A plugged-in reader reports and we excerpt (and slightly edit):
I live in a 33 unit former [CitiApartments] property that is in receivership and is managed by a non-Citi (now dba First) management company.
In the months before receivership started in 9/09, any tenant who asked was given a significant rent reduction from Citi if they signed a year lease and paid an additional month’s rent in advance. There were only a couple tenants who didn’t ask and receive. An example: a lovely $1,500/month studio rent was reduced to $1,150. New pre-foreclosure tenants were getting the same lower monthly rent rates if they paid an additional month’s rent at the time of lease commencement.
Those pre-receivership reduced rents are now the rent controlled rents. The receivership property management company is currently renting the apartments at the lower rate too. Rather than holding out for higher rents, the receivership property management company is renting turnover apartments at rates that would make any new purchaser/investor cringe just to keep the building fully rented.
[The Department of Building Inspection] is forcing the new property management company to rectify the non-permitted and not to code ‘renovations’ that Citi performed in this building over the years which will total hundreds of thousands of dollars…[and] a decade of dealing with CitiApartments has filled the building with experienced, knowledgeable, empowered, and angry tenants who won’t take crap from a landlord and know how to protect themselves.
This is the real Lembi legacy. Any investor considering buying a fire-sale post Lembi building would be advised to buy very, very carefully.
We’ll say it’s something to consider for buyers and renters alike.
∙ Lemons To Lemons For Thirty Ex-Lembi Apartment Buildings [SocketSite]
∙ CitiApartments Is No More! Well, Sort Of… [SocketSite]
∙ The Story (And Faces) Behind The Rise And Fall Of The Lembis [SocketSite]
∙ The Chronicle Reports “Dozens,” A Plugged-In Source Says Over 100 [SocketSite]
The Lembis brought down Tamalpais Bank, and now they’ve tried to stick it to potential buyers in advance. Gotta love ’em.
This particular issue will be interesting to follow as it plays out. Generally, a party in bankruptcy can void any executory contract (i.e. one that is still “active”). I doubt a local rent-control ordinance could trump the U.S. Bankruptcy Code, so all these great new leases may end up being short-lived. Note that I’m not certain of the precise legal posture that put these buildings into “receivership.”
It wasn’t just the Lembi’s that brought down Tamalpais Bank.
I would caution the original commenter regarding what actual rent was (“a lovely $1,500/month studio rent was reduced to $1,150”) at the initiation of those leases by Citi. Typically, they would give 8-12% off that rent with the term fully prepaid resulting in a true base rent of $1,320 – $1,380. Add to that the 13th month free, and the base effective rent is now $1,220 – $1,280. Keeping this in mind along with an area wide drop of asking rents of ~12% or so since 10/2008 (when many of these leases were signed…), the new market rent of $1,150 is not out of line and may be reflective of the TRUE market rent. Easy to see why the Lembis would so willingly give the new rent with a pre-pay of the extra month, especially given that they would pocket that cash just prior to receivership and foreclosure…
Given that a potential renter has more choices today with lower absorption rates than in the last 5 years, and continual craigslist bombardment by various leasing agents, if the new management company could get $1,500 for a current rental described rather than the $1,150 as reported, I am quite certain they wouldn’t leave that money on the table.
I also live in an ex-Citi building that has gone back to the bank. Last year we received notices that all apartment interiors would be photographed. I later heard this was mandatory to prove whether or not renovations were done with the proper permits. Allegedly many repairs were done without pulling permits.