Short-Term Rental Company Suing San Francisco Developer To Get Out Of Lease
SAN FRANCISCO (KPIX 5) -- A controversial short-term rental company is engaging in a fight with a San Francisco real estate developer. Sonder wants to break its lease on a Market Street apartment building, blaming the city's moratorium on evictions for lost revenue during the COVID-19 pandemic.
San Francisco's eviction moratorium prevents landlords from evicting anyone who cannot pay because of financial hardships during COVID-19. The lawsuit states, "these laws have had a material adverse effect, a crushing one, on Sonder's operations at the premises. Sonder can neither effectively market vacant units nor ensure that existing tenants pay rent."
"I think Sonder they're just opportunists and they only care about money," said David Troup of the Duboce Neighborhood Association.
For the past two decades, Troup has watched the Duboce Triangle change as neighbors have been priced out.
"Affordability for housing has gotten worse and you know, there's a shortage of it," Troup said.
So when a local developer announced plans to build market-rate apartments at 2100 Market Street a few years ago he didn't fight it. Instead, he and his neighbors fought for an affordability component.
"The neighborhood is always pushing for as many affordable units as we can get to keep some income diversity in the neighborhood," Troup said.
Neighbors endured six years of construction only to find out these weren't going to be the apartments they expected. Sonder instead leased and furnished the majority of the units turning the building into a corporate rental. Neighbors were furious.
"We were shocked as an organization and as a neighborhood, it felt like a real betrayal," Troup said.
Then the pandemic hit and now after all of this Sonder wants out. In the lawsuit against the developer the $1.3 billion dollar company says regulations put in place by the state and city are crippling Sonder's ability to make money.
The developer Brian Spiers plans to counter sue, hoping to keep Sonder in place, saying this property was always meant to be longer-term rentals.
"Sonder asked for three to four months of rent abatement and informed us they would not pay any rent moving forward ... we strongly disagree with the position advanced by Sonder in the litigation," said Spiers. "2112 Market was the first piece of Sonder's new Residences program, which unlike their typical properties, was for longer-term, furnished apartment rentals. Sonder launched a separate webpage platform for this product to advertise the units. Just recently, that webpage was taken down. All subleases were to be with individual tenant lessees, not corporate entities."
Tech companies make up for the majority of tenancies at these intermediate-term occupancy apartments. Often when an employee relocates to San Francisco for a new position the company pays their rent for a few months.
Neighbors are now wondering if Sonder wins, what happens to the building?
"My hope is that these units will return to San Francisco and that we can stabilize our communities again," said housing activist Theresa Flandirch.
Flandrich is an activist by accident. She was evicted back in 2013 and watched as her entire neighborhood was turned into short-term rentals.
"These are not neighbors. Just as with the short term rentals, these are not people invested in our communities," she said.
Previously on Project Home, we reported companies like Veritas were turning apartments in rent-controlled buildings into corporate rentals. That's now banned.
Supervisor Aaron Peskin passed an ordinance in May that would ban corporate rentals in rent-controlled buildings. It also limits the number of corporate rentals to 1,000 or fewer in all of San Francisco and requires owners to report the duration of each stay and length of vacancies. Corporate rentals often sit empty for months.
Neighbors say Peskin's ordinance is an important step but they're not holding their breath that closing this loophole will prevent the next one from being exploited.
"I'm not convinced, you know, money is a strong motivator and, and there are always loopholes to be found in the law," Troup said.
Sonder did not respond to our requests for comment for this story.