8500 Sunset Owner Seeks $40 Million in Damages from West Hollywood

The owner of 8500 Sunset Blvd. has filed a claim for damages of more than $40 million with the City of West Hollywood as a result of a City Council decision on Sept. 4 that effectively bans the short-term rentals of some of its apartment units.

The claim was delivered on Monday to City Clerk Yvonne Quarker. Payment of the claim almost certainly will be denied by the City Council, which will set the city up for a court battle with BPREP 8500 Sunset LLC, a company controlled by Korman Communities and the Brookfield Property Group.

The claim states that BPREP has and will sustain damages in excess of $40 million because the City Council affirmed a ruling by interim Planning and  Development Services Director John Keho that the company could not use the furnished units of the West Tower at 8500 Sunset for luxury short-term rentals. (Nine of the 110  units are supposed to be set aside for affordable housing.) The 90-unit East Tower consists of unfurnished units that are rented as apartments. The Council made its decision in a three to two vote, with Mayor John Duran and Councilmember John D’Amico siding with BPREP.

BPREP purchased the 8500 Sunset property from CIM Group last summer, and Korman announced that it planned to turn the buildings into one of its AKA hotels. Korman operates 11 such hotels, which offer extended stays to corporate executives and other affluent guests in locations such as Beverly Hills, where rooms rent for a minimum of one week for as much as $1,000 a night, and in other locations in New York, London, Philadelphia where one can rent a room for only a one-night stay.

The City of West Hollywood quickly notified Korman that such short term corporate rentals have been banned in WeHo, part of a move by the City Council to prevent housing for residents from being taken off the market. Korman responded by announcing that the 80 units in its East Tower would be rented as conventional apartments (with eight of them set aside as affordable housing.) The 110-unit West Tower would be used for short-term stays (with nine affordable units). Korman said it would require guests to stay for at least 31 days to comply with the city ban on short-term rentals.

John Keho ruled last November that Korman was using the West Tower units for “temporary lodging,” effectively making it a hotel. Korman appealed his decision to the West Hollywood Planning Commission, which upheld it, leaving the next option an appeal to the City Council.

BPREP calls out three items to support its claim for damages:

1) It says that two members of the Council – John Heilman and Lauren Meister – contradicted themselves by voting in support of a City Hall staff statement that requiring rentals on a “long-term basis” meant renting them for one year or more. Those council members also, BPREP says, stated that they didn’t support a one-year minimum lease requirement.

Now, the BPREP claim states, “Council’s majority decision creates a precedent that no unit in the city may be rented for less than a year, because Code section 19.90.020 applies to any ‘Dwelling Unit,’ which is defined as ‘occupied by or intended for one household on a long-term basis’.”

2) The determination that leases must exceed or equal one year “is discriminatory, arbitrary and capricious.”

The BPREP claim states that the city’s website, WeHo.org, says any rental unit may be leased for 31 days or more, as is done at other apartment buildings in the city. The claim also states that there is no existing city law or regulation requiring a one-year minimum lease. “Council’s action targets only BPREP 8500 Sunset LLC, as a one-year minimum rental requirement is not applied to any other residential units within West Hollywood,” the claim states.

3) The City Council’s determination that the West Tower is a hotel is “specious.”

“The Code is straight forward in defining a hotel as a facility that offers rooms to guests ‘for overnight or other temporary lodging, typically less than 30 days.’ Because apartment units at the property may never be leased for fewer than 31 days,8500 Sunset by definition is not a hotel.”

The claim will be reviewed by the City Attorney and presented to the City Council at a future meeting.

 


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48 Comments
  1. Just a slight correction in regard to the issue of their affordable units. The staff report indicated that only 4 for them went to low income people and the other 8 or 9 were being rented as hotel rooms! So this developer was even cheating us of the affordable units they had committed to. The rents collected should be paid to our affordable housing fund.

    The common sense reading of the development agreement called for the creation of residential housing. They are running an extended stay hotel. A contact is a meeting of minds and when this contract was entered the original parties to the agreement had a very clear understanding as to the terms of the contract. To now go back and say we need to look at “new economic models” in our reading of the contract is nonsense. The “demand” by the developer is extortion and should be treated as such.

