Review of California New Laws

  • State Rent CAP/Just Cause
  • COPA – Qualified Non-Profit
  • 3-Day Notice/ Unlawful Detainer Serve Dates
  • Owner/Relative Move-In Evictions & Protected Tenants
  • Tenant Buy- Out
  • ADUs / Removal of In-Law unit
  • SF Rent Ordinance
  • Q&A Session

State Rent Cap/ Just Cause – General
► All Residential Rental Property (unless exempt)
► Tenants must be in possession for 12 or more months

State – Rent Cap – Regulation
(Retroactive to March, 15, 2019)
► Maximum rent increase in any twelve-month
period:
► 5% plus CPI or 10% (whichever is lower)
► No more than 2 increases in any 12-month period

State – Rent Cap – EXEMPTIONS
► Property already subject to rent control
► Condo/ Single family home :
► EXCEPT: WHERE CORPORATE OWNERSHIP; OR LLC OWNERSHIP WHERE ONE
MEMBER IS A CORPORATION; OR REIT OWNERSHIP.
► Certificate of occupancy issued w/in the previous 15 years
► Public Housing
► Dormitories (Higher institution)
► Duplex where owner lives in one unit since beginning of tenancy
► Exemption: Disclosure requirements:
► MUST BE DISCLOSED IN LEASE EFFECTIVE JULY 2020

State – Just Cause Eviction
► Non-payment of rent
► Breach of Covenant CCP: 1161(3)*
► Nuisance CCP: 1161(4)
► Waste CCP: 1161(4)
► Failure to renew lease
► Criminal activity as provided by penal code
► Assignment Sublet CCP: 1161(4)
► Failure to provide access
► Unlawful purpose CCP: 1161(4)
► Tenant’s failure to vacate after Tenant provides notice of termination
► Occupant’s failure to vacate after termination of employment CCP: 1161(1)
*Note: Tenant must be provided opportunity to cure; if not cured then notice to quit may issue

State – Just Cause/No Fault Eviction
► OMI/RMI (Effective July 2020, lease must disclose right to OMI/RMI)
► Ellis Act
► Government requires property to be vacated
► Demolition/Substantial remodel
► Relocation requirement:
► Owner must provide one month rent waiver OR pay tenant one
month’s rent within 15 days of service of notice.

State – Just Cause Eviction – EXEMPTIONS
► Property currently subject to a Just Cause Eviction Ordinance
► Property subject to eviction control enacted after Sept 1, 2019 is such law is more protective
► Condo/ Single family home:
► EXCEPT: WHERE CORPORATE OWNERSHIP; OR LLC OWNERSHIP WHERE ONE MEMBER IS A COPORATION; OR REIT
OWNERSHIP
► Certificate of occupancy issued within previous 15 years
► Public housing entities
► Dormitories (Higher institution & K-12)
► Duplex if owner lives in one unit since beginning of tenancy
► Transient / tourist units
► Nonprofits, elder care; hospitals
► Tenant who is roommate of owner
► Owner Occupied SFH with ADU
► IF PROPERTY EXEMPT PER THE ABOVE MUST BE DISCLOSED IN LEASE
EFFECTIVE JULY 2020

What is COPA

Latest SF Ordinance – Community Opportunity to Purchase Act
► Intended to create more affordable rental housing
► Gives QUALIFIED Non-Profits (QNP) the right of first purchase
for any multi-family building sold in San Francisco & the right
to match offers
► Applies to all buildings with 3+ residential units and vacant
land zoned for 3+ units

Source

Coping with COPA – New San Francisco Law Requires Owners of Certain Apartment Buildings to Offer to Sell to Nonprofits

The information in this article is based on new regulations issued by the City of San Francisco, and supersedes the article published in early June of this year.

San Francisco has recently enacted the Community Opportunity to Purchase Act (COPA), a law that provides San Francisco nonprofits with the right to purchase apartment buildings of three or more units before they are put on the market. It also provides these nonprofits a right of first refusal when a third party makes an offer later in the process. The law became effective September 3 as to all apartment buildings with three or more rental units, regardless of other uses on the same lot (such as retail, offices, etc.)

