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Los Angeles Times

Saturday April 02, 2016

More Rent-Controlled Buildings Are Being Demolished To Make Way For Pricier Housing

By Ben Poston and Andrew Khouri
 

Dee Ann Newkirk and her newborn daughter live in a fourplex that was purchased last year. (Luis Sinco / Los Angeles Times)

Looking to cash in on a booming real estate market, Los Angeles property owners are demolishing an increasing number of rent-controlled buildings to build pricey McMansions, condos and new rentals, leading to hundreds of evictions across the city.

More than 1,000 rent-controlled apartments were taken off the market last year — a nearly threefold increase since 2013, according to a Times analysis of housing data. Evictions from such units have doubled over the same time.

Across L.A., more than 20,000 rent-controlled units have been taken off the market since 2001, city records show. The removals peaked during the housing bubble and then bottomed out in the recession, but they have risen significantly since then.

The number of lost units is a fraction of the roughly 641,000 rent-controlled apartments in the city, but in a tight market the removals have had an outsized effect, tenant advocates say, eating away at the supply of affordable housing at a time when L.A. has become one of the least affordable cities in the country.

"Our housing situation is beyond crisis," said Larry Gross, executive director of the Coalition for Economic Survival, a tenant advocacy group. "It's a catastrophe and it's getting worse."

Especially hard hit in the transformation are upscale neighborhoods such as Beverly Grove, Sawtelle and Pico-Robertson, where demand for high-end housing is strong.

Dee Ann Newkirk watched last year as a trio of apartment buildings on her block in Beverly Grove came toppling down.

A developer, Wiseman Residential, had purchased the properties and evicted six residents there. The developer plans to replace 12 rent-controlled units with 30 pricier apartments and three units for lower-income tenants, according to building permits.

The same company has since acquired Newkirk's fourplex and the building to her north, property records show. She fears she will soon be evicted too.

"They are going down the block and I'm the next building," said Newkirk, who rents a one-bedroom apartment on North Hayworth Avenue with her husband and infant daughter for $1,350.

Over the last decade, Wiseman has evicted at least 237 tenants from rent-controlled properties in Los Angeles. The company purchased more than a dozen other properties where landlords had already used the state law to clear out apartments, including one of the buildings on Newkirk's block, according to city records.

Michael Cohanzad, senior vice president of development and business affairs for Wiseman, said his company has built five times as many new apartments in place of rent-controlled units it removed, a benefit to a city facing a serious housing shortage.

"The story that gets lost in all of this is that the buildings ... are past their useful life," Cohanzad said. "Many of these homes are asbestos-filled, termite-infested, and are not compliant with today's retrofit regulations. So it's a matter of time that these buildings will be torn down."

Rent control in L.A. primarily applies to multifamily buildings built before October 1978. When a new tenant moves in, a landlord can set the rent as high as someone is willing to pay, but rent increases in subsequent years would be capped — recently at 3%.

Tenants in rent-controlled buildings have strong protections against eviction to ensure landlords can't kick them out to charge higher market rents.

But under the Ellis Act, passed in 1985, landlords are able to evict tenants if they intend to either take the housing off the rental market or demolish the building to put up new apartments.

Landlords in the city can set the initial rent for those new rentals, although the apartments are then subject to rent control. Owners can avoid rent-control regulations by reserving some of those new units for low-income residents.

Many of the recent evictions have been carried out by developers who have purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the L.A. properties removed under the Ellis Act in 2013 had been purchased within the previous year, according to a Times analysis.

The practice has sparked a backlash in Los Angeles and San Francisco. Efforts in recent years by state legislators to amend the law failed amid opposition from the real estate industry. One proposal would have allowed San Francisco to bar landlords from using the Ellis Act to evict tenants for five years after acquiring a property. Another would have allowed local jurisdictions to set moratoriums on such evictions.

Los Angeles officials are also investigating claims that some landlords are evicting tenants to convert apartments into illegal short-terms rentals, such as Airbnb.

The debate comes as city officials have been struggling to boost the supply of affordable housing for low- and middle-income residents.

"Unless there's a marriage between production and preservation, we are doomed to a failed housing policy in this city," Gross said.

The council's Housing Committee has discussed ways to preserve affordable housing. Among the ideas under consideration are establishing an annual cap on demolitions of rent-controlled apartments and withholding demolition permits until other permits for new construction have been issued. The issue is set to come before council again this spring, a housing spokeswoman said.

Jim Clarke of the Apartment Assn. of Greater Los Angeles said curbing use of the Ellis Act will hamper new construction in a largely built-out city and worsen an already difficult housing market.

"If they messed with it, it just becomes another disincentive to build more housing," Clarke said.

Housing department data show that developers have pulled permits to build twice as many new units as they removed with the Ellis Act from 2010 to 2014. It's unclear whether those 4,632 new units are rentals or for-sale housing.

Clarke said he doesn't think the Ellis Act is aggravating the city's housing crisis. But tenant advocates say those new homes are often too expensive for evicted renters to afford.

Some property owners, though, aren't adding new units at all.

Apartments that were previously rent-controlled are now showing up on short-term rental sites, where property owners can charge significantly higher prices. Three evicted tenants in the Fairfax district sued their former landlord last year after they noticed their units listed on Airbnb weeks after they moved out — at rates totaling $15,000 a month.

"We were in total disbelief when we saw that," said Nina Giovannitti, an evicted tenant who had paid $1,900 a month for her shared apartment.

Landlords who evict tenants and later rent the units on a short-term basis would violate rent-control laws unless they receive approval from the city to use the property as a hotel, said Anna Ortega, director of the housing department's rent stabilization division.

The housing agency is working with the city attorney's office to investigate several similar complaints in Venice, she said.

Rob Wilcox, spokesman for City Atty. Mike Feuer, said he could not discuss ongoing investigations, but added the office is "focused on cracking down on property owners and tenants who are flouting the law, potentially taking affordable housing units out of circulation and at the same time making a very quick, easy and lucrative profit."

Some landlords use the threat of eviction under the Ellis Act to persuade renters to take voluntary cash buyouts, known as "cash for keys." The offers may be less than a landlord must pay in relocation fees under the Ellis Act, which start at $7,550.

The tactic, unaccounted for in housing data, allows landlords to legally re-rent the units — at a higher price.

Ortega said the agency is working on a proposal to track buyouts across the city and require landlords to notify tenants of their right to refuse to take a buyout.

J.P. Lavin arrived home last August to find a letter on the door of his Los Feliz apartment informing him that the 42-unit building was being converted to condos and that he and other residents would have 90 days to leave.

Though the owners hadn't filed the required Ellis Act paperwork to evict tenants, the letters from the property management company said they would be "vacating/relocating" the building, called The Cove. Residents would receive money to help with moving expenses, according to the letter, a copy of which was reviewed by The Times.

"Everyone was freaked out," Lavin said.

The apartment manager, Jamie Jantzen, later texted Lavin to encourage him to take a buyout of up to $14,000, noting that he would only receive $10,200 under the Ellis Act.

"Unfortunately, the inevitable is that you will be moving either way. Why not sweeten the deal?" Jantzen wrote.

Steven Taylor, a representative with Ness Property Management, which manages the building, said the conversation took place when his company was considering converting the units to condos and that Jantzen had the "best intentions." Taylor said there are no plans to do condo conversions now and that the vacated units will probably be remodeled and re-rented as apartments.

Lavin has so far refused to take a buyout offer, which has now risen to more than $30,000. As of early February, nearly half the units were vacated and all tenants received buyouts, Taylor said.


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