Let Them Eat Cupcakes

By Ru Budhi

“Landlords were feeling pretty good right up until the French Revolution.” –Cornelius Swart, filmmaker

On a glaring afternoon in 2018, during the first week of summer, I was at a yacht party in Hardtack lagoon, Ross Island. One of the young local apartment brokers acquired the luxury boat after an exceptionally strong prior year, perhaps as a testament to his bullish outlook for the market, despite being in year ten, of a ten-year recession cycle. The dream of the ‘90s might be alive in Portland, but on this nautical symbol of power, it was back to the excesses of the ‘80s. Reminiscent of the movie “Wall Street,” one vignette I distinctly recall was when a Talking Heads song played as manicured young women in bikinis stood around holding cocktails, seemingly blasé about their surroundings. They were apparently used to such lavishness, in a liberal city where Ivanka avant-garde is trumped by gently used clothing and flannel.

Of course, I was impressed not only since I have never been to a yacht party before, but also because its owner was optimistic enough to buy such a potential liability. Double anchored and secured, everyone onboard were, at least at that moment, ignorant of the many Portlanders who have a hard time keeping their heads above water. More importantly, those unfortunate people were unaware of our blessings, since we did not want to incite another activist hosted, Ira Virden spoof awards ceremony. Because of the increasing wealth gap in our country, the current American zeitgeist is that greed is bad, and anyone who wants to maximize profits does so at the expense of others. To many Portlanders, a rising tide sinks tethered boats.

The latest census shows that although Stumptown’s growth from July 2017 to July 2018 slowed to approximately 578 new residents per week from 769 just a year prior, the population is still expanding and concentrating its wealthier citizens closer toward downtown. As supply of the most desirable properties become scarce, formerly blighted neighborhoods near the urban core begin attracting those with greater means, and subsequently displacing those who cannot afford the rising rents. This process is called gentrification, where the renovating of a deteriorated urban neighborhood occurs because of the influx of more affluent residents.

To multifamily real estate investors, an area becoming wealthier means higher net operating incomes and increased property values. To longtime residents, however, rising costs mean many of them being uprooted from ancestral homes, churches, schools, and social networks; the dissolution of their community. The answer to whether gentrification is a good thing should seem obvious, since how can lowering the crime rate, improving services, and providing greater access to nutritious food ever be considered negative? It depends on the lens it is viewed through, of course, since to residents who distrust the police, and to those who cannot afford high-end groceries from New Seasons, yoga sessions from Namaste, tidbits from Tasty n Sons, and expensive treats from Saint Cupcake, there is seemingly no benefit to having such bourgeoisie elements nearby. To them, the installation of a Trader Joe’s and designated bike lanes only spell imminent rent increases that they will not be able to afford.

To better understand how more and more Portlanders feel about gentrification, and how multifamily investors can further avoid rent stabilization statutes, we turn to local filmmaker Cornelius Swart, who recently released the movie “Priced Out.” It focuses largely on the city’s north and northeast Black community that is experiencing a modern-day diaspora to the east and beyond, due to the outpacing of their incomes by rising costs in their historically minority neighborhood. Because African-Americans in Portland tend to occupy the lowest socioeconomic level, they are the canary in the mine of our housing market; experiencing the negative effects of price increases long before the majority even notices. Consequently, it is important to see how their community behaves, since their actions in pushing back against the housing industry are leading indicators for how many of the renters may also react.

After watching a screening of his new documentary, Cornelius met me for tea at the New Seasons Market on the former food desert, North Williams Avenue, to discuss how we can help landlords see that what is displacing Albina’s Black community, can ultimately also displace a significant percentage of the majority population. Once that occurs, more and more pressure will be put on politicians to institute rent control. In our modern age, social media and activism are the pitchforks and torches of the villagers, and we can see from recent guillotinings of landlord rights, that the proletariat housing revolution has begun.

