Facing significant rent hikes, some St. George Residences tenants feel hung out to dry

Karen Funk, 83, has lived in the St. George Residences along the north end of Pacific Avenue since the early 1990s. In fact, Funk says she was the first tenant in the building after it reopened following the 1989 Loma Prieta earthquake. Now, she’s worried she could be in her final months living in the apartment building as she faces a doubling of her rent.

“I’ve had rents raised before, but nothing over the top like this,” said Funk, who has paid just $750 per month for years.

Jason, who declined to give his last name, is facing a similar hike — $800 to $1,500. He said his family could possibly cover for him for a month or two, but likely no more.

“I’m scrambling like crazy to find something before [the rents] get raised. I’m looking but it’s all above my ability to pay,” he said. “And if I don’t find anything, I’ll be homeless.”

Janine Tanner, 63, said that she, too, is seeing her rent jump from $800 to $1,500. She will be able to stay at her current apartment thanks to Section 8, a federal program that helps low-income families, older adults and people with disabilities pay rent for private housing. Still, that doesn’t make her feel any better about the situation. 

“Isn’t the goal to keep people from being homeless? I thought that was our whole thing right now,” she said as she corralled her dark gray cat, Nosetta, into her apartment. “It seems like they’re adding to it by doing this. It’s ridiculous.”

Tanner said she’s spoken to at least five current tenants who are expecting to have to move out, “and some have already left.”

Funk, Tanner and Jason are among the tenants in 70 low- to very low-income units in the 122-unit building. They face varying degrees of rent increases this year that threaten to render the apartments unaffordable for some after a longtime agreement to keep the units under rent control expired between the city and the property’s former owner, Swenson’s Green Valley Corporation. Many tenants are older adults who rely on Social Security for their fixed incomes. Funk is going to see her rent nearly double to $1,495 literally overnight, on Nov. 1.

If that sounds drastic and unusual, that’s because it is.

“I’ve been working with the city for going on 31 years, and this is the first time I’ve dealt with it, so that should give you an indication of how commonplace it is — where you have a building with a lot of units with affordability restrictions that are going to be lifted,” said City of Santa Cruz Attorney Tony Condotti. 

In one form or another, the St. George Residences have sat above Pacific Avenue retailers — now between Water Street and Cooper Street — since the late 1800s, but have undergone a number of major changes. Today, you might recognize the building, which extends over one long block with a bell tower atop its second story, just above the Lively Kids children’s clothing shop and Leaf & Vine plant store a few doors down from Verve Coffee on the north side and Bookshop Santa Cruz on the south. 

A remodel in 1922 changed the building from a Italianate-style brick building to a Spanish Revival facade, bearing white walls and red tiled roofs and a garden court in the middle of the building’s wings. The architects kept that even after the devastating 1989 Loma Prieta earthquake and subsequent fire decimated the building. 

Rebuilt from the ruins and meant to maintain its place in history, it reopened in 1992, and Funk walked right on in. She had worked as a teacher for 50 years, and even opened her own school in Santa Cruz in 1980 called Bayside Children’s College — an alternative school for K-12 students who struggled with traditional schooling, or were expelled from a previous school — which closed in 2004.

Given the coming rent increases, dozens of residents, many of whom are seniors, are rushing to deal with how to manage their futures. Some are looking for other shelter and others are asking for someone to intervene on their behalf. In Santa Cruz’s worsening affordability market, the timing of the rental increases couldn’t be more difficult. Further, it comes at a time when homelessness among older adults is becoming a heightened concern.

How did these St. George residents find themselves in this dilemma? Lookout talked to numerous people in and around the St. George situation to unravel the complex story.

How we got here

City Attorney Condotti traces the history. 

With the city reeling from the 1989 earthquake, the story begins with an agreement between the City of Santa Cruz and the American Red Cross. The goal: to secure one-time funding from the American Red Cross to rebuild affordable housing stock and give new housing opportunities to people displaced by the Loma Prieta temblor. 

Then in 1991, Condotti said, the city and San Jose-based housing developer and property manager Green Valley Corporation separately entered into their own agreement in which the city loaned some of that one-time funding to Green Valley Corporation to help rebuild damaged sections of the St. George complex. In return, the developer agreed to maintain the project’s affordability for 30 years, until 2021. The level of affordability is established based on a number of factors, and typically comes out to a percentage of a jurisdiction’s median household income.

Green Valley Corporation is the parent company of Swenson Builders, a longtime significant builder and property developer in Santa Cruz County.

Although the city acknowledged that the agreement between the city and Green Valley Corporation ended in 2021, the initial agreement between the city and American Red Cross allowed rent restrictions at St. George to remain through 2023. Because state law requires the property owner to give the tenants a one-year notice before increasing the rent, that makes Nov. 1, 2024, the first day possible for a rent increase. Condotti said that there is “a great deal of concern” among people at the city and county that these tenants could soon be displaced. 

Further, it doesn’t appear the current owners intend to sell the residences to a buyer who is willing to keep rents restricted in order to keep rents restricted — or any buyer at all.

California state law requires owners of government-assisted developments to allow other companies a chance to purchase the development before they can legally end rent restrictions. That is called a “notice of opportunity to submit an offer to purchase,” and it must be sent to each qualified company designated by the California Department of Housing and Community Development. The development owner must also post a copy of the notice in a noticeable common area of the building. 

William Van Roo, the attorney for the property’s owner, told Lookout that the company sent notices of opportunity to purchase to more than 80 entities and government agencies, but did not receive any offers. He wrote in an email that the owner “continues to work with non-governmental organizations and local agencies in their efforts to assist the affected tenants.”