    1. Exactly.

      Their reps also told me that the only reason they asked to have all of the affordable housing tenants placed in the other building is because they had already furnished all of the units in the building being run as a hotel. Absolutely the only reason they wanted them all in the other building, and it’s really for their own good so they could bring their own furniture, etc. Uh-huh.

      My response to that is: if they knew they had an obligation to put those units aside, why furnish them as a hotel efficiency units in the first place? And secondly, how hard is it to move a sofa, a bed and a small table out of a few units?

      The obvious reason is so they can make more money per unit renting it short-term/as a hotel. It also gives the appearance that they want to keep the long-term and affordable housing tenants separate from the “Hotel Residency” guests in the hotel building. (West Hollywood is listed under their “Hotel Residencies” cities on one of their sites.)

      The development agreement in no way asked for, nor got permission for, a corporate/short-term rental building or “Hotel Residencies.”

    1. Do you have any concept of the rule of law? Please watch the replay of this hearing and consider the sound arguments of three of the council members.

  2. Paul is absolutely right; capitalism works, if you let it! That means pretty much leaving it alone. The market disciplines itself, so most regulations do nothing more than distort what would have happened in the natural course of events by their intrusion.

    Most elected officials seem to feel it is their job, driven by their ego, to go in and write regulations that will have their name on it, to control the market. Sadly, when that doesn’t work, and it won’t, they just impose even more regulations. On this issue, the adage …… less is more ……. will work every time.

  3. PS – one additional important fact. 8500 Sunset has fulfilled all its obligations to provide the affordable housing units- I think 10-11 u it’s currently occupied. And when the buildings were sold those affordable housing u it’s remaim in place. Hotels don’t offer affordable housing units. This is not a hotel.

    1. John D’Amico indicated in the discussion that not all of these affordable units were occupied, at that City Council meeting. Even though he supported their appeal.

      This might not technically be a hotel, but they had a web site advertising short-term rentals, by the night. They looked for a loophole in the law, by having people sign 31 day agreements, and then refunded people when they left before the 31 days was up. They forged a signature of an infant on a petition sent to the city.

      You are OK with all of that?

  4. Sadly the long saga of this property drags on. The council erred in not finding a reasonable compromise. Many commenters are not aware of the facts. The facts are – Brookfield Korman is not the developer – the developer sold out long ago. Currently both buildings are occupied 70% as leases of one year or more. The difference of 30% is what was on the table for leases of 31 days or more. Not the whole complex. 70% is the ‘housing stock’ whether or not you can afford it – it is currently occupied.
    The big issue I see is that this project 20 years plus in the court of public opinion has been unfairly prejudiced. The council had a chance to put an end to this problem with a compromise but they failed. The big issue is transitional housing. The City of West Hollywood has zero transitional housing- one planning commissioner told me it is the biggest problem the city failed to address in the early years- so if ur Ellis Act out or other the city has no transitional housing on the lower or mid-end. This 30% is transitional housing on the high end for which there is a great need. Think back to the beginning when this development began- who could envision West Hollywood today- a Red building- the OWN network located right in our little town, Cedars with its new wing. There is a great need for housing for 2-3 months. The commenters complaining about the need for housing stock also complain about the need for transitional housing. Well- if we got a million dollars in a compromise settlement the high end transitional housing could fund the lower income transitional housing! If only to purchase 2 condos or many rental units for a
    Transition period. But they failed to make this a win-win- so we go to court.
    It is pathetic that the city adopts a rule that does not allow a homeowner or condo owner to rent their unit for 6 months or less than a year. So everybody loses. Nobody wins with this council decision. And it’s not a bully tactic to go to court- Brookfield Korman did all they can to avoid this result— and I’ve got no skin in the game just sayin..

    1. There is no need to negotiate a compromise when the current owner/management team failed to do their due diligence and/or gambled on bending the rules to accommodate their own business plan for simple profits. Call it bait and switch, scamming or whatever….. the city was simply not going for it.

