CITY OF LOS ANGELES CALIFORNIA

MERCEDES M. MARQUEZ GENERAL MANAGER PUBLIC COUNTERS 3550 WILSHIRE BOULEVARD 15'"FLOOR Ls ANGELES, CA 90010 6640 VAN NUYS BOULEVARD VAN NUYS, CA 91405 3415 SUTH SEPULVEDA BOULEVARD SUITE 150 Ls ANGELES, CA 90034 CITY OF LOS ANGELES CALIFORNIA JAMES K. HAHN MAYOR Ls ANGELES HOUSING DEPARTMENT (213) 808-8664 FAX(213)80S..8818 RENT STABILIZATION 1200 WEST 7"' SmEET 8TH FLOOR Ls ANGELES, CA 90017 CUSTOMER SERVICE AND INFORMATION (866) 557-RENT 8475 SOUTH VERMONT AVENUE Ls ANGELES, CA 90044 April7,2005 Cuncil File: 01-0593-82 C.D.: All Cntact Persns: Ken Simmns, 213.808.8664 Agnes Lung-Tam, 213.808.8826 James Hildebrandt, 213.808.8823 The Hnrable Members f the Husing, Cmmunity and Ecnmic Develpment Cmmittee Ls Angeles City Cuncil 200 Nrth Spring Street Ls Angeles, CA 90012 Attentin: Jhn White, Legislative Assistant CITY COUNCIL TRANSMITTAL: Re-Rental Prvisins f the State Ellis Act- Reprt Back SUMMARY Thrugh this transmittal, the Ls Angeles Husing Department (LARD) respnds t the directin f the Husing, Cmmunity, and Ecnmic Develpment Cmmittee (HCEDC) t reprt back n three items related t the regulatin frental units fllwing the withdrawal f such units frm the market: 1) enfrcement mechanisms and tenant educatin related t the adptin f prpsed changes in the Rent Stabilizatin Ordinance (RSO); 2) the impact f prpsed changes n wners f small apartment buildings as perceived by bth the Apartment Owners Assciatin and tenant advcacy grups; and 3) a scpe f wrk and related cst estimates fr an ecnmic impact analysis regarding the regulatin f new husing cnstructed n the site f demlished RSO rental units. RECOMMENDATIONS The General Manager, LARD, requests this transmittal be scheduled fr cnsideratin at the earliest pssible meeting and be frwarded t the City Cuncil fr review and apprval. The General Manager, LARD, respectfully further recmmends that City Cuncil take the fllwing actins with the cncurrence fthe Mayr: 1. Authrize LARD t identify a cnsultant fr an ecnmic impact study thrugh the inclusin f such service in LARD's new Request Fr Qualificatins (RFQ) fr husing studies, in cnfrmance with the attached scpe f wrk. AN EQUAL EMPLOYMENT OPPORTUNilY - AFFIRMATIVE ACTION EMPLOYER