While a copy of the notice to request offers was posted in St. George’s second-floor lobby in October 2023, it states that the owner is not interested in selling the property.

“Given the unit sizes and the anticipated rents, the ownership believes that the St. George continues to offer remarkable value and a continuing resource in the Santa Cruz housing market,” said Van Roo.

While the property’s owner has followed the state-mandated process to raise rents, Santa Cruz City Councilmember Sandy Brown said she’s disappointed it doesn’t appear willing to keep rents low. 

“It’s a real shame that the property owner is unwilling to talk with public agencies about ways to maintain affordable rents, particularly given the support [the developer] received to rebuild post-earthquake,” Brown said. “This is the only case that I’m aware of, at least since my time on the council, but even over the years, where a property owner has been unwilling to try to find a way forward to maintain affordability.”

Bay Area-based real estate management company MCM Diversified manages the property — along with other Swenson developments.

MCM Diversified property manager Christin Coffin told Lookout that the 71 units at St. George’s will no longer be designated low-income. But she said the studio apartments would be priced no higher than $1,795 rather than at the area’s market rate, which she said is typically up to $3,000 and sometimes higher.

“It’s a tough time and we understand there’s concern any time rents are raised,” said Coffin.

Management and owner response

It is unclear whether a person or entity affiliated with Swenson — whose Green Valley Corporation long owned the building and originally signed the agreement with the city to keep rents low — still owns the property.

Sarah Farrant, vice president of Ninico Communications, Swenson’s public relations agency, told Lookout that Swenson’s Green Valley Corp. has not owned the property since 2021. Swenson Development Project Manager Jessie Bristow also told Lookout that Swenson is no longer affiliated with the apartments. 

Coffin declined to say who currently owns the St. George Residences or provide contact information for the owner, and referred Lookout to attorney Van Roo.

Van Roo told Lookout that a company named Barron Ranches, Inc. acquired the St. George Residences in 2021. Van Roo said he was a spokesperson for the property owners and added that Barron Ranches is not a Swenson company.

However, a search of corporate records on the California Secretary of State website shows that Barron Ranches shares the same building address as Swenson’s office building near downtown San Jose. Property manager MCM Diversified also shares the same building address. 

Barron Ranches, which incorporated in October 2020, lists Rebecca Menne as its CEO. According to a 2019 lawsuit filed by Swenson’s Green Valley Corp. involving the estate of a former shareholder, Rebecca Menne is Swenson Chairman Barry Swenson’s daughter. In a 2021 declaration filed as part of the lawsuit, Lee Ann Woodard, Swenson’s former longtime chief financial officer, wrote that Menne owned a 15.5% stake in Green Valley Corp. at the time and sat on the company’s board. 

The declaration also lists MCM Diversified — St. George’s property manager — as a “related party” of Green Valley Corp. According to the lawsuit, MCM Diversified was founded in 1994 by Martin and Rebecca Menne and “provides property management services to [Green Valley Corporation] and some of the partnerships and/or joint ventures in which it has invested in but also to many other unrelated entities.”

MCM Diversified President Martin Menne and property manager Patrick Prindle, who manages a number of Swenson developments in Santa Cruz, did not respond to requests for comment by publication time.

Senior housing insecurity

Even if St. George’s rents will remain below market rate after the hike in November, some long-term tenants in the low-income units say that doesn’t work for them. Funk’s partner, Tom Tucker, said he would have to contribute about $300 per month just to help Funk stay afloat, despite having his own rent to pay. He said he’d “much rather that money come from the government.” 

Tucker contacted Senior Legal Services to see if there is any legal issue in the decision, but the organization told him that it is, in fact, legal.

“Not what we were hoping for,” said Tucker. “I don’t know how you fight something if they have the right to do what they’re doing.”

The move comes at a time of serious concern about the state of housing security for older adults. While the county’s recent homelessness point-in-time count pointed to progress in housing families and veterans, it showed that Santa Cruz County adults ages 55 and over experienced a 7% increase in homelessness. 

“This is how it happens with seniors,” said Housing for Health Director Robert Ratner, adding that Social Security increases by small percentages with the cost of living. “When Social Security goes up the way it is, but some rents are going up nearly 200%, we shouldn’t be surprised.”

Ratner said he believes St. George’s owner could have capped the amount that a tenant’s rent would be raised – for example, hike the rent by no more than 10%, which would put fewer people in peril of losing housing.

Even those who are unlikely to see their rents raised are concerned about the low-income tenants. Kevin Hum, 27, has lived at the apartments for about 18 months. He doesn’t expect his rent to be raised, as he already pays $1,500 per month, but said he understands the implications for other tenants in the current housing market.

“It’s getting harder and harder, and even though we have new complexes opening up, things in general are not getting any cheaper,” he said.

Blake Quinn, who is also in his 20s, shares an apartment with his partner for about $1,500 per month as well. Coffin told the pair in May that there was currently no plan to increase their rent, but Quinn said he feels for those who aren’t so lucky.

“I’m on the younger end, and I’ve noticed a community among [the older residents], and they support each other,” he said. “It would suck to see even some of them have to move out and be unable to keep that kind of network.”

Others think just keeping rents low for so long has been enough of a help. Michael Peck, 73, did not qualify for low-income housing because of his Social Security, Veterans Administration benefits and retirement pension. He is not expecting a rent hike beyond the $1,500 he is currently paying.

“I think it’s been a great community service for them to run this place supporting the seniors and the handicapped tenants for this long,” he said. “But it’s business, and they’re doing what they need to do to maintain that business.”

Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.