Amol Sarva and 643 Olive Street (Credit: Google Maps)
A lawsuit filed in Los Angeles may provide a glimpse into Knotel’s teetering business.
The landlord of a downtown building at 643 S. Olive Street filed a complaint May 8 in Los Angeles County Superior Court that accuses the New York City-headquartered flexible office space business of welching on a profit sharing agreement.
The property owners are three limited liability companies doing business as Olive Center, connected to Mehran Mike Verdi, president of L.A.-based property managers Oakwood Management Group Inc. A message left with Verdi on Wednesday was not immediately returned.
According to the complaint, Olive Center signed a nine-month lease last July with Knotel, in which the tenant paid $18,000 a month for the ground floor space at the 8,800-square foot property. Knotel would then sublease office space to tenants, and provide 80 percent of all sublease income received above the $18,000-per-month rent payments to Olive Center.
These profit-sharing agreements with landlords distinguish Knotel’s business model from WeWork and some other office subleasing companies.
But Knotel allegedly vacated the premises on April 24 (opting not to renew their lease), and never handed over sublease income. “Defendants failed to pay the plaintiff the 80 percent of the excess amount received, and said failure is and was a breach to the term of the lease,” reads the lawsuit filed by Long Beach-based attorney William Robison.
Knotel has said that many subleasees are not making payments amid the coronavirus. But the complaint does not indicate any change in Knotel reneging on the profit-sharing agreement due to the coronavirus pandemic.
The complaint does not specify how much could be owed, other than that the figure is more than $25,000.
A message left with Knotel’s corporate headquarters as well as Knotel CEO Amol Sarva were not immediately returned.
Already a business with an unclear profitability path, Knotel laid off or furloughed half of its employees in March, and reported in April that both one-third of its subletters were not paying rent, and the company wasn’t making its own rent payments in some locations. The firm also said it was in talks to give back 20 percent of its space to landlords.
Knotel made a splashy entrance into the L.A. market last year, signing lease deals at 14 locations throughout L.A. County.
Last month, Sarva told reporters that he still expects Knotel to be profitable this year despite the turmoil.
With all the talk of whether the coronavirus now makes New York less attractive compared to other cities, billionaire landlord Charles Cohen said operating in the Big Apple has always been a challenge.
“It’s easier to do business outside of New York,” he said. “The cost of doing business is less. The cost of construction is less.” But he added, “The excitement is less. The pace is less.”
Cohen, CEO of Cohen Brothers Realty Corporation and Cushman & Wakefield’s Bruce Mosler discussed Covid-19’s impact on the real estate industry and in particular the office market for TRD Talks Live, The Real Deal’s ongoing web series. TRD publisher Amir Korangy hosted Tuesday’s event.
As much of the world has been relegated to working from home, there has been increasing debate over how the crisis will diminish the need for office space. This week, Twitter said its employees can work from home permanently after the coronavirus lockdowns end, if they choose to do so.
Mosler downplayed the significance of that announcement, arguing that by and large, tech companies want offices to recruit talent.
“Twitter is one organization,” said Mosler, chairman of global brokerage at Cushman and a past president and CEO. “I can tell you as we speak, there are other TAMI sector companies that are growing [their office footprint]. You don’t build a brand, build a business, collaborate on breakthroughs from remote work. That’s perhaps my view but I don’t think I’m alone.”
Cohen, whose company holds over 12 million square feet of commercial property nationwide, called the rush to declare the office space dead a “knee-jerk reaction.”
“I think after stay-at-home for seven, eight, nine weeks…it loses its freshness,” he said.
Outside of real estate, the two men have their own passions they follow. Cohen is a Hollywood producer and owns theaters like the Quad Cinema in Greenwich Village. Mosler is on the board at the Intrepid, Sea Air and Space Museum.
They drew comparisons to the way the pandemic is affecting those pursuits and its impact on their real estate businesses. Mosler pointed out that at its peak, the aircraft carrier museum drew 1 million visitors a year.
“Do we anticipate that we’re going to see a million visitors in 2020? Absolutely not,” he said.
At Cushman, Mosler said that he’s spending most of his time advising existing clients about how to safely return to their spaces, and not much time courting new clients who could be more active than banks and other tenants that might be reducing footprints.
“This is a time to advise and help more so than pursue new business,” he said.
UPDATED 7:30 p.m., May 13: Commercial real estate data giant CoStar Group is purchasing Ten-X for $190 million, a move that would increase the publicly-traded CoStar’s presence in the distressed real-estate space.
The all-cash deal for the online real estate transaction platform could be finalized Wednesday, the Wall Street Journal first reported. Thomas H. Lee Partners, the private equity firm that owns Ten-X Commercial, had previously been in talks with CoStar, but when those talks did not lead to an agreement, Ten-X laid off nearly half its workforce in November, The Real Deal reported.
“They have actually streamlined and consolidated some of their staff since we were last in conversations with them,” CoStar CEO Andy Florance said in an interview with TRD Wednesday evening. “Which makes them a closer to a profitable company. And probably strikingly, they were also sitting here at a time where their services in combination with our services are likely much more relevant.”
Ten-X claims that more than $50 billion in real estate transactions have been done through its platform. It was founded in 2007 as Auction.com, a residential real estate deal platform, and has been backed by firms such as Barry Sternlicht’s Starwood Capital, Stone Point and CapitalG. In 2016, it launched a separate platform known as Ten-X Commercial, which provided a marketplace for commercial properties. Thomas H. Lee bought a majority stake in the company for nearly $1.6 billion in 2017, and split it into Auction.com and Ten-X Commercial.
In February, CoStar, which has a current market cap of $22.6 billion, reported that net income for 2019 was $315 million, up 32 percent year-over-year. Florance expects the effects of the pandemic to usher in a very busy era for distressed investing, and said the Ten-X platform would help CoStar offer users intelligence on that.
“Our sense is that over the course of the next three to five years, there will unfortunately be a tsunami of distressed deals,” he said. “I think that in this time, having a mechanism to clear these distressed properties I think will be very valuable.”
CoStar’s recent acquisitions include the $450 million purchase of hotel data provider STR in November, and the $588 million purchase of apartment-listing firm RentPath out of bankruptcy in February. Asked Wednesday about concerns that CoStar was monopolizing the market for commercial real estate data, Florance said “we are never going to pursue a path where we try to get smaller and smaller and smaller and become less effective and provide less solutions.”
This story was updated to include comments from CoStar CEO Andy Florance
Los Angeles City Councilman Jose Huizar and a rendering of the project (Credit: Jerod Harris/Getty Images, and Gensler via Urbanize)
A bombshell plea deal involving a former real estate broker that the federal government unsealed Wednesday suggests a years-long trail of bribery between City Councilmember Jose Huizar and a Chinese development firm with a megaproject slated for downtown Los Angeles.
The announcement is the most explosive revelation in the unfolding FBI investigation into corruption in city hall that centered around Huizar — former chairman of the powerful Planning and Land Use Management committee — and a handful of downtown developers.
Under the plea agreement with the U.S. Justice Department, George Chiang, a 41-year-old who spent eight years as a broker in the San Gabriel Valley, admitted to one count of federal racketeering.
According to federal prosecutors, Chiang started a real estate consulting company in 2014 called Synergy Alliance Advisors that directed money, consulting fees, casino chips, flights on private jets, luxury hotel stays, prostitutes and escort services between developers and City Council members and staff.
Chiang allegedly was part of a criminal enterprise to funnel $66,000 and lavish trips to China and Hong Kong to an L.A. councilman — believed to be Huizar — in exchange for approval of an 80,000-square foot commercial project and other downtown developments.
A message left with Huizar Wednesday was not immediately returned.
Attempts to contact the development firm, Shenzhen Hazens Real Estate Group, at its Century City office were not successful.
