Posted Thursday, Oct. 11, 2007; 1:13 a.m.

Condo conversions displace L.A. renters
As developers convert apartment complexes into condominium projects, many renters are forced out and have trouble finding another place to live.

By Laura Keller
L.A. Pilot
May 4, 2007

LOS ANGELES COUNTY – She looks confident in her eye-popping teal blue suit, the color daring anyone to gaze elsewhere. Her golden bracelets and matching earrings, hint at her somewhat gaudy tendencies and noisily compliment her commanding appearance.

But even the flashing pink nail polish can’t draw attention away from 48-year-old Lucia Bequera’s browned, gnarled nails.

Since Bequera was notified just before Christmas that the apartment complex at 637 Atlantic Ave. where she has lived for six years will be converted to condominiums, there has been a recurrence in the epileptic seizures from which she suffers. One episode left her convulsing in the middle of the street.

The frustrated, 20-year Long Beach resident has tried to contact the corporation that owns the apartment complex. Bequera has researched the company and found records of the company’s taxes and other documents, but without the contact information of an employee, she said legal aides have advised her not to send it a letter in which she explains why she doesn’t want to move from the place where she has lived for six years.

She doesn’t say she wants to stay put because she has attachments to the building – she hasn’t any: Bequera’s reported cockroach and mold infestations to the Health Department more than once. And she makes no mention of missing the 18 people she says had lived in a three-bedroom apartment two floors above her.

What she’s pensive about leaving is her apartment’s optimal location. This apartment is close to the hospital, where she has regular appointments, often more than twice a week.

Bequera is one of many in Los Angeles County, where condominium conversions – projects where the land owner refurbishes or demolishes existing apartment units – are common because of the limited amount of undeveloped land.

The conversions have become a buzz topic for council chambers across the county: housing activists are decrying the rates with which tenants were displaced from their apartments last year and developers contend condo projects are viable alternatives to expensive home prices. With condo conversion projects slated for all over the county, most city councils have had to breach the issue.

Volume speaks in the county’s two largest cities – Los Angeles and Long Beach – where legislation has resulted from residents’ and developers’ many complaints. More complicated than pitting blight against gentrification, the two cities have formed very different plans, both seeking to balance housing needs and private property owners’ rights.

Attempting to equalize these opposing forces, the plans have largely been comprised of awarding relocation fees to renters who have been supplanted from their apartments because of pending conversions. The benefit fees are meant to ensure ex-tenants with little savings aren’t left without a place to live.

But even in the face of rising apartment rental rates, Long Beach hasn’t increased its payment to relocated tenants for years. The city maintains a rate of $3,796 per unit, a figure adjusted for annual inflation, said Dale Hutchinson, who works in Long Beach’s Department of Community Development office to track developers’ condominium conversion applications. Only tenants like Bequera, who make 80 percent or less of the area’s median income level – $41,450 for one person or $59,200 for a family of four – can qualify.

For Bequera, the relocation payment is too little to cover her moving costs and the security deposit for a new apartment, which she estimates will total $7,500. She is trying to sue the corporation that owns her apartment for the difference.

In Los Angeles, the city council voted April 11 to raise relocation fees paid to tenants. Developers pick up the tab: The lowest benefit they must pay is $6,810 to residents who have lived in their apartments less than three years, according to the Los Angeles Times.

The fees rise upward from that figure, capping at $17,080 for low-income tenants and those who are aged 62 or over, disabled or have minor children and have lived in their apartments three years or longer, the Times reported.

While housing advocates claimed this as a victory, landlords have denounced the ordinance. The relocation fees are not limited to renters displaced by condominium conversions; landlords must pay these fees under a number of circumstances.

Tara Bannister, executive director of the Los Angeles chapter of the California Apartment Association, wrote in an email that landlords must also pay relocation assistance fees if they wish “to move into a unit they own, move in a manager, comply with government orders, vacate a [Housing & Urban Development] property prior to sale, demolish an apartment building,…or withdraw from the rental market.” 

“Rental housing providers are very angry,” Bannister said.

Most of the calls coming into the association’s Los Angeles office have been to express disbelief about what property owners say are exorbitant fees, said Neffertti S. Bradley, the branch manager.

She said the callers – landlords that belong to the 18,000-strong association – are saying, “Maybe the city is just getting too involved in [our] business.”

Advocates worry the city councils will be cautious – or not act at all– to establish future housing assistance programs. One Long Beach proposal would provide money for a newly established Housing Trust Fund, which has been designed to provide housing assistance to Long Beach residents, including allotting money to build housing projects.

Though Long Beach’s relocation fee is fledgling compared to the new Los Angeles benefits, Nikki Tennat, chief of staff for Councilwoman Bonnie Lowenthal, said city officials have hired a consulting firm to explore sustainable sources for the fund. Tennat said officials hope to hear results in a few weeks.

