Tag: STR

STR transparency…

In the last few hours, I started getting this form email urging, for the first time, that Council members abstain on Bill -608. To be clear, it is very likely that any form email that we get opposing Bill -608 is drafted and spread primarily by industry lobbyists.

The email says there was a four hour meeting on Friday afternoon where new compromise proposals were floated. If that happened, the potential compromises haven’t been shared with the Council generally. I don’t know any more than what is in the form email.

Also, the form email calls -608 a ban on short-term rentals. The truth is that, if -608 were to pass, there would still be unlimited owner-occupied short term rentals, unlimited investor-owned short term rentals in buildings with 3 or more units, unlimited short term rentals downtown, and unlimited short term rentals in the Gulch. Yes, with -608, investor-owned short term rentals in traditional 1 and 2 unit homes in family neighborhoods would be phased out. But there is simply no way to call this a ban. Under -608, there would still be many, many short term rentals in Nashville.

For almost a year now, my position has been that I intend to support whatever short term rental bill the majority of district council members support. By definition, the district council members are closer to day-to-day short term rental issues than I am as At-Large member of the Council.

I believe that the majority of district council members support -608. My plan is to attend the Council Planning and Zoning Committee meeting tomorrow to get a better feel about this before deciding for sure how I’ll vote.

I’m posting this new industry form email this afternoon because it is irresponsible. While the form email is wrong in claiming that -608 is a ban, both sides of this issue have engaged in hyperbole. Maybe that’s just the way it goes with tough issues. My real objection is that the form industry email runs the risk of creating a self-fulfilling prophecy about state preemption. Under any view of the world, a law that allows unlimited short term rentals in owner occupied homes, high rise buildings, any building with 3 or more units, all through downtown, and the entire Gulch is not a ban. If it passes, it will reflect a family-friendly compromise that I would ask the state to respect and honor. This topic is hard enough without the industry going out of its way to invite state intervention.

Latest STRP scam

I’ve stumbled into learning about a scam to get Metro Codes to issue an improper owner-occupied short term rental permit when the property is really a large investor-owned hotel-like property.

Here’s how it works. There is a corporate development company that is setting up multiple LLCs each to own a single property.  In one example, the LLC has a 95% owner and a 5% owner.

The 95% owner is yet another company related to the corporate developer. And the 5% owner is an individual person employed by the development company or related to the owner of the development company. Then the individual 5% owner applies for an owner-occupied permit in parts of town where there are no more investor-owner permits available. This violates the spirit of the law by pushing the number of corporate owned units higher than allowed. This also violates the letter of the law because the individual who is applying simply is not the owner — the LLC is the owner.

These LLCs can’t even keep their story straight about where they “live.”  Every LLC in Tennessee has to provide a “principal place of business” to the Secretary of State.  In two examples I have seen, the supposed owner-occupying LLC listed the parent development company’s downtown business address as the LLC’s principal place of business. So for the State of Tennessee, these LLCs operate principally from a downtown address. But for their short term rental permit application, each “resides” in a different home around town.

These units push the envelope and break at least the spirit of the law in other ways too.  At least one of these homes is being advertised online in a way that indicates the rental is for the whole house, 5 bedrooms, and 10 beds — for nearly $800 per night. The advertisement mentions that 12 is the maximum capacity. But when you list 5 bedrooms and 10 beds, you are clearly sending the message that more than 12 guests is acceptable.

Amazingly, this scam has worked at least twice that I know about, and Codes has issued owner-occupied permits for these properties!

I don’t know whether to more bothered by the clearly intentional efforts to sneak by Nashville’s laws, or Metro’s inability to sniff out a scam before a permit is issued.

It doesn’t matter, I guess.  Either way, the whack-a-mole character of short term rental enforcement continues. I am asking Codes to tighten up their processes to enforce our laws, and not allow an LLC to have an owner-occupied permit.  I am also asking for these two owner-occupied permits to be revoked because the owner (an LLC) doesn’t reside there.