COPA confers upon San Francisco Qualified Nonprofits a first right to purchase real property in San Francisco improved with three or more residential rental units and property on which three or more residential units could be or are being built. The first right to purchase consists of both a right of first offer as well as a right of first refusal. A multifamily residential building acquired by a Qualified Nonprofit under COPA must be maintained as rent-restricted affordable housing in perpetuity.

The impact of COPA on owners of multifamily residential buildings in San Francisco is fraught with practical questions and legal implications. The seller of a multifamily residential building in San Francisco will be subjected to transactional delays and related costs, and clients and their agents could spend a good deal of extra time on any transaction. Owners who have to sell in a timely way to help fund a move to a new location (perhaps due to a job transfer or other reasons) and sellers needing to meet a 1031 exchange deadline will be greatly affected. Also, this could affect those who have a deadline related to settling an estate or completing a court settlement. There are some regulations to help understand the law, but even with the regulations in place, the logistics of complying with the law are complex and easily misunderstood—delays from five days to perhaps six months or more can be anticipated.

What is a “sale”?A sale includes not only the transfer of a fee interest in the building for money or anything of economic value, but certain transfers of controlling interests in trusts, corporations or other entities. There are exceptions such as transfers to heirs; and transfers among defined family members. The COPA regulations state that the sale of an individual property interest in a building, such as a sale by one tenancy-in-common owner (regardless of percentage ownership), will not be considered a building sale if such sale is not substantially connected with the transaction or set of transactions for sale of all property interests in the building.

What is a “Qualified Nonprofit”?

The city has created a list of six nonprofit organizations that meet certain specified criteria, including demonstrating (i) a commitment to the provision of affordable housing for low and moderate-income residents and (ii) the capacity (including the legal and financial capacity) to effectively acquire and manage residential real property at multiple locations in San Francisco.

The six Qualified Nonprofits are as follows:

• Bernal Heights Neighborhood Center (BHNC)
• Chinatown Community Development Center (CCDC)
• Mission Economic Development Agency (MEDA)
• San Francisco Community Land Trust (SFCLT)
• San Francisco Housing Development Corporation (SFHDC)
• Tenderloin Neighborhood Development Corporation (TNDC)

What is the “right of first offer”?

Before a seller may “offer” a multifamily residential building for sale to any purchaser other than a Qualified Nonprofit, or solicit any offer to purchase such as placing the property on the MLS, the seller must notify each Qualified Nonprofit of its intent to sell and allow those nonprofits an opportunity to make an offer to purchase. Each Qualified Nonprofit has five calendar days within which to notify the seller of its intent to further consider whether to make an offer to purchase. Upon receipt of any such notice of intent from a Qualified Nonprofit, the seller must disclose to each such Qualified Nonprofit the names of, and any available contact information for, any tenant in each rental unit along with rental amounts. The Qualified Nonprofit then has 25 additional calendar days to make and submit to the seller an offer to purchase. The seller is free to accept or reject any offer. If the seller rejects all offers, or if no Qualified Nonprofit makes an offer during these 25 days, the seller can offer the multifamily residential building for sale to the public, subject to the right of first refusal described below.

What is the “right of first refusal”

Before accepting any offer of purchase or offer of sale from a party other than a Qualified Nonprofit (unless such acceptance is expressly subject to the condition that no Qualified Nonprofit exercises its right of first refusal), the seller must offer to sell the multifamily residential building to any Qualified Nonprofit that previously submitted an offer to purchase during the first five days. Such offer is required to contain the same terms and conditions as the third party offer that the seller desires to accept, including the same closing date. If a Qualified Nonprofit did engage with the seller during the first 30 days after the seller informed the nonprofits of the intent to sell, any such Qualified Nonprofit has five calendar days after the seller’s submission of terms of a third party offer of sale to notify the seller of its decision to purchase on the terms offered by the third party.

