Loss to lease is a term used by the apartment investment industry. It's pretty simple. It's the difference between current rents and market rents. And what it means is, the current rents that you have your units leased out at are below. There's a loss between what they currently are and what they have the potential to be if they were increased to market. Now, rent control and other things prevent you from just increasing rents overnight to that level. Certain types of rent control in Southern California allow you to capture that loss to lease at a different rate. Assets that we focus on are subject to California rent control, which is AB 1482, which lets you raise rents by CPI plus 5%. So, without doing anything to a property, if you're in an inflationary environment like we're in now, we've been able to raise rents by 10%, but our tenants are not going anywhere because their rents are still 20% below market, even if we raised them by 10%. That loss to lease, by the way, is the absolute essence of value-added real estate investing. You would not invest in what we're doing unless you had a vision and a business plan to be able to capture as much of that loss to lease as possible. We've talked about it in a separate video on how we approach a strategy of capturing that loss to lease in a manner where tenants are voluntarily paying more in order to have their unit upgraded and have their standard of living in that property improve.

We've had very little turnover at our properties organically during the COVID lockdown and downturn. Now part of it was eviction moratoriums, but we also had significant portions of our properties, even during an eviction moratorium, voluntarily agree to pay more rent to move into an upgraded unit at our properties and we've had great success in doing that. That's our number one preferred strategy to add value is to have tenants voluntarily pay more to move into an upgraded unit. And it tells you there's a fallacy, I think, in how many people view workforce housing, particularly Latino workforce housing, where the presumption is that people want to live in the cheapest place they can live in. And that's not true. They want to live in the best place they can afford. And we've talked before about how we always try to target our investments with pro forma or projected rents being within the reach of median household income in our submarket. That's one reason we get great success in these voluntary transfers from an existing unrenovated unit into an upgraded unit.