 

Three new short term rental bills

There are three new short term rental property (STRP) bills filed for first reading next week. I am not the sponsor of any of them. This post is really me thinking out loud in an effort to understand the new bills. I am calling them the residential phase out bill, the one year moratorium bill, and the three year moratorium bill.

There is a lot in common between the bills. All of them assume that BL -492 (which fixes some technical problems raised in a lawsuit) will pass.  All of them allow existing permit holders to continue in business for now. All of them would halt the issuance of new permits for investor-owned short term rentals in residential areas. All of them will go to the Planning Commission. That means the public will have the chance to speak about all three bills twice – once at the Planning Commission, and again at a Council public hearing.

The residential phase out bill would eliminate new permits for investor-owned STRPs in the parts of Nashville that are zoned residential, and phase out all existing investor-owned STRPs in residential areas by 2021. The one year moratorium bill and the three year moratorium bill would stop the issuance of new permits for investor-owned STRPs in residential areas for one year and three years, respectively. To me, the similarities outweigh the differences — in all scenarios, no current owner goes out of business in the near future, and no new investor-owned units will be allowed in a residential neighborhood.

Beyond what they have in common, I am also struck with the continued desperate need for Metro to improve its enforcement capabilities immediately. If any of these bills were to pass, Metro would still need to track down short term rentals operating without a permit. If any of these bills were to pass, Metro would still need to find the owners who are not paying their taxes. If any of these bills were to pass, Metro would still need to create a real-time noise ordinance enforcement ability to protect neighbors from abuses.

These three new bills will take a few months to work their way through the Planning Commission and the Council. My guess is that hundreds of citizens will end up speaking on all sides of these issues. For now, I think that I will probably not take a position until after I hear from the community. While this is happening, I am going to keep saying that, no matter what we do with the regulations, Metro must keep working at improving enforcement efforts. Metro will need to do better with that whether or not any of these bills pass.

STRP Case Ruling Today

Judge Kelvin Jones apparently ruled today that Metro’s short term rental ordinance is unconstitutional. Stacey Barchenger and Joey Garrison have the most complete reporting I have seen. You should read their story for background.

There are wildly different perspectives on what the ruling means. The Beacon Center said in a press release that this lower court ruling “is an enormous victory for the Beacon Legal Foundation” and “sends a loud and clear message to cities across the state when it comes to restricting homeowners’ rights in the new economy.” They believe they have defeated all short term rental regulation in Nashville. At the other end of the spectrum, the Vice Mayor and one of my colleagues tweeted late today that they think, without an authorizing ordinance, short term rentals are not an allowed use at all in property that is zoned residential. These are obviously very different perspectives.

Here’s what I think I know:

  • The ruling was given verbally from the Judge in the courtroom. There is no written ruling and apparently won’t be until the court reporter completes a transcript of the hearing. There is no binding order of the Court until it is on paper and signed by the Judge. This may take as little as a few days or as much as a few weeks — so it will be soon either way. But the lack of a signed order at this time underscores the idea that everyone should take a breath and wait to see exactly what is being decided.
  • I am told, and Ms. Barchenger reports, that the entire STRP statute is being struck down. For determining next steps, the precise basis of the ruling matters. Specifically, if it is correct that the basis of the ruling is solely due to vagueness, that can be corrected. There would probably be multiple ways to make short term rental laws very precise in their meaning. Again, seeing a transcript or a written order will be important for people to understand the implications and possible next steps.
  • It is going to take at least a few business days — probably longer — for everyone’s view of the new landscape to come into focus. My initial reaction is that both ends of the spectrum have things to worry about.
  • I’ll start with the side claiming that, without an authorizing ordinance in place, short term rentals are not allowed because: (1) they are taxed as hotels; and (2) hotels aren’t an allowed use in residential districts. The Beacon Center has been making arguments on Twitter about why they think this is wrong. I’ll just mention that I have heard that the BZA apparently ruled sometime in the last few years that short term rentals are an allowed use in residential zones in Nashville. I don’t know if this is true, and that BZA ruling would have been before the State Attorney General stated that short term rentals should be taxed as hotels. Regardless, I suspect that the “short term rentals are dead” argument would have to deal with that BZA ruling somehow.
  • At the other end, there is the argument that property rights are vindicated now, and there are no short term rental regulations in Nashville any longer. This argument has to contend with the possibility that either the lower court, or the Court of Appeals, might allow the ordinance to stay in place pending appeal. The plaintiffs might also be the dog that caught the bus. They clearly succeeded today, but based on my conversations this afternoon with multiple investor-owned short term rental operators, this decision creates massive uncertainty about what happens next. Uncertainty is bad for business.
  • Five minutes after I learned about the ruling, I got a call from the Tennessean and told them, “If the thought is that the law regarding investor-owned short-term rentals is vague, that sort of pushes us toward having no regulations or outlawing them completely.”
  • Now I’ve known about this for almost 9 hours, and I think I still feel the same way.
  • For better or worse, Nashville came up with a set of rules that tried to balance the desire of some to run a short term rental business in their residential real estate with the desire of their neighbors to enjoy their neighborhood free of sometimes distracting business activity. Now we have a judge telling us that our attempt to find that balance failed and that it is unconstitutionally vague. That is probably going to force us to take a side — to decide that short term rentals are an allowed, unregulated use for a residence, or to decide to prohibit that use in a clear, non-vague way.

