Virtual Discussion on San Diego COVID-19 Rent Evictions

A Virtual Discussion on AB 1436 COVID-19 Rent Evictions

If you missed our last virtual meeting or would like to watch it again, here is the full video.

 

Here is the full script from the meeting:

 

 

 

Curtis: Alright, we got everyone here.

 

I really wanted to thank everyone for coming here today, this is our first official Zoom meeting. We’re gonna have Rick Alter, he’s an eviction attorney for, how long you’ve been a victim attorney?

 

 I met him before I got into the real estate business, I used to work in a gym and one of my clients was… I think he was related. 

Okay, and then Rick was like a mentor of mine when I first started giving all kinds of good advice and I always appreciate what he’s done, so I wanted him to come on here today because no one knows more than he knows about evictions, and he’s a really good evictions attorney, and you’d think he’d be some mean o but he is a really nice guy. But he does a really great job. Doing a really hard job. 

So I appreciate you being here today, Rick. Excuse me, everyone is somehow… We have a little bit of a hiccup here, a day here today, we’ll kind of grow and get better as we go, but we’re gonna have Rick talk for a while. We’ll kinda do some Q&As about what he’s done, but if you wanna write some quick questions down in the Q and A section, I’ll try to look at them and then see what we can kinda answer once Rick gets done and then we’ll kinda see where we go from there and do it.

 

So Rick why don’t you go ahead and start… Let us know what’s going on.

 

Rick: Okay, this is a brand new law, and unfortunately, we have not only our state legislature with AB Assembly Bill 3088, we also have the Federal government through the CDC as an emergency, it’s not an order, it’s like a declaration, and they have overlapped, unfortunately, the two different laws do not necessarily work together. And that’s unfortunate and there is a lot of confusion right now with the courts, and each of the different courts, now San Diego only has one unlawful detainer court that’s downtown, but in San Dao County, we have a whole bunch of different municipalities, and they’ve established many of them their own rules, if their rules are more stringent than what AB-3088 is, then we follow the local rules, if they’re less stringent, we’re stuck with the state law, but there is lots of confusion amongst lawyers, amongst the legislators, amongst the judge.

 

We have actually two judges that are hearing these kinds of actions, one who I have appeared in front of yesterday, I have probably appeared in front of her several dozen times recently, all by Microsoft Team, which is similar to Zoom. She has different ideas about what this law means then many of the landlord lawyers… It is a very complicated law, and I should probably give everyone just a little explanation how it came to be. 

The judicial council decided that they needed to protect tenants from the Covid virus, and they enacted what we call rule number one. It was extremely prohibitive and finally, after they were sued about a dozen times ,successfully because the judicial council judges headed by the California State Supreme Court, Chief Justice, recognized that they were not in the territory they belonged.

A judge interprets laws, they don’t make laws.

 

So the middle of August, they said to the legislature, we have been taking the blows from everyone because we try to help you out, but we’re not doing that anymore, starting September 1st, if you don’t have a new law, it’s back to business as usual, and the legislature scrambled, it was up until, I believe, about an hour before midnight when they finally passed 3088, clearly, if you take the time to read it, you will be confused as the legislators were confused with what they put together, they codified some things that were in 1482, but basically they made a mess, so what they call the… What I call it, it is the free rent for tenants act, it’s called by the legislature  the tenant Relief Act. 

 

And I’m gonna go over a few of the terms and give you some indication of what you can do, what you can’t do, where the legislature gave a small bit of help to landlords, but we’re not talking about a whole bunch.

 So with that, if you violate any term of the rental agreement except non-payment of rent, then you will be able to go forward. Sometimes there’s some confusion about this, whether it would have started on September 8 or if it’s deferred until October the first of this year, those would be things like behavior prior to… We’re gonna go back a little in history, when the Judicial Council said, the only time we are going to issue a summons, a summit is part of the unlawful detainer lawsuit.

 It’s the order of the court saying, We’ve blessed this lawsuit to go forward… The only time that they would issue a summons was if there was a pre-hearing to determine if there was extreme health or safety… If there was extreme health or safety and you could prove it, they would issue the summons and let you go forward with the unlawful detainer under whole new rules, and one of the things you need to understand is that since March 17th, there have been no trials in the San Diego Superior Court, none. And they’re not exactly sure how they’re gonna go forward because of social distancing, but we have these hearings and you had to demonstrate that this person was just short of killing people or killing people, of doing terrible, horrific things involving the safety to others or health and safety to others on the property.

 The judge that was hearing this was extremely cautious about issuing summons, so cautious that maybe 10% of the applications got through, now those lawsuits are just still languishing 3088, and we’ll just call it 3088 because that’s the number of the bill but it codified stuff into California Civil Code.

But 3088 said starting on October the 5th, if you started the lawsuit before March 1st, 2020, you could continue on with your lawsuit, but if it involves rent from March 1st to August 31st, that isn’t considered rent anymore, that is considered a financial obligation breach of contract, and now everyone that has a tenant that hasn’t paid rent from March until to including August of 2020, you will be able to go to small claims court. 

The problem with small claims court is that small claims court cannot give you possession of the premises, so it’s just a breach of contract.

 

The good news is that the legislature has decided to waive the 10000 maximum that you can sue for in small claims court, it’s an unlimited number, but again, it’s just numbers on a piece of paper, and that unlimited jurisdiction will last until… I think it is August of 2025. 

Filing, well, the small claims court isn’t open yet, so there really isn’t any need to rush into that if you were even thinking about it.

 

But now, one of the things that we will be able to do, they’ve taken away the rule that you can only have a summons issued if there is extreme health or safety, they’ve removed that. What they’ve now said is that if there are any breaches of the contract other than payment of rent, then you will be able to have a summons issued and file the unlawful detainer action.

 

So with that in mind, if you’ve got a lease that is terminating, you’ll be able to file that lawsuit without a permission of the court to issue a summons, and you can begin, if let’s say you had a rental agreement that expired in September the first… So long as you did not accept any rent after that, you’d be able to file the unlawful detainer based upon the termination of this contract.

One of the benefits, they gave one small benefit, and this will please curse all your commercial people.

This is only pertaining to residential tenancies, not commercial tenancies. If a commercial tenant is in default of rent right now, you can serve the Pay Rent or Quit notice, and it doesn’t matter whether they were impacted by the Covid 19 or not, so that is the one saving grace for my commercial clients, residential clients are unfortunately going to be dead about the head and shoulders.

 

Again, one of the things that you have to keep in mind is that 3088 works hand-in-hand with your local jurisdiction, so in San Diego, everything is stopped until September 30th, the CDC says everything is stopped until January 31, 2021.

We might as well get into the CDC because that’s federal and it’s a little more strenuous on landlords, not on tenants.

 

All that the tenant needs to do is give a declaration under penalty of perjury, I’m not sure if anyone has been prosecuted for perjury in the last 50 years, but that’s what they’ve got, and it’s a moderately descriptive declaration saying that you have… Well, I’ll give you the just of it. , that’s all that really matters. 

It is, in the federal ordinance from CDC, it says that you have been affected by the Covid virus, you are health disabled, you’ve tried to find work, but you can’t, you couldn’t.If you are thrown out, you will be homeless, those are the basic things that you have to swear under penalty of perjury. 

I have a case going, right now, I was in Court yesterday by a Microsoft team, that’s what the court uses, and they didn’t file that decoration, but the judge, not wanting to hurt any tenant and suffer… They wouldn’t suffer any liability because they’re immune as judges, and she continued the matter to allow the tenant to fill out the declaration, it was through legal aid, and they in fact completed that declaration under penalty of perjury.

 

I will be trying this next week, and one of the items that I am going to do is ask the tenant all of the questions and have them demonstrate to me why all of these things are true. What did you do?

How have you done it? When did you do it? And if they can’t answer those questions, now, I’m sure they’ve been coached by legal aid because that’s what lawyers do we coach our clients, and there’s nothing wrong, nothing illegal about doing that, but I’m very curious to see how they respond to this, or if they respond to it, and more importantly, how the judge responds to their responses… We’ll see about that.

 

Okay, so let’s move on.

 

As I call it, the free rent act controls March 1st to September 1st, 2020 any rents owed within that time are included in this, they are no longer rent, as I said, they are now just moneys owed that you can sue for later in breach of contract, in small claims court.

 There is a protective time period from March 1st to August 31, no notices to pay rent or of any value.

 

We have now been given an interesting look at stuff, there’s this 15-day notice that they talk about, and in the 15-day notice, you serve this and say, Here’s a declaration, tell us all the reasons why you can’t pay your rent, how Covid 19 is affecting your payment of rent, if you do that, presumably that pay rent or quit notice is just gonna lie there on your desk, it’s not gonna go anywhere, the court’s not gonna be entertaining any kind of lawsuits based upon that.

 

If they don’t do it, there’s some question whether the court will allow us to continue and file an unlawful detainer, not sure how that’s gonna play out, this is so new that the judge doesn’t even know what she’s gonna do. And she’s a lovely lady. I’m right, but she is scared of a shadow in this one, and it’s unfortunate, but we’ll all come around.

So you give a blank declaration that covid caused loss of job, that you have to treat a family member, care for them, a child, ’cause there is no more school. And if that’s on the rent is deferred, if your tenant ,single, makes $99,000 of income a year about that, then they do not get this protection. If two of them, husband and wife, or a couple or whatever you’ve got… It’s $198,000.

So if they’re above that threshold, then they do not get this Covid 19 protection. 

 

Let’s see if you give that 15-day notice and no declaration follows that, so no more pay rent or three day quit notice… Require notice is 15-day notice to pay rent or quit. And whether it’d be my office or all the other trans, we’re all creating these documents, the legislature didn’t give us a lot of help doing that, so we’re just kind of winging it.

 

So if you see different iterations of these 15-day notices, it’s everyone’s own interpretation of what they think the Legislature wants, but along with that is that Covid declaration that they have to fill out, saying why they’re impacted.

 If that is in fact the case, you can go forward with an unlawful detainer on October 5th, 2020, so we’ve got plenty of time to deal with this, this is not, unfortunately, an urgent… In my business, unlawful retainers, every second counts. Every single moment is important.

 

The legislature is sort of taking that away, they’re giving people a chance to try and re-grow up and figure out what’s next, and no one’s really, really sure what is next, so that is the protective time period.

 

 There was a transitional time period, and that will be the rent from September the 1st until July 31st. That transitional time period is when it is now rent that is owned, not just moneys owed, and again, they’ve given us a 15-day notice along with what we give the declaration telling us why they cannot pay their rent.

And this is the part that I didn’t quite understand, but I don’t understand a lot of what the legislature does.

 

You cannot start the unlawful detainer if they provide this declaration until February 1st.

By February 1st, the period from September 1 to the end of January. So February 1st, if they have paid 25% of that total rent, then you cannot go forward with an unlawful detainer.

If on February 1st, you can go forward with your 15-day notice, if it’s not paid, you can start your unlawful detainer. 

We could be really, really busy February 1st doing evictions. Maybe by then the court will have gotten enough staff back. Something you do need to understand is that when the court closed on March 17, there were at that time, and we opened a tiny little bit on May 23rd… Actually, it was the 26th because it was a weekend.

 

Nothing was done in the court. Nothing except for emergency situations, emergency situations. We’re restraining orders, things like that,nothing was done.

 

 At that point, they had about 60,000 matters in San Diego Superior Court, that does include all of the different courts, outline courts, East County, South County, North County..60,000 matters that would need to be reset, they haven’t said any of those yet.

 That was May 23rd. We’re now way past that, there’s got to be at least 250 to 300,000 matters that are going to have to be reset.

 

We also have all of the backlog of all the stuff that’s still just sitting there that hasn’t been processed because the civil business office has been virtually shut down, they’re working with skeleton crew, and their purpose for that is because they are afraid that someone, and rightfully so, might contract the coronavirus and infect everyone else. 

