In the early 1980s, when Diane Feinstein was still mayor,
the City of San Francisco passed legislation that made it impossible to convert
the thousands of studio apartments in the downtown area into hotel rooms, in
spite of the rapidly rising demand for hotel rentals. The legislators reason: these small apartments were what kept
people from living on the street. This legislation was fought in the courts for
fifteen years, by landlords who desperately wanted to upgrade their buildings,
but the legislation has been upheld.
Consequence: the only way to get new hotel rooms in San Francisco is to build new ones. Homelessness has been a growing number since 1982 (4,000 to 8,000).
Now the San Francisco Board of Supervisors is voting to ban the conversion of hotel rooms into apartments. The legislators’ explanation is that the city needs more hotel rooms for its thriving and vital tourist business.
The provocation for this new legislation is that the
Fairmont Hotel wants to convert 225 of its 590 rooms to 60 apartments. The apartments will each sell for over $2
million, many for $5 million.
So you can’t convert apartments to hotel rooms and you can’t convert hotel rooms to apartments in San Francisco. Is there something wrong with this picture? Lefties, government employees and unions run this city.
The business numbers for this transaction are clear. A class A hotel room can net $30,000 per year, for a market price of $400,000. A conversion is roughly half a million dollars per final apartment. So the owners of the Fairmont are giving up capital value of $90 million for actual capital they will earn of probably $200 million.