CitiApartments

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CitiApartments, Inc.
Type	privately held corporation
Founded	1940s
Founder	Frank Lembi
Headquarters	San Francisco, CA, USASan Francisco, California
Key people	Frank Lembi, Founder and Chairman; Walter Lembi; David Raynal, managing partner and Chief Operating Officer;
Industry	real estate
Services	apartment owner and manager
Revenue	$80 million / yr
Parent	Skyline Realty, Inc.
Website	http://www.citiapartments.com/

CitiApartments is one of the largest real estate companies in San Francisco, California, owning and managing more than 300 buildings directly and through affiliates. In recent years it has been the subject of intense criticism and litigation for allegedly illegal business practices as a residential landlord.

Contents 1 Corporate Structure and Holdings 2 History 2.1 Origins 2.2 Recent Business Developments 2.3 A family business 3 Controversy 3.1 Lawsuits 3.2 Eliminating competition 3.3 Shaky finances 3.4 Past Controversies 3.5 CitiApartments Response 4 References 5 External links

[edit] Corporate Structure and Holdings

CitiApartments, Inc. is a Subsidiary of Skyline Realty, Inc., and also operates buildings owned by various limited liability companies, all of which are in turn owned by founder Frank Lembi and various members of his family.

CitiApartments and its affiliates own over 300 apartment buildings with a total of more than 6,500 apartment units housing more than 7,000 residents, making it the second largest owner of residential rental property in San Francisco.^[1]

It also owns five boutique hotels, two office buildings, a real estate brokerage, a mortgage brokerage, and a property management firm.^[2]

[edit] History

[edit] Origins

Frank Lembi, originally a pharmacist, became a real estate broker after returning from military service in 1946. Shortly after, he formed Skyline Realty as a brokerage. He bought the business outright upon his business partner's death in 1968. ^[2]

[edit] Recent Business Developments

Beginning in the early 1990s Skyline Realty shifted its focus from brokering real estate to buying and managing apartments. CitiApartments has taken a buy and hold approach to its investments, making heavily leveraged purchases of mid-sized older buildings in nearly every neighborhood of San Francisco but mostly in the Tenderloin and Nob Hill. Because most of the city's housing stock comprises smaller buildings, with only several large complexes, this has given the company a dominant position within its market. ^[2]

Due to San Francisco's strict rent control laws, which prohibit all but very modest rent increases and prevent landlords from terminating tenancies without cause, CitiApartments cannot immediately profit from building upgrades. Instead, it takes a longer-term approach by:

• Offering buyouts and incentives for tenants to relocate
• Intimidating tenants and using illegal tactics to force them to leave rent controlled apartments
• Waiting until tenants leave before renovating their units
• Re-renting upgraded units at much higher market rates, or as high-rent furnished suites or hotel rooms
• Cutting building management expenses

[edit] A family business

Founder Frank Lembi's son, Walter Lembi, is a significant owner. Grandson Taylor Lembi owns two apartment buildings and is part of the business. David Raynal, COO, is Frank Lembi's nephew. In various combinations and through affiliated companies they own the buildings managed by CitiApartments.

[edit] Controversy

[edit] Lawsuits

On August 16, 2006, the Office of the City Attorney of San Francisco filed a lawsuit against CitiApartments and related companies and individuals claiming an "egregious pattern of illegal business practices" that amounted to a "panoply of lawlessness, intimidation tactics, [and] retaliation against residents." Among the city's claims are: intimidating tenants into leaving rent controlled units, unannounced visits by armed guards, illegally entering units, changing locks, shutting off utilities, retaliating against tenants who refused buy-outs, remodeling units without necessary permits or inspections, and illegally renting out residential units as hotel rooms and executive suites.^[3]

In April, 2006, 23 tenants filed a private lawsuit against the companies. Among the claims are intimidation of tenants by armed guards, harassment and threats, coercive interrogation sessions to pressure tenants into signing agreements, illegal construction intended to harass tenants, and tenant lockouts, all intended to force below-market rent controlled tenants to leave so the company could renovate and re-rent at a higher rate.^[4][5][6]

In addition there have been numerous lawsuits against the companies on behalf of individual plaintiffs. One of which was handled by San Francisco landlord/tenant attorney Drexel Bradshaw of Bradshaw & Associates, P.C., who sued Citiapartments under the RICO statute of 1970. The Fraudulent use of the telephone and U.S. mail is cause for RICO prosecution.^[7]

[edit] Eliminating competition

CitiApartments often pays as much as 50% more for a building than its value to the rest of the market, and as a result may have raised overall market prices by 5-10%. This drives away competition from weaker or more cash-sensitive property investors. Starting in late 2006 it has bought nearly all of the multi-unit apartments sold in the city as they came available.^[8] Critics claim that the only reason CitiApartments can afford the premium is that it makes more money on buildings than companies that operate within the limits of the law.^[2]

[edit] Shaky finances

CitiApartments has bought buildings on credit from outside investors, with down payments as low as 8% of the total purchase price (as opposed to 30-40%, which is more common for comparable commercial real estate purchases). Because of the high prices paid for buildings, and the high amount financed, this means the buildings have negative cash flow and cannot support their mortgage. Critics complain that in the event of a market downturn or other unexpected event, CitiApartments may default on its mortgages and have to sell them at distressed prices or in foreclosure, which would have a ripple effect that depresses commercial real estate throughout San Francisco. ^[2]

[edit] Past Controversies

Frank Lembi was CEO of Continental Savings of America, a savings and loan institution that was taken over by the Office of Thrift Supervision to prevent insolvency due to bad high-risk real estate loans in the savings and loan crisis of the 1980s. He and son Walter were named in numerous lawsuits related to that company.^[2]

[edit] CitiApartments Response

CitiApartments has through interviews and press releases categorically denied all claims, and rejected all criticism made against it. It describes itself as an upstanding property manager, and claims that any disputes with tenants have been groundless, minor, or normal and incidental for a landlord of its size. It has responded in detail that the factual basis of the two major lawsuits against it are untrue.^[9]

To promote its position as a caretaker of San Francisco's older housing stock, CitiApartments has donated to various housing-related charities and causes and offered several nearly-free apartments to needy people. It has put out numerous press releases on the subject since the inception of the lawsuits and recently adopted the slogan "Restoring San Francisco's Neighborhoods." ^[10]

[edit] References

[edit] External links

• press kit - contains text of San Francisco complaint
• Citistop Tenants' Union] - informational website for tenants opposed to CitiApartments
• The Scumlords: Skyline Realty's goon squad - part 1/3 of SF Bay Guardian series
• The Scumlords: Neglect and disrepair - part 2/3 of Bay Guardian series
• The Scumlords: Family business - part 3/3 of SF Bay Guardian series

Beyond Chron

• [1]