July 2015 News for Berkeley Property Owners & Housing Providers
Next Members Meeting
Saturday Morning, August 1st, 2015
Evictions and Bad Tenants
All you want to know!
with Attorney Michael Shepherd
Refreshments: 930am Meeting:10am Sharp
St. Johns Presbyterian Church
2727 College Avenue
in Berkeley, 94705.
SAVE THE DATE!
A SPECIAL BPOA WORKSHOP
THURSDAY, SEPTEMBER 10TH, 6:15PM
How to Sell Your Property Intelligently
and Defer Capital Gains
Featuring tax deferral strategies from the experts:
IRS Section 1031 with Ralph B. Bunje, Jr.
IRS Section 453 with Stanley D. Crow
Over 70 years of combined experience in their respective fields.
Learn the tax incentives available for personal home sales,
investors and corporate entities — they have done it all.
Your rent registration fee is going up this year to $213. That’s right folks, we are getting our first fee increase in at least five years. The unfortunate part of this is that even the existing fee was impossible to justify. In fact, the Alameda Grand Jury felt that it should have been lowered in 2012. Obviously an independent legal body isn’t enough to persuade the Rent Board to do the right thing.
So what is BPOA doing? BPOA has officially retained legal counsel to further look into the matter on behalf of BPOA. Depending on legal advice, the BPOA Board of Directors will pick the appropriate course of action.
For the last five years we have always asked why is the rent board budget so high? The rent board justified the fee by spending hundreds of thousands of dollars on a software upgrade over the course of many years. The software upgrade came to an end so then the rent board decided to start spending more money on salaries (creating unnecessary positions such as deputy director) which eventually started to erode their cash reserves. Basically they tried their hardest to spend the money so that a fee increase would be justified.
I am willing to bet that the rent board would not be this egregious if the registration fees were passed through to tenants as they are in all other rent control jurisdictions. This is the fatal flaw in our system here in Berkeley. The rent board is truly not answerable to the public and that is what is needed for true accountability.
May 31st is quickly approaching and that is big day for certain neighborhoods in Berkeley that enjoy having Cal students live in them. That is the day that the vast majority of apartments occupied by students are vacated to be turned over to the incoming class.
Over the years, the City of Berkeley and the University of California have teamed up to address the problems that arise as a result. Their partnership over the years in addressing this problem has been very successful. In addition I am proud to say that BPOA has been there at the table with them, working with them since this program began.
The original problem was a huge impact on the neighborhoods. Simply put, by the end of the day, these neighborhoods were trashed. This wasn’t fair to those residents who reside in the neighborhoods.
Cal and the City of Berkeley heard the residents loud and clear. In response, Cal graciously agreed to fund a program to address this problem. Cal, for its part, works diligently with the fraternities and sororities as well as the co-ops to make sure that they take responsibility for their properties and do not dump trash everywhere during these move outs. In addition, they help to educate their students living in private housing. They have made various resources available to help them recycle and most importantly, plan ahead so that they aren’t left the last minute with a bunch of unwanted used furniture.
The City, in the beginning, provided dumpsters in the areas that were most affected. The use of them was spectacular but the abuse of them was equally as spectacular. So that was discontinued. But they continue to offer extra services and patrols to help clear the public right of way so that these neighborhoods don’t look like a tornado has come through.
In addition, the City is also patrolling these neighborhoods to fine property owners that have trash left out in front of them. I believe property owners are really starting to become aware of this. I say this because every year there are usually one or two couches that I notice move from in front of one property to in front of another property to in front of another. This is my personal pet peeve, property owners who do not take responsibility for their own trash and abuse another property owner’s situation. This includes home owners who sometimes take the same window of opportunity to rid their home of some extra furniture.
I manage one property that is unfortunately close to People’s Park. No matter how much we clean up around the dumpster and organize the trash to be hauled, the next morning, without fail, someone will have picked the trash, leaving most of it on the ground near dumpster making an even bigger mess. Then, as if an alarm went off throughout the area, the neighbors, property owners and tenants bring out their trash from surrounding properties. After all, the place is already strewn with trash, so adding their items to the pile too makes it no worse.
The only solution I have found to problems like this is video cameras—but that is a very costly solution. It is actually cheaper to just call for an extra pick up or get a hauling company to take away all the trash. But in the end, one property owner should not have to deal with the trash of another.
To this end, if you have people moving out at the end of this month please be sure to direct them to this webpage http://chancellor.berkeley.edu/gcr/local-community/programs-initiatives/move-in-move-out (you can also find the link by doing a google search for “cal move out” ). The link has plenty of great resources on how to get rid of unwanted items so that they aren’t just left out on the street for us to deal with. In addition, it helps to have those residents start planning early. More often than not, it is those residents that are left with large items with no plan on how to dispose of them that leave them on the sidewalk so their security deposits don’t get charged.