Husing, Cmmunity and Ecnmic Develpment Cmmittee Re-Rental Prvisins f the State Ellis Act- Reprt Back Page 2 f4 April 7, 2005 2. Request the City Attrney, with the assistance flard and the Chief Legislative Analyst, t address prpsed changes in the RSO in tw separate rdinances: 1) adpting prvisins fthe state Ellis Act regarding the return f withdrawn rental units t the rental market; and 2) adpting prvisins f the state Ellis Act regarding the regulatin f replacement rental units fllwing the demlitin funits subject t the RSO. BACKGROUND In its August 13, 2004 reprt n there-rental prvisin f the state Ellis Act, LARD recmmended the adptin f six prvisins f the Ellis Act int the RSO, and the cnsideratin f a seventh prvisin regarding the regulatin under the RSO f new rental husing cnstructed n the site f demlished rentals. LARD reprted that regulatin f new replacement husing wuld have ptential impacts n the supply fhusing, thus requiring an analysis befre the regulatin culd be adpted int the Municipal Cde, and recmmended that it reprt back n the anticipated cst f such an analysis if Cuncil wished t pursue this change in the RSO. HCEDC adpted all f LARD's recmmendatins and directed that legislatin be drafted t incrprate all seven prvisins, including the prvisin regarding new replacement husing. The adpted prvisins f the Califrnia Gvernment Cde include the fllwing: 1. The landlrd shall ntify the City f the return f the unit t the rental market [ 7060.4(d)]; 2. Rents shall be cntrlled if the units are returned t market within five years f withdrawal, regardless f the number f new tenancies [ 7060.2(a)]; 3. The landlrd shall be liable fr damages t bth the tenant and the City if the unit is returned t market within tw years [ 7060.2(b)(1&2)]; 4. The tenant has the right t return under pre-evictin terms f tenancy if the unit is re-rented within tw years [ 7060.2(b)(3)]; 5. The tenant has the first right f refusal n units re-rented within ten years [ 7060.2(c)]; 6. The landlrd's bligatins under the Ellis Act wuld be transferred t the new wner [ 7060.3]; and 7. Replacement rental husing cnstructed within five years f withdrawal is subject t the RSO [ 7060.2(d)]. HCEDC further directed LARD t reprt back t that cmmittee n tw items: 1) the enfrcement mechanisms available under the prpsed revised rdinance and the methds the Department wuld use t cnduct tenant educatin; and 2) the perceptins f bth apartment wners and tenant advcates n hw the prpsed changes wuld impact the wners f small apartment buildings.

Husing, Cmmunity and Ecnmic Develpment Cmmittee Re-Rental Prvisins f the State Ellis Act- Reprt Back Page 3 f4 April 7, 2005 DISCUSSION Currently, the RSO assumes that the withdrawal fhusing accmmdatin under the Ellis Act are permanent remvals, and it prvides n mechanism fr their return t the rental market. Similarly, the RSO makes n prvisin fr the regulatin f newly cnstructed rental units that replace demlished RSO units. T allw fr the return fwithdrawn units t the rental market, the fllwing sectins f the Ls Angeles Municipal Cde (LAMC) need t be amended: 1) LAMC 151.06C- vacancy decntrl; 2) 151.09C.4 -landlrd declaratins f intent t evict; 3) 151.09!- re-rental declaratins; and 151.09K-right f first refusal. T allw fr the regulatin f replacement rental husing, LAMC 151.06C will need t be additinally amended. Given the RSO's histry f always exempting new cnstructin regardless f the prir use f a prperty, the number f RSO units affected by demlitin histrically, and the uncertainty f the effect f regulating new replacement units n the supply fhusing, LARD cntinues t recmmend that an ecnmic and related envirnmental analysis f the effects f the re-cntrl prvisins f the Ellis Act be undertaken t supprt such an rdinance change. LARD des nt have the in-huse capacity t cnduct such an analysis, and the Department therefre recmmends that this study be included in LARD's new Request fr Qualificatins (RFQ) fr husing studies cnsultants. Such a study with the attached scpe f wrk, which has been incrprated as Appendix A t the Department's RFQ, is estimated t cst apprximately $50,000 t $75,000. The prpsed Ellis prvisins regarding the return f rental units t the market include prvisins that allw bth the tenant and, in sme instances, the City t take civil actin against a landlrd that vilates the prvisins' requirements. In additin, LARD's new cmpliance divisin will have the respnsibility f mnitring re-rentals and preparing criminal referrals t the City attrney fr the prsecutin frso vilatins related t these prvisins. LARD will prvide tenant educatin n the new prvisins thrugh the preparatin f written materials t be distributed at the varius reginal and satellite ffices, psting n the LARD website, infrmatinal inserts in bills and/r certificates issued by the Department, utreach thrugh the tenant advcacy cmmunity, and public meetings. In additin, tenant rights infrmatin will be incrprated int the Landlrd Declaratin flntent t Evict frms s bth the landlrds and tenants affected by the prvisins will have a clear understanding f the requirements and prcedures mandated by the new prvisins. Based n discussins with representatives f the Apartment Assciatin f Greater Ls Angeles (AAGLA), the landlrd cmmunity anticipates that Ellis demlitins and new cnstructin actins wuld mre likely affect larger develpers than small landlrds, but that sme segment fthe small wner market als wuld be affected. AAGLA further thinks that the landlrd cmmunity wuld see the regulatin f new cnstructin as a fundamental diminutin ftheirrights, and they believe

