Silicon Valley & Peninsula Multifamily ENews – February 2017

Welcome to the Silicon Valley Multifamily Group monthly eNews.  This newsletter provides a collection of multifamily related articles and insights from various industry publications to help you as a building owner have a better understanding of the market. This newsletter is distributed with no obligation to multifamily property owners and investors in Santa Clara and San Mateo counties. If you would like to see specific information in this newsletter, or not see this newsletter at all, please let us know.  We welcome your comments.

Multifamily Outlook Prediction by CoStar for 2017
Here is what is generally expected to happen in 2017: sales volume will dip below the record high levels of 2016 and price growth will slow down. From a predictive standpoint, it just makes sense, after all moderation has to set in sooner or later, right?  “Nonetheless, the forces that have produced the best multifamily market in recent memory remain largely in place,” said John Affleck, apartment research strategist for CoStar Group. In other words, the recent remarkable run in apartment demand and property values could just as well keep rolling.  read more

The San Jose City Council will consider the City Auditor’s recommendation to eliminate the Rent Registry on Tuesday, January 31st.
Last year, at the request of Councilmember Khamis, the City Auditor undertook a review of the Housing Department and its ability to administer the updated Apartment Rent Ordinance. In the report, the City Auditor made a very important policy recommendation: eliminate the Rent Registry.  On Tuesday January 31st the San Jose City Council will consider the findings in the Auditor’s report to determine if any changes should be made to their recommended changes on the Apartment Rent Ordinance.
What: Attend San Jose City Council Meeting
Where: 200 E. Santa Clara St, San Jose, CA 95113
When: Tuesday, January 31, 
2017 at 1:30 PM

Don’t miss this meeting. If you own rental properties in San Jose this is your opportunity to urge the Council to reject the Rent Registry and support the Auditor’s recommendation to use a Unit Registry instead. The Unit Registry does not require rent data. The data it does require already exists in the Planning Department’s database. A unit registry is less invasive to property owners information, tenant’s personal information, and also more cost effective for the city to implement.

Unit Registry Summary:

  • It is more cost effective than a rent registry.
  • It is complaint based, allowing the Housing Department to focus enforcement on problem properties.
  • It eases privacy concerns for tenants and property owners that the Rent Registry poses.
  • Tell the City Council not to create the Rental Registry. Sign the petition

See the Council Agenda by clicking here.  
View the City Auditor’s Report by clicking here.

San Jose ARO Update: Ellis Act and Tenant Protection Ordinances Released
Directed by the City Council in April and May of 2016, the Ellis Act Ordinance and Tenant Protection Ordinance were written to enhance tenant protections and rights.  The ordinances released on January 18th have intersections within the ARO. Staff anticipates releasing a draft of the fully modified ARO for public comment later this Spring.  There is a 45-day comment period for these recommendations and will close at 5:00 pm on Friday, March 3, 2017.  Please see additional information on the release of the two draft ordinances and upcoming meetings at this link: read more

Recent California 1031 Ruling on Drop and Swaps
Near the end of 2016, the California Board of Equalization issued a ruling on a 1031 exchange transaction involving a limited liability company that distributed its interests down to the members prior to a sale in order for one of the members to complete a 1031 exchange – a “drop and swap”. The Board of Equalization agreed with the Franchise Tax Board challenging an exchange using the substance over form theory expressed in the Chase and Court Holding cases. The Board determined that the sale should be attributed to the LLC, not the individual members, therefore disallowing the exchange, and upheld the assessment of penalties. read more

Menlo Park City Council Says No to Rent Control
On January 10, 2017, Menlo Park City Council shot down rent control but looked at other ways to deal with rising rents and scarce housing options in the city. Council heard from its housing commission, local housing experts and residents to discuss ways to keep residents from being priced out of the city.  The Council directed the City Manager and Housing and the Economic Development Manager to work with the housing commission on proposals such as an anti-retaliation ordinance, which would protect residents from being evicted if they report code violations, mandatory non-binding mediation, funds for displaced residents and assistance with rental relocation’s.

