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For an issue that has dominated several meetings and spawned several lawsuits, a final resolution came rather swiftly on Monday night. At its Sept. 11 meeting, the Mountain View Rental Housing Committee unanimously agreed to establish Dec. 23, 2016 as the official start date of the city’s new rent-control program.
The vote was 5-0, with Tom Means absent and alternate Julian Pardo de Zela filling in.
The decision sets an earlier date backed by tenant advocates for the start of a citywide rollback on rents for about 15,000 affected apartments. Potentially, this action could open the door for eligible tenants to seek compensation for four months of higher rents.
Measure V, the rent-control law passed by Mountain View voters in November, explicitly states it was to take effect on Dec. 23, 2016. But its implementation was blocked at the eleventh hour by a lawsuit filed by the California Apartment Association. The suspension was ultimately lifted by court order on April 5, and the case was dropped. Afterward, city officials informally advised landlords to treat April 5 as the law’s effective date.
As tenant-advocate attorneys raised complaints that the city was skirting the law’s December start date, the Rental Housing Committee decided to bring the matter back before a judge. City attorneys had advised the committee to endorse the Dec. 23 date, but the committee was split on the issue. Instead members decided to file a lawsuit to ask a judge to settle the matter. Not long afterward, two more lawsuits were filed by tenant advocates that essentially asked the same question, using different legal channels.
Although the committee had already voted on the effective date, the issue was brought back for a second time at Monday night’s meeting with no explanation for why it was being revisited. Speaking at the meeting, Joshua Howard of the California Apartment Association urged committee members not to rehash a decision they had already made.
“I don’t understand why we’re going through this Groundhog Day exercise today, when you as a body have already acted,” he said. “Trying to interpret (this) is a job best left to the courts.”
But as soon as the public-comment period wrapped up, Committee Chairwoman Vanessa Honey immediately made a motion to set Dec. 23 as the official start. Her motion was quickly voted on with no discussion or comments by the committee members.
According to the agenda, the committee had discussed the lawsuits for about an hour with its attorneys in a confidential, closed-door session prior to its regular meeting.
Hilarious that tenants have funds to hire lawyers rather than payingmarket rate rents.
Stacked deck or not, it amounts to a theft of property rights for the land lords. Say hello to declining neighborhoods and property rights.
All this rent control is noting but BS. Once the tenets leave, or their lease is up, the landlord has no obligation to rent out his property and the tenet will need to leave. Then after some modification the landlord can raise the price to current rates. So there are ways around Communist type laws.
Some landlords will sell to developers, and they will really screw people with the new rents. People will be wondering what happened to the cheaper rental units. Well let me tell you.
Some landlords won’t do any major work in upkeep, since there won’t be enough money. People will live there for 20-30 yrs, place will go to hell, roaches and bed bugs will be on the rise, leaking pipes wont get repaired. My parents had a rental unit in a communist state and that is what happens. So don’t think i’m making this up, or trying to scare people. People, socialistic/communistic is the wrong way to go, it ruins peoples will to succeed. That’s why my folks decided to leave such a backwards country. We walked/sneaked across the guarded boarders to leave. And yes, we waited in line to become American citizens. I have no sympathy for those that brake the law and enter this country illegally. Communism is like the unions, only wanting to better themselves off the hard labor of others while doing little or nothing to deserve their pay. Problem is that the unions have taken over California govt. So our government officials do not work for the people anymore, but for the unions. It’s the unions that blew the retirement funds and medical funds for the state workers, but they won’t tell you that, they instead will force you to pay more in taxes for things in order to cover there mistakes. Has anyone noticed the increases in taxes lately? And you wonder why? Or how the groceries we buy are like 1/4 smaller in size than before?
So I hear Apple is going to open their new facility in Cupertino and I’ve also heard that Google is no longer planing on opening there facility here in Mt. View, but looking at SJ instead.
In the end, capitalistic ways will continue to lead the economy, no matter how man wants to control it. The free economy is an engine that leads itself.
