Wednesday, May 5, 2021
Uncategorized At risk: 238 rent-controlled housing units

At risk: 238 rent-controlled housing units

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The Turk Street facade of a new "market-rate" SRO shows a roof garden and balconies
The Turk Street facade of a new “market-rate” SRO shows a roof garden and balconies

By Tim Redmond

There’s a strange proposal making its way through the San Francisco planning process that would lead to the loss of 238 low-cost residential hotel units – and their replacement with a brand-new SRO building that some fear with not be affordable to low-income people.

The deal is really complicated, involving five hotels and seven properties, but it amounts to this:

A company called Boopie LLC, which is controlled by a Los Angeles real-estate development partnership, wants to get rid of 238 rent-controlled units and replace them with units that won’t be under rent control.

Existing tenants who are displaced will be offered lifetime leases – but in the long-term, there will be an undeniable loss of permanently affordable housing.

And along the way, Boopie will be able to test the waters to see if market-rate SRO units in the Tenderloin might appeal to, say, young tech workers who eat their meals at work, use company shuttles or bikes for transportation, and just need a place to sleep.

The plan has been under review for two years. If the city approves it, five hotels, most of which have both residential and tourist hotel units, would be converted entirely to tourist use.

That requires special permission and can only happen under limited conditions: The city has long protected SROs as a form of affordable housing that is available to people with very modest incomes.

Big money

But converting the SROs could be very lucrative – some of them are in the Union Square area, where boutique hotels are thriving. The Fusion Hotel, on Ellis Street, offers discounted tourist rooms at $269 a night, according to its website; the Fusion East, an SRO next door that would be converted, charges much less.

Weekly rents of $200-$300 – or up to $1,200 a month – are fairly typical for low-end residential hotels.

At $269 a night, assuming the current rate of about 80 percent occupancy, the rent for the Fusion comes to $6,456 a month. It’s safe to say that no SRO in San Francisco gets anywhere nefsar that kind of income.

But according to the city’s Residential Hotel Conversion Ordinance, SRO rooms can’t be demolished or converted unless they are replaced, one-for-one, or the developer pays a fee that’s supposed to be enough to build replacement affordable housing.

In this case, the project sponsor’s application notes, if the fee were paid “the availability of replacement rooms would be less certain.”

Instead, Boopie will construct two new eight-story buildings on adjacent lots that are now used for parking. Between them, the 351 Turk and 145 Leavenworth buildings will house exactly the same number of SRO units as the tourist conversion will destroy.

The ordinance mandates that the new rooms be “similar in size, services, rental amount and facilities, and which are located within the existing neighborhood or within a neighborhood with similar physical and socioeconomic conditions.” Most of that would apply to the new project – same neighborhood, same size. The new units would have individual bathrooms, but no kitchens.

However, the existing buildings are worth a lot more as tourist hotels than the new location is.

And the law, the application notes, “requires the replacement units to be comparable, not an identical match.”

There is nothing in the application that discusses what rent will be charged for the new units – when the building opens, or at any time in the future.

Randy Shaw, director of the Tenderloin Housing Clinic and an expert on the Residential Hotel Conversion Ordinance (which he helped write) told me that the existing tenants will, by law, be entitled to stay in their units until they decide to move out, and the rooms will only be converted to tourist hotels as they are vacated. It seems likely that the developer will offer buyouts, paying tenants a cash sum to leave so that their low-rent units can quickly be rented out to tourists at a much higher rate.

In comments to the city, Shaw noted that

The land value of both [new development] sites is less, and in some cases far less, than the sites of the applicant hotels. This requires an appraisal of all of the sites so that the replacement housing matches the economic value of the converted units…the excess value of the applicant hotels should be met by providing additional replacement housing, not a cash payment to the city.

The application describes the new development as “group housing.” There will be no parking for cars – but ample parking for bicycles.

The only statement about the cost of the new housing is this: The units will “be naturally affordable because of their size.” Most of the SRO units will offer between 238 and 246 square feet.

There’s nothing wrong with building a nice new SRO project, with clean, modern units with broadband access and a rooftop garden — if the units are, indeed, “naturally affordable.” Low-income people should have nice places to live, too.

But without rent control — or any limits on the rents that the owner can charge — it’s just a question of the “market” creating “natural affordability.” Will the location (close to mid-Market but not in a traditionally desirable neighborhood) really keep prices down to the level that typical SRO tenants can afford?

Or is this more “micro-units” than an SRO?

Behind Boopie

Boopie LLC, property records indicate, is controlled by DKR Partners in Los Angeles. The lead person on the project is Chris Rosas. Rosas didn’t respond to my emails or calls requesting information about the project.

There’s been a lot of discussion of “micro-units” in San Francisco, as the housing market becomes ever-more crazy and developers look for ways to cram even more units into the available envelope of a building. This is a step further: Most micro-units include at least a tiny kitchenette.

