If you would like to watch yesterday's proceedings, go to:
What was won; What was lost.
The Win: The Mesa Dunes HOA Board has been fighting conversion since the results of the survey of support were known. They won by convincing the Planning Commission and the Board of Supervisors that they never actually approved of the survey form. The fact that the HOA Board showed every sign of approving the survey … including approving of it and asking for an additional week to complete it in a meeting of about 150 residents … didn't seem to matter much. There was a lot of dancing on the head of a legal pin in an effort to get to the outcome that both the HOA Board and the Board of Supervisors seemed to be trying to get to from the beginning.
Tom Casparian, Gilchrist & Rutter's litigation attorney, laid out the timeline of the early days of the conversion process in a step-by-step, day-by-day way that made a compelling case showing that it was not the form of the survey that the HOA Board objected to … it was the results. Why they were so determined to use the survey to sink the conversion is a question that will be explored a little later.
The Loss: Residents who would like to stop their ever-increasing space rents and enjoy the full benefits of owning California coastal real estate probably will not be able to do so anytime in the foreseeable future.
Lower income residents will not have the benefit of lower rates of space rent increases that would have been offered by conversion.
Seniors over-80 have lost a space rent cap that would have allowed them to live out their days in the park with only a 1% per year rent increase (capped at no more than $100 more than their current rent).
The goodwill actions of park owners who were motivated by pride as well as money and have historically not raised rents by the maximum allowed in leases, paid for water as part of space rent and did not charge for capital improvements such as the $100K (approximately) recently spent on redoing the streets in the park.
Bottom line: Before yesterday's ruling, the park had the opportunity to gradually, over time, convert to a resident-owned park where, instead of ever-escalating space rents, owner-residents would benefit from the rising real estate market. Think about this … zillow.com predicts a 6.9% market increase for zip code 93420 for the coming year. If conversion had gone through and a resident paid $175,000 for his or her lot … within one year that lot would be worth $187,075. California coastal real estate is always a good bet … but let's say that the rate of market increase drops to 5% a year … in 5 years, that lot could be worth $227,000. (We'll look at the other side of that equation below in the "And, What Now?" section.
What Happened? And, What Now?
In spite of the fact that 166 residents cast their vote in the original survey (56% of the park) and 99 of those responses supported the conversion (59% of responses, 1/3 of total park), the Board of Supervisors decided that the survey did not meet the legal requirement of having been done "in agreement" with the HOA and thus deemed the conversion application "incomplete." Since the conversion cannot proceed until the application is deemed complete, this action effectively shut down the conversion.
Quantity over Quality: One extremely disappointing action taken by Supervisor Caren Ray early in the meeting was a count of support. The people supporting the HOA position had yellow tags that said "HOA" while the people supporting the conversion wore a yellow tag that said "No Survey Redo." Supervisor Ray asked people who wore the yellow "HOA" tag to raise their hands and did a mental count and they asked the people who wore the yellow "No Survey Redo" tags to raise their hands.
That may sound sort of fair and logical … but there was a problem. The HOA Board, supported by GSMOL had invited residents from other parks to come and pack the room. It's an old tactic and it worked perfectly. I didn't do a count but my guess is that there were probably 50 "HOA" tags and 20 "No Survey Redo" tags. However, it looked like at least half of the HOA tags were worn by non-residents.
What was even more disappointing about this action was that we had asked before the meeting started to have the non-residents identified because it was obvious that the room was packed. This was a resident issue and packing the room was just another display of the bullying mindset that seems to drive the HOA Board.
A note about the lawyers: Tom Casparian is Gilchrist & Rutter's litigation attorney. He doesn't look or act like the stereotype of a litigation attorney … more like someone you'd want for your best friend (or lawyer)… smart, funny, kind and extremely organized. His presentation was factual, detailed and arbitrarily condensed by the Board of Supervisors' decision to give each presenting lawyer only 10 minutes to make their cases, while leaving almost two hours for comments from the public. This didn't make a whole lot of sense since most of us who constituted the public comment section didn't fully grasp the intricacies of the laws involved. I would have much rather had our public comment time more strictly limited and given to the two lawyers. Politically this probably made sense … especially if the Board of Supervisors had already made up their minds and did not need to be reminded of pesky facts.
