Uploaded: Fri, Nov 11, 2011, 9:13 am
Equity prepares to buy East Palo Alto apartments
Residential giant set to purchase 1,812 units in Woodland Park before the end of the year
Despite protests from the community and concern from the City Council, Wells Fargo Bank is now finalizing its sale of more than 1,800 housing units in East Palo Alto to a single buyer with a nationwide portfolio.
The firm Equity Residential announced Friday that it is preparing to take ownership of the Woodland Park housing portfolio that was previously owned by the Palo Alto-based company Page Mill Properties. Wells Fargo acquired the properties a year ago through foreclosure after Page Mill defaulted on a $50 million loan from the bank.
Wells Fargo's recent decision to sell the properties to Equity Residential has attracted heated opposition from the council and from the city's affordable-housing advocates, many of whom fear that Equity will redevelop the neighborhood, which includes more than half of the city's affordable-housing stock.
In September, the council sent a letter to Wells Fargo urging the bank not to sell the properties to a single buyer. At a Sept. 20 council meeting, council members and housing advocates voiced concern that the new buyer would follow the example of Page Mill, which raised rents and filed about a dozen lawsuits against the city, challenging its rent-control program.
Equity announced Friday that it is set to take ownership of the apartments before the end of the year. In a statement, the company said it would remain committed to preserving affordable housing in East Palo Alto. John Hyjer, the company's vice president of investments for Northern California, said the company is "excited to welcome residents of Woodland Park to the Equity Residential community of properties."
The company owns or has an investment in 417 properties, totaling 119,011 apartment units.
"Woodland Park is indeed a special property, as it represents the largest block of affordable housing in East Palo Alto," Hyjer said in a statement. "Recognizing that, we will continue to serve the needs of Woodland Park's residents in this capacity."
The company, according to the statement, plans to operate the apartment community "with a commitment to maintaining its status as affordable, workforce housing in a region with a lack of available alternatives in this category of housing."
Hyjer said in an interview Thursday that Equity will fully comply with the city's rent-control laws and will not seek to convert the rent-controlled units to market rate.
"We are not going to challenge any statute on rent-control affordability," Hyjer told the Weekly. "Anything that's currently affordable housing will continue to stay that way."
Hyjer said the company has ample experience when it comes to rent control. Equity is the largest landlord in Berkeley, where 20 percent of its portfolio is affordable housing. He said the company wanted to purchase the Woodland Park properties because of their lucrative location in the middle of the Peninsula.
"We saw this as an opportunity to purchase very well-located assets in a prime location," Hyjer said.
With the purchase of the Woodland Park portfolio, the company will now become the largest landlord in East Palo Alto. Hyjer said the company plans to invest $15 million over the next three years to renovating the properties, which were built between 1912 and 1969. Though both Page Mill and Wells Fargo had invested millions in improvements, many units remain dilapidated.
"We're looking to working from inside out as we get to these units to upgrade them and make them more livable," Hyjer said.
The Chicago-based Equity Residential is the nation's largest real-estate investment trust. It is chaired by real estate mogul Sam Zell, whose holdings also include the Tribune Company. Tenant advocates had opposed the sale out of fear that the new buyer would raise rents, forcing the displacement of many families in the Woodland Park neighborhood.
East Palo Alto Mayor Carlos Romero had met with Equity officials Wednesday to discuss the change in ownership and said he was assured that the company has no plans to break up the portfolio or redevelop the properties any time soon. He also said the company expressed a commitment to preserving rent control in the Woodland Park neighborhood. Romero was one of several council members who had urged Wells Fargo not to sell all 1,812 units to a single buyer.
Romero, who attended a protest against the sale in September, said Equity officials told him that the company would comply with the city's rent-control laws.
"For the foreseeable future, they said they'll run this as a rent-control portfolio and they said they have no interest or desire to work against the rent-control ordinance," Romero said. "At this point, I have to take them for their word."
Posted by Good Neighbor,
a resident of East Palo Alto
on Nov 11, 2011 at 10:56 pm
So what do you call people who, lacking any facts, who can't focus when you are told the facts, but who nonetheless appoint themselves to apportion blame and call anyone a "whiner" when they dare to present real facts, legal considerations and history.
Ranters? Misanthropes? Hard to say which, but we have some of those here, that's for sure. Could you actually focus on the issue at hand rather than shift the topic around. Seriously, this issue has nothing to do with your fantasies about people living off "entitlements." I find it so sad that so many people are blinded by their prejudice and ignorance that they can't speak factually about East Palo Alto or rent control or the realities of development in the Bay Area.
