Quick Take
The City of Santa Cruz is trying to reach a settlement with the owner of the downtown St. George Residences and avoid litigation over a city ordinance that would limit rent increases at government-assisted living facilities with expiring rent agreements. The city hopes to know within several weeks whether the parties can reach an agreement.
Santa Cruz officials have paused plans to vote on new rules that would allow landlords of some low-income housing to seek rent increases, as they try to settle a lawsuit with the owners of a downtown apartment building. The lawsuit challenged a city ordinance passed last fall that would cap rent increases at buildings that had previously received government assistance.
City Attorney Tony Condotti said a proposed city council vote on its fair-rate-of-return ordinance has been “put on hold” as the city attempts to reach a settlement agreement with GVC St. George, LLC, owners of the St. George Residences in downtown Santa Cruz.
That lawsuit by GVC St. George, LLC was filed in response to a city ordinance that the Santa Cruz City Council passed unanimously in September 2024. That ordinance said that government-assisted living facilities with expiring rent agreements such as the St. George would be able to raise rents by only 5% plus inflation or 10%, whichever is lower.
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.
In January, city staff proposed another ordinance, this one aimed at getting around the legal challenge. That plan would give the owners of St. George and landlords of similar properties a way to request an exemption from the city’s rent-cap rules and charge higher rents so that they can receive a “fair rate of return” on a rental property.
The ordinance would establish a dedicated process for landlord petitions, which would be heard by a hearing officer. The process would mirror that of a court trial, with evidence and witness testimony. Landlords would have to provide financial records and evidence of maintenance and other costs associated with operating a rental property, such as water or utilities. Either the city or the landlord would be able to appeal the final decision to the city’s planning commission.
The Santa Cruz City Council was first expected to discuss and vote on this ordinance in early February, but it has been delayed multiple times.
Condotti said the city and GVC St. George have essentially agreed to temporarily pause the litigation while negotiating a settlement. If that falls through, he expects the city to proceed with the vote. “If [the lawsuit] isn’t resolved, we’d anticipate the fair-rate-of-return ordinance to come back to the city council, and to move forward with litigation,” he said.
Condotti said he was unable to share the details of what a settlement would entail and what it would mean for residents of the building, as the negotiations are currently in progress, but said the city is “looking to ensure that the interests of tenants affected by the September ordinance will be protected.”
“What that entails is the subject of our negotiations,” he said. “I think we’ll have a good idea one way or another if this case will resolve within the next couple of weeks.”
The St. George and its tenants have been a topic of discussion since July, when Lookout broke the story that tenants in 70 low- to very-low income units in the downtown Santa Cruz building were facing rent increases of up to 200% at the beginning of November 2024, 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 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.
Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.