 

When we do these hearings by video, we have a look into the courtroom, the judge is wearing a face shield, the clerk is wearing a mask, and they’re someone operating a camera that shifts back and forth. There’s no one else in the courtroom, I tried getting into a courtroom and they said, and I’ve been doing this for four decades, and I said, wait, it’s me, it’s Rick alter, come on, you know me, and they said; we called the court, and the judge said we know it’s you Rick, but we’re still not letting anyone into our courtroom, so they are being very, very cautious. I’m not sure if they were just on vacation for six months, but I know that Judge Alvarez was working to some degree, because I would see her visually on screen.

 

Okay, some things that may assist you a little bit, people that own less than four units, individuals, family trusts, anything other than a real estate investment trust corporation, something that’s operated by real people, and it’s not some business entity that is the managing partner member and things like that. Those people are exempt from a lot of the issues that 3088 brings, but not the rent, everyone is subjected to the rent.

As I said earlier, you will have the ability to go forward in an unlawful detainer action for termination of a contract, the leases ended and it’s not renewed, and you’ve advised them, we’re not renewing this. Two, if you want to do substantial renovation to the premises, you’re probably going to need a permit because that’s what the statute said, and it’s gonna have to take at least 30 days. This is not just a cosmetic makeover where you’re putting in a new kitchen, where you’re putting in a new bathroom, this is gonna have to be something where you get a permit, you’re gonna pull a new electrical, new plumbing.. I only suggest water heaters because you can get a permit for a water heater, and that’s still a permit, but it’s got to be something that would require tenants not to be there while you are doing this. 

Let’s say you have a slab crack and you need to tear out all of that concrete, that’s a substantial thing, but you have to define that, let the tenant know and give them notice that you’re doing that.

 

One of the other exceptions is if you want to take your property off the real estate market, you’re going to sell it, you have an absolute right, they haven’t taken that away from you yet, but give them time, they’ll try… You have an absolute right to sell your property, now let’s say that you have a tenant in that property, when you sell that property, the person that buys it steps into the Seller shoes and they now assume the responsibility of that tenant, so be kind of careful of that situation, if you’re removing it from the market, one of the legitimate reasons that you can do that is because you’re going to put a family member into that place, and I tell my clients that that family member  should be there for at least six months, because the tenants are going to watch to see what you did with it, lots of times you get some owners that will look at a property, they’ll see a property that’s way under market and they’ll say, Oh, I can buy this for a steal and I can double my rents. The Legislature is not gonna let you do that, they are trying to control everything that landlords do now. Your property rights have been served by your government, kind of a sad commentary on things.

 

If you are going to sell the house and the person purchasing… I’m using it as a house, it could be a duplex, but again, it’s gotta be less than four, if the person purchasing this is going to occupy it themselves, now this would only apply if it’s a month-to-month tenancy or a tenancy that has expired and not been renewed, but if you’re gonna take occupancy, you’re gonna be allowed to do that and terminate the tenancy.

 

So keep that in mind. If you’re looking for a buyer, if they’re gonna occupy it, and as I said, at least six months, because the legislature doesn’t want people buying properties that were way under market and all of a sudden jumping them from, let’s say 1500 a month to 3000 a month.

 

And unfortunately, I’ve seen some people doing that and I understand the concept, but the legislature isn’t going to allow it.

 

The small claims court, not that anyone’s gonna really care that much, they’re gonna delay your filing until March 1st of 2021, so that rent that was owed from March 1st of 2020 to September 1st. 2020, you can’t file in small claims court until 2021… March 2021.

 

I don’t know that the small claims court is open right now. So it doesn’t really matter all that much.

 

Curtis: I got a question for you, or small claims court, I think the limit is 75100 bucks or something like that.

 

Rick: It’s 10,000. It’s a great question, the legislature has decided because they’re so magnanimous that the small claims limit has lifted to infinity, and with that in mind, let’s say your tenant owes you 6,000, and I’ve got situations where tenants owe 6,0000 and more.

You can go into small claims court and that jurisdiction is limited… Now, I don’t know if it is limited only to rent situations, I don’t know if the small claims court is raising its jurisdiction to other amounts for other things, probably not, but in this one instance, for rent, it can go all the way Curtis to whatever it is.

 

Again, remember this is residential, now, we’re not worried about commercial ,because commercial, they did not protect our commercial tenants, which is kind of interesting because the commercial tenants got hurt the most when they got closed down.

 

A good point though, Curtis, thank you.

 

 Let’s see, what else are you got? 

 

Okay, one of the things that I remember, I would explain to you that if your tenants are behaving badly causing a nuisance, disturbing the quiet enjoyment of people consistently, and I always encourage my clients, work with your good tenants, have them be your watch dog,  have them be your eyes and ears on the property. And any time there is an issue with a behavior, call the police.

 

I can’t emphasize that enough. Call the police because it’s the police that are going to look at this and make the decision whether something bad is going on, but they’ll write a report. And here is the hardest part of all of this. At some point in the unlawful detainer, we file, we assert that these behaviors had occurred, we need to have witnesses. Clients tell me all the time, well, can’t we just submit a declaration? They’re afraid to come to court.

 

Unfortunately, those silly rules of court about cross-examination, you have the right to see and ask questions of your accusers, those are in place. So declarations are inadmissible, is hearsay. The reason why, and you probably understand this, the reason why tenants do not, excuse me, landlords and their clients, the tenants, do not want to come to court is they’re afraid of retaliation, oftentimes, justly so, especially if it’s somebody that’s selling or dealing drugs, they don’t wanna be involved, and maybe they’re not gonna take it out on them but they’ll take it out on a card that they know belongs to the tenant, terrible things, terrible things.

 

So those kinds of issues are difficult, but any breach of contract other than the non-payment of rent is permissible to begin the unlawful detainer. Winning that unlawful detainer is a completely different thing.

 

Your lawyer needs help. We need witnesses so that we can prove what we asserted was true, is true, at least in the court’s opinion. So kinda keep that in mind.

 

Curtis: Here as a question we had Rick. Can a landlord refuse acceptance to 10 in 25% rent in order to move forward in a lawful detainer?

 

No, the legislature was really clear, they’re trying to encourage tenants to pay what they can. Remember earlier I was talking about a situation that I have, where the tenants had lost their job or they had to take care of this, we have health issues, but somehow they were able to buy a new car so that’s… Where did that money come from? Why didn’t you use that money to pay your rent? Little… things like that. 

 

I’ve got a lot of clients with a bunch of apartments and things like that, and right now, large complexes are getting 90% to 95% of their rents, so it’s not as big as everyone feared. Here is the real conundrum that the legislature neglected completely, what if it’s a mom and pop that owns a duplex… They own it free and clear.

 

So they don’t have a mortgage payment, but those rents that come in, help pay their expenses, help to keep Mom in an assisted living facility.

 

Well, the legislature has tried to provide some relief to people who help loans guaranteed by the federal government, putting those payments to the end, again, monies are not forgiven in this, mortgage payments are not forgiven, they’re just deferred.

As a practical matter, the tenants that rent is just gonna disappear and it’s never gonna be seen, well maybe people will go to a small claims court. 

Curtis: Well, say, a majority of owners or small owners, and I think they’re not going to be able to wait for more experiments, it takes you to the years in San Diego to make any substantial cash flow.

Rick: I absolutely understand that, and they’re the ones that are gonna suffer because of this, and the Legislature, this is just Rick’s opinion on it, the legislature sees there are more tenants than there are landlords, and their first job, first and foremost job of the legislator is to be re-elected and that’s unfortunate because they neglected a whole body of people that are the backbone of the economy of the United States, Real Estate.

 

And they left you, folks, out to dry…

 

Curtis: I think we don’t realize sometimes is that I have not allowed people who own real estate, they put their retirements on real estate instead of stock or pension. That is their retirement, that is  someone’s pension or retirement now Rick: and it was a good place to put it.

Watching the stock market go up and down, the real estate always has held its value, I’m not sure people are… I’m a native San Diegan, people are leaving California.

The climate is really terrific and everything is good, but we’re taxed to death, and we have these bleeding heart liberal laws that are gonna kill us, because apparently they don’t want any police to protect us, so… 

Curtis: Yeah, it’s an interesting time for sure. Have you ever seen anything like this? You’ve been doing this for 40 years

 Rick: Nothing even close to this.

 

This is.. all the landlord’s layers, all the tenant’s layers are in a state of flux. There has been no definitive decisions about what this law is and how it will be employed and adjudicated by the courts. And every single county is gonna have their own ideas. Every judge is gonna be different, this is gonna be tied up. My only hope is that the legislature will look at this and say, Okay, we took care of the emergency, we pushed this down the road, and now we have until January 31st to come up with a better plan.

 

I’m not hopeful, but maybe they’ll see the air of their ways because they will have been re-elected and now they can actually do things that might help everybody… We’ll see.

 

Great, great, good question!

Curtis:  The other question… Between the a1436 and AB3088, what’s preventing legislation between the two?

Rick: we’re talking about 1482? 482 was the January 1st New law in 388, they put some of the… Reinforced some of the 1482 stuff.

 

And that was a good thing, at least. At least we now have some decision made on that, I forgot where it overlaps, but if you were to actually look at the billing, you can Google AB 30-66 and read it. I suggest that you have a stronger still spirit with you while you’re reading this because you’re gonna get very upset, I can assure you that it took me a couple of times reading through it to say… Were they kidding? Did everyone fell asleep? It’s very sad. Remember they call it tenant relief. No, this is the free rent for tenants act,  they just didn’t call it by its real name, and that’s exactly what this is.

Curtis:And you’re saying  your landlords are just in a large labor at 90%, 98% rent payments to Rick:90%, to 95% they’re collecting and maybe not 100% of it, but they’re collecting a bunch of it.

 

I’ve got some good landlords that had tenants there, and they went to him and they said, Listen, we know you’re having a struggle, we know this is weird times, and we’re gonna help you for the next couple of months, we’re gonna take 15% off your rent to just take… And if you’ve got good tenants, they’re gonna appreciate that, that you really care about them, and with that in mind, they definitely do, they’re not gonna go and buy a new car.

 

You’re gonna try and pay the rent… . They’re gonna feed their family.

 

Yes, sure, they’re going to pay the gas, electric bill, but they’re gonna keep a roof over their heads, and that’s all you can hope for all… 

Curtis: And I think that’s a good practice. And  I get the reason for this, and this is just some crazy times, but I think just a difficult part is they’re putting us all on landlords and one group of people, or in the mortgage person not being on the government, and so it just is crazy.

 

Rick: Well, then we have, I affectionately call our Governor Governor gruesome, because that’s what he makes me feel… We’ve spent a lot of money helping tenants, a lot of money, money that  our state government didn’t have, so now we’ve gotta figure out how we gonna get more money to try and balance our budget… Well, they’ve decided that the best way to do that is by putting increased real property taxes on landlords now, I’m sure Senator Jabez is turning over in his grave multiple times, but they just don’t get it. 

I guess what they really want are two parties, two factions in the country, the Ultra-Rich where they are going to take from and give to the core, and the vast middle class is gonna disappear, It’s just gonna shrink to nothing, and that I thought was our base, was the middle class, God knows, I’m not the upper class, and I don’t think on the lower class ,so I’m sort of in the middle. All you folks, we’re probably in the middle somewhere, maybe a little higher than lower, but that is reality.

 

Curtis: Here’s a question, a lease expires on month to month under just casein and you not accept is a tennis Doherty too…

 

Rick: Okay, we do have… And that was one of the things that were codified, I guess, in 3088, there is still… All evictions have to be for cause, and I gave you some of those things that are exempt from that, but otherwise, you have to have a reason why you’re getting rid of the tenant… Non-Payment of rent, can’t be one of them right now, eventually, it will be again, at some point, not exactly certain when that time will be, maybe October 5th, if they don’t fill out that covid 19 declarations. Maybe February 1st, if they don’t pay the 25% of the September, October, November, and December, January rents. But you have to have just caused… You have to give a reason why.

 

Curtis: Oh wow, this is gonna be… 

 

Rick: It’s going to be immense.

 

It’s made my heart sober now.

 

Curtis: So somebody had a question if you have a 60-day Escrow Birdy for… Of my Triplex, for example,  two units are under rented by 30% and tenants have been in for five-plus years. 

