Visionary Property Managers Anticipate Tomorrow’s Rental Markets

main_stage5“All the king’s horses and all the king’s men couldn’t put Humpty Dumpty together again.” Most of us can remember this childhood poem which has important lessons and reminders. The winds of change are blowing powerfully since the results of the November 8, 2016 U.S. elections. As the financial markets adjust to the changes and uncertainties so will the housing and rental markets.

The rental markets have seen many consecutive years of growth and prosperity. I’m not suggesting that our industry is like “Humpty Dumpty,” but I want property managers to be prepared. First question: who will be tomorrow’s renters? According to The Zillow Group’s recent “Report on Consumer Housing Trends,” the answers may surprise you.

A trend in motion is likely to stay in motion longer than expected. The Zillow study attempted “…to gain a comprehensive understanding of the United States residential real estate market. They “… employed independent market research to conduct a nationally representative, online quantitative survey.”

Some of the trends likely to endure and shape the future of the rental housing market are:

  • Most rental prospects (84%) use online resources to find an apartment, yet connecting with property owners or managers (62%) and referrals from family and friends (59%) are also common search activities.
    • The average rental housing prospect contacts 4.7 apartment owners or managers during his or her search, and 53% consider property staff to be a useful resource while searching.
    • The majority (61%) of apartment residents sign a one-year lease, while 14% rent month-to-month, 9% sign a lease longer than one year and 5% have no lease at all.
    • Did you know that 57% of apartment residents are female, and that number may exceed 60% soon?
    • Residents’ median age is 32 and median yearly income is $37,500.
    • Millennials make up 56% of all residents, followed by Generation X (28%) and Baby Boomers (12%).
    • Slightly more than half of apartment residents are Caucasian (52%), 19% are Latino/Hispanic, 17% are black/African American and 9% are Asian/Pacific Islander.
    • 45% of residents are single, 35% are married and 20% are unmarried partners.
    • Over half (51%) have a college degree—either a two-year, a four-year or a graduate degree.
    • More than a third (35%) has a pet, that’s why you’ll want to read my recent article on this topic.

One of the certainties of life is change. Bubbles burst, Humpty Dumptys eventually fall off the wall, and demographics shift. Visionary property managers keep up with the trends and adjust accordingly.

SFO Grappling With Emergency Repairs to Eroded Seawall

San Franisco International Airport
San Francisco International Airport. (Molly Samuel/KQED, with aerial support from LightHawk)

Amid heightened concerns about rising sea levels around the Bay Area, San Francisco International Airport officials are scrambling to make emergency repairs to a seriously damaged concrete wall that protects SFO’s airfield from the bay.

The airport’s top official called the damage to the seawall along SFO’s perimeter “an imminent threat to airport property” in a letter to the Airport Commission in September.

“I am declaring an emergency due to unforeseeable and unexpected erosion damages to the seawall,” wrote SFO Airport Director Ivar Satero.

On Wednesday, the San Francisco Board of Supervisors Budget and Finance Committee approved $1.5 million in airport capital improvement funds to pay for emergency construction work to shore up the wall. The full board is expected to vote on the work next Tuesday.

The section of seawall in need of repair is located at the end of runways 19L and 19R, which are primarily used for departing flights. The erosion problems are located at the base of the wall, according to SFO spokesman Doug Yakel.

“Water is starting to kind of seep into this area, and that’s causing some erosion,” Yakel said. “We don’t want to wait for the wall to fail. We want to make the repairs before it becomes an issue.”

It’s unclear if sea level rise is to blame. SFO officials have yet to determine a definitive cause for the erosion, according to Yakel.

A segment of the damaged seawall at San Francisco International Airport.

A segment of the damaged seawall at San Francisco International Airport. (Courtesy of SFO)

The Airport Commission earlier this fall approved the job, which will take place on the northeast section of SFO’s property that protects it from flooding, king tides, high waves and storm surges.

The emergency declaration allows the airport to fast-track repair work. SFO officials are in the process of getting permit approvals from the U.S. Army Corps of Engineers and the San Francisco Bay Conservation and Development Commission.

In July, airport staff observed the damage. Several weeks later a geotechnical consultant found “seepage problems” and a potential sinkhole, Satero’s letter states. “If this repair is not completed before the rain season, the seawall may fail and flooding is likely to occur,” Satero said. The letter also said the repair work should have been completed by Nov. 30.