To address the problem, something I have come to do is simply order extra pick up service. This can be done by calling 3-1-1. Since they already have extra staff for this time of the year, the pickup time is pretty quick. The same goes with extra recycling pick up. Yes, there is a charge for this, but it is better than trashing our neighborhoods.
Notes from Michael St. John
Very few Berkeley property owners use the Ellis procedure to evict tenants. The process is difficult and expensive. I have heard it said that the new fee schedule (roughly $13,000 per tenancy) makes it unreasonably costly.
I think it is time to reconsider this conclusion.
The gap between the rents long term tenants pay and the rents other tenants pay is growing so large that some owners in some situations may want to consider Ellis evictions as a way of achieving a fair return on their investment.
The Ellis rules prohibit re-renting for five years after an Ellis eviction. But the rules allow re-renting at market rents thereafter.
Consider the case of a fourplex occupied by four long-term tenants paying below-market rents. If the rents average $1,500 when market rents would average $3,000, following the Ellis procedure might make sense.
Thinking of it as a purely financial question, the income from the four units would be $72,000 a year, rising under standard rent control assumptions to $88,000 in ten years and $107,000 in 20 years. Under the Ellis rules, the owner would have to leave the units vacant for five years but could then rent them at market. If the owner followed the Ellis procedure, he would receive zero rent in years 1 through 5, but would then receive $144,000 in year six, $156,000 in year 10 and $190,000 in year 20. The loss during years 1 through 5 would cumulate to $382,185 in year 5, then diminish to 0 in year 10, whereupon his investment would be recouped completely. From then forward, it’s all gain.
In year 6, property value under rent control would be $973,000 vs. $1,728,000 if one followed the Ellis procedure. In year 20, property value would be $1.3 million under rent control vs. $2.3 million under the Ellis procedure. That’s a significant gain, especially considering that the investment is recouped completely by year ten. It’s a long term project, but it might be worth it for some owners.
In addition to the vacancy loss, there are the Ellis fees. Fees to tenants plus legal fees could amount to $75,000, but this amount pales when compared to the potential gain. This is especially so considering that while the units cannot be rented as residences for the first five years, that doesn’t mean that they can’t be used. The owners can live there themselves. The owners can rent the units for commercial purposes consistent with zoning regulations. The owners can allow others (friends, family members, employees) live there rent free.
It is conceivable that the owners would sell tenants in common shares in the property when the units are vacant. New TIC owners could live there. If these owners move elsewhere after five years, those units could then be rented at market. Using a property in these ways during the five years in which the Ellis procedure doesn’t allow residential rental would offset — possibly reverse completely — the Ellis investment cost.
Considering these possibilities, it is clear that the Ellis option may be viable for some owners in some circumstances. I have previously considered the Ellis option the “nuclear option” that should be avoided in most circumstances. I am now seeing that the Ellis option may be a reasonable way to handle the unreasonable gap between rent controlled rents and market rents when all or most of the units at a property are occupied by long term tenants enjoying rents – possibly for their lifetime - that are unreasonably low by today’s market standard.
Michael St. John is a property management consultant who has assisted Berkeley property owners with tenant and rent control problems for 35 years. He can be reached at email@example.com, 707-937-3711, or 510-845-8928.
The New Non-Smoking Brochure and
Lease addendum are available
online for members in our
If you are not a member yet and would like to see a list of BPOA-maintained forms along with brief descriptions, you can do so here.
Too Much Stuff?
Some Tips on Helping Tenants
Low Income Landlords?
Find Eviction Help Here
THE ALAMEDA COUNTY GRAND JURY HAS ISSUED A REPORT EXCORIATING THE BERKELEY RENT STABILIZATION BOARD
....(and the League of Women Voters Agree!)
Click for the full report:
It begins on page 63 and runs to page 74.
The Report concludes with the following recommendations:
- Recommendation 12-10:
The Berkeley Rent Stabilization Board must reduce the high rental unit registration fees.
- Recommendation 12-11:
The Berkeley Rent Stabilization Board must allow landlords to pass through a larger proportion of the registration fee to tenants.
- Recommendation 12-12:
The Berkeley Rent Stabilization Board must ask the city of Berkeley Human Resources Department for a thorough position-control audit to evaluate the number of staff, the classifications and workload.
- Recommendation 12-13:
The Berkeley Rent Stabilization Board must ask the city Human Resources department to provide more comprehensive salary comparisons regularly and use them in setting salaries and benefits, including those of the executive director and the board members.