      Thank you again John Heilman for illuminating the the accurate history and connecting the dots and for Lindsay Horvath and Lauren Meister for coming to similar conclusions.

      1. There is no need to negotiate if you think the city is going to win. I don’t think they will as it would set a precedent that the city council can create special rules for every building in West Hollywood. The rule is it is not a short-term rental if it is a term of 30 days or more. So this building makes a minimum of 31 days which follows the law. If the court sides for the city that means that the City could go building by building and say you know apartment complex owner we don’t like that your building has high turnover so for your building it is a minimum of 1-year leases. You know another apartment owner because of whatever circumstances we understand why your turnover is high so you can have six-month leases and on and on and on. Does that make any sense? If you don’t like the 30-day rule then change it but don’t carve out special rules when you don’t like something a certain property is doing within the rules.

  5. Well as decision making goes, after a surprising year of numerous attempts to get even more revenue for out budget that would be embarrassing … If anyone outside WeHo just looked …

    The vote against the hotel seems to be a bit of a”FALSE ECONOMY” for the unknown recent new revenue grab, and if there is a financial loss to the city for the long/short term rentals of hotels … First, that would mean the city is not acting appropriately for the city & residents (but who knows). I doubt the hotel would file unless it knew it had a strong case. And if not, and the City Prvails, much like the failure to take the home we call TARA, all the way to CA Supreme Court. The City lost yet spent more than a million dollars in legal fees alone. The city budget (i.e. the residents will be paying even more, parking fines will go up … Even if the City Wins, given the legal cost of Attorneys & Fees it’s moot. It’s just about competing top and expensive law firms costing the city either way, more than they could real. VERY SAD. Good thing Tens of thousands of readers will see this weekly as Elections Approach.

  6. If the story is correct the developer will most likely win. If the code states that a short-term rental is 30 days or less and the property is leasing it for 31 days or more what is the city defense?. While the developer is using a loophole nevertheless their argument is valid that they shouldn’t be held to a more rigorous standard than any other building in the city. Time to close the loophole somehow.

  7. Of course D’Amico’s & Duran’s votes against the city will have a bearing in favor of the developers if/when this matter comes before a judge. Corruption I expect from Duran, but I’m disappointed that D’Amico has followed Duran’s lead in his votes betraying the city. I think Duran is innately corrupt but D’Amico had to be taught. I’d say D’Amico’s convictions are weak, bit I actually don’t think he has any. He’s very wishy-washy and susceptible to the raunchy influences around him.

  8. Any failure to take a stand on this issue and hold the developer accountable to a permitting process and laws on the books will continue to send a message to developers that with the feckless bureaucracy and elected student council at City Hall, it is better (easier) to ask forgiveness than to ask permission.

    Sometimes I fear that with the increasing presence of behemoth developers in our midst, the city bureaucracy suffers not from getting too big for its britches, but from attempting to fill in britches that are too big for the body politic.

  9. Of course they want the money, but if they end up getting their way, they will be happy too. Nothing more than Bully’s using bully scare tactics.

  10. “we need housing stock”. Guess what? no developer in their right mind is going to build “housing stock” for you in this socialist city of yours based on your city council’s tyrranical behavior.

    simple economic rules are: if you want more of something, offer economic incentives, not penalties.

    if Propoition 10 passes in November, and private property is once again expropriated a la Fidel Castro, you can be assured of one thing: another 40 years of severe housing shortages. no private party will be giving you “housing stock” so you better hope your city council stops sexually harassing its employees, paying multimillion dollar settlements, so it can save up to build you your “housing stock”

  11. Brookfield Properties Group recently bailed out the problematic Kushner investment in the Manhattan building desperately looking for financing as they were approaching default. I do not know who will be the legal entity defending the City of WeHo but they had better be seasoned and highly skilled against this wily aggressor.

  12. This is the problem when we sell out to developers by letting them finance our council members. Permitting this monstrosity set the stage for whoever operates it needing a very high return, as in corporate short term rentals. Didn’t we see that coming when we permitted this eyesore?

