York & Fig: Confessions of an ambivalent landlord
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Call them confessions of an ambivalent landlord. Simone Shah is a real estate investor in Los Angeles who owns dozens of rental properties, many in gentrification hot spots. When she started to build her portfolio more than a decade ago, she says she hoped it would be “socially responsible.”
“I tried to pay my workers well,” she says. “And at least at the start, I used to keep half of my units reserved for long term residents of the community. Even when I had vacant buildings where I could have gentrified by bringing in white hipsters.”
Recently though, Shah has been questioning her impact on the places where she does business. Shah says she still loves making rundown properties beautiful again. Still loves investing in communities that have struggled from years of disinvestment. But in the last decade, as she has partnered with more and more outside sources of money, she has felt them shift her focus. “The major metric they were looking at was an excel spreadsheet that had how much were we making on each of these investments,” she says.
Shah remembers a debate with a few of her partners over whether they should increase the rent on a tenant by $50. Shah was against it.
“They look at me like ‘That’s just you being a softy again.’” she recalls. “And I get it. We’re allowed to [increase the rent] by law. But sometimes you have a tenant who — that $50 is going to make a big difference to them.”
On a visit to another property she owns, a hilly lot with a few bungalows on it, in a rapidly changing neighborhood called Highland Park, Shah points at one of the units. The woman who lives in it, Shah says, “I don’t think she likes me very much.”
Shah explains that the tenant’s family has lived in the unit for two generations, and because the property falls under rent-stabilization, is paying well under current market rates. When Shah and her investment partners bought the unit, they wanted to rehab it and find a new tenant who would pay more. Shah says she offered the woman $40,000 to move out. The woman refused.
“She said there was no amount of money that I could offer her,” Shah recalls.
These types of tenant buy-out offers are legal. But they can be uncomfortable for Shah.
“It’s particularly hard when someone’s lived there, and their families live close by, and their kids go to the school that they went to school at,” Shah explains. “It’s a really emotional thing. It’s where these people live.”
Shah says some tenants appreciate the buy-out offers, and have used the money to buy houses of their own. But she says others, who have lived in their units for decades, must look at the offers and think, “’You want me to put a monetary value on that? What’s wrong with you?’”
All of which led Shah to a recent decision. She says she is currently dissolving most of her real estate partnerships.
“I got tired of having the type of conversations you get in to when you’re trying to minimize your costs and maximize your returns,” she says.
Shah says she has been talking with attorneys about how to structure and build a new real estate portfolio where the return she maximizes is not just the health of the bottom line, but also the vitality of the community.
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