Town Square

Equity prepares to buy East Palo Alto apartments

Original post made on Nov 11, 2011

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.

Read the full story here Web Link posted Friday, November 11, 2011, 9:13 AM


Posted by Hmmm, a resident of East Palo Alto
on Nov 11, 2011 at 10:33 am

Yes, yes, Equity are a bunch of peaceful, law-abiding business people who are interested in preserving affordable housing here. Mmmmm hmmmmm, that's how Sam Zell made it to the top - by following the law.

From reading these quotes, you'd think this company was working for the Peace Corps or were all volunteers for Doctors Without Borders or interested in winning Nice Guy of the Year awards.

Posted by Matthew Fremont, a resident of East Palo Alto
on Nov 11, 2011 at 11:55 am

I would love to know more about the "ample experience" with rent control that Mr. Hyjer is claiming as a result of the properties that Equity Residential owns in Berkeley.

When I contacted the Rent Stabilization Program staff in Berkeley to inquire about their experience with Equity Residential, I was told that there were NO properties owned by Equity that were registered in the Berkeley program and they were not aware of any Equity-owned properties that were subject to the Berkeley Rent Stabilization Ordinance.

From what I've been able to research online, the Berkeley properties that Equity lists on their website appear to be have been built recently enough that state law (Costa-Hawkins) exempts them from rent control. So what, exactly, is their experience with rent control?

I'm also having a hard time understanding how operating this group of properties under the East Palo Alto Rent Stabilization Ordinance fits with the "Business Objectives and Operating and Investment Strategies" that Equity Residential describes in their February 2011 10-K filing with the SEC: "Our operating focus is on balancing occupancy and rental rates to maximize our revenue while exercising tight cost control to generate the highest possible return to our shareholders. Revenue is maximized by driving qualified resident prospects to our properties, converting this traffic cost-effectively into new leases at the highest rent possible, keeping our residents satisfied and renewing their leases at yet higher rents."

We can see what this means to tenants by examining Equity's earnings report. For the second quarter of 2011, the most recent available on their website, they reported that average increase in rental rate for their "San Francisco Bay Area" properties which they owned for one year or more was 5.3%.

This increase is more than twice the rate of inflation for the San Francisco area reported by the federal government over the same period: 2.4% (June 2011 CPI-U change for "All Items" in San Francisco-Oakland-San Jose). This fact is important because under the East Palo Alto Rent Stabilization Ordinance rent increases are regulated based on the officially-reported change in the Consumer Price Index (CPI). For the period July 2011 through June 2012 the allowable annual increase in rent for properties subject to East Palo Alto's ordinance is 1.4%.

How will Equity achieve the returns expected by its shareholders if they purchase these rent-controlled properties in East Palo Alto?

Posted by Walter_E_Wallis, a resident of Midtown
on Nov 11, 2011 at 12:30 pm

Walter_E_Wallis is a registered user.

If you don't like Equity, get together a consortium and offer a better return to Wells Fargo. This crap of demanding ownership privileges by vote rather than by investment is an affront to capitalism.

Posted by Do it well & standards, a resident of Midtown
on Nov 11, 2011 at 12:48 pm

Make sure that if the new renters destroy/damage of the unit, that there is a hold-out of money for repairing, and NOT by the city. All people have to clean and improve their property, otherwise it goes to pot. That isn't a good thing, and wastes money!
So please make it good, but don't let the renters damage the property. If they do, they need to pay for it, or get out.

Posted by Marrol, a resident of Embarcadero Oaks/Leland
on Nov 11, 2011 at 12:51 pm

Great move. Time for new blood to come in and hopefully make an investment to upgrade the property on the west side of East Palo Alto. This area is far too valuable and desirable to systematically set aside for affordable housing. Time to change for the better. It could become home to more professionals and young families, with less issues involving those that neglect the property due to lack of ownership. I am hoping that some of the property is developed for town homes that will be sold, or major improvements in rental units that will demand premium rates. Far too many problems with subsidized, affordable housing. There are other affordable housing options in the bay area. Not everyone can or should expect to live in the Palo Alto area on somebody else's dime.

