SEATTLE — Just before New Year’s, Kathy Heffernan’s new landlord announced that her rent on a two-bedroom unit in Seattle would go up on March 1, from $1,000 to $2,300 — a 130 percent increase.
Her neighbors in the nine-unit building, including a disabled woman in her 60s, also received notices on their doors. Heffernan, a 47-year-old hospital chaplain, said the rent hike is tantamount to eviction and wants the landlord to help tenants with moving expenses.
“I think this is quite immoral and unethical,” she said about the unexpectedly large rent hike at the 50-year-old building.
Paul Anderson, whose Seattle-based Bauhaus Partners bought the building, countered that current rent levels were far below market and left the building with negative cash flow, so “something’s got to give.”
Similar scenes are playing out across the Seattle metro area as investors scoop up older apartment properties and, in many cases, raise the rent. Some properties get demolished to make way for new development and others undergo major renovation, but some, such as Heffernan’s building, just get cosmetic upgrades.
Last year, investors spent $3.3 billion buying apartments in a three-county Seattle area, surpassing the previous 2005 high for total dollars, according to Dupre+Scott Apartment Advisors.
One effect of those sales is that rents in older buildings are climbing faster than in newer ones, according to a recent survey of apartment properties.
Rent hikes can be particularly steep at what used to be mom-and-pop properties once a new investor takes over.
“You tend to get to know your residents, you take a more personal interest in them, and you are more risk averse,” said apartment expert Mike Scott, referring to longtime owners. “The buyer is stuck being the bad guy for pushing the rents to market rate.”
The sale of Heffernan’s building, which was built in 1964 and underwent major renovation in 1985, didn’t come as a surprise to the residents.
But the size of the rent hike did. The new landlord also plans to add water, sewer, garbage and common area electrical charges to their bill — items they didn’t have to pay for before.
“You do expect your rent to go up a little bit, but when you’re seeing increases of almost $700, that’s pretty steep,” said resident Brian Mandell, who signed a year lease in August on a one-bedroom unit.
Moreover, tenants who stay on haven’t been told they are getting anything in return for the higher rent, such as new appliances, he said. “It’s frustrating because I don’t know what the ultimate goal is.”
Anderson, who manages Bauhaus Partners, said higher rents are needed to cover the $1.5 million purchase price.
A local family that had owned it for two generations and had no debt on the property sold it in October to the partnership, which took out a $1 million mortgage on the property in December, records show.
Low vacancy rate
The Seattle metro area ranked fifth nationally in annual rent growth at the end of 2014, behind only San Diego, Denver, Oakland and San Francisco, according to data on large apartment complexes by Reis, a New York-based research firm.
Strong job growth and the region’s booming population have pushed the region’s vacancy rate down to a point where landlords can raise rents — even in older buildings.
Up until now, some observers have attributed the region’s soaring average rent levels largely to high rents in a surging number of new apartments.
But that’s not the whole story.
Texas-based RealPage, which tracks rents nationally at properties with as few as five units, reports that older apartments in the three-county area outpaced newer ones in annual rent growth.
Those built before the 1970s, as well as those dating to the 1980s and 1990s, saw average annual rent increases for new leases in the fourth quarter ranging from 6.7 to 8.4 percent, according to RealPage.
Those higher rents coincide with a flurry of sales of older apartments. Of the 18,700 apartment units in the three-county area sold last year, the majority were in Seattle and in South King County, which generally offers less expensive digs to renters priced out of Seattle.
Jay Parsons, RealPage’s director of analytics, said the same pattern is playing out in hot urban markets across the country.
Vacancy rates in older buildings are low enough that landlords can push their rents higher without having to worry about losing residents to expensive new apartments, he said.
In some cases, the property may have undergone modernization, which can justify higher rents, he said. Landlords also have access to more data on market rents and can use sophisticated tools to maximize revenue, he said.
“Seattle is one of several spots where you see pretty big rent growth continuing in spite of a lot of new supply,” Parsons said.
The rising rents in older buildings could put further pressure on the region’s tight supply of housing for those on limited incomes.
In a recently released report, Washington state found only 15 affordable and available housing units in Seattle and the surrounding county for every 100 low-income households.
Faith Li Pettis, co-chair of Seattle’s housing affordability and livability advisory committee, said one issue the 28-member group will examine is tenant protections for displaced renters.
Set for redevelopment
Landlords, for their part, say they are tired of being painted as villains and say irate renters should focus on the root causes that push rents higher.
“Having been a past renter in the city of Seattle for more than a decade, I totally get it. I’m very sympathetic to renters,” said Anderson. “I would just ask any tenant in the building: Who’s got a business plan to pay for the current market value of the building?”
The average Seattle apartment sale last year fetched $202,920 per unit, about 9 percent more than in 2013, according to Dupre+Scott.
“The rent increases are a function of growth,” said attorney Sean Flynn, vice president of the Seattle-based Rental Housing Association of Washington. “When you’ve got not enough units, and a whole lot of renters who are making substantially more money than they did 10 years ago, you’re going to see prices move.”
Since 2010, the state estimates King County has gained about 86,000 residents, almost 40 percent of whom live in Seattle. But in the same period, the county gained only 28,752 housing units, half of them in Seattle.
At the same time, much of the urban area’s housing stock is more than 50 years old and ripe for redevelopment, especially in popular neighborhoods.
Last year, renters in the Williamsburg Court Apartments were displaced when the longtime owners sold the property to national developer Trammell Crow, which has demolished the building to erect an office tower. In the next few months, renters in the Panorama House will have to vacate their high-rise apartments as new owners modernize the building.
With worn-out buildings, “the new owner is looking at having to do all these renovations,” Flynn said. “That cost has to come from some place.”
By all accounts, the previous owners of Anderson’s newly purchased building kept the property well maintained, promptly responded to problems and had good relations with their tenants. The units also have views.
“It was a wonderful, wonderful, wonderful place to live,” said Sharon Schrenzel, 71, who moved there in the 1990s.
Schrenzel said she doesn’t blame the previous owners for selling.
“Who wouldn’t want to retire? I probably would have done the same thing.”