Husing, Cmmunity and Ecnmic Develpment Cmmittee Re-Rental Prvisins f the State Ellis Act- Reprt Back Page4 f4 April 7, 2005 that this wuld be in cnflict with the state Csta-Hawkins Act. In that regard, they further indicated that they wuld challenge any regulatin f new cnstructin in curt as a test case. Tenant advcates view there-regulatin f replacement husing as desirable because that wuld prvide fr lng-term rental husing that wuld remain affrdable t middle-incme husehlds. They als believe that the Ellis language takes precedence ver Csta-Hawkins. FISCAL IMPACT The prpsed RSO changes regarding the regulatin f existing husing accmmdatins which are returning t the rental market after a prir withdrawal shuld have n impact n the City's General Fund. The undertaking f a study analyzing the effects f regulating new replacement husing wuld be funded frm the Rent Stabilizatin Trust Fund and wuld likewise have n impact n the City's General Fund. T the extent that the regulatin f replacement husing units alters future use f real prperty, such regulatin may have a fiscal impact n the City with regard t fee revenues, infrastructure csts, and ther related items, althugh the level f impact can nt be estimated prir t the undertaking f the prpsed ecnmic analysis. Prepared by: Reviewed by: ~-:0~ ~ESH~DEBRANDT Senir Management Analyst II Reviewed by: ~ Assistant General Manager Apprved by: MERCEDESN.UlRQUEZ General Manager Attachment (1). cc: Hnrable James K. Hahn, Mayr %June Lagmay, Legislative Crdinatr Renata Simril, Deputy Mayr, Husing & Ecnmic Develpment Ylanda Chavez, Executive Directr fhusing & Hmelessness jh2005 016.wpd

APPENDIX A Request fr Qualificatins t Analyze the Impacts f Adding Specific Ellis Act Prvisins t the Rent Stabilizatin Ordinance I. Intrductin And Objective Apprximately 71% f rental husing in the City f Ls Angeles was built befre Octber 1, 1978, and is therefre gverned by the Rent Stabilizatin Ordinance (RSO). The RSO prvides tenants with many prtectins, including limits n annual rent increases, just-cause reasns fr evictins, and relcatin assistance fr n-fault evictins such as ccupancy by the landlrd r demlitin. These prtectins help tenants affrd husing, while allwing wners a just and reasnable return n their rental units. Additinally, due t the RSO's "vacancy decntrl" prvisins, wners are allwed t raise rents t market value when a tenant mves vluntarily r is evicted fr certain specified reasns, such as nn-payment f rent r vilating the rental agreement. Owners are als allwed ther apprved passthrugh increases and the pprtunity t apply fr a just and reasnable rent increase. Despite the RSO prvisins, Ls Angeles cntinues t experience an acute shrtage f affrdable rental husing. This shrtage is further exacerbated when RSO prperties are demlished r remved frm the market and replaced with new rental husing, which is exempt frm the RSO under the "new cnstructin" prvisins (units built after Octber 1, 1978). In 2001, the City Cuncil enacted certain prvisins fthe State Ellis Act (Gvernment Cde Sectin 7060.4), that require landlrds t give the City and tenants 120 days ntice when units are t be withdrawn frm the rental market. Tenants 62 years f age r lder r disabled can request an extensin f the ntice perid t ne year. The City is currently cnsidering amending the RSO, as allwed under Gvernment Cde Sectin 7060.2, t include new rental units cnstructed n a site within five years f an Ellis Act demlitin r withdrawal. T determine the impacts f such an amendment, the City desires that a study be cnducted t: A. Analyze histrical data n rent stabilized apartment demlitins and withdrawals (frm 2000-2004) including: Prir and pst-ellis Act demlitin use, number f units, density, zning allwance, wnership, and rental rate analysis f pre and pst Ellis Act demlitin; Analyze ptential ecnmic impacts f new cnstructin after Ellis Act demlitins/withdrawals t include, but nt be limited t, a pr frma analysis f bth wnership and rental husing mdels, using different scenaris f re-cntrlling rental husing units; and, Analyze the impact f the prpsed amendment n the develper's decisin t build cndminiums r rental husing upn a site.

