San Francisco tenants get 6-figure buyout to leave luxe unit

Written by MLHA Team

July 31, 2021

A wealthy San Francisco couple notched a record $475,000 buyout to vacate their luxury apartment of three decades, an indication of what some landlords are willing to pay for tenants to give up their homes in a city with strict rent control and soaring market rents.

The buyout is considered to be the largest in city history and reflects the high value of the apartment.

The tenants, a couple in their 60s with teenage children, had been paying $12,500 a month for a seven-bedroom, eight-bathroom apartment consisting of two units. It took up most of the top floor of a century-old building with expansive views of the bay, Golden Gate Bridge and the Presidio park. The couple declined to be named.

San Francisco has among the strongest tenant protections in the country, a fact that encourages tenants to hang on to apartments as market prices go up. While California recently adopted rent control and other tenant protections, San Francisco approved its rent control ordinance in 1979 as a way to alleviate the city’s housing crisis.

That means landlords can raise rent on some properties only a certain amount each year; the current increase is less than 1%. Landlords cannot evict tenants without just cause, such as nonpayment of rent.

The maximum amount tenants in one unit can receive to relocate is $22,000, with an extra $5,000 for households with minor children or seniors 60 and up. In this case, relocation costs did not apply; the landlord and renters reached a voluntary agreement.

Steven Adair MacDonald, the lawyer who represents the couple, said reaction has been divided to a six-figure buyout that is enough to purchase a home in most parts of the country.

“Landlord attorneys think it’s an outrage, and on the tenant side, everybody’s excited; they think it’s great,” he said. But MacDonald thinks the landlord is the winner, because he will be able to rent the apartment for $25,000 a month and recoup the buyout in just more than three years.

“After that, it will be gravy, so it’s a great investment,” MacDonald said.

MacDonald is suing the landlord, Friedman Properties, on behalf of “fairly well-heeled” tenants in nine other units who have moved out of the Presidio Heights building since March, unable to bear the constant noise and dust from ongoing renovations.

Marty Friedman, who is listed as the company’s authorized agent, did not respond to a request for comment. But his attorney David Wasserman said it was inaccurate to say his client wanted to drive out the tenants. The building needed upgrades that were planned before the COVID-19 pandemic hit, and the landlords felt they couldn’t put off the work, he said. The tenants in the case of the $475,000 buyout offered to move in exchange for money, he said.

The real issue in San Francisco and in California as a whole is the prohibitive cost of building housing, Wasserman said: “Until we address that problem, we’re going to have these rental challenges, as more and more people become renters.”

The Financial Times was first to report the agreement.

More than 300 tenant buyouts were filed with the San Francisco Rent Board in 2020. MacDonald said the average buyout is $50,000.

San Francisco rents declined during the pandemic, but they remain among the highest in the country. The average rent for a one-bedroom unit is $2,750, according to rental platform Zumper. The median sale price for a home is $1.5 million, according to Redfin.

Tenants groups say that without rent control, poor and working-class residents would be driven out of San Francisco, unable to keep up with market-rate rents.

Charley Goss, who handles government affairs for the San Francisco Apartment Assn., which represents about 4,500 landlords, said they accept that rent control is a part of doing business in the city. But there are situations in which wealthy tenants hang on to a rent-controlled apartment, he said.

“Paying half a million dollars to a wealthy person who’s been keeping a rent-controlled apartment in a city with a housing shortage and an affordability crisis kind of speaks to the way in which our local rent control distorts the market,” he said.

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