Menlo Park Weighs Actions on Displacement
The council settled on sending 15 possible actions to the Housing Commission so that it could prioritize three items to act on first. The commission’s next meeting is Feb. 1, after the council’s goal-setting session that is set to take place from 1 to 5 p.m. Jan. 27, at which the council may refine those actions.  read more

Judge Puts Mountain View Rent Control on Hold
The rent control measure approved by Mountain View voters in November was temporarily put on hold on December 22, 2106 by the courts at the request of the California Apartment Association. Measure V, which would have rolled back rents to October 2015 levels on apartments built before 1995, was due to take effect on December 23, 2016. The city didn’t oppose the request for a temporary restraining order by CAA. The order delays rent control until Feb. 3, 2017.  While rent control has been put on hold, a separate ordinance that prohibits “no cause” evictions will remain in effect. City Council passed the ban on no-cause evictions after the election to prevent landlords from evicting tenants without reason and then charging higher rents to new tenants. The ordinance says landlords need “just cause” to evict tenants, such as nonpayment of rent, a breach of a lease, creating a nuisance, criminal activity or the landlord deciding to move into a unit. CAA also wanted the restraining order to apply to the “no cause” eviction ordinance. Before the temporary restraining order on Measure V expires, CAA is expected to return to court with another motion seeking to make the order permanent. CAA also intends to challenge both Measure V and the “no cause” eviction ordinance.

Rental Rates Across the Nation
Buoyed by a steadily improving economy and the lowest unemployment rate in nine years, Americans have more and more control over their living arrangements. And increasingly, they are choosing to rent. Meeting the demand for rental properties is a dynamic, volatile process. As renters continue to move in from the suburbs into city centers, new developments can have drastic effects on a city’s rental market month to month.  To make sense of it all, ABODO took a look back at a year’s worth of their data. How did rent prices change nationally? At the state level? Where did rent increase the most over 2016, and where did it decline? Where are the 10 most expensive rental markets? Read on to find out.  read more

2016 Economy Matches Worst Year Since Great Recession
The consensus forecast by economists predicted that the US economy would grow at an rate of 2.2% in the fourth quarter, as measured by inflation-adjusted GDP. The forecasts ranged from 1.5% to 2.8%. The New York Fed’s “Nowcast” pegged it at 2.1%, and the Atlanta Fed’s “GDPNow” at 2.9%. And today, the Bureau of Economic Analysis reported that growth in the fourth quarter was a measly 1.9%.  read more
Economist Explores Market Slowdown at CAA Outlook 2017
Renowned economist Christopher Thornberg delved into the state of California’s rental housing market, including its present cooldown following several years of robust growth. Thornberg, founding partner of Beacon Economics, said growth has slowed as more housing supply has entered the pipeline. He offered his comments while kicking off the California Apartment Association’s Tri-County Outlook 2017 at Mountain View’s Computer History Museum. His talk also included an overview of the national election, its implications for the rental housing industry, and how proposed changes to the Affordable Care Act may affect renters. Moreover, Thornberg pointed to a slowdown in job growth in the Bay Area as employment opportunities move to atypical locations, such as Modesto in the Central Valley. During his presentation, Thornberg urged local government officials to resist price regulations such as rent control, saying the policies fail to solve the fundamental problem — a lack of housing supply.

A Few Reasons for Rent Reductions
The biggest question I get is “Why such a dramatic reduction in rents?”  The answer is simple: jobs.  The more jobs the more demand on housing, the fewer jobs, well, you get the picture. Of course, in recent months the influx of new apartment rental unit inventory is impacting rents as new projects come to market with hundreds of units to rent.  We all know the quickest way to rent units is to drop rents and offer incentives.  But it is the absolute number of jobs that determines the strength of the rental market, and that is about to change with numerous layoffs in 2017. The table below outlines one analyst’s prediction.  read more