Kate Cagle
Daily Press Staff Writer

Speculators are seizing on Santa Monica’s booming real estate market and cashing in by evicting long term tenants to rake in profits, according to a new report on Ellis Act evictions from rent-controlled apartments commissioned by the City Council.

The report said multi-family buildings are often replaced by single-family homes or condos with fewer units, hurting the city’s overall housing stock.
“It is clear that speculation is playing a role in the Ellis Act withdrawals occurring in Santa Monica,” reads the Nov. 2 report from Keyser Marston Associates.

“Nearly 30% of Ellis Act withdrawals are filed by applicants that have owned the property for less than six months. Other major rent control cities in California have experienced the same phenomenon.”
There were 23 Ellis Act withdrawal notices filed in 2016, affecting 90 units, according to the RCB’s annual report. Nearly half of those units were either already vacant or owner occupied by the time the notice was filed.

More than 150 rent controlled units were lost to Ellis evictions in 2015.
The report found developers could often resell rent controlled properties for 150 to 400 percent of the purchase price after a conversion. When the researchers factored in the costs of construction, developers still net a profit between 34 to 45 percent.
Median home values in Santa Monica have increased nearly 60 percent since 2009, according to the report. In comparison, the average American city saw an increase over the same time period of just ten percent.
“These (developers) are mostly downzoning,” said Kathe Head, managing principal at Keyser Marston. “It’s really compelling … you’re just getting big ol’ houses where you had three units.”
Head said her firm did not see evidence that developers were using the zoning code to cash in on larger developments with condominiums rather than rent control units.

Instead, she noted speculators tended to turn former small apartment buildings into larger single-family homes. In fact, none of the 23 properties withdrawn in 2016 had more than eleven units.
The authors gave the example of a four-unit rent controlled building purchased in Nov. 2010 for $1.4 million. Four years later, the tenants had been evicted, the building had been rebuilt for about $3.2 million and sold for $6.8 million, netting the developer a tidy profit of $2.1 million.
Throughout the city, there are about 7,700 rent-controlled apartments occupied by tenants who have lived there since 1999 when state law allowed landlords to begin charging market rate rents after turnovers.

That represents about 28 percent of the 27,594 rent-controlled units in the city.
Rent Control Board member Nicole Phillis criticized the City-funded report as failing to pinpoint risk factors that drive landlords to use the Ellis Act to exit the rental market.
“I think it’s a little bit of a cop out to say it’s just high land value because land value is affected by a lot of things,” Phillis said. “One of the things I would like to see is land zoning – how does up zoning and down zoning effect land value?”
Phillis and board member Anastasia Foster expressed frustration that the report did not delve deeper to help the RCB pinpoint which rent controlled buildings most likely at risk of an Ellis Act request.
“We want to save … for the landlord and the tenant, every unit possible,” Foster said.
The report also looked at the impact of short-term rentals on rent-controlled buildings between June 2015 to June 2017.

During the time there were approximately 614 rentals listed on homesharing sites like AirBnb, representing about two percent of rent-controlled housing.
“However, it is important to note that this data doesn’t include un-reported short-term rentals, and the proliferation of short-term rentals in both rent-controlled and market rate housing effects the overall supply, and cost, of housing citywide,” the report said.

Senior reporter for the Santa Monica Daily Press