New San Francisco Regulation Limits Number of Corporate Rentals Potentially Foreshadowing a Larger Shift Amongst Cities
San Francisco, home to many of the globe’s largest tech corporate headquarters such as Salesforce, Twitter, Square, Redditt, Lyft, Uber, Pinterest, and Dropbox, have called “last-call” on corporate rentals within the city limits.
In a move, the bill’s author, Supervisor Aaron Peskin, said, “engaged the interest of virtually every single registered lobbyist in San Francisco,” San Francisco became the first major city to attempt to curtail the use of residential rental units as ‘corporate hotel rooms.’
According to the San Francisco Business Times, the approved version of the regulation amends the San Francisco’s planning code to create a “new residential use characteristic.”
The City and County of San Francisco Board of Supervisors, Budget and Legislative Analyst Office published a report in late February 2020, defining intermediate length occupancy (ILO) as “furnished and serviced housing units that are available to rent on a temporary basis with rental contracts that are typically for more than 30 days and less than a year.”
Typically, corporate rentals fall under the use characteristic of an ILO.
Beyond the new residential use characteristic, the new San Francisco regulation does the following:
- caps corporate rentals within the city limits at 1,000 (Corporate Housing Professionals of America (CHPA) estimates there are approximately 3,000 units used for corporate housing in S.F.)
- requires annual reporting from an owner or operator
- requires landlords or corporate rental operators to include a disclosure on tenant rights when advertising units as corporate rentals
- permits corporate rentals in building with nine units or less as long as the corporate rentals take up no more than 25 percent of the building’s total units
- prohibits corporate rentals in buildings with more than ten units unless they obtain conditional use authorization
According to Fred Brousseau, director of policy analysis for the Budget and Legislative Analyst’s Office and author of his office’s policy report, “ILOs have been around in San Francisco for many years.” He added, “…some of the companies that offer them have been in business for decades.”
Brousseau report goes on to note, the legacy providers serve not only corporations but various community members in need of temporary housing. The units were using marketed internally within the sector, and via word-of-mouth.
This method worked, until it didn’t, according to San Francisco Supervisor, Peskin.
The Budget and Legislative Analyst’s Office report attempts to outline the potential cause of the problem.
“…There are also a number of newer companies that have entered the marketplace. Many of these companies are distinguished from the older companies by master leasing an inventory of housing units from a building owner, furnishing them, and managing all aspects of marketing, leasing, and servicing them when they are occupied by tenants…
…Most of these newer companies have or are receiving financial support from venture capital as they get started.
“The arrival of VC backing as a permanent fixture in the alternative accommodation capital stack speaks volumes as to the future of the space,” [CEO of Global Corporate Housing Provider.]The City and County of San Francisco Board of Supervisors, Budget and Legislative Analyst Office ILO Report
The report further notes, the VC funding is beginning to catch the attention of landlords of rent-controlled units as they “convert vacated units to ILOs and therefore realize large increases in their earnings” (assuming the rent was the under-market rate before being vacated.) A major red-flag and problem for the city.
Is this a harbinger event or a flash in the pan for a unique city?
Housing issues are nothing new to San Francisco, nor Supervisor Peskin, the lead author of the San Francisco’s regulation that forced “home sharing” operators to register their rentals with the city or be dropped from their respective platforms.
“We believe Supervisor Peskin has the city’s best interest in mind with this new regulation,” said Jack Jensky, co-founder, Synergy Global Housing. “As one of the operators who has been servicing many of the city’s largest employers for over two decades, Synergy is working hard with our national representative body to ensure corporations have a place for their relocating and traveling employees. This, in addition to the countless residents who count on the valuable services we offer—all the while—minding the housing needs of this great city.”
The number of affected parties explains why there are so many interested parties vying for a voice in this new regulation.
Synergy, in conjunction with other legacy operators and CHPA, is working hard to balance what’s best for the city and the many corporations that call it home.
“Currently, it is all about education,” said Jensky. “First and foremost, we are educating ourselves on the new regulation, so we can, in turn, be a source of truth for our clients. But equally important, we want Supervisor Peskin and his team to understand the markets we serve, and the vital role our industry plays with not just corporations, but all the various community members, like traveling nurses, families of patients in long-term medical care, and construction workers that temporarily call San Francisco home.”
Further complicating the matter, a majority of business travelers who need corporate housing are permanently relocating to the city to live full-time. Corporate housing is merely a bridge solution for those relocating professionals, often with families in tow, to provide the necessary flexibility to settle in, find schooling, and get their families settled.
Corporate housing, or as it is commonly referred to in other parts of the globe, serviced apartments or serviced accommodations, is not unique to San Francisco. Via a strategic multi-model inventory model, Synergy offers more than 110,000 units worldwide. Given the prevalence of serviced accommodations worldwide, corporations and lump-sum travelers should start to feel the ground tremble, as San Francisco has a history of leading out with regulation to curb disruptive housing and tourism models.
“San Francisco isn’t the only major city facing a housing crunch—take New York, Seattle, and L.A., for example,” Jensky said. “That said, if ‘home sharing’ regulations offer any guidance, each city will approach its specific situation differently and enact regulations to keep its housing fair and equitable for its populations.”
Jensky added, “…we are guiding our clients and helping them manage the potential disruption by identifying innovative solutions and partnerships within as well as outside of the city.”
For all San Francisco based corporations with traveling or relocating employees coming to and from the city, Synergy recommends/advises:
- Meet with your housing provider and plan for disruption
- Reliable forecasts will be the difference in fulfilling temporary housing need in San Francisco
- Alternative, adjacent areas will get more congested and price competitive
- Ask your housing provider about how housing data might better predict where relocating staff actually end up living
The Synergy approach to business solutions isn’t linear. It is dynamic, consultative, data driven, and partner orientated. Our business planning process accounts for disruption, with a strong investment in innovation. It is from this perspective we can turn problems on their head and consistently deliver superior results.
In times like these, you want a partner in the game fighting for your housing program’s interest.