BEYONDCHRON SPECIAL REPORT: Illegal Hotel Conversions Sweep San Francisco

by Randy Shaw on December 12, 2011

Residential hotels across San Francisco are openly operating as illegal tourist lodgings, depriving legitimate tourist hotels of business and removing nearly one thousand units from the rental market as demand for housing skyrockets. Lawbreakers increasingly rely on Internet web sites to steer illegal business to their hotels, flagrantly and brazenly violating restrictions on tourist rentals that have been in effect since 1979. In 1990, the Tenderloin Housing Clinic (THC) sued and obtained preliminary injunctions against over two dozen hotels engaged in illegal tourist rentals. Hotel after hotel then filed lawsuits to challenge restrictions on tourist rentals, a process culminating in a decisive victory for San Francisco in the California Supreme Court. The ruling, combined with a declining tourist economy, largely eliminated illegal conversions, but the situation has dramatically changed. A THC investigation (THC publishes Beyond Chron) in recent weeks has found that hotels across the city are operating as if no restrictions on tourist rentals existed. THC has filed suits against four hotels in the past two weeks, with many others being prepared. But civil lawsuits have their limitations. The District Attorney’s office must prosecute blatant violators for unfair business practices, and activists should initiate ongoing protests in front of hotels with a long history of illegal conversions to deter tourist business.

I have worked to enforce San Francisco laws against illegal hotel conversions since 1980. After over twenty years of major and ongoing battles, it seemed that the problem had finally been greatly minimized. But in the past year, the burgeoning tourist economy coupled with the rise of Internet booking sites (see accompanying story) has created a wave of illegal conversions that approaches 1990 levels. Nearly one thousand residential hotel units have been illegally removed from the market at a time when those seeking permanent housing are having as hard a time as ever to find vacant units.

In this special report, I am going to specifically name many hotel converters in the hope it brings additional resources into the fight to protect the city’s residential hotel housing stock. Some under ongoing investigation will be kept anonymous. While THC continues to prioritize conversion violations, it will take more than one organization – not to mention city agencies and political leaders – to solve this problem.

A Brief Background

In November 1979, San Francisco enacted the nation’s first moratorium restricting the conversion, elimination or demolition of single-room occupancy hotel (SRO) units. The moratorium was extended to November 1980, and a final ordinance took effect July 27, 1981.

The core provisions of the Ordinance required hotel owners to specify which units were residential and which were tourist on a certain date. Vacant units were divided between both categories, meaning that units that never had a tourist rental were, over the objection of activists, granted “tourist” status. The number of units for each category became the official “unit usage” for the building.

The Ordinance was little enforced through the 1980’s. The problem was that the agency assigned to enforce it – the then-Bureau of Building Inspection – opposed the law, and did everything in its power to avoid enforcement. Further, the only agency that could file lawsuits against violators – the City Attorney’s office – refused to do so.

Art Agnos’ election in 1987 gave us a mayor willing to make the anti-conversion law enforceable, and on May 12, 1990 a tougher law took effect that gave nonprofit groups like THC the ability to directly enforce it. We quickly secured over two dozen injunctions, and joined with the City Attorney’s office – whose support for enforcement evolved under Louise Renne and has been steadfast under Dennis Herrera – to secure high profile enforcement victories against the Abigail Hotel, Pacific Bay Inn, All Seasons Hotel, and most notably a California Supreme Court victory over the San Remo Hotel.

In the November 1994 election, voters passed Prop G, which abolished the anti-tenant Bureau of Building Inspection and replaced it with a Department of Building Inspection supervised by a Commission. Since 1995, DBI’s housing inspection staff has strongly backed enforcement of the anti-conversion law, so the two key city agencies have used their resources to restrict illegal conversions for the past sixteen years.

9/11 brought a sharp reduction in the European tourists who were an important market for the smaller residential hotels typically engaged in illegal tourist rentals. And when the nation’s economy crashed in 2008, tourism in San Francisco was at longtime lows, so illegal conversions were a non-issue.