The complaint does not mention the names of the principal council member or company involved in the bribe scheme, referring to them only as “Council Member A” and “Company D.”
But the allegations strongly suggest Huizar, noting that the company was dealing with the chair of the planning committee, which Huizar led during the time of the alleged bribery, between 2014 and 2018.
The complaint also refers to a familial succession plan for Huizar’s Council spot. Huizar had been preparing his wife, Rochelle Huizar, to succeed him. That plan unraveled after the FBI raided Jose Huizar’s office in November 2018.
As for the unnamed development project, the allegations against Chiang specify the project be 80,000 square feet with a 300-key hotel, and hundreds of condo units. That matches the record for the planned development by Shenzens Hazen, which went through the city approval process in 2017.
Shenzens Hazen was one of several China-based developers named in the November 2018 FBI search warrant into bribery of city officials that also included Greenland Group and Oceanwide.
The federal investigation had been quiet for months, but that all changed in recent weeks.
Former City Councilmember Mitchell Englander pleaded in March to one count of obstructing a public investigation after federal investigators claimed he received more than $30,000 in cash, female escort services, hotel rooms, wine bottles and meals from an unidentified real estate developer.
And real estate appraiser Justin Kim pleaded to a federal bribery charge in March, for funneling a $500,000 bribe between a developer and a city council member. Subsequent reporting by the L.A. Times and Spectrum News pinned Dae Yong Lee, Jeok Suk Kim, and Hyuk Lim as the developers, and Huizar as the council member.
New York, Los Angeles, Chicago, and Miami (Credit: iStock)
It may not be saying much, but hotel fundamentals are up in some major U.S. cities.
Overall, hotel occupancy in the U.S. has been improving since early April and last week hit 30.1 percent, up from 28.6 percent the week prior, according to the latest data from STR.
STR’s Jan Freitag said that Transportation Security Administration checkpoint counts show that more people are flying in recent weeks, and that the weekly number of hotel rooms sold across the U.S. topped 10 million for the first time since the end of March.
During the worst weeks of the coronavirus pandemic, occupancy rates in Miami, Los Angeles, New York and Chicago all fell near or below 20 percent, sending revenue per available room through the floor. Some of the improvement since then is likely attributable to hotels renting rooms to essential workers and governments for housing the homeless.
While the occupancy rate in New York fell from 44.9 percent to 43.7 percent last week from a week prior, no less than 40 percent of the market’s hotels have been occupied since the week of April 19. That correlated with an increase in revenue per available room to above $50 for the first time since the second week of March. Last week, revPAR dipped to $53.39 from an eight-week high of $55.52.
For context, in the first week of March, revPAR was $136.05 and 72.1 percent of rooms were booked. The average daily rate — the average of what hotels brought in per room — fell steadily over the last two months, but has stayed between $122 and $124 since the week of April 12 to 18.
Fundamentals in L.A. are generally trending upward. Occupancy hit 35.5 percent last week, up from 33.7 percent the week prior. RevPAR has also increased, rising to $36.46 last week from $34.57 in the last week of April. Still, those figures are less than a third of what they were before stay-at-home measures were enforced. ADR continues to slip in L.A. and hit $102.66 last week.
Occupancy rates fell in Miami to 24.4 percent last week from 26.2 percent the week prior, which was the highest rate since mid-March. RevPAR also slipped, week-over-week, to $20.80 from $23.31. That’s about seven times lower than in the second week of March.
Chicago recorded a slight uptick in occupancy, to 24.4 percent last week from 24.2 percent two weeks ago. Occupancy has been steadily trending upward since the last week of March. RevPAR was more or less flat at about $17.60 over the last two weeks.
Chicago’s central business district is also seeing more bookings. Occupancy hit 13.9 percent last week from 13.4 percent a week prior. Occupancy was about 53 percent in early March. RevPAR improved, week-over-week, to $13.84 from $13.77.
Destination cities such as Galveston, Texas and Panama City, Florida have also shown improvement since local governments started to ease coronavirus restrictions.
Last week, Hawaii’s Oahu Island saw the largest drop in occupancy than any other submarket, with just one in 10 rooms occupied — an 87.1 percent decrease from last year.
“Greed” was good on Gordon Gekko’s Wall Street. “Boring” was good in the office market in alpha cities such as New York and London – A fully-occupied Class-A office building was about as stable an asset as you could find in real estate, and its predictable cash flows attracted pension funds and institutional investors from across the globe. But the office market is no longer boring, and that should be a wake-up call for major landlords, according to two prominent proptech strategists.
Dror Poleg, the author of “Rethinking Real Estate” and his business partner Antony Slumbers joined The Real Deal’s Hiten Samtani for a deep dive into the future of the office market. The conversation touched upon several of the biggest issues facing office landlords at the moment: how to account for a large chunk of the population opting to work from home even once this pandemic is past; how to value and finance office buildings in the face of less predictable cash flows; and how to market space in the age of social distancing.
“Companies shouldn’t ask themselves ‘can my employee be productive outside of the office?’ Poleg said. “They should ask themselves, ‘If I take the $15,000 or so that I spend putting their butt in a seat, and spend that on making them productive, including them giving a budget for satellite spaces or flex spaces, what will happen then?’ ”
Samtani said the upheaval triggered by mass working from home had made it much trickier to calculate demand for office space.
“The whole mantra of the office market,” Slumbers said, “is going to change from trying to let [lease] the most space for the most time to someone, to actually trying to let the least space for the least time, and charge someone appropriately for that flexibility.”
Watch more great conversations with industry leaders
Both Slumbers and Poleg said that the role of the office space operator would become more and more distinct from that of the owner, more along the lines of what we see in the hotel industry. Consumer-facing providers who could guarantee a health and safety-focused, optimized tenant experience would grow in importance and would be the biggest value driver of buildings. WeWork was a financial debacle, Poleg acknowledged, but it certainly showed the demand for that kind of product and tenant experience.
In his latest chairman’s letter, Vornado Realty Trust’s Steven Roth had suggested that the big landlords band together and come up with their own co-working brand. But Poleg scoffed at that idea.
“Practically it will be very tough,” he said. “If you look at all the New York landlords, they’re all next to each other. Who decides where they go first, and where they go second?”
Poleg wasn’t done: “When the chairman of a large office landlord says something like, ‘why can’t we all join forces and create some kind of operating company for flex office?’ it shows a deep reluctance to comprehend the scope of the change in the industry,” he said. “You’re basically thinking about it like a coffee shop in your building — it basically means you don’t understand that this is your new core business — it’s not a little thing you’re doing on the side.”
(Poleg and Slumbers are offering TRD readers a 33% discount for their “future-proof office” course. Use the coupon code: TRD)
JPMorgan Chase’s Jamie Dimon and Fortress Investment Group’s Wes Edens (Dimon via Mark Wilson/Getty Images; Edens via Scott Olson/Getty Images)
JPMorgan Chase and Fortress Investment Group are among the latest firms to launch funds seeking to raise big money during the pandemic.
The asset-management arm of JPMorgan Chase is looking to raise between $2 billions and $3 billion from institutional investors to take advantage of “dislocations” in the real estate market, according to Bloomberg. The vehicle will invest in bonds and loans connected to commercial real estate, with targeted net returns of 10 to 15 percent.
As the public and private real estate credit markets fracture, other companies are also sensing opportunity.
Fortress Investment Group is also looking to raise some $1 billion for its second lending fund.
The vehicle, Fortress Lending Fund II LP, is reportedly aiming to originate and purchase senior secured loans over a variety of sectors, with targeted returns of 12 to 15 percent per year, before fees.