This will probably be removed because I spoke the truth and some people don’t want the truth to be know.
@Business Man – you think when rent control hits you can just renegotiate your mortgage with the bank? That they’ll be willing to share the loss in value with the owner? On what planet have you been doing business, man?
Here comes the_punnisher again, doing his advertisements for Colorado. Is your sales pitch that your kids were almost burned alive in a poorly made house in Colorado? You might want to workshop that a bit.
Punnisher I appreciate and understand your comments, thank you for writing them. It is, to say the least, concerning how this state has deteriorated in all ways, education being just one area that is deplorable. As Margaret Thatcher famously said “socialism works until it runs out of other people’s money” (I am paraphrasing).
swissik, put simply for you, education in California has been deteriorating because we gutted spending on it via Prop 13. We’re almost dead last in per-pupil spending, as a result of our criminal property tax regime. Good news, though, we can solve both education and housing crises by ending Prop 13!
I thought this comment board was for the article “Committee shifts gears, backs earlier start date to rent control.”
You guys are a hoot!! Especially the guy called Businessman that thinks the Landlords should renegotiate their loans. The bank doesn’t care about rent control? Beam me up scotty, what planet am I on?
Maybe the garbage and water company that just raised their rates 10% will drop it for rent controlled properties out of the goodness of their hearts, Christmas is coming.
Ya, I think the gardener, handyman, electrician, painter, roofer, cleaning companies and all the other contractors that work hard to make it great for us tenants will also understand that rent controlled buildings can’t pay $30 to $60/hr anymore and will work for $8/hr because their charitable people.
They will renegotiate their insurance, gasoline, labor and business costs for rent controlled buildings.
Your right, Business man. I want you on my team!
I can’t decide whether to laugh or cry.
Business man is right!
Landlords should of seen that there was a possibility of rent control being a factor in the business plan when investing in Mountain View and that their investments would be seriously harmed by such politics.
This is like a Nuclear bomb being dropped in your backyard or riots in your neighborhood on an ongoing basis. You wouldn’t expect it, but it can happen.
So now it happened and we will see the consequences of the voters decision to make the landlords pay for the cities shortage of housing.
I’m not sure this was what the voters wanted but now they will get it.
I think it would be wise for the Mountain View voice to do an article on how many rental units have sold to developers and have been removed from the market next Summer to see the trend.
Also, keep track of the rents on rental units that come available. It appears the new renters are already starting to subsidise the long term tenants by paying higher rents.
This socialist experiment in one of the world’s most capitalistic places on earth is going to be interesting to watch and will be a lesson for us on “What not to do” ever again.
How much time and money has been wasted because the pro-landlord majority on the housing committee has been refusing to uphold the city charter?
Why did City Council decide to stack the committee, and what will they do to rectify this situation?
Recall Matichak, Abe-Koga, and McAlister!
In response to Hilarious you said:
“Hilarious that tenants have funds to hire lawyers rather than paying market rate rents.”
No one paid anything for the attorney, it was done Pro Bono. So your criticism is misdirected.
In response to Bob P you said:
“Stacked deck or not, it amounts to a theft of property rights for the land lords. Say hello to declining neighborhoods and property rights.”
No rights are taken, you know that. The owners still own the property whatever the situation is regarding market regulation.
In fact these owners had plenty of chances to “MANAGE” their property, but “CHOSE” not to do so, just understand that when the ballot “Measure V” was in the signature collecting stage, the landlords were given a heads up by the CAA it was likely to be adopted.
This was the time for the property owners of Mountain View to “MANAGE” their properties by having them reassessed in value and renegotiate their mortgages. Thus radically lowering their “expenses” proactively, which would have resulted in greatly improved profits. Or more importantly would have given them the ability to lower rents thus preventing the passage of Measure V in the first place. Why, because they chose not “MANAGE” their properties against all realistic expectations. They expected that the measure would not pass.
This did not happen, thus much higher risk and cost was chosen by these people. Why, because they chose to not “MANAGE” their properties against all realistic expectations.