So, who is Cornelius Swart, and why should we listen to him? Well, as Sun Tzu wrote in the Art of War, if you know the enemy and know yourself, you need not fear the result of a hundred battles. Those seeking to slow or reverse rent control, therefore, must understand the perspective of those fighting for it. With that said, it is important to know that Cornelius is not simply a Westcoast version of Michael Moore. For one, while Michael is largely a self-taught filmmaker, Cornelius was formally instructed at NYU’s Tisch School. Cornelius also seems more pragmatic than socialistic, but with his dark beard, black nylon glasses and hipster style, it is easy to dismiss him as just another SJW, a Social Justice Warrior who by virtue of a relatively privileged upbringing, blindly promotes socially progressive views, including feminism, civil rights, multiculturalism, and identity politics. But looks are often deceiving, especially in Portland, where rich guys sometimes drive old VW Bugs with smiley faces. Beyond driving an unpretentious vehicle (in his case, a 2002 pickup), he has more in common with Joe Weston than with Chloe Eudaly, since Cornelius also currently owns rental properties, including a commercial space leased by Wells Fargo. Originally from New Jersey, he got his start in commercial real estate when his property manager father taught him how to turn over apartment units, collect rents and serve evictions. They would later become business partners on a 26-unit Hackensack multifamily building, since Cornelius believes in profiting from real estate. Politically, he even calls himself a centrist, which is PDX vernacular for de facto Republican.

He would later become a Portlander, much like how many east coast guys do… boy meets local girl, boy loses local girl, boy stays for the craft beer. In 1995, he and his partner at the time, have a daughter in Northeast Portland, which planted his roots in the area as deeply as Willamette Valley grapes do. Two years after that, he collaborates with a fellow filmmaker after noticing the rapid gentrification occurring on Alberta Street. They make a feature film about the topic called “Northeast Passage: The Inner City and the American Dream,” which will eventually serve as the prequel to Cornelius’s current movie, “Priced Out” (www.pricedoutmovie.com). He has been reporting on gentrification for over 20 years through various outlets including two documentaries, the Oregonian, KGW News, and his own newspaper, the Portland Sentinel. The questions below pertain to his new movie, as well as our conversation. After each response, I provide a takeaway message for those investing in multifamily properties.

 What do you mean by “communities are not commodities”?

Cornelius Swart: They are not numbers. They are social entities and need to be accorded some respect and forbearance. They cannot be reduced entirely to numbers. The film is about the pain people feel from losing their community to gentrification. Communities are not made up of widgets, they are made of human souls. How much do you want for your grandmother, I will pay you cash? She’s worth about $80 in chemicals. That sort of mindset applied to whole communities has its limits. To make decisions considering nothing but the numbers on your spreadsheet is a net harmful practice when markets become as overheated as they are now. We need to operate in a mindset of reasonable returns rather than maximizing profits. If we do the latter, there are no social benefits that trickle down to a community. And if there is no consideration to the negative impact landlords might have on a community, then there is no reason communities should not band together and consider landlords a social ill, rather than a social good. Ultimately, you reap what you sow. If you sow nihilism against a community, you will get it back in spades.

Message #1: If tenants believe that a landlord only cares about making money, then they will ultimately get together and see that landlord as their enemy. Treat tenants like valued customers, and not simply replaceable parts of a money-making machine.

Your movie focuses mainly on the fate of African-Americans. So why would Portland landlords, who are predominantly White, and a lesser degree Asian, care about preserving the historic north and northeast Black community?

Cornelius: I am not sure that anyone can make decisions on behalf of an ethnic community that they are not members of. I think it’s more about just acknowledging if a given area has a history and ethnic tradition that should be factored into one’s decisions. In our actions, we always have rights and responsibilities. Rights exercised without forbearance is exploitation. So, we exercise our rights and uphold the burden of our responsibilities at the same time. What responsibilities we have to a given community is determined largely by what the community is- what is its history, who lives in it, what are its tradition. Not all communities have such distinct histories and traditions, but some do.

I bought a house and live in a traditionally Black community. I financed this film largely through my own income and borrowing power. People who see the film, sometimes they are mad that I am a gentrifier making a film about the Black community, but most people who come up and talk to me, of the

Black folks, they say, they appreciate that I’m at least being honest, putting out that I am self-interested, but at the same time, I’m at least putting some skin in the game of trying to acknowledge that the real estate system was rigged against people of color, and the film is one small way of trying to set the record straight. Most people appreciate it. That’s what I’m talking about. We all need to operate in a give and take relationship with a community, not just use them to extract money.

For example, realtors seem to take an interest in our film Priced Out. We do screenings for realtors here in Portland all the time. Some of them, at least, seem to acknowledge the issue, and want to know how to navigate it. Realtors must deal with real humans. There’s no way around it. So, some of them get it. Most people I talk to, don’t mind people buying homes or being landlords, but they just don’t want to be treated like objects, to be used or cast off at the convenience of the moment. Or to have their presence ignored, or their community erased from memory. That’s the most common complaint.

