No housing crisis if you’re the landlord
I write about the housing market in California, where high prices are forcing people into their cars, onto streets and farther from where they work, one thing is clear:
I’m not making any friends among landlords.
They sniff at the suggestion that some of their ilk are greedy, and they especially do not like hearing the two most dreaded words in their industry: Rent control. Two of them volunteered to straighten out my thinking, so I took them up on the offer.
I chatted by phone with Michael Millman, and I paid a visit to Gerald Marcil, both of whom offered me crash courses on the basics of supply and demand.
Both were irritated by my recent column in which I said the repeal of a state law restricting rent control would be one way to prevent huge rent increases that are crippling renters and driving them out of neighborhoods they’ve lived in for years.
Millman, a lawyer, is the smaller operator of the two. He owns and manages 68 units in 10 buildings on the Westside. He had two primary points: First, that “I have no interest in focusing on escalating costs” faced by apartments.
I plead not guilty, your honor.
In June, I toured some Westside apartment buildings with owners Henry and Loretta Selinger. They argued that it’s unfair for them to be required to charge less than they can get in the free market, even though they have to keep putting out more money for building maintenance and required seismic safety upgrades.
Millman added the folAs
lowing to the list of escalating costs for landlords: “Trash retrieval, water, sewage, property taxes, parcel taxes, bonds, insurance, municipal fees,” etc., etc. And he said there are tenants currently living in rent-controlled units who are “probably making $300,000 or more.”
The Selingers — and Marcil — made the same argument about rent control. It’s applied across the board, they said, whether tenants are wealthy or nearly broke. Fair point. But when landlords rail against rent control, they’re talking about annual limits of 3-5%.
But most renters do not live in rent-controlled units, and they’re getting hit with increases as high as 30-40%. If 3-5% doesn’t cover the increased cost of doing business for landlords, what about something a little higher, like 5-7%, so landlords get a return on their investment but renters don’t have to start selling their plasma?
Millman didn’t dismiss the idea, but he said he’s not gouging anybody as it is. And his fix for those who can’t keep up with the rent is what he calls a rental emergency voucher. If you prove you’ve hit hard times, you apply for help, and it gets you through another month.
When I visited Marcil at his ocean-view Malaga Cove office in Palos Verdes Estates, he suggested a variation of Millman’s idea. If 80% of renters are doing just fine, he said, and 20% are struggling, why not provide more federal Section 8 funding to the 20% instead of requiring landlords to give the same break to all renters?
Good argument there. But when I wrote about a Highland Park couple — he’s an 85-year-old musician and she’s a 76-year-old actress — who are being priced out of their rented home, renters were not sympathetic when I said they had managed to qualify for Section 8 housing somewhere else.
Why should they have to subsidize housing, readers griped, for people who made their career choices and didn’t plan well enough for retirement?
OK, if we’re talking about handouts, how about this:
If you’ve owned a house in California for a while and have a mortgage, why should anyone have to subsidize your mortgage deduction and your Proposition 13 property tax break, which is made possible by higher taxes for neighbors who moved in after you did?
But let’s get back to Millman and Marcil, both of whom — despite their criticism of my column on good times for owners of rental properties — are cashing in nicely at the moment.
“I would say I’m doing well, but I worked hard to get here,” said Millman.
Marcil, whose renters are paying between $1,400 and about $2,800, depending on apartment size and location, said he’s doing almost as well now as he was doing before the housing crash. That’s not because of greed, he argued, but because of hard work and market forces.
There isn’t enough new construction to keep prices down, said Marcil, hammering a point I’ve made before. He said lots of communities oppose new construction anywhere near their neighborhoods. That, along with rising construction costs, has pumped up rents, especially in job centers where there are more people making good money.
Marcil said he thinks the state’s large population of immigrants in the country illegally is a factor, too. He said they’re good for his business because they increase the housing demand, but that drives rents higher for everyone.
He used to be a developer and said the housing market has been both cruel and generous to him over the years. He said he’s been broke twice and that investors “took a beating” between 2007 and 2012 because rents were flat.
But Marcil’s company is doing so well now, he flew his apartment managers, spouses and other employees — more than 80 people altogether — to Maui last month and put them up for a week at a beachfront hotel in Kaanapali.
“It was very nice,” said an appreciative Torrance apartment manager and longtime Marcil employee.
Marcil said he’s making about $5.5 million a year running his company and goes diving on Santa Monica Bay off his 68-foot Sunseeker. He lives in an oceanfront home he bought many years ago — a home now estimated to be worth more than $6 million. Not bad, right? But Marcil’s generosity extends beyond flying his employees to Maui. The former high school wrestler is a moderate Republican and chairman of the fiscally conservative New Majority of Los Angeles, and he donated $127,150 to conservative candidates and causes between 2015 and 2017.
He told me he donates more than $1 million a year to local charities because he thinks they do a better job providing services than the government does. A 2014 annual report lists Marcil and his wife among the top donors to the YMCA of Metropolitan Los Angeles, with more than $1 million in donations. He said he intends to leave 20% of his wealth to his family and 80% to his favorite charities.
Yes, business is very good these days for some California landlords. But I’ve become convinced they’re not the biggest winners in this crazy market.
Any idea who’s making even more of a killing?
GERALD MARCIL acknowledges that managing over 3,000 apartments has been good business lately, but says it’s due to hard work and market forces — not greed.