The Louisiana Purchase

The Louisiana is a mixed-use complex on the corner of Louisiana Street and University Avenue in North Park. There is a hip restaurant (Louisiana Purchase) on the bottom level that, according to its website, “was inspired by the charm and character of New Orleans.” The prices there are a bit hefty, especially when compared to Colima’s across the street that has been serving budget Mexican food for years.

The new restaurant may benefit from a constant stream of rotating tenants due to an unusual operations arrangement for the majority of the 15 apartments located just above it. A company called Sonder leases most of the units and, in turn, rents them out individually as short-term vacation rentals (STVRs).

The situation at the Louisiana was brought to the attention of Save San Diego Neighborhoods board member Brian Curry. He was originally the chairman of the Pacific Beach Planning Group before he hopped on board with Save San Diego Neighborhoods. Curry noted that the “sole purpose” of his group is battling short-term vacation rentals.

“The short-term rental problem was always perceived to be like a coastal, single-family home issue in which the short-term rentals were taking our single-family homes—which they are and have been,” Curry explained. “Certainly, that’s somewhat where it started. What we discovered with some of these new platforms like Sonder, Stay Alfred and others is that now they are master-leasing entire apartment complexes and then using those like mini-hotels. Sonder is national and they’re very big and anybody can find them. You might even do an Expedia search and a Sonder property might come up.”

Curry continued: “This is a new thing, and I think if you trace back, it’s probably two to three years max. It is new, and that’s why people are pretty much unaware of it until, all of a sudden, you have a mini-hotel in an apartment complex next door to you.”

The simplest way to learn how Sonder operates is to visit its website. Like many hotel sites, just plug in your destination city, number of guests, and the dates for your stay. Search results for two guests in San Diego for the weekend of November 8-10 yielded five available units at the Louisiana. Options included a “bold one bedroom + balcony” for $200 per night, a “vibrant studio + patio” for $191 per night, and, at the low-end, a “two bedroom + terrace” for $179 per night.

Looking ahead, to get a feel for the real money-making potential of these rental units, I did a similar search but this time for July 22-26, 2020—the weekend of next year’s Comic-Con.

There are currently 12 units available at the Louisiana for this timeframe. The bargain unit is $428 per night, while six others clock in at $467 per night, and the remaining five are going for $558.

The Louisiana isn’t the only option in San Diego, of course. On the pricier end of the cost spectrum, multiple units at Shift Apartments (1501 Island Ave.) are listed at $869 per night, and the ultimate in spending can be achieved by dropping $1,045 per night on one of two “three bedroom + pool” units at Pinnacle on the Park (424 15th St..)

If all 12 Sonder units are rented at the above rates, Sonder will generate $24,080 in rental profits during Comic-Con 2020. The units will make an average of $2,006.66 each. On a slower month, even if a single unit only averaged $200 per night and was rented out for 25 nights, it would still bring in $5,000.

If you dig into the Leasing section on Sonder’s website, it’s easy to see why apartment owners are drawn to the company. They advertise themselves as “your ideal tenant” and offer “100% occupancy on day one after completion; no lease-up and no ramp-up.” They address the usual landlord woes of empty units by providing the opportunity to “eliminate vacancies, credit loss, ongoing maintenance, leasing commissions, and turnover costs.”

Curry acknowledged why this might seem appealing to landlords: “If I was a landlord, I can get one tenant, Sonder, to write me a check once a month. And Sonder can afford to pay even more than I would have got in market rents because their model is completely different than market rental units. They go in, they dress them up, they furnish them — they make it a hotel type of experience. From the landlord’s perspective, these guys approach them—they say ‘we’ll take the whole thing.’ "

It is worth mentioning here that the Louisiana was not developed to be a hotel. The project details on the City’s development services department website clearly state that the structure was intended to be a “13 unit apartment multi family and commercial space with on grade parking on an existing vacant lot. Work also includes 2 affordable housing apartments.”

This seems to be a cut and dry instance of code violations, so why is this happening, and why is nothing being done about it?

“The city could enforce because it is illegal at this point,” Curry explained. “Any unpermitted use like that is certainly illegal. So, Sonder has made the point that that particular zone allows for visitor accommodations, and that may be true — but it’s not permitted as a hotel. It was permitted as an apartment building with two affordable units over retail. Ask the hotel owner down the street how he feels about it when this big, corporate giant can come in and just start master-leasing units and directly compete with him, whose actually trying to run a legal hospitality operation with all the fire codes, the health department—all the things that go along with running a hotel. In the meantime, this guy is just posting up units for rent online.”

Curry was blunt with his assessment of the situation: “It’s a tragedy.”

“The bigger issue is what’s happening to our housing inventory. We’re losing it,” Curry said, estimating that the City has lost 16,000 housing units to short-term rentals while “in the midst of a housing crisis.”

As for the remaining long-term tenants left in the Louisiana, apartment life in a building with constant visitor turnover may lose its charm quickly.

A former resident left the following review of the building on apartments.com: “Vacationers have ruined this place. I enjoyed living here until the place has become over ran with short term vacation rentals. They are obnoxious and unpleasant and make a ruckus all hours of the night.”