It was earlier reported that the SoftBank-backed firm is looking to raise $3 billion for a separate credit opportunities fund. [Bloomberg 1, 2] — Sylvia Varnham O’Regan
Ed McMahon and his Beverly Hills and Bel Air homes (Credit: Christa Chapman via Flickr, Redfin)
A pair of Los Angeles homes once owned by famed “Tonight Show” announcer Ed McMahon have hit the market within days of each other, coming at a moment of increased optimism among luxury sellers.
McMahon’s 1930s-era Tudor-style mansion in Bel Air is asking $10.5 million, according to the Los Angeles Times. Last week, the late TV star’s Beverly Hills home listed for $6.8 million.
It’s the second time on the market for the Bel Air mansion in two years — it listed for $12.5 million in 2018, but never sold. The 6,741-square-foot property sits on a half-acre parcel with a front motor court, swimming pool, and a large patio area. The home is three stories with six bedrooms and nine bathrooms.
The property last sold in 2004 for $2.7 million. Rabi Aboulhosn with Keller Williams Beverly Hills has the listing.
While the coronavirus pandemic and subsequent lockdowns in the L.A. area have made it difficult to move properties, it hasn’t deterred all buyers and sellers. And in recent weeks, there has been a rising level of confidence, with the relaxing of in-person showings. Last week, a 41,000-square-foot spec mansion in Bel Air returned to the market, asking $100 million; and the week before that, a Tando Ando-designed, 4,000-square-foot Malibu home on the ocean relisted for $75 million.
McMahon faced some financial issues late in his life before he died in 2009, and nearly lost a Beverly Hills Post Office home to foreclosure. He owned several properties around L.A. during his lifetime.
Another one of his former homes, a half-acre property in Hermosa Beach, went on the market in 2017 for $22.5 million. [LAT] — Dennis Lynch
Editor Note: May 14, 2020, 11 a.m.: In a plea agreement the Department of Justice unsealed Wednesday, a former commercial real estate broker admitted to funneling cash and trips to an L.A. councilman who is believed to be Jose Huizar — he was not named in the disclosure — in exchange for approval of a commercial project and other downtown developments.
Story originally published on January 17, 2019.
Take a ride through Downtown Los Angeles, and at every other block, you’ll pass a building under construction or a site destined for a massive project. Greenland USA’s Metropolis, Related Companies’ The Grand, Greystar’s Circa towers and many megadevelopments at that scale seek to erase the area’s former image as an archetype of urban blight and reposition it as one of the country’s most desirable live-work-play neighborhoods for decades to come.
One big developer after another is vying to cement its legacy as DTLA’s primary change agent. But perhaps that distinction belongs not to a builder, but a politician: L.A. City Council member Jose Huizar. Huizar, who’s represented Downtown since 2012 and chaired the powerful Planning and Land Use Commission (PLUM) since 2013, became the ultimate arbiter of what was and wasn’t built in Downtown. And for the most part, he operated by the “Build, baby, build” ethos.
With Huizar in office, developers could count upon a sympathetic voice in the City Council. But all that changed on Nov. 6., the day FBI agents raided Huizar’s home and office in search of what were later revealed to be documents related to fundraising activities. A week later, Council president Herb Wesson removed Huizar from all of his committee appointments, including his PLUM chairmanship.
Huizar hasn’t been charged with any crime, but he’s been effectively stripped of the key powers he held at City Hall. On top of that, his wife, Richelle Huizar, abandoned her campaign to succeed him as the representative for District 14, leaving the seat open to challengers who may not share Huizar’s enthusiasm for development.
The state of affairs thrusts DTLA developers into uncertainty. Political support for projects is important anywhere, but given L.A.’s archaic zoning code, it’s paramount here: Nearly any project of significance in L.A. requires exceeding as-of-right limits, which in turn requires discretionary approval from the City Council. An unwritten rule exists in L.A. that council members defer to the colleague who represents the district in which the project lies.
In DTLA’s case, that was Huizar.
With the cloud of the investigation over him, Huizar has kept a low profile. In early December, he canceled an annual festival for Bringing Back Broadway, his signature initiative to revitalize DTLA’s historic Broadway corridor. The move gave constituents a glimpse of what losing their development boostercould look like.
“We need a lot of help,” said Patti Berman, president of the Downtown L.A. Neighborhood Council, stressing that the area still has pressing issues such as the homeless crisis. “We need to be taken care of, and we need to know we have strong representation.”
Mr. Downtown
DTLA has been a boomtown in the years following the recession — more so than any other part of the city — and Huizar has been there for all of it.
About 14,000 new residential units have been built in the area since a 2012 redistricting put Downtown within Huizar’s district, according to the Downtown Center Business Improvement District. Over the same period, 3 million square feet of new office and retail developments have popped up, along with 2 million square feet of hotel space. Class A monthly office rents are up 35 percent since 2012, to $3.60 per square foot.
Huizar’s role in this transformation is clear. Along with economic policy initiatives such as Bringing Back Broadway, the charismatic land-use lawyer eagerly took up the helm as DTLA’s number one cheerleader. On YouTube, he lauded the influx of new businesses to the area, including the Ace Hotel opening in 2014. In 2016, he appeared on KCAL 9’s “Shameless Weekend Weather Plug,” segment to push Night on Broadway.
In a 2012 interview with the trade publication The Planning Report, Huizar said his focus was to “continue the [economic] momentum” Downtown, namely by supporting new business, development and entertainment. Five years later, he spoke with the publication again and gushed about the progress made.
“We are finally getting the Downtown that we’ve always wanted — one that serves as a center point for the entire region,” he said. “I think we are going to look back at the last three years of development in the Downtown core as days where L.A. moved forward by leaps and bounds.”
It speaks to Huizar’s still-uncertain fate that developers have largely stayed mum about the FBI raid. Nearly all the developers The Real Deal contacted to gauge the industry’s reaction declined to comment. Those who did seem optimistic that Huizar’s ouster is more of a bump in the road than a long-term crisis.
Steve Afriat, a veteran lobbyist whose clients include the Warner Center Hilton and Metropolis’ original developer, IDS Real Estate Group, said decades of working in L.A. have inured him to upheaval at City Hall.
“In the first 10 years of doing it [lobbying], I’d get nervous if there was a change in chairmanship or if members [left] PLUM,” Afriat said. “But then I realized that the city itself is probably supportive of development — some members might be more sensitive to neighborhood groups, but as a whole, the City Council is pretty committed to housing and development.”
He expects a smooth transition at PLUM under new chair Marqueece Harris-Dawson, the commission’s former vice chairman, who was expected to succeed Huizar after 2020 anyway.
Harris-Dawson took office for the 8th District in 2015 and has so far shown himself to be a strong voice for development in his South L.A. district, sources said. In 2016, he and Huizar jointly authored Proposition HHH, a $1.2 billion bond measure to build permanent supportive housing for the homeless.
They both also supported the Affordable Housing Linkage Fee, a controversial per-square-foot levy on all new residential and commercial developments to help pay for affordable housing. The ordinance passed in late 2017.
Harris-Dawson hasn’t yet seen any hot-button issues as PLUM chair, but in the past, he’s generally voted in step with his colleagues in the district where the project lies.
Arnie Berghoff, a lobbyist active in DTLA, said he doesn’t expect any seismic shifts at PLUM.
“Personally, I think he [Harris-Dawson] has been more than objective and fair to developers,” said Berghoff. “You look at his record, and he’s voted for nearly every major project in Downtown L.A. and other parts of the city.”
In the immediate future, Afriat said it’s possible that Huizar’s legal troubles could impact how his colleagues view projects he’s championed. But Afriat doesn’t expect any major changes to policy.
“If there’s a good project in Downtown L.A. — whether Huizar weighs in or not — they will support it,” he said. “If it’s on a trajectory, it’ll probably continue in that direction.”