My inbox and phone blew up when the ruling came out. I’m going to see what the actual court order says when it comes out. I’m going to listen to what Metro Legal has to say about the impact of the ruling and about options for Nashville. I’m definitely going to hear from a whole lot of Davidson County constituents about what they think should happen next. I’m not going to rush to a decision about any of it — it’s been less than half a day and there isn’t enough information available to make a decent decision, or to even know what all the questions are.

 

October 18 Council Meeting

Here’s what’s up on October 18:

Resolutions

Bridgestone givith: A resolution (-398) to accept artwork being donated by Bridgestone to the Metro Arts Commission.

Bridgestone taketh: A resolution (-399) to extend the $500 per employee incentive for Bridgestone to a new location on Hickory Hollow Parkway. This is expected to apply to approximately 415 new positions.

Tracking marijuana law enforcement: I am co-sponsoring a resolution (-408) that would ask the Metro Nashville Police Department, the District Attorney, and the Circuit Court Clerk to work together to track statistics showing the rates of civil and criminal citations, by race and gender. Read more here.

First Reading

USD expansion: The Mayor and Council Members for Districts 7-9, 13-15, and 31 have filed an ordinance (-455) to expand the USD.

Second Reading

The next 21st Century technology bills: In November, we’ll have a public meeting about an ordinance (-415) that would give Planning the power to have a say where wireless transmitters are located in Nashville. Over the next several decades, we are going to care a lot about where wireless transmitters are located. While we are waiting for that bill to move forward, there is a franchisee who wants approval to put up wireless transmission towers now.  That ordinance (-302) is set for 2nd reading.  I have been told that this franchisee is committing to comply with whatever Planning-related rules we end up passing related to wireless transmission facilities. If that’s the case, this should be approved.

Short Term Rental Properties: Wrote about this here.  I expect to indefinitely defer my bills about maximum occupancy (-375) and maximum density (-382) pending the recommendations of the consultant being hired by the Mayor’s office.

Technical correction to an affordable housing bill:  Failed to attach the final draft of an exhibit to a bill passed in early September.  Getting that fixed with a new ordinance (-435).  Oops.

Third Reading

Tenant conduct lease clauses?: CM Hastings has an ordinance (-308) that would require landlords receiving money from the Barnes Housing Fund to add tenant conduct clauses to leases. On the one hand, based on what I have seen throughout my law practice, the proposed tenant conduct language is pretty standard stuff that is already in most residential and commercial lease agreements. On the other hand, the fact that this is applying only to landlords who receive Barnes Housing Fund money (and not TIF money, or PILOT money, or the Mayor’s new affordable housing incentive money) is coming off to some as discriminatory against one group of lower income tenants. I know that CM Hastings has no bad intent at all. I’m not sure how this one will shake out.

