California businesses risk eviction when moratorium ends

California restaurants, retailers and other business and office tenants are all at risk of eviction starting Friday, after the state’s moratorium expired during the pandemic in late September.

Gov. Gavin Newsom’s office has confirmed that the executive order that established the moratorium expires Thursday and will not be renewed, potentially exposing dozens of businesses to further fallout from the pandemic. California’s moratorium on rental evictions will also end on Thursday. As of Friday, tenants could be evicted for unpaid rent.

Some landlords and real estate brokers believe this won’t lead to many evictions as landlords are desperate to fill their spaces and want to renegotiate leases.

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

But tenants and small business advocates fear that since many struggling businesses have been unable to resolve lease and rent disputes, evictions will be inevitable.

Julie Gilgoff, a lawyer on the San Francisco Bay Area Civil Rights Lawyers Committee, has worked with more than 100 small businesses and said only a few have successfully renegotiated.

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

Westlake Cafe in Daly City was able to renegotiate its lease and avoid eviction.

Santiago Mejia / The Chronicle

“Overall, we found landlords who either wanted the full amount of the rent or didn’t want to forgive even the months the tenants had to close due to a government mandate,” said Gilgoff, whose group works with the San Francisco Office of Economic Development and Workforce to connect with business leaders. “We think landlords have the upper hand over renters right now. “

Retail broker David Blatteis disagreed and said all but one of the owners of the 37 San Francisco buildings he manages have cut rents by up to 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 cut to keep its Chestnut Street store open as it closed its other three stores in the city, he said.

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

Rent cuts usually go up to a few months at a time, after which they will be reassessed to see if the economy has improved.

Leases generally require tenants to continue paying rent unless a “force majeure event” occurs. Whether the pandemic qualifies is, in many cases, contested and depends on the specific language of a particular lease.

A San Francisco order to cancel rent on businesses closed by the pandemic is being sued by homeowner groups.

Some disputes involving large retailers have also been taken to court. Gap’s Old Navy division was sued last summer by owner 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 largest mall owner, settled a lawsuit last December for allegedly $ 107 million in unpaid rent. Nordstrom, H&M and Saks were all sued last year for alleged missed rent payments in downtown San Francisco.

Cases where tenants were able to renegotiate leases also presented many challenges, highlighting 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 take out and delivery. Sales have plunged more than 85%, with monthly revenues of around $ 5,000 at the worst of the shutdown, down from $ 35,000 in 2019. The pandemic shutdown of Century Theaters, which is in the same building, has seriously affected hurt business. The seven employees of the cafe are now only five.

Segovia, who speaks Spanish but not English, was unaware of the government assistance available until the end of 2020.

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

Sapp tried to help Segovia renegotiate its lease, but appeals to property manager CBRE, the real estate brokerage giant, were not returned. It was only after a small business took over management that Segovia was able to move forward and come to an agreement to reduce the rent to an affordable rate based on the commercial income from the cafe. Sales have partially recovered but remain around 30% lower than in 2019.

CBRE declined to comment and owner DB Real Estate Pacific Plaza Partners did not immediately respond to a request for comment.

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

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

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

A restaurant in its building spent a year and a half before the pandemic obtaining permits to move from a sushi restaurant to a new restaurant called Chicken Little Rotisserie. It reopened the first week of March 2020 and is now empty. It’s unclear if it will ever reopen, Callan said.

But landlords have also suffered from their own inevitable expenses and have not received the same level of government support as tenants, he said.

“Sometimes I think the city is at war with landowners,” Callan said of San Francisco. “I don’t think they realize that homeowners have big bills, property tax bills, insurance bills, utility bills, water bills.”

Three of 201 Kearny’s nine retail spaces are vacant and Callan has cut rents to help businesses in need. Some tenants, like a medical business, are doing well, while a restaurant business is struggling.

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

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

Los Angeles County officials voted on Tuesday to extend its moratorium on business evictions until the end of January. San Francisco officials did not, but the board of supervisors passed an ordinance from supervisor Ahsha Safaí to establish a rent relief fund for small businesses.

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

“As the state’s moratorium on commercial evictions comes to an end, we want to make sure our businesses and property owners have the resources, support and assistance they need,” said Kate Sofis, director of The city’s Economic Development and Workforce Office, in a statement.

Marisela Castillo brews coffee at Westlake Cafe in Daly City.

Marisela Castillo brews coffee at Westlake Cafe in Daly City.

Santiago Mejia / The Chronicle

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

Osbelia Castaneda, owner of the Osbelia hair salon in the Excelsior, said the store was closed between March 2020 and January 2021, except for a brief window before the winter surge.

In the darker days, she felt hopeless and had to rely on family, friends and help to pay for food and rent. It was difficult to take care of her son, who suffers from schizophrenia. Unable to color anyone’s hair in person, all she could do was send hair products by mail.

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

It took about five months to renegotiate her lease, and her rent of $ 3,500 per month was retroactively reduced to $ 600 for the months she was closed. Its owner did not immediately respond to a request for comment.

Castaneda supports extending the moratorium by one year as companies like his are just starting to recover.

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

Roland Li is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @rolandlisf

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