After attending meetings to suggest funding sources since September 2006, Susanne Browne, an attorney of Legal Aide of Los Angeles, said, “There’s hardly any money in [the fund.] It’s a shell of a plan.”

Browne worries the city will take too long and support for the plan will diminish.
Broc Coward, chief of staff for Long Beach city Councilwoman Suja Lowenthal, said the council has already almost written off one proposed funding source: a plan that would charge developers who convert apartments into condominiums 1.5 percent of the condo’s selling price.

Housing groups especially supported the plan, which they said would slightly discourage developers who concentrate on overall profit margins to convert apartments into condominiums.

“Every time a rental unit is converted to a condo, that means it’s a permanent loss,” Browne said.

But opposition to the plan came early, immediately knocking out Browne’s proposal that 5 – instead of 1.5 – percent of the condo selling price be recuperated into the fund.

Scott Ayres and Gregory J. Sharp of Pacific Partners Investments – a development company based in Newport Beach – wrote a letter to Councilwoman Suja Lowenthal.  They called the 1.5 percent fee excessive and said it “will have a detrimental effect on revitalization of the City of Long Beach.”

The letter’s authors said of the company, “Often times, we can convert a two-bedroom, two-bath condo and sell them for less than $300,000.”

But Hutchinson said a normal price for a one-bedroom condominium hovers around $300,000 to $400,000.

Pacific Partners Investment representatives did not return calls for comment, but Bannister defended the existence of low-priced condos. She wrote in an email that condominiums “create cheap, entry-level home-ownership opportunities.”

Housing rights activist Sandra Kroll said condos have the potential to provide affordable homes, but said the condominiums are usually upgraded apartments, which low-income earners can’t afford.  

“If they could afford to purchase something, they probably would have [owned] in the first place,” said Kroll, a Greater Long Beach Interface Community Organization member.

Condominiums are “not targeting the lower end of the market,” said Raphael W. Bostic, a real estate and mortgage expert at the USC Lusk Center for Real Estate.

Following a real estate rule-of-thumb that cautions a household against spending more than 30 percent of its income on housing, the purchaser would have to earn $66,497 per year to afford even a $300,000 condominium, Bostic said.

Based on a market rate of 6.25 percent, a borrower taking out a 30-year mortgage for a $300,000 condominium would have monthly payments of $1,662.44 in principal and interest. The borrower could only get that rate if he or she made a 10 percent – or $30,000 – down-payment, said a Chase Home Finance mortgage consultant. 
Even at Los Angeles’ highest relocation compensation rate, without savings, a tenant would be almost $13,000 short.

Bostic said interest rates vary, and sub-prime loans are typically 2 percent to 3 percent higher than the market rate.  He said he has heard of rates in the Los Angeles area as high as 10 or 12 percent.

Even with market rate mortgages, most displaced renters can’t touch condo prices. Many of them were having trouble keeping up with increases in their comparatively less-expensive rent costs.

Monthly rent for the same apartment in 2005 jumped 5.6 percent, to average $1,470 county-wide in 2006, according to the Casden Real Estate Economics Forecast’s 2007 report on Southern California multifamily markets.

With every area in the county experiencing rising rent costs, renters who are relocating find it difficult to secure an affordable apartment, the report shows. Even cities with historically lower rents are experiencing high increases – such as Long Beach, where the average rent rose nine percent last year, the report found.

Some renters are moving out of cities like Long Beach, said Patrick Kennedy, a housing advocate.

“It’s harder and harder to stay here,” Kennedy, the executive director of the Greater Long Beach Interface Community Organization, said.

He said families are moving northward along the 710 freeway corridor or into the Inland Empire. The Casden Forecast reports that average monthly rents for East Los Angeles and the San Gabriel Valley area in 2006 were $1,158 and $1,210 respectively.

In addition to rising costs seen in the overall housing market, renters in Los Angeles County face a unique problem: there are not enough places to rent.

Average apartment vacancy rates in the county have dipped below 3 percent, according to the Casden report. For displaced renters seeking an apartment, that means they will find less than three open units for every 100 apartments. In some communities, like Hollywood, the rate is even lower. For every 100 apartments there, fewer than two are available.

When tenants are forced to move out for an incoming condominium project, advocates say those that can’t find an apartment of their own end up crowding with others or living on the streets.

“They’re living, like, two families in a rented bedroom, in another family’s home,” Kroll said. “They’re living in garages. They’re living in cars.”

Without a heavy increase in new apartment construction or cities’ commitments to building affordable housing, rents and occupancy rates are expected to continue rising.

Dolores Conway, lead author of the Caden Forecast, expects rent increases for the county next year to be between 4.5 and 5.5 percent, placing the average rent for the county between $1,536 and $1,550.

For many in Los Angeles County, high rents are just something they have learned to accept.

“This is America for me,” Bequera said, putting away her unsent letter.

Copyright 2007, The L.A. Pilot
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