Rents will likely continue to fall and many small landlords will go bust. And then their properties will be snapped up not by ethical collectives of some kind but by big management companies. (Courtesy photo)

Market Musings: The pandemic is putting some San Francisco landlords in crisis

We have this image of “the landlord” — this predatory, over-funded, 1980s yuppie meme, polo shirt-wearing tech bro.

I know you don’t want to hear this, but these are challenging times for San Francisco landlords, and they may be fixing to get a lot worse. The party, which has lasted years, may be over — for who knows how long.

Or maybe you do want to hear this. Maybe you rejoiced at word that San Francisco rents had fallen 9.2 percent year-over-year, and that the Board of Supervisors had voted to permanently ban evictions against tenants who “can’t pay rent due to coronavirus-related issues.” I mean, we stand against a lot of things here in San Francisco; very few of them do we stand against with more passion than landlords.

We have this image of “the landlord” — this predatory, over-funded, 1980s yuppie meme, polo shirt-wearing tech bro. If that guy would just leave, the reasoning goes, San Francisco could return to its golden age, 1956, 1967, 1990, 2003… whenever it was before this guy showed up. As long as we can keep that image fresh in our minds we can cheer whatever misfortune comes his way.

Of course, this is not an entirely accurate picture of the “San Francisco landlord,” because of course there is no one monolithic “San Francisco landlord.” Local landlords come in all shapes and sizes, from legendary (and somewhat infamous, in some circles) massive property owners like Trinity founder Angelo Sangiacomo to the neighborhood hair stylist whose parents bought four houses in the 70s, to my next-door neighbor, who became a landlord when his fiance moved in three years ago and is now struggling to keep two properties when neither is generating income.

This is not to ask you to weep for my neighbor, but instead to invite you to understand that, despite the easy target a San Francisco landlord is to someone paying $3,340 a month for a one-bedroom apartment (that’s after the 9.2 percent drop, by the way), limiting your response to their approaching crisis to schadenfreude or going on Curbed to smugly tell them that they “can simply sell their property and move somewhere else” may not be the most human way to go through life.

But let’s get down to it; why do I think landlords are in crisis? Aren’t they still charging rent that ranks in the top five among American cities? Didn’t 97 percent of San Francisco tenants somehow find a way to pay their rent in May, despite the brutal impact of the COVID shutdown?

Because here’s what I think comes next:

That 9.2 percent drop we saw was just the warning shot. Between laid-off workers, who will lose $600 of their weekly unemployment (which was likely the reason they could pay rent in May) at the end of July, the local businesses shutting down and the shift to remote working, we’re about to see a glut of available rental units, followed by a sharp drop in rents. Good news for renters, would-be renters and anyone who’s wanted to move here but couldn’t afford it in a million years; bad news for small landlords who purchased their income properties late in the game and don’t have the equity to operate with reduced revenue.

The anti-eviction legislation is both humane and empathetic but it could further tilt the playing field toward big landlords. It’s built-in gray area (how do you prove if unpaid rent is due to COVID-related factors?) favors landlords who operate far from the margins and its solution for collecting unpaid rent (per The City’s press release: “back rent will become akin to consumer debt, which a landlord could elect to pursue in any manner they see fit.”) could, for small operators, turn out to be a catch-22. How can you go after back rent when the process costs more than you’re owed? Why not just sell to someone who’s better positioned to weather this storm, someone with the resources to ride this out, someone well-positioned to buy up a bunch of distressed properties in a down market?

Meanwhile, Supervisor Dean Preston’s plan to create a Rent Resolution Fund to help struggling landlords is contingent on a November ballot measure that doubles the transfer tax on properties valued at $10 million or more. You can bet that large management companies, who often buy and sell $10 million properties and would benefit if mom-and-pop landlords start going out of business, will do their best to see that this measure does not pass.

So on the surface, especially if you hate all landlords and don’t really care where you’re sending your rent check, this is good news. Rents will likely continue to fall and many small landlords will go bust. And then their properties will be snapped up not by ethical collectives of some kind but by big management companies, because that’s who’ll have the money to buy. Those guys will be fine.

The Market Musings real estate column appears every other Wednesday. Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner.

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