Herrera sues Skyline Realty, CitiApartments
for egregious pattern of illegal business practices

One of City's largest residential landlords charged with panoply of lawlessness, intimidation tactics, retaliation against residents

From the Office of San Francisco City Attorney

August 16, 2006

SAN FRANCISCO -- City Attorney Dennis Herrera filed suit against one of the largest residential landlords and property managers in San Francisco today, alleging an egregious pattern of unlawful and unfair business practices whereby rental units were illegally recovered from tenants; renovated in clear violation of building and safety codes; and then unlawfully relet at dramatically increased rental rates -- occasionally as short-term corporate housing, representing still another violation of local law. The litigation against Skyline Realty, Inc., CitiApartments, Inc., and nine named subsidiary limited liability companies follows a months-long investigation by the City Attorney's Office, and details a shocking panoply of corporate lawlessness, intimidation tactics, and retaliation against residents.

"The facts revealed by my office's investigation demonstrate very clearly that the owners of Skyline Realty and CitiApartments made a calculated business decision to operate in violation of the law –- and to do so consistently," Herrera said. "Given its dominant market position and web of subsidiaries, Skyline's illicit business practices do not merely victimize tenants, they cheat the vast majority of law-abiding landlords with whom they compete unfairly. Their business conduct is egregious, it is pervasive, it is illegal, and it will not be countenanced in San Francisco's rental marketplace."

According to the complaint filed in San Francisco Superior Court this morning, Skyline and CitiApartments employed frequently harrowing tactics to intimidate tenants into surrendering their rent controlled tenancies, including unannounced visits by armed paramilitary-like agents; unauthorized entry into rental units; shutting off utilities without notice and for extended periods; changing locks and depriving tenants of keys; and retaliating against tenants who refused to accept offered buy-outs. Once in control of vacated units, Herrera's complaint alleges, Skyline undertook occasionally extensive construction and remodeling work without bothering to obtain requisite permits, or to risk any of the inspections necessary to assure compliance with state and local safety and building codes.

Representative Violation of City's HCO

In one of several representative violations detailed in the City Attorney's lawsuit, Skyline flouted the City's Hotel Conversion Ordinance by illegally offering residential units in a single room occupancy hotel for rent for non-residential or tourist use -- including as extremely lucrative "corporate suites." (Local law permits such conversions, but requires a mitigation fee to offset the loss of residential housing stock.) When the defendants purchased the Gaylord Hotel at 620 Jones Street in August 2005, the building's Certificate of Occupancy confirmed it to be a 171-room residential hotel, with all of its rooms designated as residential, and none allowed for tourist use. Yet despite its current legal status as a solely residential hotel, the current owners within one year began marketing rooms for rent to tourists -- in flagrant violation of the HCO -- advertising, "Whether traveling for business or pleasure, Gaylord Suites (formerly The Gaylord Hotel) combines the comforts and conveniences of home with the luxury of hotel service."

The lawlessness appears to have reaped a substantial windfall -- at least in the short term. According to the Annual Unit Usage Report filed with the City's Department of Building Inspection by the Gaylord Hotel's previous owners in October 2004, average monthly rent for a residential room was $990. A year later -- following the defendant's purchase of the building and reincorporation as Gaylord Hotel LLC -- the average monthly room rental had skyrocketed more than four-fold, to $3,972.

Violations Alleged and Penalties Sought

Herrera's litigation against Skyline Realty, CitiApartments and related defendants alleges multiple violations of state and local laws, including the San Francisco Housing and Administrative Codes; California Health and Safety and Civil Codes; and the state Business and Professions Code's Unfair Competition Law. Apart from a court-ordered injunction against further lawlessness by the defendants, the civil action seeks disgorgement of profits and restitution, as well as recovery of civil penalties for past conduct that could include $1,000 per day for each Housing Code violation; $2,500 for each unlawful business act; and an additional $2,500 for each unfair and unlawful business act perpetrated against a senior citizen or disabled person. Attorneys' fees and costs are also sought under Herrera's action.

Code Enforcement Hotline Available

The City Attorney's Office maintains a Code Enforcement Hotline for callers speaking English, Spanish or Cantonese at the following telephone number: (415) 554-3977. Callers may use the hotline to report suspected illegal conduct by Skyline Realty, CitiApartments or its subsidiaries. A general TTY number for the office is available for hearing-impaired callers at (415) 554-6770.

About the Case

Herrera's civil case is prosecuted by the City Attorney's Neighborhood and Resident Safety Division by Deputy City Attorneys Yvonne Meré and Neli Palma, and Chief of Special Litigation Owen Clements. The case is City and County of San Francisco and People of the State of California v. Skyline Realty Inc., CitiApartments, Inc., et al. San Francisco Superior Court, filed August 16, 2006. A copy of the complaint is also available on City Attorney Dennis Herrera's Web site at: http://www.sfgov.org/cityattorney/.

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