Rental Units Go Corporate to Cash in On Visitor Boom

By Jorge Casuso

In what could signal a growing trend, landlords of beachfront apartments are cashing in on a booming visitors' market by offering furnished rent-controlled units on a short-term basis for more than double the going market rates.

Most of the units are concentrated in buildings around the large luxury hotels just south of the pier and range from a newly rebuilt four-unit market rate-building to a renovated 70-unit rent-controlled complex that is reopening this month. It is rumored at least one other large building on the beach is contemplating renting units as corporate suites.

The proliferation of short-term rentals -- small one bedroom units go for as much as $3,500-a-month -- comes in the midst of a crisis city officials contend is rapidly dwindling Santa Monica's affordable housing stock.

But there may be little the city can do to halt the trend, since corporate suites, like nearly all rent-controlled units, are rented on a month-to-month basis. As a result, they are in compliance with a 1990 voter-approved initiative that prohibits new hotels west of Ocean Avenue. Apartments, unlike hotels, are not subject to a transient occupancy, or "bed," tax, which in Santa Monica is 12 percent.

"They are allowed to rent month to month, but we have to look at the terms of the tenancy," said the city's planning director Suzanne Frick. If a landlord rents to a different tenant every thirty days, Frick said, the unit "could border on a hotel."

"It is an enforcement issue," Frick said. "We will investigate to determine what the terms of their rental agreements are. Is there anything about that that borders more on being a transient occupancy as opposed to a long-term project?"

Officials at the Rent Control Board, which has jurisdiction over most of the city's rental units, say there is nothing they can do about a trend that reflects a dramatic rise in housing costs. The increases -- many apartments have doubled their rents -- is the result of a state rental law that allows landlords of vacated rent-controlled units to charge whatever the market will bear. Besides, the rent board cannot dictate how long a tenant can stay in a unit, officials said.

The state rental law, which kicked into full effect on Jan. 1, coincides with a tourism and entertainment boom that is drawing wealthy tourists and corporate visitors to the seaside city of 94,000. With luxury beachfront hotel rooms fetching between $245-a-night for a room without an ocean view at the Loew's Santa Monica Beach Hotel to $3,500-a-night for a presidential suite at Casa del Mar, the newly refurbished "corporate suites" are a bargain for visitors staying for more than a couple of days.

"It's part of the result of vacancy decontrol," said Rent Control Board Administrator Mary Ann Yurkanis. "You're legitimately renting for accomodations. There's no violation of rent control. I think our town is changing here. I wish that there was something I could do about it."

The trend toward short-term rentals is perhaps most apparent on Arcadia Terrace, a small walkway street between Ocean Avenue and the beach just south of the pier.

During the past two years, Santa Monicans, some of whom occupied the units along the once shady 80-year-old walkway for decades, have been replaced with visitors staying for a couple of weeks.

The eight-unit rent-controlled building at 35 Arcadia Terrace, for example, is now renting small furnished one-bedroom units on a weekly and monthly basis, according to and advertisement on their Web Site. The rents -- which ranged from $374 to $708 a month before the state law kicked into full gear -- now go for $ 1,100 a week and between $2,750 and $3,500 a month.

The apartments are run by the owners of the Hotel California -- previously the Belle Bleu Inn by the Sea -- across the Arcadia Terrace walkway. The smaller units are more amenable to short-term stays than permanent residences, said owner Rick Butler.

"It has to do with the size of the units," Butler said. "It's more difficult to rent to people on a longer term. It gets claustrophobic."

Just down the walkway from Butler's building the four-unit 25 Arcadia Terrace Beach House offers a $2,200-a-month penthouse with ocean views from every window; a rooftop deck with an elevated jacuzzi; a master bath with Italian marble, jacuzzi tub and six-foot skylight, and a library with an antique fireplace from the Beverly Hills Hotel, according to a glossy color brochure. Guests also get a complimentary health club membership at the nearby Loew's Hotel.

"We get mostly Europeans, a lot of Hollywood people," said owner John Edwards, who uses the penthouse as a second home. "We do two-month minimum leases. I don't really mess around with people coming and going. It's just not worth the hasssle."

The fact that the units are not meant as long-term accomodations is reinforced by the brochure for the former rent-controlled building, which boasts that "the double bed and wicker furniture make this as good as home."

Other ads listing furnished units are careful to note that they are rented as apartments and not as hotel rooms.

"We won't seem unusual for a luxury beach hotel," reads an ad for Citrus Suites, which are furnished units in the newly renonated 70-unit apartment building at 1615 Ocean Avenue, formerly 110-120 Pico. "That is until you realize we're actually not a hotel."

Unlike the Arcadia Terrace Beach House -- which was removed from rent control after the 1994 Northridge earthquake battered the original six-unit bungalow -- the Citrus Suites are still under rent control jurisdiction.

Some of the tenants displaced after an extensive 10-month renovation project have accepted relocation payments that equal 10 months of rent and will not return, said owner Howard Jacobs. A few have retained an attorney and are negotiating larger sums to forfeit the option of returning.

Jacobs believes the building, which is just east of the newly renovated Casa del Mar Hotel, is a testing ground for a new rental market. While unfurnished one-bedroom units in the building are going for $1,500, the same 500-square-foot fully furnished unit with satellite television and weekly maid service is listed for $3,500 a month.

Jacobs believes the market will determine how many of the units will be furnished.

"There's no predetermined number of furnished and unfurnished units," he said. "It's pretty much a market-driven decision based on demand.... We got a lot of activity there, and it's going to appeal to a certain type of tenant, and they are very small units."

The leases are for at least one month and if the tenant leaves early, the unit stays unoccupied, Jacobs said. The tenant, he said, could always come back.

"It's a conventional apartment in every way," Jacobs said. "There have been furnished apartments forever, and these are just furnished apartments.

"There are people that will come in and say, 'I don't want any hassles," Jacobs said. "There's a real change in culture. A lot of people are staying single by choice. Many travel a lot. They come and leave as they want and don't want those responsibilities."

"There's a market for every building, and you're going to find landlords finding a niche," Jacobs said. "We'll see what our tenant base will be."