Small Hotels: San Francisco's Scapegoats for Housing the Homeless

by  M. David Stirling

In the years following the earthquake and fire of 1906, San Francisco entrepreneurs, including A.P. Giannini of the Bank of Italy (later Bank of America) spawned the construction of some 500 small tourist hotels throughout the City. One of these historic hotels –– a 95-year old, Victorian in North Beach named the San Remo –– is currently the focus of a nationally-watched legal dispute before the California Supreme Court, a case that asks whether a few small property owners should be singled out to bear the cost of large social problems that affect us all.

During the 1960s, the San Remo, along with other small hotels with names like The Juliana, The Monticello Inn, and the Cornell, began showing serious signs of age. By 1971, the San Remo had become so dilapidated that it was on the verge of becoming a public nuisance, and city building inspectors issued a notice of condemnation.

However, entrepreneurs came to the rescue by purchasing many of these run-down old hotels. Brothers Tom and Robert Field acquired the San Remo, and proceeded to authentically restore the 68-room Victorian, including its restaurant and bar, at a cost of over $1 million.

Similarly, the Cornell Hotel was acquired by French immigrant Claude Lambert, who had worked there for a dozen years as janitor in exchange for room and board. Over time he invested $1 million, turning the six-story Victorian building into a charming inn with a French restaurant.

But instead of showing gratitude to these business people for staving off blight, city officials responded by punishing them for opening their doors to tourists rather than leaving the buildings as habitats for the homeless.  In 1981, after numerous proprietors had taken loans to finance restorations, City officials enacted an ordinance to discourage the conversion of small, rundown hotels into tourist facilities. For instance, Claude Lambert was told that only 27 of the Cornell’s room could be made available to tourists; the other 31 rooms must be rented to long-term residents at below-market rates.

If Lambert wanted to be released from these restrictions, he would have to pay $600,000. For the Fields at the San Remo, the ransom was set at$567,000.

The Field brothers paid the City’s demand under protest. Their lawsuit against the city’s ordinance was heard by the California Supreme Court on December 6th. As for Lambert, he offered to pay $100,000 to get out from under the ordinance, but the City said no. Forced to lease rooms to the homeless if he opens other rooms to tourists, he has chosen to keep many of his rooms vacant, which costs him less than letting them at below-market rates. In all, small hotel owners are keeping more than 5,000 rooms vacant in response to the City’s ordinance.

In defense of its policy, the City argues that small hotel owners should bear the cost of helping homeless people who are displaced by renovation.

But this approach is counterproductive. Instead of gladly reaping the benefits of enhanced tourism, higher property and tourist tax revenues, hundreds of new service jobs for City residents, and a reduced need for public safety and other City services, the city is actively discouraging the renovation of aging buildings, and deterring entrepreneurs from adding to the limited stock of moderately priced tourist accommodations.

While the homeless problem in San Francisco is significant, and City officials’ decision to provide housing is laudable, the responsibility of meeting this need should be shared by the public as a whole. It is not fair - or constitutional - to foist the burden primarily onto the entrepreneurs who risked their personal finances to restore the City’s small hotels.

Mr. Stirling is vice president of the Pacific Legal Foundation, a public interest lawfirm that supports limited government, property rights and free enterprise.   Its web address is www.pacificlegal.org.