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Thursday, September 19, 2013

Even the rich face evictions

The wave of evictions that's transforming the east side of San Francisco is creeping into the wealthier areas. Russ Flynn, the owner of a 33-unit luxury building on Nob Hill, wants to turn the place into TICs, and at least half a dozen of the current tenants will have to go.

J.K. Dineen, who covers commercial real estate for the Business Times, has the scoop. Flynn thinks he could get as much as $100 million when he sells the apartments -- not a bad haul, since he bought the place for $35 million and is putting another $15 million into upgrading it. That's $50 million spent, $100 million returned, for a double-your-money profit that will make the already wealthy landlord even richer. By far.

Now: It's likely that most of the renters who are facing eviction will be okay, since nobody rents in that district without a fair amount of cash. I don't know who the six tenants are who will lose their homes, and maybe some of them are on fixed incomes and won't be able to afford a similar place, since they've been under rent control for years.

But if this works out for Flynn, it's going to encourage other owners of larger buildings to use the Ellis Act to force everyone out in the name of a big, quick profit. That's a scary thought -- for the most part, TICs have been limited to smaller buildings. Under city law, no buildings with more than six units are eligible for conversion to condos, and most TIC owners want to convert eventually (it makes financial a little easier and makes the unit more valuable.)

So Flynn is going to have to warn his prospective buyers that the apartments will be TICs -- similar to the co-ops that are popular in New York -- forever. In that past, that would put a damper on potential sales, but he's no fool, and if he thinks he can market this, he's probably right.

And if he makes $50 million, and the city can't find a way to limit this sort of thing, then no tenant anywhere in the city is safe.

Now, let's remember: The reason San Francisco has rent control today is (in part) because Angelo Sangiacomo, another big landlord, started raising rents on wealthier, socially prominent tenants in the late 1970s, and pressure from tenant groups combined with pressure from the Swells in Sangiacomo's buildings drove the supervisors to approve the Rent Stabilization Ordinance.

Is it possible that a wave of Nob Hill evictions will have a similar impact? Does Russ Flynn care? Not when he's got another $50 million in his pocket.


  1. Tim, do you know if any city has challenged the constitutionality of CA's rent-control prohibition? Or more specifically, has any charter city challenged the prohibition?

    About a year and a half ago in Vista vs. Building Trades the CA Supreme Court told charter cities they didn't have to follow CA's prevailing wage and public contracting regulations for strictly local (and locally funded) public works, reasoning that how a city spends its money is the very essence of a municipal affair. I think its quite arguable that the same goes for local land use and housing regulation regardless of the fact that Costa-Hawkins states that its applicable to both general law and charter cities.

    One of the more notable things about this case was that the City of Vista passed a law specifically rejecting compliance with the state's prevailing wage regulations. Could the Supes pass a law (with at least 8 votes hopefully) rejecting Costa-Hawkins?

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