If no Qualified Nonprofit elects to proceed with the purchase or the applicable time period within which they are required to do so expires, the seller may proceed with the sale of the multifamily residential building consistent with the third party purchase offer. If the terms of the proposed third party purchase offer later become materially different from those submitted to the Qualified Nonprofits in the right of first refusal notice, the materially different offer of purchase will be considered a new offer subject to the right of first refusal process once again. For example, a major price reduction as a result of due diligence that finds an underground storage tank would re-trigger the right of first refusal. The difficult question presented here is whether or not a change in terms results in a materially different offer. Whether there is a material difference will depend on the facts of each case. We suggest that you engage an attorney when changes occur so that there can be an accurate analysis (based on interpretations of California court decisions) as to whether or not a particular change is, in fact, material.

The nonprofit that presents a purchase offer on the same terms of the third party offer can be required to include the same closing date and contingency removal dates. But if the third party offer does not have such dates, or later postpones such dates, the close of escrow with a nonprofit could be many months. The regulations state that the nonprofits must be given a minimum of 60 days to release contingencies.

What happens if you violate COPA?

Every seller of a multifamily residential building in San Francisco must, within 15 days of the close of escrow, submit to the City Agency a signed Declaration under penalty of perjury affirming that the sale substantially complied with the requirements of COPA. If a multifamily residential building is sold in violation of COPA, Qualified Nonprofits are permitted to bring a legal action against the seller. Potential remedies include damages, attorneys’ fees and, if the violation is knowing or willful, civil monetary penalties presumptively tied to the value of the property. These remedies are imposed against the seller or a party that has willfully colluded with the seller to violate COPA. This latter party could include brokers and others listing multifamily residential buildings for sale in San Francisco.

Source

Napa County Real Estate September 2019 Report

Home Prices by City; Short-Term & Long-Term Appreciation; Migration In & Out of the County; Price Reductions; Supply & Demand.

Home Prices & Appreciation
Trends by City

Short-Term & Long-Term Trends in County
Median Home Values

People Moving In & Out of Napa County

Using new U.S. Census estimates released 8/29/19, this chart attempts to identify U.S. counties, states and international regions with the highest number of residents migrating to and from Napa County. In the Bay Area, there is a general trend outward from more expensive to more affordable places, while in-bound migration is deeply affected not only by exchanges between Bay Area counties, but people arriving from other parts of the state, country and world. Areas often have large two-way exchanges of residents.

Selected Market Statistics

The chart below compares supply, the number of active listings on the market, with demand, as measured by the number of sales. This is a seasonally adjusted graph that smooths out normal monthly fluctuations to provide clearer historical trend lines. As context, the data below begins in 2013, after the market recovery was already well underway. If the data went back to the 2009 – 2011 period, during the post-crash market recession, the divergence between the two lines would be much, much greater than at any time illustrated here.

San Francisco Real Estate

Neighborhood House & Condo Prices; Short-Term & Long-Term Appreciation Trends; Population Migration In & Out of the City.

After the heat of the spring market, activity typically slows down markedly in July and August. In September, listings start pouring on the market again to fuel the relatively short autumn selling season – in fact, September is typically the single month with the highest number of new listings. Autumn is also a very important time for the luxury home market – luxury house sales often peak for the year in October.

What occurs in the next 2 months, before the mid-winter holiday doldrums begin, will be the next major indicator of market conditions and direction.

Migration: People Moving In & Out
of San Francisco

Using new U.S. Census estimates released 8/29/19, this chart attempts to identify U.S. counties, states and international regions with the highest number of residents migrating to and from our county. In the Bay Area, there is a general trend outward from more expensive to more affordable places, while in-bound migration is deeply affected not only by exchanges between Bay Area counties, but people arriving from other parts of the state, country and world. Areas often have large two-way exchanges of residents.

Foreign in-migration is a huge issue in SF and the Bay Area, but it will be another year before any impact of new U.S. immigration policy on foreign in-migration in 2018 shows up in census numbers. The census estimates foreign in-migration in this analysis, but not foreign out-migration.

Short-Term & Long-Term Trends
in Median Home Prices

San Francisco is out-performing the Bay Area – most of the other counties have seen 3% to 5% declines in median home prices since peaking in spring 2018, while the city saw a new monthly peak in June and a new quarterly peak in Q2. It has been suggested that the differentiating factor in SF has been the high number of large, local, high-tech IPOs occurring this year since early spring.