 

What’s the best strategy for buyers? You can’t do anything in that situation. Correct?

 

Rick: There really isn’t very much you can do, rent increases are limited to… Okay, let’s say it’s a small entity that owns this, mom and pop, you might be able to go… And there’s confusion, remember, all of this is under debate right now 

Curtis: If you are moving in there, one of those units, you could do that otherwise..

Rick: If you are doing that’s fine because you’re not raising the rent, you’re taking over one of the units, the hard question is, let’s say it’s a triplex. How do you decide which unit you’re going to move into, so if you choose the unit that has the tenant who is paying the least amount of rent, you better be able to justify why you didn’t choose any of the other two… Those are important., they’re very important for you to know.

 

Curtis:  48:12 And how long… And here, the other practical matter, it’s just happening right now, how long until you got something out of a… If you can justify the unit you’re moving into, how long,  if somebody did not cooperate with you, how long would it take to get them out right now, if they didn’t wanna leave?

Rick:That is a really tough call, and the reason it’s a tough call is because your court doesn’t know what it’s doing yet, they tell me that they’re gonna start scheduling trials next week, well, you’re supposed to have at least 10 days notice of a trial…

 

I had a trial that didn’t go forward on March 17th, the first day that they closed the court… I haven’t gotten any notice. I have no idea.

 

So Curtis, it could take three, four months, an unlawful detainer prior to this Covid -19 would take two and a half to three months if everything went well from start to finish to sheriff lock out, I have no idea how long these cases are going to take 

 

Curtis: Yeah.It’s such a crazy time. It’s just owning property myself, I just like… What’s the right thing to do here? Do you sell your property , do you just hold on tight? It’s just so difficult. 49:42 And then when people go for people who owned… What happens then when you have people not paying or how are the lenders  going to look at this? This is such an unknown or not present situation, 

 

Rick: I don’t have an answer for this, and the legislature doesn’t.

 

They’re not giving us any guidance. There are a lot of real estate developers buyers that are looking…

 

I guess a better word is praying on people who are having difficult times and offering embarrassing amounts of money to buy what would ordinarily be really good properties and I beg borrow steal. Try and hold on to your properties at some point… People are still moving here.

 

Southern California will always be valuable.

 

It’s sort of like, if you bought Amazon and you finally started to make a profit, they didn’t make profit for years, years and years, but you ought to have faith in them, Real estate you know it’s not going any place, it’s always gonna have value.

 

Curtis: I get asked all the time what’s gonna happen tomorrow, next year, and… I’m horrible predicting these things.

 The only thing that I think I’ve discovered from the last 20 years being the business of the people who’ve been able to hold on… It’s always worked out okay. 

But the difficult part is, when you owe a mortgage and you’re a dollar short and you have a lot of money in equity and you can’t sell and naturally the question that people need to ask themselves, how secure they are and can they write it out? And that’s when it gets difficult because I think the buy and hold strategy is a strategy to do and do 1031 exchanges, but in a perfect situation.

 

So that’s what makes it so hard for a lot of people right now, including myself.

 

Rick:  My heart goes out to these people…And I look at our state government and I look at them and I say, Did you guys forget what made us the richest  in our country? They don’t care, they just wanna take the money and spend it on… Well, it’s not on potholes. I see too, maybe.

 

Curtis: Right, right. Let me see what other questions we have that haven’t gotten answered.

 For small claims court, can a person only file a claim a maximal of two times per year? 

 

Rick: Oh no, no, no.

 

They helped you landlords, they helped you, they took all the restrictions off of you, you can file as often, as many as you want, as long as they are different things, but if it’s for back rent, excuse me, if it is for money owed under a breach of contract, it is not rent, remember that it is not rent, it is money’s owed for breach of contract, you can file as many of those as you want it. Unlimited jurisdiction. They will take them all. 

 

Curtis: Okay.

And what about if somebody has a fourplex and they are the owner and it’s owner occupied, how are they covered? How does that work with… They’re fine in this situation?

 

Rick: Well, okay, so the fourplex owner occupies one of the units, and so they’ve got three tenants, they still have to give a reason for terminating the tenancy, and as far as rent increases, this is what 388 did, it said 1482 is right,  5% plus cost of living.

if it’s a single family, you can potentially go up to 10%… That’s our ceiling. Commercial, no limitations.

 

Curtis: Another thing that is gonna be brutal with the recent things they did is if rents go down or let’s just say, you are on a trend right now, let’s just say in a few months, things are really bad and you lower your rent , it’s gonna be difficult to get them back up.

 

Rick: when I talk with clients and I say, well, can you help your tenant out? Make certain that you do not tell the tenant that you are lowering their rent, you are allowing them an accommodation.

 

Curtis: This is really,I think important because if you were to lower their rent, then you now cannot go forward and raise it more than the rent control standards. That’s really important.

 

Rick: So we’re not saying we’re reducing your rent, we are allowing you an accommodation, you rent is still let’s say, $1500 a month.. We’re gonna lower it as an accommodation to you for a certain period of time to this amount for let’s say three months we’ll do this. 

On month four, it’s $1500 again, because you don’t want to reduce rent, you just want to allow them an accommodation, be very careful to describe it that way.

 

Curtis: Okay, yeah, no, that’s huge. And any timeI  have been in an important situation where I’m having you advise, I always made sure to use you as an attorney because it’s so easy to mess things up and have to start the process over again , and now probably more than ever,

 

Rick: Contact a lawyer, whether it be me or somebody else, don’t take the chance, it’s worth it to spend a consultation fee to  know that you’re safe, that you’ll sleep better at night.

 And when we talk about rents, it’s not just rent, let’s say that there’s a water bill that they pay, or let’s say there’s utilities that they pay or any other charges that they may pay that’s included in the rent that is now being shoved to the side from March 1st until August 31st.

 

Curtis: Wow, you mentioned something, and I don’t know if you cover this or  not you said something to me on the phone about if somebody doesn’t do certain things correctly as a landlord, there’s fines up to six figures, let  talk about that.

 

Rick: This is the CDC.

 

And they said… And they just planned out said: No evictions, and I think it’s till January 31st of 2021. No evictions, but the tenant does have to fill out this Covid -19 declaration, and they don’t fill it out, they have to create a declaration, legislature said, these are the things that should be included in it, if you try and start an eviction and the tenant is given you those items, provided those items in basic form, then you are subjected to potentially $100 to $250000 fine and a year in jail.

 

So if you think that anyone in your government, state or federal is on your side landlords…You’ve come to the wrong country, this is… It’s starting to look more and more like Canada, this is socialism.

 

Curtis: 57:59 So if you just do something, there would be a lot of people are just going to understand all the stuff, things are happy so quickly, I can see easily now doing something wrong is  scary as shit.

 

Rick:  It absolutely is. 

 

That’s what I say, and if you call your lawyer, if you call me, and I’m gonna say, well, you know, it’s a grey area.

We’ve got two lawyers in the office with me, and we have somewhat heated discussions about, Well, what can you do… What can’t you do? Why… What could the penalties be… It’s crazy, this is a crazy time, and we’re not getting any help from either the legislature or the judges, because they don’t understand it either.

When you put a bill together for the legislature and you get it done within an hour of midnight on the last day, do you think that everyone has had an opportunity to review it?reflect on it now?No.

He just needed to do something otherwise, on September 1st, or actually it was September 2nd, the court was open for business, and the court was not ready to be open for visits.

 

Curtis: One of the things is, this is being recorded, so… What will have a recording? I’ll come out here. Surely. I’m probably hoping I have you on again soon in the next couple of months, right? ’cause you kinda get an update with you, it’s happening.

 

Rick:  I’m gonna guess within two months, two to three months, we’ll have a better handle on what’s going on and how it’s working, because right now… The landlords have an email stream back and forth amongst each other, what happened when they went into court? What did the judge do? I listen, I watch all the stuff and there is no consensus of what is right or wrong, what should you do, what shouldn’t you do? Some people are more aggressive.

 

I know Dennis Block in Los Angeles is a lot more aggressive, and he was one of the people that suit the judicial counsel, which pleased me… But there’s confusion. There’s just confusion. 

 

As I say, we debate this in our office, what should that 15-day notice look like, what should it have in it… When would you serve it? And these all need to be done before the end of the month to move forward.

 

Curtis: And I kind of don’t imagine things getting easier because as covid keeps going and things are shut down and we’re just having more and more problems, not even just with landlords.. It’s just gonna get crazy and crazy.

They don’t know what’s going on right now, I can’t imagine them having time to figure that out any time soon, because there’s gonna be so many other things that come up that are gonna be emergencies for legislation in our government. It’s just a crazy, crazy time for sure.

 

Rick: The legislature recognizes that this bill needs playing with, massaging, they understand that, they can’t possibly think that this was it, and now they’re done… If they do then they’re more foolish than I thought then.

 

Curtis: Somebody said, take us through what you can and can’t do, basically, what would be the steps if you wanted to get a non-paying tenant out on a month, a month…

 

Rick: Ok, I’m gonna presume that this is from March 1st forward.

 

The only hope that you have is you could serve this 15-day notice along with a declaration that they’d have to sign or fill out, somehow declaring that they are impacted by the Covid virus. If they do that, you are shut down, that’s it ,show’s over.

 

Don’t do this… you would probably still have to ask the court permission to have a summons issued, and remember, there’s two pieces to this unlawful detainer, eviction lawsuit, a summons, the courts blessing and the complaint, telling the tenant what it is that they did wrong and all the important information that goes with it, but without the summons, and I know a lot of lawyers filed a whole bunch of complaints without summons hoping that something would happen and then hoping when it finally opened up that the court was to… And I didn’t do that because I was afraid that that complaint and the summons that I file later would never get together, because the civil business office just isn’t that good.

 

These are not necessarily… They’re good, but they’re gonna be way over worked, they’re not gonna be able to handle this and it’s gonna be backlog, so if my thinking was just simply wait until I can put the two pieces together and then move forward with it.

But I talked to a lot of attorneys, we’re filing complaints right and left that I’ve been out of business for five months because I’m not filing any lawsuits other than extreme emergencies, and I don’t have a lot of faith that those two pieces are gonna get back together.

 

Curtis: So I mean, maybe the advice is you try to pay people to move, I mean, what a situation there is that abatement it.

Rick: This advice Curtis, you’ve nailed it . It’s the advice that I now give it, I never, in 40 years would have ever given to a client, and I’m writing letters for clients, it’s two tenants saying.. You know, I know this is a hard time, but here’s what we’re gonna try and do to help you, if you can move out within a couple of weeks, we’re gonna forgive all of your rent and we’re gonna… And this is like a Cash for Keys, and we’re gonna give you $2000 to help you, or you’ll forgive, let’s say $10000 of rent plus give you $2000, a windfall of $12000, and sometimes say, well, I need five.

 

You know what, $5000 depending upon the value of the rental agreement, the property itself might be worth it, it might be worth it to get someone in there that will pay rent, so just to make sure that you have a good contract and don’t give them… If you give them money a little bit, but not all of the money until they’ve handed you the keys, you inspected the unit to see that everyone is out, the worst case scenario is when all of a sudden they move out and a squatter moves in and they put the gas electric in their name, they’re getting mail, is it… Who are you guys? And you call the police and the police say, I’m sorry, this is a civil matter, we don’t get involved.

 

So this is kind of a cautionary, I know in this time with the Coronavirus, people are reticent to be exposing themselves to strangers.

 

Absolutely understand that.

 

Visual, putting it on video, video walk through some things like that, I think that’s a great idea.

 

The one thing that I don’t want is for someone to put a lock box on that front door, give the code to a prospective tenant because the next thing you know, that isn’t a prospective tenant, they’ve moved everything in and I’ve seen this. 

Sometimes property managers get lazy or they’re afraid… No, just wear  proper protective devices, masks and social distance, but don’t ever, ever let a tenant, a prospective tenant go into a unit, unescorted, ever… You’re just asking to call me up and I say, Gosh…

 

Why weren’t you there… And a lot of it… Now they can use the excuse, well I’m afraid of the Coronavirus, and a lot of property managers were just lazy, they just didn’t wanna go out there, well, that lazy could cost your owner a whole lot of money by the time the tenant is there not paying any money.

