Chicago Tribune: Chicago SRO ordinance – help the poor or write a big check

Editor’s Note: CCH is a partner in the Chicago For All coalition advocating with the city for the SRO preservation ordinance.

By Mary Ellen Podmolik, Business Reporter

Chicago’s efforts to preserve single-room-occupancy hotels could force existing building owners, as well as buyers, to follow a lengthy and potentially expensive list of mandates that includes giving some displaced tenants as much as $10,600 in relocation assistance.

A proposed ordinance expected to be introduced at Wednesday’s City Council meeting is the result of weeks of discussions between the city and community activists and building owners. But the proposal to maintain the city’s housing of last resort has little in it for property owners to embrace.

Under the proposal backed by Mayor Rahm Emanuel, existing building owners, or buyers who want to convert a single-room-occupancy or residential hotel to market-rate housing, must either maintain 20 percent of the property’s units for extremely low-income and very-low-income individuals or pay a “preservation fee” to the city. For instance, if the owner decides to set aside 10 percent of units, the fee formula calls for the owner to pay $2 million to the city.

Also, a building owner who wants to sell a property would have to give any nonprofit group that wants to maintain the building as affordable housing six months to prepare an offer. If the seller decides to forgo that process, the owner would have to pay a preservation fee that amounts to 30 percent of the number of units in a building multiplied by $200,000. For a 50-unit building, the fee would be $3 million.

Tenants who have lived in a building for at least 31 consecutive days, if permanently displaced by a sale or building conversion, would be eligible for relocation assistance of either $2,000 or three months of rent, whichever is greater. If a building owner sells without giving a nonprofit the opportunity to buy it, longtime tenants would receive a one-time relocation fee of $10,600 — the same payment mandated by the city to tenants forced out of foreclosed rental buildings.

If the ordinance is passed along the lines of what will be introduced, it would be a significant victory for a coalition of community activists and aldermen concerned with the loss of affordable rental units in the city. In July, the city passed a six-month moratorium on the issuance of building permits tied to projects at residential hotels other than typical maintenance.

In the past three years, more than 2,000 rooms in the city have been converted to market-rate housing. With the proposed ordinance, the city’s goal is to preserve as many as 700 rooms in gentrifying neighborhoods. “We think this will preserve the SRO housing stock,” said Mary Tarullo, a community organizer with ONE Northside.

In meeting with the city this summer, building owners sought specific financial incentives, including grants to repair and renovate their properties and compensation from the city in return for ensuring that any subsequent owner would maintain a building’s units for the poorest city residents. But no specific financial incentives are included in the proposal set to be introduced Wednesday.

“It’s a real setback,” said Eric Rubenstein, an owner of three buildings and executive director of the Single Room Housing Assistance Corp., which represents 75 properties. “Either they didn’t comprehend or they rejected the various points we were trying to make. We’re very angry. We’ve put in a huge amount of time and work to do this in a friendly way. We are on a collision course with the city.”

Despite that uncertainty, two buildings have changed hands in recent weeks.

The 66-unit North Hotel in the Logan Square neighborhood recently sold for $1.75 million to Cedar Street Cos., which has converted several residential hotels into small apartments under its Flats Chicago brand. North Hotel will remain an SRO, said Cedar Street managing partner Jay Michael, who has some concerns about the proposed ordinance’s reach.

“The question this raises to me is, can (the city) go into private businesses and change how they operate?” he said. “This ordinance would set a very big precedent.”

On the city’s Near West Side, ReVive Center for Housing and Healing recently completed its $3.2 million purchase of the 98-unit Royalton Hotel, and it plans to continue operating it for at least two years.

“Our mission is not just to deal with presently homeless individuals, but to prevent homelessness,” said Jack Seymour, CEO of ReVive, a longtime city nonprofit and formerly known as Cathedral Shelter.

Housing advocates would like to see more nonprofits engineer the purchase and rehab of residential hotels in the city, but ReVive’s acquisition of the Royalton shows how daunting that goal can be to attain.

The group first looked at purchasing the building two years ago but was unable to pool the necessary money. It was only because of a $1.7 million gift received from an estate that ReVive was able to arrange a mortgage and acquire the building, Seymour said.