Posted on: Saturday, September 1, 2001

Tech bust drops Bay Area rents

Bloomberg News Service

SAN FRANCISCO — When Rich Ocheltree's landlord raised the rent on his two-bedroom suburban Burlingame apartment in January, the 69-year-old retiree got mad, got organized, and discovered he didn't have to take it anymore.

Property managers raised his rent to $2,200 a month, even as they were offering vacant apartments in his 15-unit building for $1,900. Ocheltree persuaded all but two of his neighbors to sign a petition demanding a rent decrease. It worked.

"I was tickled," Ocheltree said. "I didn't really think they were going to pay any attention to us."

Rents in the San Francisco Bay area have been the highest in the country, rising 70 percent in the five years ending December 2000 as workers flocked to computer and Internet companies.

Now, Ocheltree's not the only tenant winning concessions from his landlord. With firings and bankruptcies plaguing the region as the dot-com boom peters out, landlords are finding they're no longer in the driver's seat.

"It's just another indication that a lot of froth is off the Bay area market," said Gary Schlossberg, an economist at Wells Capital Management in San Francisco. "The bubble has popped and the extreme rents that we saw are a victim of that."

The unemployment rate in the San Francisco metropolitan area has risen by 1.6 percentage points this year, to 3.9 percent in July from 2.3 percent in January. The ranks of the jobless swelled by more than 17,000 in that period.

Many laid-off workers have fled San Francisco and Silicon Valley for cheaper housing in places like Portland, Ore., or Denver — pushing up vacancy rates and easing housing demand in the San Francisco region.

"Right now rents at the margin are down 15 to 20 percent," said Ken Rosen, chair of the Fisher Center for Real Estate at the University of California, Berkeley. Landlords in the region had raised rents between 20 percent and 35 percent last year, he said.

"My guess is we're going to wipe out all of last year's rent increase in apartments," Rosen said.

Rent reductions are likely to affect mainly people who signed leases or faced large rent increases in the last year, when the Internet frenzy was at its peak, he said.

That would include Brian Caulfield and Katie Moore. The couple, both 30, watched the monthly rent on their one-bedroom apartment in San Mateo, south of San Francisco, rise to $1,631 this year from $1,116 in 1997. On

Aug. 1, they received a notice from their property manager offering another 10-month extension of their lease at a rent of $1,740.

"We looked in the newspaper where they were advertising another unit the same size for $1,395 a month," Caulfield said. He faxed back a counterproposal, and instead of raising the couple's rent, the landlord sliced it by almost $200 — to $1,440, about what they paid in 2000.

"I could have negotiated for more, and I feel like I should have but I was just so happy to get my rent reduced back down," Caulfield said.

To be sure, not all landlords are ready to lower their rates.

Stuart Fuss, 46, who owns a 12-unit apartment building in San Francisco's ritzy Nob Hill neighborhood, turned down one tenant's request for a rent reduction on a one-bedroom apartment to $1,600 from $1,900.

"She's staying," he said. "I don't think she found anything that was as nice at a dramatically different price."

Other property managers are padding the offering prices of vacant apartments to allow room to negotiate, said Walter Ellingwood, a vice president at Rent Tech, a San Francisco apartment listing service.

"They're putting it a couple of hundred dollars higher than they're willing to accept," he said.

And though San Francisco rents may eventually decline back to 1999 levels, they still top any U.S. urban area at an average $1,964 a month in June, according to M/PF Research Inc., which tracks apartment prices in 57 U.S. cities.

"It isn't going to go back to the dear old days when I was paying $1,200 — which was just a year ago," Ocheltree said. "I think we'd probably have to get into an honest-to-God recession before you'd see a real break in prices."