Council reports to be posted and be searchable: I am co-sponsoring this ordinance (-416) with CM Cooper to require that all reports required to be given to the Council be posted online in a searchable format.

Bordeaux long term care lease: This ordinance (-422) would approve a new lease of the Bordeaux Long Term Care facility to Signature Healthcare through mid-2020. This is the next phase of Metro exiting the long term care business. We’ll need to keep spending money as we exit, but I think the economics of this deal are fine. I understand that there are ongoing conversations between the administration and some Council Members about what Metro can do to be assured that Signature provides an appropriate level of care at the facility.

Bonus Issue

There’s media coverage today about the Metro pension. The pension is 92% funded, which is good. The pension has an annualized return of 7+% over a ten year period, which is good. The pension’s return compares well to other similar pensions, which is good. But it has a non-traditional asset allocation and that’s what the story in the paper today is about. We should want to learn more about the asset allocation choices that are being made. But, I’d much rather be reading this story than one about an ordinary asset allocation model with terrible long term returns.

My STRP Bills On The Council Agenda Next Week

I have two short term rental bills that are set for 2nd reading next week — one is about maximum occupancy for a unit, and the other is about how many units can be in any one part of town.  (There’s a third bill pending also — CM Burkley Allen is the lead sponsor on that one.)

In response to many in the Council (including me) asking for better enforcement of our existing laws, the Mayor announced last week that Metro is hiring a consultant that “will make recommendations related to staff size, organizational structure, work shift assignments, as well as proactive property maintenance code administration and enforcement by the end of 2016.” This will include a review of all enforcement efforts related to short term rental properties.

This is welcome news. About the only thing everyone has agreed on is that Metro needs better enforcement of these laws. I’m also glad that the turnaround time will be quick so we can have a report back by the end of the year.

In order to give this process a chance to play out, I plan to defer my two bills indefinitely.

 

Sept. 20 Council Meeting

The Council still has a lot going on. Here’s a quick summary:

One Touch Make Ready

You all know what this is.  The bill is on 3rd reading. Council Member Weiner has proposed a resolution related to OTMR. I also am proposing an amendment that would allow, under some circumstances, for the costs of any litigation to be absorbed by a new attacher.

Since the Council Rules don’t allow amendments on 3rd reading for this bill, I would need to successfully get the Rules suspended for my amendment to be considered.  Never say never, but it only takes two objecting Council Members to stop the Rules from being suspended. So, it would be pretty easy for just the lead sponsors to stop my amendment from being considered — if that’s what they would prefer.

I’ve written previously about this topic here, here, here, and here.

Short Term Rental Property

There are three bills on 3rd reading — 257 (about stop work orders and the penalty for operating without a permit), 373 (about posting a permit number online), and 374 (about verifying an STRP application under oath, and adding a statement to the application about homeowner’s association rules).  I expect all of these to pass on 3rd reading. At the request of some STRP owners, I will try to add an amendment to 373 to allow the alternative of posting an image of a permit. Either way, the permit number will be required to be included in online advertisements.

There are three others on 2nd reading — 375, 381, and 382.  Don’t get too attached to the text at these links — I expect all of these to have fairly major amendments or substitutes offered on Tuesday. I think that each then will be deferred to allow more time for public conversation about the newly proposed provisions.

Marijuana

The bill to offer law enforcement in Metro the option to give a civil citation or make an arrest for small amounts of marijuana is set for 3rd reading. It passed easily on 2nd and I think it will pass on 3rd also.

The impact of current marijuana laws is unfairly focused on minority groups. That’s really bad. But I have been concerned about whether the new law (that gives discretion to either arrest or give a citation) will make that unfair enforcement problem worse. The lead sponsor has said that he intends to follow this closely after the bill is passed to make sure that the discretion to give a citation or make an arrest is not exercised unfairly. So, I voted for this and will again on 3rd reading.

Fair Deals?

