SFAA general membership meeting; Jan 2014

Welcome back to our first meeting of the year, I am returning for one more cameo year as your board president…a result of some shaking up at our board level. While we can all agree that 2013 was a great year in many ways for our industry; I would be preparing for some tapering of the great fortune in this the coming year.

  • Interest rates are set to rise which will lower asset value across all classes of assets especially property. Cap rate valuations for multifamily buildings are still equal to the cost of the financing purchase money.
  • Rents have seemingly topped out in the city and the city government is heeding the cries from the media to install stop gap measure to preserve existing rent controlled housing, reduce the opportunity for speculative RE transactions and fast track any development opportunities that involve affordable housing which is often confused in the media with rent controlled housing.

The major difference is that rent controlled housing only becomes affordable to those people who become long term entrenched tenants many of which have the means for pay more or closer to market rates. This is a concept that is not perceptible to many on the tenant lobby side and that is no surprise.

Our sources at the City Attorney’s office informed us there are numerous pieces of legislation aimed at housing, development (pro and con).

There is much talk about amendments to the Ellis Act on the state level but this is really more political posturing than anything….the state legislature cannot and will not make “carve outs” for SF or specific cities and they are very highly unlikely to make any sweeping changes to the Ellis law despite the Demo super majority because of the strong moderate Democrat caucus that CAA has aligned itself over the years that is now really coming to fruition.

What will likely happen to resolve the perceived Ellis Crisis that is happening is that SF will enact much stiffer relocation fee schedule and do everything it can to dissuade any speculation of any kind. What they don’t understand is that for every underperforming 8 unit apartment building that is Ellis’d; that building now becomes a huge tax revenue for the city, in addition to ostensibly creating 8 new vacancies where those buyers were once renters.

At a recent meeting with the mayor someone in the audience made the astute observation that the success of the mayors’ pro tech business policies is what is partially to blame for the issues that we have now.

This is true to a certain degree, but the real answers are that the condo conversion legislation hijacking of last year and the city’s historical failure to enact an effective housing policy has led to this boiling point.

The good news is that as long as you plan to stay in the business of being an apartment building owner; you really won’t be affected so much by the all the dust up in the press. What is happening legislatively is for the most part aimed at owners’ rights to go out of the apt business or develop their existing properties.

The big story lines this year will be:

  • Influx of new development units in the SOMA, mid and upper market areas, there are about 6000 actual units slated to come online this year and of course on the eve of that, the leftys want to rewrite the rules of the game.This should do something to alleviate supply issues but many like myself feel that they will generally be competing with each other in the beginning. The ones earlier to market will set high rents and those will trend down at their anniversary dates in 12 months when there is much more supply. Don’t cry for any of the developers though; existing landscape is already 15-20% better than their pro formas when they put shovels in the ground.
  • District Elections will be big this year and per usual, it will be a defensive game. Even #s
    District 2 Mark Farrell huge industry advocate
    District 3 David Chiu running for State Assembly
    District 4 Katy Tang huge industry advocate
    District 6 Jane Kim works closely with THC, Randy Shaw right hand gal
    District 8 Scott Wiener industry advocate
    District 9 David Campos running against Chiu for State Assembly
    District 10 Malia Cohen may be vulnerable and needs apartment industry support

Maybe the biggest problem we have is the lack of factual reporting in the press.

Politicians are given a platform to spew off whatever they want and no one in the press ever calls anyone out on real facts which is really indicative of the sad state of investigative reporting everywhere. If it bleeds, it leads and just the way it goes. Supervisor Mar was quoted in the sfgate.com the other day about the 1000s of displaced tenants from the Ellis Act. This is just factually untrue. The Rent Board keeps records of all Ellis filings and last year there were a total of 276 doors affected, 60 of which occurred in December the busiest month of the year for Ellis filings.