I too agree with Walter that dictating rents from the ballot box is offensive. If I own a particular piece of property, I should be able to rent that out or sell for whatever the market bears. Since when should anyone tell me what to do with my property that I made sacrifices for and worked a life time to obtain.

Posted by Good Neighbor, a resident of East Palo Alto
on Nov 11, 2011 at 1:00 pm

Mr Wallis,
You are obviously ignorant of how Wells Fargo obtained these properties. They were purchased through the leverage provided by a loan that Wachovia wrote to Page Mill Properties. This loan should have never been written because the properties could not possibly yield the return that Page Mill promised it would get. The same basic issue is at stake here---false expectations of return yield bad community outcomes.

Worse, when Wells Fargo purchased Wachovia, Congress gave them the right to purchase the debt at full value. Giving Wells Fargo huge tax write-offs for pennies on the dollar seemed to make sense lest the depositors at Wachovia suffer for the losses of their loan department. The fact that U.S. taxpayers have already paid for Wachovia's bad loan doesn't renders it highly problematic for Wells not to take public interests into account. And given that all anyone is asking for here is that they don't sell the properties to a buyer (and at a price) that reflects unreasonable expectations, I think your comments are out of line. Wells Fargo's successor allowed Page Mill Properties to create a public disaster for the community of East Palo Alto, and Wells has profited already by having the assets to sell. But they should do more to clean up the mess, and not help perpetuate the idea that some entity that holds a monopoly of affordable housing in East Palo Alto will be allowed to reap outsized profits.

It would be far better, as Mayor Romero has pointed out, if Wells worked to break the properties up to separate owners, and fostered the kind of genuine competition and investment that has made this country work. Instead, Wells took a big handout from the public and is milking it for all its worth without considering the public interest. And as the poster above points out, it is highly questionable whether Equity is telling the truth to its shareholders in purchasing this land under their current guidance. Being a public company and filing SEC reports has legal consequences, a fact which protects share holder and consumers alike.

The real concern in a property purchase like this---where real people live and can be hurt--is whether the expectations are reasonable and can conform with public law and policy. One suspects that Equity Residential has unrealistic goals in terms of rents or redevelopment possibilities or both, and that it is lying to its shareholders about this. No serious person can say that is not an issue.


your Neighbor.

p.s. please, spare us your expletives---this is a public forum, and you have a public responsibility here, too.

Posted by Good Neighbor, a resident of East Palo Alto
on Nov 11, 2011 at 1:17 pm

Just to clarify another misconception. The EPA law allows landlords to rent units out at what the market will bear. It limits, however, rental increases to CPI. This stabilizes the expectations of both landlord and renter, and tends to mean that people are interested in staying in their apartment (and keeping it nice) for the longer haul. Not knowing the facts is one thing. But it is just false that there exists a natural conflict between renting and caring about the property you live in. Rather, having lived in rent control for quite a while, I'd say you become invested in the property because of the security of knowing that you won't have your life turned upside down by crazy rent increases financed by some private equity company's ideas of implausible "huge returns."

Also, don't be so quick to compare this investment to "your money" unless you know what you are talking about, and consider how the tax and banking system works. These private equity firms roll in with leverage and the right to default I've lived in several places where some corporation rolls in, buys everything up, pays their execs some huge bonuses for being geniuses, only to blow everything up and leave the bank, the public, or (in the EPA case) a pension system holding the bag. If you can analyze THAT, finally you are talking about your money and mine. Otherwise, you are making a false analogy, because you can't declare bankruptcy, walk away, and stick the public with the loss the way a private equity corporation can.

Coming soon to a retirement system near you, buddy.
your neighbor

Posted by Marrol, a resident of Embarcadero Oaks/Leland
on Nov 11, 2011 at 1:20 pm

Again, redeveloping these properties on prime real estate is the best option for the new owners. Depending on the improvements and what the new facilities have to offer, it is the owner's absolute right to charge whatever rent the market will bear. No one should be expected to subsidize others. Great move, great news, and looking forward to what I hope will be a major upgrade to our region.