 

The only thing you can ostensibly do is give them a 30-day notice  terminating a tenancy at will saying they acquired access to the property voluntarily because you gave him the key or you told him go in and have a look and they moved in, 30-day notice, and then you’ve got the lawsuit, how long has is that lawsuit gonna take? Three months..

 

Curtis: This sounds like another..nightmare you see.

If somebody has questions or wants to kinda make sure we go to the process correctly… How do they get a hold of you?

 

Rick: Okay. The easy number to remember. It’s 6-19 ’cause my office is Downtown, it’s 23 was Michael Jordan’s jersey number. That’s not why I picked it.

 

23 evict. evict.

 

It did not happen by accident.

 

So that’s my phone number. I have an email that I occasionally look at it as Curtis will know, it’s long, but it’s really easy. It’s all lower case. It’s richard at Richard C, like cat, alter law firm dot com.

 

So when you look at it and you type in, it looks like Richard at Richard culture laawfrim dot com.

 

Curtis: I’ll send this out to everyone. We’re gonna… This is gonna be recorded, so I’ll do a follow-up email.

 

Rick: Curtis, I’m gonna suggest that we re-circle this in month and a half, two, probably two months, because then some of the dust will have settled and we’ll know a lot more, but if you’ve got questions, I always tell people before they call me up, write your question down, I get a lot of calls all day long, I used to be in court a lot up , not so much anymore, but write your question down so that when I get back to you… You’ll have your question. Lots of times people I call and I say, hi it’s Rick Alter, what can I do for you? And they say, Well, I have a question which is great, I wanna answer your question as best I can, and they say, Oh, and I’ll say, well, you know, nice weather and chat just a little bit… Maybe it’ll trigger something. And I said, Well, when you’re thinking your question, write it down, so I’m telling you in advance, folks, write your questions down, and lots of times I get people… And for the life of me, I don’t understand. They email me questions.

 

Make sure if you do email me a question, that you put a phone number down, here’s the reason, I can answer the question that you asked me, but my answer is going to cause you to think of seven other things that you want to ask, so rather than have an email stream of two dozen things, why don’t we just get it done in a quick phone call… that’ easier.

 

Curtis: Okay, well, I’m gonna send an email out, I’m gonna put a link to the video. Everyone, I have a little polling question, trying to figure out how often I should do these… If you guys have any ideas as part of that, we made this better, I really appreciate you coming on here, Rick.

 

Rick: Curtis do you know what would make it better?

 

If the Corona Virus were gone and we could do this in person, so I could actually see people other than you. 

 

Curtis: Yeah. I just gotta figure that out. So this is new to me. So we’ll get it down. I think we do this a little bit more often. We were doing happy hours before, so we’ll probably do coffee… I don’t know. Well, figure this out. We’ll keep on going. 

 

Thank you very much, Rick. I appreciate it.

San Diego 2019 Apartment Market Update [Full Report]

San Diego 2019 Apartment Market Update [Full Report]

The other month at Gabhart Investments, we hosted a workshop on the outlook of the San Diego Apartment Market in 2019 with CoStar Managing Analyst, Josh Ohl. In this workshop, Josh discussed

  • Rent Control
  • Investment
  • Rents and Sales Numbers
  • Apartment Pipeline
  • Where Are We Building
  • Vacancy
  • The San Diego Economy
  • and much more

Below we have posted the entire transcript from the workshop. We will be posting the full video on Thursday, May 30th, so please stay posted.

San Diego Apartment Market Outlook for 2019

Josh Ohl:          So my name’s Josh Ohl. I’m a managing analyst over at the Costar group. Today we’re going to spend some time just kind of giving you an idea of what our shop’s view on the numbers is, kind of an agnostic approach, if you will, to the market. We’ll look at fundamentals, then we’ll try to jump into some pipeline activity, rinse, and then sort of look at the capital markets a little bit in San Diego to give you an idea of what we’re tracking in all of these categories.

Rent Control and San Diego Economy

Josh Ohl:          Think we might as well start off with some of the things that are in the news right now. We saw the city council pass earlier this month removing parking requirements next to a high-transit priority area. The idea being that developers are going to pass those construction savings on to their tenants, sort of they’re going to be able to build more units as a result of being able to build fewer parking spaces. The numbers floated around are upwards … if you start digging underground for a parking space, you’re probably spending about $90000 a space. You know, if you’re paving a space aboveground it’s probably $20000, $15000 a space. So the idea is it will save money. Whether that cost is going to be passed on to the consumer, I mean that’s anybody’s guess whether the developers are going to be altruistic enough to pass that savings on.

Josh Ohl:          You know, also the idea being, too, that it’s going to lower costs for renters. If you look at properties that we’re tracking that are within about a half a mile with a high-transit priority spot, we’re still looking at about a $350 premium for those units compared to units that are spread out across the balance of San Diego, so you already are banking on a higher premium to begin with at those spaces. So whether or not it’s going to save money is, you know, I guess we’ll find out. I think Jonathan Siegel’s probably going to have one of the first projects that’s going to probably test that down in Little Italy. About 42 studio units. I guess it’s probably worth saying … he’s not in the room, right? Okay, it’s probably worth talking about, I think the initial thought was that those studios were going to come online at about $1300. Probably going to be a little bit closer to about $2000 a month, so … it’s just the cost of doing construction, too, right?

Josh Ohl:          That’s one of the first things in the news. I think the other thing that’s relevant in news, too, I think this was about two weeks ago, is that with the support of governor, it looks like the state legislature, regardless of what the state of California voted on regarding proposition 10 in 2018. It looks like the state legislature is going to start trying to pass through some sort of rent control measures across the entire state, taking their cue from what Oregon did. They passed theirs at rent control cap at seven percent growth and with inflation … so you’re talking about a point that’s probably on average about nine percent. That’s a pretty high level. What that’s going to probably do is, you know, it’s going to impact, obviously, the value-add opportunities across the market. They’re going to likely pass tenant-protective measures, and it seems like they’re going to have a willing governor who is going to pass these measures once they’re written and get through committee. So that’s another thing to take into account. It looked like we had passed that level last year and gotten past proposition 10 and what that had done to the market, but perhaps that’s something worth keeping an eye on as far as what they’re going to do this year.

Speaker 2:        In Long Beach they denied the vote, FYI. And it’s been going berserk ever since.

Josh Ohl:          Yeah, and National City, I think, voted it down, too, last year, so this is just the state of California right now, right? It seems like they’re full speed ahead on passing [inaudible]

Speaker 3:        They never learn.

San Diego Apartment Fundamentals

Josh Ohl:          So with that being said, let’s jump into some of the fundamentals supporting San Diego right now. Here we’re looking at just an employment growth chat. This is going through the end of 2018. More recent job growth numbers suggest through February we added about just a shade under 20000 jobs year over year in San Diego. The eds and meds category spurred a lot of that growth. The business sector, in particular professional, scientific, and technical field added about 3000 jobs. That’s good. When we look at [qualt coms 00:04:14] did it to those jobs. They took about 1500 out in 2018. So you know, the good news is San Diego’s pretty well poised to continue adding jobs in those scientific and technical fields going forward. We saw Apple announce last year in December that they’re going to add 1200 jobs over the course of the next three years. They took 100000 square feet down in UTC. Being that they’re going to continue building out more jobs and space here, they want to turn San Diego into an engineering hub and compete with [Wa Com 00:04:44].

Josh Ohl:          So the that’s good news for all those laid off workers, is that you already have a lot of talent that Apple can apply and look for to start building their own base here in San Diego. So I guess that’s also one of the things that we take into account. We have a lot of these jobs in the tech fields that are open and there’s job wanted signs out for them. We probably just don’t have enough employees that are ready to be able to take down those jobs, and as we look at some of the other fundamentals here, it’s probably one of the reasons that it’s difficult to attract the outside talent into San Diego.

Josh Ohl:          Here we’re looking at demographic chart in San Diego, just to kind of lay of the land and talk about populations. We have one of the highest densities of millennials in the entire country. We have about 25 percent. Maybe only Austin comes in higher, Seattle’s pretty competitive at that number, but we do have a very high concentration. You know, I’d be remiss if we’re going to talk about real estate and in particular apartments, it’s a buzzword, talking about millennials. They drive demand in some regard, but I don’t know how many 25-year-olds are taking down $3000 a month apartments, per se, but it is a good stock of those people that are the primary renting age and who are doing a lot of the renting. Maybe not at the high end, but those are supporting demand for a lot of the interior and sort of mid-level demand for apartments.

Josh Ohl:          One of the good signs for San Diego, this is just looking at cumulative income growth across households over the course of a cycle. San Diego is in orange versus the national benchmark in blue. We’ve beat the national benchmark be about five percentage points over the course of the cycle. That’s good news. One point in September of 2018, we had about five percent year over year income growth. That’s really good for San Diego. That was one of the highest numbers across the entire country. Started to slow a little bit here through the first quarter of year over year. Weekly earnings were up one and a half percent. Little less than inflation, but that’s sort of the nature of this cycle, it seems to be. It’s just sort of stagnant wage growth to begin with, so we haven’t necessarily seen the three and a half, four percent year over year income growth that maybe perhaps we could have expected with an expansion. It’s just the nature of our expansion. It’s happening to San Diego, as you can see, where the national number.

Apartment Vacancies

Josh Ohl:          So we’ll lead that into sort of looking at this is Costar’s sort of bread and butter, if you will, when we’re looking at fundamentals, whether it’s in the apartment market or whether it’s in any of the commercial segments. This is a supply/demand vacancy chart. Here you’re looking at demand, which is absorption in blue. New new supply is in orange, and then we’re looking at vacancy in San Diego in green versus the national vacancy in black.

Josh Ohl:          I think it’s safe to say vacancies are really in good shape in San Diego. For the most part, we’re at about four and a half percent; that’s a really good number. You know, it’s better, probably, than when we were at sub four percent. It allows for a little bit more turnover, plus apartment units. That’s another good thing if you’re a landlord. Probably get little bit more rent growth when your unit turns over as opposed to trying to rely on just renewing that rate at maybe three or four percent. I know a lot of landlords like pushing the rents 15 percent when it turns over, so that vacancy a little bit higher is probably a good thing for San Diego.

Josh Ohl:          Looks like we’re, too, probably coming off our peak level of new units of supply on the market. In 2018, we had about 4200 new units of supply come across in San Diego last year. 40 percent of those were downtown. It’s all about downtown; I don’t think I have to tell anybody that. 40 percent of the market’s … when we talk about San Diego as a market, we’re talking about market rate apartments across the entire county. 40 percent of the under construction stock right now is in downtown; that’s where everything’s being built. Demand sees to be holding up largely downtown. I mean we’re looking at vacancies at at 15 percent, but when we’re talking about the flood of inventory that’s coming on line, that’s not a terrible number. In particular, when we look at absorption numbers downtown, it’s pretty good, you know?

Josh Ohl:          The East Village units that are being delivered where there’s a ton of construction, you might have some more challenges with the neighborhood amenities, if you will, in the East Village, but you’re still looking at about almost high 20s, maybe 30 units per month for those communities that are in lease up. East Village probably the best … or I’m sorry, not the East Village, Little Italy, probably the trendiest and best neighborhood in San Diego. There are probably about 15 units a month in absorption but you’re also looking at average rents of about $3100 a month in new units. So demand is a little bit slower. Obviously the community sizes are a little bit smaller there, too. Probably on average a little less than 100, so that’s sort of their leasing strategy and it’s doing well.

