Feature

Boxed In

by Jim Forbes

With each rent survey I do, I become more convinced that San Francisco’s rents are totally dependent on the NASDAQ. When the high-tech index plummeted 60% from its previous high, rental rates abruptly followed dropping 30% from their obscene bubble number. The reason rents failed to decline further is that the NASDAQ had blown the door off rents from late 1999 to early 2000 before the stock index reversed course and come crashing back to earth. Had the NASDAQ stayed at 5,000 for another six months, rents surely would have continued climbing upward.

Those times are over now. Since January 1997 when the Internet economy came to life in the Bay Area, San Francisco’s rents have climbed 66% and the NASDAQ 71%. Looks like a near tie to me. Last month’s rent survey provided further evidence of this correlation with rents increasing $100 over April’s figure or 4%. Now that the NASDAQ has improved somewhat, our rental market seems to have recovered a bit. How easy it would be if the two-bedroom rent here in San Francisco matched the NASDAQ index? This would be a strange form of rent control.

However, this rental market is not that easy. Was it 1995 or 1996 that our business was hard hit? Today, with a 5% vacancy factor (oh my!) and the need to monkey with rents each month in order to attract good tenants, we are facing several other scary factors. Evictions are up and many are against formerly well-healed dot-comers who lacked a sense of long-term responsibility; some even broke the law.

For instance, one of our tenants tried an apparent insurance scam to pay his bills. He gave his apartment keys to a bunch of junkies anticipating they would walk off with his fancy modern act collection. The plan backfired when the junkies just hung out in his apartment and got loaded, oblivious to the wealth around them. We finally called the cops who escorted them out. The paintings ended up in the hands of his creditors.

Another tenant, with perfect credit initially, strung us out over every step of the legal process in exchange for a couple of month’s rent. In the end, she had a big black mark on her credit history; and, we suspect, both crack cocaine and her creepy boyfriend contributed to her demise.

Even rent-paying tenants are a pain at times. In one building, after we changed the front door lock to a Medeco key system, we refused to give out more key copies than occupants in an effort to slow down drug trafficking in one of the units. Within two weeks the Department of Building Inspection, the Fire Department and the Business and Payroll Tax Division had paid us a call. All these visits came as a result of one tenant’s complaint.

The Health Department also is championinganotherweapon in the tenants’ fight to bring down landlords: kitchen-tile asbestos. Although removal of asbestos has required special abatement procedures for years, this one has remained largely unnoticed because of the small amount of material involved and general ignorance on the part of property owners. According to one landlord, the Health Department now is having a field day by leveling fines, creating jobs and insuring that apartments remain hovels, and, therefore, more affordable.

In addition to the determined efforts of all sorts of city departments that regulate and rattle our industry, we must face our lawyer friends who, like buzzards, wait to feed on a little more hide.

One of my managers, unaware that discrimination against people because of their source of income is a crime almost turned a section 8 applicant away. We immediately made a good faith effort to amend his mistake. In response, the applicant threatened to file a complaint with the Civil Rights Commission if we did not rent to him. Then, the Civil Rights Commission threatened to take us to the District Attorney (no word yet from the D.A. or one of the buzzards). The prospect of having this tenant was frightening, given all the tools available to make our lives miserable. Thanks to some friendly legal advice, we decided to give him another chance at a vacancy in another building.

Two other tenant groups were vying for the original apartment the section 8- tenant wanted. One was an erotic dancer with a dog and the other a couple, who identified themselves as lesbian. In each case, the tenants were in a “protected” class—one fell under “source of income” and the other “sexual preference.” In other words, each could allege discrimination if we didn’t rent to them.
Fortunately the lesbian couple, with the best credit and highest income, agreed to our price, which HUD would never do. We selected them with a clear conscious. The fact that we had to turn away two others in a “protected” class gave us serious concern. For a while thereafter, I felt so boxed in by our prospects that I started thinking about selling the building, or invoking the Ellis Act.

Our business certainly has fallen on tough times when exiting looks like the best option. I am sure there are plenty of people out there who would probably love to have my problems. If that is the case, give me a call. Maybe I can sell you a trouble-free building.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Jim Forbes is president of Urban Properties, a real estate investment and brokerage firm. He is a SFAA board member and the publisher of SF Property Report. He can be reached at 415-922-8998 or at his Web site at propnews.com.