The owners of San Francisco’s Parkmerced cannot pay their mortgage, yet they want permission from the city to demolish more than 1,500 rent controlled homes. While most of the public discussion about the proposed development project has been about environmental, transit and preservation issues, the planned demolition of so many rent-controlled housing units is reason alone to stop this project.
Parkmerced was built by the Metropolitan Life Insurance Company (MetLife) after World War II. Met Life also built similar complexes in New York City (The Riverton Houses, Stuyvesant Town and Peter Cooper Village) and other large U.S. cities. For decades, these developments have provided stable housing for middle-class renters in increasingly expensive urban real estate markets.
In 2005, a partnership of Stellar Management and Rockpoint Group purchased Parkmerced and The Riverton. The complexes were purchased for sums that could not be justified by the existing rental income on the properties. Instead, as noted in a New York Times piece this weekend: “just like Riverton and Stuyvesant Town, the owners of Parkmerced sought to take advantage of a roaring market to replace rent-regulated residents with tenants able to pay far higher rates.”
These “predatory equity” schemes have not been working out as investors intended. Tishman Speyer (Stuyvesant Town), Stellar Management (Riverton), Page Mill Properties (East Palo Alto), and others wound up in foreclosure, with banks, pension funds and other institutional investors losing the funds invested in these reckless schemes.
Parkmerced is not far behind these other properties on the road to foreclosure. The latest news is that the owners are in default on their loans. Former Willie Brown spokesman P.J. Johnston, now working for Stellar Management, sought to reassure the community that the default would not change life at Parkmerced. According to Johnston, the owners remain committed to moving forward with their development plans.
Those plans calls for the demolition of over 1500 “garden apartments,” all of which are subject to San Francisco’s rent control law. The owners argue that they will replace these units with over 5000 new housing units on the site at a rate of 300 per year. (It is unclear how many of these anticipated units would be rental units. The owners admitted at a recent Planning Commission hearing that the mix of rentals to owned units “has not been finalized.”) They claim that they will replace the rent-controlled units with new rent-controlled units.
The promise to replace the demolished rent-controlled housing with rent-controlled housing cannot be taken at face value. First, given the owners’ current financial situation, there is no assurance that they would be able to perform on such a promise. In a worst-case scenario, one that seems entirely possible, rent controlled homes would be bulldozed and then the project abandoned – in whole or in part – when it came time to build the replacement units.
Second, the City must remember that this ownership group’s business model involves the deregulation of rent-controlled units. At minimum, the city should demand and examine placement memoranda, investment agreements and other documents that the owners provided to potential investors. Similar documents in other predatory equity deals reveal the intent to displace tenants and raise rents despite local tenant protection laws.
Third, now that California’s Court of Appeal has expanded the Costa-Hawkins Rental Housing Act to bar most rent-restrictions on new housing, proposed rent restrictions on replacement housing would likely be challenged in court by the owners, or subsequent owners, of Parkmerced. While Costa Hawkins recognizes a limited exception for certain types of development agreements, the 2009 Palmer v. Sixth Street court decision shows that cities cannot rely on the Courts to interpret Costa Hawkins to allow rent-restrictions on new housing. Until state law changes so that the city can guarantee its residents that replacement units will be rent-regulated, the City should not even consider allowing such a large-scale demolition of rent-controlled housing units.
Finally, let’s not forget that San Francisco has a policy against demolishing sound rent-controlled housing. The City’s Planning Code makes this clear. The City’s Planning Department reiterates the point: “Under requirements of the General Plan, the Department is predisposed to discourage the demolition of sound housing.”
Given the precarious financial position of the owners, the uncertainties regarding rent-restrictions on replacement housing and the city’s policy to discourage the demolition of sound housing, it is hard to imagine that any responsible city official would approve moving forward with a plan to demolish over 1500 rent-controlled homes at Parkmerced.
Dean Preston is the executive director of Tenants Together, California’s Statewide Organization for Renters’ Rights. For more information about Tenants Together, go to www.tenantstogether.orgFiled under: Archive