LA Considers “Buying” Private Apartment to Fight Soaring Rent Prices

by: Michael Realbuto
16 Jun 2022

In late May 2022, the Los Angeles City Council directed the city to make a formal offer on a 124-unit housing development where the landlord raised rents by up to 300 percent.

Residents of the Hillside Villa Apartments (“HVA”) at 636 N. Hill Place have lobbied since 2020 for Los Angeles to use the power of eminent domain to take the property to combat the soaring rent prices. The HVA were constructed in the 1980s with loan assistance from the Community Redevelopment Agency of Los Angeles. In exchange for the loans of about $5.5 million, a 30-year affordable housing covenant was negotiated with the property owner. That agreement expired in August 2020. Following the expiration of the affordable housing government, tenants who were once paying around $900 to $1,200 a month saw increases of up to $3,200 a month.

In September 2020, the Department of General Services commissioned an appraisal of the property that opined a market value of about $45.7 million (about $362,000 per unit). Since the city council approved the motion to make an offer to purchase the property at the May 2022 meeting, it will also instruct the City Administrative Officer (“CAO”) to prepare a reserve fund loan proposal of up to the appraisal value in order to initiate the purchase. The loan funds would be repaid within two to three years by a developer or nonprofit entity selected through a formal bidding process. Of note, however, the CAO estimated that the total cost to acquire, rehabilitate, and adequately relocate existing tenants on a temporary or permanent basis to comply with affordability requirements would cost nearly $60 million.

On the one end of the spectrum, the purchase of the HVA would allow tenants to remain in the building rather than forcing them to find alternative affordable housing in a market where rent prices are increasing on what seems like a daily basis. At the public comment portion of the May council meeting, one current tenant stated that, “[i]t’s not that we don’t want to pay rent or that we’re denying to pay rent, but we want a rent that is fair,…Everything, all the prices are going up, the food, the living situation, the rent, everything, all the prices are going up and increasing. But we are not getting any increase in our salary. So how are we going to survive in this situation? And that’s why we’re asking for this help, and we need this help now so that we don’t become homeless.”

On the opposite end of the spectrum, the current owner/landlord of the HVA has opposed any attempt to purchase the property. Prior to the May 2022 meeting, lawyers for the owner sent a letter to the city that suggested only 37 of the building’s 144 tenants would be impacted by the rent increases. They also argued that the city should simply give the 37 tenants who are impacted Section 8 vouchers rather than moving ahead with a purchase of the entire building. Lastly, they stated that using eminent domain “would have a chilling effect on any developer ever trusting the city again to live up to its end of the bargain when constructing affordable housing with rents restricted for an agreed-upon term.”

This story raises an interesting question regarding the city’s plan if it were unable to purchase the property directly from the owner through negotiations. Would eminent domain still be an option? There is no question that California has had some interesting eminent domain stories in the past year: In November 2021, out firm blogged about a story where Gov. Gavin Newsom signed a law authorizing Los Angeles County to return a beach property taken by eminent domain back to descendants of the original property owners. That blog post can be found here.

If you believe your property is being wrongfully taken by a condemning authority, please contact McKirdy, Riskin, Olson & DellaPelle, P.C. to speak with an experienced condemnation attorney.

As a side note, this matter has been the subject of considerable attention in the media as of late. These are a few interesting stories and videos: