about housing being affordable, then you have to be in favor of people adding to the supply. And Palmer has added more to the supply of apartments in LA than almost anyone else.
Today, Mayor Garcetti announced the release of a major report on earthquake safety.
The report addresses telecommunication, water systems, office buildings and, most importantly from our perspective, apartment buildings.
The issue with apartment buildings is pretty simple. The city has roughly 16,000 soft-story apartment buildings. These are buildings whose ground floor structure can give way in a quake, leading to total building failure. Obviously, when a whole building collapses, there is major risk that people with die.
The solution for these structures is pretty simple: You just build a steel frame on the ground floor to support the structure.
The downside is, of course, cost. Depending on the size of the building and some other factors, the cost of retrofitting each building is likely to be $15-60k.
The question, as with all city regulation, is: Who pays?
The simple answer is the building owner. After all, it’s his property that’s at risk.
But what about rent control? After all, the city has basically made the tenants in rent controlled buildings into long-term partners with the owner (who can’t make them leave, nor raise their rent to cover the cost of the improvement to the building).
The city has a capital improvement program for improvements to building systems where the benefit is shared across all the units. Retrofitting soft-story buildings ought to fit right into that program (no matter how absurd I think the program is).
But the problem is that the program requires the owner to front the money for repairs and then get reimbursed 50% of the cost by the tenants over a long period of time. What about owners who can’t come up with $15-60k?
You might think the city could set up a program to lend owners the money. After all, the payments on a $30k loan at 5% interest amortized over 15 years are only $236 / month, which is affordable, particularly if the tenants are contributing via the capital improvement program.
But here’s the problem: Many modern commercial loans prohibit second trust deeds (eg loans which are junior to the first mortgage). So, a city loan program would either need to be unsecured (eg not on title, and therefore nowhere near as secure as a mortgage) or else require some kind of city / state law requiring banks to allow for a second loan specifically for the purpose of covering earthquake retrofitting (which, it has to be said, would protect the bank’s collateral!).
Has the mayor’s team considered the above problem? Guess we’ll find out.
I have spent years thinking about trying to apply our design sensibility to the retail asset class.
After all, we’re very good at maximizing the value of small spaces. It ought to be possible to do this with stores, too.
So, why haven’t we jumped in?
1. The macro-trend towards online shopping. My family buys almost everything online (almost all from Amazon, but that’s a different story). I assume that, as people get more and more comfortable with online shopping, this trend will continue, making it very, very hard for traditional retailers to compete.
2. The conflict between our design sensibilities, tenants’ credit and what the banks want to finance.
Given where we do business and the kind of deals we do, I’m sure you can guess that Jon and I are not exactly in love with large chain retail. I’m not any kind of a psycho on this issue, but, given the choice, I prefer interesting one-off shops over chains. And, obviously, if we were going to start doing retail deals, my impulse would be to design projects to appeal to / enhance the businesses of independent retailers.
The problem is that independent retailers are terrible credit risks. They go out of business all the time and they tend to do so all at once when the economy goes bad.
Now, if your tenants are big chains, a recession isn’t so bad. As long as the company avoid bankruptcy, you know the rent is getting paid. But, with independent tenants, there’s not really much you can do, unless you have secured personal guarantees and you’re really excited to try to take peoples’ houses away.
Banks know this and so they are very hesitant to lend against retail properties with so-called non-credit tenants. So, on top of the business model issue, there is also a financing issue, in that the leverage you want / need is both harder to get and more expensive than it is in multifamily.
Bottom line: The type of project we’d love to do, with well-chosen, independent shops, is risky and difficult to finance. So, unless the land is an absolute steal, we’re going to stick with multifamily for the time being.
Hat tip to Adrian over at Curbed for noticing a new, irritating piece of regulation from LA’s city council.
Here’s the regulation, in a nut-shell:
“The LA City Council … preliminarily pass[ed] an ordinance that will make it illegal to covertly demolish buildings more than 45 years old… The ordinance requires property owners to notify neighbors and their Council District Office, and to post notice on the property, for 30 days before they can get a demolition permit for an old building. It also introduces a $60 fee for anyone looking to tear down an old building, to cover costs.”
It’s only 30 days, right? Not a big deal, you might think. Wrong. Why?
45 years ago, LA was basically a bunch of inter-connected suburbs. A ton of residential structures were not built as densely as the zoning allowed. And much of the commercial space reflected the times in which it was built (for example, strip centers with awful parking lots abutting sidewalks and making neighborhoods feel terrible).
Developers big and small are now making money by buying these obsolete buildings, ripping them down, and building better structures in their place. Am not arguing that all development is sensitive / good… there’s plenty of junk being built. But, by and large, I’d prefer to bet on the profit motive forcing developers to build densely, which is the most important thing for making our city more affordable / walkable.
So, you might ask, why does a 30 day delay matter?
The answer is that it introduces additional uncertainty into the development business. Now, instead of closing on a property, getting plans approved, and ripping the existing structure down, you’re going to need to run this 30 day gauntlet with your fingers crossed, hoping that some wacko isn’t going to start a campaign to save it.
When you add uncertainty to development projects, you force the developer to demand more profit in order to run the risk of building. The main ways to build in more profit are to buy the land for less (hurting the existing owner) or else sell / rent the resulting new structure for more (driving up housing / business costs).
Now, I’m not arguing against the idea of historical preservation. There are clearly some exceptional buildings that we’d like to keep around in our city. And, if the city is doing its job, then those buildings should be on historical preservation lists where you can’t pull any demo permits, ever.
But it’s patently absurd to make delay ALL development so that we can avoid maybe losing some marginal structures that aren’t actually important enough to be designated as landmarks. Not very smart.
(For what it’s worth, here’s my prediction: Developers will start asking sellers to post notices and then pull demo permits prior to removing contingencies on acquisitions of properties with “historical” structures. This way, it will become the seller’s problem, rather than the buyer’s.)