By Andy Blue
East Palo Alto stands at a crossroads as one of the last affordable communities in the Silicon Valley. Today, more than half of the city’s rental housing stock was scheduled to hit the foreclosure auction block.
Although the auction has been postponed because of ongoing negotiations between the city and the receiver appointed by the courts to run the properties in lieu of the defaulting predatory landlord, the matter of what will become of half the city's rental housing remains a very urgent one. It is imperative that tenants, advocates, elected officials, and the foreclosing lender, Wells Fargo Bank, work together to make certain that safe, affordable housing is preserved in the City of East Palo Alto.
For the past two years, EPA residents have suffered the predictable and devastating consequences of a “predatory equity” scheme at the hands of the city’s biggest landlord, Page Mill Properties and its founder, David Taran. “Predatory equity” is a nasty and reckless form of real estate speculation that has resulted in the displacement of countless tenants across the country.
In these schemes, investors knowingly pay far more for rent-regulated properties than can be justified by the actual rental income at the time of purchase. To turn profits, investors push out existing tenants – through excessive rent increases, evictions, and harassment – so that they can be replaced with higher-rent tenants, or so the units can be sold off as high-priced condominiums.
Starting in 2006, with bank loans and a $100 million investment from CalPERS, California’s public employee pension fund, Page Mill began an over-leveraged buying spree of 1800 units of rent controlled housing on EPA’s west side. By December 2007, Page Mill began aggressively raising rents and stepping up evictions. Still, things did not go as David Taran and his fellow investors had hoped.
While many low income residents were indeed forced from their homes and rents were drastically increased, tenants and organizations such as the Fair Rent Coalition and Youth United for Community Action challenged the greedy scheme that threatened their community. They fought back by filing lawsuits, staging rallies, and getting their stories in the media. Now, with foreclosure looming on Page Mill, it appears the tenants and advocates have outlasted the predatory landlord, but the community has paid a terrible price.
Many are glad to see Taran’s company lose ownership of the properties. In fact, there was a sigh of relief when the court appointed a receiver to manage the properties recently and Page Mill disappeared into the night, literally abandoning their offices without notice. However, the celebration must not come too early. A similarly bad situation may play out again in EPA if all the parties involved do not make certain to prevent it. With the property on the auction block, a significant risk exists that a new group of speculators will buy the property and continue the assault on affordable housing in EPA. Much turns on whether the property will again be overleveraged, or whether it can be transferred to a responsible landlord.
In New York City, where a number of similar high-profile predatory equity schemes have begun to collapse, we see a model for how tenants, city officials and lenders can work together toward an acceptable outcome that preserves affordable rental housing.
As the Ocelot Capital Group went into default on its large portfolio of over-leveraged rental properties in the Bronx, the properties degraded into virtual squalor. But in December, advocates and city officials proudly announced that a responsible investor, with a favorable record of preserving and refurbishing affordable housing, would be purchasing the debt on the properties en route to outright ownership. Significantly, Congressman Jose Serrano and Senator Charles Schumer took leadership roles by intervening to protect tenants from further abuse.
As lender Wells Fargo considers buyers for the properties in EPA, it must prioritize the impact this decision will have on the tenants and the entire community. The bank should work with residents, community organizations and city officials to transfer the property to a responsible buyer who will preserve affordable rental housing. The portfolio must be sold at a price that reflects its true value, based on pre-Page Mill rental income in compliance with the city’s Rent Stabilization Ordinance, not on an imagined value based on what investors think they might earn in a predatory equity scheme.
Nonprofit affordable housing organizations should be consulted about their interest in acquiring or managing some or all of the portfolio. Investment groups, such as Preservation of Affordable Housing, that are committed to preserving affordable housings, should also be brought to the table.
As in New York, elected officials, including Congresswoman Anna Eshoo and Senators Barbara Boxer and Dianne Feinstein should take an active and vocal role in this process, using their influence to see that a responsible buyer is selected.
East Palo Alto has suffered enough. Now is the time to ensure the preservation of affordable rental housing in this community for generations to come.
UPDATE: This piece was quoted in a Mercury News article by Jessica Berstein-Wax about the delay of the foreclosure auction.
This was republished at Beyond Chron.