Quick Take
In response to a lawsuit by the owner of the downtown St. George Residences, the Santa Cruz City Council is set to vote Tuesday on a process that would allow certain landlords to charge higher rents than those allowed under a new city ordinance in order to receive a "fair rate of return" on a rental property.
The St. George Residences in downtown Santa Cruz will once again be a focal point Tuesday for the Santa Cruz City Council. The continuing issue: How much should residents of the long-rent-controlled apartment complex now pay for rent?
In September, the council unanimously passed an ordinance that said government-assisted living facilities such as the St. George would be able to apply limited annual rent increases, whichever is the lower between 5% plus inflation or 10%. In response to the ordinance, GVC St. George, LLC, the St. George Residences’ owner, filed suit in November in federal court, challenging the ordinance, arguing that the ordinance would not yield a reasonable return from its operations and investments in the property.
On Tuesday, in response to that lawsuit, the council is slated to consider another ordinance, meant to short-circuit the suit and allow the St. George owners — and other owners of rental properties that are seeing their earlier rent contract agreements expire — to charge higher rents than what the September ordinance would allow in order to receive what the city calls a “fair rate of return” on a rental property.
Under the new ordinance, the city would set up a dedicated process for these landlords’ petitions, which would be heard by a hearing officer in an administrative tribunal that would look much like a court trial with evidence and witness testimony. It would require the landlords to use a city-provided form to petition, which would include financial records, evidence of maintenance costs or proof of habitability concerns, such as necessary replacement of water infrastructure or other required utilities. Either party — in this case, the city or the landlord — would be able to appeal the ultimate decision to the city’s planning commission.
The new ordinance would allow landlords to petition the city for “upward rent adjustments while maintaining compliance with state law and local tenant protection policies.” If passed, landlords could request rent increases beyond the city’s threshold in “circumstances where they would otherwise be deprived of a fair rate of return on their investment.”
Santa Cruz City Attorney Tony Condotti said that in the initial proceedings of the lawsuit, GVC St. George sought a temporary restraining order to keep the city from enforcing its September ordinance, which the presiding judge eventually denied.
“But the judge did indicate that she was concerned about the lack of a fair return on investment hearing process, and that’s what prompted us to recommend moving forward with this modification,” said Condotti. “We hope that, with this new ordinance in place, that will be the last issue that needs to be resolved and we can work out an amicable resolution.”
William Van Roo, an attorney representing the St. George Residences’ owners, did not respond to Lookout’s request for comment on whether the ordinance would affect the ongoing lawsuit.
If the ordinance passes, it will come back to the city council for a second read and final adoption, likely at its Feb. 11 meeting, said Condotti, two days before the scheduled federal court hearing.
The St. George and its tenants have been in the news since July, when Lookout broke the story that tenants in 70 low- to very-low-income units in the building between Pacific Avenue and Front Street were facing rent increases of up to 200% at the beginning of November 2024 that threatened to make the apartments unaffordable for some. Many of the tenants affected by the planned hikes were older adults who rely on Social Security for their incomes. Some were looking at a near-doubling of their rents overnight.
The dispute has long roots, back to the rebuilding of downtown Santa Cruz after the Loma Prieta earthquake.
Green Valley Corporation, parent company for Swenson Builders, rebuilt the property after the 1989 earthquake and owned it for many years. The company signed an agreement with the City of Santa Cruz in 1991, in which the city loaned Green Valley funding from the American Red Cross to help rebuild damaged portions of the St. George Residences. The developer agreed to limit rent increases for 30 years in return. As that agreement ended, the owners, their tenants and the city have been in dispute, a period that might conclude with council action on Tuesday.
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