Today residential real estate in San Francisco is really only partially privately owned.

San
Francisco through regulation has effectively performed eminent domain and taken a 30-40%
ownership share of private property for public use. Our regulations force one individual (the
landlord) to involuntarily and directly subsidize other individuals (renters) to the degree that
some properties cannot support themselves with the rents that are collected. Unlike section 8
where the federal government subsidizes low income tenants, the laws in San Francisco force
landlords to subsidize all legacy tenants. For corporate real estate companies with large
portfolios this can work ok, but individual subsidies can be untenable for small landlords.

In California landlords have the right to a “fair return” most commonly associated with rental
properties and rent control. By completely denying a fair return rent control becomes
unconstitutional as a taking of property. The issue with getting rents increased to provide this fair
return in a cash flow negative property is that procedure and the system is set up to make
achieving a fair return extremely difficult if not impossible. So when a landlord wants to stop
losing money on a property the only real way to stop the bleeding without permanently gifting
30% of the property to the city is to employ the Ellis Act. The Ellis Act isn’t an eviction. It’s a
choice that’s made to withdraw a property from the rental market because the property is
insolvent. The tenants are paid relocation fees deemed appropriate by the city and are given a
period of time to vacate.

No landlord wants to withdraw/Ellis a property from the rental market if they don’t have to. It is
time consuming, it is expensive, and the layers of harassment received from tenants, tenant
attorneys, city employees, protestors, extremely biased websites, etc make this the worst but
sometimes the only option possible for a small landlord. An Ellis withdrawal is also the worst
outcome for a tenant.

This begs the following questions: Why buy buildings that are losing money?

We do this because that 30%-40% equity of a building that the city has effectively taken can be
reclaimed and in the process every single party involved from tenants, to construction workers,
to city coffers, to neighborhoods can and do gain. The notion that tenants can’t and don’t win is
categorically false. When we work together to find the solution that respect and values
everyone’s rights we all benefit.

The ideal outcome that we strive for in every project is for the tenants to end up owning their
own property and entering a path to generational wealth that they can pass on to their children.

How exactly do we do this?

We provide tenants with the following 3 collaborative options:
1. They can buy their apartment at a significant discount ~$300k from the market rate value
of their home. (e.g buy a $950k apartment for $650k)
2. They can buy their unit at our cost e.g. $360k and whenever they choose to sell their unit
in the future we can split the gains evenly.
 3. They can receive a buyout which can vary unit to unit, but is frequently in six figures. In
this scenario they can choose to buy elsewhere outside of the city, or they can continue
to rent and use that capital in other life altering ways.

Each of these options increases individual agency and allows the tenants options to make the
choice that most benefits them. It does require change, but under rent control tenants have no
other options and no means of leveraging their tenancy to build generational wealth. We
strongly believe in the ability for everyone’s ability to benefit. We are thoughtful about spending
time showing tenants properties for purchase that are within their reach and when appropriate
take tenants in person to see what they could own. The tenants that collaborate acknowledge
the transition is hard but they are grateful for the change and the generational wealth they will
be able to pass to their children.

Let’s move forward to specifically discuss this property on 25th St.

If there were no Ellis withdrawal on the property we would be viewed as model landlords. Prior
to purchase we repaired all known issues. We have a professional team and we aim to
continuously conform to all housing regulations. We are meticulous with notices of entry, we
only enter units when tenants open their door for the maintenance team, and all of our work is
performed with permits, inspected by city inspectors, performed during designated hours for
construction, and completed prior to any required city deadlines. When we receive maintenance
requests we aim to have them performed within 7 days. If it is a high priority issue such as a
malfunctioning water heater or furnace we aim to resolve the issue the same day or the next
day. We know from day 1 we are going to get sued by tenant attorneys as such we conduct
ourselves professionally. Let’s be clear the same free tenant attorneys have a lawsuit template
and they make the same bogus claims against anyone attempting to withdraw their properties.

After MEDA and the non-profits passed on the purchase as the property wasn’t economically
viable we purchased the property in December of 2019. We met with the tenants a month later
and we transparently shared that at the time the property cost $18,000 a month to own, that the
total rents amounted to $8000, that we had no intention of continuing to rent the property, and
that the property would be converted to TIC’s and sold. Shortly thereafter the 3 purchase/buyout
offers mentioned above were provided. Then covid hit. We were ready to withdraw the property
from the rental market in April of 2020, but we chose to delay during this already challenging
time and we waited another year. We hoped during this year the tenants would consider the
magnitude of the offer that was provided and envision how it could benefit their long term
futures. Unfortunately no one chose any of the 3 options and instead chose to receive the
required relocation payments and timeline that are part of the withdrawal process

Today we are nearly 4 years later. Congratulations to the tenant attorneys because no matter
what happens there is no longer any profit. Instead it’s gone to the banks and the attorneys.
We’ve gotten used to the vitriol and demonization and we’re well versed in the tactics of the city
sponsored tenant attorneys. It’s unfortunate that the city can’t acknowledge and accept our
rights or step up and use their first right of refusal to buy buildings and subsidize rents when
they have the chance, but regardless of what happens we have no financial choice (nor did we
ever) other than to continue forward and sell TIC’s.