According to AGS, a San Francisco-based engineering firm hired by SFO, the section of seawall was in “critical condition” and repairs were needed before the rainy season when “the seawall was likely to fail and allow flooding,” according to a memo written by the Board of Supervisors’ budget and legislative analyst.

That flooding could occur on all eight of the airport’s runways and taxiways, according to Geri Rayca, the manager of SFO’s Planning, Design and Construction Division.

Airport officials say putting the contract for the work up for competitive bidding would take too long. They selected the Dutra Group, a marine construction and dredging firm, to make the repairs.

The short-term emergency work involves placing 2,000 feet of riprap, a layer of stones and concrete chunks, at the site, as well as repairs to the seawall’s asphalt pavement.

Airport officials expect the repairs to take a month to be completed. A crane on the bay side of the seawall will do the work, and SFO operations are not expected to be affected, Cathy Widener, SFO’s manager of government affairs, said during Wednesday’s hearing.

Long-term work to prevent flooding at the airport from sea level rise, a decade-long project called the Shoreline Protection Project, will cost $60 million, according to SFO.

In the meantime, airport officials are working on increasing inspections of the entirety of SFO’s 8-mile perimeter seawall.

Right now those inspections are done intermittently, Widener said. “Airport staff … are currently working developing a more rigorous program.”

KQED’s Peter Jon Shuler contributed reporting to this post.

How to Create a Successful Property Management Team

Business couple with their teamwork behind isolated on white

What is the magic formula for a successful property management team?  Like any other workplace, a property management office functions much more efficiently when employees function as a team with each member contributing their particular talent and expertise.

When an office functions as a true team, everything runs smoothly.  When it doesn’t, even the slightest bump in the road can quickly become a pothole.

If you have staff members fighting, tenants complaining, and work not being completed properly (or at all) you staff is not functioning as a unified team.

So how do you do it?  How do you get the right team in place, and ensure that they’re working together?  Here are a few suggestions:

  • Start with hiring the right people.  This may sound simple, but having the right group in place goes a long way to creating a strong working team. (It helps to start by identifying what you are looking for as a company in your team members–what are the characteristics you find valuable?)
  • When you interview potential staff members, interview them holistically.  In other words, interview the whole person, not just the person on the resume.  That can mean taking the time to introduce potential employees to key staff members to see how they interact. Find out what their personal goals are; not just what they did at their last job. Do they work better alone?  Do they enjoy being part of a team?  None of these attributes means that they’re the right fit for your office, but knowing these things up front helps you and your team make a hiring decision that will be the most beneficial to the needs of you and your office.
  • Offer educational and advancement opportunities.  While opportunities may be limited in smaller offices, those managing multiple properties can mentor and groom selected employees for management opportunities, either at that property or another.  While not all employees will likely take advantage of the opportunity, those that do will be more likely to stay.
  • Cross train your staff.  Most employees are eager to learn or perfect new skills and you just might be surprised at the results
  • Have an open door policy and truly honor it. While many managers may profess an open door policy, few actually put those words into practice.  Take the time to listen to your employees without judgement and without repercussions.

Creating a strong group of employees that work well together will go a long way towards building a team of individuals that together create a positive environment for all.

SB 918 – You Want Notice Where?

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NOVEMBER 22, 2016

One of the more interesting bills that came out of a relatively quiet year from a legislative standpoint for California’s community associations is SB 918. This law, which goes into effect on January 1, 2017, does two main things:

One, it requires an owner to provide their association with all of the following information:

(1) The address or addresses to which notices from the association are to be delivered.

(2) An alternate or secondary address to which notices from the association are to be delivered.

(3) The name and address of his or her legal representative, if any, including any person with power of attorney or other person who can be contacted in the event of the owner’s extended absence from the separate interest.

(4) Whether the separate interest is owner-occupied, is rented out, if the parcel is developed but vacant, or if the parcel is undeveloped land.

Second, the bill requires associations to “solicit” these annual notices of each owner, and enter the date into the association’s books and records at least thirty days prior to making its annual disclosures required by Civil Code 5300.

