Meeting #2

City of Hayward Spanish Ranch I Proposed Rent Increase: Meet and Confer Meeting #2 Notes Wednesday, October 29, 2008 Hayward City Attorney’s Office Hayward, CA

Call to Order Mr. Hexter called Meeting #2 to order and immediately requested a caucus with the HOA negotiating committee. The meeting resumed with all parties at approximately 7:45 p.m.

Approval of the Agenda Mr. Hexter reviewed the evening’s agenda. The purpose of this meeting was to identify the issues and interests related to the rent increase, and to begin exploring options that will help the group reach resolution. The agenda was approved.

Review/Approval of Meeting #1 Notes and Revised Groundrules A member of the Ownership group requested clarification related to the decision to audio-tape meeting discussion. He recalled that the agreement reached during Meeting #1 stipulated that the HOA would provide an audio-recording device and a copy of the tape to the Ownership group, and would keep the original tape for their use. It was expressed that the Ownership group did not feel comfortable having meetings recorded if they do not receive a copy, and expressed concern over using the taped conversations out of context and in efforts or proceedings related to other issues. The group agreed that the meeting notes will remain the official record of all meet and confer proceedings and that the use of the audio tapes in any other proceeding is not permissible. Participants agreed that for the purposes of this evening, the HOA would provide a copy of the audio tape of Meeting #2, and that the Ownership Negotiating Committee would bring their own audio-recording device to the next session. The Facilitation Team agreed to update the Operating Procedures to include this stipulation. Mr. Hexter briefly summarized all other changes that were made to the Operating Procedures in response to Meeting #1 discussion. One member of the HOA group raised a question regarding confidentiality of the sessions. Mr. Lawson clarified that by virtue of the fact that the sessions will be recorded in minutes and graphics, this will not be a confidential process. The meet and confer process is meant to be informal, and we are not bound by the strict rules of evidence such as we would be in court.

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The group approved Meeting #1 minutes and revised Groundrules following the discussion noted above. Statement of SRI Ownership Group A member of the Ownership group gave a statement on behalf of the Ownership Negotiating Committee. The following summary reflects key points: •

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On October 31, 2007 Monterey Coast Limited Partnership closed escrow on Spanish Ranch I, triggering a re-assessment of property taxes and a resulting total tax increase of $349,066, which began accruing as of October 31, 2007. According to confirmation received by the City Attorney’s office and the company’s corporate attorney, rent increase due to property tax increase is allowable under the City rent control ordinance. In June 2008, Rutherford Investments received a supplemental tax bill reflecting the tax increase of $349,066. The $63 per month rent increase was calculated by dividing this tax increase proportionately by the 462 spaces in the park. The proposed $15.75 increase is intended to cover property taxes that accrued from October 2007 to September 2008. This increase sunsets after four years, and does not represent a profit for the owners. Property tax pass-through rent increases following re-assessment of property taxes is an industry standard procedure. The company is not singling out Spanish Ranch I. The company has decided not to recover maintenance or any other expense increases which are allowed under the rent control ordinance. The company has created a Rental Assistance Program (RAP), which is intended to assist residents who need help. The Ownership group wishes to work with residents to reach an amicable outcome regarding this issue. If the Board does wish to work together to improve the quality of life at Spanish Ranch I, then this desire needs to be backed up by productive actions and solutions.

Statement of SRI HOA Ms. Morris provided a statement on behalf of the HOA Negotiating Committee. The statement cited several points from the Hayward Mobile Home Space Rent Stabilization Ordinance which make the case for the need for rent stabilization: • • •

A significant portion of mobile home residents in the city are senior and disabled citizens, many of whom live on fixed or limited income. Virtually all mobile home owners have made a substantial financial investment in their mobile homes. Mobile homes are often important sources of low and moderate cost housing.

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• • • •

Rent stabilization mechanisms are consistent with the city’s policy to assist in providing housing for low and very low-income households. Current employment forecasts predict an increase in lower paying service and manufacturing jobs that will increase the need for an adequate supply of affordable housing. Over the next decade, census figures indicate a large increase in the population of residents aged 60 and over with special housing needs that can be met by mobile home living. In enacting these provisions, the City Council aims to prevent an exploitation of the shortage in vacant mobile home spaces in the city.

The HOA Negotiating Committee also made the following points: •

We assume that before the owners purchased Spanish Ranch 1, they were well aware that Hayward had this Ordinance, that this property was zoned as a mobile home park, that a substantial portion of the residents are senior citizens and disabled, with fixed or limited incomes and the purchase of the park would trigger a new real estate assessment from the County Assessor.

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When the new owners decided to go ahead with the purchase of the park, did they already intend to pass on the increase in the real estate tax to the residents knowing even then that the assessment would be based on the purchase price?

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During this meet & confer process the residents team will discuss basically the following three (3) issues in this order: 1. The $15.75 per month for 4 years that the owners would like to pass on to the month-to-month residents. 2. The $63 per month increase that the new owners would like to pass on to the month-to-month renters effective October 1, 2008. 3. The request for reassessment of the real estate value of the park that the new owners could have submitted in October 2008.