Posted by Marrol, a resident of Embarcadero Oaks/Leland
on Nov 11, 2011 at 1:27 pm

And I disagree my good neighbor. Look at the vast majority of subsidized, low-rent, and so-called affordable housing options and they are indeed wrought with problems and issues. You can't tell me that the typical rental property of this type is on the same level with owner-occupied real estate. Most people currently living on the west side of EPA would live elsewhere if they could. Goes without saying. All the more reason to develop these properties, charge higher rents, and bring in a professional clientele that does not require subsidies and the typical problems that goes along with that.

Posted by JustMe, a resident of Duveneck/St. Francis
on Nov 11, 2011 at 1:49 pm

Time to Occupy Wells Fargo?

Oh, wait, the people affected by this are working folks who need to earn a living, not non-producing entitlists who have nothing better to do than to "occupy" something in their demand for more entitlements.

Posted by Jane, a resident of East Palo Alto
on Nov 11, 2011 at 7:42 pm

About time! Not that I care for Wells Fargo, however East Palo Alto needs to stop their feeling of entitlement. East Palo Alto is a city in the middle, I say again, in the middle of the Peninsula, the Bay Area, and rather than trying to get itself out of the gutters, it gets itself deeper into it. [Portion removed by Palo Alto Online staff.]
Hey Good Neighbor, get real...why would any property owner want to upgrade if the mentality of the "entitled" is to destroy property. Have you seen the interior of some of these rented properties that are completely un-cared, nor, maintained, flea infested even though it is Section 8, trash and debris ridden, extreme mold problems, modifications, so much more. Then, the City, in its incredibily stupid mindset decides to pass "Just Cause" eviction, which entitles renters to destroy the property and the property owner can't even evict them unless these renters don't pay rent. How stupid is this! And so what, punish the taxpayers who are actually the revenue to the city? [Portion removed by Palo Alto Online staff.]

Posted by cpi and cpi, a resident of Embarcadero Oaks/Leland
on Nov 11, 2011 at 9:03 pm

There are many CPIs. There is in particular, a popular overall CPI, and also a rental housing CPI. The rental housing CPI is more relevant to rents when looking at fairness and has increased significantly more than the overall CPI over the past few years.

Which one does EPA use to restrict rent increases?

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 does—vandalism 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.

your neighbor

Posted by good neighbor, a resident of East Palo Alto
on Nov 11, 2011 at 10:59 pm

To the CPI question:

EPA uses the bay area housing cpi, which of course makes sense.

your neighbor

Posted by Walter_E_Wallis, a resident of Midtown
on Nov 12, 2011 at 6:06 am

Walter_E_Wallis is a registered user.

[Post removed by Palo Alto Online staff.]

Posted by Homeowner, a resident of East Palo Alto
on Nov 12, 2011 at 7:33 am

Good Neighbor, I am not well-informed on this particular issue, but you impress me with your thoughtfulness. Thank you for your reasoned arguments and civil discourse.

Posted by Marrol, a resident of Embarcadero Oaks/Leland
on Nov 12, 2011 at 9:43 am

And Good Neighbor, responding to the last sentence from your earlier post, I am equally offended that our tax payer dollars are used to fund government imposed subsidized housing, low-rent mandates, and other entitlements. These issues are highly relevant to this discussion.

I for one hope, and remain optimistic, that things will continue to change for the better in East Palo Alto. Wholesale changes do not happen overnight, but looking at the development of the old Whiskey Gulch and Ravenswood area over the years, they have come a long way. I do not see a great deal of commercial development occurring on the west side of East Palo Alto, but I do envision a future with new town homes, a condominium complex, and possibly some small retail. This my friend is the vision that East Palo Alto should also have, and having a large entity with the means to do it is exactly what the citizens of East Palo Alto, and future citizens need. With its proximity to Palo Alto, Stanford, and creek side setting, it is far too attractive and desirable a location to be relegated for low-rent, subsidized housing.

