Thursday, May 6 -- On April 7, an envelope was slipped under tenants' doors at the towering 532-unit Santa Monica Shores rent-controlled apartment complex on the beach. Inside was a letter. Addressed to "Dear Resident," it made an unusual offer on a "first come, first served" basis.

"The following rates," the letter read, "have been set aside for a limited number of tenants who wish to vacate:"

One bedroom          $20,000 One bedroom+den  $22,500 Two bedroom         $25,000 Santa Monica Shores, North Tower

The offer didn't come as a total surprise to tenants of the twin towers with sweeping vistas of Santa Monica Bay in the city's trendy Ocean Park neighborhood.

Starting January 1, for the first time since a grassroots tenant army voted in rent control 20 years earlier, landlords had the right to raise the price of vacant rent-controlled units to what the market could bear. Ever since the state "vacancy decontrol" bill had been signed into law in the summer of 1995, Shores residents had watched as an estimated 100 units were vacated, then left sitting empty. In many cases, renting a unit with the 15 percent increase allowed during the first three years of the law, didn't make financial sense.

The empty units reflected a citywide trend that accelerated as 1999 approached and more and more units - estimates ranged from 1,500 to 4,000 (it was anybody's guess) - waited empty, ready to rent.

Then on New Years day, the cork on the bottled up market was finally released, ushering in a new era in Santa Monica.

For rent signs blossomed for the first time in memory all around the renter's bastion of 94,000, as more than 1,000 units - perhaps many more -- suddenly hit the market. Landlords - who had held vacant units off for months, if not years - advertised a newly-refurbished one-bedroom unit for $1,500, $2,000 for a two.

Then they watched and waited to see what the market would bear.

"Some (landlords) are playing it close to the vest," Carl Lambert, a real estate attorney whose property management firm handles dozens of buildings in Santa Monica, said shortly before the law kicked in. "A lot of brokers will tell you they're all playing the game. There are a lot of variables. It's always a crap shoot."

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Santa Monica Shores co-owner Larry Kates had always played his cards close to the vest. Kates, who'd bought the former federally funded low-income complex in the early seventies, had long been known for his eccentricities - and for his staunch opposition to rent control. According to one long-time resident, Kates once removed all the lobby furniture because it allowed tenants to "sit there and conspire.

"He's a brilliant guy, but he has a lot of Howard Hughes in him," said the tenant, who, like many residents of the building, requested to remain anonymous. "Logic is not always easy to determine."

Kates, who seldom grants interviews, did not return calls for comment.

By the time the letter arrived under tenants' doors, however, things were beginning to make perfect sense. The letter finally confirmed in writing the rumors of an impending sale that had circulated through the towers after January came and went and the nearly two dozen units that had been renovated in a flurry of activity still sat vacant. Elevator shafts were refurbished but new cabs never installed, and stained carpets leading to the made-over units were never replaced.

"It is likely, but not certain, that the building will be sold in mid-May," the letter read. "The buyer has informed us it owns other buildings in Santa Monica, and as a matter of policy, it has not paid to vacate units."

The letter fueled speculation that the pending sale to Douglas Emmett & Co. - at more than $90 million one of the largest real estate transactions in Santa Monica history -- hinged on the number of units ready to rent. The question now was, "What was a rent controlled unit on the beach in Santa Monica really worth?"

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For 20 years, Santa Monica rent control had shut the market so tight it had spawned a black market all its own. New tenants didn't so much "find" a rent controlled apartment as procured one through connections, or by paying a manager or tenant thousands under the table - or a Realtor thousands above board.

Under rent control, what an apartment was really worth seemed anybody's guess. What it actually cost had nothing to do with the desirability of the sea breezes or the easy freeway access. It depended solely on what an occupied unit rented for in 1978 and the small, often minuscule, annual increases granted by the tenant-controlled rent board.

Now after a 20-year wait, many landlords had built up some heady expectations.

"Give (tenants) as much as you can and charge as much as you can," landlord attorney Rosario Perry advised members of the ACTION Apartment Association, the city's largest grassroots landlord group, shortly before the new year. "Treat them like tenants in Beverly Hills."

When the pent-up market finally exploded, for rent signs seemed to hit every block. Suddenly, with at least a thousand units competing in an open market, landlords had to drop the prices or find themselves stuck with an empty apartment.

"A lot of the units sat on the market for two or three months just because the supply is so high," said Tony Altamura, a leasing agent with Roque & Mark Co., which manages some 1,000 units in the city.

"Some owners are holding firm, others are dropping their prices."

Bob Sullivan, whose company manages 1,100 units in 100 buildings in Santa Monica, said he was forced to drop the $1,295 a month asking price for a two bedroom apartment to $995, only $145 over the previous rent control rate.