When the election was in play they could have done this, but they did not, thus much higher risk and cost was chosen by these people. Why, because they chose to not “MANAGE” their properties against all realistic expectations. They relied on the CAA to prevent passage of the measure.
When it passed they could have done this, but they did not, thus much higher risk and cost was chosen by these people. Why, because they chose to not “MANAGE” their properties against all realistic expectations. They relied on the CAA to prevent enforcement of the measure via a constitutional challenge in court. Which in effect failed in Richmond and Mountain View miserably.
Now they complain that they are being run out of business. THEY HAD THE OPPORTUNITIES TO “MANAGE” THEIR PROPERTIES TO MITIGATE THEIR LOSSES BUT CHOSE NOT TO DO SO.
When one stood up to the RHC yesterday claiming 100% leveraging of his apartment investment, that meant not one dollar of “HIS” money was spent on the investment. The down payment was made from other people’s money. I am surprise he said this and then said he is losing the cost of investment. His cost was only the operating expense and the mortgage payments under his own testimony. This person simply didn’t understand what was “HIS” expenses versus his “INVESTORS” expenses given he leveraged the entire cost.
Why are these people choosing to take these actions, when simple independent research would indicate potential devastating consequences? I just do not understand.
WARNING LONG POST BUT WITH RELEAVANT CITATIONS, BUT VERY EDUCATIONAL
In response to LOL you said:
“@Business Man – you think when rent control hits you can just renegotiate your mortgage with the bank? That they’ll be willing to share the loss in value with the owner? On what planet have you been doing business, man?”
When it comes to the mortgage banks, the one thing they want to avoid is a foreclosed property. Please read the following:
“3 Reasons Lenders Want to Avoid Foreclosures
Lenders want to avoid foreclosures just as much as the borrower. Banks make mortgages for one reason only: the money. The lenders are in it for the money, and if you foreclose, then they have lost money on that home. Banks are not in the market of owning and selling homes, and they do not want it to come to that. That is why many lenders are willing to work with borrowers who are possibly going to foreclose. They can offer loan modifications and allow short sales, both which can prevent a foreclosure, and keep the lenders making money.
1. Profits
A lender who grants you a mortgage is going to make a lot of money in interest over the life of the loan. The first ten to fifteen years of a loan is almost entirely interest. If you foreclose, they will miss out on all of that interest. They also will likely not get back what they originally lent to you. Especially in today’s market where many homes are worth less than the mortgage balance, the lender will likely not regain their initial investment. Plus, if you are not making payments to the lender, there is less money for them to lend to the next customer. So again, they will lose out on money they could have made on another borrower. So, there are several ways the bank loses money all on one person foreclosing on their home.
2. Upkeep of the Home
Once a foreclosure has taken place, now the lender owns the home. They are responsible for the property and keeping it up until it can be sold. This may mean heating the place to avoid pipe bursts, winterizing the property and caring for lawn maintenance to avoid a homeowners association conflict. There is a lot of work involved with keeping a home while it is vacant and the lender does not want that responsibility. Multiply that by hundreds and thousands of homes the lender may have to care for due to foreclosure.
3. Selling the Home
Once a foreclosure is finalized and the home is vacant, the lender has to begin the process of selling the home. They often use a real estate agent and have to list the home. They may have to make repairs so the house is up to codes. A buyer will want a good deal since it is a foreclosure, so the bank will often have to take a large loss on the property. Plus they have to pay all of the fees associated with sale, and the buyer will likely want some of their costs covered. Adding this to all of the other losses the lender will take over the course of a foreclosure, and you can see why they want to avoid them at all costs.”( http://www.mortgage101.com/article/3-reasons-lenders-want-avoid-foreclosures)
This is the real truth. No Mortgage bank wants to be stuck with any property and will take many measures to avoid the lender from defaulting on a mortgage. Of course, this information is not desirable to those arguing against rent controls because it invalidates a major argument against it. LOL does not want you to understand this, maybe because it is not good for LOL’s financial interests.
