In an admirable burst of optimism, a current BeyondChron post concludes that, unlike the rapidly gentrifying Mission District, the Tenderloin is not “… transforming itself into a place that low-income residents will no longer be able to afford. That’s not ever going to happen.”

A 304-unit market-rate housing project in the Tenderloin sparked a debate over whether gentrification and displacement will reach that part of town
A 304-unit market-rate housing project in the Tenderloin sparked a debate over whether gentrification and displacement will reach that part of town

The rationales offered for this bold prediction are:

  • There are few Tenderloin home ownership opportunities – single family homes or flats that could be converted to condos or TIC’s, so Ellis Act evictions will not become a “challenge.”
  • The limited amount of new market-rate housing that is built in the Tenderloin is consistently rental, not ownership.
  • There is no major retail shopping street or strong retail base to support new market-rate housing populations in general.
  • Local zoning and citywide SRO protections prevent its residential hotels from being torn down and replaced with market-rate housing.
  • Since the 1980s, various nonprofits have bought about 25% to 33% of the Tenderloin’s housing units and will keep them permanently affordable.

Unfortunately, this is a compendium of wishful thinking that ignores actual facts on the ground and capitalist economics, combined with an artificially narrow field of view.

First, of course, the immediately adjacent fringes of the Tenderloin are now visibly gentrifying — fast. Civic Center and Central Market Street are experiencing a burst of large-scale market-rate housing development with supporting ground floor “new SF” lifestyle retail. Existing apartment buildings on “lower Nob Hill,” which now reaches well south of Geary Street, are seeing huge jumps in their market rents and frequent landlord pressure to force rent-controlled tenants to move out (including an employee of my company, TODCO). These market dynamics will to continue to expand relentlessly.

And while the new market-rate housing that is built in the Tenderloin may start as rental, many of these buildings are also immediately mapped for subdivision so they can be converted to condos in the future when market conditions are ready for that, without needing any further city approval.

Second, it is apparent that Central Market Street is now becoming a local upscale neighborhood shopping street for all these new market-rate housing residents. The new hip Market Square in the Twitter headquarters building will be joined by a major retail complex in the Trinity Plaza complex now under construction. More is certain to follow due to the spending power of thousands of additional new market-rate residents in coming years. Please don’t suggest that Market Street is not functionally directly connected to the Tenderloin and its residents. And the largest single concentration of department, discount, and national chain retail west of Chicago is just a five-to-ten-minute walk away from the Tenderloin at Union Square and Hallidie Plaza.

Third, the zoning protections of the North of Market Special Use District adopted in the 1980s apply to less than two dozen city blocks and generally still allow for RC-4 high-density mid-rise new development, which developers can now further increase by 20% thanks to the state’s housing density bonus law. These protections are out-of-date, just like today’s ridiculously low 12% inclusionary housing requirement for new market rate housing in the Tenderloin and Central Market.

Fourth, all of the privately-owned residential hotels in the Central City neighborhoods, including the Tenderloin, long a vital de facto affordable housing supply up until now, are coming under relentless market pressures:

  • Those that have tourist licenses for some or all of the rooms that used to be rented to monthly tenants can now legally, with modest cosmetic upgrades, convert those rooms to European-style hotel or hostels advertised via Air B&B-type websites. Thanks to the ongoing huge jump in city hotel-rooms rates, this practice is spreading quickly, especially to the “better” SROs wherever they are located.
  • Those without tourist licenses can still take their SROs “upmarket” after modest upgrades to house the city’s new tech workers who find them to be a more desirable living arrangement than sharing a bedroom in an apartment with a stranger for the same monthly rent, now approaching $1500+ per month. This is spreading rapidly through the Mission now, with North Beach and Soma next. The “better” SRO’s in the Tenderloin will soon follow.
  • It is a big positive that a good number of the Tenderloin’s SROs have been bought by nonprofits and renovated for permanent affordable housing over the last 30 years. But the city funding to expand this has now dried up, due to the huge amount of money needed for the Mayor’s Public Housing RAD program and many promised new affordable housing developments in other Central City neighborhoods. So this will not continue at significant scale.
  • Worst of all, the homeless and special-program housing provided today by the many Central City master-leased hotels, many operated by the Tenderloin Housing Clinic, is highly vulnerable for the long term, because these city leases do not include an option to buy those SROs when that lease expires. If their owners have more lucrative options to sell, convert them to tourist use, or go upmarket at that time, many or all could be lost forever.

The South of Market SRO housing stock – a functional extension of the Tenderloin SRO housing market – is illustrative of these dynamics. There are 34 Soma SROs remaining today (compared to the 72 in 1965 before the redevelopment era) with 2,365 total units. Nonprofits have bought 14 with 1,069 units that will be permanently affordable. Twenty are still privately owned, with 1,296 units. Nine of those are master-leased by the city with 820 units, but apparently none are guaranteed to be permanently affordable through an option to buy. Today’s market-rate asking rent for these private SROs averages about $1,100 per month, so switching to more lucrative tourist use or upmarket tenants when possible is very attractive to their owners, and it will happen.

In terms of a timeline, the only real difference between the SOMA and Tenderloin SRO housing markets is, at most, one business cycle. The current city economic boom is now invading all of Soma. The next one will finish the job and invade the Tenderloin. The one after that will finish that job in the Tenderloin. These cycles span about 15 years each, and the more valuable standard apartment buildings will turn over faster than the SROs. So by mid-21st Century, even the core Tenderloin neighborhood will have gentrified thanks to the market forces of America’s capitalism.

But it may not take that long. There is a greater than 50% probability of a very large earthquake in the central Bay Area in the next 30 years. Exactly when, how strong, and where is unknown, but it’s certainly coming. It could happen tomorrow. Even if there is not a great conflagration in the Central City, well over half of the larger pre-WWII buildings here – most of Tenderloin – will likely be damaged beyond repair. The seismic code retrofits now required by the city are intended to prevent their catastrophic collapse and loss of life, but not to ensure that they can brought back into useable condition afterward.

And the hard truth is no one has any idea what to do when this happens. Many thousands of city housing units will be irretrievably lost in mere seconds, especially in the Tenderloin and Chinatown, and much of Soma. Before Governor Brown blindly killed all redevelopment programs statewide five years ago, the city could at least have quickly approved a massive earthquake recovery redevelopment program to condemn and buy the ruined buildings and immediately start building new affordable replacement housing on their sites with Federal disaster aid. But now we have no tools at all.

I guess we just have to hope LA gets hit first.