A married couple who settled with the city after being nabbed running a chain of illegal Airbnb hotels — only to spend years fabricating an elaborate scheme to continue running those hotels — has settled again. Hours before a scheduled court appearance, Darren and Valerie Lee have formalized a deal with San Francisco City Attorney Dennis Herrera, agreeing to disgorge $2.25 million in penalties and no longer put any of their 17 properties on the short-term rental market — until at least 2025.
The penalties imposed today are nearly 10 times higher than those levied in just 2016, after the Lees were popped for using the Ellis Act to clear out units and then flogging them on short-term rental websites. The couple, however, doubled down after pledging to go legit. A two-year city investigation revealed the Lees violated the terms of their deal more than 5,000 times in the first 11 months alone.
The City Attorney charged that the couple “engaged friends and family to act as surrogates — to create host accounts on Airbnb and to short-term rent the properties.” In that 11-month window, upwards of $700,000 in “illicit profits” from running an Airbnb empire across 14 properties was funneled to the Lees, with greater than $50,000 more purportedly trickling into accounts created by “friends, family members, and associates.”
All but one of the many Airbnb “host” accounts for the myriad properties ostensibly hosted by many different people were created via the same IP address. All of these accounts were likely created on the same computer.
The yearslong investigation was, as you’d surmise from the above detail, document- and data-heavy. But there were elements that would translate well to an Argo-like theatrical retelling. For example, after the city’s Office of Short-Term Rentals in 2016 flagged a number of the Lees’ properties, Valerie Lee and her attorney led city officials on walkthroughs of eight of her units. Per the City Attorney’s May filing, “Each of the eight properties inspected had been staged to appear as if a tenant lived there, but it was obvious that it was a ruse. Every apartment had the same staging: the same Costco food items scattered about, the same arrangement of dirty breakfast dishes in every kitchen sink, same personal products in each bathroom, same damp towels artfully draped over doors as though someone had recently showered, the same collection of shoes and clothes in closets, and same houseplants in each apartment.”
The Lees were accused by the city of some 2,271 nights of illegal Airbnb rentals across 14 city residential properties — 439 Broderick, 1146 Fell, 1148 Fell, 1328 Fell, 1522 Fell, 1524 Fell, 1117 Leavenworth, 1119 Leavenworth, 1925 Lyon, 826 Masonic, 20 Natick and three in or near the Mission: 833 San Jose, 1362 Utah, and 1364 Utah.
The $2.25 million settlement represents a sliver of the $30 million ceiling for the Lees’ voluminous tally of violations or the figure of $5.5 million plus fees proposed in May to remunerate the city for “well over 400 attorney hours, 250 paralegal hours, and 80 investigator hours unraveling Defendants’ scheme …”
When asked for a comment, John Brown, the Lees’ attorney, said he could not speak at this time.
“Whether you’re a tenant or a landlord who has been following the law, this is a victory,” said City Attorney Dennis Herrera. “This outcome frees up more homes for long-term tenants and stops unfair competition in the marketplace. The serious financial penalty is an important deterrent. It sends a clear message to those looking to illegally profit off of San Francisco’s housing crisis: Don’t try it. We will catch you. But the most important part is that we preserved more than 45 housing units to be used as homes, not hotel rooms. We are fighting back against San Francisco’s housing crisis in every way possible.”