Alexander Irvine, president of land-use consulting firm Irvine & Associates, said he’s focusing on meeting Harris-Dawson’s team.
“[Huizar] was definitely pro-development, especially Downtown, so it’s yet to be seen what will happen,” he said. “But I feel the movement on DTLA is still going strong, and I’m encouraged that will remain.”
Vision 2020
It’s hard to predict how the FBI investigation will shake out. Federal agents are notoriously tight-lipped about ongoing investigations, and few people with the knowledge to speculate will do so. The bureau’s L.A. Field Office has acknowledged the agency was executing search warrants at a City Hall office and declined to comment further.
Huizar’s lawyer and spokesperson declined to comment for this article. In the first few weeks after the raid, it appeared that Huizar could be in trouble for how and when he solicited donations to his high school alma mater. A pair of former staffers alleged he ordered staff to solicit donations on city time.
Since then, the L.A. Times has gotten its hands on at least one FBI search warrant dating from July; it suggests the scope of the investigation is much wider. That document reveals that investigators are looking into possible bribery and kickbacks concerning federal funds, extortion and money laundering.
Huizar, Wesson’s chief of staff, Deron Williams, and Council member Curren Price, along with some staffers and a former aide for Mayor Eric Garcetti, are all named in the search warrant. It also seeks records related to Greenland and Oceanwide Holdings Company development activity Downtown.
Even if Huizar avoids an indictment, there’s still the question of what happens in 2020, when he’s forced out of office by term limits. Development, particularly on large projects, can drag on for years, so builders would be anxious for clarity now. Richelle Huizar’s withdrawal from the race puts the seat entirely up in the air.
No one has declared he’ll run. Some names floating around include State Assembly member Miguel Santiago, whose District 53 includes Downtown.
But Huizar’s District 14 is larger than just Downtown. It stretches to Boyle Heights, through Chinatown and north to Lincoln Heights and Northeast Los Angeles. Boyle Heights and Chinatown in particular are undergoing rapid gentrification, and not everyone is thrilled about it.
Gloria Molina tapped into that disquiet during her campaign against Huizar for the 14th District in 2015. The former L.A. County Supervisor, City Council member, and State Assembly member said there was “too much density” in Downtown L.A. and that Huizar supported projects that fueled gentrification in other parts of the district. The incumbent, however, beat her in a landslide, with 65 percent of the vote.
A forthcoming redistricting following the 2020 Federal Census complicates the political situation Downtown even further. Berman, of the Neighborhood Council, worries that the City Council could “chop up” the economic hub between several districts if District 14 doesn’t have a strong enough voice in its corner. That would be disastrous, she said.
“I think because of the financial advantages of having a piece of Downtown, it will be a feeding frenzy” Berman said. “I was here for the last redistricting 10 years ago, and there was blood in the water.”
Crony hall
Huizar’s troubles have pulled back the curtain on the often cozy relationship between developers and elected officials in the city.
L.A. has no laws barring council members from taking campaign donations from developers whose projects they later vote on. In addition, no laws bar donations to pet charities, such as the donations that could be part of the FBI’s investigation into Huizar.
Naturally, people with business in real estate shower their attention — and dollars — on lawmakers sitting on PLUM.
It “has always been known as the ‘juice’ committee, because developers need approval from PLUM, and they tend to become very friendly with members of the committee,” said Richard Close, a real estate lawyer who’s squared off with numerous developers as president of the Sherman Oaks Homeowners Association.
Mike Hernandez, who sat for a year on PLUM, said council members don’t always know if someone with a project in front of them has donated to their campaign.
“Council members are put in that position,” he said. “Most of the time, council members don’t know who’s giving them money.”
Council members are often subject to criticism for supporting major developments, particularly when there’s money involved. Wesson and Mayor Garcetti came under intense fire in 2015 for approving a 27-story apartment tower located in Wesson’s district in Koreatown despite the Planning Commission’s opposition to the project. Their support came after developer Michael Hakim committed $250,000 to the Wesson-controlled Council District 10 Community Benefits Trust Fund and another $1 million to the city’s affordable housing fund.
Critics cried foul and accused the officials of approving a bad project because they saw political benefit. Groups opposing the project sued, and, last April, a judge rescinded the approvals for the project and ordered that a new environmental impact review, which typically takes at least a year, was needed.
One potential solution to what critics describe as a pay-to-play environment for development is citywide reform of zoning laws — in particular, a change to the unwritten rule of deferring to local council members.
The city is working on a massive rezoning initiative, called re:code, which would allow for more dense as-of-right zoning. Re:code is being rolled out over the course of several years across the city’s 35 community plans, but DTLA is first on the list, and rezoning could be completed and take effect within the year, according to principal city planner Tom Rothmann.
Another step that could be taken is a hard look at political donations. In January 2017, in the lead-up to the vote on Measure S, which would bar development outside of existing zoning, Council members David Ryu, Paul Krekorian and Joe Buscaino proposed an ordinance to bar contributions to elected officials or candidates from developers with projects currently or recently put before the city. Alternatively, the motion proposed requiring lawmakers to recuse themselves from voting on contracts when they’ve received campaign donations from a developer bidding on that contract.
That proposed ordinance has now expired (lawmakers did little to move it along).
It’s likely the motion was little more than a way to sway voters ahead of Measure S. But Ryu announced on Jan. 15 that he and other council members plan to reintroduce the proposal and expand it to restrict donations made by developers at the request of council members to charities and other outside groups.
It’s very well possible that DTLA development will continue to proceed full tilt, Huizar or no Huizar. Some will bid him good riddance. Others will mourn. Developers will likely keep building.
For those who believe DTLA’s current politicians are in bed with developers, only a true outsider could usher in a cultural shift. But that, critics say, may be too much to hope for.
Jill Stewart, executive director of the Coalition to Preserve L.A., expects “tired people from previous offices” to crowd the field of candidates vying to represent District 14.
“We’re worried,” she said. “It’s wide open in a sense, but you wonder in L.A., with all the petty corruption, if a door that opens is already closed.”
Tutor Perini’s Ronald Tutor and Apollo’s Leon Black (Credit: (Perini by Brian To/FilmMagic)
Tutor Perini, one of the largest general contractors in the U.S., appears to be the latest company to see a major deal scrapped by the coronavirus crisis.
The California-based company announced Wednesday night that talks to acquire it have ended “in light of continuing volatile market conditions.” Tutor Perini didn’t specify the other party in the negotiations, but Reuters reported earlier this year that private equity firm Apollo Global Management had offered to buy the construction company for nearly $1 billion.
Apollo and Tutor Perini didn’t immediately return requests seeking comment.
It would not be the first deal to fall apart during the pandemic. Earlier this month, South Korea’s Mirae Asset Global Investments announced that it was backing away from its $5.8 billion purchase of Anbang Insurance Group’s U.S hotel portfolio, Reuters reported.
The scuttled deals have also led to legal fights. Realogy filed a lawsuit in April alleging that SIRVA and MDP have used the crisis as an excuse to wriggle out of its agreement to buy its relocation business for $400 million.
During its first-quarter earnings call last week, Tutor Perini reported a net income of $17.4 million and a backlog of $10.6 billion, down from the record backlog of $11.6 billion seen during the same quarter last year.
The company indicated that most of its projects have been unaffected by the pandemic, as a “vast majority” have been deemed essential. In a press release, the firm indicated that it “does not currently foresee any adverse material impact from the pandemic on its financial results for this year.”
The coronavirus crisis has already prompted a number of large investors like JPMorgan and Fortress to launch real estate funds to take advantage of investment opportunities, including targeting distressed assets.
