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Equity prepares to buy East Palo Alto apartments
Original post made
on Nov 11, 2011
Despite protests from the community and concern from the City Council, Wells Fargo Bank is now finalizing its sale of more than 1,800 housing units in East Palo Alto to a single buyer with a nationwide portfolio.
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posted Friday, November 11, 2011, 9:13 AM
Posted by Good Neighbor,
a resident of East Palo Alto
on Nov 12, 2011 at 10:36 pm
Marrol, I think that many people (including myself) in EPA have similar goals to what you state: they would like to see better housing, a better mixture of single-family and multi-family housing, and some more public (or even quasi-public) green spaces, and some low-footprint commerce. The question is of course how to get there---and here, more specifically, whether Wells is respecting community input (which they are required by law to do) in choosing the Equity Residential for this sale.
That's the issue that I'm here to discuss and try to sort out with neighbors. It's very irritating for others (not you Marrol) to insist that any time anyone from East Palo Alto argues anything about public policy, they almost immediately get accused of wanting a "handout". This nonsequitor is offensive and stupefying in the sense that it documents people in the act of making themselves and others stupid. No one wants a "handout" here.
For reasons that I've already described above, the mild rent stabilization regime in EPA is not a handout, its a very reasonable form of regulation on the market that leaves ample room for a modest return on investment informed by reasonable expectations.
But all that aside, I think the chorus I hear here is one of "redevelopment," and I think it is really important to recognize that rent control is only a small sliver of the limits on redevelopment. If you believe rent control is theft, as Mr. Wallis robotically argues, I'm sure you must believe that zoning is also a form of theft, and so are state housing limitations, and so are municipal ordinances like those of Los Altos Hills or Atherton, where you are not allowed to build any commercial enterprises inside city limits. Well, let me tell you, all of these limits on redevelopment exist in EPA and they do so for a variety of historical reasons, mostly good, some bad, but all fairly binding. You can't just come into an urban area, buy property, and do whatever you want---witness how much Stanford with its billions of dollars must struggle to change their footprint in Palo Alto! And moreover, these reasons--political and legal--are ultimately grounded on social reasons: you can't seriously have a community as rich in economic activity as that of the peninsula and have no rental housing. Not everyone has the means or life situation where purchasing makes sense, and for those who can buy a nice house in downtown PA, they still need someone to do their landscaping and teach their kids. That's what a lot of the people in EPA do--they work in service professions that extend the reach of PA's storied entrepreneurs. Reasonable people understand this, of course; others believe if you just build the wall high enough you can have peninsula sized enclaves where everyone is their own boss or lives off of their equities and they will enrich us all. But for those tuned into reality, some combination of zoning, public policy, and civic activism are going to improve communities more surely than calls to purge the poor and implement unfettered capitalism everywhere, right now, in all markets.
Given these limitationson redevelopment, what can, could, or might we hope for from Equity and Wells Fargo?
From Equity, I think not much. Not only do I think I've stated some good reasons why Equity is not going to make a real investment in the community, I think Equity themselves has all but stated that they won't. Simply put, they are margin trimmers, not developers, and certainly not redevelopers. If we are lucky, they will continue to rent out the same buildings with superficial improvements; if we are not, they will try to be Page Mill 2.0.
I think the best "optimistic" hope that places all faith in a "big entity" would be/would have been for Wells to engage some of the people who have successfully developed recent multi-family rental housing in the Bay Area--but in the past thirty years this has come almost exclusively from non-profit corporations with carefully crafted charters. I personally think if Wells Fargo had any guts and sense of community responsibility they would have set up a foundation to do some real planning, recruited EPA, PA and MP, and sold off parts of an approved plan. I even think they would have made more money doing that. But we can probably assume that the Wells (and Equity) officials all want to get their quarterly bonus for making a deal, just like Wachovia and Page Mill did. Fee extraction is the name of the game with bankers, even though their charter requires them to serve the community interest, and even though (as I've said before) these losses are subsidized by taxpayer money. But if they just want to move product, and exercise zero creativity, it is right and reasonable for the public to call them out for their laziness, greed, and disingenuousness. If you believe in "Messiah Capitalism" (the idea that they guys with all the money will save us), then maybe we all just need to wait until this portfolio ends up in the hands of another big bank after a default....give it time, it will....all because of the unrealistic expectation syndrome.
