Residents of the Blair Boutique Apartments on Selby Avenue, which are stylish and modern, were faced with rent increases up to $158 a month. They appealed to St. Paul.
How can rents increase by as much as 8% in a city where the rent control ordinance, approved by voters, generally limits annual increases to 3%?
When a hearing officer for the city crunched numbers provided by the owner of the property, she discovered that Reacor Limited, and Selby Ave Realty could technically qualify for rent increases exceeding 16%. This is double the amount the landlord was approved for.
The Blair case shows the disconnect between what St. Paul’s voters approved and the law that was passed after landlords’ complaints and developers’ threats, and following changes approved by city council. Rent increases of up to 8 percent have been justified by landlords despite the ordinance’s 3% limit.
Blair tenants were shocked by the conclusions of the hearing officer, but they remained resolute. Residents of four of the 91 apartments in the building sifted through the numbers together and found what they called “eye-popping math”.
According to the landlord’s statement, overall operating expenses had increased by almost one third in three years from $586,000. Residents were wondering if they would be charged for security, accounting, management fees, and other expenses associated with the Blair’s ground-level commercial tenants. These include a dentist office, sushi restaurant, and chiropractor.
The tenants stated in a statement sent to the city that “these expenses have not resulted either in the expansion of services for new tenants or the improvement of services already provided.”
Each tenant’s appeal, however, was rejected by the council on June 14, with Amy Brendmoen, and Mitra Jaali both absent.
The city ordinance allows for rising costs and gives property owners a fair return.
Russel Balenger said that he felt his hand was tied by the ordinance and administrative rules created by the Department of Safety and Inspections. Landlords can self-certify rent increases up to 8% by using the rules. They must be able to defend their calculations if they are reviewed by the city.
Balenger referred to the amendments adopted by the city council in September. “The unfortunate truth is that the rent stabilization law we passed last fall doesn’t protect tenants enough,” he said. The rules that were set up by the Department of Safety and Inspections (DSI) do not reflect what residents voted. “We have to comply with the ordinance as it stands right now.”
How corporate landlords are able to dominate the market
Blair tenants expressed their dissatisfaction with the ordinance in their testimony before the city council. This is a concern that affects the entire city. Corporate landlords are able to gain the upper hand in rent control disputes on many levels. They have accountants and lawyers who can act on their behalf. The city admits that no site visits have been conducted so far to check submitted expenses. Even the 22-page spreadsheet the city uses to verify expense increases doesn’t have to be presented to the city until there is a staff audit, or tenant appeals.
DSI has approved 158 of 184 applications from landlords to self-certify increases in rent up to 8%. This represents an approval rate 86%. A federal judge recently threw out a lawsuit against St. Paul filed by two apartment building owners who were opposed to rent control. The judge noted that the city had granted the majority of landlords’ requests for rent control exemptions, without even holding a hearing.
Levi Indvik, a Blair resident, told the council that the appeals procedure favors landlords.
He said that in order to be able to speak at the hearing, he would need to have access to the documents provided by the landlord. It would also require time and expertise for the interpretation of the numbers. And he’d want to trust the accuracy and representativeness of the reported numbers. “There are interesting numbers in the increases, such as this 58% increase in Management Spending.”
The worksheet provided by Reacor Limited & Selby Avenue Realty shows that accounting costs at the Blair have increased from $3,500 in 2019 to $11,600 in 2021. The worksheet did not include any security costs. Uninsured damage had also increased from nothing to $35,000 Management fees had risen from $87,000 to $137,000.
Indvik noted that the city failed to investigate further. When we raised these blind spots and concerns, we were told that the math was correct.
Erica Mumm, another Blair tenant, shared these concerns. Mumm, a Blair tenant, told the council that it might be worth investigating why they reported an increase of 32% in operating costs. “We do not believe that 2019 is a representative year. These expenses have all been self-reported. “There is no oversight.”
Many tenants claimed that the owners of The Blair refused to renew the leases on their apartments until the appeal decision was made.
The property owners were not present at the hearings, and they could not be contacted for a comment.
Increases in property taxes are justification for increases
Marcia Moermond acknowledged in the presentation of the city staff to the council that landlords who are seeking rent increases up to 8% do not need to give detailed explanations until tenants appeal their self-certification or the city audits it.
She said that “the self-certification applications receive very little staff review and this was the case with this one as well as all the others.”
She did note, however, that the Blair owners used an old form on the website of the city, asking for expenses in 2021, rather than 2022. Inflation was also higher that year.
The landlord stated that residential units only accounted for 60% of the total. Moermond stated that even if the other operating costs were removed and the 2021 figures are used, “the property tax represents 46% of expenses in this worksheet.” This is a significant amount. Even if the increase in management service was not justified, it would still be a small number that wouldn’t change the outcome of whether a rent hike is acceptable.
The tenants noted that taxes for this year have dropped to $582,000.
Prior to the proposed increases in rent, the Blair advertised one-bedroom apartments at rents ranging from $1,425 up to $1.590 per month, and the two-bedroom units were advertised between $1,940 and $1,975. Moermond stated that the property owners informed the city they would assess each of the 91 apartments individually and raise rents as high as 8% in some cases, while not raising them at all in others.
