California businesses face eviction as moratorium ends

Some landlords and real estate brokers believe it won’t lead to many evictions, because property owners are desperate to keep their spaces filled and want to renegotiate leases.

“I don’t know anyone evicting tenants. We’re not evicting anyone,” John Callan, president of San Mateo Land Exchange, owner of a downtown San Francisco building at 201 Kearny St., said. “If somebody’s been impacted by COVID we work with them.”

But tenants and small business advocates fear that since many struggling businesses haven’t been able to resolve lease and rent disputes, evictions are inevitable.

Julie Gilgoff, staff attorney at Lawyers’ Committee for Civil Rights of the San Francisco Bay Area, has worked with over 100 small businesses and said only a few have successfully renegotiated.

San Francisco retail tenants collectively owe an estimated $285.7 to $564.7 million in unpaid rent between April 2020 and August 2021, according to a city study released last week. Office tenants owe only an estimated $11.1 million to $22.8 million in unpaid rent for that time.

“By and large we have found landlords either wanting the full rental amount or not willing to forgive even the months where tenants had to close because of government mandate,” said Gilgoff, whose group works with San Francisco’s Office of Economic and Workforce Development to connect with business owners. “We believe landlords have the upper hand over tenants at this time.”

Retail broker David Blatteis disagreed and said all but one of the landlords of the 37 San Francisco buildings that he manages have reduced rents by as much as 50%, helping small businesses like Brownies Ace Hardware on Polk Street and Goorin Bros. Hat in North Beach to survive. Even clothing giant Gap got a rent reduction to keep its Chestnut Street store open as it closed all three of its other locations in the city, he said.

“None of my landlords are planning on evictions,” Blatteis said. “They want to work with tenants.”

The rent abatements are typically up to a few months at a time, after which they’ll be re-evaluated to see if the economy has improved.

Leases typically mandate that tenants continue paying rents unless a “force majeure” occurs. Whether the pandemic qualifies is, in many cases, under dispute and dependent on what the specific language is in a particular lease.

A San Francisco ordinance to forgive back rent for businesses shut down by the pandemic is subject of a lawsuit by landlord groups.

Some disputes involving major retailers have also gone to court. Gap’s Old Navy division was sued last summer by landlord Ponte Gadea California LLC for $1.6 million in alleged unpaid rent at 821 Market St. in San Francisco. The case is ongoing.

Gap and Simon Property Group, the country’s biggest mall owner, settled a lawsuit over an alleged $107 million in unpaid rent last December. Nordstrom, HM and Saks were all sued last year over alleged missed rent payments in downtown San Francisco.

Cases where tenants were able to renegotiate leases also involved many challenges, underscoring the difficulties especially for low-income and minority-owned businesses.

Sara Segovia, owner of Westlake Coffee Shop in Daly City, had to close for two weeks in March 2020 and then rely only on takeout and delivery. Sales plunged more than 85%, with monthly revenue around $5,000 during the worst of the shutdown, compared with $35,000 in 2019. The pandemic closure of Century Theatres, which is in the same building, badly hurt business. The cafe’s seven employees are now down to five.

Segovia, who speaks Spanish but not English, wasn’t aware of what government aid was available until the end of 2020.

“That happened with many Latino-owned businesses, especially women, I realized,” said Gabriela Sapp, a financial adviser at the San Francisco Small Business Development Center, which helps small businesses including Westlake Cafe. “They were so focused on trying to run the business that they didn’t really hear any information about COVID-19 funding or anything.”

Sapp tried to help Segovia renegotiate her lease, but calls to building manager CBRE, the giant real estate brokerage, weren’t returned. It wasn’t until a smaller company took over management that Segovia was able to make progress and reached an agreement to reduce rent to an affordable rate based on the cafe’s business revenue. Sales have partially recovered but are still around 30% lower than in 2019.

CBRE declined to comment, and the landlord DB Real Estate Pacific Plaza Partners didn’t immediately respond to a request for comment.

Segovia supports extending the moratorium until at least the end of the year.

“Not everyone is able to communicate with their landlord. Families are struggling to pay rent,” Segovia said in Spanish, as translated by Sapp.

Callan, the owner of 201 Kearny St., agrees that it’s been a brutal year for tenants.

One restaurant in his building spent a year and a half before the pandemic obtaining permits to switch from a sushi restaurant to a new eatery called Chicken Little Rotisserie. It reopened in the first week of March 2020 and is now empty. It’s not clear if it will ever reopen, Callan said.

But landlords have also suffered with their own unavoidable expenses and haven’t received the same level of government support as tenants, he said.

“At times I think the city is at war with the property owners,” Callan said of San Francisco. “I don’t think they realize landlords have large bills, property tax bills, insurance bills, utility bills, water bills.”

Three of 201 Kearny’s nine commercial spaces are vacant, and Callan has reduced rents to help those businesses that need it. Some tenants, like a medical company, are doing fine, while a catering company is struggling.

“Our philosophy is everyone should pay their fair rent,” he said.

Although the state order is expiring, local governments continue to work on regulations and assistance.

Los Angeles County officials voted on Tuesday to extend its commercial eviction moratorium through the end of January. San Francisco officials have not done so, but the Board of Supervisors passed an ordinance by Supervisor Ahsha Safaí to establish a rent relief fund for small business.

Businesses with fewer than 50 employees have between 12 and 24 months to repay rent. Mayor London Breed signed an amendment on Monday that gives some businesses with 50 to 99 employees up to six months to repay rent. The city has allocated more than $63 million in relief to support over 3,000 small businesses during the pandemic.

“As the state’s commercial eviction moratorium ends, we want to ensure that our businesses and property owners have the resources and support and assistance they need,” said Kate Sofis, director of the city’s Office of Economic and Workforce Development, in a statement.

Even when tenants and landlords have positive relationships, survival can be fraught.

Osbelia Castaneda, owner of Osbelia’s Hair Salon in the Excelsior, said the shop was closed between March 2020 and January 2021, aside from a brief window before the winter surge.

In the darkest days, she felt hopeless and had to rely on family, friends and aid to pay for food and rent. It was hard taking care of her son, who has schizophrenia. Unable to color anyone’s hair in person, all she could do was send hair products by mail.

“I felt like I might give up and leave the country,” Castaneda said in Spanish, as translated by Sapp, who also assisted her. Castaneda is originally from Mexico.

It took around five months to renegotiate her lease, and her $3,500 per month rent was retroactively reduced to $600 for the months she was closed. Her landlord didn’t immediately respond to a request for comment.

Castaneda supports extending the moratorium for another year, because businesses like hers are just starting to recover.

She had three employees and three contractors, all who were laid off or left the company. She’s been able to rehire two new employees and two contractors, but sales are still only about 30% of 2019 levels, or about $5,000 a month. That’s barely more than her rent, which is back to its 2019 level.