I Rent(ed) With Boardwalk Communities - answer to Ms. Hunt

Lynn Hunt wrote on the wall:

I believe Boardwalk to be a very responsible corporate citizen, acutely aware of its social responsibility. Because of its level of awareness, Boardwalk has many policies in place which reflect social responsibility to the community, such as self-regulated rental increases; having an internal subsidy program which provides support to residents who will suffer financial hardship due to a rental increase; providing buildings specifically dedicated to the needs of seniors; working with Government and social agencies to ensure availability of private/public subsidized housing - reducing waitlists for Government built and subsidized housing; and commitments to charities through funding & volunteer efforts, by the company and its associates.
Boardwalk employees are not only encouraged, but required to show respect for residents, associates and the community, and to do their very best every day to meet the needs of residents.

Boardwalk's primary responsibility is to serve it's shareholders, who should be very happy if they invested last year, perhaps not so happy if they invested in the last couple of months.

Their Code of Conduct and their social programs serve only to provide Ms Hunt with the sort of spin fodder required to protect the share price. But they are pretty much token.

To be fair, apart from rent, my rental experience with Boardwalk has been not bad. While the management has been slow at repairing vandalized hallway walls, the cleaning staff keeps picking up the broken dry wall. While $4 to wash/dry a load of laundry feels like a gouge, the machines seem to be kept in good repair.

But when it comes to money, the rent, I've never felt so unwelcome. I don't need a subsidy. I just need flexibility so I don't have to get a payday loan. Lack of flexibility costs me $60 to $90 a month. At the start, what I got from Boardwalk was that I need to talk to them if I was going to be late. I did that. Then I got that I better pay it at the first or else. Then I got a bill for a letter they wrote. I've always paid my rent. It's never gone past 10 days and I've managed to pay a month in advanced once. Not a word about subsidy programs. Not a word about how we can make this easier. Instead, they up the pressure with letters from lawyers and arbitrary charges.

If you pay your rent, not much they can do about you. But if you have any challenges, they want you out. After all, they could rent my unit for another $300 or $400 a month. Why would they want me to stay?

Sorry Ms Hunt, the social responsibility, social programs, and the subsidy programs are just shareholder whitewash.

$1,600/mo. magic number for builders

Boardwalk is wanting to squeeze twice as much out of the market before it would consider new developments. Historically, I wonder how much Boardwalk has actually built as opposed bought. In a tight housing market, the difference is significant. Growth through acquisition does not increase the supply of housing. In fact, I would expect that consolidating the apartment inventory into fewer hands would accelerate the runaway rental rates.

Why doesn't Boardwalk want to increase the supply of apartments? Wouldn't they want to make more money? Or are they considering the cost of building? What I think is the real reason requires some basic business knowledge.

Boardwalk is a public company. Public companies are excellent vehicles to get projects funded, to enable you to do things that you would be unable to do otherwise. Our economy and our world would be a worse place without public companies.

The reason public companies are so great is that the public market gives the investors liquidity. Stock can be traded. In a private company, how is the value of a share calculated? Who can buy it? What are the rules? How do I sell my share in the company? The public market provides the vehicle to trade the stock. It answers the need of the investor to be able to buy and sell the stock as he sees fit. Without that liquidity, investors would be too scared to invest.

However, this also means that public companies have, in a way, two business objectives: to make widgets and to increase the value of their stock. Serious issues can befall the executives of a company that fail to protect the value of the stock.

Let's hold onto that thought for a moment and look at something else.

Let's suppose that you make widgets to sell. Widgets have a certain cost that is a function of production and other factors. How much you can sell a widget for is a function of supply and demand. Your profit is the difference between what you sell it for and the cost.

Let's say you can make a widget for $5. When you bring 100 widgets to market, you find that you can get $10 per widget. You're making $5 per widget - excellent! You get me to invest into your company so that you can increase your production to 500 widgets. However, you haven't decreased the cost of production the next time you go to market. The second time at market you sell 400 of the 500 widgets for $8 each.