If an owner fails to respond and provide the required notices, the property address is deemed to be the address to which all notices are to be delivered. While the information as to the rental status of the property could prove useful, and for certain associations may help in obtaining FHA certification, there is no indication as to what occurs if the owner fails to provide any information as to whether the property is owner-occupied, rented, or whether the property is vacant or undeveloped land. In addition, there has been no requirement in the past for an association to track the number of rental units or vacant or undeveloped property within the association. Given that the new law now requires associations to “solicit” that information, it is unclear if the law also now requires the association to track that information or if it only needs to update the address information in the association’s books and records. While there is no apparent penalty for failing to track the status of the property as rented, vacant or undeveloped land, it may be the best practice to include that information in the association’s records to the extent it receives responses from the owners to the annual solicitation.

So what does this mean for managers and board members? A new annual requirement to send out a request to all owners asking them to provide the information listed above. The request, which can be included in another mailing and is not required to be mailed separately, must be sent out early enough to allow the association to update its books and records with any information provided in response to the request no later than thirty days prior to the date it sends out its annual disclosures. Boards and managers should take time now to prepare an appropriate form to use to solicit the required information, and update their annual calendars and schedule when to send out the annual solicitation to the owners so that there is sufficient time to update the associations records each year at least thirty days prior to the mailing of the annual disclosures. For some associations, they may also need to consider the budgetary impact of not only the mailing of the form, but the time necessary to update the association’s records on an annual basis.

Property Management Perks: Ideas for How to Say “Thank You” to Your Renters

 

where-to-find-new-tenants-arabianeye-getty-images-57a5c2145f9b58974aee858dWould you like to keep your best, most responsible residents? Are you interested in filling vacancies with that caliber of prospects? Let me share some perky ideas from some successful managers.

The most frequent answer to the questions, “How do we motivate responsible residents to rent the properties we manage and how do we attract them in the first place?” may surprise you.
I asked those questions to a group of managers I’ve known and who have excellent reputations. The #1, most frequent response was, “Don’t take them for granted and offer outstanding incentives.”

These “incentives” are often called “perks” today, and those perks aren’t unlike the perks used to attract and retain outstanding employees. With some thoughtfulness and imagination you can be the kind of property manager that “employs” meaningful perks for both residents and your employees.

Begin by asking yourself, “What can I do to let my residents and employees know for certain that I value them and don’t take them for granted?” Think of ideas that will be relevant to the majority.

New residents of one multi-family rental complex were offered some special move-in gifts. These included gift cards, subscriptions to local newspapers and two-months of free Wi-Fi internet service.

Another manager told me that she works out an arrangement with a local restaurant that offers a gift certificate up to a specific total amount for meals. The restaurant also gives a free dessert. New residents are delighted by this and begin their occupancy with an overwhelming sense of gratitude.

One imaginative manager told me that he created a “rewards program” incentive for his residents. If, during his annual inspection, the residents are taking good care of their units, they’re given a reward.

Make sure the rewards are relevant and meaningful.

Most everyone needs more spending money these days, so he gives them a “cash card” they can use anywhere debit cards are accepted. The amount is up to you and should be dependent upon the resident’s (or employees) level of compliance.

Don’t underestimate the power of the written and spoken word as a “meaningful and relevant” perk. Residents and employees crave sincere appreciation and a note expressing it is often greatly valued.

One large apartment community that boasts an average 99% occupancy rate partnered with a local supermarket to offer perks to residents who pay their rent on time and comply with the rules.

The supermarket actually splits the cost of the gift coupons that are awarded. That way a $50 coupon only costs the property management company $25. The results have been nothing but amazing!

When a vacancy arises, management lets the residents know about it before advertising it. More than 95% of the time a resident introduces a friend, relative or a colleague to fill the vacancy.
You might have guessed what kinds of prospects are introduced. They tend to be very similar to the residents that introduced them. Yes, “birds of a feather” do flock together in win-win outcomes.

It’s all about reinforcing positive behaviors, expressing gratitude to people who are trying, and winning their trust and loyalty. If you have ways that have worked for you please leave them in the comment section below.

California Drought Kills 102 Million Trees

Dead and dying trees in a forest stressed by historic drought conditions in Los Padres National Forest on May 7, 2015 near Frazier Park, California.
Dead and dying trees in a forest stressed by historic drought conditions in Los Padres National Forest on May 7, 2015 near Frazier Park, California. (David McNew/Getty Images)

The California drought has killed more than 102 million trees in a die-off of forests that increases the risk of catastrophic wildfires and other threats to humans, officials said Friday.

