Trouble came to Apartment 1103 in the dead of night.
Ripping apart the door and trashing the vacant East Palo Alto home in a frenzy, the visitors left their calling card spray-painted on every wall like a guest book full of preening profanities. They signed off: THE EPA MOB WAS HERE.
"These gangbangers around here," says a handyman surveying the damage. "They're like animals."
Another trashed apartment is the last thing Page Mill Properties needs right now. After using other people's money the past three years to buy and improve nearly half the rental units in this hardscrabble community wedged between the bay and the gleaming city of Palo Alto, a lot more than spray paint has hit a wall. Last month, with the real estate market in the dumps, the group failed to make a $50 million loan payment to Wells Fargo. And when a San Mateo County judge placed its approximately 1,800 units under receivership, it left the fate of Page Mill's controversial real estate empire in jeopardy and many of its working-class tenants fearful about their future.
"Nobody knows what's going on," says Norma Rodriquez, 32, who lives with her husband and their five children, shoehorned into a bug-infested one-bedroom apartment. With the temporary closing of the management office early this month, "I worry about my rent check and I don't know if it's going to the owner.''
Page Mill isn't talking publicly about its ambitious and troubled undertaking. But based on its past comments — and interviews with analysts, tenants and local observers — its plan was bold: Assemble a veteran management team, a group of investors and a bank, then move into a Bay Area city where real estate is undervalued. Scoop up enough housing stock to gentrify an entire community, once the units are spruced up and security is improved to reduce crime and gang activity. Both rents and property values would soar.
"It's all about scale,'' says Ben Thypin, an analyst with Real Capital Analytics. "They're trying to take advantage of a very valuable area — these properties weren't worth much individually, but as a sum, they're worth a lot more.''
But Page Mill's aggressive push into East Palo Alto ran headlong into community opposition and a collapsing economy.
'We are under siege'
For East Palo Alto, incorporated 26 years ago in a defiant stand by residents against speculators and creeping gentrification, Page Mill represents the latest in a series of battles over a community where working-class families cling to some of the last affordable housing in a roiling sea of wealth.
"We are under siege by Page Mill Properties,'' says Mayor Ruben Abrica, an outspoken critic of the group's legal campaign against East Palo Alto. "And so are the tenants.''
Page Mill's general counsel, Jim Shore, a former deputy district attorney for Santa Clara County, suggests opponents have misinterpreted what investors are trying to do in the oak-draped neighborhood of Woodland Park.
"The vision," Shore says, "was to build community in East Palo Alto by making investments in a number of apartments, duplexes and single-family homes, by improving the living conditions of the families who live there, by spending more than $20 million to rehabilitate the housing, and by introducing better management practices. The goal was a safer and improved environment for the residents and a reasonable return for the investors."
But, as one local investor put it, "the market turned on them.''
Page Mill's improvements are obvious — painted buildings, spruced-up gardens with rose bushes and young redwood trees. And some tenants are pleased.
"I've had a good experience so far," says Mimi Haskell, who moved into a studio on East O'Keefe Street last May. "Rent includes water, garbage and electricity, which makes this cheaper than anywhere else on the Peninsula. So it works for my budget."
Other tenants, some of whom have been evicted or forced to leave because of Page Mill's rent hikes, tell a different story.
"I went from paying $1,024 for a two-bedroom to like $1,275," says former tenant Arnold Hart, 53. "They didn't have the right to raise my rent that much."
Hart says that after the landlord tried to evict him, he worked out a settlement and moved out. Page Mill would not comment.
Tenant activist Chris Lund, a Stanford earth-system science Ph.D. who lives in one of the units and has become a thorn in Page Mill's side, sees the flurry of lawsuits among landlord, city and tenants as evidence of a much larger drama — an ideological battle for the very soul of East Palo Alto.
The city, Lund says, "was in part founded on the belief that the community needed to preserve affordable housing, which led to the city's rent-stabilization ordinance now under attack by Page Mill.
"We live in a society, not just an economy," he says. "And there's a social contract that says we have obligations to one another to ensure access to fundamental things like health care, clean water and shelter."
1,800 units acquired
The drama has been brewing since 2006, when Page Mill, headed by longtime Bay Area property investor David Taran, began acquiring buildings on the city's west side. The group snapped up about 1,800 units, roughly half of the city's rental stock, city officials say.
CalPERS, the California Public Employees' Retirement System, helped fuel the buying by investing $100 million, and Page Mill got a quarter-billion-dollar loan from Wachovia, now part of Wells Fargo. CalPERS, under pressure by city officials and activists in East Palo Alto to end its involvement with Page Mill, would not comment. Neither would Wells Fargo, saying only that "the safety and quality of life of the tenants at Woodland Park is of primary concern to Wells Fargo."
Tenants started reporting rent increases as large as 50 percent in 2007. After hundreds of protesters showed up at council meetings, the city took legal action against Page Mill to try to stop the increases, which city officials said violated their rent-regulating ordinance. Attempts to get courts to halt the rent increases, however, have been largely unsuccessful. Meanwhile, activists say as many as 1,500 tenants have either been evicted or forced to move.
East Palo Alto tried to put a new rent-control law on the November ballot this year to close existing loopholes and bring the ordinance up to date with state law. But Page Mill successfully blocked that attempt, and city officials say it isn't likely to come before voters until June.
Even if Page Mill wins that battle, its future is uncertain. A Wells Fargo executive who asked not to be identified says a bank takeover of the properties is possible. The late loan payment "is being negotiated right now between the lender and borrower. I don't want to speculate. But hypothetically, one way this could unfold is the property could go into foreclosure. Then ownership could go to the lender,'' the executive says.
Real estate analyst Thypin points to other possible scenarios. Wells Fargo "could sell the loan to someone else, who would try and work things out with Page Mill. Or the borrowers could try and modify or extend the loan. Or they could even go to the auction and bid on their own loan and buy the properties back.
"They'd need money, of course, to do that,'' Thypin says. "But you can't write off Page Mill just yet."
One developer who asked that his name not be used because he has worked with the parties involved is less upbeat.
With the loan in jeopardy, so is the entire project, he says. "After all, these are low-end apartment rentals, and they won't be worth a whole hell of a lot for years. People in the industry are talking about a 10-year cycle before commercial property values are anywhere close to where they were in 2006.''
With an aggressive investor, willing sellers and "tenants who Page Mill thought would go quietly into the night, it was an epic battle,'' he says. "But then the economy went south, and now it's musical chairs. And when the music stops, you'd better not be standing.''
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