Now that a Santa Rosa rent-control measure was defeated at the ballot box, investment in rental housing in Sonoma County’s largest city could pick up again after a months-long pause.
Measure C went down June 6, with 52.5 percent voting against and 47.5 percent in favor.
Transactions for multifamily properties in the city declined after the City Council began discussions about controls, according to Scott Gerber, a specialist in multifamily investment properties for Bradley Real Estate. He spoke at council meetings against the ordinance.
“It certainly slowed the market down dramatically, with people not being able to plan,” Gerber said. “This proposal then the vote was an alarm going off and really caused apartment owners, developers and investors to stop what they were doing and consider the future.”
For example, a prospective investor would discount the offer for a property that would have been subject to the ordinance by as much as 25 percent, compared with one that wasn’t.
“The rate of return you would need to have if you can’t adjust rents to market is significant,” Gerber said.
He said he talked to about 30 investors who had been looking at Santa Rosa properties but weren’t interested in buying there under rent control.
The City Council passed an ordinance in August to limit rent bumps to 3 percent a year for about 11,100 apartments built in Santa Rosa before Feb. 1, 1995, according to the Press Democrat. Part of the requirements were giving cause for evictions and possibly paying to move tenants.
Backlash against the ordinance prompted the matter to be put to voters to decide.
“I won’t buy anything in any market where there is rent control,” said Brian Burke, president and CEO of Praxis Capital.
The Santa Rosa-based rental-housing investment company has $120 million in properties in Arizona, Texas, Georgia and Florida but decreasing holdings in California. Currently, it has five rental single-family homes and a couple of multiplexes in Sonoma County and plans to sell all but a few by the end of this year, Burke said.
“Rent control is an interesting concept in regulating income, with no consideration of expenses,” Burke said.
It’s been difficult to find contractors to do maintenance on the Santa Rosa-based rental-housing investment company’s local portfolio, he said. Many contractors had closed their doors during the housing-market collapse starting in 2006, and workers had left to other industries by the time the housing market rebounded in the past few years. Now, the cost for labor and raw materials for projects has gone up, while the prospect of rent control would have capped income available to cover those costs.
Praxis bought 120 homes during the mortgage-market meltdown of 2008-2009, half in Sacramento and half in Sonoma County. The company had the homes renovated then rented them, selling the properties over time.
“It’s never been a problem with listing a house on the market,” Burke said. “Sellers aren’t driving the prices. The buyers are. We put a house on the market and after a couple of days I get an email from the agent with only the top five offers. They’re bidding, perhaps, $30,000 over the asking price. That shows the desperation of the homebuyer.”
Santa Rosa would have been the first market Praxis has been involved with that has considered rent control, Burke said.