Massive Real Estate Deal Prompts Concerns Over Rising Rent, Affordable Housing

Speaker 1: 00:00 The proposed sale of 66 apartment complexes to the Blackstone group for more than a billion dollars is being called one of the largest real estate transactions in San Diego history. KPBS reported earlier this year that the Conrad previs foundation was looking to sell its real estate holdings. And now it's 5,800 rental units are being snapped up by Blackstone. The proposed sale has already prompted some concern from elected officials over whether the units will remain affordable for working families. Johnnie Mae is San Diego union Tribune business reporter, Phillip Molnar, and Phil. Welcome to the program. Thank you so much for having me. The Blackstone group is based in New York, but doesn't already have significant real estate holdings in San Diego. Speaker 2: 00:46 That's right. Blackstone is a massive private equity company. It's often referred to as a private equity giant, and some of the biggest things they own in San Diego County are the hotel Del Coronado and Lego land. Speaker 1: 01:00 And can you give us a sense of where these new acquisitions, the 66 apartment complexes where they're located? Is it all over the County, Speaker 2: 01:09 Basically all over the County? It's it's as far away as East County, a little bit into downtown, just basically all over the place. These are areas where Conrad previs himself. He was a real estate developer. You know, he had a large collection of real estate holdings across the County, and the foundation has been able to hold onto that for many years. Speaker 1: 01:30 And why did the preface foundation want to sell them? Speaker 2: 01:33 So they say, if they sell all these apartments, they'll be able to use it for more grants to give out to the community. They've been very generous over the past couple years. Uh, they gave more than 71 million to 112 organizations across San Diego County in March. And just one of those examples was they gave 15 million to the San Diego symphony. So they think they can do a lot more with this money than just holding onto the apartments. Speaker 1: 01:58 Okay. So when a new landlord comes in, the first concern is that rents will be raised. That concern was also reflected in a letter sent by some San Diego officials. Can you tell us about that? Speaker 2: 02:11 Yeah, that's right. Kate PPS was first to report on that. And basically as soon as these apartments went on sale, there was a lot of concern because they're sort of what they call naturally occurring, affordable housing. So they're not designated as subsidized housing. Like a lot of projects are in San Diego County. They basically are just old and you can't get that much money out of them. So they're actually a little bit cheaper for most residents. So when this collection went up for sale, there was a big concern that this is going to cause you know, rents to go up, someone's going to fix up the place and rents are going to rise for the residents that are living there. But you know, we live in a capitalist society and there's nothing to say, Hey, Blackstone, you can't buy these things. You know, there, there was nothing on the books. Speaker 2: 02:58 San Diego didn't buy the units, the housing authority didn't buy the units. The state didn't buy them. And they were up for sale for a while and Blackstone came in and bought them. So there's not a lot anybody can do. I don't know how it's all going to shake out. Blackstone says it plans to keep the majority. We don't know how many that is of residents affordable for people that make 80% or less of the area, median income during its ownership. We'll have to see how that plays out, you know, and also Blackstone says it's eager to engage with the state of California in San Diego municipal government to explore opportunities for affordable housing in San Diego. Again, not really sure how that's going to work. Are they going to sell the stuff back, assuming for more to a municipal government, it's just a wait and see thing at this point, Speaker 1: 03:50 That statement by Blackstone, that they intend to keep the units affordable for those who make 80% or less of the area, medium income, is that a metric that was already in place or is this some new calculation by Blackstone? Speaker 2: 04:04 I believe it's a new calculation by Blackstone, just based on some, you know, criticism of the project early on back when KPBS first reported on it in February. I know from just off the record conversations and other stuff on background that a lot of developers had looked at this portfolio because, you know, it's a huge amount of apartments and there's a lot of possibilities for return and all this kind of stuff. But I think one of the reasons why developers passed on it in addition to needing a ton of money to pull off the deal was that there was that political pressure that these are going to become a lot higher rent than what they are right now. So as far as I know, Blackstone doesn't do this that often, but they did put that statement out there with their purchase, which I found quite significant Speaker 1: 04:50 And Blackstone says they also plan to add amenities. What kind of amenities? Speaker 2: 04:56 Basically, these are really old units. So they're going to be doing all sorts of stuff to fix them up, put in playgrounds, add maybe a little bit of open space kind of stuff like that. They also are going to partner with a nonprofit called Pacific housing. Typically Pacific housing works with subsidized housing mainly, but so what they're going to do for residents, they're going to have after school tutoring, financial literacy classes, health and wellness initiatives, and those are supposed to be at no cost. So that might kind of soften the blow on Blackstone's big Burgess. Speaker 1: 05:29 Now some pandemic eviction moratoriums are about to expire. What is Blackstone stand on evictions Speaker 2: 05:36 Blackstone says across their entire national portfolio that they haven't evicted anyone due to nonpayment of rent during the pandemic. So that might seem sort of like a good thing if you're in one of these apartments and you're kind of nervous, but just to keep in mind that the California eviction moratorium ends on June 30th, I haven't heard anything to say it's going to be extended. San Diego County actually has their own eviction. That should go until sometime in August. So we'll have to see how that works out, but it's looking like a lot of those rental protections are beginning to sunset as the economy recovers. Speaker 1: 06:09 And since we are speaking about rants, Phil, what are they like these days as we're emerging from the pandemic in San Diego? Are they higher? Are they lower? Speaker 2: 06:18 Rents are higher right now actually during the first part of the pandemic, most of 2020 rents were flat. They were not increasing, which is very rare for San Diego, even during the great recession our rents were going up. So the fact that there was a brief period of time where rents were about flat, which means they didn't increase year over year was extremely significant for San Diego County. But in the last few months, we have seen rents tick up in San Diego. So countywide rents are up 5%, according to real estate tracker CoStar, that's about $1,940 a month average. So it's sort of interesting because if you look at these big nationwide reports on rent, San Diego is one of the few markets in the entire nature where rents have been increasing. Speaker 1: 07:05 And when is the Blackstone deal expected to close? Speaker 2: 07:08 It's expected to close in the next few weeks, Blackstone is saying in the second quarter, 2021. And by my calendar, that's about in six weeks, it's going to be over. So, uh, that is probably going to be in the next few weeks. Speaker 1: 07:22 Okay. Then I've been speaking with San Diego union Tribune business reporter, Phillip Molnar, Phil. Thank you so much. Thank you. Speaker 2: 07:30 Thank you.