Statewide Rent Control Passed and Signed Into Law Recently

San Rafael – The California statewide rent control bill, AB1482, was recently signed in to law by Governor Newsom, and will take effect on January 1, 2020. The law restricts rental increases on apartments to 5% annually plus the local CPI index. Currently, the Bay Area CPI index is 2.8%.

Exceptions to property types are condos and duplexes where one unit is owner occupied. In addition, the law allows for a just cause eviction only, where the landlord can only evict tenants if they are late on their rent or violate their existing lease in another way. The law expires in 2030.

It is too soon to tell how Marin County landlords will be affected by this new law, but my advice would be to become thoroughly familiar with it prior to any new rental increases.

Ironically, just as the law passes, the local Marin County rental market has seen a dramatic slowing of rental increases this year, with most of the County seeing increases of less than 2%. Owners are telling me it is taking longer to rent vacant units and the competition from other vacant units is increasing.

Apartment sales have slowed this year, with fewer properties on the market, and many investors on the side lines waiting for prices to come down. In the 2-4 unit category, aggressive pricing on properties has seen them sit on the market for up to six months before an offer comes in. Prices are about 10% off asking now with CAP rates in Southern Marin below 4% and in central and north Marin County around 4.5%. Properties with an owner’s unit bring the most premium prices and as always, location dictates values.

Apartment buildings over 5 units have been selling briskly with a number of transactions in the $7-8 million range for well-located properties up to 24 units. Cap rates for these transactions have ranged from 4.5-5.2%.

Some apartment investors have turned to small office properties and mixed use buildings for better returns. I sold a 50% occupied two story office building in down town Fairfax this summer for $2,800,000 all cash and the new owner was able to rent up the vacant units quickly, bringing his overall return to 6.5%.

If you would like to discuss an addition to your investment portfolio or if you are considering trading out of your current investment, please contact me at 415-302-7730. I can be reached by email at katherine@khiggins.com.