Google lawyer Jack Halprin’s court date has been set, leading a case management conference scheduled for today on a lawsuit filed by five of his tenants at 812 Guerrero St. to be taken off the calendar.
The jury trial will take place on August 3, 2015.
The Halprin case has become a flashpoint for housing advocates because it demonstrates the way in which some investors are taking advantage of a heated housing market to buy buildings, evict vulnerable tenants like teachers and then making a tidy profit by selling the units as Tenancies in Common.
The fact that Halprin works at Google and has never been a landlord has offered ammunition to housing advocates who say that the Ellis Act – intended for long term owners who want to get out of the business – is being misused.
While it is unclear if Halprin will end up selling the remaining five units at 812 Guerrero after the tenants have moved out, he appears to have few other options.
Halprin purchased the building in 2012 for $1.4 million – a price that reflected the income the building generated from its tenants. Without tenants, the building would have sold for considerably more.
“When you buy a building you are buying the tenants that are in the building and the rents that provide for the mortgage and all of that is calculated into the cost of the building,” said Claudia Tirado, one of the tenants who is a teacher and pays around $1,600 a month for her two-bedroom apartment. The lower rents, also lowers the asking price, she said, and “it makes it an affordable building so people buy them.”
Getting a deal only to evict tenants is why housing advocates look at this use of the Ellis Act as particularly pernicious.
The 1986 state law was meant to give longtime building owners a way of exiting the business of being a landlord. In a heated real estate market, however, it has become a speculative tool for some landlords. Data from the San Francisco Rent Board indicates there have been 670 Ellis act evictions in San Francisco in the last five years. The Anti-Eviction Mapping Project records some 3,914 Ellis evictions since 1997.
The tenants at 812 Guerrero have managed to stay beyond their July eviction date by filing disability petitions. They’ve also filed a separate lawsuit against Halprin alleging that he failed to maintain the building, abused his right to enter their units and acted in bad faith.
Unless they choose to fight the eviction in court, the plaintiffs in the case against Halprin will still have to vacate their units by February 26.
Once they do, Halprin becomes the owner of some pricey units. The median Tenancy in Common sales price was $625,000 in 2013, according to the Paragon Real Estate Group. That makes Halprin’s five empty units worth a total of at least $3 million.
Beyond selling the units to buyers who want to join him as Tenants in Common, he has few options.
The city frowns on merging more than two units (Halprin has already done that), according to Corey Teague, an assistant zoning administrator at the Planning Commission. And, recently adopted legislation prohibits the merging of units within a building for ten years in any Ellis act eviction that occurred after December of last year.
Since Halprin issued his evictions in February, the units in his building could not be reduced or merged until February of 2024.
Older city legislation also requires any unit mergers to go through a lengthy approval process that includes an application and a public hearing at the Planning Commission.
“The loss of housing is very much frowned upon, and it’s a very high bar [to do it],” said Teague.
Applications to the Commission are also backlogged, and Teague estimated the process would take at least four to six months to complete.
The empty units cannot be rented without significant penalty to Halprin. For the next two years, he may not rent them at all. Within the next five years the rent price will be restricted to what the current tenants are paying.
And, for the next ten years, displaced tenants must be allowed to re-occupy the units at their old rent price – after six to ten years, they still get first access, but at market rate rent.
Life for the owner becomes easier with a Tenancy in Common arrangement.
The city and Planning Commission are much more hands-off for TICs. Buildings of five or more units turned into TICs must obtain a public report from the California Department of Real Estate, but otherwise face no city restrictions, according to Jennifer Rosdail, a realtor with Paragon.
That process requires a professionally prepared budget and the establishment of TIC reserve funds, and a fee charged based on the size of the building. It also takes up to six months.
Getting a Public Record is unlikely to be an obstacle to TIC-ing the unit, according to Rosdail. She guessed that selling parts of the property to make it a TIC should be easy, though she disclaimed that she is not a real estate attorney.
“I have seen people take deposits for sales before they have the final public report and just close after they receive it. Public reports require a bit of work and expense, but … I think that once you satisfy the requirements you get the report,” Rosdail wrote.
Though TIC owners may not be able to secure long-term financing, Rosdail said they are still attractive.
Tight restrictions on condos made TICs more popular around the city, and their prices fluctuate a little below the market value of condos.
Rosdail also said potential TIC buyers are rarely deterred from buying part of a property if they know previous tenants were evicted, even though most buyers are leery of performing evictions themselves.
“They see a good looking place at a lower price than a condo, and they buy it,” Rosdail wrote, adding, “They care much less now that the city has mandated fairly large payments to displaced tenants, with additional payments to children and the disabled.”
Case in point: A building at 870, 872 and 874 Shotwell was turned into three TICS after evicting more than a dozen tenants. The units went on the market for $739,000 to 789,000 and sold quickly – all over their asking price.
Lydia Chavez contributed to this report.