Long Beach leads county in sales of Class C apartment buildings—what that means for displacement and affordability

Back in January of this year, I talked to Victor Chacon, an 81-year-old Long Beach resident who had been living at the Driftwood Apartments at 939 Pacific Ave. for nearly 30 years.

It was then that he received a notice that he had 60 days to vacate his home after the 13-unit building was sold to the Waterford Group, an Irvine-based real estate investment and development firm.

This was and remains entirely legal, prompting tenants to show up at City Council chambers two weeks in a row to express their frustrations and grievances.

Many of these tenants were on a fixed income or identify as extremely-low income—that is, households earning 30 percent or less than the median income of a given area.

Jeanaya Chadwick, who appeared before the council with her mother with whom she lives at Driftwood, spoke of the fear of becoming homeless, her mother’s dire medical situation following a stroke, and the overall anxiety her household felt following the eviction notice.

This led to 1st District Councilmember Lena Gonzalez brokering a deal with Waterford to extend the ability for tenants to stay an additional 30 days while also scoring direct funds to help the tenants with relocating. (And even downplayed the hard work of ushering in such compassion on a Facebook post.)

The group of tenants shared its last meal together on March 31.

At the time, Cory Allen, chief of staff for the councilwoman, said that “securing this support basically [came] out of the goodness of Waterford’s heart.”

And in a sense, he is entirely right; they had no formal obligation to help out—and that is precisely part of the problem.

Helping out, frankly put, isn’t enough—and that is not because of Gonzalez’s valiant effort, but because this isn’t about helping others relocate; it’s about targeting nefarious real estate groups that are flipping, one by one, every single under-market apartment in Long Beach.

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Elizabeth Garcia, right , rolls her eyes as she attempts to block anti rent control activists from Better Housing For Long Beach, as Allied community leaders and organizations came together in front of Long Beach City Hall, to release the first ever “People’s Budget Proposal” in anticipation of the Mayor and City Manager’s Fiscal Year 2019 budget proposals being released later this month.” Tuesday, July 17, 2018. Photo by Stephen Carr.

When the Driftwood was listed, CBRE said it was “pleased to present The Driftwood Apartments, a 13-unit building located in non-rent control Long Beach for sale… This unique-to-the-market investment offers a building that has been kept with rents approximately 30% under market.”

But these tenants were in a very odd, if not outright peculiar, situation.

The Driftwood Apartments were market rate apartments that weren’t properly priced, meaning the tenants paid super-low rents that, on paper, were still listed as “market rate”—and therefore not on any subsidized listings. The difficulty of this from a political angle is that, despite being extremely low-income by definition, these tenants weren’t legally so on paper and that turns the transitioning process into one of difficulty since benefits like expedited housing vouchers post-eviction become void.

“This is really a housing niche,” said Alex Cherin, registered lobbyist and media representative for Waterford. “I’m not drawing conclusions about whether this is right or wrong but I can say that we’re not just kicking people out; we’re calling the market for what it is. We’re doing a disservice to the market by not keeping market rate units at the rate they’re supposed to be.”

These properties are, for lack of a better term, “mom and pop” properties. Owned for decades by the same owner—typically a person who was looking for an investment in the 1970s or 80s, someone who may own another complex but doesn’t own several—they tend to keep rents low while not investing in their properties.

While many in Driftwood have lived there for over 20 years with extremely low rents, tales of roaches, rodents and black mold plague the property while requests for fixes are usually met with silence or not even submitted in fear of increased rents.

This is the case with 821 Chestnut Ave., in the same neighborhood as the Driftwood, owned by Henry Fan and managed by Beach Front Property Management Inc.

In 2016, Fan attempted to sell the complex but couldn’t find a buyer. By July of this year, he had a plan: Send all his tenants 60-day vacate notices so he can flip the apartments and attempt re-selling the complex or renting the units at significantly higher rates.

“The first time my current building manager did a unit inspection was a couple of years ago—and I had lived there for almost a decade,” said a former resident, who preferred anonymity in fear of losing a  pending security deposit return. “[The inspector] wrote down two dozen things that need to be fixed and was surprised that it hadn’t been kept up. Then, when she did the next one, she had clearly given up since he didn’t approve anything from the first time.”

