[Sustain] Dean Preston Article On ParkMerced

[Eric Brooks]

http://xrl.us/bhnjjk

Parkmerced in Default: What Now for Owners' Plan to Bulldoze Over 1,500 
Rent-Controlled Homes?
by Dean Preston, Jun. 01, 2010

The owners of San Francisco's Parkmerced cannot pay their mortgage, yet 
they want permission from the city to demolish more than 1,500 rent 
controlled homes. While most of the public discussion about the proposed 
development project has been about environmental, transit and 
preservation issues, the planned demolition of so many rent-controlled 
housing units is reason alone to stop this project.

Parkmerced was built by the Metropolitan Life Insurance Company 
(MetLife) after World War II. Met Life also built similar complexes in 
New York City (The Riverton Houses, Stuyvesant Town and Peter Cooper 
Village) and other large U.S. cities. For decades, these developments 
have provided stable housing for middle-class renters in increasingly 
expensive urban real estate markets.

In 2005, a partnership of Stellar Management and Rockpoint Group 
purchased Parkmerced and The Riverton. The complexes were purchased for 
sums that could not be justified by the existing rental income on the 
properties. Instead, as noted in a /New York Times/ piece this weekend 
<http://www.nytimes.com/2010/05/29/business/29real.html>: "just like 
Riverton and Stuyvesant Town, the owners of Parkmerced sought to take 
advantage of a roaring market to replace rent-regulated residents with 
tenants able to pay far higher rates."

These "predatory equity" schemes have not been working out as investors 
intended. Tishman Speyer (Stuyvesant Town), Stellar Management 
(Riverton), Page Mill Properties (East Palo Alto), and others wound up 
in foreclosure, with banks, pension funds 
<http://tenantstogether.org/article.php?id=1332> and other institutional 
investors losing the funds invested in these reckless schemes.

Parkmerced is not far behind these other properties on the road to 
foreclosure. The latest news is that the owners are in default 
<http://www.sfgate.com/cgi-bin/blogs/bottomline/detail?blogid=56&entry_id=64364> 
on their loans. Former Willie Brown spokesman P.J. Johnston, now working 
for Stellar Management, sought to reassure the community that the 
default would not change life at Parkmerced. According to Johnston, the 
owners remain committed to moving forward with their development plans.

Those plans calls for the demolition of over 1500 "garden apartments," 
all of which are subject to San Francisco's rent control law. The owners 
argue that they will replace these units with over 5000 new housing 
units on the site at a rate of 300 per year. (It is unclear how many of 
these anticipated units would be /rental/ units. The owners admitted at 
a recent Planning Commission hearing that the mix of rentals to owned 
units "has not been finalized.") They claim that they will replace the 
rent-controlled units with new rent-controlled units.

The promise to replace the demolished rent-controlled housing with 
rent-controlled housing cannot be taken at face value. First, given the 
owners' current financial situation, there is no assurance that they 
would be able to perform on such a promise. In a worst-case scenario, 
one that seems entirely possible, rent controlled homes would be 
bulldozed and then the project abandoned -- in whole or in part -- when 
it came time to build the replacement units.

Second, the City must remember that this ownership group's business 
model involves the deregulation of rent-controlled units. At minimum, 
the city should demand and examine placement memoranda, investment 
agreements and other documents that the owners provided to potential 
investors. Similar documents in other predatory equity deals reveal the 
intent to displace tenants and raise rents despite local tenant 
protection laws.

Third, now that California's Court of Appeal has expanded the 
Costa-Hawkins Rental Housing Act to bar most rent-restrictions on new 
housing, proposed rent restrictions on replacement housing would likely 
be challenged in court by the owners, or subsequent owners, of 
Parkmerced. While Costa Hawkins recognizes a limited exception for 
certain types of development agreements, the 2009 /Palmer v. Sixth 
Street <http://www.beyondchron.org/news/index.php?itemid=7184>/ court 
decision shows that cities cannot rely on the Courts to interpret Costa 
Hawkins to allow rent-restrictions on new housing. Until state law 
changes so that the city can guarantee its residents that replacement 
units will be rent-regulated, the City should not even consider allowing 
such a large-scale demolition of rent-controlled housing units.

Finally, let's not forget that San Francisco has a policy against 
demolishing <http://www.sf-planning.org/index.aspx?page=1633> sound 
rent-controlled housing. The City's Planning Code 
<http://search.municode.com/html/14139/level2/A3_s317.html> makes this 
clear. The City's Planning Department reiterates the point: "Under 
requirements of the General Plan, the Department is predisposed to 
discourage the demolition of sound housing."

Given the precarious financial position of the owners, the uncertainties 
regarding rent-restrictions on replacement housing and the city's policy 
to discourage the demolition of sound housing, it is hard to imagine 
that any responsible city official would approve moving forward with a 
plan to demolish over 1500 rent-controlled homes at Parkmerced.

/Dean Preston is the executive director of Tenants Together, 
California's Statewide Organization for Renters' Rights. For more 
information about Tenants Together, go to www.tenantstogether.org 
<http://www.tenantstogether.org>/

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