And by this I mean you Jane. You need to get the basic facts right. The Just Cause for Eviction part of the EPA ordinance does not allow one to destroy property. You are just wrong, and it would be salutary if you stopped spreading garbage arguments. If one destroys property in EPA, one will be evicted, guaranteed. That's not what the Just Cause rule doesvandalism is a just cause.
The reason why the Just Cause for Eviction clause is there is because without it, the limits on Rent Increases couldn't be enforced---landlords would just evict people in order to raise rent. This is common sense, and it is a free market policy with legal recourse. Let's repeat this again, though: in the entire state of California, one can charge market rates on an empty unit. This establishes a fair (market) basis for the tenant and the landlord, and certainly does give the landlord an incentive to fix up the apartments. Please spare us your ignorant "free market" rhetoric---the EPA system is a free market system, but it does regulate increases once the original lease expires. It's hardly different than rules that don't permit doctors to change their rates once you go into surgery.
Obviously, some people can't analyze the situation so they make up lies about how the rent stabilization system somehow creates poverty. Please, that's ridiculous and false. As anyone who has been in the Bay Area for a while and isn't blinded by some serious racism or amnesia, the relative poverty in EPA long pre-existed the implementation of Rent Stabilization in the mid-80s. Indeed, EPA and its neighboring cities have done much to improve the neighborhoods and the tax base since then, and this has been the result of deliberate planning that included the Rent Stabilization Ordinance. Again, can we just stop making false dichotomies between Rent Stabilization and economic progress and/or development? The rent stabilization system is not a "hard" rent control regime that locks out improvements--it works with it.
The real question here, which too many people are ignoring, is whether Equity Residential has any expertise in doing either of the things that everyone is assuming: 1) do they know anything about managing and improving rent stabilized properties? 2) Do they actually have any experience doing substantial redevelopment?
The answer to both of these is clearly 'no.' So given that the last entity that came into town--Page Mill Properties---gave the same two answers (and similarly lacked such experience), what is the likely outcome?
It is certainly a reasonable fear that they might try to do what Page Mill did---jack up rents, try to make a fast buck and then flip the properties to the next private equity company. This would fit in more with Equity's general business model, and so it seems quite likely, though they would surely be breaking the law and causing senseless dislocation without improving the properties or property values one bit. No one, I think no one wants to see this happen. But it isn't whining to point out that it has happened in the last five years, and we'd like to prevent it from happening again.
But what about the glorious future of redevelopment? Surely, Equity Residential brings big bucks to the table that they are going to invest in East Palo Alto in order to reap huge profits and an improved community! Well, look at what they are saying: they are going to invest approximately $15 million in the apartments over 3 years....for 1800 units, that amounts to $8K per apartment total, or about $3K a year....for apartments that they renting for about $10-12K a year. It's actually not that large amount of money---probably in line with what an average property management company would need to "invest" in order to extract the profits from the fairly lucrative business of high-density renting to poor people. Do you think this is redevelopment money? Puh-lease, I am pretty sure that the properties were in aggregate and average getting about this much love per year before Page Mill came on the scene.
Okay, but what about some big redevelopment deal, you know, like the Four Seasons part 2 or some posh townhouses?
Well, there a raft of reasons why this ain't going to happen. First, San Matteo County is required by state law to ensure that there is affordable housing in the county. And the EPA portfolio is a huge chunk of it. So you tell me, what part of the peninsula is going to be carved out for affordable housing? Is Equity going to pay for that? Second, if the new housing were to be built on the properties, what kind of limits would be placed on it by Palo Alto, Menlo Park, and EPA? Oh, they would be significant---not just because it would be hard to build to code at the kind of density one already sees there, but because Palo Alto and Menlo Park are going to place all sorts of restrictions on traffic, environmental impact, easements onto University Avenue, etc. The cost of such planning and easements would be big, big bucks---probably more than Equity is paying to acquire the property. Third, the area right along the creek is geologically unsuited for building big buildings, or large scale commercial development; and I imagine that the people in west menlo and crescent park wouldn't stand for it anyway. Fourth, the City of East Palo Alto has been cheated out of the revenue due to them from the Four Seasons and Builders' Square projects in such a way that anyone seeking to do redevelopment outside the current redevelopment zones would face very stiff political opposition---when you burn people, they don't want to be cheated again.
Given these factors, it is much, much more likely that Equity will just milk the properties for all they are worth by pushing the limits of the law and create an appearance of "upward trends" in rental prices. Unlike a small time investor or a housing non-profit in it for the long run, they will be looking for superficial improvements and quick gains that they can use to sell the whole package off to some other company. I'm guessing the next owner will be some sort of foreign investor who will be sold, like some of the fools posting above, on the "redevelopment opportunities."
