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Oregon Rent Control Senate Bill 608 Explained

OREGON RENT CONTROL SENATE BILL 608 

Eviction Standards
Eliminates no-cause eviction standard after the first year of occupancy.

o Landlords can continue to evict for a tenant-based cause (current law – i.e., non-payment, violation of
the rental agreement, outrageous conduct, etc.).
• Adds new landlord-based for-cause reasons to evict a tenant:
o Sale to a person who will move in;
o Landlord or family member move-in;
o Significant repair or renovation of the unit;
o Removal of the unit from residential use.
• If landlord uses one of these four landlord-based reasons, they must provide the tenant with 90-day notice and
relocation expenses in the amount of 1 month’s rent.
Exceptions
• Small landlords (4 or fewer units) do not have to pay relocation expenses.

• Landlords who live on the same property as their tenant (owner occupied, 2 units or less) may still use a no-
cause eviction at any time.

Month-to-Month Tenancies
• For the first 12 months of occupancy, a landlord may terminate the tenancy without cause with a 30-day notice.

• After the first 12 months of occupancy, a landlord may only evict a tenant for cause, by using an existing tenant-
based reason or by using one of the four new landlord-based reasons.

Fixed-Term Tenancies
• After the first 12 months of occupancy, the fixed-term lease will automatically roll over to month-to-month
unless the landlord has a tenant or landlord-based reason to terminate.
Exceptions:
• A fixed-term lease might not automatically roll over at the end of the fixed term per landlord discretion if
the tenant has violated the terms of the rental agreement 3 separate times during a 12-month period, with
written warnings for each violation given contemporaneously with the violation.

Annual Rent Increase
• Landlords may increase rent by no more than 7% + consumer price index in a 12-month period.
• Maintains current law regarding rent increases: prohibits rent increases in first year of month-to-month tenancy
and requirement that landlords give 90-day notice of rent increases thereafter.
Exceptions:
• New Construction: A landlord may increase the rent above 7% +CPI in a 12-month period if the certificate of
occupancy was issued less than 15 years ago.
• New Tenancy: If the previous tenant vacated the unit voluntarily or their tenancy was otherwise terminated in
compliance with other applicable law, the landlord may reset the rent on the new tenancy without limitation.
• Subsidized Housing: If the landlord is providing reduced rent to the tenant as part of a federal, state, or local
program or subsidy, they are exempt.
Enforcement
• If a landlord violates the new provisions, they are liable for three months’ rent plus actual damages.

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SENATE BILL 608 SUMMARY

Frequently Asked Questions: SB 608
When will the changes go into effect?
Senate Bill 608 has an “emergency clause” and thus becomes effective once signed by Governor Brown. We anticipate
this could be as early as March 1, 2019.

If I have a transaction that closes after the law goes into effect, can the new owner evict the tenants?
Depends. Generally, you may only evict for a tenant cause or a “qualifying reason for termination” under of the
enumerated circumstances that the law provides.
Once you become an owner of qualifying rental property, you become a “landlord” whose conduct is governed by the
bill and you should review both the current law and existing tenant contracts of the property you’re purchasing.
However, the law does allow for specific circumstances under which a landlord, including a new landlord, could evict a
tenant landlord-based reasons including significant renovations, demolitions, safety, or owner-occupancy.

How does this impact closing timelines for rental occupied properties where the new owner will occupy the
residence?
The closing date in the sale of real property is a construct of contract law between the parties and thus would not be
affected by the new law which governs landlord-tenant relations.
However, displacing a current tenant (and thus effectuating the intent of new owner who would like to move-in) is
another issue (because notwithstanding the transaction between the buyer and the seller, the tenant has their own
rights subject to their lease agreement and current law).
If the tenant is a week-to-week tenant, or a month-to-month tenant within the first year, you have some flexibility to
displace them without cause (so long as you give them the specified amount of notice) and certain circumstances apply.
If the current tenant is a month-to-month renter who has been occupying for more than a year or is under a fixed term

lease, evicting a tenant is subject to more regulations. Fixed-term leases will always continue, unless there is a tenant-
based reason (failure to pay rent) for eviction. On a month-to-month tenancy, 90-days’ notice and the payment of

relocation expenses (1-month’s rent) will be required.

