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HAC Minutes-2005-01-1332400PASEOADELANTO SAN JUAN CAPISTRANO. CA 92675 (949) 493- 1 171 (949) 493- 1053 FAX www sanjuancapistrano org MEMBERS OF THE CITY COUNCIL SAM ALLEVATO DIANE BATHGATE WYATT HART JOE SOT0 DAVID M SWERDLIN MINUTES OF THE SPECIAL MEETING OF THE HOUSING ADVISORY COMMITTEE January 13,2005 Commission Attendance Present: Marie Buckner, Joann deGuevara, Michelle Knorre, Joanne Absent: David Nahas (excused) Staff Present: Omar Sandoval, Deputy City Attorney; Lynnette Adolphson, Marquez, Gene Ratcliffe, Claude Vincent Management Analyst I I; Sue McCullough, Recording Secretary. CALL TO ORDER - Member Ratcliffe called the meeting to order at 7:OO p.m. - ORAL COMMUNICATIONS - None NEW BUSINESS San Juan Mobile Estates Petition For Rent Increase Dated November 11,2003. Written Communications Staff report dated January 13, 2005 Staff presentation & recommendation Mr. Sandoval presented the staff report as a review of the findings and conclusions of the Hearing Officer, the written record and any additional oral or written arguments of the parties regarding the San Juan Mobile Estates Petition for Rent Increase dated November 11, 2003. The property owners of San Juan Mobile Home Estates have requested a rent adjustment to three spaces in the park. The three adjustments would exceed the maximum allowable rent increase pursuant to the Municipal Code. The Rent Control Ordinance allows for automatic rent increases that are tied to Consumer Price Index (CPI). If a property owner wishes to increase above the allowable increase he may do so by notifying the residents or the park owner may petition the City directly to allow the rent increase at which time the City Council would appoint a Hearing Officer to hear evidence supporting the proposed rent increase. The Hearing Officer would then issue a report submitted to the Housing Advisory Committee, which would review the Sun Juan Capistrano: Preserving the Past to Enhance the Future 0 Prin:ed on recvc!ed Daaer Housing Advisory Committee Special Meeting Minutes January 13,2005 Page 2 of 6 W report and make a recommendation to the City Council. The Committee’s action tonight is only a recommendation to the City Council, the ultimate decision maker. Mr. Sandoval said there have been three hearings on this matter where evidence was submitted to the Hearing Officer, and said that the scope of review of the Housing Advisory Committee, per the Municipal Code Sec. 2-2.903, “shall be limited to the written record consisting of the evidence received by the Hearing Officer, written arguments of the parties, findings of the Hearing Officer, other relevant matters as compiled by the secretary of the Committee, and additional oral or written arguments the parties may wish to make. However, the Committee shall not receive or consider any additional evidence.” This item is scheduled for City Council consideration at its meeting February 1, 2005. The purpose of this meeting is for you to review the recommendation of the Hearing Officer, to review the record before you the three volumes of record which were provided to you, the letter submitted by the attorney for the park owners, and the letter from the attorneys for the residents. Today we received a copy of a judgment in the United States District Court Central District of California, the matter of Guggenheim vs. City of Goleta that was provided for your consideration by the park owner’s attorney. The Moreland €4 Associates, Inc. report to Mr. Michael Lowy, which is tab 44 of Volume 3 of the record, is provided since the residents wanted to have the document separate from the bound volume. A letter dated 01-12-05 directed to Lynnette from Irene Ryan appears to be new evidence, and for that reason Mr. Sandoval said that the Committee cannot consider this letter and it will not be introduced into the record. b Under the terms of the City’s rent control regulations, the question for the Hearing Officer, this Committee, and the City Council is whether the proposed rent increase is fair and reasonable. The City is to apply non-exclusive criteria set forth in the rent review ordinance. Among the criteria is whether the park owner is making a fair return on the investment. In this particular hearing the park owner did not argue that he is not making a fair return on the investment in the park. Rather, the park owner has relied on an argument based on court cases including the Goleta decision which basically invalidated the City of Goleta’s Rent Control Ordinance based on a premium transfer theory. The premium transfer theory, as explained by the park owners, is the difference between the book value of a coach and the selling price of the coach. The premium, as argued by the park owner, is paid by the purchaser of the coach only because of the existence of rent control; that is, that the purchaser would pay the higher price for the coach only because of the future City regulated rent. The value of having regulated rents is added to the purchase price. Under the City’s rent control regulations the park owner is free to make