No massive wave of evictions caused by the coronavirus has hit Dallas yet. Maybe it never will. But the threat of mass eviction is already becoming a template for everything else coronavirus, from unemployment to economic stagnation to mortality.
If it happens, how big will it be? If it’s big, who shares the pain? If it’s shared, how?
At one side of the landlord picture, big corporations and real estate investment trusts are worried about their own debt. At the other end, the more mom-and-pop small landlords worry about how to find new tenants if they kick out the ones they’ve got. The question of shared pain looks very different at those two ends of the spectrum.
But they’re all staring at the same problem. Take your property, shake it upside down like a piggy bank, dump out all the tenants: What’s your next move? All the other potential tenants out there may be screwed with their pockets turned inside out, too.
David Spence, who pioneered the redevelopment of the Bishop Arts district in North Oak Cliff, put it this way last week: “On the other side of this, how easy is it going to be for me to refill that space?
“Then I have to do make-ready. It usually costs me one or two months rent to freshen up the place, change the locks and all that stuff.”
Spence says tenants probably don’t know how much leverage they have over landlords because they don’t know landlord math: “A commercial tenant would have to go at least six months without paying me a dime before it would be more remunerative for me to close them down now.”
His own answer, he says, is to stay close to his good tenants and work with them to find ways he and they can survive. His best bet, he says, is to keep blowing on the flickering embers of enterprise in the hope the coals can be rekindled when this is over.
“For landlords throughout the country, it really pays to be magnanimous right now,” he says, “because we’re really all in this together.”
But at a special City Council meeting last week to consider a draft eviction protection ordinance, it was clear that not all landlords were feeling quite as hand in hand as Spence. There is some serious irony in who does and does not feel magnanimous right now.
Representatives of the big landlord interests who appeared at the meeting — echoed by some council members who represent poor districts — gave the impression that the residential eviction problem probably will come from so-called slumlords. But it was the big landlords themselves who were the most nervous about extending eviction protection for tenants. Meanwhile, last week I talked to some of the landlords whom City Hall sometimes slimes as slumlords, and they were the ones preaching mercy and patience.
Khraish Khraish is no longer in the residential landlord business on the same large scale he was two years ago in West Dallas, having sold most of his rental homes to his former tenants. But he says when he was in that business, the secret to success was knowing every tenant on a personal basis in order to know which ones could be trusted and might deserve a break.
“Our tenants had an average tenancy of five years, and most of them were referrals from other renters," Khraish said. "Since they came to my office at that time to make payments, we were able to develop very strong relationships with them.”
Khraish echoes Spence in the opinion that shaking out all the tenants struggling to pay rent today may not turn out to be tomorrow’s smart move.
“There is a context that landlords need to be aware of, which is that this is not a micro-economic event affecting a neighborhood or a city,” Khraish said. "This is a macro-economic event that is affecting economies globally.
“So if you are quick to evict or even foreclose, your next customer may not appear. It’s not as if there are just lines and lines of renters waiting for a new apartment.”
At last week’s council meeting, the representatives of the higher end landlords expressed a decidedly different view. Talk of special mercy was clearly making them antsy. And to be fair, they’re the ones who have way less wriggle room than smaller operators who are often self-funding.
Bill Cawley, chairman of the Texas Real Estate Council, said 25% of his own company’s tenants are asking for rent relief. He said of that group: “I would guess, this is my guess, 40% of those people do not need relief. They are asking for it because they think it’s available.”
Matthew Church of the MetroTex Association of Realtors was more aggressive, issuing the council a blunt threat that the big landlords will interpret the proposed new notice requirement as a form of rent control, historically a dirty word in Texas.
“What we are really talking about today is using this crisis as a thinly veiled attempt to get one step closer to full rent control,” Church said.
Mark Melton, a lawyer who drafted the proposed ordinance being considered by the City Council, told me later, “This isn’t anywhere near rent control.” Melton said he had spotted a number of legal and constitutional vulnerabilities in an earlier version of the ordinance and had drafted this new version narrowly to defeat those challenges.
