The URL can be used to link to this page

Home My WebLink About08-03-1985 MHRRB MinutesTAPE #1 CALL TO ORDER: city of sAn lues $PO HUMAN RELATIONS COMMISSION Post Office Box 8100 • San Luis Obispo, CA 93403-8100 • 549-7150 r ' M I N U T E S MOBILE HOME RENT REVIEW BOARD Julv 3, 1985 Chairperson Tom Swem called the meeting to order at 1:11 p.m. He then intro- duced Board Members Naoma Wright, Gaye Benson, Denny Wheeler and Patricia Barlow. STAFF PRESENT: Roger Picquet and Steve Henderson. PURPOSE OF MEETING: Chairperson Swem established the purpose of today's meeting which is to go over general items of information for the Board after which he will be turning the meeting over to Co -Chairperson Gaye Benson to conduct this meeting as a contin- uance of previous meetings regarding the Application for a Hardship Rent In- crease by Chumash Village Investments of Santa Barbara. ANNUAL REPORT: Steve Henderson advised the Board of the City Clerk's request that all techni- cal and advisory bodies provide an Annual Report and suggests the Chair and one other person draft a report to be completed by Staff and submitted to the City Clerk. This report was due on May 1 and should reflect what this Board has been doing in the last Fiscal Year. At this time Chairperson Swem relinquished the Chair to Co -Chairperson Gaye Benson. APPROVAL OF MINUTES: The Minutes of the May 23, 1985 meeting were approved as submitted. Page 2 Mobile Home Rent Review Board July 3, 1985 The Minutes of the June 20, 1985 meeting were approved as submitted with one change: Mr. Wheeler did not feel the Board should be bound to choosing one method of determining a Fair Rate of Return as stated on Page 2, Paragraph 5. The phrase "one of the methods" was changed to "a method". Mrs. Barlow recalled a statement she made in a previous hearing that the tenants would have a right to vote on a "Capitol Expense" and maybe not on "Capitol Im- provements" and asked for clarification of the two terms. Mr. Picquet stated the applicable Ordinance section is 5.44020 which defines "Capitol Improvements". Mr. Buttery felt the Ordinance Section was to give tenants the right to vote on new additions to the park which would affect their rent, but not on the repair or improvement of existing Capitol Improvements which are currently in the park. VP(r e(j• y�R c .r�.� ? jLrr►ti lL L'i Cs �0. G C 1 .L) , rrw n SUPPLEMENTAL STAFF REPORT: Tr�_ -f 77 S- ccry�i ; 1�e,rtt, p Mr. Picquet rviewed some of the issues in his Supplemental Staff Report on Reserves date June 28, 1985. He feels that accounting for reserve purposes is extremely necessary to any park owner or investor, however, there seems to be a great diversity as to what exactly one Iputs into reserves or whether or not a separate account is actually set up for reserves. According to the Real Estate Investor's Desk Book, reserves (generally speaking) do not go to the new buyer, however they may be taken into account by the new buyer. Mr. Picquet regards the ultimate value of Reserves as providing a prospective investor with a comparative analysis tool, and that it is appropriate consider- ation for the Board to take it into account. At Co -Chairperson Benson's request, Mr. Picquet established the base year to be used in the MN01 Formula as being 1981 and explained the basis for calculations used in Staff's MHRRB Worksheets dated July 3, 1985. Mr. Henderson explained calculations regarding the Return on Equity and Return on Value Formulas. (TAPE #2) Mr. Wheeler requested that the Board consider Reserves and what is a reasonable amount for Reserves. However, Mrs. Barlow feels the Board needs more informa- tion before making a determination regarding Reserves. Co -Chairperson Benson directed the attention of the Board to the Real Estate In- vestor's Desk Book, Page 2-11 regarding Reserves stating that in a mobile home Page 3 Mobile Home Rent Review Board July 3, 1985 setting, Reserve costs would involve repairs to the pool, roads and amenities used by the tenants. Mr. Wheeler discussed Exhibit #19 with regard to Replacement Costs. He feels a replacement reserve figure of $115,000 per year could be used as a guideline. Mrs. Barlow feels this is an excessive sum to consider. Mr. Picquet interjected that an investor usually does not expect to put the same amount into the property the first few years after purchase as he does after that time. He feels that Reserves should be treated as profit or as part of the Just and Reasonable Return calculation. A lengthy discussion regarding Reserves followed. Mr. Lefler clarified the replacement costs figures as presented by Mr. Taylor and by a registered engineer hired to evaluate the park. The Board decided to return to the consideration of each Formula and to reconsider Reserves in the context of each specific Formula if applicable. MAINTENANCE OF NET OPERATING INCOME FORMULA: Mr. Picquet mentioned areas of concern regarding this method as it does not address the issue of whether or not the investor is getting a Just and Reasonable Rate of Return. He noted that the Court directed the City make specific Rate of Return findings which would be difficult if the MN01 formula is adopted in this case. (TAPE #3) He also pointed out possible conceptual problems with this methodology if a determination is not made as to whether the base year chosen (1981) was a Just and Reasonable Rate of Return year. At this time Co -Chairperson Benson declared a recess from 2:40 to 2:55 p.m. (TAPE #4) There was further discussion regarding the MN01 Formula. Mr. Wheeler felt this Formula should be disregarded due to problems in dealing with the base year. He feels the Return on Value Formula is a good one to use as a check but would not advocate it as the primary Formula. Mrs. Benson feels the Return on Value Formula does have an advantage over the MN01 Formula in that the base year does not have to be considered as well as adjustments for start-up costs. RETURN ON EQUITY FORMULA: Mr. Henderson wrote figures on the board regarding this Formula and there was con- siderable discussion concerning methods of determining each calculation. The Page 4 Mobile Home Rent Review Board July 3, 1985 equation on the board was as follows: Gross Rent = Operating Expenses + Mortgage Interest + (% of Equity) $166,635 + $355,039 Adj. + $15,000 $521,674 $536,674 + 8% of Equity ($1,250,000 = Gross Rent (TAPE #5) After further discussion on the Return on Equity Formula, Co -Chairperson Benson noted two issues to be considered with regard to this Formula: 1. A decision upon the appropriate calculation of risk needs to be considered. That is the factor which is applied to the equity and what per cent should be included there. 2. If this Board makes a decision to adopt this Formula, Mrs. Benson would request additional information regarding purchase costs which would necessitate reopening the hearing portion of this Application. (TAPE #6) This tape concerned discussion on various aspects of the Return on Value and MN01 Formulas. (TAPE #7) RETURN ON VALUE FORMULA: MOTION: Patricia Barlow moved, Naoma Wright seconded to disregard the Return on Value Formula in terms of determining the outcome of this Application. (APPROVED) Yes Votes: Barlow, Wright, Benson No Votes: Wheeler MAINTENANCE OF NET OPERATING INCOME FORMULA: MOTION: Denny Wheeler moved, Naoma Wright seconded that in this particular case we accept the Return on Equity with the numbers that we have used as our assumpt- ions and we direct the Staff to make findings and come back to us at the next meeting. (MOTION DEFEATED) Yes Votes: Wheeler No Votes: Benson, Barlow, Wright The calculations for the above Formula were put on the board by Mr. Henderson as follows: $100,000 (8% of $1,250,000) + $536,674 = $636,674 — 234 — 12 = $226.74 a