Cash-strapped landlords let evictions lag

by Edythe Jensen The Arizona Republic May. 21, 2010 12:00 AM

Fewer tenants are being evicted from apartments across the Valley, but the decline is more about the dismal state of landlord finances than tenants paying their rent on time.

Lawyers, a tenant advocate and a commercial real-estate broker point to a variety of factors. Overbuilding in recent years saturated the market with apartments just as homebuilders and investors added hundreds of single-family dwellings to the rental mix.

Many owners bought large complexes at the market's peak and then saw values plummet. Forced to cut rents to keep units occupied, they have been left without enough income to pay debts and keep up maintenance. People leaving the state have only added to high vacancy rates.

And although the recession has left many renters unable to pay each month, apartment owners don't have the money or inclination to boot them.

Andrew Hull, a Phoenix attorney who represents landlords and property managers, said his eviction caseload has declined about 20 percent this year.

"Owners are working with their tenants more, letting them make partial payments or giving them an extra month to get caught up," he said.

For some of his clients, vacancy rates have skyrocketed, and half of the units in their large complexes are empty. Those in bankruptcy don't have the money to hire attorneys for evictions, Hull said.

Paul Henderson, another attorney who represents apartment managers, said more owners are in receivership or bankruptcy than there were a few years ago. Some of his clients wait six months for payment from tenants just to keep units occupied; others never file eviction notices because they, too, don't have the money for legal fees.

Records show there were 8,142 eviction cases filed in Maricopa County's 25 Justice Courts in February and March, the most recent months for which the numbers are available. They have been declining since early 2009 and are down from a peak of 14,996 in July and August 2007.

For struggling renters, landlord reluctance to pursue evictions can be a welcome reprieve.

For potential renters, the heightened competition for tenants has in many cases lowered rents or brought concessions, such as the first month free, said Alison Melnychenko, a spokeswoman for Grubb & Ellis, a commercial-real-estate advisory firm. For instance, Mesa and Gilbert apartments that rented for $880 a month three years ago are $706 a month now.

The financial pressures on landlords isn't all good news. Some complex owners not only lack the means to evict tenants but also the money to fix up deteriorating apartments, which can bring troubles for renters.

The financial collapse last year of California-based Bethany Group, one of the Valley's largest apartment investors, had thousands of tenants in 13 giant complexes across the Valley worried about the stability of their living arrangements.

Before a management company was appointed by a Bankruptcy Court judge, water service was shut off at some locations, pools were green, landscaping was untrimmed and garbage bins overflowed.

Jodi Sheahan is one of the owners of Phoenix-based MEB Management, the company hired to manage several Bethany Group properties during bankruptcy. She said the Bethany Group's abandonment of complexes was an extreme case and not typical of what happens during foreclosure, bankruptcy and short sales in the apartment industry.

As for the eviction drop, Sheahan said it makes sense for managers in today's economy to work with residents so they can avoid costs associated with eviction and preparing a unit for new occupants.

Recent realty-listing records provided by Thomas Bade of Coldwell Banker Commercial show that the Bethany Group's failure was not an isolated one. At the beginning of this month, 41 large Valley complexes on the market were in foreclosure, nine were in bankruptcy and 22 were listed as short sales or with owners who are behind on their loan payments.

The ages of the complexes vary, but most were bought by the current owners during the real-estate boom years of 2004 to 2007.

"This will have a ripple effect on renters who thought they were safe from it all," said Stan Friedman, a Chandler resident and volunteer attorney for Community Legal Services.

William Bell and his family live in the 120-unit Dobson Springs Apartments in Mesa. "I've lived here for nine years; it used to be a nice complex," Bell said. "Then, we got letters about the bankruptcy." Now, the paint is peeling, blinds are broken and carpet was torn out but not replaced.

Records show the owner, California-based Pacific Property Assets, bought Dobson Springs in January 2008 for $9.25 million and filed for bankruptcy protection in June 2009. A phone message left at the Dobson Springs office was not returned.

Cash-strapped landlords let evictions lag