Josh Ohl:          We’re going to look at absorption across the county as a whole. Look at Mission Valley, you know, there’s 1500 units under construction in Mission Valley right now. The properties that came on line in 2018, you have Mission Valley, Millennium Mission Valley, that’s right there at the edge of the eight. That one came on line and it’s averaged about 25 units a month. That’s a really good number. Concessions are picking up a little bit more in Mission Valley as units are piling up there. [inaudible] over Mission Gorge. That came on line last year. That’s averaging a similar number, so it’s a little bit, you know, pretty strong demand for the most part there. You’re getting numbers in Carlsbad for absorption in new communities. Similar levels, the low 20s. I think when you go out to more of the suburban areas, perhaps the interior parts of the market, that’s where you’re going to find that slower absorption a little bit, areas where they’re not accustomed to receiving sort of the luxury units which all developers are sort of compelled to build these days and they’re getting less than 20 units of absorption in those properties.

Speaker 4:        Question on that subject. What is the rent you’re dealing with in each of those places? [inaudible] one bedroom at these newer constructions in Mission Valley? Do you think it’s struggling?

Josh Ohl:          So in Mission Valley, you’re looking at average rents in the new communities at about $2400 month.

Josh Ohl:          In the East Village, you’re looking at about properties that delivered last year at about $2650 is the average for the new units that are coming on line.

Josh Ohl:          Two bedrooms are about $2900 in East Village-

Josh Ohl:          $2600 would be the overall. Yeah. And then when you’re going over to Little Italy, you’re looking at overall average of about $3100 for new units. Studios are at about $2300, one beds are about $2800, two bedrooms

Speaker 4:        Where’s all that data?

Josh Ohl:          In CoStar.

Josh Ohl:          What is supporting our rent observations and being able to track absorption in this, we have a secret shopper that calls properties in lease up one to two times a month, so they’re doing that constantly.

Speaker 4:        You guys also own apartments.com or no?

Josh Ohl:          We do own apartments.com. So with the help of apartments.com, we get about 40000 rental observations in San Diego alone per day. It helps us be able to track the market on a day to day basis to see exactly what rents are doing. And I’ll kind of show you in one chart later in particular to rents on how we’re able to do it and what wort of insight that provides.

Josh Ohl:          So we’re talking about absorption across the county. This chart’s just sort of looking at the lease up time and the amount of months or quarters it takes for new communities to stabilize over the course of properties that delivered in 2015, and then vintage 2016, ’17, and ’18. It held largely consistent in properties from 2015 and ’16. It was about six quarter lease ups was about the standard. Started noticing 2017’s new inventory. It was about a seven quarter lease up. You know, granted, the same thing it looks like for 2018. Deliveries were on track for about seven quarter lease ups. A lot of that, it’s just where it’s all coming online.

Josh Ohl:          It’s a lot of competition downtown. The properties that delivered downtown in 2017, they came on line at the very end of the year, largely, and they competed with everything that started delivering in mass largely in 2018. So it’s just needed competition. But again, I think when we take into account that year over year hiring in the construction field has largely been flat, it’s not, I think, wholly unsurprising, especially when you’re looking at trying to find increased skill labor for the amount of projects that we’re trying to build, that construction timelines might slow a little bit; it might take a little bit more time to get projects off the ground, too.

San Diego Apartment Pipeline

Josh Ohl:          So with that, we’ll turn to the pipeline, just to give you an idea of where they’re building and sort of just give you insight on that. I think when we’re talking about the market and sort of when we … you know, I don’t like to use the word “crisis” for San Diego’s housing. I think the state legislature likes using that. “Crisis” seems hair-on-fire type of environment. Environment’s probably just frothing, if you will, right? This chart right here is looking at just essentially total residential building, single family residential, and multi-family building over the course of the last 35 years, to give you an idea of the change in supply that’s delivered in San Diego.

Josh Ohl:          Beginning a little bit earlier than this chart, in about the mid-70’s we had built about three percent of new inventory on a year over year basis. Beginning in about the mid-aughts when the recession hit, and in taking a long time coming out of that. We kind of stalled. We only were adding about half a percent of inventory per year. And one of the things that, too, stands out is when you look at history, we generally have built about 75 percent of our inventory in single family housing.

Josh Ohl:          We don’t do that anymore, and I think that’s one of the reasons that we find for-sale housing supply is, what, about two and half months of supply that’s on the market. It makes it very typical, and it also keeps people in apartments, too, right? You’re less willing to sort of trade your maybe starter home to buy another home when there’s just very little inventory available for stock. I’m probably not alone in knowing people that sold their home, tried to find another, couldn’t, and ended up having to rent a place because they’re just stuck and the market’s extremely tight right now.

Josh Ohl:          So this is one of the reasons I think that we’re looking at our sort of frothy housing situation: we just don’t build enough. Everybody knows it; we just don’t. Any time you start saying that you’re going to build a project and it’s going to cast a shadow on a house, on a parking lot, on a tree, there’s going to be a neighborhood opposition to it, right? Construction cost has gone up, the cost of labor has gone up, so all of these things work against building. There’s a project called Merge 56 out in Rancho Penasquitos that’s probably not alone. Got approved by the city, there was going to be about 256 market rate units, build a little sort of mixed-use environment, and then a labor group decided that they were going to just press a lawsuit against the project, that they didn’t follow certain environmental regulations to the T. That, again, speaks to the difficulty of building.

Josh Ohl:          The city of San Diego knows this; everybody knows this. We should be building probably about 18000 housing units per year to keep up with population growth and household formation. That’s for every year for the next decade, that’s where we should be building. But this chart just gives you an idea of just building permits alone. This doesn’t mean we’re building this many units every year, but this just gives you amount of building permits that are approved year over year, and you can see we’ve largely plateaued at about 10000.

Speaker 3:        The only thing that I’m wondering is where the heck you going to build them, unless you just tear down stuff. There’s no other room, and like you go out to east county, they’ve got all this stupid zoning. You can’t go below 40 acres and all kinds of garbage, because they’ve passed it with, “Do you like little furry animals?” And they got it through and people didn’t know what they’re voting for. Where you going to put it unless you tear down old junk?

Josh Ohl:          Well, I think one of the big targets is probably going to be the Morena Corridor, up through like Balboa. They’re going to put three trolley stops there on the way to UTC. I think the … just if you have a bay view and you know you’re on the hill behind there, there’s going to be a lot of opposition against that. There’s probably going to have to be a lot of infrastructure improvement on the surface streets in particular, but if I had to guess I would presume that that’s going to be one of the corridors where we’re going to see a lot of units coming on line over the next several years.

Josh Ohl:          A lot of cities are sort of updating their master plans. You look at what they did down in the Midway district. They just updated their master plan to go from about 2500 housing units to over 10000 in that area. The thought of that frightens me; I live at the end Rosecrans. I can’t imagine how long it would take me to even get to the Eight if they were to build all those units down there. You know, Old Town, they improved theirs, that they added about another 1000 housing units in their master plan. [Curry] Mesa’s up next. They’re going to address theirs. I think they did theirs in the East Balboa Corridor, the Morena Corridor. There’s updates to address these; now it’s just a matter of sort of overcoming the neighborhood opposition that’s likely to follow. Now when you’re talking about like-

Speaker 7:        How about City Heights?

Josh Ohl:          City Heights, probably. I mean, and they, I think, in a lot of those Balboa Park neighborhoods, they increased the height limit on maybe upwards of 100 feet, so I think you could see it around there. But again, as soon as anything pops up over there, it’s just opposition. Yes?

Speaker 8:        What about the one in Mira Mesa?

Josh Ohl:          Yeah, so there’s a lot of projects that are on the books. I think the city is just … you lack sort of the mass transit and the trolley stations out there that I think the city is really moving toward. That’s why, in my opinion, I think they’re going to focus on this corridor coming up from Old Town up to UTC first, and I think that’s where they’re going to start pushing them in. East County presents its challenges, obviously, just because fires are prevalent out there, so that’s one of the challenges if you’re going to increase infrastructure and increase density. That’s certainly one of the challenges.

Josh Ohl:          So there’s a lot of challenges. So you know, when they had the ballot measure in 2016 to build 1600 units out there, what was it, Lilac Hills Ranch out there in Valley Center? I voted against it. I don’t go out there. It has no impact on me. I just didn’t like … we live here because we like San Diego as a big town, not a big city, right? We don’t like-

Speaker 3:        Not in my back yard.

Josh Ohl:          Yeah, exactly. So I know there’s an NIMBY movement here and there …

Josh Ohl:          “Yes in my backyard” as opposed to the “no in my backyard” movement, but it’s increasingly likely that we’re going to have to go in this direction if we’re going to address this housing situation. So where are they building right now? Well, the red spot right here. This is taken out of CoStar just to kind of give you a heat map. You know, where they’re building, and you can see they’re not building in East County at all. It’s largely downtown, to largely Mission Valley. You get some spots up in the Carlsbad area, the Oceanside area. That’s smart, you know, you’re taking advantage. There’s a lot of industrial construction up there, the sort of corporate HQ industrial construction, where you can definitely get some demand for these apartments based on that. We get a little workforce housing down there in Otay Mesa and Chula Vista and down in the Millennia area.

Josh Ohl:          But it’s spread out, but it’s going to be concentrated in downtown. Downtown developers and landlords are probably just going to have to hope, really, if they’re going to continue to sort of increase demand down there, and some of these office projects downtown also take off. I know Stockdale purchased Horton Plaza last year for $175 million to convert into sort of a tech office hub to bring in 4000 jobs. The city council has to take that up because there’s a requirement for 600000 square feet of [inaudible] in that space. Manchester Gateway, they started breaking ground, but that’s largely just on the Navy complex because the Navy’s build to suit.

Josh Ohl:          What you need is sort of the Apples of the world, instead of Apple taking 100000 square feet in UTC, you need an Apple to take 100000 square feet downtown that’s going to bring some tenants with them on their coattails, and so far when Amazon decided to expand here, they took UTC, right? Google up in Rancho Bernardo area. So this is where all the tech companies want to be. This is where all the sort of panache is up in this area. Yes?

Speaker 3:        How about the SPAWAR’s area? I know there was sort of an odd discussion about putting a lot of housing there. Where are they on that?

Josh Ohl:          Well I know …

Speaker 2:        That’s supposed to be the hub.

Josh Ohl:          They want to do perhaps like a transit hub that’s going to link to the airport, would be right there.

Speaker 3:        But I thought … well they would also put housing there, sort of like they did downtown with the big transit hub, where the train and the buses and everything go.

Josh Ohl:          Exactly, I know SANDAG really likes that idea of putting it right there at the SPAWAR site. Again, I think just because of where it’s located right there on the coast, we’re looking years and years and years, I mean. You look at the big retail projects on the market, whether it’s Amara Bay, the Seaport Village, Manchester Gateways Retail, all these are big, shiny projects, but they’re all near the water and they all just take years and years. You have fault lines running down along the water, which makes it just difficult for building right there. So seems like a good spot for it, right? The defense department doesn’t need the space, but we’re years away. And again, selfishly, if I’m coming from Point Loma and I wanted to get on the five south, it’s going to [crosstalk]

Speaker 4:        But you don’t need a car.

Josh Ohl:          Yeah, that’s true. We’re all going to ditch our cars and maybe take Ubers to trolley stations to and from work and to and from our offices. So when we talked about the transit priority areas, I just pulled this out of CoStar really quick to give you an idea of residential land, and also proposed properties that are in these areas, to give you an idea of maybe these are going to be construction hot spots. I think there’s about 50 total residential land parcels that could accommodate without sort of having to adjust zoning next to high transit priorities right now. So we might see some pick up, but I don’t think we’re going the see any large developments that are going to remove parking altogether. Maybe instead of one and a half spaces, you’re going to be down at half a space per unit. We’ll see.

San Diego Rents

Josh Ohl:          Let’s move into rents. What are rents doing right now? You know? We ended 2018 at about three point four percent rent growth; that’s a really good number across the whole county. That’s still better than the longterm average of three percent. Each one of these orange bars on here represents 12 months trailing rent growth. San Diego’s had a very good run. We had some of the best performance of major metros in the country last year. We’re San Diego, right? We expect it. It’s high demand. We’re at about $1800 a month on average rents in San Diego. Again, that’s a high number, but we do anticipate rent growth slowing. Part of this is just the nature of the cycle. We’re very deep into it, and we have noticed rent slowing a little bit right here, as you can see.

