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The past few years have been busy ones for Daniel Saver, a housing attorney in Silicon Valley.
As property values have skyrocketed in the area, fueled by the presence of Google, Facebook and other tech industry giants, Saver has represented thousands of low-income tenants who have been pushed out of their homes by rent hikes they can’t afford, negotiating relocation packages and assisting renters who have been harassed by their landlords.
But it wasn’t until he became involved in a case in Redwood City, Calif., that he considered the role that banks have played in the area’s gentrification.
After the sale of a 20-unit building in one of the “few remaining Latino districts” in Silicon Valley, the new owner notified tenants that monthly rents would increase by around $850, Saver said.
Saver urged the new owner to hold off on the rent hikes, or at least impose smaller ones, pointing out that the tenants were longtime residents of the community. He even organized a small protest that was attended by the Redwood City mayor.
The owner, however, said his hands were tied — that raising the rent was necessary to meet the terms of his loan with First Republic Bank in San Francisco, Saver said. In particular, the owner pointed to a section in his contract — a copy of which Saver shared with American Banker — that required him to set the building’s rents at the going market rate within six months.
“That’s a reasonable clause,” said Saver, an attorney at Community Legal Services in East Palo Alto, referring to the loan contract. But he added that it also provides a “strong incentive” for landlords to impose steep rent hikes.
“I get that it’s their business model,” Saver continued. “But it’s the case that their business model results in the wholesale displacement of working-class families.”
First Republic, for its part, argues that Saver is misunderstanding the contract’s language. A spokesman said that the bank does not force the landlords to raise rents, but that under terms of certain loan contracts property owners do need to get the bank’s permission to charge rents that are below market rates. If the owners fail to get the bank’s consent, then they must set rents at market rates,...