But as San Francisco’s convention tourism sharply rebounded by 2010, so did the demand for lower-price hotels. And this led to the widespread violation of city laws, as hotel operators run even 100%

How Conversions Happen

Take the Globetrotter Hotel, a 15-room, 100% residential hotel at 225 Ellis. THC sued the hotel two or three times in the 1990’s, obtained injunctions, and yet each successive owner or operator resumed its operation as an illegal youth hostel. At one point the hotel was going to be torn down by Glide Church for a larger affordable housing project, so we thought its future was resolved. But it was not included in the project, and now openly markets itself and operates as a youth hostel. Its nightly rentals violate both the anti-conversion law and the North of Market Special Use District.

THC has sued the Globetrotter again, but its clear that stronger sanctions are needed. It only has 15 rooms, but its corner locations make these rooms quite desirable for permanent residents. It may take the risk of going to jail before the operator stops the illegal operation.

The Halcyon Hotel, 649 Jones, is another repeat offender that openly operates as if it were a legal tourist hotel. In fact, walk by the 25-room Halcyon and you would be surprised to find out it is legally 100% residential. While THC has again sued the hotel, this type of blatant lawbreaking calls out for stronger action.

The area bounded by Geary, Mason, Post and Leavenworth includes a large concentration of residential hotels whose operators desire to operate tourist lodgings – in violation of the law. These lawbreakers are not only removing high quality SRO rooms that would house working people, but directly stealing business from nearby legal tourist hotels.

Some of these hotels include permanent residents but illegally advertise the availability of daily rentals on their hotel websites as well as on the many tourist hotel sites. City law prohibits the offering of rent of residential accommodations for a daily term, yet many hotels openly violate a law even when they are primarily serving permanents.

Clandestine Cheaters: The Astoria Hotel

Proving violations against hotels that have no legal tourist rentals is easier than when a hotel like the Astoria at 510 Bush Street has 79 residential rooms, 13 tourist, yet operates as a near exclusively tourist hotel. The Astoria is a great case study of how a longtime residential hotel evicted longterm residents and then operates as a tourist hotel for decades.

The Astoria Hotel came to public notice in the mid-1980’s when a longterm lease for the premises was purchased by Frank Lembi, known then as the head of Skyline Realty and today as leader of CitiProperties.

Upon assuming control, Lembi told all of the primarily retired seamen and blue-collar workers that they had to move. He suggested they better take $1000 apiece now and get out.

The building was soon largely vacated. Many tenants filed what became one of the more high-profile wrongful eviction cases of the 1980’s, and won a large settlement.

Having cleansed the building of nearly all of its permanent tenants, Skyline had free rein to transform the building into a tourist hotel. Tourist business was slow, however, and they transferred the lease to a group that marketed to Asian tour groups.

Through an extensive undercover operation, THC exposed the way in which tour groups illegally filled the Astoria’s residential rooms. The management tried to avoid being caught for violating the law by only renting from tour groups they were familiar with, so others seeking to make a group reservation were otherwise rebuffed.

THC’s spent years litigating against the Astoria with the goal of eliminating any of their tourist uses on the grounds that they violated the area’s zoning. Zoning laws impose independent restrictions on tourist uses, and the Astoria clearly appeared to be in violation.

But as often occurs in cases involving landlords violating the law, the First District Court of Appeal overturned the trial court ruling and found that there was something completely unique about the Astoria’s location that allowed it to always maintain 13 tourist rooms. The ruling’s only purpose was to facilitate the Astoria’s ability to illegally rent its remaining units, a goal the court ruling has likely achieved.

We currently lack sufficient evidence to sue the Astoria for illegal tourist conversion. Realize that DBI can request the rent roll, but that many hotels keep a double set of books so that their illegal rentals are concealed. But when experience shows the Astoria hotel with few if any permanent residents, one wonders how it survives economically without covertly renting to tourists.

The Hotel des Arts

A block down from the Astoria is the Hotel des Arts, 447 Bush. Its owner, Richard Singer, (unless the property has recently changed hands), is now in state prison for arranging to “evict” tenants from the Hotel Menlo in Oakland building through arson.