B. Cnduct an initial study fthe envirnmental impacts f the prpsed changes t the RSO in cnfrmance with Califrnia Envirnmental Quality Act ( CEQA) guidelines. C. Cntractr selectin(s) will be made frm the pl f eligible respndents n the basis f qualificatins relevant t these studies and prir experience with similar studies. The respndent(s) selected t prepare these studies and prvide related services will als be expected t develp a mdel t be used by the City in analyzing ptential prperty demlitins and thse being remved frm service. Cntractr selectin is subject t the apprval f the Mayr and City Cuncil. The City Cuncil wishes t have these studies cmpleted by Octber 2005. Hwever, the City will cnsider respnses which prpse a wrk plan and schedule which wuld prduce the studies by a date later than Octber 2005 if it is in the best interests f the City t d s. D. A funding range f$50,000 t $75,000 will be available t cnduct all aspects fthis prject. ll. Backgrund & Discussin Califrnia Gvernment Cde Sectin 7060 et seq., cmmnly knwn as the Ellis Act, prhibits lcal jurisdictins frm restricting a landlrd's right t remve residential real prperty frm the rental market. Such remvals can cme as a result f the demlitin f rental husing, the cnversin f apartments int cndminiums, r the simple discntinuatin f rental use. At the same time, the Ellis Act allws lcal jurisdictins t bth mitigate the impact f such a remval n tenants and tre-regulate any units that return t the rental market. Subsectin (d) f Gvernment Cde Sec. 7060.2 permits lcal jurisdictins t impse rent cntrls n newly cnstructed units which are cnstructed n a site where earlier husing accmmdatins were demlished, prvided that the new units are ffered fr rent r lease within five years f the date the previus accmmdatins were withdrawn frm the rental market. State law further indicates that this cntrl f new cnstructin wuld be permissible "ntwithstanding any exemptin frm the system f cntrls fr newly cnstructed accmmdatins." In ther wrds, the rents n such newly cnstructed rental units culd be regulated by the City in spite f the prhibitin n regulating units built after Octber 1, 1978 impsed by the Csta-Hawkins Rental Husing Act f 1995. Initial rents fr such replacement units wuld need t prvide a "fair and reasnable return." The City has determined that this requirement shuld be met by allwing replacement units t be initially rented at market rates. The impsitin f cntrls n newly cnstructed replacement husing wuld represent a plicy change in the applicatin f the RSO, which heretfre has always exempted new cnstructin, regardless f the prir use f a prperty. Appendix A-Additinal RFQfr Impact n Amending RSO with Additinal Ellis Act Prvisins 2

Belw is infrmatin n evictins fr the purpse f demlitin which have been filed with the Husing Department during the past five years. Year # fprperties # funits 2000 112 723 2001 64 611 2002 95 804 2003 107 704 2004 212 1,052 5-year ttal 590 3,894 The Cntractr wuld be expected t research City recrds and make any necessary site visits t establish what had ccurred n the prperty since the filing f the demlitin declaratin with the Husing Department. The table belw is a summary f the experience f three ther rent cntrl jurisdictins within the State that cntrl new cnstructin fllwing demlitin f rent stabilized units: Jurisdictin Berkeley San Francisc Santa Mnica Experience Since Ellis was adpted in 1986, Berkeley has seen very little demlitin activity and has fees and restrictin in place t discurage cnd cnversins. Berkeley interprets the fair and reasnable return clause t mean that the landlrd must prvide evidence that prpsed rents fr the new units are necessary t prvide a fair return. Since Ellis was adpted in 1986, n new rental units have been cnstructed fllwing the demlitin f cntrlled units. If sme units were returned t market, initial rents wuld be set by Bard thrugh a cumbersme analytical prcess t determine fair and reasnable return. Since Ellis was adpted in 1986, new cnstructin has been primarily, but nt exclusively, cndminiums. Santa Mnica's rdinance is specific that all newly cnstructed units n the site are subject t rent cntrls, regardless f the number f units that were demlished. Santa Mnica interprets the fair and reasnable return clause fthe Ellis Act t mean that initial rents are at market level. In Santa Mnica, demlished units are being replaced fr the mst part by cndminiums. In cntrast, the Ls Angeles experience is that existing rentals are rarely demlished t build Appendix A-Additinal RFQfr Impact n Amending RSO with Additinal Ellis Act Prvisins 3