When asked if the tenants were given an option to stay, the former resident said no.

Fan could not be reached for comment.

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"We Buy Houses in Cash" signs are proliferating across California, drawing in quick sellers with quick buyers. Photo courtesy of Tim Ragsdale/Modesto Bee.

“We Buy Houses in Cash” signs are proliferating across California, drawing in quick sellers with quick buyers. Photo courtesy of Tim Ragsdale/Modesto Bee.

The ZIP Code 90813, defined roughly by the 710 freeway and Cherry Avenue on its west and east sides while Pacific Coast Highway and Seventh Street flank its north and south sides, is home to the highest number of sales of Class C apartments in the county, while 90802, directly to 90813’s south, sits at No. 2. Long Beach leads as a city in the county.

As these dilapidated properties get worse, property owners can choose to reinvest in it like Fan, or age or quickly sell off the property—and it is here where real estate investors step in.

And these Under-Market-but-Not-Section-8 apartment complexes—always Class C, that is, the lowest of rankings in value mostly due to their age and lack of amenities—become the lure of real estate investors, like the Waterford Group. Or Stillwater Investment Group, one of Waterford’s common partners in property acquisitions. Or Ursua Major Ventures, Henry Fan’s company.

They are often marketed to investors with their under-market rents of the past and, like this property, the “added value to the investor” since Long Beach has no rent control.

Last month, the real estate site Zillow advertised only three non-subsidized rentals in all of L.A. County for less than $800 a month, all studios or single rooms.

On top of this, Class C apartments are seeing increasingly low vacancy rates nationwide.

“At just 4.4 percent on average over the past four quarters, vacancy rates in the Class C segment remain lower than in any year since 2001,” said Marcia Fernald of the Joint Center for Housing Studies at Harvard University. “Indeed, in 45 of the 150 markets tracked by RealPage, Class C vacancy rates were at or below 3 percent in early 2018. In addition, Housing Vacancy Survey data indicate that the vacancy rate for all multifamily and single-family rentals priced under $600 declined again to 6.8 percent in 2017, while that for units priced above $1,000 increased slightly to 7.5 percent.”

When it comes to L.A. County, with the lowest vacancy rate in the nation at 3.3 percent, vacancies have remained essentially unchanged for the past six years. Class C properties are even lower, sitting at 2.2 percent.

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Rent control advocates protest outside City Hall in Long Beach. File photo.

Rent control advocates protest outside City Hall in Long Beach. File photo.

This trend isn’t just occurring with Under-Market-but-Not-Section-8 apartment complexes.

Sites like Redfin and Zillow often find listings advertising Section 8 complexes that are shortly about to expire—and this is specifically to appeal to real estate investors like The Waterford Group.

Section 8’s concept is very direct: Renters get a housing voucher determining their rent based upon their income and the rest of the rent is subsidized by the government. In other words, property owners receive full market compensation when all is said and done; it is a long-term investment that benefits both low income families and property owners.

However, flippers aren’t looking for long-term investments—one can even tell by simply looking at The Waterford Group’s pathetic website: a single page with no links or property portfolios. (Another example is Henry Fan’s LLC, Ursua Major Ventures LLC, which doesn’t even have a website, let alone a property portfolio or contact information.)

These LLCs, many of which are funded through foreign monies, are looking for low-key presences that allow them to quickly buy and quickly sell, all the while avoiding personal liability during the flips.

Waterford and Stillwater, together, have purchased 15 Long Beach properties in the past three years, two of which they sold at a profit of $1.5 million each, according to the Los Angeles Times. 

In fact, all-cash sales, commonly used by flippers, accounted for nearly 20 percent of all house purchases in Southern California in 2017. “Individual investors,” a conveniently innocuous synonym for a flipper, are a huge part of the housing problem: Without occupying the home, they cause the market to vastly fluctuate and investment assets to skyrocket—in other words, horrible news for the poor, great news for those with investments right now, and more horrible news for the long-term stability of the housing market.

“Home prices keep chugging along at a pace that is not sustainable in the long run,” Lawrence Yun, chief economist for the National Association of Realtors, said. “Current demand levels indicate sales should be stronger, but it’s clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”

Do you know of someone who has been evicted? Have you been in a building where you and your neighbors have been evicted? Tell us your story.

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