Now, the Los Angeles County Board of Supervisor is mulling a program intended to maintain the affordable housing stock by allowing multifamily property owners to sell properties facing default, according to LAist. The board’s measure would allow the county to buy residential properties itself and then turn them over to community groups to maintain their affordability, according to LAist. Renters and community land trusts could also purchase the properties.
The board passed a motion this week to explore the “right to purchase program,” along with several other housing- and coronavirus-related measures.
The measure is meant to “counter speculative or large-scale corporate purchase of residential properties,” which could gain momentum with a wave of multifamily foreclosures in the wake of the coronavirus pandemic.
Supervisor Hilda Solis, who authored the motion, said she wants to ensure “homes are not bought by speculators who will worsen and create a market that will be unbearable for many of our residents.” Essentially, those investors could buy up the residential properties then raise the prices on the rental units, officials said.
The Apartment Association of Greater Los Angeles, a landlord trade group, blasted the proposal. Director Daniel Yukelson said the county was “seeking to compel the sale” of private properties while landlords “go broke.”
The group has also criticized the county’s rent freeze and eviction moratorium, which the board extended through June 30. [LAist] — Dennis Lynch
Jaws Acquisition and Starwood Capital founder Barry Sternlicht (Sternlicht by Leon Bennett/Getty Images; iStock)
Jaws Acquisition, a company founded by Starwood’s Barry Sternlicht, has upsized its IPO after filing a prospectus earlier this week.
The special purpose acquisition company plans to raise $600 million — up from $500 million — for a listing on the New York Stock Exchange Thursday, according to Bloomberg.
According to SEC filings, the company won’t be in competition with Starwood Capital Group because it won’t target Starwood’s areas of real estate, lodging and energy infrastructure.
Falcon Edge Capital, an asset manager, bought shares in the Jaws IPO. Chairman Rick Gerson praised Sternlicht in a statement to Bloomberg.
“Barry Sternlicht is a visionary entrepreneur and it will be exciting to see the deal he finds,” he said in the statement.
Sternlicht has made it clear that he feels the time to place bets is now. On Starwood’s first-quarter earnings call earlier this month, Sternlicht said the firm had been on the hunt for opportunities — particularly in the hospitality industry, which has been one of the hardest hit sectors during the pandemic.
“It’s really ugly…But obviously when it’s really ugly, it’s a good time to invest,” Sternlicht said on the call. [Bloomberg] — Sylvia Varnham O’Regan
Count Brookfield Asset Management among the growing number of distressed-debt evangelists.
“This is one of the great environments, possibly, to buy distressed debts that may have ever been in existence,” CEO Bruce Flatt said on the company’s first-quarter earnings call Thursday.
The firm reported a net loss of $157 million for the first quarter, a stark contrast to the roughly $1.3 billion profit during the same period last year. However, Flatt still struck a mostly optimistic tone on the call, saying that the global firm was encouraged by what it has been seeing in the parts of Asia that have started to reopen.
He also noted that Brookfield had long been preparing for a market downturn and that its income from management fees, which he said is largely immune from market volatility, had grown significantly. The company earned $286 million from fees in the first quarter, up 20 percent year-over-year from $238 million, and it has $60 billion worth of dry powder to deploy across its businesses.
The talk about distress focused largely on Oaktree Capital Management, which Brookfield bought a majority stake in last year and which is looking to raise $15 billion for a distressed-debt fund.
“There is and there will be a lot of interest in the Oaktree strategy,” Flatt said. “We hope it will be a very significant fund.”
Brookfield Property Partners, the real estate arm of the company, held its first-quarter earnings call Friday and reported a net loss of $373 million. It is negotiating with 2,400 of its retail tenants in the U.S. that have not paid rent.
BPP CEO Brian Kingston was on BAM’s earnings call as well, largely to discuss how Brookfield is dealing with its retail portfolio, as the pandemic has been particularly tough on that sector. He said 75 of Brookfield’s retail centers have already reopened in a restricted capacity, and he expects more to reopen in the coming weeks. While he acknowledged that the sector will experience some pain going forward, he still expects Brookfield’s retail assets to increase in value in the long term.
Kingston also recommitted to Brookfield’s plan to turn its retail properties into “mini cities” with entertainment, office and residential amenities, despite concerns about whether that strategy is still viable given social-distancing measures. He expects curbside pickup to be a more permanent part of Brookfield’s retail strategy as well, not just a stopgap measure for stores to use during the pandemic.
And he discussed Brookfield’s recently announced plan to launch a $5 billion fund for retailers struggling to get by during the pandemic, a move that he said has already attracted a lot of interest.
“Our phone has been ringing off the hook with investment opportunities,” he said.
Zillow CEO Richard Barton (Credit: Barton by Steve Jennings/Getty Images for TechCrunch)
Rich Barton is walking the talk.
Days after the CEO declared during a rosy earnings call that “we have passed peak fear,” Zillow Group filed a prospectus seeking to sell up to $1 billion in stock and convertible senior notes.
The company is offering up to 9.2 million shares of its Class C capital stock at a public offering price of $48 per share. At the same time it is also selling $500 million in convertible senior notes due in 2025 at an interest rate of 2.75 percent, a pricing term sheet shows. If all options are fully exercised, the company expects to raise up to $1 billion in gross proceeds.
In filings, the company said it expects to put the funds toward the cost of repurchasing a portion of senior convertible notes due in 2021. The deal will be privately negotiated but Zillow expects to pay $196.4 million in cash and issue close to 754,000 shares of Class C stock.
The rest of the funds will be put toward general corporate purposes and, potentially, an acquisition spree.
“[Zillow] may choose to expand our current business through acquisitions of, or investments in, other businesses, products or technologies, using cash or shares of our common stock or capital stock,” the prospectus reads.
The company noted, however, that there are no current agreements or commitments in place.
The company’s filings for the stock and debt offerings became public on Tuesday.
In the first day of trading, Zillow’s Class C capital stock [Z] and Class A common stock [ZG] plunged 12 percent to $49.22 per share and $48.52, respectively. The slide continued Wednesday with both stocks closing down 16 percent from Monday’s closing price at $46.53 [Z] and $46.25 [ZG].
Zillow reported ending the first quarter of 2020 with $2.6 billion of cash and investments, the highest in its history, and announced it would resume its iBuying business, which was halted in mid-March. Shortly after, the company responded to the growing pandemic by slashing 25 percent of its expenses.
The number of weekly unemployment claims dipped below 3 million last week, for the first time since the beginning of the current economic crisis. (Photo by Stephanie Keith/Getty Images)
Unemployment claims totaled 2.98 million last week. That’s the good news.
It was the first dip below 3 million since mid-March, when claims numbered a mere 282,000 (and represented a jump at the time from the usual 210,00 or so).
Last week’s tally was down by more than half from the spike to nearly 7 million unemployment claims seen at the end of March, but still well above the peak of 650,000 weekly claims during the Great Recession. The total number of applications since the beginning of the coronavirus crisis has now reached 36.5 million.
“The numbers are very high, but they’re stepping down every week, and I see no reason why that decline in filings wouldn’t continue,” former Council of Economic Advisers chief economist Keith Hall told the Wall Street Journal. “Employers are likely poised to bring people back, but right now we’re in a holding pattern.”
The seasonally adjusted unemployment figures do not include independent contractors and self-employed people — including real estate brokers — who were ineligible for unemployment benefits prior to the pandemic. About 800,000 such claims were filed last week, down from over 1 million the week before.
(Source: Department of Labor)
Florida, Georgia and Connecticut had the highest number of new claims last week, with more than 200,000 each, and all saw increases in applications from the week before.
The slight overall drop in new unemployment claims comes as cities, counties and states have begun laying out plans to reopen their economies. Other positive economic indicators have included an uptick in hotel occupancy in major U.S. cities as well as continued growth in home purchase mortgage applications.