Message #2: Those who own rentals in an area that was once predominantly occupied by a minority ethnic community, should at least attempt to celebrate the contributions of that past community. Perhaps install artwork that pays homage to African-American culture, if the property is on North Williams Avenue. It can be a small investment that brings a large return in terms of public perception.

Multifamily investing is competitive and cyclical. Landlords, therefore, try to maximize profits during strong markets to compensate for leaner periods. With that said, what do you mean by “landlords should strive for reasonable returns versus maximizing profits”?

Cornelius: Exercising reasonable restraint is just like- don’t shoot the last buffalo, don’t kill the goose that laid the golden egg. Exploitation of the market- the full exercise of rights without a sense for social responsibility leads to a social push back that will be detrimental to landlords. If you abuse your freedoms, they will be taken away. That’s not a liberal or a conservative thing. That’s just reaping what you sow. I’m a parent, so when my kid broke her toys or abused her freedoms, they were taken away. Simple. My father, he’s been in real estate all my life, he is not a liberal guy or anything. Not a jerk, but not one to spare someone’s feelings. He said of the rising rents in Portland, that rent control would come, that it was a natural reaction to landlords jacking rents up to whatever they could get away with. He said, there are more tenants than landlords. That’s just real life, big boy stuff. I think most landlords are good actors, but everyone needs to think whether my actions will poison the well. I think most landlords are good actors, but I also think it’s up to us to create a culture of responsibility and forbearance in the industry.

Message #3: Tenants must not perceive a landlord as only being concerned with maximizing rents, since they will unite and punish that landlord. Incrementalism is the best strategy for raising a property’s net operating income, since small increases in rent are as imperceptible as inflation.

Farmers raise grass fed organic beef since they can charge more for it. The same goes for craft beer makers, car manufactures and just about every business that offers premium products. There is market incentive to sell better products, since one can charge more for them. So, what is the impetus for landlords to simply stop maximizing rents, especially if they have already renovated units using higher end finishes?

Cornelius: My friend Stephen Green, he is an entrepreneur, a black guy, a very smart well-educated guy. Middle class, and an economist. Grew up on the Westside then moved to NE Portland with his family. He told me this story. He was taking his daughter to do playdates with her friend in Peninsula Park. And after about six of these playdates, he realized that thisbkid’s family was living in the park. There is a problem with the housing market. I’m not blaming people for anything specific. I don’t know your business. I won’t pretend to. But I think this is a larger social issue. I think this applies to all aspects of our American society, which is in tatters right now. I think if we all just looked in the mirror and rather than saying “it’s not my fault” or “it’s that other guy’s fault,” we asked, “what am I doing to contribute to the problem and what can I do to help?” I cannot convince anyone who does not have ears to hear. Rent stabilization is coming.

Already rents are flat. Relocation fees are in Portland. Inclusionary zoning is here. These things are products of the massive rent spikes of the last few years. A lot of landlords had a field day during that period and so, the party is sort of over. The toys are being taken away. How can landlords, property managers and their power brokers work with housing advocates to prevent this sort of boom and backlash cycle again? Star Management used to encourage 30% rent hikes on renewals in 2015. On an existing building with no improvements? Is there wonder there’s talk of rent control in Salem?

Message #4: A landlord should not raise rents above inflation, simply because they can. They must show that tenants are getting something extra for the increase. If tenants feel they are being taken advantage of, they will demand more governmental regulations.

You want landlords to keep their rents low. One landlord doing so, however, puts that landlord at a disadvantage if competitors do not also do the same. Meanwhile, all landlords getting together and establishing lower rent increases can be considered price fixing. How do you see landlords keeping their rents increases low?

Cornelius: Yes, I am not suggesting collusion or cartelism. I am arguing for a cultural shift away from maximizing profits to one of reasonable return and social responsibility. I think it’s an individual mentality thing, but landlords could take collective action. For example, you might have landlords sign an ethics pledge. Lots of industries do that. Or there might be a ratings system, like restaurants have in LA. That could be an industry enforced standard. Or you could have a consolidated system of disclosures available to the public on each building like patterns of rent increases, maintenance records, financial solvency, number of no cause evictions. It’s funny to think that that is not already a requirement, given that housing is a basic need. Can you imagine if landlords were regulated as much as other industries, like health insurance? It could happen. As far as competitive disadvantage, I don’t know. That seems speculative. I know plenty of landlords who keep rents low and they are fine.