I heard that the law caps rent increases, but that cities and counties will be able to set high rent caps if they
want?
There are no exceptions for cities and counties, and therefore the rent increase cap would apply to the entire state
equally. Further, any local ordinances that conflict with the statewide cap on rent increases would likely be preempted
by the legislature’s acts. We advise seeking legal counsel to determine where estate and local laws may conflict and the
potential impact of such a situation.

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SENATE BILL 608 SUMMARY

When it says that it applies to buildings 15 years or older, when does that date start? Is it rolling?
The time period is calculated by the difference between when a notice of rent increase is sent out and when a certificate
of occupancy was issued for the dwelling unit.

Does selling your home count as a for-cause or no-cause eviction?
The bill is intended to provided protections for tenants. Thus, if a home owner wishes to sell their home, this law would
have no effect on that transaction (which is between the buyer and the seller) unless the rights of a tenant are affected.
Fixed-term leases will always continue, unless there is a tenant-based reason (failure to pay rent) for eviction. On a
month-to-month tenancy of under a year, a no-cause notice may be issued with 30-days’ notice. On a month-to-month
tenancy of over a year, 90-days’ notice and the payment of relocation expenses (1-month’s rent) will be required.

Resources:
Please reference Senate Bill 608 on the Oregon State website at
https://olis.leg.state.or.us/liz/2019R1/Downloads/MeasureDocument/SB608/Introduced

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Oregon Statewide Rent Control first in Nation

Oregon Rent control law signed, takes effect immediately.

By Sarah Zimmerman, The Associated Press

SALEM — Gov. Kate Brown signed the nation’s first statewide mandatory rent control measure Thursday, giving a victory to housing advocates who say spiraling rent costs in the economically booming state have fueled widespread homelessness and housing insecurity.

Brown said the legislation will provide “some immediate relief to Oregonians struggling to keep up with rising rents and a tight rental market.”

Landlords are now limited to increases that cannot exceed 7 percent plus inflation, and can only raise rents annually.

The law prohibits them serving no-cause evictions after a tenant’s first year of occupancy, a provision designed to protect those who are living paycheck to paycheck and who affordable housing advocates say are often most vulnerable to sudden rent hikes and abrupt lease terminations.

The law takes effect immediately. Democrats, who control the Legislature, say the state’s housing crisis justified passing the bill as an emergency measure.

New York has a statewide rent control law, but cities can choose whether to participate. California restricts the ability of cities to impose rent control; in November, voters defeated a ballot initiative that would have overturned that law.

In hearings for the Oregon bill, tenants testified that they have struggled to keep up with skyrocketing rents, with many saying they’ve been forced from their homes. Kori Sparks, of Bend, said she relies on disability and has “to deal with the stress of losing an accessible home on short notice.”

She said rent control will protect vulnerable people from “a predatory system where profit comes before people and denies them of a basic human right.”

Housing crunch

Builders in Oregon have not been able to build enough houses and apartments to meet the demands of the thousands of people moving to the state for jobs and, in some cases, for a lower cost of living. Many people move to the state from California.

A state report estimated that a renter would need to work 77 hours a week at minimum wage to afford a 2-bedroom apartment. Many renters in Oregon are paying more than 50 percent of their income on rent, far higher than the Congressional-set definition of housing affordability, which suggests setting aside 30 percent toward rent.

In the Portland metro area, rent began to plateau in 2017 after four consecutive years of rent hikes averaging 5 percent or more. The average rental unit costs about $1,400 a month, according to city data.

Oregon is also suffering from a lack of affordable housing and has one of the highest rates of homelessness in the country.

Landlords and developers argued that rent control would make the housing crisis worse, saying investors will now be less willing to build or maintain properties.