Should I be happy with your business? The first time to market your profit was $500. The second time to market your profit was $700. 40% increase in profit! Nice. But not quite. Your profit per widget (PPW) the first time was $5. Your PPW for the second time wasn't $3. Generously, you can say it was $1.75 ($700/400) but you still have the 100 widgets in inventory. If you've saturated the market or if the widgets have a short shelf life, your PPW is $1.4 ($700/500).

Thus, by increasing your production, you've reduced your PPW from $5 to $1.4! Wow, your shareholders are not going to be happy with that. And as your shareholder, I want answers. How are you going to reduce costs to maintain the PPW? After all, I bought into your business based on a $5 PPW. I'm going to be very worried that the value of my stock in your company is going to drop like your PPW. In fact, I'm already calling my broker to sell.

The story isn't done yet. You have a plan to cut the cost of your widget production by 80% but it's going to require a new factory - big bucks. To raise the big bucks, you're planning on selling shares. But, when you talk to the brokerage firms, you find that the bottom has fallen on your stock. Everybody is selling and nobody is buying. Unable to raise money on the stock market, you are unable to build the new factory. Moreover, you are unable pay your employees or the mortgage on your existing factory. You're out of the widget business. (The story doesn't end there... but it goes way beyond the scope of this article.)

Even though you could sell the widgets at a profit, when you lost the confidence of the investment community, you were dead.

How does this relate back to Boardwalk? Take a look at the following graphs.




See how the stock price has risen sharply from April 03 to May 07? See the volume of trading over the same period of time. There are people who are making a huge boat load of money on this stock. Relieving the demand for apartments would adversely affect the value of their stock. People who bought at $50 are going to want to see the trend continue. Right now, they are a bit nervous as they have already lost a lot of money. More supply? Rent controls? They want none of it. Especially more supply. More supply means that the profit per widget may go down.

Boardwalk is in a hard spot right now. They have performed very well. But at some point, the will hit the wall. They can't increase their inventory by building. There are only so many apartment buildings in Alberta and I bet their prices are going through the roof so the growth through acquisition might be a problem. Boardwalk's challenge will be to figure out what to do when they hit the wall. Perhaps they have already hit it as, right now, it looks like the stock price as flattened out a bit.

But one thing for sure, increasing their inventory through building will not be part of their plan.

We're not villains: landlords

Sort of begs the question: What is a villain?

I am a renter. My assets amount to my car and my computer. My net income is about $1,900 per month. Rent is about $1,050. That leaves $850 for gas, utilities, cable/internet, and food for myself and my kids. Probably a lot better than many. Still, it is hard to make the ends meet.

That said. The market rate for what I've got now is about $200 more. If I had to move right now, my post rent income would be reduced by about 25%. Within my community, I don't have a lot of options. Three of my boys live with their moms full time. One of my boys lives with me full time. Moving away from where I live would be a hardship for all of them.

Crowley, who has been in Edmonton's apartment business for 30 years, said building owners didn't get any help in the 1980s when they were burdened with huge vacancy rates.

The 1980's were marked in Alberta by the National Energy Policy. Everybody had a hard time then. It must have been hard on Sonny Crowley, senior vice-president of NewWest Enterprise Property Group and a past president of the Edmonton Apartment Association, to have endured that difficult period of Alberta history with the benefit of real-estate assets such as apartment complexes. I'm sure there are a great many Albertans that are thankful not to have his burden.

I do not have his burden. Instead I'm looking at accelerating rental costs without the burden of real assets. I expect most renters are like me. We don't have any fat to get us through the lean. Ironic to hear landlords moan about the 80's. Did they worry about if they would have a roof over their heads? That's what I worry about when the Boardwalk Rental Communities throw large figures for legal fees and then actually, arbitrarily, charge me $50 for a letter.

Landlords crying woe when what they seek is to maximize profits (wring the blood out of the market) regardless of the social costs are villains. The victims of their villainy are the ones least able to find recourse.

