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SRO Hotels A Dinosaur In Demand

Single-room occupancy hotels , an endangered species in Downtown San Diego , have lost their luster for builders Bud Fischer and Ruben Andrews, while Judi Carroll Winslow is reinventing her historic Pickwick Hotel on West Broadway altogether, positioning it as “the best little two-star hotel in San Diego.”

Summing up the state of their industry, Andrews said, “I don’t know anyone who will be building an SRO in this marketplace now.”

SROs , so prevalent in Downtown San Diego , are a dying breed, say the builders and owners. Relief isn’t expected to come anytime soon, because of the ongoing rancor between the city and the owners.

These single-room units, typically furnished these days with a bed, a small refrigerator and a microwave, once flourished when Downtown San Diego was bustling and needed basic lodging for its workers and travelers. Nowadays, SROs , there are about 5,400 in the city of San Diego, mostly Downtown , are favored by low-wage service workers, low-income seniors and students alike, but the hotels are becoming liabilities for many of the owners.

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Their major beef is that the city is hobbling them by requiring relocation and replacement costs if they decide to close up shop, while offering them no incentives to spruce up deteriorating buildings. All but a few of the hotels are subsidized, with most at market rates, said Dale Royal, senior project manager for the Centre City Development Corp., the city’s redevelopment agency for Downtown.

The current city ordinance requires SROs that close to pay tenants, who have lived in the unit for at least 90 days, two months’ rent. The tenants also qualify for a rebate of $10 for each month after that, capping out at $210.

The SRO must replace all units removed from the market with very-low-income units , 50 percent of the average median income , or pay 50 percent of replacement costs.

“It’s bordering on craziness, saying that, ‘You must stay in business,’ or you have to pay thousands of dollars for each resident that has to leave your facility,” said Winslow, vice president of Winslow Investments, the parent company of Pickwick Partners, the hotel owners. “This is something a public/private partnership should be doing.”

The city is “misguided,” she said.

“The government and public bureaucracies need to operate with regulations and restrictions,” she observed. “In the real world of things, given that we are a capitalistic society, public/private partnerships should work together with incentives, rather than restrictions.”

Andrews chairs a group called the Coalition for Urban Housing Solutions, which is pushing for an increased supply of SROs, an end to “regressive regulations,” and the establishment of “reasonable” land-use regulations. All of this, they say, will allow the market to build significant numbers of new units, lowering rents, replacing older units with new ones and reducing the amount of subsidies that might be required for rent-regulated units.

The group also wants the redevelopment agency , the CCDC in the case of Downtown , to “fulfill its social obligation” by providing relocation assistance and providing replacement units at “extremely low” rent levels.

“It’s unfortunate that this discussion has cast us on opposite sides,” said Andrews, who owns the Hotel Mediterranean, an SRO in Downtown’s East Village, and is opening a second one, the Hotel Occidental, at Fourth and Elm, in November. “We both want to see more of this housing built. We need the city to step forward and recognize this.”

But, he said, “Toni Atkins has refused to meet with us, though we have repeatedly requested meetings.”

But Atkins, the city’s deputy mayor, sees it differently.

“We have been trying to negotiate for some time,” she said. “I support development of SROs and incentives to build SROs. It is a housing niche that provides affordable housing.”

Atkins, acknowledging the shortcomings of the existing regulations, said, “We went back to the drawing board, and said, ‘Let’s see how this can be mutually advantageous, but let’s not hurt the residents at the low end.’ ”

But so far, she said, a compromise has yet to be reached with the SROs.

Meanwhile, a revised ordinance, which has been in the works for some time, is expected to make its way to the City Council sometime after the Nov. 8 election.

The Pickwick’s Winslow, now planning a major rehab of the old hotel, views SROs as part of the city’s history.

“Hotels fell into a rhythm back in the ’60s, when people left Downtown, and buses stopped being the primary mode of transportation,” she said. “What was left was leasing long-term, becoming SROs. It was a cyclical reaction, and most of the people who now operate these , the older properties , are doing so because they became that at the time.”

While Downtown is now experiencing a rebirth and land values are expensive, said Winslow, affordable property can still be obtained around trolley lines, “where you can get land at $25 a square foot and get a public subsidy.”


Switching Gears

Before Jan. 1, 2004, state law let SRO owners off the hook for replacement costs if they notified the city of their intent to withdraw units from the rental housing market. Winslow was among them, and now is making the relocation of her long-term Pickwick tenants “as seamless and painless as possible,” offering assistance and relocation funds as required under the law.

Original construction of the 234-room Pickwick began in 1926, touted as the first hotel in San Diego with “ensuite” bathrooms, and a marketing slogan that promised, “A Room and a Bath for Two and a Half.”

The Pickwick’s $16 million renovation, expected to begin early next year, will be done in two phases, said Winslow. The first is scheduled for completion at the end of June, with a full opening planned in the first quarter of 2007.

