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Sunday, Sep 25, 2022
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Yesteryear’s Rent

In the Valley’s multifamily market, the pandemic continues to impact rents and sales, despite political decisions to address financial pressures, according to landlords and brokers.Earlier this month, when Gov. Gavin Newsom proposed a second round of $600 state stimulus checks, he also proposed $5 billion to double rental assistance, along with as much as $2 billion in direct payments to pay down utility bills.Under Newsom’s plan, the state would apply $2.6 billion in federal funds to pay landlords up to 80 percent of rent owed by qualifying tenants with COVID-19 financial hardships. It would cover rent from April 1 of last year to March 31, 2021. A landlord who accepts the money must forgive the remaining 20 percent of unpaid rent for that period. If the landlord refuses this arrangement, the maximum subsidy drops to 25 percent.Additional federal dollars may be available to help cover unpaid rent through June of this year.“Getting dollars to landlords is imperative,” said Debra Carlton, the California Apartment Association’s executive vice president of state public affairs, in a statement. “Many landlords have not received rent in over a year, and some owners are on the brink of losing their homes. The administration must work quickly to get the dollars to landlords at the rate promised.”Janette Monfared, longtime multifamily specialist at the Encino office of Calabasas-based brokerage Marcus & Millichap Inc., said she sees a lot of vacancy and turnover in high-rent neighborhoods such as Sherman Oaks and Studio City, with landlords trying to adapt.“Everyone is lowering rent,” she said. “Everyone is giving one- or two- months concessions. There’s a lot (of apartments) coming on the market every day, including in the northern Valley.”The vacancies come in part from people leaving apartments to buy houses at low interest rates.“The housing market is on fire,” Monfared said. The rest of the renters “have lost their jobs and now they can’t afford their rents,” she added.Meanwhile, the downturn has impacted multifamily building sales.“The very low rentals are never going to move out,” Monfared said. “And a lot of buyers don’t want to buy those low rentals. It’s too much trouble for too little.”As a result, there is a lot of investment capital on hold as buyers weigh their options.“Right now, we have a lot of money on the sidelines waiting for more reasonable prices, more inventory with good rent and better unit mixes,” Monfared said.Making ends meetApartment owners – the bulk of whom are small, independent entities – are struggling with dwindling money reserves, according to Dan Yukelson, leader of downtown Los Angeles-headquartered Apartment Association of Greater Los Angeles.“A lot of them are having trouble maintaining their buildings, paying their lenders,” he said of the 10,000 owners in his organization. “Some are talking to banks about forbearances as they have renters who haven’t paid them.”Yukelson noted that “just to lose one month of rent, you’re underwater as a landlord.” Landlords have tried to meet tenants halfway with rent reductions and rent deferments, but “not every landlord can do it,” said Ash Joshi, founder of Capital Realty Solutions in Encino, which owns a pair of apartments buildings in West Los Angeles. “We’ve lowered the rent.”Yukelson said small owners often bought their units for rental income in retirement and depend on these buildings to survive. These multifamily owners may have no choice than to crack open their nest eggs to keep their apartment buildings afloat.“It has forced a lot of these owners to fight back,” he added.Joshi recently heard from a 70-year-old multifamily landlord who needs money.“She can’t operate it any longer,” Joshi said. “She wants to sell. She’s a mom-and-pop owner, one of thousands. She is the majority.”Housing activists such as Yukelson fear that if these owners lose their grip on their multifamily assets, large corporations and investment funds will gobble up distressed residential product – a scenario not unlike how Wall Street firms acquired single-family homes by the thousands after the 2008 financial crisis.For landlords, a year-plus after the bottom dropped out of the economy, “it seems to only have gotten worse” as tenants struggle to find work.“The tenant money seems to go to Walmart and Amazon instead of the landlord,” Yukelson continued. “Landlords are trying to work with their tenants but there are a lot of extreme cases where tenants take advantage of the situation or they are really struggling from COVID.”Disgruntled ownersJoshi considers himself among the disgruntled multifamily owners who have seen little direct relief on any governmental level since the pandemic started. While there have been plenty of protections for the tenant, landlords have not seen any assistance.

“The government was saying, ‘Don’t worry, Mr. Property Owner, we’ll help you landlords through rent,’” he said.Irma Vargas, an owner of multifamily properties as well as chief financial officer at property management firm RST & Associates, said of her clients, those with one to four units have been impacted the hardest and roughly 7 percent of the 3,200 units that RST manages in L.A. County, including the San Fernando Valley and the Tri-Cities, have a tenant lagging in rent.Due to remote work, by the end of last year, tenants took advantage of the situation and moved on without paying back rent.“We had two tenants who actually bought two homes and left us owing money,” Vargas said. “We have close to 40 percent who have left the state.”She added that her career has spanned four real estate cycles and “this down cycle is a lot different than previous down cycles.”  Her firm, by a stroke of luck, was able to recoup one tenant’s $18,000 in missed rent; however, another tenant has yet to pay back more than double that amount.The mass exodus is taking its toll on the wider market. However, she noted that overall people are leaving high-rent areas such as Santa Monica and Westwood and moving to lower-rent places, including parts of the Valley.“The Valley is doing much better as far as rental vacancies. Pricing hasn’t gone up substantially, but it definitely is not going down. Because they’re cheaper than the Westside, they’ve been holding out,” she said.Yet if rents on the Westside fall lower, a trickle-down effect may kick in and “Valley rents may plunge,” she said.Data for reimbursementAccording to Joshi and Vargas, in order for landlords to get the 80 percent reimbursement, they have to go through the city of L.A.’s system, which demands that landlords provide all kinds of information on title, driver’s license and Social Security numbers and copies of tax returns. Joshi described the process as “draconian” and unnecessarily intrusive.“They’re asking for the types of documentation that we are as landlords are prohibited from asking our tenants,” he said. “A lot of landlords didn’t do it. … (L.A. is) building a rent registry. … They’re collecting data to use against the landlords.”“Frankly, it’s none of their business,” said Vargas, adding that “you can’t skip any of these questions” when filling out the form on the website. “The city is much more intrusive into the ownership information when really they’re supposed to be helping the tenant get the money.” “They’re trying to control the landlord industry, under the guise of COVID for the better benefit of the community, but the landlord gets penalized,” Joshi said.“Landlords are nearly forced to agree and forced to write off 20 percent to get 80 percent,” Yukelson said. “It’s really the only deal. This is the only sizable relief coming to landlords.”Monfared disagreed, explaining that pursuing the reimbursement is “well worth it, that’s a lot of money. Even if you apply for unemployment insurance, you have to (offer this information).”What’s really hurting the owners, Monfared said, is the high vacancy of units.

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.
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