LA’s old residential hotels keep people off the streets — but they’re in financial peril

Often described as housing of last resort for some of the city’s poorest renters, single-room occupancy buildings in Los Angeles are operating at a financial loss — and losing more money every year.

That’s according to a November report from Enterprise Community Partners, an affordable housing nonprofit. The report surveyed 39 buildings across California. It found that only two — both located in San Francisco — have positive cash flow.

All of the L.A.-area properties are run by organizations that keep buildings financially afloat by digging into their own budgets, making up for rental income that isn’t enough to cover operating costs.

“Owners that are carrying these properties are really trying to make them work,” said Marc Tousignant, who oversees vulnerable populations for Enterprise’s Southern California market. “They're really at the front lines of ending homelessness.”

Losses have tripled

The buildings surveyed in the report contained more than 3,000 single-room occupancy units in total. These are bare-bones apartments, usually just a bedroom without a private bathroom or kitchen.

Many are located in old residential hotels, often in downtown L.A.’s Skid Row neighborhood.

The report found building owners have needed to triple the amount of money they’re advancing per unit over the last five years. Losses cost organizations an average of $971 per unit in 2020. Now, that figure is up to $2,866 per unit.

Some, like the storied Cecil Hotel, have struggled to attract tenants. The report found an average vacancy rate of 20% in the surveyed buildings. Some of the aging properties are unattractive to prospective tenants because of deferred maintenance or damage caused by residents with untreated mental health issues.

“There have been discussions around, should we just abandon this model and convert them completely?” Tousignant said. “But they are really serving, I think, an important role.”

What could turn them around?

The two buildings in San Francisco that are financially healthy both have project-based vouchers through the city’s Section 8 program. These vouchers help tenants pay for rents in the building, and the vouchers cannot be transferred to other properties.

Tousignant said this approach could help improve the financial outlook for buildings in L.A.

“Unfortunately, in L.A., we haven't really been dedicating any new project-based vouchers to older or existing buildings,” he said. “They've really been going towards newer buildings.”

Rehabilitation is another approach that could improve vacancy rates at the buildings. The estimated cost of fixing up each single-room occupancy unit was $165,000 on average, according to the report. Some of those plans could involve converting units into studio apartments, complete with kitchen and bathroom facilities — though that could involve reducing a building’s total number of units.

“It's this sort of trade off,” Tousignant said. “What's more important? Making these complete units or losing a little bit of affordability in terms of the amount of units?”

Tousignant said if the affordable housing field doesn’t find solutions to these problems, more buildings could find themselves in court-ordered receivership, with tenants facing an uncertain future.

That’s the situation the Skid Row Housing Trust found itself in, before developer Leo Pustilnikov bought its troubled portfolio of buildings.