REPORT TO THE MOBILEHOME PARK RENT REVIEW AND STABILIZATION COMMISSION
November 21, 2023
FROM: ANDREW JANZ, City Attorney
Office of the City Attorney
BY: SARAH PAPAZIAN, Senior Deputy City Attorney
Office of the City Attorney
SUBJECT
Title
Actions pertaining to Harmony Communities’ (Harmony or Owner) rent increase application (Application) for La Hacienda Mobile Estates (the Park).
Take one of the following actions:
i. APPROVE the full $350.00 rent increase requested by Owner; OR
ii. APPROVE the 6.6% rent increase permitted automatically pursuant to Fresno Municipal Code (FMC) Section 12-2014 plus an additional amount determined to be just, fair, and reasonable pursuant to FMC Section 12-2012; OR
iii. APPROVE only the 6.6% rent increase permitted automatically pursuant to FMC Section 12-2014.
.Body
RECOMMENDATION
Staff recommends that, after opening the public hearing, hearing the presentations, and taking public comment, the Mobilehome Park Rent Review and Stabilization Commission (Commission) approve the $24.92 rent increase permitted automatically pursuant to City ordinance, plus an additional amount determined by the Commission to be just, fair, and reasonable.
EXECUTIVE SUMMARY
On May 30, 2023, Harmony Communities, owner of the La Hacienda Mobile Estates, served the City with a copy of their 2023 rent increase application (Application). On June 6, 2023, the La Hacienda Residents Committee (Residents) served the City with a copy of the residents voting results on the Application. On July 10, 2023, Owner served the City with a Request for Commission Proceedings pursuant to FMC section 12-2010(b)(2).
In the Application, Owner notated that the average rent of affected spaces was $377.58 and requested a total rent increase of $350.00 dollars per space. $24.92 of that was attributed to the automatic rent increase tied into the Consumer Price Index for the previous year, as authorized under FMC 12-2014. The remaining $325.08 was attributed to (1) comparable mobilehome spaces in comparable parks; (2) completion of capital improvements or rehabilitation work; and (3) a just and reasonable rate of return on the owner’s investment. If the Owner were to raise the rent by that full amount, the average rent within the park would be $727.58 per month - a 93% increase.
On November 4, 2023, Residents served the City with a copy of their report in opposition to the proposed rent increase (Opposition Report) pursuant to FMC section 12-2011(d) and Commission Bylaws Article 4, Section 14. This report petitioned for a full denial of any rent increase. On November 6, 2023, Owner objected to the submission as untimely pursuant to FMC sections 12-2003(e) and 12-2011(d). The Commission may determine whether or not to consider the Opposition Report in light of Owner’s objection.
Ultimately, following review of the Application and completion of the hearing, the Commission must determine what amount is a just, fair, and reasonable rent increase. At a minimum, that amount should include the 6.6% automatic increase.
SPECIAL MEETING UPDATE: Both Owner and Residents presented supplemental information to Staff, pursuant to their agreement at the November 14, 2023 Commission meeting to, “ submit documentation substantiating costs in a clear and concise fashion.”
BACKGROUND
The City of Fresno Mobilehome Park Rent Review and Stabilization Ordinance established the Commission to act as arbitrators when mobilehome park owners and residents could not come to an accord on a fair and reasonable rent increase. The Commission’s purpose is twofold - both to protect mobilehome park residents from excessive rent increases, and at the same time provide mobilehome park owners a level of rent sufficient to provide a just, fair, and reasonable return on their investment and to cover increased costs of repairs, maintenance, rehabilitation, capital improvements, services, amenities, upkeep, and insurance. (FMC § 12-2002(b).)
To perform this duty, the Commission must review the Owner’s Application and any other documentary evidence submitted, then hold a hearing where both the Owner and the Residents have an opportunity to provide evidence of what amount would be a fair and reasonable increase in rent. The Commission may take up to ten days after the closing of the hearing to make a decision on the application. Commissioners may elect to schedule a special meeting within ten days to make the final decision. FMC section 12-2012 establishes the main relevant factors a “fair, just, and reasonable” rent increase can stem from. When applying for a non-automatic rent increase, Owners are required to assert which factors of section 12-2012 are relevant to their specific situation, and provide supporting documentation for each.
