Conversion Conflict
San Francisco landlords turn to Ellis Act to evict renters.
California‘s Ellis Act, which allows landlords wanting to get out of the rental business to evict residents from their units, is riling up renters in the excruciatingly tight San Francisco apartment market. Many landlords are invoking the act to convert rental units into condos or tenants-in-common, or TIC, properties.
“Evictions for condo conversion result in turning scarce affordable rental units into unaffordable condominiums, depleting the rental stock which San Franciscans rely on,” explains Ted Gullickson, leader of the San Francisco Tenants Union.
But landlords say they should be able to convert their properties to more lucrative uses. With little turnover, many residents pay rents below fair market value, according to Todd Wenzel, an attorney with Ropers, Majeski, Kohn & Bentley who represents many of the city’s landlords.
“This can cause property owners to lose money, because the low rents they can legally collect do not cover the increased property taxes and operating expenses,” he says. “The Ellis Act may be the only mechanism to allow someone to keep a property they spent years saving to buy or that has been in their family for generations.”
Wenzel expects the conversions will continue for a while, then taper off. “When the city becomes saturated with too many condos and TICs, it may reduce the sale prices so low that it may not make sense to convert certain properties,” he says. “The market will get to a point where there will be a good balance of rental units, TICs, condos, and single-family homes, promoting a healthy, diverse cross-section of residents within the city.”
–Margot Carmichael Lester
Major Milestone
CB Richard Ellis turns 100.
One of the biggest brokers in multifamily just turned a century old. Founded immediately after the 1906 San Francisco earthquake, CB Richard Ellis Group has evolved from regional player to a global real estate services provider.
Its stature in the multifamily business has also stayed strong as well. For the past six years, Real Capital Analytics named CB Richard Ellis the top multifamily broker representing the seller in terms of sales volume. “CB Richard Ellis basically has the broadest brokerage arm,” says Bob White, president of the New York-based real estate information provider. “They have more feet in more markets. CB has been real aggressive in hiring top talent in the apartment arena and across all property types. They want to have the leaders in each market.”
Many of these feet have traveled a lot of ground in their respective markets. “We create the context for enabling [the broker’s] success and creating the environment within which an individual can succeed,” says Greg Vorwaller, president of investment properties for CB Richard Ellis. “They know they have a safety net of peers and [an] infrastructure that will allow them to deliver to the client.”
They also have a loyal group of big clients, according to White. “Some of those deals were huge portfolio deals,” White says. “They’re really well known and have great relationships with all of the institutional buyers and REITs. They also have a lot of brokers that know a lot of the local buyers.”
White sees one other advantage as well. “They have LJ Melody,” he says, referring to the company’s real estate banking arm. “Being able to offer financing has been a real competitive edge for them.”
–Les Shaver