cndminiums, but are demlished t create new, higher-density rental husing. The data readily available, hwever, is limited and, in the case f ther jurisdictins, related t husing markets f a different scale than Ls Angeles. As such, it des nt allw an easy cnclusin as t what the effects wuld be ifthe re-cntrl prvisins fthe Ellis Act were adpted by the City. The selected cntractr wuld be expected t cmplete a detailed analysis n hw the current and prpsed Ellis Act prvisins have and wuld impact the City's and ther jurisdictins' husing market. IV. Scpe fresearch A. Analysis f amending the RSO t regulate rents n newly cnstructed units within five years f being withdrawn frm the market. The study must fcus n the fllwing cmpnents: 1. Analyze histrical data n rent stabilized apartment demlitins and withdrawals (frm 2000-2004) including: Prir and pst-ellis Act demlitin use, number f units, density, zning allwance, wnership, and rental rate analysis f pre and pst Ellis Act demlitin; Analyze ptential ecnmic impacts f new cnstructin after Ellis Act demlitins/withdrawals t include, but nt be limited t, a pr frma analysis f bth wnership and rental husing mdels, using different scenaris f re-cntrlling rental husing units; and, Analyze the impact f the prpsed amendment n the develper's decisin t build cndminiums r rental husing upn a site; 2. Ptential impacts frso amendments, including an ecnmic analysis fthe impact t the incme and expense by using a pr frma f at least ne wnership husing mdel and tw rental husing mdels (data t be prvided t prpser and ther surces, t be determined) fr a perid f at least 15 years; 3. Analysis f the prpsed RSO amendment t develper's decisin t build cndminium r rental husing n site f demlished husing, including interviews with a minimum ften (10) develpers f Ellis Act demlitin sites; 4. In the situatin where mre rental units are cnstructed than were withdrawn, the impacts and required enfrcement mechanisms f: 1) subjecting all newly cnstructed units t the RSO; 2) subjecting nly the same number f units t the RSO as were withdrawn, and exempting any additinal units; 5. Other Califrnia cities with rent cntrl laws fr inclusin f Ellis Act prvisins and effects n their rental husing markets; and Appendix A-Additinal RFQfr Impact n Amending RSO with Additinal Ellis Act Prvisins 4

6. Lcal and State legislatin, current and pending, that culd impact these actins. C. Based n the ptential impacts determined in the study, the cnsultant must cnduct an Initial Study f the envirnmental impacts f the prpsed changes t the RSO, in cnfrmance with Califrnia Envirnmental Quality Act (CEQA) guidelines. This part fthe study may be subcntracted t a qualified firm. lfthe respndent will use a subcntractr, the respnse must identify the name and address f the subcntractr, and indicate their qualificatins. D. Respndent(s) selected t cnduct studies may be required t attend meetings that include varius City Departments and ther industry and stakehlder grups. Respndents must have demnstrated experience in cnducting such meetings and the inclusin f such input int the final wrk prduct and recmmendatins. V. Respnse Requirements A. Respnses must be in written frm and shuld be submitted tgether with the Statement f Qualificatin as described in the RFQ fr Husing Studies, Applicatin & Review Prcess (p. 2). The respnse must clearly indicate that the respndent is qualified t perfrm all r aspects f the study. Qualified firm(s)/individual(s) may apply alne r tgether with ther firm(s)/individual(s) as a "prearranged" team. B. Respnses shuld nt be in the frm f a full-blwn prpsal and are limited t a ttal f ten (10) pages (exceptins nted belw). Respnses must include r address the fllwing: 1. A descriptin fhw the respndent will apprach and prepare the study. 2. An estimate f the amunt f time necessary t cmplete the study. 3. A resume f the firm(s)/individual(s) and sample wrk prduct(s) shwing skills relevant t this Ellis Act study. (Nt cunted tward the 10 page limit.) 4. A descriptin fthe breadth and length r experience in research and services assciated with the preparatin f husing nexus studies. 5. Staffing (Nt cunted tward the 10 page limit.) (a) (b) Prvide an rganizatin chart fr the firm clearly identifying the persn hlding each psitin in the firm. Prvide infrmatin abut the persn( s) wh will be assigned t cnduct and prepare the study, including the amunt ftime each will Appendix A-Additinal RFQfr Impact n Amending RSO with Additinal Ellis Act Prvisins 5

