Berkeley Multi-Fam 4.4% Cap

Yeah I saw that ---- they do that in SF all the time ---- so tenants just hold out until landlords give them a huge payout. I’ve seen it happen time and time and time and time and time again. And then more.

If AB1482 passes, this will do two things:

  1. Depress MFH prices, statewide.
  2. Make SFH / townhome / condo prices go even HIGHER, statewide.

AB1482 is, in principle if not exact execution, the same framework as local SF rent control with just-cause-eviction restrictions. I’ve seen the effect that SF Rent Control policies have had on MFH and non-MFH prices in SF. Now the same thing will play out at the state level.

I think any depression of MFH will be temporary due to initial shock of 1482. You will then see sharp increases of MFH that already have rents at market and subsequently all MFH because of shortage of building stock caused by new development not coming onstream from tougher rent laws. The lack of supply, will drive rents up, which will make it worth it for people that want to pay off existing tenants to get rents up

btw the tenant relocation assistance is 3 months to 4 months market rent depending on class of tenant. while annoying, for a Bay area property that is transacting at $2M plus, it’s a small percentage of the overall deal value

The two concepts go hand-in-hand. That’s why it is so bad. The rent-cap portion of AB1482 eliminates your ability to work around the JCE portion of AB1482.

The nightmare scenario is this ---- CPI goes up, so that CPI+5% now exceed 10%. However, AB1482 limits yearly rent increases to 10%. So that means every year, the landlord is losing margin. Then, the tenant refuses to move. That means the landlord is stuck in a forever-scenario where every year, the landlord makes less and less margin, and the landlord cannot do anything about it because the tenant refuses to move.

Right you are screwed if inflation exceeds 10% for an extended period of time. in that case, pay the tenant the relocation to kick them out and bring the rents back to market.

The other thing that is going to happen, is everyone is now going to be motivated to increase rents every year to ensure they don’t fall behind. Tenants will suffer. I have tenants who I haven’t raised rents in 2 or more years and I am going to back to see how much to increase…

I don’t remember what happened exactly in San Francisco proper to MFH prices when the municipality passed its own RC+JCE laws so many years ago. That said over the past few decades, MFH prices have grown at a super sluggish rate compared to SFH+Condos+Townhomes. And, SF does have similar buyout clauses as AB1482.

I’ve been in SF a long time. If history is any guide …

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To me a lot of this is math. I wonder how much of it is fear, emotion, and the fact that people don’t do research? Everybody hears and says SF rent control is bad and they automatically avoid the market, thus depressing prices?

However, if rent control is statewide, people will get generally educated on what they can and cannot do. Then the math on an investment will show for itself. You could discount some of the price as quite a bit of the population is unable to do math or basic logical thinking. Anyway something to see how it plays out. While I would be disappointed, we bought for cashflow and not appreciation as we didn’t plan to do anything with the properties till we 1031 then years down the road and set ourselves up for retirement by moving everything into 1 or 2 larger properties. So for people like us, the impact may be mitigated

I agree with you. Math is king.

However people are lazy and don’t take the time to educate themselves on RC and JCE rules. And to be fair, at least in SF, the rules are byzantine. And they keep changing. Its really hard to get educated on local tenant/landlord law, and I have been to dozens of attorney-led seminars and have been studying local laws independently by myself for many years… and I am still learning. I see sooooo many landlords and prop mgrs, mostly smaller ones, get burned by RC and JCE laws every year and these laws have been in the books for how many decades now?

My point is that markets move on emotion and fear, and SF has some seriously distorted RE prices because of RC / JCE / prop13 / you name it. I think we are in for similar kinds of distortion state-wide.

I just re-read the text of AB1482 (Tenant Protection Act of 2019) as of Sept 5, 2019. Where does it state you can terminate a lease without just cause as long as you pay them off?

Section 2(d)(1) - For a tenancy for which just cause is required to terminate the tenancy under subdivision (a), if an owner of residential real property issues a termination notice based on a no-fault just cause described in paragraph (2) of subdivision (b), the owner shall, regardless of the tenant’s income, at the owner’s option, do one of the following:

(A) Assist the tenant to relocate by providing a direct payment to the tenant as described in paragraph (3).

(B) Waive in writing the payment of rent for the final month of the tenancy, prior to the rent becoming due.

So I am reading this as you HAVE to have just cause AND you have to pay (not much - just one month’s rent). Did I miss something?

BTW just as a reminder — this bill is all because of David Chiu (D), from San Francisco. He can go to hell.

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Chiu is the absolute worst. We need to fund someone to beat him.

