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.

Spanish Ranch I Meet and Confer Meeting #2 Wednesday, October 29, 2008
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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:

• 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.

• 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?

• 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

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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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