The latest aerial survey by the U.S. Forest Service shows there are 36 million more dead trees since May in the state and there has been a 100 percent increase since 2015.

“These dead and dying trees continue to elevate the risk of wildfire, complicate our efforts to respond safely and effectively to fires when they do occur and pose a host of threats to life and property,” U.S. Agriculture Secretary Tom Vilsack said in a statement.

California has endured five years of drought marked by a record low mountain snowpack and warm temperatures. The drought has left trees thirsty and prone to infestation by bark beetles.

Late last year, Gov. Jerry Brown formed a task force charged with finding ways to remove the trees that threaten motorists and communities.

Vilsack called on Congress to act, saying more federal funding goes toward fighting fires than forestry management, such as removing dead trees to improve forests’ health.

Officials are pushing to turn more trees into lumber, burn them in energy plants or dispose of them in incinerators to eliminate them as fuel for wildfires.

It's not just remote forests: Monterey pines that succumbed to the drought, tagged for removal in a city park in Vallejo.

It’s not just remote forests: Monterey pines that succumbed to the drought, tagged for removal in a city park in Vallejo. (Craig Miller)

Some environmentalists argue, however, that a die-off is part of a healthy forest’s life-cycle. They favor leaving the trees that need to be cut down on the forest floor to decompose and serve as wildlife habitat.

Most dead trees are in the central and southern Sierra Nevada, officials say. However, they’re also beginning to find dead trees in Northern California counties such as Siskiyou, Modoc, Plumas and Lassen.

More trees are expected to die into 2017, U.S. Forest Service officials say.

People assume the tally amounts to too many dead trees, but fire suppression has created unnaturally green forests with far too little wildfire and dead trees, said Chad Hanson, a forest ecologist at Earth Island Institute’s John Muir Project.

“We don’t want too much and we don’t want too little,” he said. “This is not too much.”

Beware CCandR’s — They Can Bite

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In teaching Real Estate Transactions and Litigation to advanced Law and Business students at U.C. Berkeley’s School of Law, I find that one of the most difficult concepts to explain is the impact of property use restrictions in the form of covenants, conditions, and restrictions — the often dreaded “CC&Rs.”

After all, being in America, aren’t we free to do what we want with the property we own?

The short answer is:  No.

Larger scale land use and zoning regulations are pretty easy to understand.  Nobody should reasonably expect to be able to build a commercial high-rise or an industrial factory in the middle of a residential neighborhood.

But CC&Rs can get downright personal, dictating small-scale improvements and uses, such as the color you paint your house, the types of pets you keep, or the location of the swimming pool in your backyard.  And, as one recent case — Nellie Gail Ranch Owners Assn. v. McMullin — illustrates, failing to comply with the CC&Rs can result in a very expensive and frustrating mess.

Facts:  Owners want to make improvements to their backyard; fail to get written permission from their HOA

The HOA and CC&Rs

The McMullins purchased a home in Nellie Gail Ranch in Laguna Hills, California.  The development was governed by CC&Rs administered by a homeowners’ association (HOA).  The HOA maintained several common areas within the development, including horse trails, an equestrian center, parks, and tennis courts.

The McMullins’ home was at the end of a cul-de-sac on a hilltop with canyon views.  The back of their property sloped down toward and abutted Lot 274 — a 15-acre canyon lot owned by the HOA and dedicated as open space.  The McMullins’ backyard had three retaining walls to make the sloping land more usable — the first retaining wall separated the house and patio from the next level, which contained a grass area.  Another retaining wall separated the grass area from a lower area containing a swimming pool.  The third retaining wall separated the pool from the remaining slope to the rear of the property that abutted the HOA’s Lot 274.

The HOAs governing CC&Rs and Architectural Review Committee Guidelines required all homeowners to obtain written approval before constructing or altering improvements on their property.

The Applications

The McMullins submitted a series of applications, with the intent of making some improvements to their back yard, including: replastering their swimming pool, re-doing the pool deck, constructing a bar area near the pool, replacing a wrought iron fence at the rear property line with a retaining wall, back-filling behind the new retaining wall, and installing a large sports court and garden in the new flat area below the swimming pool, as well as a staircase leading to that lower area from the pool.

One problem: the application failed to depict the location of the McMullins’ lower property line abutting Lot 274.

Much back and forth ensued between the McMullins and the HOA.  The McMullins re-submitted their application numerous times, but each submission failed to depict the rear property line, and the HOA never gave written approval to the contemplated improvements.