FMC section 12-2014 establishes that mobilehome park owners are permitted to automatically raise their rent by 75% of the previous year’s annual Consumer Price Index (CPI) once a year. This amount is not subject to vote by the park’s Residents’ Committee or adjudication by the Commission. For 2023, the automatic CPI increase was 75% of 8.8%, or 6.6%.
Summary of Application. Page two of the Application displays a summary of the relevant factors, including current average park rent, requested increase amount, and reasonings for non-automatic rent increase.
The twelve-page Application is accompanied by 990 pages of Exhibits. The three Exhibits are intended to substantiate the three “fair, just, and reasonable” rent increase factors identified by the Owner as relevant: FMC section 12-2012, subsections (c), (e), and (k).
- Exhibit A, titled “Comparable Rents” and encompassing pages 12 to 310, is provided to substantiate “[r]ent lawfully charged for comparable mobilehome spaces in comparable mobilehome parks.” (FMC § 12-2012(c).)
- Exhibit B, titled “City-Mandated Rehabilitation Costs” and encompassing pages 311 to 983, is provided to substantiate the “completion of any capital improvements or rehabilitation work related to or benefiting the mobilehome spaces specified in the rent increase application and the cost of such improvements or work, including but not limited to costs for materials, labor, construction interest, permit fees and other items.” (FMC § 12-2012(e).)
- Exhibit C, titled “Just and Reasonable Rate of Return on the Owner’s Investment” and encompassing pages 984 to 1002, is provided to substantiate a “just and reasonable rate of return on the owner's investment in the mobilehome park. A just and reasonable rate of return shall be one high enough to encourage good management, reward efficiency, discourage flight of capital from the mobilehome park and enable the owner to maintain its credit, shall be commensurate with returns in enterprises comparable to the subject mobilehome park, but shall not be so high as to defeat the purpose of this article to protect residents against excessive rent increases.” (FMC § 12-2012(k).)
Staff Analysis of Exhibit A: Comparable Mobilehome Spaces in Comparable Parks.
Owner submitted a list of nineteen parks and some data on their average rent, ranging from 2011 to 2023 (Page 13 of the Application). Owner adjusted the past data for inflation and added $63.22 for “water and trash” being included, and then took the average of those new totals, arriving at $594.17. Staff has some concerns about both the data and methods used to arrive at this figure.
It is important to note that of the nineteen parks Owner utilizes in the Exhibit, seventeen are located within the City of Fresno. The other two, Westwinds and Shady Lakes, are located outside of the City. They are also the only other parks on the list owned by Owner.
Below is a table including the Inflation Adjusted rents as seen on page 13 of the Application, as well as a list of amenities and utilities included in monthly rent as compiled by staff.
|
Park |
Inflation Adjusted Rent per App. |
Amenities at Park |
Utilities Included in Rent |
|
San Joaquin Estates |
$395.78 |
Off-street Parking, Clubhouse, Swimming Pool |
Water, but not trash |
|
Sunset West |
$408.52 |
Clubhouse, Swimming Pool, Laundry Facilities, Showers, Restrooms, RV pull through spaces |
Unknown |
|
Town & Country |
$440.76 |
Clubhouse, Playground, Swimming Pools, Laundry Facilities |
Water, but not trash |
|
Sierra Mobile Park |
$472.04 |
Off-street Parking |
Both trash & water |
|
Franciscan |
$472.83 |
Off-street Parking, Clubhouse, Playground, Swimming Pools, Laundry Facilities |
Trash, but not water |
|
Woodward Bluffs |
$480.47 |
Off-street Parking, Playground, Clubhouse, Swimming Pool, Spa, Shuffleboard Court, Billiards Room, Library, Laundry Facilities, Fitness Center, Boat & RV Storage |