Will Constantine, who was hired by the HOA Board about the time that they realized the survey results weren't what they wanted, is a tall, attractive man with a compelling presence. However, he was nervous, bumbling and disorganized in his presentation. He didn't make a case, he rambled around a lot, messed up some names and dates and, generally, did not impress. I've read his rambling, redundant letters to the lawyers and to the Board of Supervisors and his presentation style is similar to his writing style.
And, What Now?
We don't know what the owners' will decide. However, there seems to be four main possibilities:
1. Litigation. Tom Casparian is a litigation attorney … he presented the owners' side of the case in a way meant to convince the Board of Supervisors … if they could be persuaded … and in a way that set the case up for the possibility of future litigation if need be.
Possible effect on residents. I wanted to know what happens if this case goes to court and, unfortunately, there is a lot of history to guide future predictions. Had the conversion been approved, it would still be a good 2-3 years before the actual conversion happened. With litigation now a strong possibility, you could tack on another 3 years to that easily … some cases have dragged on for 8-10 years. Using the numbers generated above and taking a conservative estimate of 5-6 years, yesterday's decision could cost the average resident who wants to buy their lot $50,000 (instead of lot prices being an average of $175,000, they could start at $225,000 because of the market fluctuation in all the time spent litigating this pin-prick issue of how the survey was done.)
Interestingly, in all the past litigations between Will Constantine and Gilchrist & Rutter, the winning track record belongs to Gilchrist & Rutter. The courts listen to facts and case law rather than counting the number of yellow tags in a room. So this option will most likely waste a lot of taxpayer money … and HOA member money … and, eventually get to the result that should have been reached yesterday: that the survey was indeed approved by the HOA Board and the form of the survey followed the law. I hate waste.
2. New Survey. The owners could decide to do a new survey and some of the Supervisors seemingly ingenuously asked, "Why not just do a new survey?" It sounds like an innocent and simple step. Just send out a new survey, get the new results and mush on. However, you have to go back to the fact that the HOA Board has to approve the survey. If you keep in mind that the intent of the HOA Board is to stop this conversion so that they can negotiate a new conversion more like Sunrise Terrace (Jeff McAllister has been saying this for months in many different forms and specifically at the last HOA Meeting), you get a glimpse of how hard it might be to get an agreement for the form and method of a new survey.
Possible effect on residents: Back in the beginning of the conversion process, just a few days after the first public meetings held by Susy Forbath, Jeff McAllister showed up at my door wanting me to sign a petition. I thought it strange since the process as described by Susy seemed like a slow winding through the legal processes with a multitude of protections and hoops that the owners had to follow in order to be able to sell lots. I didn't know why Jeff McAllister seemed so excited about the process although I now have a conclusion which I will discuss later.
That petition launched a series of door-to-door canvassing, which some residents have described as intimidating and harassing, hostile meetings featuring misinformation and documentable lies. If a new survey is launched, I cannot imagine that the HOA Board will simply allow the new survey to be taken in a peaceful, hands-off fashion. It is their right to lobby for their side of the case and I believe they will use that right extensively. However, if history is indicator, they will also use it as an opportunity to make up whatever lies they need to convince people that the sky is falling.
Unless a survey could be done in a "no-canvassing" zone (for all sides), I think hostility in the park will only go up.
3. New Owner. The owners could decide to sell the park as a whole to a new park owner. Hedge funds are getting into this area … especially now that real estate prices are on the rise. However, hedge funds have one objective: profit. And, how do park owners raise their profits … maximize income (increase space rents, pass along utilities and capital improvement assessments), minimize expenses (reduce maintenance and capital improvements).
Possible effects on residents: Most of us are on leases. I was surprised to read in my lease that the owner has the right to assess me for capital improvements. My guess is that your lease might say the same thing. However, our present owners have not passed along assessments for capital improvements. A new owner might not even make the improvements … or would likely pass along the assessments for them.
My lease calls for a 4% annual rent increase but the owners did not take the full increase this year and apparently haven't for several years. A new owner most likely would maximize the legal increase rates. In ten years, my $950 space rent will be $1,406 and in twenty years it will be $2,081. Instead of having the opportunity to own an appreciating piece of real estate, I am now stuck with escalating space rent and since my Social Security will not go up as fast as my space rent, the writing on the wall says I need to start thinking about moving.