Also if you read this:
How to Avoid Foreclosure by Reducing Your Mortgage?
When times get tough, it is no wonder that many homeowners have to take out second mortgages on their homes, and even home equity loans. Sometimes homeowners choose to take on additional mortgage obligations even in good times in order to gain funds for home improvement projects, business ventures or the like.
Faced with all of these obligations, making monthly payments on these loans can be quite a financial burden. Many people wonder, faced with these difficulties, how to avoid foreclosure or selling their home. In almost every situation, it is best to stay current with the first loan on your home and delay or make reduced payments on the subsequent loans. Usually only the first and second home loan providers have the ability to foreclose on your home….
Is Your Loan Unsecured?
Many people become frustrated by to the process involved with determining whether a loan is unsecured or not. However, despite how complicated it may seem, finding out whether or not your loans are unsecured is an easy process. The hardest step is determining how much your home is worth.
You can easily hire a real estate broker to help you determine the value of your home. Then, you subtract the amount remaining on your first mortgage from this value. IF YOU COME OUT AHEAD (MEANING THAT YOUR HOME IS WORTH MORE THAN THE REMAINING DEBT ON THE FIRST MORTGAGE), YOUR LOAN IS STILL SECURED. HOWEVER, IF YOUR HOME IS WORTH LESS THAN THE AMOUNT REMAINING ON YOUR MORTGAGE, THEN YOUR LOAN IS UNSECURED AND YOUR LENDER WILL LIKELY NOT PURSUE FORECLOSURE IF YOU STOP MAKING PAYMENTS. (http://realestate.findlaw.com/foreclosure/how-to-avoid-foreclosure-by-reducing-your-mortgage.html)
So please tell the truth to the readers? Your critiques on their face appear to be inaccurate. If the current value of the property is less than the original property value, it is now an unsecured loan. Unsecured loans under LLC rules are able to be erased during bankruptcy. That means the bank will lose the entire mortgage. That is something the bank will simply take any measures necessary to prevent. Why do you not know this?
On the Google issue: They are building a BOULDER, CO campus. The housing market nearby is healthy and strong. For the same money you get back from your security deposit,you can pay the down and for the money you paid for RENT can easily pay down the mortgage ON YOUR NEW HOME! Google is encouraging all of their employees to work at Boulder. All the same recreational perks and you don’t have to drive to Tahoe to enjoy them. ( you COULD drive to Vail if you wanted to relive the high prices and are nostalgic for them )
That is the proper way to deal with the housing issue.
Mr Business Man, you have been correct on this issue. You get an ” attaboy ” on this issue. Just don’t get the ” Oh S##t ” moment ( 10 Oh S##ts to every attaboy ) that is the usual ratio that Engineers deal with all the time.
To put this issue on a worldwide prospective, this out migration of smart people becomes the downfall of many Communist or Socialist States. You can see why the Berlin Wall was created. The same for NK and SK. Fat Boy has to keep his people from escaping. Russia and China had control of their ” workers paradise ” propaganda.
Is California a ” workers paradise? Pack up your belongings, fill the tank of your vehicle, get on I-80, go South on I-25 until you get on the outskirts of F. Collins, Loveland ( HP has a BIG facility in Loveland ) or stop in Longmont and Boulder.
That is a simple way to flee the West Coast, until the borders are closed by using the fruit inspection stations to stop California citizens.
Many property and business owners are leaving to get their money’s worth of more stable investments. Since BART did not complete the loop they promised, you have both Caltrain and the VTA failures in it’s place. Hey, I’ve returned to do several IT jobs and realize the important changes are ” too little and too late ” for the SFBA.
All the grade crossing issues would have been solved 40 years ago. The bicycle commute problem would have been solved too. Just look at the Denver Metro RTD Light Rail and Bus system.
These are the type of places that are seeing a steady Eastward migration. You don’t have to get a degree in Economics to see this steady ” Enough is Enough ” is the same thing that has happened throughout Human History.