Both trash & water |
|
Three Palms |
$482.60 |
Off-Street Parking, Swimming Pool, Laundry Facilities, Showers, Restrooms |
Neither |
|
Sunnyside (now Ashwood Place) |
$484.47 |
Off-street Parking, Clubhouse, Swimming Pool, Laundry Facilities |
Both trash & water |
|
Villa Capri |
$494.26 |
Off-street Parking, Swimming Pool, Spa |
Both trash & water |
|
Millbrook |
$497.43 |
Swimming Pool, Laundry Facilities |
Neither |
|
Alhambra II |
$513.56 |
Off-Street Parking, Swimming Pool, Laundry Facilities |
Neither |
|
Four Seasons |
$566.87 |
Gated, Off-Street Parking, Playground, Clubhouse, Swimming Pool, Basketball Court, Billiards Room, Laundry Facilities, Fitness Center, Game Room, Library, Boat & RV Storage |
Water, but not trash |
|
Fresno Mobile Estates |
$571.72 |
Gated Swimming Pool, Laundry Facilities |
Neither |
|
Westwinds** |
$595.00 |
None |
Unknown |
|
San Joaquin Village |
$664.82 |
Off-street Parking, Playground, Clubhouse, Swimming Pool, Spa, Laundry Facilities, Library, Billiards Room, RV Storage |
Neither |
|
Willows of Santiago |
$614.11 |
Playground, Clubhouse, Spa, Swimming Pool, Basketball Court, Billiards Room, Library, Fitness Center |
Neither |
|
Shady Lakes** |
$630.38 |
None |
Unknown |
|
Westlake Park |
$645.95 |
Off-street Parking, Clubhouse, Swimming Pool |
Unknown |
|
Country Living |
$656.44 |
Gated, Clubhouse, Swimming Pool, Spa, Billiards Room, Laundry Facilities, Library, Boat & RV Storage |
Both trash & water |
**This park is not located within the City of Fresno, and is also owned by Harmony
Defining Comparable Parks
To determine an appropriate rent increase based on the comparison of La Hacienda to other parks, it is important to consider the amenities offered by each park. La Hacienda does not have any amenities to speak of; it does not have a clubhouse, playground, swimming pool, laundry facilities, or any other common buildings or areas, though there is a limited amount of off-street parking on one side of each road. With the exception of the two parks located outside of the City, the only park without any amenities would be Sierra Mobile Park, with an average rent adjusted for inflation of $472.04 per month. All other parks cited in the Application have at a minimum a clubhouse and a swimming pool, and the majority of those above $600 per month include additional amenities or recreational facilities such as playgrounds, spas, laundry facilities, basketball courts, or billiards rooms.
La Hacienda is located off of West Sierra Avenue, just east of North Blackstone Avenue. The park located closest is Villa Capri, located off of West Herndon Avenue just west of North Blackstone Avenue. The average rent adjusted for inflation at that park is $494.26, and that park offers a swimming pool and spa as amenities.
Utilities
As to the additional $63.22 for utilities, Owner has not submitted any information showing that the rents at these nineteen other parks do not already include utilities. Staff contacted the offices of each of the parks directly to acquire this information. Of the fifteen parks that responded, over half of them include at least one of the two utilities in the cost of monthly rent, and five of them include both. The five that include both utilities in the monthly rent include Sierra Mobile Park (the City park most comparable in amenities), Villa Capri (the City park most comparable in location), Woodward Bluffs, Sunnyside, and Country Living.
Staff Analysis of Exhibit B: Completion of Any Capital Improvements or Rehabilitation Work (City-Mandated Rehabilitation Costs).
Owner submitted a spreadsheet asserting that $402,223.54 was spent to rehabilitate the Property (page 312 of the Application), and attached various documents from County of Fresno Superior Court Case No. 21CECG02816 (a Health and Safety Receivership) and invoices associated with work at the park from September 2021 to December 2022.