Nah, Equity is not going to improve the properties very much and they aren't going to bring redevelopment. That's not the business they tell their shareholders they are in! What they are likely to bring is a short-run flip-it attitude. And then EPA will meet the next company to turn unrealistic expectations into a community disaster.
It's all very sad. If Wells were to sell the property to some of the established housing non-profit groups in the area, they would have been creating a better, sustainable future for EPA. Instead, Wells is handing EPA over to a group inexperienced in everything they would need to succeed, and with a long history mendacity as well as labor and legal violations. It offends me deeply that Wells is being subsidized by us taxpayers to achieve this result.
Posted by Good Neighbor,
a resident of East Palo Alto
on Nov 12, 2011 at 10:36 pm
Marrol, I think that many people (including myself) in EPA have similar goals to what you state: they would like to see better housing, a better mixture of single-family and multi-family housing, and some more public (or even quasi-public) green spaces, and some low-footprint commerce. The question is of course how to get there---and here, more specifically, whether Wells is respecting community input (which they are required by law to do) in choosing the Equity Residential for this sale.
That's the issue that I'm here to discuss and try to sort out with neighbors. It's very irritating for others (not you Marrol) to insist that any time anyone from East Palo Alto argues anything about public policy, they almost immediately get accused of wanting a "handout". This nonsequitor is offensive and stupefying in the sense that it documents people in the act of making themselves and others stupid. No one wants a "handout" here.
For reasons that I've already described above, the mild rent stabilization regime in EPA is not a handout, its a very reasonable form of regulation on the market that leaves ample room for a modest return on investment informed by reasonable expectations.
But all that aside, I think the chorus I hear here is one of "redevelopment," and I think it is really important to recognize that rent control is only a small sliver of the limits on redevelopment. If you believe rent control is theft, as Mr. Wallis robotically argues, I'm sure you must believe that zoning is also a form of theft, and so are state housing limitations, and so are municipal ordinances like those of Los Altos Hills or Atherton, where you are not allowed to build any commercial enterprises inside city limits. Well, let me tell you, all of these limits on redevelopment exist in EPA and they do so for a variety of historical reasons, mostly good, some bad, but all fairly binding. You can't just come into an urban area, buy property, and do whatever you want---witness how much Stanford with its billions of dollars must struggle to change their footprint in Palo Alto! And moreover, these reasons--political and legal--are ultimately grounded on social reasons: you can't seriously have a community as rich in economic activity as that of the peninsula and have no rental housing. Not everyone has the means or life situation where purchasing makes sense, and for those who can buy a nice house in downtown PA, they still need someone to do their landscaping and teach their kids. That's what a lot of the people in EPA do--they work in service professions that extend the reach of PA's storied entrepreneurs. Reasonable people understand this, of course; others believe if you just build the wall high enough you can have peninsula sized enclaves where everyone is their own boss or lives off of their equities and they will enrich us all. But for those tuned into reality, some combination of zoning, public policy, and civic activism are going to improve communities more surely than calls to purge the poor and implement unfettered capitalism everywhere, right now, in all markets.
Given these limitationson redevelopment, what can, could, or might we hope for from Equity and Wells Fargo?
From Equity, I think not much. Not only do I think I've stated some good reasons why Equity is not going to make a real investment in the community, I think Equity themselves has all but stated that they won't. Simply put, they are margin trimmers, not developers, and certainly not redevelopers. If we are lucky, they will continue to rent out the same buildings with superficial improvements; if we are not, they will try to be Page Mill 2.0.
I think the best "optimistic" hope that places all faith in a "big entity" would be/would have been for Wells to engage some of the people who have successfully developed recent multi-family rental housing in the Bay Area--but in the past thirty years this has come almost exclusively from non-profit corporations with carefully crafted charters. I personally think if Wells Fargo had any guts and sense of community responsibility they would have set up a foundation to do some real planning, recruited EPA, PA and MP, and sold off parts of an approved plan. I even think they would have made more money doing that. But we can probably assume that the Wells (and Equity) officials all want to get their quarterly bonus for making a deal, just like Wachovia and Page Mill did. Fee extraction is the name of the game with bankers, even though their charter requires them to serve the community interest, and even though (as I've said before) these losses are subsidized by taxpayer money. But if they just want to move product, and exercise zero creativity, it is right and reasonable for the public to call them out for their laziness, greed, and disingenuousness. If you believe in "Messiah Capitalism" (the idea that they guys with all the money will save us), then maybe we all just need to wait until this portfolio ends up in the hands of another big bank after a default....give it time, it will....all because of the unrealistic expectation syndrome.