On the other hand, a lot of tech workers these days get all of their meals and most of the rest of their life’s amenities at work, so they might not need kitchens. It’s not clear who this new building will appeal to – but it’s unlikely that people who need truly affordable housing, with rent control, will be served by it.

And this much is clear: The new units – like all new residences constructed since 1979 – will be exempt from the city’s rent-control law.

Which means if the building proves popular, rents can go up at any time; the people who move in will have no long-term protection against rent hikes.

Land use lawyer Sue Hestor, who has reviewed the entire lengthy file, dashed off a few questions to City Planning Department staff:

I don’t remember seeing any description of the rents paid by residential tenants in the SRO units in the existing 5 hotels, or the nightly rate asked/charged for rooms during the 5 months/yr when Art 41 allows vacant rooms to be rented to tourists. This info is CLEARLY available to the owners of the 5 hotels.

Has it been requested?  Provided?

What is the rate currently charged/asked of new residents of the SRO units? Of tourists for period May to September?

How many rooms have been vacant on average in weeks over the past year, or since this application was filed?

There may be an assumption that SROs rooms in the 2 new buildings will replace hsg already to tenants in the 5 SROs.  How many tenants are expected to transfer into these 2 buildings?  What rent will be charged to them?  For new SRO tenants, what rent will be charged?  For the 5 months of the year (May thru Sept) where rooms can be rented to tourists, what will be the nightly charge?

Does the owner of the 2 new buildings anticipate reaching agreements to temporarily house new or visiting tech employees?  Have there been discussions by the developer?

We await answers.

 

 

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.

56 COMMENTS

  1. you do know that Randy Shaw took over 1,500 units off of rent control, right. Every one of his master leased SRO units used to have rent control and now no longer doesn’t. Because Randy Shaw retrieves government subsidies, every one of his master leased rooms have lost their rent control, and he doesn’t even own the buildings. If you don’t believe it, just look at the recent evictions from THC. Every one of them says it in the court documents. How come you’re not saying anything about that?. That’s 5 times as many rooms as this one

    All of these master leased units are standardized city controlled rent units, no longer under the rent control ordinance. What happens when or if the master lease runs out and is no longer renewed by the owner?. Randy Shaw has even filed court documents stating that master leased rooms have been remodeled using city contract money and are therfore considered to be built after 1979, when the building was built in 1911

    Once a unit loses rent control, it can’t go back after the master lease runs out, can it? So that means a private contractor can temporarily master rent a building, collect city funds, demolish rent control, and then hand it back to the owner 20 years later, with essentially a brand new building not under rent control, even though the building is not new

    This cycle hasn’t been tested yet because all of the master leases are still ongoing, but every one of those contracts have a time limit

  2. I have news for you, Brad. Rooms at the San Remo go for $150 a night. I doubt there are any long-term rent-controlled residents there. It markets itself like any other hotel, except with a few less frills.

    Therefore it’s already like an Airbnb hotel except that it has its own on-line reservations system. So what good did the city’s refusal ultimately do?

    All the San Remo had to do, and all any SRO hotel has to do, is wait for the controlled guests to die, go to prison, go to hospital, go into a mental or rehab institute, or just vanish. Which happens a lot, apparently.

    That said, there were a mysteriously large number of SRO buildings destroyed by fire after the new tighter rules were passed. Just a coincidence, right?

  3. The ordinance does say replacement units have to be in a comparable neighborhood. Years ago, the San Remo Hotel in North Beach tried to swap it residential units with an SRO at 6th and Mission. The city ruled that was NOT a comparable and refused to approve it. Clearly these hotels at Union Square are a gold mine while the land in the TL is worth less. One solution, make the owner voluntarily put ALL units under rent control like the owner of Trinity Towers did for one of the his new buildings. Better idea: condo the new project and turn one of the two towers, the larger one in the back, over to a nonprofit housing corporation as permanently affordable housing. That would compensate for the inferior location and prevent the units from being turned into an AirBnB hotel.

  4. There is a art to finding tenants who won’t stay too long. I like to think I have honed my skills at detecting them over the years. The Airbnb model is best suited to very short stays but they are a hassle for an owner. You can find medium-term tenants through Airbnb, but then you have to pay them the fee on an ongoing basis.

    Rather than 3-4 months, I think the sweet spot for a rental is 6-12 months. You don’t have the hassle of finding another tenant any time soon, but 6, 9 or 12 months allows for rents to increase enough to justify the switch.

    The most reliable source for shorter-term lets right now are tech employers, who are constantly importing workers from other cities and countries, and need to house them until they can find their own place. I’ve signed leases directly with some tech companies and it’s near perfect – rent always paid on time and turnover is ensured. In fact the real tenant is the employer and not the resident, so rent control really doesn’t apply.

