Buying hotels to keep homeless people off of streets gains favor in California

SAN FRANCISCO — The inside of the van was lined with plastic. The driver was masked and ready to go. There was a seat for just one passenger.

Gregory Sanchez eyed the setup warily. Sanchez was 64 and homeless, and the van was there to ferry him from a sidewalk tent to a room where he could shelter from the pandemic. It was good news, blessed news, he said. It was also a little creepy.

Sanchez didn’t know where he was going, and the sheets of foggy plastic, which coated the seats and windows to prevent the spread of disease, made it impossible to see out the window. Riding away from his longtime home in San Francisco’s Mission District, he cycled through dark possibilities — “It felt like I was in one of those movies where they take you to an army base or something” — before the door opened in front of a boutique hotel. He stepped down from the van and walked to a curved granite reception desk where he set a bin of clothes on a luggage cart.

“I go like: ‘Is this real? Can this be real?’” he said. “And they take me to the room, and the room is beautiful.”

Sanchez’s new home, on the fourth floor of San Francisco’s Hotel Diva, came courtesy of a state and federal effort to rent rooms for homeless people as COVID-19 spread. The program began in March 2020 at a pair of hotels near the Oakland Airport and at its peak extended to hundreds of properties from Crescent City to San Diego, allowing 35,000 homeless Californians to take refuge from the streets.

COVID-19 is the proverbial crisis that became an opportunity — one that advocates and politicians say allowed them to treat homelessness like the national disaster that it has long been. Over the past decade, as the state’s median home value has risen to $700,000, the number of people sleeping on the streets has jumped 40% to about 113,000 residents, or a little over half of the nation’s unsheltered homeless population. This happened despite various multibillion-dollar initiatives to curb it. The sight of freeway-side shanties and parks full of tents has simply become part of the California landscape.

But the pandemic, which according to a dire early projection could have killed 25,000 homeless people in the state, added two sorely needed ingredients — federal money and an excuse to move fast. With the travel industry hobbled and stimulus money continuing to flow, Gov. Gavin Newsom has since doubled down by creating a program to buy hotels in hopes of creating permanent homeless housing en masse. “This is going to put us on a trajectory to do in literally a couple of years what would have easily taken us a decade or two,” he said in an interview.

In a blizzard of transactions that sidestepped many of the local rules that make California one of the nation’s hardest places to build, the state spent $800 million on 94 projects that will become permanent supportive housing, or housing that is paired with on-site social services. The purchases include the Hotel Azura in Santa Rosa, a 42-room hotel secured with $11 million in state funding, as well as the Sebastopol Inn, which has 31 rooms and was bought with about $6.2 million in state funds. The Kashia Band of Pomo Indians received another $2.7 million from the program to secure about 20 units of housing for members experiencing homelessness.

It has been a clear success for Newsom, a Democrat who was popular statewide but is facing a potential recall. What was once a half-baked idea that in February 2020 got a sentence in his State of the State address has since created 6,000 new supportive units, or about triple the usual pace of around 2,000 units a year. Hotel Diva, which in December was bought from an investment group by the nonprofit Episcopal Community Services of San Francisco with help from a state grant, accounts for 130 of them.

California’s hotel-buying program, officially called Homekey, is both a drop in the bucket and a remarkable achievement. The state, which has 40 million residents, still has a crippling housing affordability problem, and even the most successful outcome would do little more than buy time to confront the decades-old structural issues — high housing costs, low wages, poor mental health care — that keep new people falling into homelessness faster than those on the streets can get out.

It has also set up a national model to fashion tens of thousands of new homeless quarters for less than the cost of new construction, and in a fraction of the time, by repurposing hotels, strip malls and other distressed real estate that has been heavily discounted by the pandemic and its economic fallout. Several other state and local governments, including Oregon; Austin, Texas; and King County, Washington; have since begun similar efforts. The $1.9 trillion American Rescue Plan, signed by President Joe Biden in March, allocates $5 billion to fund efforts to provide housing for homeless people, including through conversions.

“Whether they intended to or not, the state of California ran this very thorough proof of concept,” said Mary Tingerthal, a consultant who used to head Minnesota’s housing finance agency.

Tingerthal, who has spent the past few months studying hotel-buying programs for the National Alliance to End Homelessness, said that over the next to two to three years, governments should be able to convert 50,000 to 100,000 hotel rooms to supportive housing — if they could raise the money to buy them. Much of that opportunity lies at economy hotels whose rooms will not be as nice as Sanchez’s place at the Diva, where he has propped his 49ers pillow against a sculpted steel headboard. But when the various hotel conversion programs are combined with efforts to transform other commercial real estate to housing, it becomes a once-in-a-generation opportunity to, if not exactly solve homelessness, at least make a dent.