Both of my children bought foreclosed HUD homes. Much of the work to get them up to code levels is shoddy and wasn’t done properly. My first daughter has been having code issues on the front yard ( xeriscaping not finished ) and the plumbing just fell apart with some water damage.
My second daughter narrowly escaped and her husband brave the flames to get my daughter and 14 month granddaughter out.
The cause of the fire? the electrician only did the necessary code wiring and the work done may have contributed to the kitchen stove catching fire which spread to the roof and dining room.
In this case, My father-in-law took the assessed value ( rose from the California immigrants ) and did a re-financed loan THREE MONTHS AGO.
Since the coverage was complete and comprehensive, the inspections done might not make the house a total loss. We may have an interesting 6 months.
Inm response to Tom that said: “You guys are a hoot!! Especially the guy called Businessman that thinks the Landlords should renegotiate their loans. The bank doesn’t care about rent control? Beam me up scotty, what planet am I on?”
Since rent control has in reality “reduced” the market values of the apartments that are rent controlled, the mortgages are “not secured” The simple truth regarding the mortgage is that as I posted before:
You can easily hire a real estate broker to help you determine the value of your home. Then, you subtract the amount remaining on your first mortgage from this value. IF YOU COME OUT AHEAD (MEANING THAT YOUR HOME IS WORTH MORE THAN THE REMAINING DEBT ON THE FIRST MORTGAGE), YOUR LOAN IS STILL SECURED. HOWEVER, IF YOUR HOME IS WORTH LESS THAN THE AMOUNT REMAINING ON YOUR MORTGAGE, THEN YOUR LOAN IS UNSECURED AND YOUR LENDER WILL LIKELY NOT PURSUE FORECLOSURE IF YOU STOP MAKING PAYMENTS. (http://realestate.findlaw.com/foreclosure/how-to-avoid-foreclosure-by-reducing-your-mortgage.html)
Just substitute “home” with “apartment building”. The fact is that rent control has most likely reduced the market values of the buildings as much as 35%. For example my building was bought for $4.95 Mil in 2016, if you take that reduction factor it is now only worth $3.21 Mil a loss of $1.74 Mil. As I have pointed out, what most landlords do is not proactively “MANAGE” their investments, what they do is pass on the expenses to the tenants and simply do as little work possible expecting a high reward for their money. This behavior is not “MANAGING” an investment, it is “ASSUMING” it will always be profitable because the tenant is responsible for the poor “MANAGEMENT” decisions the landlord makes.
Tom, surely you know the landlords are responsible for the “MANAGEMENT” of their investments, if they do not take wise actions, they only have themselves to blame. They cannot claim that the city government caused their poor “MANAGEMENT” of their properties. Of course they can pass of the loss to negate most federal and state taxes for years like Donald Trump did famously about 30 years ago. Thus the negation of taxes eventually will balance the books as well. I simply point out that the landlords want to blame everyone else for the poor “MANAGEMENT” of their business.
So how do those of us, who are going to cause the downfall of Mountain View, get our back rent? Article kind of useless without that bit of info. I’m actually giving up my communist rent control to rent a house, but I’ll still be one of those low-life renters I keep hearing about so still part of the problem. I want my back rent before I move or I assume I can kiss that good-bye. For the record, the place I’m living just announced a year-long plan of “beautification” improvements, so not all rent-controlled places are planning to let their complexes go to pot.
@Tom – was the contractors pay going up by 20/40/60% each year? Otherwise why would their pay have to drop so low just because the landlords can no longer increase rents by that much?
That’s what I cannot understand about all this doomsday thinking. My rent dropped to Oct. 2015 rents – $2800 for a 2BR/2BA and I just found out they are charging new renters $2700 – which they do not have to do, right? A smaller place which is a duplex (2BR/1BA) rents for closer to $3200 but includes a yard and a bit more privacy, which would be “market rate,” with a few up to $4000 if closer to downtown. My salary is not that much higher now than in 2015, and neither are my other costs – a few % higher, so why is it only the landlords that are going to suffer? So it that extra $500/month going to make or break the place? Do mortgage rates somehow spontaneously go up that much per month due to “market forces”?
