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When Affordability Expires: The Battle Over Covenant Housing Contracts 

Wednesday, Aug 19 2015
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Maria and Michael Moustakis have lived in their South Beach home for 15 years. At $2,000 a month, their two-bedroom apartment is a bargain by San Francisco standards. But soon, the building's owners could raise the rent drastically, leaving the Moustakises — and at least 100 other tenants — at risk of getting priced out.

"If they raise the rent, it will be $5,000," Maria says, alluding to the price her neighbor pays for an identical market-rate apartment down the hall. "We can't pay that."

The Moustakises are in their 50s, and like many tenants in South Beach Marina Apartments at 2 Townsend Street, they barely earn enough to stay afloat in San Francisco's cutthroat housing market.

Maria sells olives and olive oil at farmers markets throughout the city, while Michael is a bookkeeper for Urban Farm Girls, a garden-design company whose founder also lives in the building.

The Florida State Board of Administration, which manages the investments of that state's Retirement System Pension Plan (assets totaling $183 billion), owns the South Beach building and is debating whether to raise rents in order to increase revenue.

In other words, a board in Tallahassee will decide whether the well-being of San Francisco tenants trumps the potential profits awaiting Florida pensioners.

The Florida board has to notify San Francisco tenants one year in advance of raising rents, a decision that could be made tomorrow, next month, or never. Dennis MacKee, the board's director of communications, says the board is considering "its options while meeting its requirements as a fiduciary to the beneficiaries of the retirement system."

Raising rents would certainly be a savvy business move. South Beach is one of San Francisco's most expensive neighborhoods. According to real estate site Zumper.com, the median cost of a one-bedroom apartment in South Beach was $3,690 in June, putting it on par with the Mission, the Castro, and the Marina.

It wasn't always such a tony neighborhood, however. South Beach Marina Apartments was built partially with money from the San Francisco Redevelopment Agency (which Governor Jerry Brown dissolved in 2012). The agency regularly issued loans to encourage new housing construction in otherwise underdeveloped areas, such as South Beach.

In exchange for this money, the developer of South Beach Marina Apartments signed a 25-year legal contract, called a "covenant," designating at least a fifth of the building's apartments as affordable housing until January 2015. After that, prices could rise to any amount.

Today, 101 of the building's 414 apartments are reserved for households that had low-to-moderate incomes at the time they applied for occupancy. Many apartments in the building house more than one tenant.

"They don't make a lot of money," says Patrick Valentino, Vice President of the District 6 Democratic Club. He adds that they're "seniors, teachers, [and] small business owners."

Two weeks ago, the club posted a petition to Change.org urging the Florida board not to raise rents. "Housing is a right," the petition reads, "and if you want to be in the business of owning and operating apartments in San Francisco, you have to be a part of the solution."

As of August 17, more than 200 people had signed the petition, including the Moustakises, who say they were never told about their building's covenant.

And the Moustakises probably aren't alone. The San Francisco Redevelopment Agency established similar covenants throughout the city, some of which will soon expire, allowing building owners to jack up rents to market rate if they choose.

Sophie Hayward, Director of Policy and Legislative Affairs at the Mayor's Office of Housing and Community Development (MOHCD), ticks off some of the properties whose covenants are due to expire: 737 Post Street (expires March 2016), Bayside Village near South Beach Marina Apartments (expires December 2016), the Fillmore Center in Japantown (expires December 2017), and Rincon Center near the Ferry Building (expires January 2021). In all these cases, rents wouldn't increase until one year after building owners notified tenants.

MOHCD is keeping an eye on the properties. "It's our very clear goal to find strategies so that no tenants are displaced as a result of expiring covenants," says Kate Hartley, the office's deputy director.

But such strategies may be hard to come by. At a meeting of the District 6 Democratic Club earlier this month, the South Beach residents voiced their concerns to Supervisor Jane Kim, whose jurisdiction includes South Beach Marina Apartments. A rumor had circulated that the official notice of a rent increase would be delivered that week or the next.

Kim tried to comfort anxious tenants. "We're working on it," she told them.

As Hayward notes, however, the city can't force building owners to maintain apartments' below market rate rents once a covenant expires. Kim is trying to persuade the Florida owners to at least keep rents low for seniors and tenants with disabilities.

Kim says those discussions are going well, although she cautions, "There's been no commitment on anything yet."

Meanwhile, the Moustakises are considering where they might go if their rent escalates. Neither wants to return to Michael's native Greece, which is mired in economic turmoil. They might head to South San Francisco or to one of the cheaper suburbs in the East Bay, but the possibility turns Michael's stomach.

"All my life I've lived in a big city. I grew up in Athens," he says.

After marrying Maria, they lived for a month with her family in Orinda, California, a small city without Athens' bustling markets and cafes. The smallest errand in Orinda required a 10-minute drive.

"I went crazy," Michael says. "It was like being in a cage."

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Noah Arroyo

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