Message #5: Landlords in a particular market should consider getting together and sign an ethics agreement, and perhaps establish industry standards that do not involve price fixing. The reason is because housing is a basic human need, so if multifamily investors do not self-police now, the government will ultimately step in and create more regulations like it did with health care, the food industry, and other businesses that people rely on to live.

What do you think would happen if rents continue to climb unchecked?

Cornelius: What will happen is that people will see investment in their communities as a threat rather than as a benefit. That’s what gentrification is. It’s a toxic by-product of real estate investment. Communities are pushing back right now against development. You are seeing large protests, for example in Brooklyn and Queens that are keeping the city from upzoning their neighborhoods. In Miami’s Little Haiti, residents are pushing back hard against five mega developments. Some protests are getting increasingly belligerent. Art galleries that moved into Boyle Heights in LA, got systematically vandalized and harassed, and the galleries are picking up and leaving. Rent strikes are on the rise around the country. The city of DC is being sued in federal court for gentrifying its neighborhoods.

Well, we are seeing rent control coming up in even suburban areas now. Recent polls show support for rent control in Orange County as high as 59%. Portland already has de facto rent control. The relocation fee obviously, kicks in if you raise Multnomah county rents 10% or more, and the tenant can’t pay. So, that’s rent stabilization of a kind and other cities, lots of other cities, that have state bans on rent control, those cities are looking at that relocation fee very carefully.

Message #6: A landlord must show empathy towards tenants to prevent uprisings. Those being evicted will not care about the laws of economics governing supply and demand. Violent protests occur when communication ends, so it is important that tenants are made to feel they are being heard.

Do you think there should be rent control or rent stabilization in Portland?

Cornelius: I don’t think anyone is for actual rent control. Rent control used to freeze rents and you could hand down a rent-controlled apartment like an inheritance. People are talking about rent stabilization, which largely means there is a maximum rent increase per year. Vacant apartments can reset to market rates. It’s more of a slowing of rent increases so that you don’t get the market spikes. I’ve certainly talked to landlords who have said, “why would you even want to increase rent more than 10 percent a year That’s a lot. People don’t get 10 percent pay raises each year.”

I would think, and this is my speculation, that if standing rents are stabilized at a time of high demand, it would just put more pressure on building new units. That would be a good thing. Supply matters. I just don’t think you can deal with a housing crisis like the one Portland saw with just a supply side approach. Co-Star is saying Portland rents are cooling off because there are more new units in the market, and because of new stabilization regulations.

Message #7: Despite near consensus among economists that capping rent below market pricing will lower short and long-term housing supplies, Portland renters are demanding rent control. Their advocates may call it “rent stabilization,” but the result is governmental control of rent pricing. Because there are many more voters who rent than own, the will of the people will ultimately erode landlord rights. Owners should prepare for the inevitable by consulting with a multifamily advisor to assess whether their properties are aligned with their investment goals.

In conclusion, rent control is coming to Portland. Its negative effects can be mitigated by investors, but the process cannot be stopped because housing is a basic human need. Those who are adversely affected by rent increases will fight back against landlords using local politicians and tenant advocacy groups. Although Cornelius Swart’s documentary focuses on the gentrification of the north and northeast’s historically African-American neighborhoods, his message about Black people being priced out of their community rings true for the majority population who are also experiencing displacement from close-in Portland by more affluent residents. With our world-class wine region, countless small restaurants, and liberal social attitude, in many ways, Portland is Paris-- and a proletariat revolution has already begun. Despite the lack of proof that she ever uttered such words, public perception of her “let them eat cake” attitude, ultimately sent Marie Antoinette to the guillotine. Landlords wishing to avoid metaphorically losing their heads, must be in touch with the sentiments of their tenants.

__________________________________________________________________________

References

Costar, “The knowledge Market” 2018.

Barker, Nancy N., Let Them Eat Cake: The Mythical Marie Antoinette and the French

Revolution, Historian, Summer 1993, 55:4:709.

“Priced Out: The Documentary.” www.pricedoutmovie.com.