Sam Zell’s Equity Residential said rent control is having a “chilling effect” on capital going into development.
The real estate investment trust, which owns 80,000 units nationwide, saw its total revenue from rental income and fee and asset management increase to $685 million in the third quarter, from $652 million a year earlier. But on Wednesday’s third-quarter earnings call, executives pointed to how the recent overhaul of rent laws in New York and California were impacting the company’s bottom line.
Equity Residential, which owns 9,600 apartments in New York, said it experienced a 50 basis point drop in renewal increases on rentals in the second half of the year in the state — plus a $400,000 loss in application and late fees.
In June, application fees on rental apartments in New York were capped at $20 dollars for rental apartments. Late fees were also limited to $50 or 5 percent of the rent, whichever is less, and can only be charged after five days of non-payment. Equity Residential has been selling off some of its residential holdings in New York over the last year or so.
Meanwhile, in California, 70 percent of Equity Residential’s 36,805 units will be affected by the state’s new rent control measure, which caps annual rent increases to 5 percent above the consumer price index.
The firm also had stern words for lawmakers who enacted rent control in California and those who tightened regulations in New York, assuring investors that it would not sit idly by while activists continue to push for regulations.
“Through our trade associations, we’ll encourage lawmakers to remove regulatory barriers to new housing construction and incentives to build housing,” said CEO Mark Parrell.
Equity Residential, a member of the California Apartment Association, a real estate trade association that represents large owners and institutional investors, spent $4.3 million to oppose California’s Proposition 10 last year. While the measure was ultimately unsuccessful, the bill’s promoter, Aids Health Foundation CEO Michael Weinstein, is gathering signatures for another similar measure to lift restrictions on rent control.
On the company’s second-quarter earnings call in May, Parrell said, “rent control is a risk, just like climate change, just like the financial strength of the municipality.”
The REIT, a subsidiary of Zell’s Equity Group, has holdings primarily in Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California and Denver.