Josh Ohl:          So here we’re looking at one and two in blue, three stars in orange, and green is in four and five star with all of San Diego in yellow. So what stands out is rents actually fell about one percent, just in the fourth quarter alone across all of San Diego, and it impacted the high-end communities the most. Obviously, that’s where rents are the highest. It’s got to be hard pushing rents in brand new communities when you’re already at the top of the market, so those rents did claw back a little bit here in the fourth quarter, and that’s something we expect to happen a little bit more in 2019 and definitely in 2020. We expect that sort of seasonality to extend to the second half of the year a little more noticeably than it has.

Josh Ohl:          You know, when you look at ’18 Q4 in particular, you had areas like Mission Valley, UTC, and sort of the coastal area down in like Point Loma and the peninsula and Coronado, where rents came back from more than two and a half percent in the fourth quarter in those areas. Some of the biggest dips that we’ve had or that we’ve recorded in over 10 years in any quarter. So some of these markets that have high rents are starting to feel the heat a little bit as renters are just having trouble keeping up with rent growth.

Josh Ohl:          And I think this is one of the reasons, too, is when you look at cumulative income growth, blue, versus cumulative rent growth in orange, and you can see we’ve had a good run of increasing our household incomes over the course of this cycle. But landlords have also had a really good run over the course of this cycle, raising their rent, and you can see through the end of 2018, there was about a 14 percent difference where rents grew faster than incomes grew over the course of a cycle. That’s a really big dent, as far as in your wallet that you’re having to pay out every month.

Josh Ohl:          So that’s, I think, one of the reasons that we’re seeing some of the rents pull back a little bit, and in particular at the high end of the market. And I think when you look at some of the metrics, one of the reasons I think landlords are beginning to approve renters, a couple years ago 40 percent was sort of unheard of, where landlords were approving renters and their rent to income ratios. We’re even seeing 50 percent of incomes to rent now being approved by property managers. So that’s something that we never saw in San Diego, but that’s starting to creep up now, just because of having to … trying to fill demand in a new apartment.

Speaker 7:        Can you say that again?

Josh Ohl:          So I was saying landlords are now increasingly moving above 40 percent of approving tenants for rent to income ratios, where generally the standard was 30. A couple years ago we started seeing 40 a little bit, and that’s becoming pretty standard, especially downtown. 50 percent’s not unheard of. It’s not crazy, too, when we looked at that where rents have grown in particular versus household incomes have grown. You know, right now when you look at median renters’ household income, it’s about $53000 across San Diego. You look at median household income, it’s about $78000. But median renters’ household income, it’s only about $53000. When you look at where average rents are across the entire county and about $1800, doesn’t really matter if you’re looking at El Cajon, National City, Chula Vista, North County, you know, areas that are prone to be more of our affordable areas, renters are on average paying more than 40 percent going toward rent right now. So it’s just crept across the entire market. Yes?

Speaker 3:        So maybe that might be fueling people’s choice to rent rather than own. You know, there’s some like a big mystery in a lot of the journals about why the millennials aren’t buying houses, and if you can rent the house at 50 percent of your income but you can only get a loan on a house at 35, that’s going to kind of push you, I think, into life in the rental cycle.

Josh Ohl:          That too.

Josh Ohl:          Yeah, I mean, that too, and you look at where savings rates have plummeted to about three percent right now, where historically the standard has been closer to 10 percent but now it’s about three percent, so that’s definitely playing into it, I think, and it’s just a very [crosstalk] I think with median housing prices right now in San Diego versus median household incomes, I think, what is it, the average household income would probably go to like 70 percent toward a mortgage based on what median housing values are right now, so the market’s just overheating. Maybe that’s it. I’d like to buy another house. I don’t like where the market is. They want like $1000 a square foot in Port Loma right now. That’s nuts. Yes?

Josh Ohl:          Like granny units and whatnot, and I think they anticipate in a decade about 5500 units might be built. They thankfully lowered the permitting cost from maybe upwards of like $80000 to only about $35000. Of course, you’re assuming people want to give up their back yard space and become landlords. I think that’s a large assumption, that there’s going to be a lot of people to do that. But again, trying to address some of the issues. We’ll see whether it makes a dent or not.

Speaker 2:        La Mesa’s getting into that act, too. They just passed an ordinance.

Josh Ohl:          Yeah, and I’ve seen that, so … yeah. And I think they also putting forth blueprints, so at least it makes the construction of them a little bit easier, too, so. And I think this is my last slide on rent growth, and this sort of speaks to where the market is. This just looks like our five year trend in a heat map. And you can see on the left, you’re looking at only the coastal areas up here, where we are right now, down in UTC and downtown, largely, where rent growth has averaged over three and a half percent, and that’s the most expensive areas in the metro, but it’s more the interior parts of the metro where’s you’re averaging over five percent that sort of speaks to why, I think, we looked at a demographic chart earlier that speaks to where population and migratory trends are suggesting we don’t have end migration anymore. We do, but it’s a net negative. We have more people leaving the market. You know, they’re going to Inland Empire, Sacramento, Phoenix, areas that have pretty good employment markets, for the most part, but also much more affordable to live in those areas.

San Diego Apartment Investment

Josh Ohl:          So let’s wrap up with a couple, look at a couple slides on investment. Here we’re just looking at quarterly sales volume, stacked bar rank over the last decade. I think what stands out is I feel like proposition 10 played a large role last year in just keeping some investors on the sidelines with just kind of “wait and see” approach. It’s just very sluggish. Investment largely didn’t start picking up until we started seeing those polls come out in September suggesting that it likely was not going to pass, and that’s when we started seeing some volume and some better deals go down. And that momentum has largely carried over into the first quarter of this year. We see some big deals; we see some strong sales activity as well. But it is worth noting last year was the lowest sales volume since 2014. Interestingly enough, that sort of trend was unique to San Diego in California. It didn’t happen in the Bay Area, L.A., Orange County, or Inland Empire. So maybe just San Diego investors are a little bit wiser. I don’t know.

Josh Ohl:          Here we’re looking at San Diego’s apartment market pricing and index, just to give you an idea where pricing is, and also a pricing index. We’re indexed to 100 at the end of 2008, so we’re looking at essentially the last decade. And you can see apartments that [crosstalk] over 100 percent in value on the index since the end of 2008. You can see pricing hit about $300000 a door as well through the end of 2018. I think it’s worth looking at, too, though, when we forecast it looks like that rapid appreciation has started to slow a little bit. We anticipate that leveling off throughout 2019 and even through 2021 falling back a little bit. It’s not unique to the apartment market; we anticipate that happening, too, largely in the commercial market, as well. Again, it’s the length of the cycle. You know, there’s some headwinds that are out there on the horizon so-

Josh Ohl:          You know, pricing we anticipate, you know, we hit about $300000 a door, probably falling to about … again, it’s a forecast, right, so maybe by end of 2021 falling to $290000, $285000 a door, somewhere around there.

Speaker 2:        No way in Hell.

Josh Ohl:          You don’t think so?

Speaker 2:        No, because your new starts are getting way too much rent, and the inventory here is all crap, so as long as you put the value in, upgrade your units, make them look like new, should be able to get at least $2000 a month, and $2000 a month is worth way more than $250000 a door.

Josh Ohl:          Possibly, but at the same time [inaudible] pass rent control across the state, so you might have had less of those value add opportunities. You know, we have slowing income-

Speaker 2:        No one wants rent control with rats.

Josh Ohl:          No, nobody does, but that’s one of the concerns, right? That’s why I think the state legislatures seem to be the only one that want rent control passed. But this is, you know, I think part of it is where we are in the cycle. You look at Moody’s; they’re anticipating negative job growth in 2020, for instance, and largely slow employment growth thereafter for a couple years, and I think that plays into it. When we’re looking at San Diego transactional versus market cap rates here, the market cap rate or transactional cap rate is in … i think we’re looking at just before [inaudible 00:33:04].

Josh Ohl:          So you can get an idea, transactional cap rates, we’re just basically looking at properties that are traded, what are the recorded cap rates that we’re recording with the comps. Market cap rates are essentially if the entirety of a market is going to sell, what kind of cap rates would we notice instead of sort of banking on maybe high-value trades or sort of low-end trades that may be influencing a little bit more. We’ve seen sort of flat cap rates over the last … they’ve sort of stopped compressing. Obviously it depends where you are in the market, what you’re investing in. We’re looking at maybe four and a half percent cap rates on average.

Josh Ohl:          Go up to the coast, finding cap rates in the three percent neighborhood is probably pretty common. Go out to the interior, you can still find cap rates in a five percent area. But again, slowing [inaudible] growth and rent gains I think is going to play into it. The fed has pulled back on pushing interest rates for the next at least 2019, but in case they go back to 2020, we anticipate that playing a role going forward. So one of the big things that we’ve seen … yes?

Josh Ohl:          It depends, you know? Like [inaudible] Mission Valley, which delivered last year, sold at I think about a four-four cap?

Josh Ohl:          You know, and I think we’re seeing Mission Valley, a lot of those properties, that’s where you had tons of the institutional product. You see a lot of turnover there; that seems to be right where they are for Class A space.

Speaker 4:        I’m building a new product in western Chula Vista. I think that modeling my cap rate for the rate of return calc at like four two five or four four or something like that.

Josh Ohl:          Okay. yeah, that seems to be pretty much in, you know. So opportunity zones is something obviously that’s been in the news lately. CoStar you can search on opportunity zones. You can look at what properties, you know, what rent growth looks like, what properties are trading for. This is just … it’s, I think, hard to take any conclusions in it right now because obviously there’s still, I think there are some cobwebs involved in the law and trying to sort out what is and what isn’t considered the investment or the capital improvements on the property, but this sort of gives you an idea of the level of pricing increase on properties that have been sld in San Diego’s opportunity zone in 2008, just to give you that idea of maybe a 10 year return, but you have to hold your money there.

Josh Ohl:          As you can see, pricing has hit about $250000 a door. That’s a pretty good number, especially for some of these areas that are perhaps less high glamorous, if you will, than other parts of the San Diego area. You know, we do-

Speaker 2:        Sorry, what’s that? What’s an opportunity zone? Sorry to interrupt.

Josh Ohl:          I think in the tax act that passed in 2017, designated census tracts that have median household income 80 percent below or at 80 percent of the MSA’s median household income, and then I think census tracts that are tangential to those also have some benefits as well. It’s a long write-up; if you want to [inaudible] tax accountant will probably into it [crosstalk 00:36:07].

Speaker 2:        It’s also all linked to all the new transit.

Josh Ohl:          Yeah, so you look at like National City, Barrio Logan, some of those areas down there. City Heights has some. You see a little couple pockets El Cajon and Vista. But this just kind of gives you an idea of where pricing has moved over the last decade. Maybe that would be the case, maybe not. I don’t know if the state decides to pass a rent control measure, what that might do, especially if you have to reinvest 100 percent of the capital improvements into that property, what that might do to sort of impact especially the multi-family market here.

Speaker 2:        Like what do you mean, capital improvements back into the property?

Josh Ohl:          So you have to invest 100 percent of the … I think it is … I don’t know, it depends on who you ask. I have not been able to get a straight answer from, you know. It’s either 100 percent of your purchase price back into to property, so you invest $1 million, you have to invest $1 million in improvements on the property. Or the other part is I’ve heard you get the assessed value of the structure on the property, so if the structure’s $600000, you would have to spend $600000 on kind of improvements, so.

Property Example

Josh Ohl:          I think this might be my last [crosstalk] here, just to kind of give you an idea from the investment market. Just look at this property. This is out in Lake Murray. This is pretty standard property, 24 units … I’m sorry, 35 units. A bunch of one bedroom, one baths and some two bed, one and a half baths. Built in 1975. Or built in 1970. This is largely considered it was a Class C property, but just to kind of give you where this property has moved over the course of this cycle, it sold in February 2012 at $4.95 at a five point eight cap. They put almost $1 million in improvements on the property. It then sold in 2013 for $7.1 million for a 20 percent appreciation. This buyer, a San Diego developer, decided they were going to put $351000 in further capital improvements. You can see it looks great from the outside now, and then it just sold in August for $10.25 million at a five cap, 38 percent appreciation.

