Widgets Magazine

Wells Fargo holds onto EPA apartments

Amid community complaints and despite reports that the transaction would happen in mid to late October, Wells Fargo has yet to sell its 1,800 East Palo Alto apartments to Equity Residential.

The apartments, located in the Woodland Park neighborhood, represent about 60 percent of the city’s affordable housing. Wells Fargo took ownership of the property in August 2009 when the previous owner, Page Mills, defaulted on a $50 million loan.

When reports of discussions between Wells Fargo and Equity Residential (EQR), a Chicago-based firm with over 120,000 apartments in its portfolio, emerged in August, the transaction immediately became a hotbed of controversy in East Palo Alto.

Still recovering from the Page Mills default and eager to keep housing prices low, much of the East Palo Alto community has been fervently opposed to a single landlord controlling all 1,800 properties, particularly a large national company that may intend to raise prices.

Some residents fear a repeat of the properties’ history. Page Mills, which bought the 1,800 apartments in 101 buildings in 2006, angered the community by dramatically raising prices, evicting over 400 families, resisting the city’s rent-control ordinance and initiating about a dozen lawsuits against the city.

City leadership is concerned about the loss of affordable housing that may result from EQR’s possession. Mayor Carlos Romero, U.S. Rep. Anna Eshoo, D-Palo Alto, and the East Palo Alto City Council have all written letters to Wells Fargo asking them to delay the sale and ensure compliance with city needs.

In a protest of over 100 people on Aug. 22, many voiced their frustration that the apartments were being aggregated rather than split among multiple buyers. Such vast ownership, particularly by a group with deep pockets and national influence, would give EQR leverage over other housing in East Palo Alto.

Others worry about EQR opposing the city’s rent-control policy. Sam Zell, the company’s chair, has a history of challenging rent-control laws; Zell was a key supporter of Proposition 98, a California bill that would have repealed rent control, and has filed several lawsuits to repeal rent-control ordinances in California cities. At the August rally, protesters chanted “Don’t Sell to Zell!”

“We ask that… the owner commit in writing to complying with the Rent Stabilization and Just Cause for Eviction Ordinance,” said Carol Lamont, the program manager for EPA’s rent stabilization program.

The rent-control policy prohibits landlords from raising the rent on an occupied apartment more than once annually and by more than 80 percent of the rise in consumer price index for rental units in the area.

Rent-control legislation is very important for East Palo Alto, a town bounded by the richer communities of Silicon Valley. The town has re-affirmed rent control six times, most recently in 2010 by 79.6 percent. A loss or violation of rent control could mean the displacement of thousands of families who have nowhere else to look.

“We’re looking at investment opportunity-development opportunities relative to what acquisition opportunities are in those individual markets,” David Neithercut, CEO and president of EQR, said during Equity Residential’s 2011 Earnings Call on Oct. 27, recorded and transcribed publicly.

When asked whether or not EQR considered the portfolio primarily a development opportunity or a “more B-quality asset,” Neithercut said EQR thinks about the portfolio as “workforce housing.”

Workforce housing is generally understood to connote affordable, high-quality housing.

Neithercut said that EQR wants “to add assets on the Peninsula” and “if it can be done at the right price, [the EPA purchase] will represent a good opportunity to do so.”

The city has asked that Wells Fargo wait until the new registration process, a result of the revised rent-control ordinance, has been completed so that it can ensure that future rent increases are consistent with city laws.

Earlier reports, including a response from Wells Fargo, claimed that the sale would be concluded in mid to late October, yet the apartments have not been sold. This may indicate that Wells Fargo is heeding the city’s request to wait until the registration process is complete.

“We’re continuing to work on [buying the East Palo Alto properties],” Neithercut said. “And we do have an expectation that we could close on that this year, but nothing is certain at the present time.”

Elise Wilkinson, a Wells Fargo media spokesperson, said that “EQR is still conducting due diligence on the property.”