    Visiting academics, short-term corporate lets, longer-term tourists and in fact any foreigner can also work well.

    Tenants to avoid? Lawyers, any kind of artist, activist or advocate, public sector and non-profit workers, and anyone with poor prospects or with a “lifer” attitude who won’t move on. Kids, animals illegals, on the other hand, I am perfectly fine with having as tenants.

  5. Landlords and building management companies work around income constraints from rent-controlled units is pretty simple, and in fact, as been adopted by the owners of the building I live in. As soon as a unit becomes vacant, give it a “face lift” and advertise it as a short-term rental. This does not mean advertising as a vacation home. It’s probably common for owners of multiple building to apply for construction permits to expand the number of bedrooms for vacant units. My current residence includes over 30 individual apartments; since early 2013, three studio apartments have been converted to 1-bedrooms and four 1-bedrooms are now 2-bedroom apartments. The turnover for all of the newly converted 2-bedroom units has averaged every 3-4 months. Vacant units are rent controlled; but are advertised at market rates–every time a new tenant moves out. I don’t know of any ordinance prohibiting leases in rent-controlled buildings for less than a year. City ordinances prohibit combining existing rent-controlled units because that would reduce the available housing stock. In this case, the building owners are actually adding units which cost more to rent with each vacancy.

    SRO’s are supposed to be closely regulated by the City but I doubt anyone is keeping track of every SRO rent increase.

  6. Nobody said otherwise. SRO buildings are not listed as exceptions in the rent ordinance unless they fall into one of the other categories of exception, such as new-build or government-owned..

    However, because they are also hotels with many short-term and transient tenants, the effect of rent control is greatly mitigated. The SRO owner can re-set the rent every time there is a vacancy, which is almost daily in many of them. The lifestyles of typical SRO residents are not conducive to long-term commitments, meaning frequent departures, both voluntary and involuntary..

    And as noted before, many SRO’s practice a “29 day rule”.

    So the burden on the owners is much reduced, and the “problem” caused by replacing them with new units is less than is being claimed here.

  7. Keep reminding people that “all new residences constructed since 1979 – will be exempt from the city’s rent-control law.” The only way to keep affordable housing is to change that rule or leave in place the housing that exists now. If people want more affordable housing the only way to get it is by building it where no housing exists now. This is called ADDING, not REPLACING housing units.

  8. The reason new units are exempt from rent control is fairly easy to understand. If they were, nobody would build any! The framers of the original rent ordinance were very careful to exempt anything built after the date it became law in order not to deter construction of rental units.

    I’m fairly sure state law doesn’t allow SF to move the goal posts as well.

    The Trinity Plaza deal that was struck allowed for some new controlled tenancies so in theory there might be a work-around if everyone plays nice.

    But as I explained earlier, rent control is ineffective anyway for SRO’s because of the rapid turnover of people there. I’d be interested to see what percentage of SRO tenants are long-term compared to itinerant stays – I imagine it’s low.

    And they’re not cheap either. I saw one the other day posting vacancies at $60 a night. That’s nearly two grand a month for a flea-bitten room and sketchy neighbors. No bargain.

  9. In addition to requiring affordable units, one of the conditions of building should be that the new units will be subject to the rent control ordinance (despite being built after 1979). Someone ought to be researching the legality of such a condition.

  10. Its unfortunate that the replacement ordinance requires doing so in the same locale. I think we all would benefit if affordable housing w as more equally spread across the city, and not concentrated in one place.

    Also, though Randy Shaw may be an expert on the ordinance he created, I’m pretty sure there’s no requirement to equal the value of the properties involved… That sounds like wishful thinking.

    And we’d probably all benefit with a change to rent control to a more reasonable rent stabilization strategy, but good luck getting any changes made there.

  11. “Finally, it makes little sense to have traditional SRO hotels in prime areas like UnIon Square.”
    Working with individuals with severely limited income, I have spent many hours trying to find low-cost rooms for people who want (or need) to get away from the open drug dealing and use in the Tenderloin. Not all people who are poor or disabled want to live in that environment. Who benefits when we take away that choice?

  12. SRO rooms rent for a market rent now. There is no mandate to rent out existing SRO rooms cheaply or affordably. The SRO owner/manager can charge whatever the market will bear. There is no vacancy control.

    Existing SRO tenants enjoy control of their existing rents, of course. But SRO’s have a high turnover for a variety of reasons. While some SRO’s have a policy of not letting people stay more than 30 days at a time, so that rent control never applies to them. If the resident moves out for just 24 hours, a new 30-day rental can then happen without rent control kicking in.

    So I’m not sure what the problem is. The main difference is that the units will have a greater variety of tenants (and we all love diversity, right?)

    Finally, it makes little sense to have traditional SRO hotels in prime areas like Union Square. And it is well known that such places harbor a lot of crime, drugs and health hazards. The project looks reasonable to me.

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