The Encroachments

The McMullins proceeded with their improvements, and ended up building a new retaining wall that substantially encroached on the HOA’s Lot 274 (by a total of 6,100 square feet).  A big oops!

The HOA contemplated resolving the issue by having the McMullins purchase the encroached portion of Lot 274, but the homeowners rejected that idea in a vote.

Litigation ensued.

The trial court’s ruling:  remove the improvements

The HOA sued to quiet title to Lot 274 and sought an injunction requiring the McMullins to remove the retaining wall and all other unauthorized improvements.

The McMullins cross-sued for quiet title and for adverse possession.

The trial court ruled in favor of the HOA.  The court held that the McMullins breached the CC&Rs, and issued a mandatory injunction requiring the McMullins to pay for the cost of removing the sports court and retaining wall, and restoring the original grade and slope on the encroached areas of Lot 274.

The trial court later awarded attorney fees to the HOA totaling $187,000.

The McMullins appealed the judgment.

The Court of Appeal’s Opinion

About half of the Court of Appeal’s opinion addressed multiple procedural mis-steps by the McMullins.  The other half dealt with the McMullins’ substantive arguments centered on their claim of adverse possession and their challenge to the trial court’s mandatory injunction.

The McMullins’ Procedural Mis-Steps

The Court of Appeal addressed several mis-steps by the McMullins.  These included:

  • The McMullins failed to request a statement of decision at the end of trial.  This means the Court of Appeal infers that the trial court made factual finding in favor of the HOA on all issues necessary to support the judgment.  (In short, it makes any appeal much more difficult to win.)
  • The McMullins waived their arguments based on equitable estoppel and the statue of limitations by failing to raise them in the trial court.  (Parties often come up with clever arguments on appeal, but if they were not raised in the trial court, the odds are the Court of Appeal won’t consider them.)
  • The McMullins failed to appeal the attorney fee order.  (Attorney fee orders are normally separately appealable from the judgment, so if no separate appeal is filed, the attorney fee award cannot be challenged.)
Adverse Possession

Moving to the substantive issues, the Court of Appeal rejected the McMullins’ claim that they obtained the portion of the HOA’s Lot 274 by adverse possession.

The Court noted that one element of a claim for adverse possession requires the plaintiffs to show that they paid all property taxes levied and assessed on the disputed property during the five-year period of occupation.  The McMullins conceded that they did not pay property taxes on the portion of Lot 274 that their retaining wall encroached upon.

Mandatory Injunction Affirmed

Finally, the Court of Appeal rejected the McMullins’ argument that the trial court erred by issuing a mandatory injunction, and that the trial court should have instead simply awarded damages based on the value of the land encroached upon.

Mandatory injunctions are usually tough to obtain, but in actions between adjoining landowners based on the defendant’s construction of improvements on a neighbor’s property, the plaintiff is generally entitled to a mandatory injunction requiring the defendant to remove the encroachment.  A trial court has discretion to deny an injunction and instead award damages for a judicially-created easement allowing the encroachments to remain.  But to exercise its discretion in this manner, the trial court must first find that the encroachment was “innocent.”

Here, the Court of Appeal held that the McMullins were not innocent.  The evidence showed that they knew where their rear property line was located, they intentionally did not identify the property line in their multiple applications to the HOA (despite the HOA flagging this issue on numerous occasions), and they constructed their improvements knowing they did not have necessary approvals from the HOA.

Further, the applications repeatedly assured the HOA that the new retaining wall would be built in the exact same location as the original wrought iron fence, which was on the property line.  But the retaining wall was actually built in a way that substantially encroached on the HOA’s property.

Thus, the mandatory injunction was proper.

Lesson

As “un-American” as CC&Rs may seem to some people, they are an accepted part of real estate law in California.  The idea behind CC&Rs is to promote the orderly development and use of property, so that a few neighborhood “bad apples” don’t bring down property values for the whole neighborhood.

Whether you agree with the CC&Rs in your neighborhood or not, it is wise to know them and abide by them.  Usually HOA board members aren’t out for blood; just basic cooperation and compliance.

Making improvements to your yard without required HOA approval is a bad idea.  Constructing improvements that substantially encroach on the HOA’s “common area” property is a really badidea, and can result in an injunction with a large restoration tab to pay.