4. Same Owners; Different Mindset. The owners could decide to keep the park and change the way they run it, implementing all the changes made in #3 and just maximizing their own profits. This would be an excellent strategy on their part. In a rising real estate market, they would not only make more operating income, they would have a appreciating real estate asset. The longer they keep it, the more it's worth.
Thank you, Board of Supervisors, for protecting us so well!
Why, HOA Board? … What drove you to lead us here?
Many of us have talked endlessly about this question of the Board's motivation and it's the question that has driven me to write way too many words and spend way too much of my time on this issue.
I understand some of the past issues that have caused many people to dislike park conversions. There are bad examples of park owners trying to break rent control. There are conversions that went bad because they were launched in the midst of one of the most significant economic crises in decades … where jobs evaporated, banks failed, credit dried up, the real estate market tanked, the stock market was decimated and confidence plummeted. I understand being cautious about this change.
However, to me, that means looking at the facts and discovering what it would take to make all the residents safe. The park owners handed us a conversion offer that went above and beyond the legal requirements. As I delved deeper and deeper into the legal and financial aspects of conversion, I found a few things that would make it better and safer and began to talk to Susy Forbath about possibilities. It quickly became apparent that they were willing to talk about options.
What I also found along the way were conversions that are giving residents exactly what they want … the opportunity to get out of ever-escalating space rents and gain the benefits of market appreciation in their homes. It became clear that conversion can be safe and beneficial. So, where did the Mesa Dunes conversion go so wrong?
It takes a leader.
Jeff McAllister is a leader. He is a big, strong guy with passion and energy. He and his wife Cathy own a lovely home with a garage on a prime, ocean-view lot. As Board directors began resigning with the increasing hostility of conversion, Jeff got himself appointed to the board and began to be the face of the HOA Board.
From the beginning he has talked about wanting to "stop *this* conversion" which didn't make a lot of sense to me because *this* conversion was the only one being offered to us. We might be able to negotiate some better terms, but I didn't see the owners saying that if we didn't like this conversion, we could opt for a different one.
It wasn't until the last HOA meeting that I began to get a glimmer of what might be driving him. At that meeting, he stated that he wanted to get a new survey so he could better negotiate with the owners and create a new conversion more like the co-op form of Sunrise Terrace. Now, Sunrise Terrace is similar to Mesa Dunes in size and amenities and their share prices (the equivalent of lots) are $200,000. This seemed strange to me because I've been using Sunrise Terrace as the prime basis for estimating what our lot prices would most likely be for months and Jeff has said that they are not a comparable park and has indicated that he will be able to negotiate a much better lot price (mentioning the figure $65,000 in some of his small group meetings).
Why all of a sudden is Sunrise Terrace the model? It is true that it was a "resident-led" conversion, a term that is repeated frequently as if it is the most important aspect of the conversion, when actually Sunrise Terrace is a more complicated form of co-operative, that does not create separate pieces of real-estate that are treated like regular, single-family homes by bankers.
The light dawns … finally. One major difference between Sunrise Terrace and the proposed Mesa Dunes conversion is in how lot prices are fixed. In the Mesa Dunes conversion process, each lot would be assessed individually and priced according to size, location, views, and so on. In the Sunrise Terrace model, every resident pays the same price regardless of differences in lots.
In the Sunrise Terrace model, ocean view lots are the same price as back-of-the park lots. What might this mean in Jeff and Cathy's situation? They have a large lot because of their garage and also have that prime, ocean view. They could easily have the most expensive lot in the park. If the average lot price turned out to be $175,000, the McAllisters would pay a higher price … perhaps as much as $225,000. (This all pure speculation, of course.) Could that difference of tens of thousands of dollars really be what drives Jeff?
I sure hate to think so, but I can't find any other rational reason why he has fought this so hard, why he has been so willing to lie … even spreading lies that can be easily documented and refuted. (For a brief list of lies, see the post: Stop the Lies … Please!
I'm sure Jeff is now planning his new conversion with cheap lot prices … cheap lot prices that are all the same, view or no view … and celebrating the win. I only have one remaining question … has he forgotten that the park owners still own the property? Well, actually a second remaining question … what makes him think that the owners would ever talk to him about this fairy-tale, "resident-led" conversion?
