Anti-gentrification Ordinance Will Hurt Building Owners

The attack on private property rights could cost you money and loss of control over your property.

Chicago’s small, “Ma and Pa” apartment building owners in six rapidly appreciating Northwest and West Side neighborhoods should beware.

Mayor Brandon Johnson – an avowed Democratic Socialist – and his henchmen and henchwomen in the City Council have launched an attack on your private property rights. And that could cost you money and loss of control over your real property.

The Northwest Side Housing Preservation Ordinance – which allegedly is designed to protect housing in the rapidly gentrifying neighborhoods of Avondale, Hermosa, Humboldt Park, Logan Square, West Town, and a large section of Pilsen – was overwhelmingly approved on September 18 and went into effect on October 9, granting rare powers to renters.

Only three courageous aldermen opposed the ordinance – Brian Hopkins (2nd Ward), Bill Conway (34th Ward), and Bennett Lawson (44th Ward).

The legislation seeks to protect renters in two-flats, three-flats, four-flats, and apartment buildings with five units or more from being priced out by higher rents and/or displaced by gentrification by giving tenants a first right to buy the building.

Veteran North Side Realtor Sara Benson, president of Benson Stanley Realty, explained that the ordinance especially will impact sales of buildings with five units or more because it gives tenants 120 days to exercise their first-right-of-refusal to buy.

“The 120-day window may severely impact real estate values due to the historic seasonal and cyclical nature of market rents and sales activity,” said Benson (left). “And if mortgage interest rates rise during the required months-long waiting periods, both buyers and sellers could be financially penalized.”

Landlords and real estate managers say the ordinance was rushed through the City Council with virtually no input from apartment owners and the real estate industry.

The ordinance purports to “preserve naturally occurring affordable housing” by requiring owners of rental apartments who wish to sell their buildings to give tenants a right-of-first-refusal.

Map provided by 35th Ward Alderman Carlos Ramirez-Rosa’s office. Click on image to view larger version.

The sweeping ordinance covers a geographic area (above) spanning more than six square miles in the heart of Chicago’s Northwest and West sides and an undetermined number of miles within Pilsen.

The ordinance was sponsored by seven aldermen – Daniel La Spata (1st Ward), Byron Sigcho-Lopez (25th Ward), Jessie Fuentes (26th Ward), Ruth Cruz (30th Ward), Felix Cardona, Jr. (31st Ward), Rossana Rodriguez-Sanchez (33rd Ward), and Carlos Ramirez-Rosa (35th Ward).

Ordinance will challenge owners of small, family-owned buildings, says alderman

The goals of the ordinance – preserving naturally occurring affordable housing in multifamily buildings and preventing displacement of longtime residents – are both laudable, Alderman Hopkins told The Home Front.

“Chicago is blessed to have a large quantity of what experts call ‘middle housing,’ especially compared to cities that saw the majority of their residential development happen in the post-automobile era,” said Hopkins (right).

“However, I voted no because I had concerns about the challenges that will be placed on owners of buildings, particularly smaller buildings owned by middle-class families. Many of these buildings have been owned by the same families for generations,” he said. “At least some of the increase in property values is the result of the buildings being meticulously maintained by those families for decades, and they should not be penalized when it is time to sell.”

“Furthermore, the greatly lengthened runway now needed to sell a multifamily building in the pilot area, without a requirement of any tenant organization to show evidence of financing to purchase the building, is fundamentally not fair and is government overreach,” Hopkins concluded.

“It’s terrible economic policy,” said Alderman Conway (left), another brave Chicago alderman who voted against the anti-gentrification ordinance. “If we as a city want to be cutting red tape and encouraging investment in our neighborhoods, we should not be constricting the supply of housing. I believe this will have the opposite effect on housing affordability.”

Mike Glasser, president of the Neighborhood Building Owners Alliance (NBOA), which represents 11 real estate organizations, noted that the restrictive ordinance also significantly increases the demolition surcharge on multifamily builds to $60,000 from $15,000, providing a disincentive for developers or property owners to replace an aging two-flat with a new single-family home.

“However, the right-of-first-refusal requirement is the most egregious provision of the ordinance,” said Glasser (right). “Under the ordinance, a landlord intending to sell must first provide the tenants with the option to purchase the building at the same price as they offer it on the open market."

The ordinance also encourages apartment renters who exercise their right-of-first-refusal to form tenant organizations and work together to place a 5 percent down payment and buy buildings.

More significantly, the ordinance allows tenants to assign this right to third parties, and if the entity purchasing the rental property uses any public funds, they must adhere to a 30-year covenant keeping the rents at or below 60 percent of the Area Median Income (AMI).

“Particularly appalling is the provision in the legislation allowing assignments of the tenant’s right-of-first-refusal,” noted Benson. “Allowing assignment opens the flood gates to all kinds of potentially unscrupulous and unethical practices.”

Metro-Goldwyn-Mayer

This writer believes the private property grab by Democratic Socialists seems eerily similar to the plot of the 1965 film Doctor Zhivago (above). During the 1917 Russian Revolution, wealthy property owners were told their mansions were too big for one family. The properties were confiscated by the communist forces overthrowing the Czar and used to house the rising working class.

Neighborhood groups fight anti-gentrification ordinance

Veteran real estate investors believe that gentrification is a natural process that renews inner-city neighborhoods and helps build middle-class family wealth, while expanding the real estate tax base.

Members of NBOA said the organization is developing both legislative and legal strategies to fight implementation of the Northwest Side Housing Preservation Ordinance. They represent and advocate for the following Chicagoland neighborhood building owners associations:

• Edgewater Uptown Builders Association (EUBA)

• Greater Austin Development Association (GADA)

• Lakeview Developers Association (LDA)

• Latino Real Estate Investors Council (LREIC)

• Lincoln Park Builders of Chicago (LPBC)

• Northwest Side Building Coalition (NSBC)

• Rogers Park Builders Group (RPBG)

• South Side Community Investment Association (SSCIA)

• Southside Builders Association (SSBA)

• Southwest Housing Providers (SWHP)

• West Suburban Building Owners Association (WSBOA)

Time frames of the anti-gentrification ordinance

• 1-2 units: 30-day notice required prior to sale; tenants have 15 days to exercise right-of-first-refusal.

  
  

• 3-4 units: 30-day notice required prior to sale; tenants have 30 days to exercise right-of-first-refusal.

  
  

• 5+ units: 60-day notice required prior to sale; tenants have 90 days to exercise right-of-first-refusal.

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Time frame to close the sales transaction if tenants exercise right-of-first-refusal:

• 1-4 units: Tenants have 60 days from date of notice.

• 5+ units: Tenants have 120 days from date of notice.

Don DeBat is co-author of Escaping Condo Jail, the ultimate survival guide for condominium living. Visit escapingcondojail.com. For more housing news, visit www.dondebat.biz. Don also is writing Chicago’s Game, a book on 16-inch softball.