Time Heals All Wounds as Landlord’s Assets Values Rise

It is high praise is to be called out by a landlord for being a “zealot” or for orchestrating a “dog-and-pony show” that successfully brought no-just-cause termination to an end in Beverly Hills. We are guilty as charged! But we can take special pride in being the focus of an amateur gumshoe investigation by the Apartment Association of Greater Los Angeles, the “voice of multifamily housing.”

Behold this letter to Apartment Age magazine from a local landlord Dan Yukelson, who is the executive director of the Apartment Association. He is also an accountant and experienced finance executive, a former planning commissioner, and a longtime resident who surely knew about our city’s four-decade long history of rent stabilization when he purchases his Olympic Boulevard fourplex (pictured).

Yukelson knows a good investment and he chose to invest in residential rental property in Beverly Hills. Indeed it is nobody’s idea of a bad investment! But recent changes to our rent stabilization ordinance have aggrieved him by damaging his return, he has said. One of his gripes is tenant “subsidies” that help us roll in style while while he’s forced to drive a Chevrolet.

This was Yukelson’s letter to the Beverly Hills Weekly last November, which included an image of an apartment garage filled with nice cars parked. He wrote:

This is a photograph showing the cars parked at the apartment building where Beverly Hills’ rent control advocate Mark Elliot lives. Look at the cars parked at Mark’s building: a Lexus SUV, a BMW 5-Series, and two Mercedes Benz sedans. Why am I and other owners in Beverly Hills being forced to subsidize these renter’s lifestyles through the rent control ordinance? I drive a Chevy. I can’t afford the cars at Mark’s building! How about helping the truly needy? Why doesn’t the Beverly Hills City Council see the irony in all of this?

Rule #1 is to get right with the facts. But the cars Yukelson pictured in his Weekly editorial disguised as a letter to the editor don’t belong to my neighbors or to me. The image he included did not even picture my building’s parking garage. And I don’t have a car in mine anyway. Get the facts right!

Rule #2 is that exposes work better when they assail the Goliaths, not the Davids. In the tenant-landlord relationship it is clear who are the Davids: those who rent from property owners who enjoy special consideration under the law at the both the state and local levels. Though the Civil Code that regulates the hiring of real property to our rent stabilization ordinance that lightly regulates rental housing, landlords have the advantage.

Yukelson’s Apartment Association is quick to trumpet its influence in Sacramento. The organization rallies its many member landlords to flood the chambers of the legislature when there’s a bill they don’t like. The organization holds regular breakfasts that feature Sacramento politicians.AAGLA has influence at all levels

Yukelson asks in his Weekly letter to the editor, “How about helping the truly needy?” From his tone the truly needy must be the landlords that scrimp and save to provide our rental housing. The ones that have to drive Chevrolets. The ones with a career in finance. The ones that enjoy generous federal tax breaks for owing housing and rental housing in particular.

Rule #3: don’t ghost-write exposes. Yukelson’s November letter to the editor of the Beverly Hills Weekly came to mind when a letter was sent to the editor of Apartment Age magazine, the publication from the Apartment Association. It looked mighty familiar — even down to that very same picture of a garage.

Orit blau letter to Apartment Age

Yukelson-Blau family pictureCorrespondent Orit Blau is unhappy to have to “subsidize” the residents of rental housing who drive fancy cars. Like Yukelson she herself drives a “Chevy.”  Two peas in a pod, that Blau and Yukelson!

Indeed they are two peas in a pod, and that pod is Yukelson’s Olympic Boulevard fourplex. Here’s our expose: Blau is literally in bed with the executive director of the Apartment Association. Scandal!

Looks like Yukelson put his wife’s name to his own thoughts and then published it in his own magazine as if were a letter from an aggrieved landlord.

What About Yukelson’s Claims?

Let’s close with a look at Yukelson’s argument that Beverly Hills landlords take a beating under our rent stabilization ordinance. The ordinance allows rents to rise in parity with the annual increase in consumer prices (CPI), which alone should make landlords more-or-less whole: they can cover their costs and then some.

First, allowing landlords an increase at 100% of CPI is too rich a reward. Some cities allow only 65% or 75% or 80% of CPI because landlords make their fair return on asset appreciation, leveraged investment, and not least raising the rent on vacant units to market-rate.

Second, the city’s consultant HR&A Advisors estimated that residential multifamily rental operations yield a 66% margin on average. That is net operating income after expenses — a pretty healthy margin on operations (aside from asset appreciation). So after expenses a landlord can walk away with two-thirds of his rent kitty in profit.

Third, the Yukelson family will do fine on the appreciation side. Landlords don’t talk about appreciation much, or ever mention their tax breaks, but the real game is the long-term return on the rental real estate investment. Industry firm Costar shows that the gain in appreciation for residential multifamily real estate outpaces any other commercial real estate category in our region.

US West Multifamily sales via Costar
Source: Costar

Fourth, rent stabilization in Beverly Hills hasn’t crimped values here in particular. Asset prices here seem to be on the rise despite the changes to the rent stabilization ordinance. We are seeing near-record prices! And fourplexes in particular seem to be doing fine as prices are on the rise, up perhaps 50% on average since 2009 (a rough estimate).

Fourplex sales 2007-2018 chart
Source: Multiple Listing Service data. Chart: Renters Alliance.

In sum, Yukelson’s retirement “nest egg” as he likes to call it will only increase in value — as will his rent roll. And over time his profit as a proportion of the rent roll will increase too. His deductions will accumulate. Even if Yukelson is in the red as a new buyer, he should know that where real estate is concerned, time heals all wounds, just like the proverb.