rents are high the answer isn't rent control the answer is we need to build more housing it's just econ 101 um the the rental housing stock here was built out in the in the decades after World War II when it was just orange Fields over here in the valley and so land was cheap it was plentiful and so what they built were these these low density twostory Courtyard style apartment building small I think 90% of the rental housing stock here is 50 units or less around a a pool or a courtyard you would never these are…
crisis is real I mean it is real and housing prices have been going through the roof and rents have been going through the roof why is that it's you know you don't have to have taken econ 101 to know that it is supply and demand and we are a million units short in California we are 400,000 units short in just LA County based on the amount of new construction that's happened recently it'll take 20 years just for LA County to catch up on its current housing deficit and that doesn't take into account you know…
…and it's and it's an impact that helps Mom and Pops and it's an impact that helps the overall Market the second thing is if you really want to help renters in need then give them and and you think that housing is a right and I you know the the principles of that are hard to argue with um you then the rent control doesn't do that vouchers do expand the voucher program Society should be paying for it because is a societal benefit it shouldn't be coming on the backs of Mom and Pops that are struggling just to pay the…
…Hawkins was passed and that's been the law of the land for the last 30 years that what that did is it outlawed some of the most Draconian forms of rent control that um uh that not only limited what you could raise rents on an existing tenant which now there's rent control that limits that Statewide ab1 1482 which is really a moderate form I think a balanced form of R control limits that so people have visibility they
I don't remember what prop it was or what what which is the property taxes. Keeping the the property tax. Oh, I'm sorry. the rent control. Rent control. Yes.
…two, three, four buildings in their entire life. Mhm. And these buildings are aging and the capital improvements that are required are expensive and rent control has locked in people in their apartments for long periods of time. I have I have apartment buildings where tenants have been there 40
…know, Chicago and New York that are built to withstand time. These buildings basically would need to be maintained significantly to be productive. Rent control became a disincentive for landlords to reinvest in their properties. So when you think about it because they can't be removed ultimately they are going to become more
valuable because while you can build a new building on any property that was zoned commercial but if you try to build a new building on a property that is already an apartment building that's under rent control you can't do it.
I know. Yeah, it's hard to it's hard to grow in right now. It is super hard to grow. It's the mansion tax, ULA, and uh uh all the uh stringent rent control policies that have been implemented in the city of Los Angeles. If you're only in the city of Los Angeles, it's really hard to grow. And I think we're 90% city of Los Angeles. So, how do you grow in the city of Los Angeles?
…the price on that deal was 2,850. It was a 24-unit building. And they just got rid of this Costa-Hawkins. So, Santa Monica was no longer under this rent control where they had to re-rent it if they had a unit that was renting for $700, they had to re-rent it for $700. So, they got rid of that, I think, in 1996. And that helped markets like Santa Monica and West Hollywood. And that was a great deal.
Well, you remember before 2018, we didn't have rent control on 90s or 80s buildings, right? So, you could go buy something, reposition it in 2 3 years, pull out all your cash, own the property free own the property with no money in
…your success. It's better to be rich and no one know about it than be rich and people know about it. We don't like California. We don't like the rent control coming in. We don't like the lawsuits. So, we started going to Nashville. AI is all the rage right now. Yep. There's going to be more millionaires created, I think, in the next 5 years than ever before in history. Everybody who's listening or thinking about someone who's very successful, they don't realize everybody is a human like everybody else. They have…
…you have one out of 11 units, it's not good. Yeah. And so we started thinking, okay, this is a pain. We don't like California. We don't like the rent control coming in. We don't like the lawsuits. All right, where are we going to look? So we started going in Nashville. Nashville was booming. It was the short-term rental capital maybe of It was It was a bachelorette capital of the United States. So we ended up buying 17 short-term rental properties within 18 months in Nashville. Wow. And we had a master tenant on…
…program at every level, and it's done exactly the opposite of what somebody who doesn't work in real estate thought it would do. I think I think the rent control is going to have the exact same thing. So, I think the the resi market is you know, it's going to have a fight for the next 12 to 18 months. I mean, I think it's going to be It's going to be challenging. You know, there's still a massive number of people that are stuck with an existing mortgage, and there's
…is what we believe is right in the regulation and in the market. But it's really difficult and you know, there is the prop that almost passed for rent control which that was a big fight and you know, luckily we won. Yeah, so and I'm sure there'll be many many more to come. Um just even investor interest in California has been going down as well. So you I just number one thing that I hear from investors is we prefer not to invest in California. And these aren't necessarily real estate experts. They're trusting us…
…I mean, look at what Weinstein tried to do. Weinstein 1.0, 2.0. Hopefully, he's done. Mhm. It basically damped the the apartment business on the rent control side
for the last 5 years. You know, people couldn't decide etc. But despite all this, so we redlined LA as a firm currently. We'll get to that. Okay. For the last 3 years, we were done. And we didn't buy anything. I think the last LA building I bought the last rent control building was 3 years ago. And then you look at what's happened to San Francisco. They destroyed San Francisco. But some guys got in and people get fed up. See that this lunacy is not sustainable. It's not working. Big firms left. Retail stores…
the valley that is not rent control. We haven't yet dared to buy go back into rent control. But I know two groups I know in the city, young guys, you know, Orthodoxy was very bright. I don't want to mention the name. They have a thesis. And the thesis is that they're going to go buy these older character buildings, rent control in LA, really cheap. You could buy these deals for 250 a 2017 18. They could buy for 147 of those, 6 and a2 cap, maybe close to a seven cap, and go ahead and fix up the uh concrete…
Cuz when I when I hear that, I think about hallelujah. my my job is going to be so much easier than it is now. You're going to see a nice pick up in volume. Yeah. Yeah. I think that proverbial four and a half cap rate is coming back. Wow. You know, I mean, right now you can buy buy at five and five and a quarter. I mean, you know, some LA rent control, let's just pertain to LA, you know, some of these contian guys buying rent control stuff, you know, they're buying at six, six and a half caps.
of, you know, big projects in urban infill LA, I'm not expecting to see a lot of that in the years ahead. Yeah. Um I just don't know if you can do a big a big project, why would you choose LA to to invest large amounts of money when what if LA passes some rent control thing where or vacancy control worse? That's a that's a too much risk.
