City Grapples With Attempts to Preserve Residential Hotels

More than a decade after San Diego’s drive for downtown renewal began, the city is nearing a decision on how to rescue residential hotels from the urban endangered-species list and to preserve badly needed housing for the poor in the city’s core.

If a compromise being fashioned over the next few months is enacted, residential hotel owners will soon be free of ordinances restricting disposal of their property, low-income residents will be guaranteed adequate downtown housing, and redevelopment will proceed around the aging collection of the hotels.

But some argue that the medicine applied to this downtown illness may have side effects. Others are unsure whether the cure will be entirely successful. The new ordinance could also become a complex administrative headache for the city agencies overseeing it.

‘No Perfect Solution’

“The fact of the matter is that there is a problem and there is no perfect solution,” said Steve Mikelman, coordinator of programs and policy for the San Diego Housing Commission. “Any solution that the (City) Council selects will have some pluses and some minuses.”

Under a compromise proposed by Housing Commission member and Councilwoman Celia Ballesteros, whose 8th District includes almost all of the city’s single-room-occupancy hotels, a protective ordinance restricting demolition or conversion of SRO units would go into effect if the number of rooms fell below 3,400 or if vacancy rates dropped to crisis proportions.

SRO units, home to the city’s poorest residents, are typically from 100 to 200 square feet (some are as large as 500) and rent from about $200 to $350 a month. Kitchen and bathroom facilities are generally shared by people on the same hall.

Should such an emergency situation occur, SRO owners would not be allowed to demolish or convert their buildings

without replacing each lost unit at another location in the city or without contributing $7,500 to $10,000 to a fund to replace the rooms.

Meanwhile, the Housing Commission would encourage the construction of new residential hotels and the rehabilitation of dilapidated ones by providing low-interest loans to owners and developers. A beefed-up inspection force, which the council has approved without funding new positions, would keep the pressure on managers of SROs that are dirty, unsafe or unsanitary.

Would Replace Old Rules

The new ordinance, which requires City Council approval, would replace an emergency ordinance in effect since 1985, which mandates one-for-one replacement of demolished or converted rooms. The regulation has, in effect, halted conversions and demolitions because of the heavy cost of taking that action. It is scheduled to expire at the end of this year, but it has been extended before.

Redevelopment agencies say they can live with the new ordinance--which may leave some dilapidated housing downtown but would allow for conversion or demolition of others.

“What would hurt us is the strict one-for-one replacement of rooms that they (the Housing Commission) originally proposed,” said Kay Carter, interim director of the Gaslamp Quarter Council, which represents a 16 1/2-block area that contains about 700 SRO units. “What they were doing was, in fact, freezing a level of housing that, in many instances, was not decent, safe and sanitary.”

The Centre City Development Corp. also supports the plan, said Pam Hamilton, assistant vice president.

But free-market champions wonder why there is a need for any ordinance at all. With the opening of the 207-unit Baltic Inn in April and more than 1,250 new SRO units in the planning stages, Dana Blasi, manager of nine SROs, argues that the free market has already solved the problem because developers are discovering that new residential hotels can be profitable.

‘Why an Ordinance at All?’

“Why do we need (an ordinance)?” Blasi asked. “Someone tell me why. We don’t have a shortage of rooms. Our inventory is going to go back to where we were in 1976.”

Blasi and some SRO owners also note that the city sparked the shortage by demolishing 465 units to make way for Horton Plaza and other redevelopment projects beginning in the late 1970s, then made preservation of existing ones the responsibility of the 63 owners restricted by the emergency ordinance.

According to a 1985 survey conducted by the city, about 300 more units were converted to other uses by their owners and 329 stood vacant before the ordinance went into effect.

Officials do not deny that the city demolished the rooms--”In terms of the major impact, it was caused by Horton Plaza,” Hamilton said--but they say the proposed thresholds are needed as insurance against a possible shortage.

“The free market never did anything for us the last time,” Ballesteros said. “The individual developer’s concern is: How can we make more money on this? If you have a floor, it allows us to keep monitoring our supply.”

Amy Rowland, housing consultant for the Regional Task Force on the Homeless, said it is short-sighted to bank on SRO units still in the planning stage, especially when it comes to housing the very poor.

