A new seven-story building at Market and Church streets operated by SF-based Sonder will provide extended-stay rentals. (Kevin N. Hume/S.F. Examiner)

‘Corporate rentals’ draw scrutiny from city officials

Companies approved for housing leasing out units as extended-stay apartments

San Francisco Planning Department leaders on Thursday condemned an emerging trend of licensed hotel operators and startups leasing units within residential developments for use as short-term “corporate rentals.”

In an effort to stem its crippling housing crisis, San Francisco has restricted and regulated Airbnb style short-term rentals of housing units for tenancies of 30 days or less in recent years.

But some developers who have won approval to build residential projects in recent years are instead leasing out large portions of the constructed units to third-party companies that specialize in furnished apartment rentals advertised for limited stays of 30 days or more.

While there are multiple properties in San Francisco that currently operate under this model — community advocates have identified six in The Mission District alone — a 60-unit development by developer Brian Spiers at 2100 Market St. drew the ire of commissioners at Thursday’s Planning Commission hearing.

In February 2014, Spiers entered into a 99-year ground lease agreement with the owners of the property and won approval for a seven-story, 60-unit apartment building on the site. Now, the development is nearing completion, but it will not necessarily provide the type of housing that the Planning Commission had envisioned when it approved the project.

Sonder, a licensed hotel operator and San Francisco-based startup that renovates and operates hotels but also runs a “boutique residential service,” according to a company spokesperson, has leased 52 of the 60 units which it plans to rent out as furnished extended-stay apartments, also referred to as “corporate rentals.”

Both the Sonder spokesperson and Spiers argued that these units are not “hotels,” and are perfectly legal.

“It’s unfortunate that this building was characterized as a hotel,” Spiers told the San Francisco Examiner on Thursday. “In fact it’s furnished apartments that are no different than any other furnished apartments in San Francisco, other than maybe the amenities inside are nicer.”

Spiers said that “typical leases” for the apartments in his building will range from six months to a year.

“I don’t feel I have done anything that’s outside of what I have approval for,” he said, adding that “anybody can rent these units.

“Granted there will be a lot of people who transfer here for a job who will use this for six months or so. I still see this as a positive thing for the housing crisis. We are meeting a demand,” he said.

The Sonder spokesperson said the company operates some 8,500 “spaces” in 20 cities worldwide, “in accordance with local laws and zoning requirements.”

But according to Planning Commissioner Dennis Richards, the company is skirting the city’s short-term rental restrictions by requiring tenancies of 30 days or more — a “loophole” in existing law.

“I feel like we are being played,” said Richards. “This is an Extended Stay America, this is not a housing project. There’s a lot of this going on in all the projects we approve. This whole idea that we are solving the housing crisis — really we are solving a hotel crisis.”

Probed about the issue, Planning Department Director John Rahaim said that the department currently has little power to regulate this business model because it is, in fact, legal.

Mission District community advocates who spoke at Thursday’s hearing demanded that The City step in.

“We are concerned about a fast growing disruption housing model that is already impacting our community,” said Kelly Hill, of United to Save the Mission.

According to Hill, there are a total of 71 units in the Mission that are currently being “held off the rental market” by corporate rental companies, including Sonder, SF Corporate Rentals, NestApart, Corporate Housing By Owner, Zeus, and others.

A newly constructed 20-unit apartment building at 606 Capp St. is used entirely for corporate rentals with an average price of $240 per night, according to Hill.

Jennifer Fieber, of the San Francisco Tenants Union, said the trend is not necessarily new, but has been on the organization’s radar for some time.

“There isn’t much we can do about it because of the 30-day rental rule. They are not considered short-term rentals,” said Fieber, adding that her organization has learned that the companies are also targeting existing and rent-controlled buildings.

“It’s a convenient way around rent control. The tenants will only be temporary and then you raise the rents without rent control,” said Fieber. “Landlords seem to like it because someone else is taking care of property management.”

Amy Beinart, a legislative aide for Mission District Supervisor Hillary Ronen, said that Ronen’s office is concerned about how these rentals are impacting the Mission District’s housing stock and residents.

“We have become aware and are very upset about this issue,” said Beinart, adding that the office is currently exploring legislative options for regulating corporate rentals with the City Attorney’s office.

“There is the question of where this fits in planning code and if we should try to define that use and place protection around it,” said Beinart. “Our goal is to provide as much affordable housing as we can — instead we are diminishing our housing stock.”

District 8 Supervisor Rafael Mandelman, whose district includes 2100 Market St., said that his office is also working to determine “whether these units are allowed under existing law.”

“If they are, we need to change the law and close this loophole,” he said. “San Francisco neighborhoods never signed up for corporate hotels masquerading as rental housing.”

Richards said that he is “skeptical” of approving more housing projects “without understanding what the hell is going on after we approve them.”

“I think this is atrocious — it’s legal but it’s not right,” he said.

lwaxmann@sfexaminer.com

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