September 12, 2011
Ms. Anna Ortega, Director
Rent Stabilization Division
Los Angeles Housing Department
1200 West 7th Street, 8th Floor
Los Angeles, CA 90017
Fax (213) 808-8818
Dear Ms. Ortega,
Thank you for responding to my article in the August Apartment Age magazine. There are certainly problems with the Rent Stabilization Ordinance, and the differences of opinion regarding those problems. Communicating about them is one of the best ways to help solve some of the problems.
While I can certainly understand the tenants’ dislike of permanent pass through of 100% of improvement costs, providing rental housing is a business. Owners of businesses, whether housing, restaurants, supermarkets, etc, business owners need to be able to more than cover 100% of their costs to stay in business, and attract other investors into their businesses, particularly for future housing needs. Although the permanent 100% increase may have been excessive, the changes made in 1989 were extreme in the opposite direction. Even though a sixth year was added to supposedly cover interest cost, the combined reimbursement to owners, over at least six years, represents a 40% loss on the investment. It’s difficult for me to understand how apartment owner representatives agreed to the grossness of the change. People in such positions need to understand the market effect of changes they make. Regardless of a relatively few people establishing a policy, investors and other members of the public are going to make their decisions based on their perception and experience of the effect of regulations. A comment of mine was about the complete and utter failure related to the relatively negligible number of applications filed by apartment owners, not the percent of applications that were approved. If you compare the number of applications filed annually with the number of rental properties, or particularly the number of rental units, it’s less than 5%. There may be a lot of smaller valued improvements made for which the owners do not even bother to increase rents, especially in today’s economy.
But the more expensive improvements require funding which is much more complex. Even if an owner has the resources, they consider whether the cost of the improvement is worth it to them. Immediately losing 40% of their investment weighs heavily on that decision.
My experience with capital improvement applications is that applications for smaller amounts do meet the 45 day guideline. But more complicated applications, with much higher improvement costs, took well over the 45 days (as I recall, over three months). But that was over five years ago.
One was originally rejected, but approved on appeal. I even had approvals for increases that, due to market rents on some of the units, I could not (and did not) take advantage of the whole increase allowed. In the current market, when improvements have to be made, it is not wise to increase rents on more recent tenants. That difficulty makes it even more necessary to have long term tenants at least pay for the cost of improvements on their own apartments.
Having simultaneously been an apartment owner and a Certified Public Accountant for over 43 years, I have had a great depth of experience in apartment ownership. With that amount of experience, I feel I could be quite helpful to the city in helping to establish workable policies, and would be glad to do it. As you know, I was one of the seven members of the Citizens Oversight Committee regarding the study of the Rent Stabilization Ordinance.