“The only ones I’m counting on are the affordable ones in the buildings under construction,” she said. “The rest of these are gleams in someone’s eye, as far as I’m concerned.”

Conversion Fear a Red Herring

But Bud Fischer, a partner in the Baltic Inn and several other SROs, believes that the fear of conversion is a red herring.

“Who’s going to convert 24 second-floor rooms?” he asked. “What are they going to convert it to, office space? Who needs more office space on a second floor in downtown San Diego?

“My opinion is that the free market governs SROs and, at this time, there is no need for an ordinance.”

Even if SROs provide an ongoing profit, owners have the right to dispose of their property the way they want to, said Dan Pearson, owner of the 100-year-old Grand Pacific Hotel and president of the Downtown Owners and Residents Assn.

“For 21 months, we’ve been stuck in limbo with an ordinance that probably would have been thrown out of court if anyone challenged it,” said Pearson, who is making a “marginal” profit on his residential hotel.

“From my standpoint, we’re locked into some higher financing than we’d like to have,” Pearson said. “I don’t know if we’re going to upgrade and stay as an SRO. I don’t know if we’re going to convert. But with the ordinance in place, my banker says ‘I don’t know what the future is, so I don’t know what to lend you.’ ”

Difficult Procedures

Others say preservation of rooms under the new ordinance depends on some difficult administrative procedures. Despite the 1985 survey, no one is quite sure how many SRO units exist, because there are small numbers of uncounted units scattered in second-floor locations throughout downtown. General agreement indicates there are 63 to 66 hotels and about 3,500 rooms.

Calculating an accurate vacancy rate every six months will be a tricky procedure, one so fraught with the possibility of inaccuracies that the Housing Commission’s Mikelman believes that the new ordinance should not specify an exact vacancy rate that would trigger the emergency protections.

He said the only way to determine vacancies would be to survey owners and managers, whose best interests would be served by reporting high vacancy rates to prevent triggering the emergency ordinance. And with some hotel rooms rented on a daily basis, the city could not be sure it was getting an accurate count, he added.

As the vacancy rate fluctuates, so does the value of an owner’s SRO property.

“When the restrictions are off, the value of the hotel is greater,” said Elizabeth Morris, acting executive director of the Housing Commission. “When the restrictions are on, the value of the hotel is less great. And that’s going to fluctuate unpredictably.”

Once conversion and demolition begins again, preservation of SROs will depend on continued construction and rehabilitation, and thus a careful reading of the market by the Housing Commission and developers. A surplus of rooms would depress rents and discourage further construction, but shortages would trigger the protections.

Market Potential Unknown

“We don’t know how deep this market is,” Morris said. “This is a matter of concern for us and for downtown developers. Is there a saturation point in this market? Nobody knows.”

Developers believe that as downtown gentrifies, SROs will be housing more and more of the low-paid restaurant workers and store clerks who will be working there, creating a steady demand.

But according to the 1985 survey, just 47% of SRO tenants were employed. The non-working poor, the other major clientele of SROs, may face a bleaker future as new and renovated hotels command higher rents.

According to the 1985 survey, 31% of residential hotel residents were retired and 22% were on public assistance. The survey predicted a continued rise in the number of homeless, mentally ill and alcoholic people downtown. The San Diego Assn. of Governments forecasts a continuous increase in the number of very low-income people downtown through the year 2000. At the same time, rents at SROs were increasing about 16% a year.

“We’re concerned that the term ‘SRO’ has taken on a generic meaning, and that simply by calling something an SRO, it can replace what is really needed, which is affordable housing,” said Frank Landerville, project director of the Regional Task Force for the Homeless.

Though developers of the Baltic Inn and the new Sara Frances Hotel agreed to set aside rooms for low-income residents in return for low-interest loans, the restrictions apply for only 5 and 10 years, respectively, said Rowland, the task force’s housing consultant. “We don’t want to simply move this crisis down the road five years.”

“We have to keep in mind who’s living in these original SROs,” said Rowland, who nevertheless supports Ballesteros’ initiative as an acceptable compromise. “The goal of the permanent ordinance should be to keep more people from hitting the streets.”