Owner Already Received the Benefit for a Majority of their Capital Improvements
In the course of Owner’s negotiations to purchase the Park, it was agreed that Owner would incur the costs of rehabilitation, up to $300,000 dollars, which would be credited towards the purchase price upon close of escrow. Further details of the agreement are memorialized in the Fifth Report of Receiver (page 606 of the Application), and the draft Amendment to Standard Offer (page 630 of the Application). A fully executed copy of that Amendment was acquired by staff. That $300,000 benefit conferred on Owner in the course of purchasing the park should be accounted for to determine a rent increase amount that is truly just, fair, and reasonable to both Residents and Owner. Removing that amount from the calculations leaves a remaining total of $102,223.54
Duplicate Charges/Charges Not Paid For By Owner
Some of the invoices appear to be duplicates, with preliminary versions submitted along with the final version. For example, four invoices identical in form were submitted for “PR 05/02/22-05/15/22, Gross, Taxes, WC, Fees.” (pages 886-889 of the Application). They all have the same date, invoice number, PO number, and item description. Similarly, the invoices for “PR 05/16/22-05/29/22, Gross, Taxes, WC, Fees” (pages 894-897 of the Application), “PR 05/30/22-06/12/22, Gross, Taxes, WC, Fees” (pages 905-908 of the Application), and “PR Reimbursement - WE 2022-03-20” (pages 910 and 917 of the Application) demonstrate the same issue.
There are two instances where it appears that two separate companies billed La Hacienda MHC for the work of a single person. There are invoices from both PPM Maintenance and Harmony Communities for 40 hours of work from a person identified as “Jordan” during the week of August 8-12, 2022 (pages 937-938 of the Application), and again for the week of August 15-19, 2022 (pages 939 and 944 of the Application). PPM Maintenance billed La Hacienda MHC for 14 hours of work from a person identified as “John G” for the week ending on September 16, 2022, and Harmony Communities billed La Hacienda MHC for 20 hours of work from John G for that same week (pages 951-952 of the Application). While the sum of those numbers could still be a reasonable number of hours worked in one week, it may be suspect in light of the two other instances.
The final invoice, located on page 983 of the Application, is for the repaving of 16,619 square feet of pavement throughout the park. This re-pavement happened early in the receivership process, during September 2021. It was so early in the process, in fact, that Harmony was not yet involved in the park. The invoice is signed-off by John Frost, an agent for previous owner of the park, George Santikian. The invoice is also addressed to John Frost, and in the right hand corner are hand written notes indicating this invoice was emailed to George and Emory. In context, that would be George Santikian, and Emory Wishon - the attorney for the previous owners. Further, John Frost submitted a declaration signed under penalty of perjury on November 1, 2021 as part of the receivership case, asserting that he oversaw the repaving at the direction of the previous owners. In light of that information, the invoice for repaving was not paid for by Owner and should not have been included in the application. Eliminating that charge, as well as the smaller duplicate charges, and leaving the lone charge of greatest value among each set of duplicates, results in a reduction of $49,473.93 and a remaining total of $52,749.61.
Costs Not Mandated By City
Some of the invoices are from after September 29, 2022, when the City had approved the rehabilitation of the park’s health and safety violations through the receivership and reinstated the Permit to Operate. This is corroborated in the Stipulation of Parties found on pages 873-880 of the Application, and the Order Discharging Receiver found on pages 881-883 of the Application. While the FMC does not require that rehabilitation costs incurred be due to City mandate to be considered during a Commission hearing, it is of note as Owner structured Exhibit B as if they were. If those costs were to be eliminated from the calculations, it would result in a reduction of $10,929.89 and a remaining total of $41,819.72. But as previously stated, there is no mandate under the FMC that the capital improvement costs claimed by Owner be due to Court or City mandates.
Staff Analysis of Exhibit C: A Just and Reasonable Rate of Return on the Owner’s Investment.
Owner submitted a spreadsheet with figures for various expenses, including but not limited to taxes, offsite management, insurance, permits, onsite management, and administrative costs (Page 985 of the Application). The spreadsheet asserts that the supporting documentation for the spreadsheet is attached thereafter, but the documents occupying pages 986 to 1002 are the documents associated with the sale of the park from receiver to Owner (agreement for purchase, addendum to the agreement, property information sheet, and seller’s mandatory disclosures). No other documentation was submitted - there is nothing to substantiate any of the expenses listed by Owner in the spreadsheet.