If this sale goes through, EPA will have to fight for their ordinance. I think that the (much improved) ordinance will stand up to any legal assaults Equity might throw at it, largely because Equity must acknowledge that they bought the properties with a full understanding that the properties are subject to rent stabilization, and this fact was built into the price they paid. The ordinance certainly provides that Equity can raise rents if they make capital improvements to the properties. The question will be: will they? And if they do, will that be the prelude to redevelopment? Both answers can only be "yes" if they are in it for the long term, and anyone who has read up on Equity's business model, this isn't their modus operendi. So be optimistic if you want, but one shouldn't expect miracles from a company like Equity: their business is to extract wealth from communities, rather than redevelop them, and EPA actually has fairly decent incomes from a national perspective. I'm just saying---this is probably how this deal looks from Chicago and North Carolina (where Equity and Wells Fargo's real estate division are based). They are looking at numbers on a spreadsheet and imagining themselves squeezing out a 20-30% margin before they flip the properties. They therefore they don't share any of our hopes for an improved East Palo Alto.
This is all very sad, especially because things were improving considerably before Page Mill came along and with Wachovia's leverage disrupted the working community organizations that have been improving things in EPA. The point that Hmmm makes about the negotiable and caring quality of the mom & pop landlords that preceded Page Mill is absolutely correct. The EPA RSB enforced code violations and kept rent increases in line without making everything a throw-down legal fight. EPA officials fought back valiantly against Page Mill's bullying, and Page Mill imploded like it was designed to do once it had extracted big fees for its principals and destroyed a bunch of capital (soon to be repaid by the taxpayers). After we in East Palo Alto lost many good neighbors to Page Mill's harassment, the ordinance was clarified, improved, and hardened, and the Rent Board was rebuilt. Equity should understand that EPA will fight back if they start behaving like thugs. People who survived the Page Mill absurdities do indeed feel vested in the community, and they will fight back, hard, against malefactor corporations.
And hey, if Equity actually engages the community in trying to do responsible redevelopment, I'll be the first to applaud. I do think that responsible redevelopment must include multifamily rental housing in the mix with condos. If it were truly responsible it would involve establishing an endowment for the schools in EPA, as this would do more than anything else to prop up property prices for condos/private homes on the West side.
But again, pardon our skepticism that a Chicago firm run by the notorious Sam Zell is going to be thinking about the long term goals of the community like that. If you look what Equity has done for Chicago, I somehow don't think you'll be so optimistic. Hint: you can often make more money (and far more predictable money) as a slum lord as you can a legitimate developer.
My feeling is that it is too bad that all the anti-government zealotry in this country blocks us from seeing that this would be an excellent place where some sort of true private-public partnership could really do a lot of good with the help of some of our more capable non-profit foundations in the mix. It is a sad fact that counties will shell out half a billion dollars in tax subsidies for football stadiums, but the counties (and the state) have been scared away from using public money to strategically jump into a situation like this and making things better. Sure, accuse me of big-goverment messianism if you wish, but that is a distortion of what I am saying, which is merely that some public (or non-profit foundation) money into the project would help keep the daily goals aligned with the long term ones. The work of making a poor community stable takes decades, and it takes real investment.
In the mean time, EPA will have to fall back on its solid rent stabilization ordinance, its good people, and its sense of community to try to wrench concessions from Equity Residential. My guess is that they will hold their own, but they will have to fight hard for it--and I dare say, much harder than people who are fortunate enough to be able to buy into a community like Los Altos or Palo Alto ever have to fight for their community. But in my way of seeing it, that sense of engagement is also a form of community investment, and it shouldn't be discounted. I hated seeing so many people displaced by Page Mill, and I fought against them, and I will fight against Equity if they fail to acknowledge that the people living here have rights, have their own interests to protect, and are much a part of the community of the Bay Area as people who pay twice the rent or ten times the mortgage.
I guess I believe we all do what we can, and the public sphere is where we work out the differences and try to understand each other. Though I can't agree with the view that private ownership solves all problems---hey aren't we in a debt crisis related to that thinking?----I do understand why people believe that from extrapolating from their own experience; but that doesn't mean that it's true for all situations, alas, and it can oddly glide over the often powerful and often negative community role played by the banks and corporations. Yeah, I know, people are trained to identify with money, and rich people, because that's how you get ahead personally---but it isn't necessarily how you face reality or improve the community.
EPA is definitely a work in progress, but its elected officials and its community impress me by how hard they fight to develop the other model of community improvement, the one not based on starting with a big pile of cash, but by working to bootstrap their way up when the cards are stacked against them. EPA is a lot better off than it once was, and I predict it will continue to improve...but it will be I suspect despite not because of Wells Fargo and Equity Residential that this happens.