Largest Apartment Building Ellis Act in San Francisco History Invoked

by Casey Mills on February 7, 2006

The owner of a 38-unit apartment building at 901 Bush Street invoked the Ellis Act last week in an attempt to convert its former rental units into tenancies in common (TICs). Should it be approved, the site would represent the largest apartment building to fall victim to the Ellis Act in San Francisco history. The attempt comes on the heels of the Board of Supervisors rejecting the owner’s bid to convert the units directly to condos, a decision mandated by the owner’s ignoring of the Planning Department and the city’s General Plan. Now, the city faces both a significant loss of its rental housing stock and the displacement at least twenty of its long-time, low-income residents. The owners, however, face trying to sell a building full of tenancies in common (TICs) where every buyer will share liability and mortgage responsibilities with 37 strangers. Finding such buyers could prove difficult, making the decision to use the Ellis Act in this case financially questionable.

The fight over 901 Bush began six years ago, when the building suffered a major fire that displaced every tenant in the building. City law, however, guaranteed them their units back, so when new owner M-J SF Investments completed rehabilitation of the building, the former tenants prepared to move back into their homes.

The owners had a different idea. They wanted to convert the site into condominiums, arguing that the rehabilitation was extensive enough to exempt it from the laws requiring they let former tenants move back.

The conflict ultimately made its way to the Board of Supervisors, where Supervisor Aaron Peskin – whose district includes 901 Bush – led the charge to stop the owners from converting all units to condos. Peskin’s efforts proved successful, and when the Board voted last month to deny the conversion, the possibility of a major loophole in city law allowing far more condo conversions was closed tight.
M-J SF Investments (seen by many as linked to Vanguard Properties), however, had one more possible course of action. They could invoke the Ellis Act for the entire building, claiming they wanted to get out of the rental business, and convert all units into TICs.

The option seemed like a non-starter, as because of the way TICs work, every party that purchased a unit at 901 Bush would be forced to share a mortgage with all the other 37 parties. In addition, all liability for damage and injury in every unit would be shared.

However, late last week the former tenants of the building received notification from the office of prominent landlord attorney Andrew Zacks that they would in face be barred from returning to their homes due to a decision to invoke the Ellis Act.

“I think it’s crazy,” said Ted Gullicksen of the Tenants’ Union. “They will now have to try and convince people to get into a 38-unit TIC. TICs are risky at the two to six unit size. They’re going to have to do a lot of work and have a lot of luck to not be sitting on an empty building for the next ten years.”

Peskin, who attempted to negotiate a deal with the building owners before taking the battle to the Board, agrees. He believes the move to invoke the Ellis Act represents a political statement more than a rational real estate endeavor.

“They’re cutting off their nose to spite their face,” said Peskin. “It’s certainly within their right to if they want to a have a 38-unit TIC, and I wish them the best of luck. But it’s financially crazy.”

Unfortunately, what appears to be a misguided attempt at retribution to the Board of Supervisors for refusing to allow the conversion of 901 Bush into condos will ultimately cause a loss of rental housing in a city rapidly losing such units.

Even worse, it will also prevent at least twenty former tenants, many of them seniors, from returning to their former homes. One of those tenants, Daisy MacArthur, lived at the site for nine years before the fire occurred. According the MacArthur, the tenants inability to return will represent more than the loss of an affordable place to live.

“We were a family,” said MacArthur. “I even have the pictures to prove it. Many of us stayed in the vicinity to be able to watch the building. We watched it for years, just waiting. We were to go back home.”

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