In the next chart, the 2019 YTD median sales prices should be considered preliminary until full year data is in. Note that it is more difficult to compare annual median condo prices on an apples-to-apples basis because of the huge number of new construction condos – many at higher prices – coming on market in the last few years. Comparing 2019 YTD to 2018, the median house sales price is about the same, even though new monthly and quarterly peaks were hit year to date.

Supply & Demand Dynamics since 2005

The chart below compares supply, the number of active listings on the market, with demand, as measured by the number of sales. This is a 12-month-rolling graph that smooths out normal monthly fluctuations to provide clearer historical trend lines.

San Francisco Home Prices & Appreciation
by Neighborhood & District

The next long series of charts and tables looks first at house prices by neighborhood, and then at condo and co-op prices. We’ll start with our neighborhood/ Realtor District map for easy reference.

San Francisco Median House Sales Prices
by District & Neighborhood

San Francisco Median Condo Sales Prices
by District & Neighborhood

San Francisco Bay Area Real Estate Markets Survey

Note that it is not unusual for median home sales prices to peak for the calendar year in spring (Q2). This is due not only to heightened buyer demand, but also to the extreme seasonality of the luxury home market – more luxury home sales (as a percentage of total sales) pull overall median sales prices up.

Year-over-Year Median Home-Price Appreciation (or Depreciation) Rates

Markets in late 2017 through spring 2018 were very hot virtually throughout the Bay Area – perhaps the hottest they’ve been since 2000, the height of the dotcom boom. In the second half of 2018, markets cooled considerably – besides issues of simple affordability, financial markets saw nerve-wracking volatility and large declines, and interest rates jumped dramatically. Then, in 2019, stock markets recovered to hit new peaks and interest rates hit multi-year lows, and markets heated up again.

However, generally speaking, except for those markets most affected by the slew of local high-tech IPOs – San Francisco and the greater Oakland market – most markets saw either no significant year-over-year appreciation or year-over-year declines in median house sales prices. (Santa Cruz County bucked this trend.) The next major indicator of market direction will come from autumn selling season data: The season runs from early-mid September to early-mid November. Markets then typically go into the mid-winter holiday doldrums for a couple months.

Bay Area & California Long-Term Median House Price Trends

Median House Sales Price Trends by Bay Area County

Compound Annual Home Price Appreciation Rates

When calculating these rates, results can vary enormously depending on the year the calculation begins with. These start with the year 2000 – if we started with 1995 – prices rapidly appreciated between 1995 and 2000 – the rates would jump; if we began with 2007 – the height of the subprime boom – then the rates would drop. (The same issue exists with calculating stock market returns.)

These very approximate calculations do not reflect any of the tax benefits that have applied at various times to home ownership and to the sale of one’s primary residence. And they are based simply on the all-cash purchase price and the sales price, without adjusting for closing costs (or the effect of not paying all cash upon purchase).

Bay Area House & Lot Sizes

Bay Area Median Condo Values

Bay Area Median Dollar per Square Foot Values

Bay Area Luxury Home Markets

Median Sales Prices for Large Homes in Expensive Bay Area Markets

High-end home markets in outlying counties – the four with the lowest percentages in the chart below – have softened considerably, and would typically be considered to be in buyer’s market territory – much more supply than demand. This doesn’t mean, however, that some luxury homes there don’t sell quickly at excellent prices. It does mean that many luxury homes don’t sell without price reductions, or don’t sell at all.

In many ways, average dollar per square foot values give a better indication of what one actually gets for one’s dollar in different counties.

Bay Area & U.S. Home Prices, Appreciation Trends & Affordability

The next chart illustrates the dramatic divergence since 2012 between Bay Area home price appreciation – supercharged by the high-tech boom – and the national trend line.

Median 3-Bedroom Home Sales Prices around the Country

Active Listings on the Market

Home Sales Volumes

Bay Area Home Sales by Price Segment

Bay Area Real Estate Market Indicators

Below are a wide variety of standard market statistics broken out by county or region to illustrate respective market conditions, as well as overall trend lines to illustrate the general market direction and the effect of seasonality on supply and demand.