Analysts will be keeping an eye on these figures as the national response to the pandemic enters a new phase.
“I don’t think we’ll be able to draw conclusions yet because there’s a lot of noise in data, and other factors are at play,” Moody’s Analytics director of economic research Adam Kamins told the Journal. “But it may start to point us in the direction of understanding what the upside to reopening is.” [WSJ] — Kevin Sun
Another ultra-luxury Malibu home has hit the market, this one for $35 million, more than twice what the owner paid.
Records show the owner is Tom Villante, head of YapStone, a mobile payment processing firm for property managers and vacation rental platforms.
Designed by architect Doug Burdge and called Casa di Pietro, the beachside home is 5,300 square feet and includes 2.75 acres. It last sold for $14.7 million in 2013.
The property hits the market at a time when Los Angeles area agents have begun showing homes again following a recent relaxing of coronavirus-related safety protocols.
A Tadao Ando-designed home in Malibu hit the market two weeks ago for $75 million, and another nearby property listed earlier this week for $42 million.
Villante founded Walnut Creek-based YapStone in 1999, so named for currency stones used on the island of Yap in Micronesia. Some of its clients have included rental platforms like HomeAway, RentPath, and VRBO. Crunchbase reported the company had a total of $186 million in venture capital funding, including a $71 million round in 2018. In August, YapStone laid off 66 employees.
Woodridge CEO Michael Rosenfeld and Glorya Kaufman with a rendering of the Century Plaza project, and Armanino LLP partner Harvey Bookstein with the Hearst Estate. (Credit: DBOX)
One mid-November evening last year, developer Michael Rosenfeld paid a visit to a “close friend” of his, Glorya Kaufman, to ask her to sign some documents.
Kaufman signed the papers without having a chance to read them and without being provided with copies afterwards, she alleges in a new lawsuit. She was “shocked to learn” afterwards that she had signed a $75 million guaranty on construction loans for the Century Plaza condo development in Century City.
In the lawsuit’s telling, the guarantee was just the latest in a series of big real estate deals Kaufman had been brought into over the past decade at the behest of Rosenfeld, the founder of real estate investment and development firm Woodridge Capital Partners and an accountant, Harvey Bookstein of Armanino LLP. Rosenfeld and Bookstein held themselves out as “close friends and trusted financial, business, and investment advisors” to Kaufman, the complaint filed last week in Los Angeles Superior Court states. Despite assuring her that their investments were conservative and safe, the duo allegedly “created and/or structured very risky self-dealing transactions where they used Mrs. Kaufman’s assets to make big gambles to promote their own financial gain.”
Rosenfeld vigorously denies this characterization of their relationship. “The complaint is replete with misrepresentations,” he said in an interview with The Real Deal Thursday. “It is unconscionable that her lawyers and new advisors would make such assertions against the very people who have provided her with years of successful investments.”
The document Kaufman signed that November evening, for example, was simply a quarterly certificate that she had signed every quarter since 2016, and not a new guarantee, according to Rosenfeld.
“We empathize with the fact that Mrs. Kaufman contends that she has no recollection of entering into these agreements, however there’s no question that she did in fact knowingly enter into them,” he said. “It is my understanding that her advisors reviewed every investment with her thoroughly, that she insisted on having a complete understanding of each prospective investment, and that the entirety of the documentation was presented to her.”
Kaufman, the widow of KB Home co-founder Donald Bruce Kaufman and founder of the Glorya Kaufman School of Dance at USC, is asking for the deal agreements to be voided, and is seeking damages on charges including fraud, elder abuse, and breach of fiduciary duty.
“With great reluctance, we have filed a breach of contract action based on this non-performance,” Rosenfeld said. “We encourage Mrs. Kaufman to honor her obligations under the numerous agreements that she entered into.”
An attorney for Kaufman declined to comment. Bookstein did not respond to requests for comment.
Full scope unknown?
The investments listed in the suit total out to nearly $60 million, as well as two guarantees on loans totaling $115 million. But according to the suit, because Rosenfeld and Bookstein haven’t provided details on the investments, “the full scope of Defendants’ breaches of fiduciary obligations, and fraud, may not yet be fully known.”
The earliest investment documented in the complaint occurred in 2011, when Kaufman invested $5 million in an entity controlled by Rosenfeld known as Unification Partners, LLC.
“Mrs. Kaufman has never received any income or distribution from this investment, and she does not know how Defendants used her funds,” the suit alleges.
In 2013, the Glorya Kaufman Trust provided a $3.3 million loan for the development of 150 homes near Lake Castaic north of Santa Clarita. The homes were never built and the defendants have allegedly continued to collect management and accounting fees on the investment, according to the suit. Woodridge received county approval to build a much larger 3,150-unit complex in the area in 2018.
Another “high stakes financial deal” Kaufman was allegedly cajoled into was a $27.7 million investment in the Hotel Californian in Santa Barbara, which opened in 2017. Kaufman “has not received any distributions of any kind on this large investment,” and the hotel has been losing money for years, the suit alleges.
Mansion mischief
One of Kaufman’s largest financial entanglements popped up in the news in 2016, when real estate investor and attorney Leonard Ross put the Hearst Estate in Beverly Hills on the market for $195 million.
An analysis by TRD at the time uncovered “an elaborate web of LLCs and a series of intricate refinancings” at the property, the former home of William Randolph Hearst. This included a $40 million loan provided by Fortress Investment Group and a $19 million loan provided by Kaufman. Curiously, Kaufman was also a guarantor for the Fortress loan.
The new lawsuit claims that this arrangement was also Rosenfeld and Bookstein’s doing.
Ross was a “business associate, and/or client” of Bookstein’s, and the defendants allegedly induced Kaufman to sign a $40 million guaranty for him despite knowing that Ross had declared bankruptcy in 2010 and “had a history of taking loans and not repaying them.”
The Hearst estate’s financial troubles have dragged on. Ross defaulted on the loan in 2018, and Kaufman was allegedly only informed a year later that she was now on the hook for more than $50 million because of her guarantee.
Ross has filed a lawsuit against his creditors, also claiming elder abuse, while Fortress has sued the Kaufman Trust asserting that it reneged on its role as guarantor. The LLC that owns the estate, TBH19 LLC, filed for Chapter 11 bankruptcy in November.
Amid the megamansion frenzy that swept L.A. shortly before the coronavirus crisis, Ross had held out hope that the property could be sold for as much as $125 million to pay off his debts — and claimed that “a Saudi Arabian prince” had expressed interest in buying it.
Heist of the Century
Rosenfeld’s Woodridge Capital Partners is currently developing the two-tower, 268-unit Century Plaza condo development on Avenue of the Stars. It’s a project widely viewed as a litmus test for the strength of the residential market in Century City, a neighborhood better known for law firm offices than luxury towers.
The nature of the $75 million construction financing Kaufman purportedly provided a guarantee for is unclear. The developer had secured about $1 billion in construction loans for the $2.5 billion project in 2016, including a $446 million senior loan from JPMorgan Chase, $120 million in mezzanine financing from Colony Capital, and $450 million of EB-5 financing.
And the guarantee wasn’t the only way in which Kaufman ended up supporting the project, she alleges. The octogenarian was also induced into buying “an entire floor in the North Tower condominium,” after Rosenfeld allegedly offered her a great $24.2 million “deal” on two units and a maid’s room — only to provide an agreement at a “substantially higher purchase price” afterwards.
“Mrs. Kaufman completely trusted Defendant Rosenfeld, and as was her practice, did not read the documents and simply signed them relying on Defendant Rosenfeld,” the lawsuit states.
In October, Woodridge announced that the Century Plaza development had already closed on more than $200 million in luxury condo pre-sales. The unit purchases by Kaufman, as described in the complaint, would account for about one-eighth of that sum.