But maybe what’s more important than the specific challenges being tossed around by the big landlords is the anxiety behind them, on obvious display at the meeting. There are reasons the big operators may be more inclined toward hardball than smaller, more entrepreneurial landlords, and some of the speakers before the council last week hinted at it. They spoke of a “cascade effect” and “kicking the can down the road” by stretching out the eviction process and allowing slower pay by tenants.
The big landlords operate on big debt. Where that debt is held by federally regulated banks and institutions, the loans are governed by strict federal rules. Under most circumstances if a federally regulated loan goes unpaid longer than 90 days, the bank or lender must put the loan into a “non-accrual” status, meaning the loan is no longer generating any profit.
Too many non-accrual loans can seriously weaken a bank’s standing. Therefore banks start thinking about foreclosure before a loan goes off that 90-day cliff. In that case, the can that gets kicked is the landlord’s.
So the big landlords living on big bank debt have much less flexibility than the so-called slumlords. Plus, they don’t know their tenants personally in most cases, so they have to guess which ones really need rent relief and which ones don’t.
This emergency is so big that it’s already causing a major rewriting of banking regulations. Regulators in Washington are considering rules that would allow banks more time before they have to put loans into non-accrual if they can show that the coronavirus crisis is at fault.
But that’s a big can to kick. Relaxed banking regulation that disguises inner weakness is exactly what has brought us a series of national banking catastrophes in the past, most recently and disastrously in the banking crisis of 2007-08, which ushered in a worldwide recession.
Melton says the ordinance the council is considering is not about rent forgiveness. Instead it would extend the notification period for an eviction and require a full disclosure of rights to the tenant. The object is to protect tenants from landlord letters telling them they have 48 hours to get out, an illegal but not uncommon practice.
Conservative North Dallas council member Lee Kleinman normally could be expected to oppose such a measure as an interference with a landlord’s property and contract rights, but not this time.
“Under normal circumstances,” he said last week, “I would definitely be against something like this, but we are not under normal circumstances. I agree that if we can help someone out with a little bit of breathing room, that’s good. What we really don’t need is for a family to be out on the street homeless.”
What is different for everyone this time around is the staggering potential of this crisis. The peak, not yet here but already fabled, overwhelms standard operating procedure, past practice, assumption and imagination. In so doing, the crisis exposes an architecture of interconnectedness that was either forgotten or not yet known.
Dennis Topletz’s family is one of those whom City Hall has vilified in the past as slumlords. But the Topletz family has a long history of renting to poor people and of financing small businesses and churches in poor neighborhoods.
In the last two years, working with attorney John Carney, the Topletz and Khraish families have been selling hundreds of rental houses to their tenants, almost certainly creating more homeowners than any city-subsidized program has achieved in the same period.
When Khraish was accused of signing homebuyers to one-sided mortgage contracts, he offered all of his buyers an open right of rescission: If they were unhappy with the deal, Khraish would take the houses back.
Not a single buyer took him up on it. Those properties are now soaring in value, creating wealth for the buyers that might never have been achieved otherwise.
Last week it was not any of the big corporate landlords, but Topletz, Khraish and Spence who talked about the threat of mass eviction as a template for the larger crisis. Topletz said, “It seems to me that the society itself is dictating that we’re going to help out, and at the end of the tunnel there will be light, and we’re all going to make it, but we all have to work together.”
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Khraish pointed out that hardship, a new challenge for many in this crisis, has always walked close behind his own clientele: “We run our business knowing that especially at the lower end of the economic and income spectrum, tough times come routinely. It’s not always smooth.”
Spence said, “Contracts don’t necessarily capture really the relationship of owners of property and the people who pay for those buildings by operating businesses in them. It’s a very symbiotic relationship.
“And then, of course by extension, everything is. I think that generally we are going to see that those who have invested in relationships, really local relationships, will be the ones who will fare well.”
(Any tenant threatened with or worried about eviction can seek free legal advice online at dallasevictions2020.com.)