If East Palo Alto wants to continue to develop upward, these are the kind of changes that need to be made. The free market drives home sales and rents. Those that can afford to live in a particular place will. If you want to live in a particular place, then it's up to you to obtain an education, work hard, make sacrifices, and earn it. Not everyone can live in Palo Alto or Atherton, nor should anyone feel they're entitled to. Our government does not need to dictate to property owners what they should charge for rent, or how much space needs to be set aside for subsidized housing. As a property owner and tax payer, who worked his entire life from the ground up without needing or asking for a nickel from anyone, I resent these entitlements that make it comfortable for far too many people to exist on the backs of others.

Posted by Hmmm, a resident of East Palo Alto
on Nov 12, 2011 at 2:03 pm

It's clear that the reasons for the disparity between the reality of what Equity claims & what's happened in Berkeley with the Equity-owned properties is due to Equity being a bunch of fat cat lying liars. That's really all one needs to know in order to see through their PR smokescreen.

Good Neighbor & Mr. Fremont bring up excellent points that should inspire further research before uninformed nonresidents (who unfortunately often consider themselves informed) opine online. I haven't read one comment by a naysayer who admits to have read & understood EPA's RSO, EPA's history as a small city and the current predicament of the westside rental homes, apartments & duplexes, caused by scurrilous lying liars, fraudsters and rip off greedmongers formerly known as Page Mill Properties. Perhaps Marrol would be wise to consider how their tax dollars have been put to use bailing out banks whose loans were defaulted on to the tune of hundreds of millions of dollars. I love how the little person is blamed in Marrol's post re rent control, when these every day working folks aren't to blame.

Another point: the elitist slant of the post re housing for families & professionals. Who do you think lives here? Not families? No one here is a professional? Clearly, the demographic isn't known or understood for someone to make such an elitist, narrow-minded post. I suspect that the true belief is that only *high earning* professionals w/families should be allowed to live in this neighborhood, as decreed by nonresidents. Financial Manifest Destiny is their goal.

Posted by Hmmm, a resident of East Palo Alto
on Nov 12, 2011 at 2:13 pm

I've also been thinking about this irony: we've lived here for many years & our house wasn't under rent control prior to Page Mill Properties' takeover.

What was great was the give & take we had w/prior landlords. The rent increases were reasonable & in exchange, we took care of the yard, have been careful w/the house, fought crime & worked w/city agencies to make our area safer, more family-friendly & a more quality place to live. This wasn't something demanded on either side, but de facto based on similar values & a fair amount of trust. The majority of my neighbors operated the same way, having long-term landlord & tenant relationships. This has also been a great area for young families, Stanford grad students & post-docs, tradespeople & professionals. It's been a truly mixed area that's had a vitality & mutuality of its own.

Now we deal w/constant Rent Stabilization violations committed by the property management company that we have to track for our own protection, they seem to be incapable of distinguishing between those in apartments vs. those in houses but we, the tenants, have even greater protections now that we're under rent control. Ironic that greedmeisters like Page Mill Properties, the uber capitalists, put us under a regime that drives outsiders like Walter Wallace crazy!

Posted by Marrol, a resident of Embarcadero Oaks/Leland
on Nov 12, 2011 at 2:59 pm

Regardless of opinions, which I respect our relative differences, the bottom line is that Equity is in. Done deal. To Hmmm, I have often read your takes on a variety of subjects. Some I agree with, others I don't. I've noted that you have weighed in on plenty of Palo Alto issues without hesitation. I do not recall anyone hitting you with a non-resident tag, or suggesting that you exclude yourself from the conversation. This topic effects everyone in our region, not just residents of East Palo Alto. I hope for an environmental upgrade of your city as I'm sure many of your residents do. The potential improvements would not only help the city of East Palo Alto, but our region as a whole. I will join you in hoping that Equity makes a big step in the right direction.

