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City Unveils Law to Solve 'SRO Crisis,' But Some Fear 'Dangerous Precedent'

By  Adeshina Emmanuel and Ted Cox | September 10, 2014 4:53pm | Updated on September 10, 2014 4:55pm

 Ald. Walter Burnett Jr. cheered the spirit of compromise on the SRO issue, including a mayor with an eye toward re-election.
Ald. Walter Burnett Jr. cheered the spirit of compromise on the SRO issue, including a mayor with an eye toward re-election.
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DNAinfo/Ted Cox

CHICAGO — City officials and community groups are touting a proposed ordinance to preserve single-room occupancy apartments as a solution to a "crisis" that has left many homeless or displaced, but some developers fear a "dangerous precedent" could be set that could put SRO owners out of business.

Uptown-based community group ONE Northside appeared with officials at City Hall Wednesday to unveil the ordinance, which is aimed at saving a cheap and dwindling form of housing they consider the "housing of last resort" for the poor.

The law would establish "preservation fees" for owners of SROs and residential hotels looking to demolish buildings to build new developments or convert the buildings to other uses. It would also require owners give advanced notice of such plans to residents and provide up to $10,600 worth of relocation assistance.

Adelaide Meyers, a member of ONE Northside who lived at the former Norman Hotel SRO in Uptown before it was converted by developer Flats Chicago, said 2,200 SRO units have been lost in the past three years, and the remaining 6,000 were endangered due to potential conversions.

Ald. Walter Burnett Jr. (27th), arguing for "development without displacement," cheered the mayor for getting involved in the effort and backing a "holistic ordinance" to protect "the most vulnerable people in our city."

"I want to thank you all for compromising, because I know that we like to fight," he said. "But there are some times we need to sit down and get something done."

Solving the 'SRO crisis'

Buildings Commissioner Felicia Davis said the law, if passed by City Council, would help solve an "SRO crisis."

Under the law, no permits would be cleared that allow conversions or demolitions of SROs or residential hotels without the building owner agreeing to maintain at least 20 percent of the units as affordable housing — or pay a fee to bypass the requirement.

An owner who doesn't plan to offer affordable housing in a building would have to pay a fee equal to 20 percent of the units in the building multiplied by $200,000. That would cost $4 million for the owner of an SRO building with 100 units. In the case that an owner commits less than 20 percent, the difference would be multiplied by $200,000 to determine the fee.

Activists who helped craft the law initially aimed to preserve 80 percent of affordable units in converted SROs. But they compromised with the mayor's office. An organizer with ONE Northside, Mary Tarullo, said this week, "We think we're really headed in the right direction, and we also recognize how the legislative process works."

The ordinance requires that before selling or transferring properties, owners must allow residents or any representative of the tenants, such as a non-profit developer, 180 days to make an offer to buy the property.

"Our ultimate goal," Tarullo said, "is that when SRO owners want to sell their buildings, that this ordinance allows for these buildings to be put in the hands of developers who are going to improve the buildings and preserve them as affordable housing."

However, owners can opt out of the "good faith negotiations" and sell to whomever they wish if they pay a fee equal to 30 percent of the units in the property multiplied by $200,000.  

"Dangerous precedent"?

Jay Michael, managing partner of Cedar Street Co., worried that the city was setting a "dangerous precedent."

"I question this as a Chicagoan, and as an American," said Michael, whose company owns the controversial Flats Chicago brand that has renovated several SROs and residential hotels on the North Side in recent years. "Are we going to set a precedent for a government using private business to solve big public problems?"

The ordinance "isn't about real estate, it's about a public problem being solved with private business," Michael said. Michael, who recently partnered with the city to preserve some affordable units in several Flats buildings, wondered if the timing of the ordinance is about "bigger, messier political issues."

Burnett acknowledged that politics played a role in the ordinance with upcoming city elections.

"This is the best time for us," Burnett said. "So whether it's the mayoral election or the governor's election or the state rep's election, there's always an election going on, and we're gonna take advantage of any election that's happening to help people in the City of Chicago."

Few details on financial incentives

The ordinance states that the city will provide owners and buyers of SROs and residential hotels the chance for "financial incentives in exchange for entering into binding land-use agreements to preserve the properties as single-room occupancy buildings and residential hotels." 

But that's where the fairly detailed six-page document is light on specifics.

In a statement Tuesday, the mayor's office said the city would "ensure that it has the resources available to preserve 700 SRO and residential hotel units using incentives and programs including rental subsidies for residents and subsidies or loans to support the acquisition by nonprofits and/or residents of buildings."

The statement continued: "This is a balanced ordinance that protects the residents of SROs and residential hotels while providing building owners with fair and viable options to sell."

But Michael is worried about SROs being "devalued" to buyers because of city regulations that would change the economic reality of buying the buildings. He said he was "very surprised there wasn't more of an incentive-based approach."

He doubts non profits and goodwill developers would be able to fill the gap if private industry backs away from SROs, many of which are distressed buildings needing millions of dollars worth of renovations.

Eric Rubenstein, the owner of three SRO buildings and head of the Single Room Housing Assistance Corp., told the Sun-Times that financial incentives were lacking and that the bill would "force SROs to start shutting their doors." 

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