Summary of Residents’ Committee’s Opposition Report. The 400 page Opposition Report includes many of the points already independently analyzed by staff and outlined above, and provides a timeline of actions at the park for the past few years. Among the twenty-one exhibits is a sales brochure from Marcus & Milichap, advertising that the park is for sale and will be delivered vacant at closing (Exhibit 3, pages 62-81 of the Opposition Report).
In response to Exhibit A, Residents argue that none of the nineteen listed parks are comparable in terms of amenities and location, and quotes space rent costs for several parks based on past Zillow listings and websites (pages 25-41 of the Opposition Report). As previously stated, Sierra Mobile Park is comparable in terms of amenities, and Villa Capri is comparable in terms of location, being only one major intersection away to the north and west.
Novel Points Proffered by Opposition Report
Approximately Half of the Units are Vacant
Residents allege that the park is half-vacant due to Owner evicting residents, and that Owner should not be able to increase the burden placed on the remaining half to make up the income lost from so many vacant spaces (pages 2-3 of the Opposition Report). To corroborate the allegation that the park is half-vacant, Residents point to the spreadsheet Owner submitted on page 985 of the Application, which allege a 50% vacancy rate (page 16 of the Opposition Report).
Staff independently inspected the park and tallied which lots were vacant with no unit, or had a unit that was boarded up (both of which would indicate a vacancy), and lots that had a non-boarded unit and an operable-appearing car (which would indicate a current tenancy). Staff found that fifteen units were vacant, fourteen were boarded up, twenty-nine appeared to have current tenancies, and two could not be determined. It should be noted that some of the vacant units were vacant prior to Owner acquiring the park - Spaces 22, 23, 24, 28 are vacant and have been since two fires in mid-2021, and Space 11 has also been vacant since that time.
Lack of Meet and Confer
Residents preemptively argue that they were obstructed from meeting and conferring with Owner regarding the concerns and issues in the Application, and therefore couldn’t notify the Owner of additional information or documents required, per FMC section 12-2009(c) (page 22 of the Opposition Report). Presently, Owner has not made such an argument, though based on the letter sent from Owner to residents dated August 29, 2023, it appears Owner has blamed the failure to meet and confer on the Chair of the Residents’ Committee (Exhibit 15, pages 371-373 of the Opposition Report).
Residents argue that Residents’ counsel reached out to Owner and his known attorneys to determine who was representing Owner in the present matter, as California rules for attorneys prohibit speaking with a represented person without consent of their attorney (pages 22-23 and Exhibit 13, pages 338-342 of the Opposition Report). Of the four attorneys contacted, only one responded, stating she was not representing Owner for the rent increase application. Owner refused to respond to the request, and further, refused again when asked during a deposition (Exhibit 20, pages 394-396 of the Opposition Report). Owner’s response when asked during deposition lends credence to Residents’ argument that Owner’s own actions precluded the meet and confer from taking place.
Alleged Inaccuracies in Application Form MRR 1-3
Residents assert two types of inaccuracies in Application’s Form MRR 1-3 on pages 3-9: inaccurate occupancy information and inaccurate space rent information (pages 7-9 and 20-22 of the Opposition Report). As to occupancy information, Residents list eight units marked as vacant on the form that they assert are occupied, or were as of May 2023 when the application was submitted: Spaces 12, 10D, 15A, 20, 31, 41, and 48. Exhibit 4 includes two resident profiles for Spaces 41 and 48 supporting the assertion (Exhibit 4, pages 111 and 121 of the Opposition Report), and Fresno County Superior Court case numbers are provided for Spaces 20 and 34 supporting that assertion. No supporting documentation is provided for Spaces 12, 10D, 15A, or 31.
