HubHaus eviction underscores issues with corporate co-living

The seven housemates found out they were all being evicted when someone slipped envelopes under their bedroom doors with 30-day notices inside.

They were renting rooms in a big house in San Francisco’s tony Monterey Heights through HubHaus, a venture-backed San Francisco company that facilitates “co-living communities.” It’s among a new breed of startups that run shared-living situations, sometimes dubbed “dorms for grownups.” HubHaus and companies such as Bungalow, Common, Starcity and WeLive say they ease the hassles of living with roommates. Essentially, they seek to corporatize the longtime tradition of bunking with others.

“I was devastated,” said Anna Chase, one of the renters in what HubHaus called Ophelia Haus. “I thought, ‘They can’t just kick us out.’ We intended to stay there. We had a Thanksgiving dinner, took a group photo and put it on the fireplace mantel, and said, ‘We’ll do this every year.’”

Now she and her former housemates have joined forces to request mediation with HubHaus, as required in their leases. A lawsuit looms if that doesn’t work out.

Their situation underscores both the promises and the perils of shared co-living managed by corporations.

“What HubHaus is doing is illegal,” said Joe Tobener, a San Francisco attorney representing the tenants. “They wrongfully evicted our clients, and they will do it again to other tenants in other rent-controlled cities. They are profiting by not playing by the rules.”

HubHaus disputed that, saying its approach is legal and it actually helps ease the housing crunch.

The 3-year-old company, which has $13.4 million in venture backing, manages about 1,300 rooms in 218 houses in the Bay Area, Los Angeles and Washington, with the lion’s share in the Bay Area, but just a handful in San Francisco. It leases houses, furnishes the common spaces, screens renters, hires cleaners, collects rents and handles maintenance.

HubHaus CEO Shruti Merchant, who herself lived in a South Bay HubHaus and is on the waiting list with her partner for another one, said the company helps “unlock inventory” by persuading landlords to allow larger groups to reside in their properties.

For instance, the Monterey Heights landlord “would not have worked with a group of seven people, but because we ‘de-risked’ it, they did,” she said. A larger group means a lower cost per square foot, allowing it to offer additional services, she said.

But the size of the group is what caused the eviction and led to a major risk for the landlord — the threat of a big penalty from the city.

Neighbors started complaining to San Francisco as soon as the roommates moved in last August, public records show. The Maywood Drive house, valued at $2.44 million on property site Zillow, is zoned for single-family use. Inspection visits and city notices on the front door became frequent and disconcerting phenomena, Chase said.

HubHaus leased the house for a year last summer and then rented out individual rooms for $950 to $1,590 each, depending on their size and amenities. Four of the housemates moved in during August, and three others moved in during December or March. All had one-year leases that contained a clause allowing either party to terminate early with a $450 lease-break fee.

After months of investigations, the San Francisco Planning Department said the house was an unauthorized group house, subject to a $250-a-day penalty. That spurred the property owner to tell HubHaus it would not renew its master lease, Merchant said.

HubHaus served the eviction notices in mid-June, and the renters moved out by mid-July. Their only compensation was the $450 lease-break fee from HubHaus, which also told them they could use its website to apply for other rooms in its network. “What made me the saddest was that the company didn’t offer help,” Chase said. “We got a lot of runaround and a form email: ‘Click on our website to see what other houses have availability.’”

Merchant said HubHaus lets tenants in existing houses pick their new roommates, so it couldn’t guarantee rooms for the displaced tenants.

“What happened with this house was really unfortunate, and frankly our communication with the members was really poor,” Merchant said. She said the company lost money on Ophelia Haus as it devoted legal resources to fighting the city, but “should have kept (the renters) in the loop.”

She also blames the city for supporting NIMBY neighbors and the homeowner for “buckling under the pressure” of threatened fines.

Tobener said the vintage-1940 house, built before San Francisco passed its strict rent-control laws in 1979, has eviction protection. The city also offers rent-ceiling protections to people who rent individual rooms from a master tenant in a single-family home, seeing them as akin to multiunit dwellings.

Jennifer Fieber, political director of the San Francisco Tenants Union, said boardinghouse situations with separate leases “are a great way to get rent control into single-family homes.” Although she decries shared houses being corporatized, she sees them as “the last bastion of affordability.”

Tobener said that master tenants in rent-controlled properties cannot charge subtenants more than what they pay the landlord. That’s the whole business model for HubHaus and other co-living startups — they make money on the difference between what a house costs them and what they charge renters.

The Maywood Drive residents’ monthly rents ranged from $950 to $1,590, depending on room size, bathroom and other features. Collectively they paid $9,190, while the house probably rented for $7,000, according to a real estate expert hired by Tobener. Merchant wouldn’t say how much HubHaus paid to rent the house, but said she disputes that it cannot take in more money than it pays an owner.

One issue for Ophelia Haus was the definition of family, an issue raised by Mission Local, a news website that first reported the dispute between HubHaus and the renters.

A group of five unrelated people can qualify as a family in San Francisco. Larger groups must control their membership; purchase, prepare and eat their meals collectively; and determine their own rules for their space to meet the city’s definition. HubHaus tried to make changes for its tenants to qualify under that rule, but the city rejected them because ultimately the company was still in charge.

“HubHaus was the lease holder, not the tenants themselves,” said Tina Tam, an enforcement manager with the San Francisco Planning Department.

The city gets about 10 complaints a year about single-family homes being used for group housing, relatively minor among the 800 annual complaints her department handles, Tam said.

“They had this huge, grand vision,” Chase said. “The few people I met (at HubHaus) were the very nicest; so excited about doing things to build community. But they weren’t able to actually run the company in a way that was functional for people who lived in their houses.”

Carolyn Said is a San Francisco Chronicle staff writer. Email: csaid@sfchronicle.com Twitter: @csaid

Article source: https://www.sfchronicle.com/business/article/HubHaus-eviction-underscores-issues-with-14375078.php

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