CRAIG'S CORNER B y C raig K irkpatrick , V ice P resident , M organ S kenderian I nvestment R eal E state G roup
Commentary from a Broker, Owner and Manager Perspective
“If it Ain’t Broke — Don’t Fix it!”
T
he above saying and its opposite cousin came to mind recently when I had a bike crash and sustained some fractured bones. Certainly things that are broken need to be fixed, like my clavicle and elbow. Conversely, if something is not broken it probably shouldn’t be tampered with, but too often is. Now where am I going with this in my piece on matters of the rental housing industry? Plenty that has impacted our businesses has been tampered with in the last 12–18 months. Let’s take a look. Previous to AB 1482, most of us in this industry would argue that nothing was really broken before the State Legislature and its leaders got involved passing various bills and mandates affecting our businesses. My premise and experience has always been that most residents are good and responsible people, as are most owners. When this dynamic exists, markets mostly work efficiently and fairly. Let’s take a look at some of these bills and issues and analyze whether or not something was broken and needed fixing. AB 1482 — Rent Control. This law caps our annual rent increases at 5% + CPI. Looking back at my property since 2001, only once were rents raised above the prevailing 5% +CPI. Moreover, there were several years (after 2008) where rents were flat. I believe most owners experienced similar rent increases as the market largely dictates how much we can charge for our product. As a matter of fact, talking to many long-
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time owners, it’s not uncommon that many rents are way below market with annual increases well below 5% + CPI! This didn’t need fixing! AB 1482 also set guidelines for “just cause” evictions. None of our operations would be profitable if we abused the “spirit of the law” and were in the business of evicting residents without good cause. Personally, I haven’t had many evictions over the years, and I would assume that’s also been your experience. Moreover, when someone didn’t pay their rent, I would instruct the managers to gather the facts before proceeding. Many times we worked with the tenants by setting up a payment plan to bring them current. Often this was successful, but sometimes it wasn’t and the tenant needed to be evicted. If a resident was a nuisance or violated other terms of the lease they wouldn’t cure, they were sent to eviction. Just Cause Eviction hinders our ability to eliminate problem tenants to maintain a safe and quiet living environment for the majority. This didn’t need fixing! Eviction Moratoriums — These mandates followed up by AB 3088 (The Tenant Relief Act of 2020) are so wrong that I don’t know where to begin. They empower tenants to take the low road of not paying rent without any consequence. Though some tenants have experienced financial hardship this year, most are prioritizing and paying their rent. Back in March 2020, AAOC was ahead of the game by producing new forms and protocols to establish
www.aaoc.com
May 2021
payment plans for struggling tenants. In talking to many owners, many of you utilized these forms to work out a winwin plan with those struggling tenants. Some tenants, of course, lost jobs and were impacted by COVID-19, especially those in the service and hospitality industries, and they justifiably should have been assisted if anybody was. Others, however, have gamed the system by not paying rent even though they’ve experienced little or no financial impact caused by the pandemic. These moratoriums, as well as AB 3088, were poorly written, and allow most anybody to claim financial hardship, and there’s really no penalty for this deception and not paying rent. Financial verification is not required for tenants unless they earn over 120% of Average Median Income (AMI) established prior to March 31, 2020. Owners and managers should have the ability to verify actual financial hardship rather than a tenant simply signing a declaration stating this without proof. Further documentation and verification of an income stoppage to qualify should have been written into this legislation. In summary, if anything should have been changed or tweaked to help those impacted by COVID-19, it was probably this. As of this writing, we’ve experienced one year of COVID-19. Despite the grandstanding by state lawmakers and government officials to “help the tenants,” rent collections are near the historical Ain’t Broke — continued on page 30
