Unsolicited advice for owners of non-RSO buildings

Owners of non-rent stabilized apartment buildings in Los Angeles with rents below market (eg most of them) ought to be considering their options in light of the likely repeal of Costa-Hawkins.
Two obvious courses of action:
  1. Sell now, while the market continues to (mistakenly, in my view) place a premium on non-RSO buildings; or
  2. Immediately bring rents to market (likely via some kind of re-positioning strategy) in order to avoid being “trapped” with low rents when rent control is inevitably extended to post 1978 structures

To fail to do either of the above is malpractice.

Some love for Scott Weiner

As a housing supplier, it is in my financial interest for the government to continue to block development of new housing at a scale commensurate with demand.

However, as an American who loves cities, in general, and Los Angeles, in particular, I am strongly in favor of loosening restrictions on development. More housing equals lower rents, which means more people can afford to live in cities, where their hours will be spend more productively, etc.

So it was with great pleasure that I read about Scott Weiner’s proposed state legislation to forbid municipalities from restricting development around mass transit.

This is the kind of revolutionary change required to address CA’s housing crisis. And it won’t cost the state anything.

Very poor urban planning

Here are some pictures that drive me insane:


 

These are pictures, respectively, of the Vermont /Beverly, Soto/1st, and Vermont/Santa Monica Metro stops.

Why do they drive me insane?

As a city, we are spending billions of dollars to build out our currently-woefully-inadequate public transportation system to turn LA into a normal city.

The single most important factor determining whether people will use trains is how long it takes to get from door to door, inclusive of the walk on either end of the trip.

With that in mind, how insane is it to position your stations in the middle of huge, vacant lots?

Why wouldn’t you build super-dense apartment and/or office projects above the stations?

You would add tens of thousands of daily rides to the system, generate material rental income which could be reinvested in the system, and fill in these ridiculous tears in our urban fabric.

This is such an obvious win that planners at Metro ought to  be running around with their hair on fire to make it happen.

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In other, less angry news: Some very kind person sent me a bottle of Blue Label from K&L with no card on it. It’s delicious! Identify yourself and be thanked personally!

Another obstacle to in-fill development

Want to give you some insight into why, exactly, its so hard for LA to add more housing.

Here’s a perfect example:

We own a big, R3 lot in an improving area, bordered by two alleys.

This ought to be a super easy lot to develop and, indeed, we are in the process of obtaining permits for a new building.

The pr0blem we have is a utility pole whose guy wire (basically, a cable holding the pole up) blocks access to our lot in a way that complicates the parking layout.

There are two solutions:

  1. Re-design the parking and the building to avoid the wire, resulting in a worse design and higher construction costs (because we need to use parking lifts); or
  2. Move the pole

Now, moving a pole ought to be pretty simple. It’s basically a few guys and a truck working for a few days. We’ve heard estimates that this ought to cost in the range of $30-50k. Really expensive, but not fatal to the deal.

The problem? Timing.

Because DWP is a state-owned monopoly with ZERO incentive to do much of anything, there is literally no way to know, with any certainty, whether moving the pole is feasible, how much it would cost, and how long it would take.

In case you haven’t figured it out from reading my blog, the one thing I absolutely can’t stand, it’s uncertainty… because I can’t sell “I don’t know” or “maybe” to my investors.

Bottom line: We may end up just the existing structures on the lot. It’s way less hassle… but the city loses a bunch of units it could have had.

Surprised by the south Valley

Was looking at a deal in the Valley yesterday, was surprised by the rents, and came to a realization about apartment supply.

The reason that I was surprised by the rents is that I’m used to thinking of the Valley as having considerably more supply than the city. There’s physically just a ton of land there.

So I was shocked to see 1/1s going for upwards of $2000 in the south Valley… that’s like Silver Lake.

Here is what I think is going on:

  1. While there is a lot of land in the south Valley, almost all of it is zoned R1
  2. The main places where density is permitted is along the main commercial commercial drags (Riverside, Laurel Canyon, Cahuenga, etc.)
  3. Those streets were mostly built-out in the 1960s, so the buildings are rent-controlled
  4. If you want to rip down an existing RSO building to build a new one, the new building will be rent controlled

The net result of all of this is that supply is actually highly constrained in the south Valley.

Who knew?