such an argument, however the City reviewing bodies including your Committee and the City Council under the City’s regulation are required to consider a number of relevant factors including the profitability of the park. Housing Advisory Committee Special Meeting Minutes January 13,2005 Page 3 of 6 ‘V Mr. Sandoval highlighted some of the findings of the Hearing Officer: The Hearing Officer after hearing the evidence and summarizing the evidence determined the following: That the evidence did not establish that the City rent control regulations are responsible for leading to a so-called premium to be paid by a coach purchaser. The weight of the evidence did not show that the park owner is receiving below- market space rents. That the level of increase requested by the park owner, if granted, would jeopardize whatever investment the coach owner made in the coach. The expert testimony established that the park owner has enjoyed a 14 percent rate of return annually when adjusted for inflation, and that this return is a fair rate of return as proscribed by the City’s Rent Control Ordinance. That California case law supports the application of the rent control criteria of the type stated in the City’s rent control regulations and that it is not clear how federal law is to be applied, if at all, to the facts of the case at this time. Staff recommends, based on the City’s rent control regulations, that the Housing Advisory Committee Members review the Findings and Conclusions of the Hearing Officer, the written record before you, and any additional oral or written arguments that will be presented to you by the parties and by motion forward a recommendation to the City Council. Park Owner Representative’s Comments William Dahlin, Hart, King and Coldren, 200 E. Sandpointe, MOO, Santa Ana, spoke on behalf of San Juan Estates, and said that when the hearing process began, there was an appointment by the City of Ms. Beseau, CPA, to assist Mr. Lowy on the rate of return methodology and not regarding the premium transfer theory that was set forth in the application. Mr. Dahlin said that since Ms. Beseau was not subject to cross examination, her report needs to be disregarded entirely. Mr. Dahlin said that although Mr. Lowy stated that there is not a premium that is caused by rent control, Mr. Lowy conceded and experts who testified agreed that there was a premium being paid for coaches sold in San Juan Estates. Space 166 is a coach not owned and controlled by the park owner. The other two spaces are being adjusted so that everyone would know what the space rent is. The demand and scarcity is land, not the coach. An application was made asking the City to allow the space rent to come close to market - $1,000 a month. If the application is denied and the premiums are allowed to be transferred, what the City is doing is what was just ruled to be illegal in Goleta. The buyer is buying the coach for double or triple its value. This is not a rate-of-return application. The park owner is not seeking a park-wide rent increase. The park owner is seeking an adjustment in rent on a turnover to prevent a Housing Advisory Committee Special Meeting Minutes January 13,2005 Page 4 of 6 premium. Dr. Baar’s report is based upon the following assumptions: 1) 1979 rents are market, and 2) the park owner was receiving a fair and reasonable return in 1979. L Mr. Dahlin asked the Housing Advisory Committee to recommend that the rent increase be granted. Committee Questions and Comments Mr. Vincent asked for clarification of the value of spaces 101 and 153, where the park owner owns the coach. Mr. Dahlin said that the application says that the park owner wants the underlying base rent for those spaces to be $1,000. Mr. Dahlin asked that the park owner be allowed to change the rent when there is a change in tenancy. Residents’ Comments Don Miller, 32302 Alipaz, Space 100, Vice Chair for the Residents Association, spoke in opposition to a rent increase and said that Kathryn Beseau of Moreland 8t Associates, Inc. stated that the park owner is receiving what appears to be a fair rate of return. Brian Boulton, 32302 Alipaz, #52, Chairman of the San Juan Mobile Estates Residents Association, read the conclusion of the residents’ attorney’s letter of January 12, 2005, stating that the park owner failed to provide any evidence of the return that it is earning and based its petition upon the purported “premium transfer” theory, claiming that the Rent Control Ordinance causes a premium to exist, which is transferred to the tenant. Mr. Boulton stated that comparing Visalia to San Juan Capistrano is not a fair comparison. Vickie Talley, resident at 30442 Via Cantabria, and Executive Director of the Manufactured Housing Educational Trust, 25241 Paseo De Alicia, Suite 120, Laguna Hills, a non-profit trade association representing the owners of mobile home communities in Southern California. Ms. Talley urged the Housing Committee to recommend to the City Council that they approve the rent increase as applied. This is not a fair rate of return application, but an issue on applying a rent increase to three