As the “cancel rent” movement gains traction from New York to Kansas City, property owners are organizing and counteracting.
Holding a yellow rope to keep six feet apart, tenant advocates in Missouri slowly wound their way to the governor’s mansion in April.
After a series of virtual demonstrations, and even a protest where activists parked on the shoulder of a major highway between Kansas City and St. Louis, the advocates were calling on Gov. Michael Parson to suspend rent and mortgage payment obligations and halt evictions statewide. The group, KC Tenants, carried a large poster labeled “Eviction Notice” and attached it to the mansion’s front gate.
“We are taking a risk because we have no other choice,” said Wilson Vance, one of the group’s tenant organizers, about the escalation from virtual to in-person demonstrations. “The stakes are just really high, so it’s time to turn the heat up.”
Similar protests have sprouted up across the country as unemployment claims surge to more than 33 million since March and tenants find themselves unable to pay rent. According to We Strike Together, an organization that has been tracking the national movement, more than 190,000 rent and mortgage strikes have surfaced since the pandemic hit.
“Ultimately, all tenants are going to need to pay.”
It’s not clear how many tenants have withheld rent, but the data available paints a somewhat promising picture for property owners. Roughly 80 percent of 11.4 million households surveyed by the National Multifamily Housing Council reported that they paid all or part of their rent by early May, according to the landlord trade group. But multifamily lenders have reported significant declines in collections, especially among lower-income tenants.
Washington’s Coronavirus Aid, Relief and Economic Security Act has provided some help to tenants by sending out stimulus checks and supplementing unemployment benefits by $600 a week through July 31.
While advocates argue this relief doesn’t go far enough, real estate groups counter that little has been done for landlords, who have temporarily lost the ability to evict tenants in several states including New York, Florida, California, Pennsylvania and Colorado.
And as state governments face mounting pressure from advocates and elected officials to respond more boldly to the pandemic, property owners face not only rent shortfalls, but uncertainty over whether they will receive relief if rent strikes gain traction.
In response, landlords have lobbied for breaks on property tax and mortgage payments. And in the extreme, even threatened to withhold property tax payments to put counter pressure on elected officials.
“It all trickles down. Rent pays the landlord, who pays the property taxes, which pays for our first responders,” said Diamelyn Cepero, a real estate attorney in Miami. “Ultimately, all tenants are going to need to pay.”
Targeted strikes
Calls for a mass rent strike started to emerge in several cities in April. In New York, the tenant coalition Housing Justice for All set out to coordinate the efforts of financially-strapped tenants to pay rent and target buildings owned by specific landlords, including Related Companies and Kushner Companies. The group deemed that these and other owners could weather the financial hit.
“Tenants are unable to pay rent, period,” Cea Weaver, a tenant organizer with the group, said during a video panel hosted by The Real Deal in early May.
“When we say rent strike,” she added, “what we are saying is that we’re turning a moment where people cannot pay into a moment of political activity and turning our individual inability to pay into collective action, calling on the government to intervene.”
On the same panel, real estate developer Francis Greenburger countered that point.
“People who are without need — to give them relief is nonsensical,” said the longtime developer and industry advocate. “Let’s identify the real needs, and let’s address them though government help, through private help, rather than some blanket approach that makes the problem five times worse than it is.”
But the tenant movements are gaining momentum. The New York petition now has more than 15,000 signatures. And a national rent strike map has documented nearly 200,000 actions, according to Maurice Weeks, co-executive director of the advocacy group Action Center on Race & the Economy.
In Pennsylvania, the Philadelphia Tenants Union decided in favor of a strike but not all of its members agreed that it was the right strategy. Some said that younger, more left-leaning members pushed through a vote without sufficient debate, arguing that tenants who withheld rent, especially poor tenants of color, would be vulnerable to repercussions.
In the end, although four members of the Philadelphia Tenant Union abstained from the vote, the measure to strike passed overwhelmingly.
A growing number of landlords around the country are now seizing on the strikes — a tactic ordinarily used by renters to demand repairs and improved building conditions or combat tenant harassment when all other efforts have failed — calling them political opportunism.
“They are looking to change the housing industry. Nothing they are doing helps the tenant today,” said Stacey Johnson-Cosby, president of KC Housing Alliance, a landlord group in Kansas City. “They are sacrificing all those people in the name of social movement.”
Real estate groups have also repeatedly recommended that tenants work out repayment plans with their landlords. Johnson-Cosby, who owns 20 apartments in the Kansas City area with her husband, said most of her tenants have paid rent in April and May. Her organization has pitched a temporary eviction-prevention program to the city that would provide a one-time payment of $2,400 for the year to tenants unable to pay their rent due to illness, unemployment or familial crises or any combination of those.
“If I have formerly homeless veterans getting their rent paid, that tells me something,” she said.
Other landlords argue that the growing rent strike movements and calls to cancel rent around the country — the latter of which has received support from U.S. Rep. Alexandria Ocasio-Cortez and Sen. Bernie Sanders — will come back to bite tenants, property owners and even state and local governments.
One online petition headlined “Property Tax relief or Tax strike,” for example, now has more than 4,000 signatures supporting a call for the city’s landlords to withhold their property taxes. The Change.org petition blasts politicians for enabling tenants to not pay rent even if they can.
Despite that accusation, New York State Sen. and Housing Committee Chair Brian Kavanagh defended the steps the state has taken. The eviction moratorium is a necessary measure to keep renters from choosing between their home and their health, he said, but should not be confused with a “rent holiday.”
“People have an obligation to pay rent — if they can pay their rent they should,” said Kavanagh. “Similarly, it’s not responsible for property owners to make a point by declining to pay real estate taxes.”
But some say there’s little that can prepare the real estate industry for the potential impact of widespread rent strikes. Even landlords, lenders and property managers relieved by April’s rent collections know that things could fall apart in May.
That’s what Gregg Gerken, head of commercial real estate at TD Bank, foresees — and he warned that financial distress will accelerate if tenants with the means to pay rent withhold it.
“I get concerned with rent strikes,” Gerken, who oversees a $41 billion loan portfolio in the U.S. and Canada. “People are misusing the terms ‘rent deferral’ and ‘rent forgiveness’,” he added. “That’s not what the CARES Act was meant to do. It was meant to help people who need help.”
Questions of authority
Over the past two months, cities and states have handled evictions and calls for rent suspension differently.
While New York halted some evictions for non-payment of rent through mid-August and the city’s rent board recently cast a preliminary vote in favor of freezing rents, other cities and states have left key decisions up to local courts. So far, most local and state governments have shied away from suspending rent or mortgage payment requirements.
In April, the Denver City Council urged the state to suspend rent and mortgage obligations, but Colorado Gov. Jared Polis has asserted that he doesn’t have the legal authority to do so. In a statement to media outlets at the time, a spokesperson for Colorado’s governor indicated that he couldn’t interfere with private contracts. The United States Constitution bars state intrusion into contracts.
Attorney Andrew Pincus, a partner with Mayer Brown who focuses on Supreme Court and state and federal appellate cases, said a temporary suspension of rent would have a better chance of surviving constitutional scrutiny if relief is offered to landlords as well.
“This isn’t a situation where you can say renters are suffering from something that isn’t affecting landlords at all,” Pincus said. “It’s a lot easier for states to take that step if they are offering relief for landlords too.”
Polis had directed elected officials to work with local courts to prevent evictions, which resulted in a patchwork of different policies across the state — and a mounting fear among tenants that they’d be displaced. But facing pressure from advocates, the governor took a stronger stance May 1, barring all evictions for the next 30 days. Still, his executive order specifically states that the temporary ban should not be seen as “relieving an individual from their obligation to make mortgage payments or rent payments.”