In response to Lisa you said: “I can’t decide whether to laugh or cry.”
I am in total agreement.
You can laugh at those investors who were “PROMISED” a return on investment, at the same time paying up front for the “FUTURE” values of the property. In effect the investors are paying twice the actual costs because in order to justify the future value, either major renovations would need to be done or worse, the existing structures would need to be demolished for a new building. That means a major capital opportunity cost on top of the initial purchase. I laugh at the insanity that one would chose to take such a gamble.
I cry because those investors were conned into investing in a virtually no-win investment. By overpaying for the property it almost assures that their likelihood of getting any return on the investment is slim to none. Unfortunately the state of California does not have any legal recourse regarding this situation. A real estate appraisal can be totally off the market value of the property and if one choses to buy it at that appraisal, they have no legal remedy. The state of California assumes that appraisals are opinions, nothing more, they are NOT MARKET VALUES. A real estate agent has a 1st amendment right to claim any opinion without any legal consequences. An investor is simply required to take measures to prevent being convinced to overspend for the property they are considering.
Either situation is a terrible one. I wish that we didn’t wind up in this situation. But I as a renter I have to take steps to ensure my rights are not being squelched or disregarded once they are codified, like the CSAFRA.
The City CSFRA website has been updated today regarding the effective date. What I find very interesting is that the CAA has not posted the new resolution establishing the effective date of December 23rd, 2016. It appears that when the CAA completely fails to achieve its objectives regarding their spokespeople, they simply disregard relevant rules that disagree with them.
It was in fact kind of fun to see Joshua Howard in effect criticize the Rental Housing Committee on Monday. It appears he never attended an Andre Carnegie course on how to win friends and influence people. Being openly hostile to those you wish to influence is not very effective.
Being honest but respectful does tend to motivate others. Granted I can come across very confrontational. But if you listened to what I said to the RHC, it was not insulting, just laying out the actual facts regarding the codified rights under CSFRA. It appears that during the closed session that information was probably discussed in great detail.
The fact that no deliberation occurred suggests that the issue was not in question at all.
The CAA must immediately issue a press release specifically telling its membership that withholding overpaid rents from December 23rd, 2016 to April 30, 2017 will be in fact a violation of the CSFRA, and advise its members to act proactively. To not do so opens their members to triple costs of non-compliance.
Just a suggestion.
Business Man,
Are you saying that no one should invest in residential real estate because there is risk? Where would you live? I can guarantee that investers were not “conned into investing in a virtually no-win investment.” They invested believing that private propety laws provided by the constitution would be upheld. Should they have forseen that a group of lawyers who have no vested interest in the city of Mountain View would take up the cause of a group of existing tenants (at no cost to them) who have no regard for those trying to move into the area and through threats and intimidation based on their unlimited funding would threaten to drain the city funds in litigation and “out sue” both small and large landlords in order to take control of their properties for which they now have all the benefits and no responsibility?
Wow, if they could have foreseen that they should have been playing the lottery because they are clairvoyant!
Business Man, you obviously have a lot of time on your hands and by your own account, extensive IT experience. Maybe the city could force you to design one of the new IT systems that will be required to keep track of the new beaurocracy. And they will tell you how much they will pay you. How does that feel?
“clearthinker,” I’m not sure if you’re aware of this, but Measure V didn’t invent rent stabilization. This is a pretty well-worn path, is clearly constitutional, and should have been priced in as a regulatory risk presented to all landlords. Many landlords rolled the dice and decided to cash in by gouging tenants, and so the people said “Enough!”
The organization with unlimited funds, the CAA, spent overwhelmingly on this election and filed a lawsuit to delay implementation. So if you’ve got problems with people wasting city funds, look no further than the landlords.
THIS IS LONG BUT EDUCATIONAL
In response to clearthinker you said: “Are you saying that no one should invest in residential real estate because there is risk? Where would you live?”
