Apartment giant Equity Residential has run afoul of a working-class community at the northern end of Silicon Valley by trying to buy the area's largest complex of rent-controlled housing, which has been coveted by investors for years.
Equity Residential, whose chairman is Sam Zell, is negotiating to buy the Woodland Park Apartments, a 1,800-unit complex in East Palo Alto, Calif., that has remained a low-rent bastion in a region that has seen market-rate rentals soar. That upward pressure is expected to continue now that Facebook has chosen a 57-acre Menlo Park complex for its new headquarters, less than two miles from Woodland Park.
Ariel Zambelich for The Wall Street Journal The complex at 5 Newell Ave. is the largest in the stretch of Woodland Park properties in East Palo Alto.The previous buyer of the complex, an investment group that acquired it during the boom years, planned to raise rents but ended up losing the property in a Wells Fargo & Co. foreclosure. Wells Fargo is in talks to sell the property to Equity Residential for an undisclosed sum, according to people familiar with the matter.
But city officials in East Palo Alto have voiced their opposition. A majority of the City Council has expressed "grave concerns with the bank's decision to sell the portfolio as a single unit," states a recent letter to Wells Fargo Chief Executive John Stumpf, from Carlos Romero, the city's mayor.
Equity Residential and Wells Fargo declined to comment.
City officials and residents don't want to give a single buyer too much control over such a large amount of East Palo Alto's rental housing. While the units are subject to rent control, officials are concerned that Equity Residential would raze some of them and build higher buildings filled with market-rate apartments.
The potential deal "scares this community to death," Mayor Romero said.
The maneuvering over Woodland Park comes as apartment rents are rising throughout most of the U.S. Despite the softness of the overall economy, landlords have been benefiting from the housing crisis, which has turned millions of would be home-owners into renters.
With rents and occupancies rising, the values of apartment buildings have soared. While the biggest increases have been in upscale areas, investors also have begun to spill over into lower-rent areas like East Palo Alto.
Woodland Park includes an older assortment of apartments and homes. Rents currently range from $800 to $1,400 a month, and this year, landlords were limited to a 1.4% increase, said William Byron Webster, senior member of the East Palo Alto Rent Stabilization Board.
Mr. Webster says many residents couldn't afford to live in the surrounding area. In the third quarter, market-rate rents in the region were a median of $1,588, well above the national $1,004 median, according to Reis Inc. In one of Equity Residential's Palo Alto communities, one-bedroom apartments start at $2,065, according to its website.
Just 2.6% of East Palo Alto's units are vacant, well below the national 5.6% rate, leaving few apartments up for grabs and creating competition for the ones that are available.
Woodland Park was acquired during the boom years in a series of transactions by investors led by Page Mill Properties, which put a $240 million mortgage from Wells Fargo on the property. The deal was embarrassing to one of the investors, pension giant Calpers, which subsequently said it would prohibit excessive rent increases and the "involuntary displacement" of low-income households in its real-estate investments.
City officials believe that Equity Residential's interest in the site stems partly from the Facebook deal. "I have suggested [Facebook CEO Mark] Zuckerberg could be appealed to discourage his employees from settling on the east side of Palo Alto," says Mr. Webster
Local leaders acknowledge they probably can't stop the sale. But they say they'll do what they can to block any redevelopment that Equity Residential might attempt.
The new tax revenue that would result from improving the property wouldn't be worth the displacement, they say.
"We may get a community center, we may get repaved streets, but our residents who are around today would not be around to enjoy those improved community amenities," Mayor Romero said. "And that would be a travesty."
Write to Dawn Wotapka at dawn.wotapka@dowjones.com
No comments:
Post a Comment