“He’s just not doing anything because he’s a landlord himself,” said Desiree Kane, founder of Colorado Rent Strike and Eviction Defense group. “He’s going to make people bleed cash before he helps anybody. He should be ashamed of himself.”
There’s also been some confusion for landlords over navigating the federal, state and individual city eviction rules. For example, Florida has banned evictions through May 17, while the City of Miami did so through May 29. Cepero, the real estate attorney, said there’s been a lack of clarity over what is permitted until those dates. She said attorneys have still been able to file initial eviction paperwork in Miami-Dade County, and that is likely to pick up once the state-level ban expires.
California’s Judicial Council suspended eviction proceedings but hasn’t prevented landlords from filing nonpayment notices to get such cases underway. Similarly, Missouri Gov. Mike Parson has declined to halt evictions statewide, though the state’s Supreme Court and several judicial circuits have suspended or postponed eviction proceedings.
In Kansas City, and Jackson County at large, the execution of eviction judgements have been put on hold through May 15, though the county has commenced hearings by phone to get eviction proceedings underway for when the governor’s order barring the execution of eviction judgements is lifted.
Gina Chiara, executive director and staff attorney for the Heartland Center for Jobs and Freedom, called the practice “unconstitutional” because not every tenant can easily represent themselves by phone without a translator or other type of representation. She said it will lead to a deluge of evictions after May 15.
“When the suspension of judgement expires, there will be a large number of cases that are poised for the execution of judgements,” Chiara said, “meaning the sheriff shows up at the door and forces you out of the house.”
Landlords, unite!
“Landlords can get ahead of this very easily. If you have a tenant who can’t pay rent, don’t be an asshole.”
When protesters interrupted Gov. Andrew Cuomo’s daily press conference with airhorns, demanding New York state cancel rent, Cuomo responded with a clear message for rent strikers.
“If you can pay the rent, you should pay the rent,” the governor said during his update on the state’s response to the pandemic earlier this month. “There’s a morality in this.”
But there is still a question about what to do about renters who can’t pay. When asked whether he would cancel rent payments and tax billionaires to make up for lost revenue, Cuomo pointed to the only policy in place in New York: a moratorium on evictions that, at the time, was set to expire on June 15. (A new version of the moratorium was extended through August 20).
Landlords took little comfort in the governor’s silence on the issue of rent. Many property owners reason that the eviction moratorium gives tenants permission to withhold rent, since they wouldn’t face immediate consequences. In a role reversal, some landlords are launching a protest of their own to force legislators in New York to grant property tax relief — or at least decisively denounce rent strikes.
The group of landlords backing the petition to withhold property tax payments says it plans to file a class-action lawsuit against New York City. The action is in response to Gov. Andrew Cuomo’s extension of the state’s eviction moratorium through August 20, though the ban only applies to tenants who have been impacted by Covid-19 or qualify for unemployment benefits.
In early May, the group sent out a press release headlined “We can’t breathe” — a slogan popularized by Black Lives Matter to protest police violence — to draw attention to the plight of property owners. The person behind the petition, who identified himself as Garold Wilder, though public records show the phone number corresponds to Aron Wolcowitz of Bridge Street Equities, told TRD the slogan was meant to refer to the physical symptoms of Covid-19.
“We all know that there are tenants that can pay their rent, many of whom are getting severance, all of whom are getting stimulus checks and increased unemployment,” the petition reads. “They aren’t paying, because [the government] encourages that behavior.”
A spokesperson for the New York City Department of Finance declined to comment on the property tax strike, which has not been endorsed by any of the city’s real estate trade groups.
Jay Martin, the executive director of the Community Housing Improvement program, said he did not recognize any signers’ names, and there is no mechanism for verifying the identities of signatories or the petition organizer. “I completely understand the frustration, but I think it’s as unhelpful as pushing for a rent strike,” said Martin.
Belkin, a principal at Belkin Burden Goldman, said on TRD’s panel earlier this month that he doesn’t think such action is appropriate.
But what do attorneys advise their landlord clients to do if they have a case of tenants on strike? Eric Orenstein, a transaction attorney at the real estate law firm Rosenberg & Estis, suggested they take a proactive approach.
“Landlords can get ahead of this very easily,” Orenstein said. “If you have a tenant who can’t pay rent, don’t be an asshole.”
Common ground?
One thing tenants and landlords do agree on, although they see eye to eye on little else, is that more federal support is needed. But the form that support could take is up for debate.
In New York state, several policy proposals are on the table, though Cuomo has largely avoided addressing them. One bill would create an emergency rental assistance fund to fund housing vouchers, while another hopes to cancel rent and offset the burden with a property tax and mortgage reduction.
Meanwhile, U.S. Rep. Ilhan Omar proposed a bill to cancel rent and mortgage payments until 30 days after the federal state of emergency is lifted — a measure that would surely face opposition in the Republican-controlled Senate.
Without an option to forgive some portion of the rent and mortgage payments, however, it’s not likely tenants would be able to make up the lost payments later. Some tenants were already precariously close to homelessness before the coronavirus crisis. Piling on accumulated costs for the months they were out of work could lead to bad credit and personal bankruptcy, some legal experts say.
“We’re talking about people struggling to pay their monthly rent normally — now they have to pay three months of back rent?” Orenstein, of Rosenberg & Estis, noted.
“All you’re doing is burying tenants in back rent,” he argued. “It doesn’t alleviate the underlying issue: if a tenant can’t pay the rent, they can’t pay the rent.”
Elon Musk and the properties (Credit: Kevork Djansezian/Getty Images, and Google Maps)
Elon Musk has turbocharged his vision to sell off his many homes, listing four more Bel Air properties and another in the Bay Area for around $100 million.
Earlier this month, the billionaire entrepreneur took to Twitter to say he was “selling almost all physical possessions,” and would “own no house.” At the same time, he put a pair of neighboring Bel Air properties on the market for a combined $40 million.
This week, he added five homes to the list, at a combined $97.5 million price tag, according to the Los Angeles Times. Musk, who became a father on May 4, said during an appearance on Joe Rogan’s podcast last week that he now wants to rent.
The Tesla co-founder recently became eligible to exercise a stock option for 1.69 million shares in the company — worth about $1 billion — but would need $592 million to exercise the option, the Wall Street Journal reported last week. Musk told the Journal that he’s not selling his homes to raise cash, but to “make my life as simple as possible right now.”
The Bel Air homes that just hit the market are grouped as a package, asking $62.5 million. The other is a sprawling 47-acre estate outside San Francisco.
The Bel Air collection includes a 7,000-square-foot modern home on about 3.5 acres and three smaller homes at the end of a nearby cul-de-sac.
Musk built up his L.A. portfolio over several years starting in 2012 with one of the two homes he listed last week. He added the other four between 2013 and 2019.
In February, Morgan Stanley provided Musk $61 million in mortgages on four Bel Air homes and the Bay Area estate. That property is in Hillsborough, anchored by a 10-bedroom mansion built in 1916. The grounds include landscaped gardens and hiking trails, according to the Times. [LAT] —Dennis Lynch
Vornado Realty Trust’s Steve Roth channeled his inner Wordsworth. SL Green’s Marc Holliday went into Call of Duty mode. And Zillow’s Rich Barton went to a galaxy far, far away. Welcome to the most unusual earnings call season, courtesy of the coronavirus.
The Real Deal‘s Hiten Samtani caught up with senior reporter E.B. Solomont to discuss her latest feature on highlights from the first-quarter earnings season, the first since the pandemic swept over the market.
“We need a lot of help,” said Patti Berman, president of the Downtown L.A. Neighborhood Council, stressing that the area still has pressing issues such as the homeless crisis. “We need to be taken care of, and we need to know we have strong representation.”