As to space rent information, Residents list twenty-five units that are marked as having a monthly rent of $495 on the form (pages 9 and 21 of the Opposition Report), and argue that Owner submitted a court filing stating that rent for all spaces in the park was $300, in contradiction with the $495 listed on the form. To support that argument Residents submitted the amended complaint for Fresno County Superior Court Case No. 23CECL00335, where Owner’s attorney does state that the space rent for all spaces in the park is $300 per month, and a declaration for Fresno County Superior Court Case No. 23CECG01440, where the resident of Space 34 - one of the lots marked as paying $495 in the form - states that her space rent is $300 per month (Exhibits 17 & 18, pages 377-388 of the Opposition Report). Residents also point to the declarations submitted to the Fresno City Council as part of a separate Report in Opposition (Exhibit 4, pages 155-184 of the Opposition Report). Of those fifteen declarations, eleven state their monthly space rent is $300 (Spaces 29C, 41, 26, 38, 1, 30, 29A, 5, 4, 43, and 48), three do not state what their monthly space rent is (Spaces 15C, 10F, and 32), and one declaration notably contradicts Residents’ assertion by stating her space rent is $386 per month (page 161 of the Opposition Report). Of all the statements provided, the presence of the assertion that all rents are $300 in a pleading submitted by Owner is most persuasive. With the presumption that the average rent in the park is indeed $300, the permitted automatic CPI rent increase would be $19.80, not $24.92.
Conclusion. The Commission must determine a rent increase amount that is just, fair, and reasonable to both Residents and Owner. In light of the documentation presented in the Application and the information available to staff at the time this report was prepared, there does not appear to be substantial evidence to support a finding that the full 93% proposed rent increase would just, fair, and reasonable to Residents. On the other hand, the absolute minimum of the automatic CPI rent increase ($24.92 based on Owner’s calculations, $19.80 based on Residents’ calculations) does not appear to provide a just, fair, and reasonable return on Owner’s investment. Staff has provided a comparison chart below of the quantitative values put forth in the Application and what staff has assessed. Before reaching any decision, however, staff recommends that the Commission hold the public hearing to allow Owner and Residents to confer or substantiate any relevant information, as discussed above.
|
|
|
On Application |
Staff Assessment |
|
Exhibit A |
Comparable Rent |
$ 594.17 |
$ 472.04 - 494.26 |
|
(Page 13) |
|
|
|
|
|
|
|
|
|
Exhibit B |
Costs of Rehabilitation |
$ 402,223.54 |
$ 52,749.61 |
|
(Page 312) |
|
|
|
|
|
Number of Spaces |
60 |
60 |
|
|
Rehab Cost Per Space |
$ 6,703.73 |
$ 879.16 |
|
|
|
|
|
|
|
Cost Per Space |
$ 558.64 |
$ 73.26 |
|
|
Average Rent + Cost Per Space (If Avg. is $350) |
$ 936.22 |
$ 423.26 |
|
|
Average Rent + Cost Per Space (If Avg. is $300) |
$ 886.22 |
$ 373.26 |
|
|
|
|
|
|
Exhibit C (Page 985) |
Various Expenses |
$ 217,607.52 |
Unsubstantiated; cannot analyze |
|
|
|
|
|
|
|
|
|
|
ENVIRONMENTAL FINDINGS. Pursuant to California Environmental Quality Act (CEQA) Guidelines Section 15378, the Commission’s consideration of the Application is not a CEQA “project”.
LOCAL PREFERENCE Not applicable.
FISCAL IMPACT This matter does not impact the General Fund.
Attachments: 1. La Hacienda 2023 Rent Increase Application
2. La Hacienda Residents Voting Results
3. Request for Commission Proceedings dated July 7, 2023
4. La Hacienda Rent Control Committee’s Opposition
5. Letters re CPI Index for 2023 dated November 16, 2022
6. Notice of Public Hearing dated October 27, 2023
7. Addendum to Sales Agreement dated March 8, 2022
8. Declaration of John Frost dated November 1, 2021
9. Spreadsheet Analyzing Application Exhibit B
10. Rent Increase Application Findings Matrix
11. Owner’s Supplemental Materials (November 13, 2023)
12. Public Comment
13. PowerPoint - La Hacienda Rent Control Committee
14. PowerPoint - Staff Report
15. Additional Public Comment
16. Rent Review Committee Supplemental Memo
17. La Hacienda Mobile Estates Supplemental Memo, including Exhibits A-G
Exhibit A: Rate of Return analysis
Exhibit B: Brian Eid CV
Exhibit C: Profit & Loss
Exhibit D:Risk and liquidity v. return
Exhibit E:Babak CV
Exhibit F:Appendix B, Market Research
Exhibit G: La Hacienda Rehab Expenses.
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