Quick Take
The City of Santa Cruz will rescind the rent cap on housing developments with expiring rental agreements, but with the understanding that the owners of the St. George Residences downtown will still abide by the cap.
The Santa Cruz City Council will discuss a plan to rescind its previously passed rent cap as part of an agreement to settle a federal lawsuit between the city and the owners of a downtown apartment building.
The settlement centers on the downtown St. George Residences, where about 70 low-income tenants faced potential rent increases of up to 200% starting in November 2024.
City Attorney Tony Condotti said under the proposed settlement, which is on the city council agenda for Tuesday’s meeting, the building’s owner, GVC St. George, LLC, will agree to follow state rent control limits on multifamily rentals that cap annual increases at either 5% plus inflation or 10%, whichever is lower. The city passed an ordinance in September that sought to apply those protections to government-assisted living facilities with expiring rent agreements like the St. George. Such properties had been excluded from legislation passed by the state in 2019.
The proposed settlement agreement includes an 8.8% rent hike for affected tenants who don’t have Section 8 vouchers. Those who do have vouchers could also see the portion of their rent that they paid out of pocket raised by up to 8.8% but the city said that was not likely. The building’s owners will also have to refund any rents they collected from tenants that were more than what was allowed under the city’s ordinance.
The St. George and its tenants have been a topic of discussion since July, when Lookout broke the story that dozens of low-income tenants faced steep rent hikes, threatening to make the apartments unaffordable for some. Many of those affected by the planned hikes were older adults who rely on Social Security for their fixed incomes.
Green Valley Corporation, parent company for Swenson Builders, rebuilt the property after the 1989 earthquake and owned it for years. The company entered into an agreement with the City of Santa Cruz in 1991, in which the city loaned Green Valley funds from the American Red Cross to help rebuild damaged sections of the St. George Residences. The developer agreed to limit rent increases for 30 years in return. That agreement expired in 2021.
GVC St. George challenged the ordinance in federal court, arguing that it would make it impossible for the property owner to earn a reasonable rate of return on its investment in the building.
Condotti said the rescission of the rent cap is a compromise that both protects the interest of St. George tenants and still accomplishes what the city set out to do when the council passed its ordinance last September — prevent major rent hikes at the apartment building.
Condotti said there is only one other residential building in the city he knows of that also has an expiring rent agreement — the Palomar Inn, which holds 97 affordable units. However, he said the owner of the complex is actively working with the city to preserve affordability, which the St. George Residences’ owner was not planning to do.
The Santa Cruz City Council is likely to consider the plan to rescind the rent control ordinance at its next meeting, on Tuesday.
William Van Roo, an attorney representing the St. George Residences’ owners, did not return Lookout’s request for comment by publication time.
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FOR THE RECORD: This story has been updated to include additional details about the settlement agreement.
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