…it. It popped up and then we had a reprieve. But long term there's a lot of reasons to think inflation will come back and that will lead to higher rents unless there's rent control, right? Mhm. And that will lead to higher values cuz ultimately the rent and the income are are the driver of the value and the cap rate as well. Sure. And I don't think cap rates are going to go way up from where they are. I mean, I don't know if it's a six today.
Yeah. So, that was one signal. Um, and and then I think this whole rent control thing I again I don't know what's happening with that. You would know a lot more than I do, but there's a general feeling of us versus them that I'm that I'm feeling out there. And it feels like um a lot of voters would vote yes, even if the consequences are terrible for real estate investment. I think there's a lot of people that would vote in favor of some sort of rent control or even vacancy control. Mhm. And and there's not,…
We had rent control, but we knew how to operate within rent control. Rent control has been around in LA since 1979. Yeah. Right. And uh so it had been around for a long time and we we we we had kind of figured it out. Um but um the regulatory environment started getting harder and harder and what we came to appreciate at after you know we dealt with COVID, right? So, just so you know, we
…state that led the country in population growth every single year. That's not the case anymore. Um, the second thing is, let's say you do get that rent growth. California, I'm worried, is going to follow in the ways of New York and how the New York is handling rent control. Um, and it just eviscerated values there. Um, and the success of of owners and and developers is seen as a problem, right? If developers and and and owners can be successful, they'll be incentivized
client side's different. Do you think it's because you after running a property management company? Because I commend you and every property manager that I know like no one likes property management. No one most owners don't like their property managers. Um, but property management, you're dealing with tenants and like it's tough. It is a tough business, right? Was there something where the money became um such like okay I can see a path to growing a huge property management company that we're kind of already doing…
never spent any time in SoCal, you tried to explain it. It's actually a really complicated market. Interesting. Just because of the all the different areas. You have rent control, you have submarket risk, like it's a very complicated market to street by street even. Totally. Yeah. You could spend your whole career in one like Long We'll stay with Long Beach.
…you know, hardwood floors. They want a new kitchen, new bathroom, and I think they're very price conscious, you know. They want they want to lower rent right now, so they'll probably give up some of those amenities. Interesting. You know, they want to make things easier for themselves, you know. Yeah. They don't want to go to the communal laundry room anymore, you know, at the building. They just don't. Those I have in my buildings because I have a lot of buildings in the 60s, but those are for my older tenants…
Isn't it rent isn't rent control changed now? Well, yes, but if anything built in the city of LA after 1978 is is statewide rent controlled versus city of LA, which is a stricter rent
It's a rolling timeline, right? So, a if it's if it's within 15 years, you can raise the rent when you want. Yeah. Right. So, they're they're they're gravitating towards rent control. Yeah. I wouldn't be surprised if they put a cap on everything. They're trying to protect the tenants. I get it. Yeah. The landlords, we had a great run. Yeah. You know, a great run.
Well, it's not just that, but let me just tell you why it's a broken city because we manage in pretty much every city in LA and Orange County. Yeah. And LA is is the worst. And I love LA. Went to USC. You know, I spent a lot of my time in the city of Los Angeles. It should be the greatest city in the world, if not for the government. And where I would tell you is everything comes at a cost. If you want rent control, fine. They've had rent control since 79. You want to make it steeper, fine, you can do that.
know just pay your utilities just pay your utilities I won't give you a rent increase and so and that protects us somewhat because a lot I We have we're under this statewide rent control which can be brutal for some people who got caught with that while they were letting their tenants have very low rent. Mhm. Um I got caught on it on some of the buildings, but it it wasn't didn't affect me as much because we didn't stay that far under the market. We stay under the market as we'd like people to stay a long time. Um…
…that's going to land at some point. Uh some of these deals are like three years deal. I look at it and I just say, you know, as long as it's not in rent control, we I'm under statewide rent control. But if there's a lot of upside in that building, um, I'll take it and take my chances in three years. There's three years left. Some of one of them had four years left. And I'm taking that lower rate knowing that I'm going to get a higher rate. I'm judging I'm I'm basing you have to take you have to predict some things…
it's a free market and they don't under it should be a free market. That's what that's why there would be a lot more people building and that would be you know there would be more supply but they've constrained the supply which puts pressure on the rent. Not only that is the rent control when a you know when a somebody is gets out of college and wants to buy or wants to rent a place it's very high because you can charge whatever you want when it's when it's empty.
…And uh I fixed them up and my neighbors are fixing them up and everything and all of a sudden the county supervisors boom they put this 3% like rent control on and the guy next door to me was halfway through his renovation. He just stopped and I finally I was I I asked him what's going on. He goes I get the same rent anyway whether I renovate it or not because it's not going to change. Yeah. I'm going Oh yeah. And then and and then I you know there were