Posted by Hmmm, a resident of East Palo Alto
on Nov 12, 2011 at 3:30 pm

I lived in PA for many years, was educated in PA & have family in PA. That is why I weigh in on issues there. I also (somewhat unfortunately) spend a lot of money in PA & am employed there, as is my spouse. The majority of PA residents who weight in on EPA issues have much less knowledge of the goings-on, history & realities here except for what they read in the news - & much of that isn't beyond the headlines. You will notice that as opinionated as I am, I also ask a lot of questions re PA issues that I'm curious about and/or effect my family. Asking questions is sorely lacking from so many of the nonresidents posting here - which is why I often refer to these posts as elitist & snotty - because they're appallingly assumption-based. There is so much - not sure how to put it - class-centrism from PA residents opining about EPA issues, it's just amazing.

It's nice & speaks well, if rather naively of your character that you have hopes in Equity. It also, frankly, speaks to my above paragraph re lack of knowledge about this part of EPA by non-residents. I truly appreciate your hopes - it's excellent for people to have hopes for each other as well as the areas that they inhabit. This is why I think you are naive: we heard it all before from Page Mill, then Wells Fargo & now Equity. If you have read Mr. Fremont's post, you can well understand our concerns & perfect cynicism. In many regards, the City was better off before all of these properties came under rent control due to one owner when Page Mill bought up so many of them, because there were mom & pop landlords who cared, there was greater diversity among residents, as well as their income levels & there were varying property values due to having a variety of owners. This is just one of the many reasons so many of us wanted this huge portfolio broken up. As much as non-residents like to pretend it's not so, many of us are capitalists who are aware of the pros & cons of rent control & were happy w/the way things were. Just because Equity is an out of control capitalist corporation doesn't make it the best thing for the area - that's a common myth too many people buy into - with unfortunate results, such as Page Mill.

Posted by Marrol, a resident of Embarcadero Oaks/Leland
on Nov 12, 2011 at 4:48 pm

Thank you for the kind response Hmmm, but please, do not make assumptions about my knowledge and perspective of East Palo Alto. I have lived in this region for many years, own property in East Palo Alto as well as South San Mateo County, and have done considerable volunteer work and job training in your city. I am not assuming or drawing my opinions about the conditions and potential in East Palo Alto without some first hand knowledge and experience. It is a community that has the potential to thrive and progress. This will not be achieved by maintaining its current status. As long as East Palo Alto is home to a disproportionate level of unemployment, poverty, drug sales, street violence, and gang activity, progress will not be made. Progress will be made when the conditions change through major, wholesale upgrades and development.

What I remain hopeful of is an East Palo Alto where you Hmmm, and others, are not spending a lot of money and working in Palo Alto as you stated. You will live in a vibrant, functional community that you can shop, work, and be abundantly proud of. Let's all be hopeful that one day we'll see these changes take place.

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.

your neighbor

Posted by Good Neighbor, a resident of East Palo Alto
on Nov 12, 2011 at 10:51 pm

By the way, I don't believe that Equity is a "done deal". Read the article again---my understanding here is that Wells and Equity have agreed upon a price and date. But it isn't a done deal yet. Many of us are calling on Wells to pull out of this deal and open it up to other bidders.

Wells Fargo's behavior has been quite awfully in all this. They didn't even seem to consider selling it to multiple owners, even though there are reports of former owners wanting to make an offer on their properties. Here, I suspect that the quarterly bonus factor looms large---some bank officials just want to make a quick deal and collect their bonus. Why do we let banks compensate their employees this way? It encourages behavior contrary to the public interest. I suspect they would make more money by breaking the properties up, but they don't care.

Worse, Wells has owned the properties for over two years and they still haven't complied with the registration requirements of the new ordinance. Equity therefore does not even know what they are buying, because the rent levels are unclear. Wells should stop the deal until they get all their data cleaned up and corrected and the legally required certificates are issued.

For these reasons, far from being a "done deal," it may well slide later or never happen if Equity is doing their due diligence. Who buys a rental property without having a clear picture of what the current and maximum legal rents are?

Time will tell. But if I were an Equity stockholder (I guess I am indirectly through some SP500 mutual funds, alas) I would be asking some hard questions about what tail is wagging the dog here.

