SPECIAL FOCUS: IMMIGRATION

APARTMENT FINANCE TODAY • APRIL 2008

Sidebar: The Dividends of Diversity

By Bendix Anderson

Three-quarters of the people living in the Beachwood, an apartment property in Los Angeles, were born in Latin America. Another quarter moved to California from the Midwest or the Northeast.

“It’s America in one apartment building,” said Frank Acevedo, president of Rampart Properties, the Beachwood’s owner.

The Beachwood is in East Hollywood, a gentrifying Los Angeles neighborhood where expensive new wine bars are wedged between evangelical churches and Hispanic folk remedy stores called botanicas.

Rampart bought the Beachwood in 2006 for $1.9 million, or $119,000 a unit. At the time, the price seemed high, given the low rents at the property. The capitalization rate, or the Beachwood’s net operating income expressed a percentage of its sales price, was a low 3.75 percent.

Because of rent control laws in Los Angeles, Rampart couldn’t raise the rents at the Beachwood by more than 5 percent, unless the tenants accepted “voluntary relocation” payments of up to $11,000. The cash was too good to pass up for most: 80 percent of the Beachwood’s old tenants took the deal and used their windfall to pay the new, higher rents or to move.

The new residents earn about twice as much as those who moved out. Many work as landscapers, carpenters, and plumbers. Rents average $1,200 a month, or $1.50 per square foot, up from $720 to $980 before the purchase. Based on the increased rents, Rampart estimates that today the community would sell for $2.6 million.

Many of the immigrant renters in the 16 apartments arranged around the Beachwood’s courtyard are undocumented. Rampart, which owns 15,000 apartments in immigrant neighborhoods throughout Los Angeles, allows potential renters to submit “matricula consular,” which are identifications issued by foreign governments for use in the United States. Once Rampart has verified the name of a potential resident, it can check for criminal history or even prior evictions. Rampart uses tax ID numbers to run credit checks, and phones or writes to employers to verify employment. Rampart also allows residents to pay their rent in cash.

Even as prices rise, immigrants like these will continue to live in apartments like the Beachwood, which will naturally remain much less expensive than the single-family homes nearby, said Acevedo. He believes gentrification has made the neighborhood more diverse, not less, as it houses people with a mix of incomes, ethnicities, and education levels. “It’s a brand new culture for the area,” said Acevedo.