Related Converting San Francisco Apartments to Corporate Rentals

City officials in San Francisco have confirmed that Related Companies has asked for approval to convert 40 apartment units at its 40-story luxury apartment tower at 1550 Mission to intermediate length occupancy (ILO), which would allow the company to seek corporate housing rentals.

Corporate rental units, which generally are offered for a term of more than 30 days but less than a year, were a hot commodity in San Francisco before the pandemic hit—until the city passed a law in 2020 aimed to discourage Airbnb rentals from being used as illegal corporate rentals.

Matthew Dito, the city’s senior planner, told TheRealDeal that Related wants to put ILO units in all four of its San Francisco residential towers. Two of the requests have been denied by the city, but requests relate to 1550 Mission and 680 Mission are moving forward, he said.

During the lockdowns of the pandemic in April 2020, San Francisco enacted a 1,000-unit limit on ILOs in order to keep more apartments available to traditional tenants. The measure, which was heavily opposed by industry stakeholders and landlords, put a two-year freeze on new ILO applications.

Since the law was enacted, 87 ILO applications encompassing about three quarters of the 1,000-unit limit have been approved.

The 2020 legislation creating the ILO cap specifically discouraged landlords from leasing out portions of their properties and sometimes entire buildings to hospitality startups to operate as corporate rentals, units that were advertised for limited stays of greater than 30 days and less than a year.

The 2020 law also stipulates that only a third of approved ILOs can be outside the downtown core, aiming to keep corporate rental units near corresponding hotel and tourism district. Most of the approvals thus far have been outside the downtown core, Dito told TRD.

Locate downtown, 1550 Mission includes 550 luxury units—with studio apartments renting for $3,300 per month—and amenities that include a rooftop pool, an onsite Equinox fitness club and a sports lounge.

According to an October 2021 report in the San Francisco Business Times, the 1,000-unit cap on ILOs effectively stifled the market for corporate housing in San Francisco.

Because corporate housing was not defined in the Planning Code prior to the 2020 legislation, the city had virtually no data on the industry, but the number of startups tapping into it prior to the pandemic—some converting existing, rent controlled housing for short term uses—caused city leaders to take up the issue.

The principal regulations for the city’s short-term rental program were adopted in 2015 and allowed residents to rent out their homes or rooms within their homes to guest for stays of less than 30 nights. These regulations also prohibited the conversion of residential units to tourist uses.

The original short-term rental law was amended in 2016 to include hosting platforms such as Airbnb to ensure that short-term rentals were properly registered. The 2016 law held the platforms accountable for violations, resulting in Airbnb and another short-term rental company suing the city.

The lawsuit settled in 2017 with the agreement requiring platforms to inform hosts of registration requirements and to provide the city with monthly rosters of their listings. In return, the settlement required the city to allow hosts with pending applications to operate and provide an appeals process for denied applications.