Thursday, February 28, 2008

Prop 98’s passage could land $15 million for Sam Zell’s firm

By John Howard and Anthony York (published Thursday, February 28, 2008)
Capital Weekly

A company run by Sam Zell, the new chairman of the Los Angeles Times’ corporate parent, stands to gain up to $15 million if an eminent domain initiative on the June ballot is approved by California voters.

The initiative, Proposition 98, would repeal rent control ordinances across California, which could lead to a boon for Zell.

Zell, the Tribune Co. chairman, is also chairman of Equity Lifestyle Properties Inc., a Chicago-based company that owns more than 112,000 residential units across the United States and Canada. The company’s 28 properties in California include a dozen rent-controlled mobile home parks.

But Proposition 98 would phase out those rent-control laws. And that could lead to a windfall over time for Zell and his company, according to documents that Equity Lifestyle has filed with the Security and Exchange Commission.

“Certain of our properties located in California are subject to rent control ordinances, some of which not only severely restrict ongoing rent increases, but also prohibit us from increasing rents upon turnover,” Zell’s company told SEC regulators in its 2006 annual financial report.

“The company estimates that the annual rent subsidy to tenants in these jurisdictions may be in excess of $15 million,” Equity Lifestyles stated in the report. “In a more well-balanced regulatory environment, the company would receive market rents that would eliminate the subsidy and homes would trade at or near their intrinsic value.”

Equity Lifestyles has contributed $50,000 to the Yes on 98 campaign, according to documents at the secretary of state’s office.

Zell made his bid for Tribune Co. last spring, and the bid received final approval from the company’s shareholders in December. The Times has written about Proposition 98 and disclosed Zell’s contribution in a Jan. 29 story. The account did not mention the potential windfall for Zell.

The Times will take an editorial position on the initiative closer to Election Day and will not consult Zell or take his role in the campaign into account, said Jim Newton, the Times’ editorial page editor.

“We do intend to make an endorsement in the Proposition 98 race, and we will come to our position as we do with other ballot propositions. The decision will be made by the editorial board,” he said, “but we will not include Zell in that conversation. We will not consider his role in the campaign or any of his financial interests.”

Zell, who was traveling, was unavailable to comment, said his spokeswoman, Terry Holt.

The rent-control fight is not a new one for Zell. Zell’s company has filed several lawsuits against cities across California in efforts to repeal local rent-control ordinances. The company settled a suit with the city of Santa Cruz; the settlement allows the company to increase rents after existing tenants move out.

The company has also been engaged in an ongoing battle with the city of San Rafael in federal court and has been sued by tenants’ rights groups in Marin in response to the company’s efforts to raise rents.

Zell has made a name for himself purchasing what are considered to be undervalued or distressed properties, and seeking changes in laws and regulations to increase their value. A 1995 New York Times article on Zell, who once tried to acquire Rockefeller Center, described him and his late partner as “classic ‘vulture’ investors — they bought faltering properties or businesses at cents on the dollar, betting that with a little prudent management and upturns in the business cycle, the value of their bargain-basement purchases would rise.”

Jon Coupal, president of the Howard Jarvis Taxpayers Association, which is sponsoring Proposition 98, says the rent control provisions are a minor piece of the Proposition 98 campaign. He says opponents of the initiative, including the League of Cities, is focusing on the rent control provisions of the initiative for political reasons.

“I can tell you that the two top contributors to the initiative are the Howard Jarvis Taxpayers Association and the California Farm Bureau, neither of which are that focused on the rent-control element,” Coupal said. “All this crap from the other side that the whole thing is about rent control is just not true. The core of our initiative is the eminent domain reform.”

According to documents at the secretary of state’s office, the Yes on 98 campaign has raised more than $2.4 million. The Jarvis group has given more than $323,000 to the effort. The farm bureau has donated $290,000. But other major funding has come from mobile home parks and other property groups.

The Apartment Owners Association PAC has given $291,000. Apartment owners stand to benefit from both the elimination of rent control and the eminent domain measures in the initiative.

A fund raising flyer for the AOA talks about the measure and “how to end rent control.” “When passed by the voters, the (initiative) will have a dramatic impact on rent control laws in the state of California,” the flyer states. It calls rent control “the most egregious example of private property taking for the purpose of conferring an economic benefit on another private individual.”

Various mobile home park owners and interests, including Equity and the Manufactured Housing Educational Trust, have donated tens of thousands more.

“This measure was created for landlords, paid for by landlords, for the financial benefit of landlords,” said No on 98 spokeswoman Kathy Fairbanks. “Rent control provisions were specifically included to attract funding — otherwise it wouldn’t have even made it on the ballot. Landlords and the groups that represent them have contributed 85 percent of the funding so far. Clearly their motivation is rent control, not eminent domain.”

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