Looking just at 2019 YTD stats, the greater Oakland-Berkeley market has been the strongest in the Bay Area. In San Francisco, the picture is muddied a little by the fact that the city’s house and condo markets have somewhat different dynamics: New-condo construction has increased supply in that segment, while the supply of house listings has declined markedly since 2010, making houses the scarce resource in a high-demand environment.

Price Reductions & Listings Expiring without Selling

San Francisco Bay Area Median House Sales Prices by City

Bay Area Median List Rents

Selected Economic & Demographic Factors

Behind the real estate boom is the stupendous boom in hiring, specifically in the high-tech fields.

Migration & Population Trends

Housing Affordability in the San Francisco Bay Area

Home Prices, Appreciation & Ownership Costs; Affordability Percentages, Household Incomes, Interest Rates, Rents & Homelessness. August 2019 Report – including 30 illustrative charts.

Housing affordability may be the largest social and political issue in the Bay Area, and the effects of low affordability also greatly impact the general economic picture in a wide variety of important ways – from hiring and business relocation, to the ability of “normal working people” (not enriched by the high-tech boom) to live here. Significant demographic shifts are also taking place as some groups move out and others move in.

Generally speaking, affordability percentages – the percentage of county households who could afford to purchase a median-priced house – ticked up in Q2 2019 as compared to Q2 2018: Median home sales prices were relatively stable year-over-year – some counties up a bit, some down a bit, some the same – but interest rates dropped very significantly over the 12 month period. However, affordability percentages remain low by historical standards – and the Bay Area typically has among the lowest in the nation.

Note: Counties contain cities, and cities contain neighborhoods of varying values, market conditions and trends.

Calculations on affordability percentages, home payments and household incomes are based upon the California Association of Realtors Housing Affordability Index, measuring the percentage of county households able to afford to buy a median priced house with a 20% down-payment at prevailing mortgage interest rates.

The next 2 charts are excerpted from the very in-depth report, “Bay Area Homelessness: A Regional View of a Regional Crisis” put out by Bay Area Council Economic Institute, published April 2019.

It is impossible to know how median and average value statistics apply to any particular home without a specific comparative market analysis. These analyses were made in good faith with data from sources deemed reliable, but may contain errors and are subject to revision. It is not our intent to convince you of a particular position, but to attempt to provide straightforward data and analysis, so you can make your own informed decisions. Median and average statistics are enormous generalities: There are hundreds of different markets in San Francisco and the Bay Area, each with its own unique dynamics. Median prices and average dollar per square foot values can be and often are affected by other factors besides changes in fair market value. Longer term trends are much more meaningful than short-term.

Napa County Real Estate August 2019 Report

Sales & Values by City, Price Segment & Lot Size; Luxury Home Sales; Market Seasonality; Market Indicators by City; Foreign Homebuyers.

A Breakdown of Sales by Price Segment

Sales, Prices & Home Sizes by Lot Size

In San Francisco, houses selling for $8 million and houses selling for $800,000 can both be found on lots under 1/8 of an acre. In Napa and Sonoma Counties, lot size is a major factor in home size and price.

Higher-Price Home Sales

Seasonality, Inventory & Buyer Demand

New listings coming on market, the total number of active listings, and the number of listings going into contract – these all ebb and flow very dramatically by season. Activity typically peaks in late spring or summer, then begins the decline that hits its annual low point in mid-winter.

Though year-over-year inventory levels have been higher than in the past two years, they are not particularly high by historical measures.

As measured by listings going into contract, it was a strong spring. (These numbers will adjust downward a bit if transactions subsequently fall out of contract before closing sale.)

Selected Market Indicators by City

Though there are many factors at play, it’s not unusual for more expensive markets to have softer dynamics as measured by the 2 standard statistics below. The more expensive the home, the smaller the pool of potential buyers. It is also true that more expensive markets are often more prone to overpricing. These are generalities: Some high-end listings grab buyers’ attention and sell quickly.

Market Dynamics by Price Segment

Around the Bay Area in recent years, the supply and demand dynamic has often been closely associated with price range. Generally speaking, buyer demand as compared to the supply of listings available to purchase has been weaker as homes get more expensive.

In the $2 million to $4 million segment, for every 10 homes that sold in Q2 2019, 8 were pulled off the market without selling.