There are always several items on the agenda that I want to know more about just to make sure I understand the deal.  RS2016-373 would amend the terms of a fire hall property on Richard Jones Road. RS2016-378 is about an economic impact study on certain historic properties in Nashville due to placing “Distributed Antenna System Nodes” around the county.

And, on second reading, BL2016-388 relates to the Metro Health and Educational Facilities Board (a new one for me) entering a Payment In Lieu Of Taxes agreement for land on 12th Avenue South. I’ve asked for the various exhibits mentioned in the bill — you can’t tell much from the bill itself.

On 1st Reading

CM Cooper and I have introduced a bill that would require all reports that any Metro agency has to give to the Council to be posted online in an electronic format. That doesn’t happen now.

I also have a bill on first reading that mirrors my proposed amendment to the OTMR ordinance. If I am not able to get the Council Rules suspended to consider my amendment, I’ll still have this new bill that would have to be considered on subsequent readings.

And, the Gulch pedestrian bridge bill is on first reading also. I’m sure that will draw attention in the coming weeks.

Short Term Rental Property Bills on Sept. 6

I have three short term rental property bills on second reading on September 6, and another on first reading.

I will ask the Council to approve two of the bills on second reading, and defer the third. The first two – which would require a permit number to be included in all online advertisements, and require an STRP application to be made under oath – have not generated any opposition that I know about.  I would like to see those pass on second reading.

The other bill on second reading would clarify the maximum occupancy rules for STRPs. I have received lots of emails in support, and lots opposed to this one.  To allow my colleagues more time for discussion, I am going to ask to have this bill deferred one or two meetings.

Finally, the new bill on first reading would set new caps for investor-owned STRPs. Currently, for investor-owned single and double family units, the cap is 3% of the housing units in the Census Tract.  I propose changing this to 1% and grandfathering in any existing units with permits.  And, currently, for investor-owned units in multi-family developments, there is no cap at all.  I propose adding a 1% cap and grandfathering in any existing units with permits.

There is near unanimous opinion from all sides that the current system is not working and that changes must be made.  Some want more regulation.  Some want more enforcement.  I trust that, in a few more meetings, the Council will find a new balance to try to improve the situation.

New STRP Bills

I am the lead sponsor on three short term rental property bills that are set for first reading on August 16. My goal is to find a better balance between commercial STRP operations and neighborhoods.

The media has covered the growing debate over short term rentals. Neighbors complain about living next to party houses. There are stories about people with young families choosing to leave Nashville rather than have to live next to a short term rental with new strangers there every week. You can read more here and here. Nashville does not have a good balance between investor owned short term rentals and their neighbors.

The first bill requires all online advertisements to include the STRP permit number. This will help with enforcement. The second bill requires permit applications to be made under oath and include information about home owner association rules. Again, this will help with enforcement. It is hard to predict, but I don’t expect much opposition to either of these.

The third STRP bill clarifies that short term rentals are subject to the same occupancy rules as long term rentals.  For a long time, Nashville zoning laws have prohibited more than 3 unrelated people from sharing a residence.  The short term rental law passed last year conflicts with those zoning laws by allowing higher occupancy.  This conflict needs to be cleared up.

This bill goes to the heart of the heated debate going on between investor STRP owners and neighborhood advocates. The investor owners focus on their tax-paying businesses providing an important service to Nashville. Neighbors focus on not wanting to live in what is essentially a motel district. I think we need to go ahead and get to the bottom of this issue. What do we value more – long-standing occupancy rules designed to maintain the residential character of neighborhoods or growing a new business model that places tax-paying businesses in the middle of neighborhoods?

Clearly, from the way I frame the debate, I have a bias. I think there is value on both sides. But between arguments of equal merit, I would consistently lean in favor of preserving the character of neighborhoods. I want the Council to have this debate. I want my colleagues to hear from their constituents. I have confidence that the process will work. Maybe my colleagues will embrace this, maybe they won’t – either way, we will have the issue resolved.

