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San Diego Democrats are receptive to the city’s idea of scooping up distressed hotels at cut-rate prices to turn into permanent housing for the homeless, but they’re looking for plenty more detail before they commit to anything.
The city’s disastrous recent history of big real estate transactions is a big part of their hesitation.
Mayor Kevin Faulconer and the San Diego Housing Commission are trying to acquire “hundreds and hundreds” of hotel rooms to convert into permanent housing for the city’s chronic homeless population.
They see opportunity in the hotel industry’s collapse. If they can pick up near-empty hotels at a big discount, they could turn them into not just landing spots for those sheltered at the Convention Center during the COVID-19 pandemic, but could make perhaps the biggest move to date to address a homeless crisis that’s only worsened since Faulconer took office.
But leaders on the left, who have for years argued the city doesn’t have enough homes to get everyone off the streets, say they need to see a lot more on the program before they get on board.
They voiced concerns and raised basic questions about how a project that has not been publicly fleshed out will be implemented. Their concerns include skepticism the city can negotiate good deals, and they’ve warned that converting hotels to apartments isn’t cheap or easy. And they’re urging the city to make the program even bigger and to consider making the new apartments available to poor – but not homeless – residents, too.
Council President Georgette Gómez said she plans to force the proposal to come before the full City Council at either its May 12 or May 19 meetings, in hopes of shaping the proposal and answering practical matters like the size of the investment and how the commission is making its decisions.
“Conceptually I like the idea,” Gómez said. “I haven’t seen a full proposal, just the idea floated. We can all agree that one obstacle we have in housing the unsheltered population is not having enough permanent places to put them. The idea of trying to find something quicker makes sense. But I still have the questions I’ve posed.”
Ryan Clumpner, a Housing Commission board member, said he was glad to hear Gómez plans to bring the Commission’s proposal to the full City Council.
“I think the concerns raised are being carefully addressed,” he said. “For the sake of due diligence, it’s great that the Council will take this up as well. We can move forward quickly without sacrificing caution and the Council can help strike that balance.”
Gómez’s concerns – and her general support for the concept – are echoed by her allies in the city’s Democratic coalition.
Perhaps the biggest concern facing the proposal is the city’s fraught history acquiring real estate, especially through lease-to-own agreements.
“One major question I have is, why lease to own?” Gómez said. “Why not just go do a purchase, and do our due diligence? I don’t want to get into another fiasco of leasing to own, only to find that a property requires more resources than we were told.”
The city struck a lease-to-own deal for a downtown high-rise, only to find it needed $30 million in renovations that resulted in an asbestos violation and a still-empty building three years later. It added an option to buy to a standard lease for a Kearny Mesa industrial yard when it learned the property needed extensive renovations. And it bought an indoor skydiving facility downtown before renovation needs stalled the project’s opening for two years.
That run of failure hasn’t instilled a lot of confidence in the city’s ability to get bargains on the hotels – and scooping up the properties at cut-rate prices is a fundamental part of the proposal in the first place.
“I think there are some questions about the program, such as … will the properties be purchased at competitive prices (I think the city has not always demonstrated they’re good at this),” wrote Carol Kim, political director for the San Diego County Building and Construction Trades Council, in a text. Kim said she generally supports the proposal, though, because it’s better to house chronically unsheltered people in their own apartments than by giving them cots in shelters.
One difference between the current proposal and those blunders: The Housing Commission, not the city’s real estate assets department, is expected to target properties and negotiate the terms.
The Housing Commission’s board last week greenlit agency staff to begin negotiations on 10 small, low-end hotels located near existing unsheltered communities. The agency isn’t expected to move forward on more than a few of those, but Faulconer said his goal is to lock up “hundreds and hundreds” of rooms as a long-term housing resource for the city.
Stephen Russell, executive director at the San Diego Housing Federation, said he isn’t sure the commission’s approach is the best way to get below-market deals on the properties.
“If there was a competitive and transparent process to do this where the private sector could compete against itself, I think we would end up with more competitive real estate deals,” he said. He argued that the commission should express a broad interest in acquiring low-grade hotels and wait for hotel owners to approach them with competitive offers, creating a buyer’s market for the city. “That’s why you open it up,” he said.
Murtaza Baxamusa, director of planning for the San Diego Building Trades – Family Housing Corporation, however, said he loved the idea, and his only criticism was that it wasn’t big enough. He hoped to see the city go after even more properties, with extra focus on acquiring more downtown.
It isn’t just acquiring property where the city has fumbled in recent years, but in renovating the properties they’ve acquired to fit their needs. That, too, is a cause of concern.
Russell, for instance, emphasized that hotel rooms and apartments are not the same, and turning the former into the latter can be expensive. Affordable housing developers in his organization have completed such conversions in the past, he said, but often renovation costs keep them from being cost-effective, though he acknowledged that calculation has changed now that hotels are empty and their owners might be willing to sell at bottomed-out prices. Kim, whose organization represents union construction workers, similarly wondered who would complete the needed renovations.
“All criticism aside, we need to do this,” Russell said. “And we’re not going to be done. Whatever the first round of this is, it’s far from over. We should do this as cost effectively as possible and learn from this because we have to do a lot more.”
Kim also wondered whether it made sense to limit the new hotel rooms only to homeless people. The city has a pressing housing shortage that’s hit people across the income spectrum, and the converted apartments could also provide viable housing for low-income people who aren’t homeless.
That’s especially pressing, she said, now that a proposed measure for the November ballot that would have increased property taxes to pay for more low-income housing could lose political support and may not go before voters after all.
“With the fate of the proposed housing bond being … precarious at best, we always, but especially now, need to be thinking about how these units will be integrated to the city’s affordable housing supply, systematically,” Kim wrote in a text message.
Faulconer last week said the Housing Commission would rely on federal funds already in its possession that can only be spent on housing, though it does present challenging optics if the city or Housing Commission is snatching up real estate at the same time it’s laying off staff.
But Gómez said she needs more assurances that the money won’t prevent the Housing Commission from pursuing other housing priorities.
“We have this idea of acquiring hotels, but I know we’re not sitting on a lot of money,” she said. “So we have to make tough decisions about where to invest that money.”
Gómez said she’s also wary of whether the program could act as a bailout of sorts to financially distressed hotel owners. She wants to make sure the program is about helping the unsheltered population, not providing relief to the hotel industry.
“It’s about supporting the homeless population at this moment, so I’ll ensure that doesn’t happen,” she said.