If this sale goes through, EPA will have to fight for their ordinance. I think that the (much improved) ordinance will stand up to any legal assaults Equity might throw at it, largely because Equity must acknowledge that they bought the properties with a full understanding that the properties are subject to rent stabilization, and this fact was built into the price they paid. The ordinance certainly provides that Equity can raise rents if they make capital improvements to the properties. The question will be: will they? And if they do, will that be the prelude to redevelopment? Both answers can only be "yes" if they are in it for the long term, and anyone who has read up on Equity's business model, this isn't their modus operendi. So be optimistic if you want, but one shouldn't expect miracles from a company like Equity: their business is to extract wealth from communities, rather than redevelop them, and EPA actually has fairly decent incomes from a national perspective. I'm just saying---this is probably how this deal looks from Chicago and North Carolina (where Equity and Wells Fargo's real estate division are based). They are looking at numbers on a spreadsheet and imagining themselves squeezing out a 20-30% margin before they flip the properties. They therefore they don't share any of our hopes for an improved East Palo Alto.
This is all very sad, especially because things were improving considerably before Page Mill came along and with Wachovia's leverage disrupted the working community organizations that have been improving things in EPA. The point that Hmmm makes about the negotiable and caring quality of the mom & pop landlords that preceded Page Mill is absolutely correct. The EPA RSB enforced code violations and kept rent increases in line without making everything a throw-down legal fight. EPA officials fought back valiantly against Page Mill's bullying, and Page Mill imploded like it was designed to do once it had extracted big fees for its principals and destroyed a bunch of capital (soon to be repaid by the taxpayers). After we in East Palo Alto lost many good neighbors to Page Mill's harassment, the ordinance was clarified, improved, and hardened, and the Rent Board was rebuilt. Equity should understand that EPA will fight back if they start behaving like thugs. People who survived the Page Mill absurdities do indeed feel vested in the community, and they will fight back, hard, against malefactor corporations.
And hey, if Equity actually engages the community in trying to do responsible redevelopment, I'll be the first to applaud. I do think that responsible redevelopment must include multifamily rental housing in the mix with condos. If it were truly responsible it would involve establishing an endowment for the schools in EPA, as this would do more than anything else to prop up property prices for condos/private homes on the West side.
But again, pardon our skepticism that a Chicago firm run by the notorious Sam Zell is going to be thinking about the long term goals of the community like that. If you look what Equity has done for Chicago, I somehow don't think you'll be so optimistic. Hint: you can often make more money (and far more predictable money) as a slum lord as you can a legitimate developer.
My feeling is that it is too bad that all the anti-government zealotry in this country blocks us from seeing that this would be an excellent place where some sort of true private-public partnership could really do a lot of good with the help of some of our more capable non-profit foundations in the mix. It is a sad fact that counties will shell out half a billion dollars in tax subsidies for football stadiums, but the counties (and the state) have been scared away from using public money to strategically jump into a situation like this and making things better. Sure, accuse me of big-goverment messianism if you wish, but that is a distortion of what I am saying, which is merely that some public (or non-profit foundation) money into the project would help keep the daily goals aligned with the long term ones. The work of making a poor community stable takes decades, and it takes real investment.
In the mean time, EPA will have to fall back on its solid rent stabilization ordinance, its good people, and its sense of community to try to wrench concessions from Equity Residential. My guess is that they will hold their own, but they will have to fight hard for it--and I dare say, much harder than people who are fortunate enough to be able to buy into a community like Los Altos or Palo Alto ever have to fight for their community. But in my way of seeing it, that sense of engagement is also a form of community investment, and it shouldn't be discounted. I hated seeing so many people displaced by Page Mill, and I fought against them, and I will fight against Equity if they fail to acknowledge that the people living here have rights, have their own interests to protect, and are much a part of the community of the Bay Area as people who pay twice the rent or ten times the mortgage.
I guess I believe we all do what we can, and the public sphere is where we work out the differences and try to understand each other. Though I can't agree with the view that private ownership solves all problems---hey aren't we in a debt crisis related to that thinking?----I do understand why people believe that from extrapolating from their own experience; but that doesn't mean that it's true for all situations, alas, and it can oddly glide over the often powerful and often negative community role played by the banks and corporations. Yeah, I know, people are trained to identify with money, and rich people, because that's how you get ahead personally---but it isn't necessarily how you face reality or improve the community.
EPA is definitely a work in progress, but its elected officials and its community impress me by how hard they fight to develop the other model of community improvement, the one not based on starting with a big pile of cash, but by working to bootstrap their way up when the cards are stacked against them. EPA is a lot better off than it once was, and I predict it will continue to improve...but it will be I suspect despite not because of Wells Fargo and Equity Residential that this happens.
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