Santa Monica apartment properties, which were an albatross for landlords who suffered under the city’s rigid rent control laws for years, are now a gold mine to them but a headache for city officials.
Property owners are increasingly converting their apartment buildings into “extended-stay” facilities, where occupants stay only a month or two but pay much higher rents than those paid by long-term apartment dwellers.
Alarmed city officials fear that this type of housing will hurt community stability, as well as put a dent in municipal coffers and hurt its existing hospitality industry. The city council last week directed its staff to draft a moratorium on extended-stay facilities (also called “corporate housing”), giving them time to assess the impact of such facilities on the city.
“What we are doing here is asking how much and where,” said Mayor Michael Feinstein.
By the end of this year, as many as 1,000 corporate housing units, short-term residences that require stays of at least 30 days, will be open in Santa Monica. The city’s official definition of a hotel is a facility that serves guests for 29 days or less.
Opponents of such extended-stay housing say it promotes a transient population and depletes affordable multi-family housing stock.
“Part of what we’re trying to hold onto here is the ratio of residents to visitors,” Feinstein said. “We don’t want this to turn into a transient town only.”
Howard Jacobs, owner of 171 short-term rental units on Ocean Way and Broadway, finds himself at the center of the brewing storm. Jacobs, president of Citrus Suites LLC, said the city’s strict rent-control policy paved the way for conversion of rent-controlled units to short-term residences once the Legislature overturned the tough rules in 1996.
“There was this need in Santa Monica,” Jacobs said. “The market has embraced it and the occupancy has been over 95 percent.”
Jacobs said his average rent at the short-term facilities is $3,600 per month, but he owns other buildings where rents range from $500 to $2,000 per month. But Feinstein said Jacobs’ argument that he is serving an under-served market would not be sufficient protection if city officials decide they’d rather not have a proliferation of short-term housing.
“Every community doesn’t have to have every niche market,” Feinstein said.
The mayor said the new census figures show that Santa Monica has been losing full-time residents, and visitors are more than triple the city’s 84,000-person population on weekdays and more than quintuple that on weekends.
To Jacobs, transience is a nonissue. He said the total of 350 units that he owns are miniscule compared to the city’s other 35,000 traditional rental units.
Feinstein sees it differently. Each unit that is not long-term and/or affordable is one fewer home encouraging people to become participating citizens in the community, he said. Beyond that, city-sponsored benefits regarding high-density development and exemption from environmental reviews that encourage residential development are misappropriated on short-term housing, Feinstein said.
“Public benefits are being hijacked to benefit something they weren’t supposed to,” he said.
Additionally, the mayor said the nearly 1,000 short-term units open, planned or under development are equal to one-third of the city’s hotel rooms.
Jacobs’ units and other short-term rental properties look like typical apartment buildings but offer similar amenities to hotels linen service, continental breakfasts and a morning newspaper. These differences, however, are what appear to defy prohibitions of the city’s Beach Overlay District against new hotels. Feinstein and Monica Witt, an attorney representing the Oceana Hotel, said that short-term housing landlords should therefore not be able to run their buildings in a similar manner to hotels.
At the buildings on Ocean Way, Witt said, Jacobs should cease all hotel-like amenities or be guilty of violating the hotel prohibition in the Beach Overlay District.
Some of Jacobs’ units are outside the Beach Overlay District, but Witt said Jacobs and others running hotel-like operations anywhere should be required to pay the 12 percent bed tax levied on the city’s hotels.
But Jacobs said the average stay at his facilities is three months and Lakers guard Ron Harper just moved out of one of his properties after 18 months.
Witt, who works for Century City law firm Jeffer, Mangels, Butler & Marmaro LLC, said that Jacobs, for all intents and purposes, is running a hotel and should seek a conditional-use permit from the city to do so at the buildings he has on property zoned for multi-family housing. He also should pay the bed tax, she said.
Attorney Ken Kutcher of Santa Monica firm Harding, Larmore, Kutcher & Kozal, represents Jacobs in the debate before the city. Kutcher said he considers length of stay to be the determining factor in the argument. He said Jacobs’ uses are legal and should be able to continue, even if the city ultimately decides to legislate against the type of operation he runs. Kutcher said his client has spent $10 million to develop his business.
The proposed moratorium on corporate housing being considered by the council is designed, in part, to prevent developers from cashing in on the short-term rental market before the city decides how to proceed, Feinstein said.
While Jacobs is something of a poster child for the debate, he is not perceived by officials as a villain in the ordeal.
“This is a legitimate urban planning issue,” Jacobs said. “We’re the guys who opened their eyes to it.”
Feinstein agreed, saying that the whole point of the draft moratorium is to keep the issue from running out of control before the city can figure out what it is dealing with.
“(The corporate housing trend) is not evil,” Feinstein said. “We’re trying to manage it before it manages us.”