Hotels have long been an indicator of urban change and a reflection of the economy around them. Their construction is a sign of optimism, their decay a bellwether of decline. Over a century plus of history, the seven-story building that houses the Hotel Diva has shape-shifted to the circumstances, moving from low-income residents to higher-end business travelers and back. Now it has been enlisted to help solve California’s biggest and saddest problem.

How the Somerton became the Diva

San Francisco was back and ready to celebrate. It was late 1914, and the city, having spent the previous years rebuilding after the 1906 earthquake and fire, was preparing to host the 1915 World’s Fair, called the Panama-Pacific International Exposition. New hotels were opening to expectations of banner business, and on Dec. 21 Mrs. W.F. Morris inaugurated the Hotel Somerton.

In the years after the fair, the Somerton settled into a stable but unglamorous business providing lower-cost rooms to mostly long-term residents who had to walk down the hall to use the bathroom. Then came Joseph Goldie, a liquor wholesaler who bought the hotel in 1920 and proceeded with an overhaul.

In a 1921 advertisement, Goldie trumpeted the new carpets. He said he had rid the staff of “sleepyheads and chair sitters” and had shooed away long-term guests. “Instead of a mere rooming-house,” the ad said, “the Somerton has become a real hotel.” A few decades after Goldie’s renovation, as San Francisco lost residents to the postwar suburbs, the Somerton reverted to its original life of housing long-term residents. It remained that way through the 1970s, when the city embarked on the technology-driven transformation that defines it to this day.

In the 1980s, as companies like Apple were creating the personal computing industry, a new type of small, personality-driven hotel — they would eventually be called “boutiques” — took root in San Francisco. The progenitor of this movement was a former investment banker named Bill Kimpton, whose eponymous chain began two blocks from the Somerton.

Kimpton positioned his properties as cozy alternatives to the large, atrium-style hotels that dominated business travel at the time. Instead of glass elevators and bars full of men in conference badges, he catered to a new class of business traveler who wanted to be near cool local restaurants and preferred a smaller hotel with an evening wine hour.

The idea took off. Through the first half of the 1980s, San Francisco added 2,000 hotel rooms through conversions, fashioning a new industry and tourist destinations from residential dwellings that were described at the time as flophouses. The Somerton was one of them — purchased again, this time by an apartment magnate named Frank Lembi.

Lembi, who died two years ago at 100, was a controversial character with a long history of tenant complaints. In 2011, his companies, Skyline Realty and CitiApartments, agreed to pay as much as $10 million in fines as part of a settlement with the city of San Francisco, after being sued on accusations that its business model was to buy rent-controlled buildings for a discount, then push out tenants by changing locks, shutting off utilities and intimidating residents with visits from “paramilitary-like agents.”

When he purchased the Somerton, tenants asked the city to prevent him from converting it to tourist use but eventually reached a settlement. In 1984, after the deal closed, Lembi’s daughter, Yvonne Detert, who previously renovated two other boutiques in the area, took over management and renamed it the Hotel Diva.

The appeal of the location was obvious: two blocks from Union Square, with its department stores and its cable car line. But the Diva also sat on the edge of the Tenderloin, an old vice district whose proximity once prompted a reviewer to warn travelers that the adjoining neighborhood was “overrun with hookers.” Stuck between the postcard city and its racy underbelly, Detert used a mix of gimmick and attitude to create a destination.

She renovated so each room had its own bathroom. She designed the space by giving her architect a collage of torn-out magazine pages with inspirations like “the chrome of a lipstick tube.” She had visiting celebrities (Joan Rivers, Carol Channing, Leontyne Price) write their names into the front sidewalk. Guests checked in at a front desk whose back wall had four screens playing music videos, before walking through brushed metal elevators on the way to VCR-equipped rooms. Reviewers called it high-tech and snickered at Detert’s idea of putting a condom in each room’s safe (“safe sex”).

“At the time, that block was really off the beaten path of Union Square,” she said in an interview. “We really wanted to make it into something that was going to drive people to come to it.”

From public housing to homeless a block away

When the Hotel Diva opened its doors to a new era, Gregory Sanchez was doing manual labor on the other side of the new economy. He’d grown up in the Mission at the Valencia Gardens public housing complex and spent his adolescence hanging on streets that used to be marked by body shops and appliance repair stores but are now known for the high-end coffee shops and passing Google buses that have become the symbol of San Francisco’s pre-pandemic gentrification. Sanchez’s family, two parents and five kids, lived in a three-bedroom apartment where he and three brothers shared a room with a pair of bunk beds.

“My sister made me a Kool-Aid stand and I used to sell the Kool-Aid right there,” he said.

