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Q&A: Los Angeles-based Developer Bob Champion on Rent Control in California

How Multifamily Developer Plans to Make His Hollywood Project Work
June 13, 2018

Californians will have their say at the ballot box come November about whether to limit rising rents statewide.

But Bob Champion isn’t waiting.

The founder and chief executive of Champion Real Estate Company has already voluntarily proposed to make the units in his planned multifamily project at 6220 Yucca St. in Hollywood, CA rent controlled.

The high-rise will be built near the Capitol Records building in the center of Hollywood, an area where multifamily is booming. Construction on 6220 Yucca is scheduled to begin mid-2020 with a projected completion date of 2023.

The project will have 17 affordable housing units, according to Champion.

Rent control in Los Angeles, generally, applies to buildings built before 1978. Under the city's "Rent Stabilization Ordinance," rent can only be raised 3 percent every 12 months.

Champion said he didn’t come to his decision regarding rent control lightly. CoStar Group caught up with the multifamily developer to discuss rent control policies, what it means for this project and the larger housing issues, and what reactions he's gotten so far.

"We felt we needed to make a big enough statement to the community for them to understand that we’re not just trying to build a project and make a profit, that we are also recognizing a community need," he said.

CoStar News: Why did you decide to make 6220 Yucca a rent-controlled project?

Bob Champion: » I made that decision because I recognize that there are political forces at work in the city of Los Angeles, and as a developer we are viewed a certain way by a large amount of the population. I think some of the widely-held views about developers, about us in particular, are unfair. Although we are motivated to build housing and make a profit, we also feel a responsibility to the community, and we also feel a responsibility to the greater needs of the larger community, in this case statewide issues like homelessness and housing affordability.

Do you think rent control works?

» Rent control protects a minority of the entire existing renter pool and often protects renters in low density projects and makes it more difficult for those properties to be redeveloped into higher density projects, creating more housing and addressing the housing crisis in a better manner.

How will 6220 Yucca work financially?

» Under the city’s present rent control law, when we build the project, we can actually build it and initially rent it at market rent. So rent control does not affect the initial economics of the deal. But what L.A.’s rent control law then says, once we lease the new unit it becomes part of rent control and as long as tenants in these new units stay, they are protected by rent control. We are limited to increasing their rent to the guidelines set forth in the rent control law.

If the surrounding community has rent growth that is greater than what’s allowed by the rent control law, we would be penalized in that we wouldn’t be able to raise our rents the same as other building not subject to rent control, thereby making our building less attractive to investors and reducing our profits if we elect to sell.

The other thing that the rent control law does is allow tenants who rent our units to remain in those units so long as they don’t default on their lease. In a non-rent controlled building, if we signed a one-year lease, at the end of that one year, we would have the right as the property owner to decide to terminate that lease and rent to somebody else. Under rent control, we don’t have that right.

Finally, under rent control we come under the supervision of the Los Angeles Housing and Community Investment Department. In a non-rent controlled- building, if we disagreed with a tenant about maintenance of the unit or the building, we could elect not to renew their lease. Under rent control, we are at the mercy of whatever the housing department says, and we don’t always share the same opinion with the Housing Department.

What else makes this project pencil?

» The project currently pencils because we are getting increased height, density and floor area ratio that we would not get without affordables. Making the project rent controlled is just one component we are using to build a consensus of support for our project and trying to demonstrate a model for responsible development. Another is the offer we have made to existing tenants in the building.

Under the Ellis Act we can remove existing tenants in the building for redevelopment by making a payment to them. As an alternative, we have offered existing tenants the right to relocate in the new development, when completed, at the same rent they would have been paying in the old building. And we are offering to subsidize their rent in a temporary unit nearby during the development period.

What kind of reaction have you received?

» I have had a lot of developers contact me and ask me if I was out of my mind about this decision. I responded that I felt that it was necessary for this project. I told them I respect their opinions, but I felt it was the right thing to do for this project. What they said is my decision may put more pressure on them to do it, and they weren’t happy about it. I understand this, but I pointed out that it was a decision for this project alone given the increased density, FAR and height.

Is rent control the answer?

» There is a belief by a large segment of the population that rent control will increase affordability of housing or maintain the affordability of housing. My belief, and many academic people who have studied the issue in a non-partisan way, believe it actually does the opposite. Rent control does nothing but protect existing renters that have it and the existing housing stock covered by it. It does not benefit any new renter that comes into the renter pool and wants to rent. It exacerbates the supply side of the housing problem in that it discourages or makes it economically more difficult to redevelop lower density projects that are covered by rent control and doesn’t make a dent in the real issue.

The only way to lower rent is to increase supply above demand.

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