April has been cruel for California residential landlords but the cruelest months may be ahead.
Rent came due for the state’s six million apartments over a week ago, but multifamily owners have received 10-12 percent less in rental income compared to before the coronavirus pandemic, according to the California Apartment Association’s preliminary findings.
For owners of single-family and duplex homes, the numbers were even worse: They received about 25 percent less in rental income.
The amount of lost revenue is historic, but comes at a time when 925,000 Californians filed for jobless claims last week and when the state remains under a stay-at-home order, with nonessential businesses shuttered. With a statewide blanket ban on evictions and foreclosures and with one tenant group calling for rent strikes across California, landlords say the amount of nonpayments could spike, which would trigger hard choices.
“I’m fearful in a few months there are going to be a lot of mortgage defaults,” said Daniel Yukelson, executive director of the Apartment Association of Greater Los Angeles. “It’s going to get worse.”
Yukelson pointed to a proposed bill in the State Legislature that would empower judges to slash tenants’ rent by 25 percent, and forgive rent payments for 12 months. There is no accompanying legislation to help landlords in the long term, he said, because the federal government mainly pays attention to the banks.
Tenant advocates championed the decision by the state court’s rulemaking body to halt evictions after varied orders on rent deferral had created a lack of clarity.
“Straightforward protections are in place, reducing any immediate risk to tenants and allowing them to focus on protecting their health and safety without worrying about losing their homes,” according to the Western Center on Law and Poverty.
Leaving “owners vulnerable”
But for landlords, the decision created an “an unlevel playing field that will protect banks and tenants but leave rental property owners vulnerable well after the COVID-19 crisis ends,” according to the California Apartment Association.
Prior to the state court order, renters were only partly protected from evictions. Gov. Gavin Newsom had suspended evictions, but only to renters who could show proof they lost income or paid more for health care because of the coronavirus’ effects.
Tenants complained the rent relief did not address the present economic and public health crisis, and called for the statewide rent strike.
Anya Svanoe, an organizer for the group that called for the rent strike, said only 20 of its members did not pay rent in April. But Svanoe, with Alliance of Californians for Community Empowerment, expects “thousands more” to withhold rent in May.
Landlords say they received barely enough from their April rent checks to stay above water. A more significant drop next month will have devastating effects, they added.
Neil Shekhter, whose companies own 2,200 apartments in Santa Monica and Los Angeles, said about 85 percent of his tenants had paid their rent as of April 7.
“When you lose 15 percent of your rental revenue,” he said, landlords begin to not have enough money to pay their loans, or do more than cover basic expenses.
Anything beyond that number, Shekhter said, could create a cascading effect. Landlords would be forced to withhold mortgage payments, or make other cuts like laying off maintenance workers whose tasks are vital for residents.
Landlords are not sure what relief is on the horizon, beyond the Judicial Council’s foreclosure suspension, which says nothing about mortgage payment deferrals or reductions.
Late last month, Newsom announced a deal with four major banks — Wells Fargo, U.S. Bank, Citi and JPMorgan Chase — in which they agreed to delay mortgage payments by up to three months for some residential landlords. The banks also pledged they would not foreclose or evict borrowers for 60 days and would not report late payments to credit agencies. Bank of America pledged a 30-day grace period. Property owners have criticized the deal as limiting and ambiguous.
Proposed rent cut
The Legislature is now playing catchup, conducting sessions through video and going back to the drawing board on their budget.
Any housing legislation that may pass in the coming weeks could strictly focus on rental relief, such as Assembly Bill 828, co-authored by state Sen. Scott Wiener of San Francisco, who has become a leading advocate for rent control and greater rental housing stock.
Wiener’s proposal lets state court judges cut a tenant’s rent by 25 percent for one year if the judge determines the tenant cannot stay current on rent. The measure also lets tenants defer rent repayments for one year.
Yukelson slammed the bill, which he said wrongly assumes “landlords have major cash reserves sitting in their bank.”
He acknowledged the state is limited in its ability to provide mortgage relief, something the Federal Reserve is attempting by its move Thursday to inject an additional $2.3 trillion in loans into the economy. Congress’ $2 trillion stimulus package — which included a loan program to help small businesses — leaves landlords out, and it is not clear what, if any provisions for property owners may find their way into a future bill.
“There’s this assumption that landlords have really deep pockets,” said Thomas Bannon, executive director of California Apartment Association. “But right now, they’re just really concerned.”