spend n related tasks, as well as each persn's ther duties and respnsibilities unrelated t the City's study. The fllwing infrmatin must als be included: Lead Persn - - The name and title f the individual with primary respnsibility fr servicing the City's accunt, including the persn's psitin, relevant experience, educatin, and expertise and specific duties and respnsibilities with respect t the City's accunt. Other Staff --The name and title f ther staff t be assigned t the City's accunt, including the duties and respnsibilities t be undertaken by each, the psitin, relevant experience and expertise f each. 6. Prvide the name, title, telephne number and address f references fr similar studies which the firm(s)/individual(s) has prepared. (Nt cunted tward the 1 0 page limit.) 7. Respndents must disclse any wrk they, r any member f their grup des r has dne, including wrk fr the City f Ls Angeles, that may affect their bjectivity r have the appearance f affecting their bj ectivityin undertaking the assignments cntemplated in cnnectin with the nexus study and related services. VI. Criteria Fr Selectin and Prcedures fr Review and Recmmendatin Respnses will be evaluated by a team which will grade and rank all respnses with respect t criteria specifically develped t examine the technical cmpetence and suitability f prspective cnsultants. Only the respndents wh, based n their written submissins, are the mst qualified will be invited t an ral interview. At the interview, respndents wuld be expected t prvide written prjected methdlgies, csts and timetables fr cmpleting the wrk assignment. Prir t the submissin f recmmendatins t the City Cuncil, the evaluatin team will establish a budget and develp a wrk prgram and a schedule f the wrk prducts t be delivered ver the curse f the cntract perid with the firm(s)/individual(s) t be recmmended. The evaluatin team will submit recmmendatins t the City Cuncil regarding the firm(s)/individual(s) t be selected t prepare the Ellis Act study. The factrs t be used in evaluating each respndent include, but are nt limited t: verall qualificatin and experience f respndent specific qualificatin f individual staffmember(s) t cmplete the varius tasks Appendix A-Additinal RFQfr Impact n Amending RSO with Additinal Ellis Act Prvisins 6

respnsiveness f written respnse t matters utlined in this RFQ availability f staff t be assigned references ability t prvide services prmptly ability t wrk effectively within public sectr result f interviews (please nte: all respndents may nt be invited fr an interview) wrk plan, cst and timetable prjected by respndent, as set frth during the ral interview Cst, pricing and substance will be negtiated with the tp ranked respndent(s). In the event that an agreement cncerning these matters cannt be reached with the tp ranked respndent(s), negtiatins will be pursued with the next ranked respndent(s). VII. Applicatin Prcedures Qualified firm(s)/individual(s) must submit this appendix tgether with materials required fr their Statements f Qualificatin as described n page 5 fthe RFQ fr Husing Studies & Research Cntracts. Please see page 10 f that RFQ fr cntract terms and requirements and general cnditins and reservatins. Each submissin must include an riginally signed statement f qualificatins, plus ten (1 0) cpies fthe statement and accmpanying materials. Submissins which lack the necessary cpies will nt be accepted. Appendix A-Additinal RFQfr Impact n Amending RSO with Additinal Ellis Act Prvisins 7