Stelmach slammed over housing

From Ajay Bhardwaj's article:

The provincial government, however, counters that its budget provides $100 million for affordable housing and that a task force will bring forward a plan to provide more cash for affordable housing next week.

Price per door in 1997 for apartments in Edmonton (as found in Alberta-ThePerfectRealEstateStorm.pdf published by Prestigious Properties Inc.) was $37,801. Statistics Canada says that the Apartment Building Construction Price Index for Edmonton is 161.3 (1997 is par at 100). That means that our current price per door is about $60,970. The government's budget of $100 million would only buy 1,640 doors in Alberta at Edmonton's prices.

According to Madeleine Baerg of Boardwalk, they would not consider new apartment construction in Edmonton until the rent reaches about $1,600. Which is about double their average rent, in the fourth quarter of 2006, of $820. So, $780 over 12 months is $8,640 per unit per year. So $100 million subsidy would buy, over a 20 year mortgage, about 580 doors. Maybe I'm looking at it the wrong way?

Something needs to be done. As apartments get sold as condos, as potential home buyers fall out of that market because of construction costs and house prices, the rental market gets tighter and tighter. I'm looking at an impossible situation. I'm a single dad with one full-time and 3 part-time boys. If I were just entering this rental market, I would be unable to find housing on my own. But with the kids, I'm not eager to find a room-mate.

Politically, I'm a bit right of middle so generally I'm not keen on government getting involved in markets. But we're not talking about widgets. We're talking about shelter - a basic requirement of life. My bias is against government throwing money at problems as it seems to be inefficient. In the rental market, most of that $100 million would likely end up in Boardwalk's pockets. Their profits are healthy enough that they don't need a government subsidy.

What I would be happy with right now is fairness and protection from corporate bullies. In a tight market, high tenant turnover means rents go up faster. But, I'm expecting, that tenants would tend to not move when faced with inflating rental prices. Landlords who accelerate the eviction process, threaten huge legal costs, charge arbitrary legal costs, and otherwise heighten the litigious tension between themselves and their tenants are corporate bullies. Their goal is to heat up the tight rental market by speeding tenant turnover. Once we're protected from being forced out of our homes then and only then does rent protection have any merit.

Boardwalk policies mitigate rent hike impact on tenants - Really?

I'm sure some of the details in David McIlveen's letter are perfectly accurate. But I might not be living in Sturgeon Point long enough to find out if there really is a $75 cap on rent increase. The current price for the unit I have has already gone up by $100-$200 in less than a year. By the time my lease is up, the rental rate to a new tenant could be over $200. Why would a publicly traded company want me to continue renting from them at a $75 increase when they could make over $200 from a new tenant? Why would they want me to stick around?

$150,000 per year to subsidize lower income tenants is a nice token. But it is just a token. The company's net operating income for 2006 was $192.1 million, up 10% from 2005. Out of their net operating income, they are putting back 0.08% into lower income tenants. The administration expense for 2006 was $17,052,000. The token for lower income tenants amounts to 0.88% of the administration costs. The company owns and operates over 35,400 units. The subsidy amounts to 35¢ per month per unit. The subsidy is good press.

Social responsibility is also good press. It's good for the stock price. What is also good for the bottom line is tenant turnover in a tight rental market. My financial situation is also tight. I've always paid my rent, thanks to a payday loan, but not always on time. The Boardwalk's response is threaten legal action, citing legal costs of $300-$600. Not once did I hear about a subsidy program. Recently, they sent a letter saying that if I'm late again, they will go to court to evict me, costing me another $650 for the pleasure. Oh, I am also to pay the legal cost of preparing that letter.

Contrary to the paperwork I got when I first moved in, I am not a valued customer. I am a liability, just as every other tenant in Alberta, the tightest rental market of their properties. While the sign saying "Rent Protection Since 1999" is good press and good marketing, it's bad for net income. Come live here, but don't stay too long.