President’s Message — Reflections of the Past Year

Reflections of the Past Year

By Craig KirKpatriCK, ViCe president, Morgan sKenderian inVestMent real estate group

Irecently attended our monthly AAOC Board of Directors meeting and was reminded of the many challenges our industry currently faces. I moved to California 40 years ago when I entered this industry. As I reflect on how drastically things have changed in the ensuing years, it is a bit depressing. Back then, and for many years thereafter, we operated in a truly freemarket and largely “mom-and-pop” industry with individuals owning properties of all sizes. Today, most “momand-pops” own smaller-sized properties, but they still collectively comprise a potentially formidable force. Managers and prospective renters had been able to negotiate face-to-face in good faith, and so much more, but I know I’m not telling you anything that you don’t already know.

Forty years ago — even four years ago — there was no rent control in Orange County, no just-cause eviction, and one could screen their applicants thoroughly. All of that has obviously changed, which now hampers an owner’s ability to operate as well as affects their potential return on investment. AB 1482 has imposed statewide rent control, with maximum annual rent increases of 5% plus the change in CPI. Not a completely unmanageable obstacle, as many of our rent increases over the years have not typically crossed this threshold anyway. However, just-cause eviction and expanded restrictions impacting our resident screening practices have changed demonstrably and these changes pose significant longterm threats to our industry, as well as to those who reside in our rental communities. Moreover, Orange County, once the bastion of conservatism, has seen Santa Ana’s city council approve extreme and oppressive rent control with other draconian measures thrown in. Will other cities follow?

This torrent of change has happened quickly, particularly at the state level. Between COVID-19 and a progressive super-majority in the California legislature, change has been fast, furious and detrimental. I’ve always believed that most rental property owners are good and fair people – as are most of their residents. We’ve seen examples of this during COVID as more than 90+ percent of rents were collected. As always, most owners worked with their residents to negotiate affordable payment plans that would allow their residents to remain in good standing. The doom and gloom that tenant activists trumpeted, namely that there would be an “eviction tsunami” once the evictions moratoriums ended, hasn’t happened. Why? I think one factor is that they, as well as so many elected officials, don’t understand the realities of being in the rental business. Vacancies costs a lot of money! A vacancy costs me between $5,000 and $25,000, depending on the length of vacancy, depth of work, remodeling and rehabilitation needs, etc.

What can be done? We must all be more proactive. Super-majority control is always one-sided and potentially dangerous. The unintended consequences of recent legislation — intended for good reasons or bad — have greatly changed our state. It’s my opinion that the California has changed from being the “Golden State” to the “Tarnished State.” Lest you think this is an original reference, it appeared on the cover of Forbes magazine a few years ago. Much of the damage has occurred recently and we desperately need a more balanced state legislature — for the sake of our industry as well as for California’s long-term health!

As this year draws to a close, we should reflect on the changes happening around us and their impact on our industry, businesses, and lives, and get involved to effect change if we don’t like where we’re headed. Next year will be another challenging one for our industry and our state. Your board of directors and committees are entirely comprised of volunteers. With a lean and mean AAOC staff, we always need volunteers to step-up and get involved at the committee and board levels. I know many of you, and I know the talent and resources that exist across our membership. There isn’t a better apartment association in the country whose members have stepped up and taken action more consistently than AAOC. I implore you — don’t stop! We need you, our industry needs you, now more than ever.