spaces. Bill Palmer, 32802 Valle, #103, spoke in opposition to the rent increase and said that the consumer would be paying the same if paying less for the coach and more for the rent. If a park owner could increase rents after the sale, people buying coaches would pay less and every mobile homeowner in San Juan would lose a large portion of the value of his major asset. The Hearing Officer determined that the evidence did not establish that the City rent control regulations were responsible for leading for a so- called premium to be paid by coach purchasers. Jim Vance, CEO of Freedom Forum Group Foundation, 32802 Vale Road, one of the founders of Prop 13, spoke in opposition to the rent increase and said that a small percent of residents are protected by rent control. Housing Advisory Committee Special Meeting Minutes January 13,2005 Page 5 of 6 Park Owner Representative’s Comments Mr. Dahlin responded to comments made, and said that under Prop 13, when you sell your home, the home is reassessed for taxes at the new value. He said that the increase in market prices of property is not a windfall. Mr. Dahlin asked that the Committee recommend to the City Council that the rent for the new residents coming in should be set at market. The park owner’s attorney was not given an opportunity to cross examine Ms. Breseau regarding the conclusions she made. Mr. Sandoval said that Mr. Dahlin’s objection is in Volume 1 Tab 21, and that Ms. Breseau was present at all the Hearings and that she was provided with a copy of the transcripts as well. COMMlTTEElSTAFF COMMENTS Mr. Sandoval said that under California law, the City of San Juan Capistrano’s Rent Control Ordinance is Constitutional. In a case with a similar ordinance, the Fourth District rejected the premium transfer theory and held that the vacancy control provision of the City of Montclair was a Constitutional ordinance. However, Federal Districts have held that similar provisions in California ordinances are unconstitutional if there is a possibility of a premium being transferred from property owner to the lessee. Mr. Sandoval said that the United States Supreme Court granted a tertiary, meaning they are going to review the case that came out of Hawaii based on the premium transfer theory. So we don’t know what the U.S. Supreme Court is going to rule in terms of premium transfer theory. Ms. Ratcliffe said that there is a difference of opinion on whether the cause of the premium is due to rent control or due to the coastal location and that people brought in didn’t make comparable analyses with adjacent similar cities. Mr. Vincent said that on Space 101, there would be an adjustment of $128, on Space 153, there would be an adjustment of $101, and on Space 166 there would be an adjustment of $556. Mr. Vincent said the park owner wanted an increase in rent as well as a capital gain on real estate. Ms. Ratcliffe said that the premium is not the basis for the park owner’s argument. Mr. Vincent said the lack of space in San Juan Capistrano creates a premium. Ms. Knorre said that based on the Municipal Code and what the allowable amount is for a rent increase, the answer would be “no.” Ms. Marquez said that she would agree with the rent control staying as it is since the landowner will reap the benefits of the increase in land cost at the time the property is sold. Ms. Buckner said that she agrees with Ms. Knorre and Ms. Marquez. Ms. Ratcliffe asked Mr. Sandoval if it is the charge of the Committee to assess the value of the Hearing Officer’s report or to look at the congruence between the testimony and the City ordinance as it now stands. Mr. Sandoval said the ordinance requires the Housing Advisory Committee Special Meeting Minutes January 13, 2005 Page 6 of 6 L Committee to review the written record, the evidence received by the Hearing Officer as listed in his report, the two letters from the attorneys, Mr. Sandoval’s staff report identifying the issues, and any additional arguments, and then by motion forward a recommendation to the City Council. Ms. Ratcliffe didn’t find evidence that the premium transfer theory was applicable in this case. The Applicants didn’t prove to her satisfaction and apparently not to the Hearing Officer’s satisfaction that the premium was due to the rent control. Since the rent control is the only thing at issue here, Ms. Ratcliffe said that she didn’t feel it was a compelling argument . Motion Committee Member Knorre moved, seconded by Committee Member Buckner, to adopt the recommendation of the Hearing Officer and to recommend that the City Council deny the petition for a rent increase. AYES: Committee Members Buckner, deGuevara, Knorre, Marquez, Ratcliffe and Vincent NOES: None ABSENT: Committee Member Nahas - ABSTAIN: None This motion passed by a vote of 6-0, with Committee Member David Nahas absent. ADJOURNMENT There being no further business before the Committee, the meeting was adjourned at 8:47 p.m. The next regular meeting is scheduled for Thursday, January 19, 2005, at 7:OO p.m. in the Council Chambers. Respectfully submitted, Management Analyst II APPROVED: March 2.2005