Clarification of Statements and Exploration of Options An HOA representative asked the Ownership group if they were aware of Proposition 8 and their ability to request a reassessment of the property. The Ownership group confirmed that they were aware of Prop. 8 and that they have not applied. To get a reduction in property taxes, it is required that they prove that the value of the property has decreased, and supporting evidence of decreasing value is required. In this economic cycle, there are no comparables or Spanish Ranch I Meet and Confer Meeting #2 Final Meeting Notes – rev 11/13/08

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figures that support the argument that the value of the park has dropped. No large mobile home park has transferred ownership in Northern California in over a year. One member of the HOA Committee stated that since the mobile home park is an income property, Ownership should be able to make projections based on income, which demonstrates that the assessment value of the property is closer to $20M than the selling price of $39.5M. He stated that the HOA group has figures to illustrate this. An Ownership group representative stated that he is more than willing to apply and negotiate with the County for a re-assessment. If the two sides can work together concerning the rent increase, he would take the HOA’s information and use his resources to apply to the County for a re-assessment. The HOA negotiating committee agrees that this is the reason for participating in the meet and confer process – to work with the park owners together. One Ownership group member affirmed that the Ownership group would be very pleased to cooperate with the HOA group on this basis; this pass through does not represent ownership making money. He also cautioned the HOA group against raising their expectations based on the promise of a re-assessment. He has attempted this many times under Prop 8, and in only one case was the tax assessment reduced. Mr. Lawson asked how long the previous owner held property. The previous owner owned Spanish Ranch I since 1972, before enactment of Proposition 13. An HOA representative stated that property tax payments reduce income tax liability for the owners, so that portion should not be passed on to residents. The Ownership Team responded that property taxes are considered expenses against income. This is very different than a deduction against an individual’s personal income. According to the Ownership group, Spanish Ranch I was originally assessed at $5.6M; the company purchased the park for $39.5M. Ownership also shared examples of where an increase in property tax following re-assessment was passed through to mobile home park residents. The HOA Team asked whether the areas that had large monthly increases were under rent control. The Ownership Team responded no, that while there is no rent control in these areas, there are many rent control areas where property taxes are passed through. An HOA Committee representative asked if they considered the class of the neighborhood when making the decision to purchase Spanish Ranch I.

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According to the Ownership Negotiation Committee, Spanish Ranch I is well located relative to many mobile home parks in California. The Ownership group noted that one could argue that Spanish Ranch I residents have had a great deal for a long time. SRI has changed ownership only once, compared to other parks that have sold two or three times. In response to questions related to the selling price and other bids on SRI, the Ownership shared that they weren’t the highest bidder on the property. There were 11 bidders in all and the highest bid came in at $43M. Monterey Coast was able to purchase the property for a lower price because of their reputation closing deals. All bidders were evaluating property with property tax in place. Ownership reiterated that everyone thoroughly researched the property tax pass through. He pointed out that residents have benefited by having a long-term owner, thus avoiding these large property tax increases. One HOA Board member referred to a 2008 California Supreme Court case related to a property tax pass-through rent increase, Cacho v. Boudreau (2007) 40 Cal.4th 341, where the Court of Appeals judged in favor of residents. This decision had not yet been made when SRI was purchased. Existing law when park was purchased was that pass-through wasn’t legal. An Ownership group member responded that while decisions related to this issue may have been challenged at the state level, the Ownership group relied on the local level ordinance and interpretation from the City. In returning to discussion of applying for a property re-assessment, Mr. Mockler stated that December 10th is the deadline for applying. We can work out an agreement stipulating that we will apply together, but that entails working together. The HOA representative stated that if the Ownership group had used a different methodology to appraise the property, then a purchase price of approximately $20M would have resulted, therefore resulting in a lower tax. Would a price of $20M been a competitive bid? According to Ownership, bids on SRI ranged from approximately $37 to $43M. All bidders were investment groups with mobile home portfolios. Both the Ownership group and the HOA Board members agreed to work together to apply for a re-assessment of the property value. However, the Ownership group made clear that is a long-term process and not one to bet on. If they were successful, they would provide rebates to the residents as appropriate.

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The fact that property values in Alameda County have gone down 30% may not be sufficient evidence to illustrate that the value of the mobile home park has decreased. While there may be more data available in 6 or 12 months, there Is no available evidence to support the claim that the capitalization rate has increased.

Summary/Next Steps Mr. Hexter restated that with caveats mentioned above, the group is willing to work together to apply for a re-assessment of the property value. In addition, the parties will return to the issues at hand during the next meet and confer session. Namely, we will explore options and solutions related to the following: • •

The $15.75 per month surcharge The $63 dollar per month rent increase

The next meet and confer session will be held on Wednesday, November 5, from 7:00 to 9:00 pm at the Hayward City Attorney’s office.

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