Since the Council agenda came out earlier this week, I have heard from five investor owners. Two live in the county.  One is a long-time close friend. My friend is pretty unhappy with me for this proposal. She made me promise that I would give voice to her objections. I’m going to do that here – along with my response to each. These are the arguments I have heard from her and the others:

This is an enforcement problem with Metro Codes: Yes, but…  I am sympathetic to the argument that, if Metro Codes had more resources, they would be able to enforce existing STRP laws. However, as a pragmatist, I don’t think we are going to get perfect enforcement.

Codes doesn’t have employees that work on Friday and Saturday nights. They can’t enforce STRP rules in real-time. The result is that Codes has a limited amount of time and resources to enforce these laws. If Metro were to increase Codes’ budget, STRP enforcement wouldn’t make the top 5 list of things to spend more money on. It just wouldn’t – Nashville’s historic growth has taxed Codes immensely and there would be other fish to fry if Codes had more resources. Politically and practically, I just don’t see a scenario where a squad of Codes inspectors is out cruising Germantown and East Nashville for rogue STRPs. Unfortunately, this leaves us having to pick between unpopular options – leave the status quo or attempt to clarify and reshape the rules to see if we can give Codes the ability to provide more enforcement with their current resources.

But, I follow the rules – why punish me? See the last point. I am very sympathetic to this. I don’t enjoy raising topics that make my friends unhappy. But if we can’t expect complete real-time Codes enforcement, we must have the policy conversation about whether to leave the status quo or reshape the rules to find a different, hopefully better, balance.

This will drive investor owned STRPs out of business: Some people say that different rules will drive investor owned STRPs underground. Some people say it would force them out of business. Obviously, both can’t happen – if the business model gets more difficult, it would have to be one or the other. Either way, if evening the playing field between short term and long term rentals were to make someone’s business model harder, I would be ok with a sunset or grandfather provision that would allow the field to be evened over time.

This will drive investor owned STRPs underground: See the last point.

I pay property taxes: Thank you for that, but property taxes get paid no matter what the use of the property is.

I pay STRP taxes: Yes. Any policy decisions need to weigh the potential loss of STRP tax revenue against perceived gains in neighborhood quality of life.

I invested in reliance of the law being stable: Respectfully, to my friends who are investor owners, I know you all owned a bunch of these units before there was an STRP law in Nashville. Yes, many of you have doubled down and bought more units after the law passed; but many, many investors got into the business before there was any STRP law in Nashville.

In the end, I sincerely hope that no investor has pinned his or her family’s financial future to a business model that relies on Nashville’s all-time greatest popularity, Nashville’s all-time fastest (and likely unsustainable) growth rate, and Nashville’s all-time greatest deficit of hotel rooms compared to need. Whatever happens with our STRP laws, you have to know that current market conditions will not last.

I know that, despite the inherently risky, boom-or-bust nature of relying on real estate investment as your primary and permanent source of income, some investor owners have done just that. I want to be clear – this is the single hardest part of the debate for me. Even though I would consider it much too risky an investment/income strategy for my family, I know that there are STRP investors that are in fact relying on this business for their income, to pay bills, to buy food.  For them, I’d definitely be okay with sunset or grandfather provisions to help the impact of any changes get spread over time.

Tourism is good for Nashville; we provide a needed service: See the last point. I agree that, for today, you may be right. I am less sure whether there is value on a 20 year time horizon. I’d hate to have undermined the long-term stability of certain neighborhoods for what turned out to be a 5-7 year shortage of hotel rooms. This debate is worth having and seeing where we stand as a city.

This will cause 900 investor owned units to be dumped on the market at once: First, I don’t think so.  Second, this is an interesting argument. To borrow a response from the development community in the affordable housing debate – the entire housing market is intertwined; if you impact supply or demand, you necessarily impact price. I guess dumping 900 units on the market would tend to increase affordability? Would that be bad?

I think that about covers it. We have an unhealthy balance with investor owned STRPs now. Talking about whether to make short term and long term rentals have the same occupancy rules should help us find a better balance.