The Hotel Diva is only 2 miles away, but Sanchez said he’d never seen it or spent time in the Union Square area until he started moving office furniture after high school. For much of the 1980s, he lugged desks and assembled cubicles as closed offices gave way to open floor plans. He once had to move a fireproof file cabinet that was insulated with concrete and weighed something like 500 pounds, he said. He now has a bad back.

With offices in San Francisco booming and ample opportunity for overtime, Sanchez at his peak could max out at $22 an hour, or a little over $60 adjusted for inflation, he said. He also wasn’t worried about rent. He stayed in his family’s public housing unit until his mid-20s and had a cheap after-hours life that consisted of floating around the neighborhood and hanging out with friends near the 24th Street BART stop. “I was always in the streets,” he said.

When he moved out of his family’s apartment, an event that was set off by his brother’s killing in a drug deal, it began what he described as a run of falling wages, broken relationships and unstable housing arrangements that took him around and out of the Bay Area and ended with him pitching a tent in front of a church a block away.

“I started getting into partying and stuff,” he said. “Starting cocaine and smoking weed.”

Sanchez said he had had only two formal leases, each for a couple of months, and along the way had cycled through enough wives and girlfriends that he could not precisely say how many of their names he had had tattooed and covered up.

“Bad call,” he said. “I’ve got a heart for people.”

Bouncing from rooms to floors and couches, Sanchez said, he was functionally homeless even if he wasn’t on the streets. At one point he moved to Sacramento, where rent is cheaper, but he had shifted to landscaping and painting work after his back injury, and that paid as little as $10 an hour.

In early 2020, making about $1,000 a month in Social Security benefits and a little extra with hourly yard and gutter-cleaning jobs, he was sleeping on the floor of a friend’s hotel room. One day he ran into a woman he knew, and she offered to let him sleep in her tent next to an Episcopal church a block away from his childhood apartment. He said yes, and soon after got his own tent.

“I was like: ‘Oh, this is how it is? It’s not too bad,’” he said.

Homelessness as Gregory Sanchez experienced it is a relatively new phenomenon. Academics started documenting people sleeping in parks and bus stations in the early 1980s. Then, as now, researchers ascribed it to a mix of falling wages, rising housing costs and a fraying safety net combined with addiction and untreated mental illness.

Another factor, which has been mostly lost to history, was the loss of single-room-occupancy hotels, which served as a crucial source of last-resort housing. That’s what prompted tenants to push back against the Somerton’s conversion. In 1984, when Lembi asked the city for permission to renovate the Somerton from a residential to a tourist hotel, it was challenged by Randy Shaw, a longtime housing advocate who founded the Tenderloin Housing Clinic in 1980 and still runs it today. He eventually negotiated a settlement that allowed the two dozen long-term residents to stay in what would become the Hotel Diva.

“In the late ’70s, as San Francisco was gentrifying, the one supply of housing for low-income people was single-room-occupancy hotels,” he said in an interview. “We thought the city should do everything they could to preserve it, because if you can’t live in an SRO, where are you going to go?”

A pandemic cut through red tape

In February 2020, when Gavin Newsom strode to the dais in the state’s Assembly chamber to give a State of the State address that, contrary to his usual style of veering from issue to issue, focused entirely on homelessness, the idea of buying and rehabilitating hotels was basically a bullet point. “We are also pushing for new models of homeless housing — like hotel/motel conversions and prefab and tiny homes — and as we do, we’ll cut the red tape to get to ‘yes’ on these innovative approaches,” the governor said, before pivoting to mental health.

This was 10 days before the United States’ first reported death from COVID-19 and a month before the World Health Organization declared a pandemic. Newsom said that at the time of his address, he imagined a hotel-buying program getting little more than a few million dollars. “Maybe, honestly, like 200 units,” he said. “I wanted to prove the point that we could do this.”

A month later, with the pandemic raging, hotels sat empty and his administration was formulating a plan to repurpose them for the homeless to shelter in place. The virus was still new enough that many of these meetings were conducted without masks, but it was clear that it preyed on the old and the sick, two common traits among the homeless population, prompting nightmare visions of shelters being wiped out and bodies being loaded into dump trucks.

The solution was Project Roomkey, which used funds from the Federal Emergency Management Agency to lease hotel rooms for homeless people so they could isolate and shelter in place. Since there was no way to house California’s entire homeless population, city and county governments — which along with nonprofits performed the on-the-ground work — gave priority to people whose age or preexisting conditions made them vulnerable.

Gregory Sanchez remembers it perfectly, because it was amazing and also weird. He was inside his tent, sitting in a beach chair, when a city employee came by to ask if he was interested in temporary housing. He said yes, and she put his name into an iPad. A few weeks later, a van showed up to take him to the Diva.