Your “paraphrasing” is clearly designed to create a false impression. I said that if you chose to do so, you must be VERY CAREFUL. I never said no one should invest in the residential real estate because there is risk?. What I am saying is that investor must make sure they have realistic expectations, and be careful to seek independent validation regarding any “APPRAISALS” on the properties. Real Estate agents have complete freedom to make any claim they wish because there is NO ACCOUNTABILITY.
You also said : “I can guarantee that investers were not “conned into investing in a virtually no-win investment.”
If you are that certain, please provide proof? In my business education, there are NO GUARANTEES in any investment. You will have to provide evidence that the appraisals were in fact “REALISTIC” and not generated based solely on the numbers investors wanted to hear. If you do any research regarding California Appraisals, they are not based on MARKET RESEARCH they are based on the following methods:
“RESIDUAL METHODS
So far, this chapter has focused on what is called the “direct capitalization” approach. The direct capitalization approach is where one overall capitalization rate is used for the entire property. This is the most widely used method and the most reliable method when there are sufficient comparable sales to determine the capitalization rate. To use the direct capitalization approach, the appraiser needs only the net operating income figure and the appropriate capitalization rate. Under this approach a property with a net operating income of $75,000 and an appropriate capitalization rate of 10% would have a value of $750,000, as follows:
“There are a number of circumstances where appraisers will need to use what are called “residual” methods. Residual methods are used when the appraiser knows one aspect of the property, but not another. There are several different residual approaches which can be used. These include:
Land Residual Approach
The land residual approach is used when the value of the building(s) is known or can be readily determined and the appraiser is looking for the value of the land or site. A common example of this would be in the case of a new building where it could be assumed that the cost of construction equals the value of the building. For a new building, the appraiser could use the land residual approach to find the value of the site, for income tax purposes or otherwise.
In order to use the land residual approach, the appraiser needs to either know or determine (i) the value of the buildings, (ii) the net operating income, (iii) the interest (“safe”) rate to use for the land, and (iv) the capitalization rate to use for the buildings. The process the appraiser must use is as follows:
Building Residual Approach
The building residual approach is used when the value of the site is known but the value of the building is not known. Contrary to the land residual approach, it would most often be used in the case of an older building, where the depreciation gets more difficult to estimate.
In order to use the land residual approach, the appraiser needs to either know or determine (i) the value of the site, (ii) the net operating income, (iii) the safe interest rate to use for the land, and (iv) the overall capitalization rate to use for the buildings. The process the appraiser must use is as follows:
Equity Residual Approach
The equity residual approach can be used when mortgage interest rates are known (such as when a mortgage already exists on the property) and the appraiser is attempting to value the equity interest. It can be very helpful when attempting to value a property which has unusual financing associated with it.
In order to use the equity residual approach, the appraiser must know (i) the net operating income, (ii) the amount and terms of the mortgage, and (iii) the appropriate rate of return on equity.
Mortgage Residual Approach
The mortgage residual approach can be used when the amount of the equity is known and the appraiser is asked to determine the amount of mortgage sustainable by the income from the property.
To use the mortgage residual approach, the appraiser must either know or determine (i) the net operating income, (ii) the appropriate rate of return on equity, and (iii) the annual mortgage constant based on the appropriate mortgage interest rate.”(http://californiarealestatecourses.com/appraisal/Chapter9_Section5_pg1.html)
In all the above, many values used to compute values are not set by any MARKET ANALYSIS. The factors are negotiated based on the interests of the “INVESTOR” and the “REAL ESTATE” agent. There are factors that are arbitrarily chosen, based on anticipated return on investment assumptions. Thus, unless you are documenting that only the CURRENT VALUES and not FUTURE VALUES are used, the appraisals cannot be realistically evaluated. IF THE CAPITALIZATION RATES ARE SET BY NEGOTIATION AND NOT BASED ON ACTUAL CURRENT CAPITALIZATION RATES, THE APPRAISALS ARE NOT MARKET ANALYSIS BUT FICTION. IF THE INTEREST RATE IS SET BY NEGOTIATION AND NOT BASED ON THE CURRENT INTEREST, THE APPRAISALS ARE NOT MARKET ANALYSIS BUT IS FICTION.
