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Chicago SRO owners say proposed city ordinance is 'hostile'

Mayor Rahm Emanuel’s office wants to preserve affordable housing in single-room occupancy and residential hotels by levying hefty fines on building owners who don’t comply.

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Chicago SRO owners say proposed city ordinance is 'hostile'

Many single-room occupancy hotels in Chicago, such as the Chateau Hotel in Uptown, have been converted to market-rate rental buildings. A new proposal from the Mayor’s office would impose fines on building owners whose percentage of affordable units drops below a certain threshold.

WBEZ/Robin Amer

A new City Hall plan to preserve fast-vanishing affordable housing units in single-room occupancy (SRO) and residential hotels has some Chicago SRO owners upset.

The Single-Room Occupancy and Residential Hotel Preservation Ordinance, to be introduced at Wednesday’s City Council meeting, includes incentives to induce building owners to maintain a certain threshold of affordable units in their buildings. There are few specifics about those incentives, but much of the measure focuses on financial penalties that owners would face if the number of affordable units in their buildings falls below a mandated percentage.

“Essentially what has happened is the city wants to change the rules in the middle of the game,” said Eric Rubenstein, Executive Director of the Single Room Housing Assistance Corporation, which works with building owners, operators and tenants to preserve SRO housing in Chicago. “The properties are going to be dropping substantially in value because of the proposed ordinance, as now written,” he said.

Under the proposal, owners who wish to demolish or convert their properties to market-rate rentals would be required to maintain at least 20 percent of the building’s units as affordable, or else pay a $200,000 “preservation fee” for every unit that falls short of that threshold. Additionally, if an owner wishes to sell a building, it would allow non-profits first crack at purchasing it and would require the owner to engage in good-faith negotiations with those organizations. If no sale occurs within six months of notifying non-profits, then the owner may attempt to sell the property to private developers.

“The private market often moves too quickly for these non-profits to pull together the financing,” explained Michael Negron, Chief of Policy to Mayor Rahm Emanuel, “and so we wanted to make sure that there was enough period of time for these organizations to actually… know a sale is coming, and then work with potential lenders, work with the city, work with the state. There are different parties that could potentially help put together a deal like that, but they just need the time to do it.”

The proposal would allow building owners to bypass this process altogether, and to approach the private market first, if they pay a fee of $200,000 on each unit for 30 percent of the units in the building. But many current owners fear that these fines will drastically undercut the selling price of their buildings.

“The property values will have plunged based on the market being so restricted, that the only option essentially for a current owner when he or she is ready to sell is to turn to a non-profit,” worried Rubenstein, “and the non-profit could offer nickels or dimes on the dollar.”

All fees collected through the proposed ordinance would go to a preservation fund, which the city would use to assist SRO owners with defraying the cost of maintaining, developing or improving their properties. Negron said, additionally, that the city already may have existing resources to preserve at least 700 SRO units through the end of 2018. He said owners may call the city’s Department of Planning and Development to discuss rental subsidies from the Low Income Housing Trust Fund, and financing from TIF districts and low-interest loans, to maintain affordability.

Rubenstein said he and other building owners had hoped the city would employ more incentives than penalties to encourage affordability. He said SRHAC submitted a list of 15 suggested incentives for the city to consider in its ordinance, including exemptions from sales taxes, water fees, and the proposed minimum wage ordinance. Negron said many of the suggestions were impractical.

A broad coalition of advocates for the homeless, and low-income tenants around Chicago, praised the proposal.

“I think it’s a great ordinance,” said Adelaide Meyers, a former tenant of the Norman Hotel and affordable housing advocate. “I think it’s exactly what Chicago needs to maintain SROs throughout the city, because if we lose all our SROs we’re going to have a lot of homeless people.”

Meyers was herself displaced from the Norman Hotel when Cedar Street Co. bought the North Side property and converted it to upscale rentals within its FLATS portfolio. Meyers now shares an apartment in the Rogers Park neighborhood with a friend, and with some rental assistance from her father.

“I never thought that I would end up living in an SRO to start off with, but I lived in a few different ones for several years,” she said. “So I could definitely end up back in an SRO.”

Odette Yousef is WBEZ’s North Side Bureau reporter. Follow her @oyousef and @WBEZoutloud.

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