Hoodline recently reported that the seven-story housing development at 2100 Market Street will be operated by Sonder, a company that manages apartment units as long-term-stay hotels.
The city, with Duboce Triangle neighborhood input, originally approved 60 rental homes at 2100 Market, with eight of the apartment homes reserved for affordable housing at below-market-rate leases through the Mayor's Office of Housing. Under Sonder's management, 52 of the remaining market-rate rental units will be taken off of the permanent housing market and used instead as long-term stay hotel rooms.
Needless to say, neighbors and those hoping to live in the neighborhood aren't happy.
What is Sonder?
Sonder follows the now-familiar model of providing travel living accommodations in neighborhoods that traditionally don't have hotels.
It differentiates itself from competitors like Airbnb or VRBO by offering long-term stays (over 30 days) and directly managing the units which it rents. Those aspects allow the company to play outside the tourism industry and branch out into the corporate rental market.
According to the company's website, they provide "The consistency and service of a great hotel that doesn't come in a typical hotel format, combined with the warmth and comfort of staying in a space that feels more like a home."
Calculating the Profit: 1335 Folsom
Long-term hotel stays aren't regulated by the city as aggressively as short-term rentals, but they generate rental income that far surpasses what developers could make offering traditional monthly leases for unfurnished apartments.
Let's take another Sonder property as an example: 1335 Folsom. As of July 30, 2019, Sonder advertised a SOMA location (identified by pictures as 1335 Folsom) on their website with a price of $141 per night and a 30-day minimum stay.
On a different website, an unfurnished studio at 1335 Folsom was listed for rent for $2,580 per month. We contacted the property manager, who confirmed that the listing was legitimate and available.
A 30-day Sonder stay will generate $4,350 in revenue compared to $2,580 from a traditional unfurnished rental. That means that a unit will earn an additional $1,650 in revenue on Sonder compared to the permanent housing market.
The 1335 Folsom project has 56 units, with 7 allocated for affordable housing. If we assumed the remaining 46 homes were all placed on Sonder (as they are in the 2100 Market development), then the building would see an additional $910,800 in revenue a year, compared to the traditional rental market.
How Did 2100 Market Get Hotel-Equivalent Zoning?
When SF Planning approves a building, it does not specify if the units are to be rented or sold. In addition, any unit with a rental agreement beyond 30 days is considered a traditional, long-term rental unit (compared to units on Airbnb, which are categorized as short-term rentals).
It's possible that when negotiating with planning and neighbors, Brian Spiers Development (the developers of 2100 Market) truly intended to rent the homes out as traditional apartments. Initial plans were first submitted to the city in 2014; plans were finally approved in late 2016 when building permits were issued.
However, BSD also could have noticed the aforementioned loophole during the 2014-2016 planning/permitting process. In this case, they could have reported just what was required to secure approvals for development.
Before 2100 Market St., BSD's development in San Francisco real estate was not hotel-oriented. Their 2014 development, Linea, was sold as condos. Their 2004 development at 270 Valencia was also sold as 28 condo homes.
On the BSD website, 2100 Market St. is described as a 60-unit apartment building.
The future of long-term rental development
Long-term stay hotels already exist in a wide variety of buildings across the city, whether it be 1335 Folsom in SOMA or 606 Capp in the Mission.
The 2100 Market project, however, has generated more controversy than the others. The Duboce Triangle Neighborhood Association has a long and aggressive history of activism, and the development comes to market amid San Francisco's long-running housing crisis.
Since BSD and Sonder's actions are legal, the city doesn't appear to be able to discontinue their efforts. However, the project has generated ill will and anger against the developers, putting future rental developments (both traditional rentals and long-term hotel stays) in danger of alienating both neighborhood groups and the Planning Department.
We can expect developer negotiations with neighborhood groups to become increasingly contentious, expensive, and time-consuming for developers. The SF Planning Department will likely require more documentation, extending the approval process and delaying construction, making homes even more costly. Recent San Francisco political history suggests that aggressive legislation may be introduced to eliminate or severely curtail any furnished long-term hotel-like rentals not intended for permanent SF residents.
New developments that are used as extended-stay hotels only worsen our housing crisis, and take away housing supply from residents who are looking to make San Francisco their permanent home. Brian Spiers Development should withdraw from their agreement with Sonder and make their 52 homes available to people looking for permanent housing in our City. Contact your Supervisor today and let them know that you support building housing for San Francisco residents and believe that extended-stay hotel loopholes should be reasonably addressed.
Matt Fuller is the co-founder of Jackson Fuller Real Estate.
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