What this text regarding appraisals demonstrate is that they are simply not a market analysis, but simply an opinion based on assumptions that cannot be assure for the investor. Please do not try to claim my information is inaccurate?
To all those who disbelieved all of my comments or criticized them all during this process from the original housing crisis to the eventual adoption of the CSFRA, you always have had an alternative.
You always could have approached me and offered me to service you regarding your business practices. Instead of trying to avoid the reality of the situation.
Or at the very least, you should have hired a financing expert to analyze your risk, and plan out your alternatives other than the one you chose to take. To borrow the phrase you were being “penny-wise” but “pound-foolish”. I wouldn’t be surprised that the Prometheus group took this action months ago. They are in fact your competitor not your friend.
In any case this has been a bitter lesson in the real estate business for you. My hopes are you never allow yourselves to act on business advice that has not been independently validated in the future. Or most importantly, reducing your expectations regarding return on investment regarding the future. The consequences are just too large.
Shame,
regarding your comment, ” Many landlords rolled the dice and decided to cash in by gouging tenants, and so the people said “Enough!”
Please be aware that there are many landlords who have owned their properties for a long time and your comment in no way reflects their behavior, however they are the ones being hurt most. The Business Mans retoric is totally unapplicable to these owners also. His pontification is unfortunately unattached to reality.
Maybe you are unaware that the CAA pulled out of litigation and the Tenanat law coalition has filed or threatened to file 8 additional lawsuits that the city is defending themselves against.
In response to clearthinker you said: “Please be aware that there are many landlords who have owned their properties for a long time and your comment in no way reflects their behavior, however they are the ones being hurt most.”
I understand the frustration you express regarding the current consequences. However, those landlords you describe then had an interest in convincing the others that exploited the tenants of Mountain View to cease. They are part of a “Landlord Community” in fact most are members of the “California Apartment Association” Remember the rules of pre-school, if all of the students can’t play nice, they can’t play at all. Those that do not defend tenants from being exploited are subject to the same consequences as those who did. The worst kind of person in our community is those who know others are being harmed and do nothing to prevent it.
You said: “The Business Mans retoric is totally unapplicable to these owners also. His pontification is unfortunately unattached to reality.”
My explanation above seems to invalidate your claims that my thoughts are unrealistic. What you don’t seem to understand that Stan Lee said it best “
“With great power comes great responsibility” The thematic and often-quoted (including by the Supreme Court of the United States) Spider-Man phrase with great power comes great responsibility is widely attributed to Uncle Ben. However, in Amazing Fantasy #15, where it first appears, it is not spoken by any character.”Uncle Ben – Wikipedia https://en.wikipedia.org/wiki/Uncle_Ben
You cannot have power or wealth without taking responsibility for your actions. This is an unavoidable reality.
You said: “Maybe you are unaware that the CAA pulled out of litigation and the Tenanat law coalition has filed or threatened to file 8 additional lawsuits that the city is defending themselves against.”
Please identify the 8 cases and explain what made them UNJUSTIFIED? I know of 2 filed by the Stanford Community Law Center and Fenwick and West. And there is mine currently scheduled to be heard on September 22nd in the Santa Clara Court. Simply saying there were so many cases in fact demonstrates that the failure to follow the City Charter was so bad, it was opening up the City to enormous liability. Your statement in effect demonstrates that there was a VERY SERIOUS SYSTEMINC PROBLEM regarding compliance with the CSFRA. Whose responsibility would that have been? NOT THE TENANT ADVOCATES (OR MYSELF), BECAUSE THE COMPLAINTS ARE BASED ON OFFENSES DIRECTED TO TENANTS (OR MYSELF). YOUR CONSTANT BLAMING THE VICTIM SEEMS TO INDICATE AN UNREALISTIC UNDERSTANDING OF THE SITUATION.