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<font class="headline">Parkmerced in Default: What Now for Owners’ Plan
to Bulldoze Over 1,500 Rent-Controlled Homes?</font>
<br>
<font class="byline">by Dean Preston‚ Jun. 01‚ 2010</font>
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<div class="contentbody">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.<br>
<br>
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.<br>
<br>
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 <i>New York Times</i> <a
href="http://www.nytimes.com/2010/05/29/business/29real.html">piece
this weekend</a>: “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.” <br>
<br>
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, <a
href="http://tenantstogether.org/article.php?id=1332">pension funds</a>
and other institutional investors losing the funds invested in these
reckless schemes. <br>
<br>
Parkmerced is not far behind these other properties on the road to
foreclosure. The latest news is that the owners <a
href="http://www.sfgate.com/cgi-bin/blogs/bottomline/detail?blogid=56&entry_id=64364">are
in default</a> 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.<br>
<br>
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 <i>rental</i> 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.<br>
<br>
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. <br>
<br>
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.<br>
<br>
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 <i><a
href="http://www.beyondchron.org/news/index.php?itemid=7184">Palmer v.
Sixth Street</a></i> 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.<br>
<br>
Finally, let’s not forget that San Francisco has a <a
href="http://www.sf-planning.org/index.aspx?page=1633">policy against
demolishing</a> sound rent-controlled housing. The City’s <a
href="http://search.municode.com/html/14139/level2/A3_s317.html">Planning
Code</a> 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.” <br>
<br>
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.<br>
<br>
<i>Dean Preston is the executive director of Tenants Together,
California’s Statewide Organization for Renters’ Rights. For more
information about Tenants Together, go to <a
href="http://www.tenantstogether.org">www.tenantstogether.org</a></i>
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