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This is where i interpreted you can do a no fault eviction:

Agree. David Chiu is out of control. I would be glad to fund his opponent in both parties.

OK I see what you are reading.

So what this means is that if the landlord terminates a tenancy due to a no-fault just cause, The landlord has to pay the tenant one month’s worth of rent. What this does not allow for is the ability for a landlord to terminate a tenancy without a just case by paying relocation assistance.

Repeatthe landlord cannot terminate a tenancy without a just-case

Basically, there are two categories of just-causes that a landlord can use to terminate a lease:

  • At Fault Just Cause - this means the lease is terminated and the tenant is at fault. This kind of eviction does not require any payments by the landlord to the tenant. These evictions include:

    • Default in rent payments
    • Breach in material term of lease
    • Criminal activity by the tenant on the residential real property
    • Assigning / subletting the premises in violation of the lease
    • Some other stuff
  • No-Fault Just Cause - this means the lease is terminated through no fault of the tenant, and a no-fault just cause eviction is subject to one month’s “relocation assistance” to be paid from the landlord to the tenant. These are things like:

    • the landlord or their immediate family (children / spouse / grandchildren / parents / grandparent) want to occupy the residential real property
    • the landlord wants to remove the real property from the rental business
    • the government orders the landlord to vacate the property due to habitability reasons
    • landlord wishes to substantially remodel the property. “Substantially Remodel” means replacement or substantially remodeling of structural, electrical, plumbing, or mechanical systems that requires permits and will take > 30 days. Cosmetic stuff like painting, decorating, and other work that does not require vacating the property does not qualify.
    • Some other stuff

— Note — my post does not constitute legal advice.

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Just to put a fine point on things – if AB1482 passes, you have to pay the tenant the relocation fees AND USE A NO-FAULT JUST-CAUSE REASON to terminate the lease. The easiest one to use would probably be that you want to substantially remodel the property for > 30 days. Pull the permits, and get the electrical/plumbing/whatever done.

Totally agree on this. Anyone that leases MFH out in SF (and I am not one of them) knows that you raise rents to the max allowable every year, no exceptions. Don’t care if the tenant is the nicest person on the face of the earth and saved 1000 starving babies from dying of cholera and found the cure for cancer and gave it away for free — you Always. Raise. Rents. Always.

This has nothing to do with greed, and everything to do with minimizing state-mandated financial losses.

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One caveat it could be more then a month. The tenant (in the event of a no fault JCE) can choose either relocation assistance or waive last month rent. Relocation assistance if you are a protected class can be 3 or even 4 months rent.

The likely scenario anyone going down this path needs to be prepared for is as follows:

Scenarios

A) Tenant chooses last month waived and leaves peacefully (1 month payout)
B) Tenant chooses relocation assistance and leaves peacefully (3-4 month payout)
C) Tenant lawyers up, waste money sending memos back and forth, settles for relocation assistance or some slightly larger amount (waste 1-2 months with lawyers, probably $2k-$4k in legal fees, maybe 4 month payout)
D) Tenant lawyers up, waste money in going to court, meet a decent judge, tenant gets evicted ($10K in legal fees, 3-4 months of wasted time, maybe some amount of payout required by judge)
E) Tenant lawyers up, waste money going to court, meet a bad judge, eviction suit gets thrown out. Back to ground 0. You won’t be able to do anything for a year before your next attempt

I expect 80% will fall into (a) or (b) above based on past experience. 15-18% will be (c). and (d) or (e) will happen if you are unlucky

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1482 disallows eviction without a just cause. If the just cause is non payment of rent and other tenant fault, you can evict and you don’t have to pay the tenant. If you need to evict tenant based on owner move in or demolition, you have to pay the tenant.

Without an allowed reason, tenant would be a forever tenant and you have no right to terminate.

JCE always comes with RC. Otherwise, you can terminate the lease when the rent is low. That would defeat the purpose of RC.

If you break the balance just a tiny bit, it could move in that direction gradually and eventually make it hard to work.

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Spoken from someone who has a wealth of experience at thinking through the scenarios! :slight_smile:

BTW AB1482 as currently written is good for 10 years, after which point it expires. In fact, the CAA was OK with changing the original bill text from 3 to 10 years! The gamble is that at the end of 10 years, one can then have enough data to show that 1482 caused a slowdown in housing protection and therefore should not be renewed in 2030. The thinking was that if the bill had passed with the original 3-year-text, that there wouldn’t be much housing production data at the end of 3 years, and that lawmakers would just rubber stamp an even-longer extension than 10 years.

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