The Morning Report
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A coalition of single-room occupancy hotel owners is pushing back against proposed city regulations meant to preserve their properties and protect low-income tenants.
A group that has dubbed itself the SRO Alliance argues draft regulations pitched by the Housing Commission will hinder rather than help address the dwindling stock of rooms, putting vulnerable residents at risk.
Housing Commission officials, meanwhile, say they are determined to try to protect the city’s existing low-cost housing at a time when demand for affordable units is surging, and to act on a 2020 study that urged the city to bolster its existing SRO regulations.
SROs typically lack their own bathrooms or kitchens and come with rents far lower than other housing options. The latest SRO regulatory proposal follows past losses of hundreds of such rooms.
Now, after years of regulatory fits and starts, the Housing Commission has set its sights on a draft ordinance to try to preserve the roughly 90 SRO hotels and more than 4,300 units that remain and do more to aid tenants displaced when SROs shut down or are renovated.
The proposal, which has been debated in webinars and online meetings for months, calls for owners to notify the city at least 180 days before they sell their properties to give nonprofits a chance to make offers, and increases relocation assistance payouts to residents who are forced to move to $6,300 plus an additional $2,000 lump sum for those who are seniors or have disabilities. It also clarifies that SROs are eligible to apply for city rehabilitation funds if they agree to 30-year affordability restrictions, and adds requirements for SRO managers to maintain daily occupancy logs and file annual reports documenting how many tenants they have and the occupancy terms for each of their rooms, among other changes.
Housing Commission officials say they aim to aid both vulnerable tenants and existing owners grappling with how to keep their operations going as they try to create more opportunities for the city to intervene when SROs are under threat. For example, officials said, they recently released a $16.6 million funding opportunity to back renovations to low-cost housing that is not government-subsidized, including SRO hotels, and have already made changes to their regulatory proposal based on feedback from SRO owners.
But Jeff Platt, a managing partner of downtown Golden West Hotel, which was built in 1913, said the proposed rules would be devasting to SROs already operating on thin margins in often archaic buildings and would unfairly crack down on private owners who should have a right to make decisions about their properties.
“Incentivize us to stay in business instead of penalize us,” Platt said.
Platt and other members of the SRO Alliance have hired attorney Steve Coopersmith to battle the proposal. Earlier this month, Coopersmith sent a letter to the Housing Commission raising various legal issues, including an argument that the regulations could amount to a taking of property barred by the U.S. Constitution. Coopersmith also called for the Housing Commission to pursue an SRO needs assessment study and a separate economic study assessing the impacts of the proposed rules before taking them to the City Council.
“In essence, my clients fully recognize and appreciate that but for some SRO properties, tenants at the lowest end of (area median income) may be homeless, and yet the SDHC has chosen to make it more difficult to operate an SRO, and less attractive to own,” Coopersmith wrote in his July 7 letter.
Coopersmith, SRO owners and the Housing Commission have also tangled over whether the proposed regulations could force owners who undertake upgrades that result in the loss of even a single room to make 30-year commitments to offer low-income rents, a pledge that comes with extensive red tape to demonstrate compliance. The Housing Commission says those mandates would only be triggered if owners accept agency funds for renovations and upgrades. But Coopersmith and owners fear upgrades meant to better serve tenants could trigger significant administrative burdens and long-term commitments.
The debate over the proposed regulations, which the Housing Commission expects to take to a City Council committee this fall, reflects both the unique role of SROs in the city’s housing stock as an affordable option for some of the city’s lowest income residents, longtime concerns that SRO losses have exacerbated the city’s homelessness crisis and state law that already gives the city more sway over what happens when rooms go offline.
State law allows the city to demand relocation payments for tenants and to mandate that most owners replace SRO units they remove.
But nearly two dozen downtown SROs – including the Golden West – weren’t mandated to provide replacement housing thanks to a 2003 state law that allowed owners to seek exemptions. The downtown Plaza Hotel, a now-shuttered SRO that made headlines in 2019 after residents received eviction notices ahead of a planned redevelopment project, was also exempt from that requirement.
The Plaza Hotel sale was the latest situation to spotlight the city’s limited ability to step in before residents are forced to look for new homes.
A Housing Commission study released last year called for the city to introduce regulations that would give the city an opportunity to save SROs that might otherwise close when owners put them up for sale and establish funding streams to support SRO tenants and nonprofits’ purchases of the hotels when they hit the market. The study noted regulations in cities such as Chicago, which already requires that SRO owners give 180 days’ notice before they sell their properties.
The study found that San Diego could lose tens of thousands of units of so-called naturally affordable housing, a category that includes SROs, to rent increases or demolitions over the next two decades without more city action.
Wendy DeWitt, the Housing Commission’s vice president of preservation, said the study’s stark findings emphasize the need for the city to do whatever it can to keep existing SROs operating. She said the agency wants to help rather than hamper existing owners.
“The effort is to try to preserve (SRO hotel stock) because it is at a rental rate that we don’t see with the units being built now,” DeWitt said.
Yet some SRO owners question whether the city should prioritize the preservation of decaying hotels with aging amenities.
Ruben Andrews, who co-owns the Hotel Occidental in Bankers Hill, said he thinks the city should instead be working on incentives to replace SROs as they close.
“They’re going the wrong direction with this thing totally,” Andrews said. “Why would they want to upset the people who actually know how to build and operate these things?”
Andrews and others note that San Diego was once a national leader when it came to SRO production and should focus its efforts there.
The city has in recent years undertaken reforms meant to make it easier – and more economically viable – for developers to build smaller units, though the new units that materialize have much higher rents than the $525 monthly rate for the most basic room at Golden West.
The city may be taking up more conversations about production in coming weeks.
Mayor Todd Gloria on Monday unveiled a package of initiatives to try to spur more housing development, including of SROs. He has yet to lay out specific details on proposals to induce more SRO production.
David Rolland, a Gloria spokesman, said the mayor’s team expects to advance changes addressing SRO production, rehabilitation and preservation to the City Council’s land use committee in the near future.
For now, those already in the SRO business are concerned.
Will Newbern, who oversees the downtown Peachtree Inn and Trolley Court as president of the Tom Hom Group, said even the prospect of the new Housing Commission regulations has threatened to limit the cash his company has available for renovations at the 186-unit Trolley Court, one of the city’s newer SROs.
Two years ago, Newbern said, an appraisal for Trolley Court valued the property at about $10.5 million. A more recent appraisal pursued as part of a refinancing effort came in just under $8 million, which Newbern said may lessen the funds the Tom Hom Group can borrow for building upgrades such as a new elevator and roof. Newbern said his company disclosed the regulations that could be coming as part of the review process.
“There’s no other obvious reason why the value of the property would have dropped other than the regulatory issues,” Newbern said.
Stephen Russell of the San Diego Housing Federation, a lobbying group that represents subsidized housing developers who under the regulatory proposal could submit bids when SROs go up for sale, acknowledged the heartburn owners have over how the Housing Commission will affect them, but said new tools are needed to give the city and those who might help tenants a chance to step up.
“The role that SROs play in the housing ecosystem is unique in that it is housing some of the most vulnerable residents,” Russell said. “And the state and the city have an interest in making sure these folks are not further impacted by losing this critical housing stock.”