For months, Sanchez had slept in the same spot in front of the church. He played dominoes and gambled for nickels with a pair of brothers named Fernando and Pete, who lived in the tent to one side. He’d barbecued chicken and hot dogs with an older man he called Tio, who lived in a shack of bed frames to the other side. Now he had 10 minutes to gather his stuff.

He packed some clothes and gave away the rest: blankets, pillows, the beach chair, a portable stove, the tent. The van had an automated gate for wheelchair access, and for some reason, Sanchez, who moves slowly but can walk fine, stood on it and was lifted to his seat. As the platform rose, he waved goodbye to his friends.

“I felt like the president,” Sanchez said.

By the time Sanchez moved into the Hotel Diva, California had received about $10 billion in federal stimulus funds for pandemic-related expenses. In June, the Legislature authorized the state to create a new program — what became Homekey — to acquire permanent housing. The most remarkable thing about the legislation was that it superseded a number of laws, including local zoning ordinances and the California Environmental Quality Act, that make California such a tough place to develop housing. What made that possible, said Jason Elliott, a senior counselor to the governor, was the threat of both the virus and a federal deadline that would force states to give back whatever relief money they didn’t spend. “That combination is why we got this done,” he said.

The usual fights erupted. Cities complained that they didn’t have enough input. Neighbors sued. Purchases fell through. But local governments were mostly on board, and the state was able to close 94 deals, for a total of 120 properties, in six months. Newsom has since proposed an additional $1.75 billion to acquire property for homeless housing and said he planned to “significantly” increase that figure but would not elaborate.

There is broad agreement that converting hotels to homeless housing can work, at least in some instances. Hotels have long been made into supportive housing, although never on a large scale, because they often cost less than new construction. Episcopal Community Services bought the Hotel Diva for $50 million or $385,000 per room, roughly half what it costs to build an affordable housing unit in San Francisco. They also filled it in a few weeks. Contrast that with a 256-unit supportive housing development the organization is building a mile away: ECS was awarded the project in 2018 and, after years of process and a neighbors’ lawsuit, should finish the buildings next year.

The question is whether the urgency of the pandemic can be maintained as the virus fades. No matter how many units the state buys, there is no way to make lasting progress on its homeless problem without reforming its land-use laws to make housing easier to build — something legislators have generally been reluctant to do.

Homelessness is a hard problem to feel optimistic about. San Francisco’s tent count has fallen precipitously over the past year, but there are still hundreds of them, and the number of people living in cars has grown. Only a small fraction of the rooms rented for homeless housing in the pandemic will be purchased by the state, leaving local governments to figure out what to do with the tens of thousands of people who, absent a new intervention, will have to return to shelters or the street. Although the intention of purchasing hotels is to provide permanent supportive housing, it’s not clear who will get priority or if Sanchez — who said he wanted to stay — will be among them.

But each room is life-changing to a degree that almost no other intervention can provide. In a series of long-term studies of homeless people who have moved to permanent housing, Dr. Margot Kushel, director of the Benioff Homelessness Initiative at the University of California, San Francisco, has found that basically every determinant of health improves.

They sleep more, bathe more and show up to doctors’ appointments. They are arrested less and assaulted less, and outside the struggle of survival, they start to think about what to do with their lives. Gregory Sanchez cannot describe his life in the Diva for more than a few minutes without breaking into tears, but when you ask for specifics, he answers with phrases like “to be able to take a shower and shave and stuff.”

Part of the goal of supportive housing is to stabilize people with employment or counseling and, unless they are permanently disabled or suffering from severe mental illness, move them to a subsidized apartment or a room with family — clearing space for the next person in need. But absent any incentive for residents to do so, or any mandate to exit, many never leave. It’s a conflict that comes up constantly in policy circles but is regarded as secondary to the goal of simply getting as many people inside as possible.

Sanchez takes a bus from the Diva to the Mission most days to hang out with friends and talk about old times. Walking around the neighborhood on a recent morning, he reverted to his habit of referring to buildings by the names of businesses that have been gone for decades.

After a trip to the site of his old encampment — the tents are now gone, the nail where he hung a cross in a tree remains — Sanchez walked to a sidewalk flea market where he laid out a collection of old phone chargers and a universal remote control. People always need chargers, he said, and often buy used TVs without a remote.

A half-hour and $3 later, his nephew, Jon San Felipe, 51, rode by on his bike. They talked about life and the Giants and Sanchez’s new home. It was the first time Sanchez had told his nephew he had been living in a tent.

“I just figured he was staying around, bouncing around, couch-surfing,” San Felipe said. “I didn’t want to go into it because that’s personal. Every man has his pride.”