Speaker 2:        It’s across from Lake Murray.

Josh Ohl:          So it kind of gives you an idea about the strength of the market and just people keep renovating properties. Even if properties have been renovated earlier in the cycle, it seems like the value add component still exists in a lot of these properties and you can see the price appreciation [crosstalk] pretty strong over the course of the cycle.

Summary of the Presentation

Josh Ohl:          And to kind of put a bow on everything we talked about today, local economy is strong. We’re poised to continue adding jobs in the market, especially the kind of jobs that help support high rents and that are good for the market, if you will. If we were only adding sort of service industry jobs, hospitality jobs, that would sort of be a strain on the market, but we’re adding a lot of tech jobs, which is good.

Josh Ohl:          We still aren’t building enough, but maybe a change in parking requirements could help. I think we’re going to see that. I think that is just part of our future in San Diego, that we’re just going to have to grin and bear those projects that we don’t otherwise want to see. I think the days of, you know, in my neighborhood there was a four unit condo project that the mayor stepped in on a four unit condo project and would not allow them to issue a certificate of occupancy for 10 months on a property that was ready to go, just because there was some questionable concerns about the height variance on the property. I think those days are going to be part of our past. [crosstalk]

Speaker 2:        I’ve got a question. Why would you say last year may have been the end of cap rate compression and pricing growth?

Josh Ohl:          It just seems like we saw that trend in the end of the fourth quarter, is that cap rates started being pretty steady for the most part and pricing, just based on what we’re looking at over the next couple years, I don’t know that we’re going to see overall pricing appreciation, especially like we’ve seen over the last couple years.

Speaker 2:        But cap rate’s directly correlated to the interest rate.

Josh Ohl:          Okay. Again, this is what we forecast with our inputs, so you don’t like it, you don’t have to take it into account. So annual rent growth has definitely decelerated over the last couple quarters. That has moved into the first quarter here. It has slowed. We ended 2018 at three point four percent rent growth. Right now this morning we’re at about two point six percent annual rent growth, so we are slowing a little bit. And is the state legislature going to try to pass rent control measure? Probably, right? And along with some tenant protective measures, as well, I would imagine.

Speaker 3:        They’re not smart enough to get out of their own way. It’s going to absolutely destroy the market temporarily, and then they’ll finally figure it out after they’ve destroyed the place.

Josh Ohl:          Yeah, well, Oregon’s going to definitely be a good test case for it. They’re sort of doing it right now, so we’ll see what happens.

 

Curtis Gabhart and Gabhart Investments, Inc – 2019 All Rights Reserved
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5 Ways You Can Protect Yourself From Real Estate Wire Fraud

5 Ways You Can Protect Yourself From Real Estate Wire Fraud

Real Estate Wire Transfer Fraud Gains Momentum

  • A new type of wire fraud is beginning to target and impact homebuyers
  • Real estate transactions in today’s world often involve the wiring or electronic funds transfer (EFT) of money to complete a deal.
  • Buyers are being tricked into wiring their entire down payment on the day of closing to a fraudulent offshore account, often by cyber criminals who have spoofed or hacked their realtor or title company’s professional email account.
  • The losses from these wire scams are typically not insured or reimbursed by the bank because the wire transfer goes overseas.
  • Victims of these scams have sometimes lost up to six-figure sums and have had to cancel plans to buy their dream homes.
  • The California Department of Real Estate (DRE) has issued a consumer alert for real estate wire fraud.
  • This article will give you 5 tips on how to protect yourself or your client during your next real estate transaction.

Imagine This Scenario

You’re about to buy the home of your dreams when you receive an email from your realtor or title company saying there has been a change of plans. The email explains that you need to wire your down payment by tomorrow morning to a bank account belonging to the seller. Eager to close, and to trust the legitimacy of this email, you wire over your hard-earned down payment to the bank account requested. The next morning you decide to call your realtor and discuss what is next only to find out they never sent any such email. Your down payment is now gone, and you’ve just been the victim of an increasingly common form of financial fraud – real estate wire transfer fraud. 

Why Wire Transfers Are A Problem

The above story may sound crazy, but it is entirely accurate. According to the National Credit Union Administration in 2016, the number of fraudulent wire transfer scams reported by title companies and real estate agents increased by 480%. These numbers are alarming and indicate a real crisis that is impacting thousands of American homebuyers. While a typical wire fraud may only net a few hundred dollars, real estate wire fraud can net a cybercriminal anywhere from a few thousand dollars to hundreds of thousands of dollars. This can wipe out the would-be homeowner’s bank accounts and create lasting financial hardships.

How the Scam Works

  • Hackers will typically compromise a real estate agent or title company’s email server and search for upcoming closings.
  • The hacker will then email the buyer with legitimate-looking wire transfer instructions (sometimes as soon as the day before closing) requesting that the down payment is transferred electronically to a different account.
  • Once that money is transferred, it is GONE for GOOD. Banks, financial institutions, and the government typically cannot ensure this type of transfer because the accounts are offshore.

What makes this even more difficult is how skilled hackers are becoming. Often, they will use authentic-looking company logos, language, and personal information designed to make you feel comfortable.

  • Email is a commonly used method for transfer of information and documents in a real estate transaction – making it even more difficult for targets to spot.

What You Can Do To Avoid It

  1. Be aware – as a homebuyer be mindful that you could be a target for scammers. Look for potential red flags which include a sudden change of plans, misspellings, poor grammar, an increased sense of urgency, and emails sent outside of regular business hours.
  2. Use alternatives whenever possible – Instead of using electronic wire transfers, use cashiers checks and get a receipt. With smaller transactions, you may be able to use personal checks or a credit card and obtain a receipt, which will give you a proof of purchase.
  3. Obtain Numbers –  Get the phone numbers and account numbers of the real estate agents and escrow-holders at the beginning of the real estate transaction, and be sure to use those throughout the transaction. This provides you absolute proof you are transferring money to the right accounts.
  4. Call first – Even as legitimate as they may seem, never act on an email request to transfer funds electronically without verification. If your agent requests that you need to transfer money electronically this way, always call the number provided at the beginning of the transaction and verify the email request to transfer funds. Even better, transfer the money in person with a cashiers check. This way you can see directly who you are sending the money to.
  5. Keep it confidential – Never offer any sensitive personal information such as social security numbers, credit card numbers, bank account numbers, or financial details via email or text message. ALWAYS and ONLY enter this type of information on an encrypted website or give the information in person.

Taken directly from the DRE, here’s what you can do if you or someone you know has been a victim of real estate wire fraud.

If you (or your clients) are victimized, it is critical that you or your client contact your depository institution and the Federal Bureau of Investigations (FBI) immediately to have a chance at halting the criminal transfer. File a report with the FBI by calling a local FBI office or reporting online at FBI Internet Crime Complaint Center.  Their website is: bec.ic3.gov

Curtis Gabhart and Gabhart Investments, Inc – 2018 All Rights Reserved
The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of Gabhart Investments, Inc. The material contained in articles that appear on gabhartinvestments.com is not intended to provide legal, tax or other professional advice or to substitute for the proper professional advice and/or commercial real estate due diligence. We urge you to consult a licensed real estate broker, attorney, tax professional or other appropriate professionals before taking any action in regard to matters discussed in any article or posting. The posting of an article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.

What Does Gabhart Investments, Inc, Do?

Gabhart Investments, Inc, one of the top real estate companies in San Diego. We do residential real estate, commercial real estate, and manage a syndication of private investors; specializing in acquiring and renovating single & multi-family properties.

We have done over $250 million in real estate transactions, have been featured on TLC‘s Flip This House, won several awards with the San Diego Business Journal, and have the distinctive CCIM Designation (Certified Commercial Investment Member).

If you’re interested in learning more about how Gabhart Investments can help you meet all of your real estate needs, please don’t hesitate to give us a call 858-356-5973 or email us

Interview: GII Listing Is Chosen For The 2018 MA+DS Modern Home Tour

Interview: GII Listing Is Chosen For The 2018 MA+DS Modern Home Tour

We are excited to announce that one of our listings, La Pintura Moderna, was chosen for the 2018 San Diego Modern Architecture + Design Society Home Tour! This prestigious distinction was handed out to only 9 homes in San Diego County.

The Modern Home Tour series gives the residents of San Diego and surrounding SoCal communities a rare chance to see a selection of amazing home designs and projects completed by local architects, designers, and builders.

The tour will take place this Saturday, October 13th, 2018, from 11:00AM-5:00PM. This event is on-sale now and tickets are available at the button below. 

We sat down with the talented team behind this gorgeous property to better understand their inspiration, the process, and much more. We hope you enjoy this interview and we’ll see you this Saturday at La Pintura Moderna!

 

The Team 

Kai Kenner

Architecture, Project Management

Leigh-Ann Muramoto

Design

Jon Walsh

Construction

Can you introduce the team that designed and built La Pintura Moderna?

Kai: The primary design and management team were Leigh-Ann Muramoto, Jon Walsh, and Kai Kenner. Leigh-Ann was responsible for the design – how the home feels up close and personal. Jon was responsible for getting it built – we call him Mister GSD. I was responsible for the architecture, project management, and for the overall vision of the home and keeping the train on the tracks.

Q: La Pintura Moderna is stunning inside and out. The first thing that strikes me as you walk up to the house is how breathtaking it is. Each design element creates a perfect sense of harmony. Can you tell our readers about the inspiration behind the design and architecture?

 Jon: Thank you. After spending time at the site we decided to make the main living space an open floor plan with the idea of leading the viewer through the home towards the canyon. We wanted to emphasize clean lines, natural materials, and a proper use of light. Design elements grew as we worked with the natural characteristics of the site, such as the terraced front yard which follows the natural slope of the lot.

Kai: Our vision for the property was a timeless and serene modern retreat.  We designed the home around themes that people always appreciate regardless of the trends of the time.  So the architecture evolved around the quiet canyon, high ceilings, open spaces, indoor/outdoor living, and floor-to-ceiling glass walls.  We downplayed contemporary elements such as curves and pop-outs in favor of clean, modern lines. The main living areas such as the kitchen, great room, and master bedroom are oriented towards the canyon so those important areas of the home always have a view of natural beauty.

Leigh-Ann: The inspiration for the home sprang naturally from the surrounding treetops and the canyon. We had many dinners together at the site, visualizing the space and discussing how to best capture the surroundings. We chose a subdued color palette that would complement the natural beauty of the site. San Diego is an ideal locale to play with indoor-outdoor concepts. We used floor-to-ceiling glass walls to blur the line between indoor and outdoor spaces.  We also extended the roof over the outdoor deck creating an additional 800 square feet of living space that the owners can enjoy in any weather.

Q: It’s a prestigious distinction to be chosen for the MA+DS Modern Hour Tour, as only a few homes make the cut; what does that mean to you?

Jon: It’s an honor and means a lot given both the time and effort we spent on the home, and also due to how much we enjoy modern design.  To be recognized for our work is very rewarding and we’re also happy that more people are able to see the home.

Leigh-Ann: It’s also a great opportunity to learn and to get feedback from the modern design community. And we’re grateful to MA + DS for fostering an appreciation for modern architecture in home design.

Q: La Pintura Moderna is truly a special home. What are your favorite areas or features of the home and why?

Leigh-Ann: My favorite area is the front entry, it sets the tone for the rest of the home. As you walk towards the 9 foot tall glass pivot door, there is a flowing water feature to the left. To the right is a massive structural shear wall that anchors the home and balances the transparency of the glass walls. We clad this wall in grey stacked slate to give it a solid, grounded feel. We continued this theme of stacked slate with the other structural walls in the home. The wood cladding under the eaves ties in with the warm, wood floors. We repeated these elements throughout the home to create a cohesive, calming feel. The overall effect is a fluid but grounded experience.

Another feature that adds a lot of dimension to the house is the thoughtful use of skylights and clerestory windows. They ensure every area of the house is lit with plenty of natural light.