The Hotel des Arts was named the “Hansa Hotel” when the anti-conversion ordinance took effect, and has gotten great publicity for allowing artists to paint individual rooms. Stories promoting the hotel never mention that its overwhelming use is residential – it has 38 residential and only 13 tourist rooms – and that most of the tourist rentals these articles promote are illegal.

The Hotel Union Square

The operator of this hotel at 432 Geary recently told someone that it was “not a residential hotel.” Its unit usage is 61 residential, 8 tourist, but through careful screening the hotel has avoided litigation despite almost certainly violating city law for nearly two decades.

If any hotel in San Francisco cries about for ongoing mass protests, it’s the Union Square. These operators have worked the system to completely convert a residential hotel in an historic residential neighborhood to a tourist lodging.

As with the Astoria, the operators of the Union Square Plaza are careful about renting rooms to groups they know will not turn them in. But the hotel survives with few permanent residents, making it almost certain if not currently provable that they are violating the law.

And if you think the 400 block is not historically residential, read on.

The Union Square is almost next store to the Diva Hotel at 440 Geary. I represented the former longterm tenants of the hotel when it was still called the Somerton in 1984. The Somerton was granted an exemption from the city’s anti-conversion law through a loophole inserted by the Feinstein Administration that said if a hotel had “partially completed” the conversion process prior to the law taking effect it could become a tourist hotel.

This loophole was created so that hotels that had totally remodeled and invested in converting to tourist did not lose their investment. The legal term would be “detrimental reliance.”

What did the Somerton do to prove it was becoming tourist? Well, a Bureau of Building Inspection that vigorously worked to undermine the city law it was supposed to enforce found that the Somerton had installed television sets in rooms and that showed they were becoming tourist. No San Francisco hotel owner has ever been granted a greater windfall profit on such a small investment.

The Columbia Hotel/Orange Hostel

I began representing tenants at the Columbia Hotel at 411 O’Farrell in 1982, and THC’s modified payment program for general assistance and SSI recipients would pay the rent for nearly all of its 123 rooms from 1989 to the early 1990’s.

Today, the Columbia still has 85 residential and 38 tourist rooms, but the latter are now part of a separately advertised business called the Orange Village Hostel. Although the hotel is over 2/3 residential, anyone walking by would think it is exclusively tourist, and we continue to get reports that it is exceeding its tourist allotment.

The Columbia has converted its tourist rooms into a youth hostel, with multiple beds. There were occupancy limit violations in the past; but with few long-term tenants remaining, trying to find out how units are actually being used is a tough challenge.

An Action Plan

I could go on for pages identifying illegally operating hotels, but it’s more important to get to solutions. THC will continue to file lawsuits and obtain injunctions, but here’s what else those concerned about the loss of SRO units have going:

We have a Mayor who was there when the original hotel conversion law passed, and understands the importance of preserving SRO’s.

We have a City Attorney who has aggressively prosecuted hotel violators since taking office, and remains committed to the issue.

We have a DBI Housing Inspection division that responds to complaints and aggressively pursues violations, and a DBI Commission that promptly forwards cases to the city attorney for prosecution.

We have the San Francisco Tenants Union and other tenant groups who regularly organize protests at sites of illegal or immoral evictions. And we now have Occupiers who are looking for targets that symbolize the injustices of our housing system.

We thought that we had permanently ended widespread illegal hotel conversions in San Francisco, but the Internet has given the cheaters new life. These sites profiting and facilitating illegal rentals would seem to be engaged in unfair business practices, and at the very least this is something that the District Attorney and Attorney General should investigate.

Thousands of SRO tenants fought for the city’s anti-conversion law, which on the whole has been incredibly successful. Now the issue must go back to center stage, with the serial lawbreakers brought to justice once and for all.

It would cost hundreds of millions of dollars to replace the SRO units that are being illegally removed from San Francisco’s over-heated rental market. It seems like a pretty good investment to prioritize getting these units back in circulation.

Randy Shaw is the Editor of Beyond Chron and Executive Director of the Tenderloin Housing Clinic.

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