Home Purchases by Foreign Nationals Tumble

According to a new report by the National Association of Realtors – based on a survey of its member agents – the purchase of U.S. homes by foreign nationals plunged in the 12 months through March 2019. California, and the Bay Area in particular, have been top destinations for international homebuyers.

Stock Markets Hit a New High

The last 12 months have been an extremely dramatic time for financial markets as illustrated below. The alternating confidence and fear generated by its swings have been considerable factors in real estate markets. A parallel dynamic has occurred with the large swings in interest rates.

San Francisco Real Estate August 2019 Report

Sales & Values by District and Price Segment, Special Circumstance Sales, Market Seasonality, the Luxury Home Market & Foreign Buyers. The May Case-Shiller Home Price Index was released in late July for the 5-county SF metro area. This chart illustrates the difference in appreciation rates between the Bay Area (higher price markets) and the entire country. Case-Shiller does not use median sales prices but its own algorithm to calculate appreciation. January 2000 home price = 100; 250 = a home price 150% above that of Jan. 2000.

Needless to say, there are many factors behind home sales and values in different communities. Home size is one of them, and median sales prices are not apples to apples comparisons: For example, in Pacific Heights, the average house size is over 4000 square feet, while in Sunnyside, it runs about 1500 square feet.

Note that it is not uncommon for median sales prices to peak for the year in Q2.

Market Dynamics by Realtor District

Q2 is commonly the hottest market of the calendar year, and the statistics below generally reflect a very strong spring 2019 market.

Home Sales by Price Range

Of homes selling for under $1,000,000, over 80% were condos, co-ops and TICs, and most of those were smaller units.

Tenants, Fixer-Uppers, Homes without Parking, Homes with Golden Gate Bridge Views

Market Seasonality: The Autumn Spike,
Then the Winter Doldrums

Though spring is the biggest overall selling season in San Francisco, the single month with the highest number of new listings is typically September. This big surge fuels the relatively short autumn selling season – highlighted by the dramatic spike in sales in October. In November, activity begins to plunge for the mid-winter holidays – though homes continue to sell in every season.

Seasonality: New Listings by Month

New Listings – Long-Term Trends,
12-Month Rolling Figures

Seasonality: Listings Going into Contract
by Month

Higher-Price Home Sales

The central greater Noe-Eureka-Cole Valleys district now has the highest number of home sales over $2 million, but the northern Pacific Heights-Cow Hollow district dominates sales of $5 million and above.

The SF luxury home market is even more dramatically driven by seasonality than the general market. September often sees a tremendous burst of new listings. October is sometimes the single month with the most luxury house sales.

Long-Term Appreciation Trends by District

Though prices vary, appreciation trend lines since the recovery began in 2012 are often relatively similar.

In the next chart, we combine house sales across the swathe of older, prestige neighborhoods that run across the north of the city – generally speaking, a region of larger houses and higher prices. (Putting them on the chart above would flatten the other trend lines due to issues of scale.) None of these neighborhoods have that many sales – and some have very, very few – so we combine them to increase statistical reliability. Though they are all high-price, prices do vary considerably between them.

Median Two-Bedroom Condo Prices
by Realtor District

There is significantly less variation in condo prices in most of the neighborhoods of SF than there is with houses. Much of this has to do with all the new construction that has occurred in the last 20 years. Probably the greatest differences in condo values are between those on lower floors and those on higher floors of new luxury high-rises.

Percentage of Sales Selling for Over List Price
by Property Type

Median Percentage of Sales Price to List Price
by Property Type

Foreign National Home Buying Tumbles

According to a new report by the National Association of Realtors – based on a survey of its member agents – the purchase of U.S. homes by foreign nationals plunged in the 12 months through March 2019. The drop was particularly steep for Chinese nationals, for whom California (and the Bay Area, in particular) has been the top destination.

Stock Market Hits New High

The last 12 months have been an extremely dramatic time for financial markets as illustrated below. The alternating confidence and fear generated by its swings have been considerable factors in Bay Area real estate markets. A parallel dynamic has occurred with the swings in interest rates.

The spring burst in high-tech IPOs in San Francisco also played a role in the heat of the Q2 market.