Jon: I like the sightlines through the entry and the sensation that you’re being pulled out to the canyon-facing deck and sitting up in the trees.

Kai: My favorite design elements are the views of the surrounding nature, floor-to-ceiling glass walls, open floor plan, and the covered indoor-outdoor deck.  As Jon touched upon, I love being surrounded by the treetops and sitting on the deck, looking out across the canyon. I also love the two-person walk-in shower!  I always try to fit a huge shower into a master bathroom plan. Leigh-Ann’s design uses a light colored tile on the short ends of the shower to ensure the shower feels light and bright, while the darker tile on the floor and longwall ties in with the rest of the bathroom.  And Jon did a great job designing the linear trench drain – it’s entirely functional but beautifully elegant because it blends in so well with the surrounding tile.

 

Q: The before and after photos are unrecognizable. How did you know La Pintura was the right house for your project? What were the main features that caught your attention?

Leigh-Ann: A few years ago we designed and built a house on a site which was similar to La Pintura. We learned so much from that project and we were excited to apply our learnings to a new project. Like La Pintura, the house was on a canyon lot with a reverse floor plan where you enter at street level and the secondary rooms are below. The reverse floor plan takes full advantage of the canyon views and lets in the most light to the main living areas.

Q: What was the biggest challenge you faced during the entire process?

Jon: The sloping site was difficult to work with and it slowed the construction process.  But designing with the slope gives us an opportunity to create interest, so it balances out in the end.

Kai:  We also had three opinionated, creative people working on an inspirational project.  We knew from experience that we would need clear principles to guide our decisions as a team.  Fortunately, the three of us have a great working relationship and a good vibe with each other, so all the decisions and work effort flowed easily.

Q: Are you planning or already working on your next project?

Kai: We’re in the design and planning stages on a few multi-family projects located in Mission Hills and North Park.  These are new construction projects with modern designs. We chose the sites because they’re in great neighborhoods with quiet, walkable streets.  We aren’t working on any single-family homes at the moment. La Pintura Moderna was a unique project, so we’re always on the lookout for similar projects where we can create something special and memorable.  We live in beautiful, temperate, Southern California. We’re grateful whenever we can express a connection to the natural surroundings through our creative work.

Ready To See La Pintura Modern In Person?

 

La Pintura Moderna is truly a jaw-dropping property that must be seen in person to admire its beauty. If you’d like the chance to see it, make sure you attend the 2018 MA+DS Modern Home Tour this Saturday, October 13th, from 11:00AM-5:00PM. 

Be sure to purchase your tickets at the button below! If you’d like to get in touch with Stone Lion Properties, click here to learn more!

To learn more about La Pintura Moderna, please contact Gabhart Investments, at (858) 356-5973.

Gabhart Investments, Inc – 2018 All Rights Reserved

San Diego Rent Control and Vacation Rental Update Lunch & Learn

San Diego Rent Control and Vacation Rental Update Lunch & Learn

San Diego Rent Control and Vacation Rental Update Lunch & Learn

San Diego Rent control and restrictions on short-term vacation rentals could have devastating impacts on the San Diego real estate market and economy. Are you an investor, real estate professional, landlord or even a resident that is interested in discovering how this could impact you? It’s time to educate yourself and let your voice be heard. 

In this interactive and informative 60-minute class, Curtis Gabhart and an expert panel of speakers will present an in-depth overview of both San Diego rent control and restrictions on short-term vacation rentals.

Topics include

  • San Diego Rent Control
  • National City Rent Control
  • Financial modeling displaying how rent control could impact property value & NOI
  • Short-term vacation rentals impact on the real estate market

San Diego Rent Control

Guest Speaker Bio’s

Molly Kirkland: Molly has been serving the San Diego region in the governmental affairs field for well over a decade. For nearly 7 years, she has served as the Director of Public Affairs for the San Diego County Apartment Association (SDCAA).  Prior to working with SDCAA, Molly worked in Government Affairs and Communications for the San Diego Association of REALTORS.

Richard A. Snyder, CPM: a Real Estate Professional for over 30 Years, is the President and Owner/Broker of R.A. Snyder Properties, Inc., located in San Diego California, where he is a recognized leader in the Real Estate Industry. Rick is a Past President of San Diego County Apartment Association and he continues to lead as Co-Chair of the local effort to defeat Rent Control in National City and the local No on 10 Statewide campaign to protect Costa-Hawkins.

Christine La Marca: is a San Diego native with over 20 years of residential property management experience.  She is responsible for the day-to-day management of her family’s real estate portfolio. She is the Immediate Past President of the San Diego County Apartment Association, and she is currently still actively serving the Association as Co-Chair of the local No on 10 Statewide campaign to protect Costa-Hawkins and the local efforts to defeat Rent Control in National City.

Check out Curtis’s San Diego rent control blog post to catch yourself up to speed before you attend.

Click Here to Check it Out

Date

Tuesday, September 18, 2018

12:00-1:00PM

Location

Keller Williams Carmel Valley

12780 High Bluff Rd Ste 130

San Diego, CA 92130

We would be thrilled if you could join us for this special event. Lunch will be provided to those who RSVP in advance. Space is limited so please register as early as possible. Additional details are listed below.  To RSVP, follow the ticket prompt below confirming you will be in attendance or recommend someone else from your office if you are unable to attend. Thanks very much!  We hope to see you there!

 

The presentation will be hosted by Curtis Gabhart, CCIM 

Curtis Gabhart has been a successful Real Estate professional for more than a decade. He has a Certified Commercial Investment Member (CCIM) designation from the CCIM Institute. He is a Director at Keller Williams Commercial Brokerage and President of Gabhart Investments, Inc, a privately held real estate investment firm that manages a syndication of private investors, specializing in acquiring and renovating single and multi-family properties. He also serves on the Commercial Advisory Board at the University of San Diego Burnham-Moores Center for Real Estate and he teaches commercial real estate courses for the California Association of REALTORS® and San Diego Association of REALTORS®. He has been recognized by members of Congress, California State Senators, the City of San Diego, and had a day named after him in the County of San Diego for his community service and dedication to the community. He was awarded as the Dealmaker of the Year for 2015 in Retail and Multi-Family category.

24 Things You Need to Know About National City Rent Control

24 Things You Need to Know About National City Rent Control

National City Rent Control

Rent Control may be coming to San Diego County sooner than you think. National City renters recently gathered 3,600 signatures to place the National City Rent Control and Community Stability Ordinance on the November 2018 ballot. The implications that this may have on property owners, renters, and our local economy could be immense. We encourage all property owners to educate themselves on this matter and understand it’s potential consequences. If you would like a full highlighted copy of the ordinance, please leave us a comment below and we’ll be happy to send you a free copy. In addition, I will be hosting an informative lunch and learn on September 18th that will be covering rent control and the recent vacation rental restrictions. Click here for more information and to RSVP.

San Diego Rent Control


24 Things You Need To Know About the Ordinance

  1. All rental properties would be subject to this measure except for single-family homes with granny flats, rooming houses, student housing, and subsidized affordable projects.
  2. All rental rates will be placed back to the date this ordinance was published (March 2018). The rent charged at that time will serve as the base rent for the unit.
  3. The base rent will be allowed to increase by the inflation rate (CPI) of up to 5%, but no more regardless of whether inflation went beyond 5%.
  4. This ordinance does not allow for the standard of vacancy decontrol, where an owner would typically raise rents to market upon a tenant moving out. This means the owner must keep the unit at the current controlled rental rate.
  5. Establishes a 5-member National City Rental Board (NCRB). This Board would have the authority to set and adjust annual rent rate for rental properties.
  6. The Board must be composed of at least 3 tenants currently renting in National City.
  7. The Board would finance its “reasonable and necessary expenses” by charging landlords annual rental housing fees. This would start at $120 per unit and is subject to increase by the Boards discretion. Most rent control boards in California charge between $240-$360 per-year per-unit.
  8. The Board would create a “base rental rate” and units would be assigned a maximum allowable rental rate that the landlord could charge a tenant. The maximum rate could be adjusted higher or lower with the Board’s discretion.
  9. Landlords wanting to increase their maximum allowable rate would have to petition the board for approval.
  10. Contains a Just Cause Provision, which significantly decreases the landlords right to require a tenant to vacate unless under specific circumstances. The landlord must file with the Board justification as to the why the tenant is being evicted.
  11. If the landlord plans to remove the unit from the market, they must notify the Board and provide a minimum of 120 days notice to tenants or 1 year if the tenant is a senior (62+) or disabled. Relocation payments will also apply.
  12. The landlord would have to provide $7,000 to the tenant or $10,000 to a senior/disabled tenant for relocation assistance. This is the 1st year established fees and would be subject to increase per Board review on a yearly basis.
  13. Any significant repairs requiring a temporary-vacation of the unit for more than 30 days are subject to relocation assistance fees.
  14. The evicted tenant possesses a “right of first refusal” and is allowed to take back the property if the owner places it back on the market. The tenant will also be entitled to pay the same rental rate they initially paid. For example, an owner decides to move back into his unit for 5 years, and then suddenly decides to place it back for rent. The owner must then offer it to the prior tenant at the last rental rate they paid.
  15. Any attempt made to recover the unit in violation of the ordinance shall render the landlord liable to the tenant for actual damages, including damages for emotional distress, in a civil action for wrongful eviction.
  16. Landlords and tenants are prohibited from making agreements that contradict any provision in the ordinance. These private agreements would be deemed void.
  17. Ratio Utility Billing (RUB) is prohibited. Rental owners may not charge for utilities unless they are individually metered.
  18. Landlords must petition the rent board for any request to increase the maximum allowed rent.
  19. Hearing examiners may review an owner’s books and records and conduct a building inspection and/or request that the City conduct a building inspection. Tenants may request that a hearing examiner conduct an inspection prior to a hearing.
  20. The City Council, City Manager, and City Attorney will not have any power to oversee, supervise, or approve the Board’s yearly budget.
  21. The Board will be allowed yearly assess and determine if there is a sufficient number of hearing examiners, housing counselors, and legal staff to effectively carry out the ordinance. This would increase the budget and cannot be overseen by City Council.
  22. The landlord’s failure to comply with any of the requirements in the ordinance can result in the tenants right to withhold rent. After the issue has been resolved by the owner, the Board will get to determine how much, if any of the withheld rent, will be owed to the owner.
  23. Any rental owner who demands, accepts, receives or retains any payment in excess of the amount allowed under the Ordinance shall be liable in a civil action to the tenant, including general and special damages and emotional distress. Additionally, the tenant will be entitled to costs and expenses.
  24. An order authorizing rent withholding shall survive the sale of the property and shall be binding upon the successors of the rental owner.

These are just the main highlights of the proposed ordinance. I strongly encourage you to read through the entire ordinance and familiarize yourself with it. If you would like a copy of the full ordinance, I would be happy to send you one. Just let me know if the comments below.


Stay posted for more updates on Rent Control in National City. If you haven’t checked out my earlier blog post on the proposed San Diego Rent Control efforts, click here to read more. I hope to see you at my upcoming lunch & learn on rent control and vacation rentals. This will be a great chance to get your questions answered and to hear more about this issue.

What Now?

If you a property owner and have concern over how this could affect your investments, my team and I would be happy to help. We have a wealth of experience in the multi-family industry and provide our clients with unmatched expertise. Give us a call today at (858) 356-5973 or click here to send us an email.


Curtis Gabhart and Gabhart Investments, Inc – 2018 All Rights Reserved
The information presented in this article represents the opinions of the author and does not necessarily reflect the opinions of Gabhart Investments, Inc. The material contained in articles that appear on gabhartinvestments.com is not intended to provide legal, tax or other professional advice or to substitute for the proper professional advice and/or commercial real estate due diligence. We urge you to consult a licensed real estate broker, attorney, tax professional or other appropriate professionals before taking any action in regard to matters discussed in any article or posting. The posting of an article and of any link back to the author and/or the author’s company does not constitute an endorsement or recommendation of the author’s products or services.