“We just spent $200,000 on elevators,” she said, adding that most of the improvements won’t be noticeable, given the limitations placed on rehabbing the historic building.

“Seventy-five percent of everything we spend on this, you will never see,” she said. “They are buried in the building. This is what’s driving this , the need for refurbishing.”

Paul McNeil, a principal of London Group Development Services in Downtown San Diego and an SRO consultant, believes that this is a good time to get out of the SRO business.

“A lot of these buildings are aging housing stocks, built around the turn of the century, with very little maintenance, generally, on the lowest-priced units,” he said. “The city isn’t exactly jumping in offering incentives to rehab these buildings. It’s important that you have some incentive for reinvestment in these buildings, which are the lowest rung on the ladder of housing stock. You want to be able to buy, sell and trade properties.”

Fischer, an owner of Trilogy Real Estate Management, Inc. in San Diego, has about 650 SRO units in five buildings south of Broadway, some subsidized,

some market-priced.

“Frankly, the city is making a big mistake if they’re trying to legislate affordable housing on existing SROs,” said Fischer. “It’s ruining the marketplace. People are not obligated to maintain them. There is no incentive to build them.”

Fischer said that he’s out of the SRO business.

“I wouldn’t develop another one if you gave it to me,” he said. “You cannot build them without a subsidy, and the city doesn’t have subsidies of any consequence. These units today would take at least $50,000 a unit subsidy or more, and where are you going to build them? Downtown? Look at the cost of land Downtown.”

That’s the main reason why Paul Downey, the president and chief executive officer of Senior Community Centers in San Diego, decided to build the new $29 million City Heights Square low-income senior complex in City Heights rather than Downtown San Diego.

“Ideally, Downtown makes a lot of sense,” said Downey, who also has the Potiker Family Senior Residence on 14th Street. “Downtown is where a lot of our seniors are located, but the biggest challenge is the cost of land.”

Invited by Deputy Mayor Atkins to locate the project within her district, Downey said that land costs there are $69 a square foot, compared with $400 or $500 a square foot in Downtown San Diego.

“It’s very difficult to go Downtown and build anything,” he said.

But the CCDC’s Royal believes Downtown is still a viable option for this type of housing.

“Senior housing and SRO housing are very capable with high-rise requirements Downtown, and in Downtown, and there are lower parking requirements,” he said. “It’s expensive, but you can do a lot more units on a small site Downtown.”

Royal also takes issue with the concern over lost SRO units.

“Don’t forget to count other types of housing that may be more appropriate housing,” he said, citing such senior developments as City Heights Square.

But, said Downey, there are whole classes of people feeling the brunt of dwindling SRO stock.

“There is a drastic need for more housing,” said Downey. “SROs have been the lowest rung of housing in San Diego, and we are eliminating a whole class of housing through redevelopment.”

As more baby boomers reach retirement age, he said, it will just get worse, coupled with the new competition for housing Downtown.

“There are a lot of service industry jobs that have been created by the ballpark,” said Downey, “and competition with service workers looking for places, competing for the same housing as the seniors. But those are being removed or torn down or renovated into high-end hotels. It’s Economics 101 , demand up, supply down, prices up.”

His City Heights project, which has a $6 million commitment from the CCDC, and recently received an $18 million federal tax credit, will add 150 units to the supply. But the project won’t be breaking ground until the end of February 2006, with competition scheduled in mid-2007.

Those rooms, he said, “will be filled in the blink of an eye.”

“We could build that size building every year and not even begin to get to the demand, and that’s without factoring in the increases in demographics.

“If the federal government made more tax credits available, we’d have more projects,” said Downey. “Without that, money generated by CCDC alone is not enough to bring about the affordable housing we need.”

Mitch Mitchell, the vice president of public policy and communications for the San Diego Regional Chamber of Commerce, said that “the harsh reality is, the housing crisis is affecting people of all economic status , low-low, work force with a decent income, who still can’t afford housing, and seniors, which hasn’t been a topic of conversation. They have been lost in the whole debate. The housing Downtown that has been removed has been for seniors, and there are few options for them on fixed incomes.”

Mitchell continues to push for the creation of a city “housing czar,” who can keep the mayor and City Council informed on housing issues.

“In the end, we have an aging population that will require affordable housing,” he said. “We have to start looking at this problem comprehensively.”

Atkins agreed.

“I keep looking at what we’re losing,” said Atkins. “We are not keeping up. It’s so difficult when you realize there are so few units available for poor seniors. You see these go off-line, it’s so disheartening.

“We can’t just give up on this discussion,” she added. “The ramifications of not working together are pretty grave for our citizens. We may not always agree, we may come from different philosophical perspectives, but we need to keep the discussion going. That is the good news.”

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