"It's the marketplace, supply and demand," said Sullivan, past president of the Apartment Association of Greater Los Angeles. "People can go to Brentwood or West LA. The psychology now of getting a 'rent control apartment in Santa Monica' is gone. Before, people were paying for dumps. Now it's a different story."

Last month, the city's rent control board released the first figures reflecting the new free market prices. They show the following increases for the 915 units that have been processed under the state law:

· For the 114 studio units that turned over, the median rent per unit rose from $553 under rent control to $775, or 40 percent.
· For the 510 one-bedroom units, the median rose from $630 to $1,000, or 59 percent.
· For the 254 two-bedroom units, it rose from $772 to $1,397, or 81 percent.
· For the 32 three-or-more-bedroom units, the median rose from $991 to $1,890, or 91 percent.

Tenant leaders had long feared the looming profits would spur landlords to harass tenants out of their units. As soon as the state law passed in 1995, both the rent board and the city council scrambled to pass anti-harassment ordinances that were further bolstered at the polls last month. Now, tenants leaders said, their fears were coming true.

"This is what we predicted all along,' said rent board member Alan Toy, who has been a tenant in the city for 19 years, "only it's happening with more tenacity than we expected. Landlords have the right to raise rents, but they don't have the right to harass tenants out."

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Since the Costa-Hawkins rental bill was signed into law in August 1995, harassment complaints have more than tripled each of the first three fiscal years, according to the Santa Monica City Attorneys office. The numbers jumped from seven in 1995-96, to 23 in 1996-97, to 75 in 1997-98. So far this fiscal year, which ends June 30, close to 90 complaints have been filed. Half a dozen are from Santa Monica Shores residents who say that Kates has failed to cash their checks so he can contest the terms of their tenancy.

But most of the tenants who have filed complaints charge that landlords are suddenly enforcing every letter of the lease and evicting tenants for having roommates or pets, said Adam Radinsky, Santa Monica's deputy of consumer affairs.

"Certain patterns of conduct are repeated," Radinsky said. "In many cases landlords have taken away services or features like parking spaces and the allowance of pets."

To address these concerns further, the council recently directed staff to explore ways to protect tenants faced with the choice of parting either with their pets or their rent-controlled apartments.

"They're evicting the pets hoping we'll pack up and follow them," said Patti Lancaster, whose dog lived with a dog sitter for several months.

Landlord leaders counter that tenant advocates are blowing the harassment charges out of proportion to hold on to their political gains. They note that only five of the complaints have led to lawsuits, an insignificant number in the course of nearly four years. They also note that two of the cases were settled out of court and two were filed against the same landlord.

"If a landlord sneezes in the wrong direction, that can be harassment," said Gordon Gitlen, a landlord attorney.

In March, Gitlen told a municipal court judge that the rent board is encouraging tenants to file harassment complaints as part of a scheme to make landlords "jump through hurdles and climb the highest fence to grab the brass ring, which is the state law."

The harassment complaints, said ACTION executive director Gwen Wunder, are "a tempest in a proverbial teapot." Tenant leaders, she added, want to "stir it up. Stir it up."

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According to long-time tenants of Santa Monica Shores, owner Larry Kates always played hard ball.

Santa Monica Shores resident Nancy Bo on one of the balconies of her 17th floor two-bedroom unit.

John Rhodes is one of nearly 50 Shores tenants taken to court by Kates since the rent law passed. Kates filed a lawsuit against the seven-year tenant alleging that Rhodes' teenage daughter threw a party in his absence and an uninvited guest tossed a bear bottle in the pool. Kates charged Rhodes with committing a nuisance.

"He began to look for people he could find a way to get out," said Rhodes. "There was no question I was outgunned at the start."

Rhodes won a jury trial 11 to 1, and Kates lost an effort to retry the case.

Rhodes never got a letter under his door, and he says he wouldn't have taken a buyout if it had been offered, but at least one of his neighbors jumped at the chance.

"The vast majority of the tenants said, 'I'm not interested,'" said a former tenant, who asked to remain anonymous. "For me it was a very easy decision to make because I have a wife and two little kids, so we were moving anyway."

Word has it that around 30 of an estimated 400 tennants left in the complex took up the offer, which is likely the highest ever paid for vacating a unit in Santa Monica.

"Where am I going to move to, Orange County?" said tenant Nancy Bo, who turned down the $25,000 offer to vacate her ocean view unit on the 17th floor. "I've got a huge swimming pool, I've got the beach, I'm really blessed. I'm sitting on top of the world."

Key State Housing Bills
Impact of Market Rate Vacancy