“History has shown that rent control exacerbates shortages, makes it harder for apartment owners to make upgrades and disproportionately benefits higher-income households,” said Doug Bibby, president of the National Multifamily Housing Council, a national association representing apartment building owners.

The governor acknowledged that rent control alone isn’t enough, and that the state needs an “all hands on deck” solution. Brown has proposed a $400 million investment in affordable housing solutions in her two-year budget proposal.

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Federal Opportunity Zones

Are Opportunity Zone Funds Right For My Real Estate Investment Portfolio?

Post written by: Drew Dolan - Forbes Council

The Opportunity Zone (OZ) tax incentive has now been widely written about, and experts predict that $100 billion will flow into Opportunity Zones this year. Real estate developers should be evaluating each land purchase and each deal to make sure that any government incentive available supports the bottom line of their investments. The new Opportunity Zone incentive affects a handful of projects in my firm's current development pipeline, and in order to monetize Opportunity Zone pipeline projects, we had to understand the answers to a few key questions: What are Opportunity Zone funds? How do we evaluate them? Are they right for every investor? Are they right for us?

Examine the answers below to help inform your next real estate investment decision in the OZ space.

What are Opportunity Zone Funds?

Opportunity Zone Funds (OZF) are primarily a way to roll capital gains into new business or real estate investments with tax deferrals and overall reduction. In order to enjoy the full benefit of the Opportunity Zone tax incentive, an investment must be held for 10 years to reach forgiveness for additional capital gains.

How do I evaluate an Opportunity Zone Fund deal differently?

As the key to this process is holding a deal for 10 years, it goes without saying that it is important to study the hold/disposition strategy for each deal. Competition upon disposition will also be something to consider for many of these projects. Ultimately, good deals can become great upon disposition, but bad deals cannot become good. The internal rate of return (IRR) is sensitive to the time value of money, so many investors will examine cash-on-cash metrics instead of heavily relying on IRR. Cash flow from 12% to 14% will ensure that investors can actually hold the property for the required amount of time and generate income while waiting for the maximum tax benefit to become available.

The OZF rules favor ground-up real estate development due to the requirement that invested capital gains must “substantially improve” the property or business, which means the entire initial investment must be matched in improvements to the property. While this can be achieved in a myriad of ways, the most straightforward way to meet this requirement is to purchase land within an Opportunity Zone and build something on the raw land.

It is paramount that good underwriting is in place for any real estate deal, but Opportunity Zone deals must be analyzed specifically for their time requirements. Investors seek to invest quickly so that the benefit is greatest, which will require you find expert underwriters.

Another piece of the Opportunity Zone puzzle is understanding the perishability of returns over time. Returns decrease from 3.08% for investments made in 2018 to 1.74% for investments made in 2025. The rush to deploy capital in these locations will certainly impact strategy and favor those funds and groups that are able to act swiftly.

Data presented (registration required) by Marcus & Millichap last year demonstrates standard after-tax IRR compared to the returns available when the Opportunity Zones capital gains deferrals increase in basis over time (10-15%) and eventual forgiveness. Assuming a standard after-tax IRR of 6%, reported jumps are from 35% to 51%. These benefits are significant, and we anticipate a good deal of competition for not only land in Opportunity Zones, but for “half-baked” deals that groups with capital to deploy can take over.

Are OZF deals right for my real estate investment portfolio?

Opportunity Zone Funds are a fantastic opportunity, and the benefits cannot be understated. If you already have existing capital gains, a solid Qualified Opportunity Zone Fund (QOZF) project could deliver higher returns compared to one not in an Opportunity Zone.

That being said, it is important you consider the implications of QOZFs when evaluating existing deals and consider the risks of funds that do not have a pipeline to execute, expert underwriting and post-tax return analyses. The benefit of this tax incentive will be extremely meaningful; however, it cannot make a bad deal a good one.

Bottom Line

QOZFs will make sense for some pipeline developments and not for others. The strength of any real estate development project is held in a conservative pro forma. Smart developers will seek to invest in QOZFs with strong fundamentals that can demonstrate speed to market.

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