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A Zell-led firm's fight with small tenants

A landlord run by the mogul aims to extract value by challenging rent-control laws.

April 02, 2007|Thomas S. Mulligan | Times Staff Writer

Billionaire Sam Zell has said a number of times that his interest in acquiring Tribune Co. is purely economic -- not egotism, not passion for the company-owned Chicago Cubs, not a soft spot for newspapers.

The 65-year-old Chicagoan has nicknamed himself the Grave Dancer because of his ability to see profit opportunities where others see miles of bad road.

Zell's dogged pursuit of Tribune has left many people wondering how this dealer in distressed properties would run one of the nation's largest media companies, whose holdings include the Los Angeles Times, the Chicago Tribune, KTLA-TV Channel 5 and cable channel WGN.

But don't look for sympathy from the paintball fanatic who Forbes says is worth $4.5 billion, say people who have had dealings with a lesser-known enterprise led by Zell. They say that since becoming the largest mobile-home landlord, the company has battled cities across the country, enlisting teams of lawyers to challenge local rent-control laws and raise rents.

"He very proudly calls himself a vulture investor," said Beverly Berry, a mobile-home tenant. "Certainly that's the way he's acted with us."

Zell, who owns houses in Chicago, Malibu and Sun Valley, Idaho, declined several requests to be interviewed. In its recent annual reports, Equity Lifestyle Properties Inc., of which Zell is chairman, argues that rent control amounts to private subsidies for mobile-home dwellers. Equity Lifestyle estimated in its most recent annual report, filed last month, that its "annual rent subsidy" to tenants in California rent-controlled communities was $15 million.

Zell's white beard and elfin stature, his love of motorcycles and his salty speech are probably the most remarked-upon aspects of his public image. He isn't much of a joiner and isn't as active in civic organizations such as the Field Museum, the Chicago Symphony Orchestra and the United Way as are many business leaders in clubby downtown Chicago.

A person who has met him during the Tribune negotiations described him as "a tough guy" but "a straight shooter."

Zell has seldom if ever spoken publicly about Equity Lifestyle's philosophy or tactics.

Berry, 61, lives in Meadowbrook, a manufactured home community in the San Diego suburb of Santee. Hers is one of many communities across the country that have been battling Equity Lifestyle, a publicly traded real estate investment trust that controls 311 properties in 25 states and Canada's British Columbia. Twenty-eight of the properties are in California.

They don't call places like Meadowbrook trailer parks any more. With their mature shrubbery, community centers and swimming pools, they also don't look like trailer parks. The homes are theoretically transportable, but many look like permanent homes in any modest subdivision.

A big difference is that residents own only their four walls. They rent their sites -- typically 60 feet by 40 feet at Meadowbrook -- from Equity Lifestyle. Meadowbrook rents average about $740 a month.

At Meadowbrook and other Equity Lifestyle properties in Santa Cruz, San Rafael and elsewhere, residents have bridled at rent hikes that they contended were not only unfair but also illegal.

Admirers say that Equity Lifestyle's acquisition of the mobile homes was classic Zell. As owners of mobile-home properties in California in the 1990s saw their revenue growth stymied by municipal rent control, Zell apparently saw something different: politically popular but legally questionable local ordinances that were vulnerable to a challenge.

"They go in and buy places and attack the rent control," said retired aerospace engineer Jim Montague, 75, who moved to Meadowbrook 10 years ago. "They start suing and appealing, and eventually the city can't afford to go on."

That's what happened in Santa Cruz, where after a legal battle lasting more than two years and costing the city hundreds of thousands of dollars, the City Council in 2003 repealed its mobile-home rent control ordinance, which protected De Anza Estates, a 200-site park on a spectacular bluff overlooking the Pacific.

Equity Lifestyle, then named Manufactured Home Communities, had notified De Anza's mostly elderly residents that it intended to boost rents from an average of about $600 to "market" rates of more than $2,000, and as much as $5,000 for certain sites.

In exchange for repealing rent control, Santa Cruz officials negotiated an agreement with Equity Lifestyle to grant 33-year leases to all existing residents. Those leases would limit annual rent increases to 75% of the rise in consumer prices. But when the tenants sold their homes, the rent would go to a market rate.

In Santee, Berry said her mother, Ann Hastings, received a letter from Equity Lifestyle four years ago notifying her and other tenants of "astronomical" rent increases on the way.

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