Posted by Wow, a resident of Stanford
on Nov 13, 2011 at 7:23 pm

Good Neighbor's comments are thoughtful, inspiring and relevant. I have learned a lot from this thread. I also appreciate the other comments from E. Palo Alto residents and some of the thoughtful nonresidents. It's a complicated situation now that WF has decided to sell to just one landlord. So many people from the Stanford community have lived in that area over the years. I hope that Marrol learns from this thread, as I did. They might be a landlord, etc., but they don't sound well informed on this particular issue. OTOH, it's nice to read that there's a landlord who lives locally and has worked in the community, beyond their own personal investment. It's also obvious that many nonresidents are unaware of how many various smart people have invested time and effort into their community. I wish we would have more news that reflected these people. I also wish everyone there the best and I am proud that one of our alums is the mayor there.

Posted by Wallee, a resident of College Terrace
on Nov 14, 2011 at 11:10 pm

Page Mill Properties was just awful. Wells Fargo is mostly run at the senior level by people who should rightfully be in jail. Let's see what happens if the sale goes through. Maybe someone, finally, will do right by the citizens that live there.

Posted by Another Issue, a resident of Menlo Park
on Nov 18, 2011 at 4:49 pm

Sorry to be a "late hit" here, but I just saw the notice in the print paper about this.

Question: What price is Equity paying for these properties? This matters to EPA residents.

Between last year and this year Wells Fargo negotiated a massive reduction in property taxes on these properties. WF had been paying property taxes on the original purchase prices (by Page Mill) -- roughly $270M basis for the entire Page Mill portfolio (=$2.7M/year in property taxes). Then, presumably since Wells was unable to sell the package for about $160M a year or two ago), the assessed values were dropped dramatically -- between 25-70% decreases -- with, doubtless, a massive hit to either EPA proper or its welter of redevelopment agencies.

If Equity is paying more than $120M, there's some hope ... but if it paid any less, EPA's community services will take a further hit.

Posted by Martin, a resident of South of Midtown
on Jun 18, 2013 at 8:33 pm

Are you aware of the rents that are being charged at these "rent-controlled housing" apartments? Equity is out of its mind for what it's charging for these dumps.

Posted by Aquamarine, a resident of Stanford
on Jun 18, 2013 at 8:58 pm

Martin, I would love to know what they are charging. Can you tell me? That might be more fun than Googling it for myself.

Posted by curious visitor, a resident of another community
on Jul 27, 2013 at 11:16 am

I'd appreciate an update on these apartments. A friend recently looked at an apartment in a complex on Woodland. It is clean and residents we talked to said it is quiet and that rent-control applies. They were doing some minor updates such as new countertops and window coverings. The rent for asked for a one-bedroom is $1750 a month, about the same as similar apartments in Redwood City.

Posted by Gun shots still goin' off, a resident of East Palo Alto
on Aug 13, 2013 at 3:17 pm

I wonder if Equity is aware that guns shots ring through the night at least once a week...

Posted by Po East Palo Alto, a resident of East Palo Alto
on Aug 13, 2013 at 3:23 pm

This is simple. Equity knows that the city of EPA is poor (or "po" for those of use who live there). They know the city can't afford to litigate and therefore Equity files a bunch of lawsuits about the rent stabilization to drain the city of money so they can't fight anymore which makes the city cave into the pressure/bullying of the company... The city then changes the laws so residents are no longer protected by rent control. Equity can then jack up rent, get the "po" people out, yuppies in, and off they go into the Silicon Valley night! Simple... Hey, if I were rich I'd do it too... Too bad I'm only "po."

Posted by Hmmm, a resident of East Palo Alto
on Aug 13, 2013 at 10:05 pm

Dear Po East Palo Alto - the updated Rent Stabilization Ordinance that was voted in by EPA residents recently isn't easy to dismantle. Have you studied up on it?

I haven't heard about litigation from Equity against the City - have you?

Any tenant under the ordinance w/a complaint goes through the Rent Stabilization Board, which has hearings, and a decision is then reached.

The way that the new ordinance works is that if a tenant moves out, the rent can be raised, but rent stabilization applies once the tenant has moved in.

If you haven't read up on the new ordinance and are interested in it, I urge you to check it out. You can also ask the Rent Stabilization Board members how easy the ordinance would be to dismantle if you're concerned.