  13. I am in no way siding with the developer here, but the city might have themselves in a legal entanglement if they are requiring a one-year initial lease for these units, but not requiring them anywhere else in the city (31 day minimum). I watched the entire City Council meeting, and am a little confused as to where they left it. I do know that this sleazy developer was marketing these units for short-term stays, and refunding people the difference, after getting them to sign a 31 day agreement, as a loophole for trying to avoid the 31 day minimum. They also forged signatures on a petition. And I believe they bullied the City of Beverly Hills into getting something similar there. I hope the city fights them hard.

  14. I WILL remember that D’Amico and Duran sided with the company and not with the rest of the Council on this. Where are their loyalties – developers or residents?

  15. This is just the tip. I am sure full insertion is coming for WEHO. The rich and greedy – no use fighting them.
    Remember, there is a public, that’s right PUBLIC
    sidewalk in front of this place. FREEDOM OF SPEECH, the 1st Ammendment. There are ways to turn this. THINK!

  16. Who on earth can afford to live there. And why would anyone want to? $8,500 for a 1-bedroom apt? Seriously? You could live at the Four Seasons for less. The location is not conducive to living – fine for a hotel- but not homes. Too bad.

    1. there are thousands or apartments and homes within walking distance from these buildings. They should be homes – we need housing stock, not more luxury hotels for transient rich people that will disappear the moment the economy softens.

  17. So you want to take money from the city that is used for our services for elderly, abused/lgbt kids, etc. Go to H**l. The city should counter sue them into the ground. You knew the rules when you built that awful looking prison that nobody want to stay in. We’ll set up a huge boycott for this bully club you brought to our city.

      1. Immediate redesign needed! How this initially moved past Design Review and Planning deserves some examination. Exactly who were the commissioners, how did they vote and what were their comments. Council’s vote would also be illuminating.

  18. None of the weho ghetto residents can afford to live in this building anyway. Let them make their money. Capitalism all the way! MAGA.

    1. To A real man—what ghetto residue at are you referring to. You talk about residents on a housing list and on fixed income who has lived in this city a decade or more as ghetto? What are you implying that wehoans who don’t have money be disgraced and disgarded and driven out of the city—FYI these people voted to create this city back in 1984 to make it affordable and we including myself over the last 8 years passed laws that even protect rents and Make this city desirable because we beautified it and maintained our rentals and now you and others want to take our spot! Goodbye go move and live in another city unless you already do which makes your opinion null and void as a non-resident. This is law not just capitalism which these companies would still make millions in rent! Go check your facts because your Opinion lacks class and merit! Consider yourself that money is your object but not how a city thrives but how new money comes in and acts jaded. As you are.

    2. I will assume that AREALMAN is utterly opposed to any form of socialism. If so, he should, when eligible, decline to accept Social Security as well as Medicare. Please do decline so you’re not a hypocrite.

      1. Assumption correct. Don’t worry, I won’t need any of it. I’ll probably get an apartment here just to upset the Solcialists as a place to house my friends and family when the come visit. Oh, and I DO live in WEHO, the Swish Alps above Sunset. #capitalism

  19. This is beyond a bully tactic because developers want profits over actually following the law at hand—that explicitly states in the municipal ordinance and state law when the properties were to be built that affordable housing was to be included, no exceptions and that short-term rentals could not interfere or replace those such units. So many wehoans, including myself are impacted by competing for a limited number of those designated units. Now lawsuits are pending because a developer wants to contests laws already in place to accommodate their profits—how dare Korman do this! Temporary rentals, corporate rentals, and vacation rentals should not supersede the laws that voters voted for twice on our ballots! Most recently in 2013 and 2015. The State Supreme Court even allowed the city municipalities to enforce affordable housing laws and codes that interfere and compete with housing stock designated and air bnb’s will not and cannot prevent locals who patiently wait for those units on a housing waiting list from getting into those units because entertainment firms and wealthy visitors want need those extra units! CIM and Korman looked to gain profits over abiding by and following these laws and disregarded them as Heilman Horvath and Meister alluded to last week, Horvath and Heilman saying rents and displacement is happening and the affordable housing needs are not Being met by these housing developers who are turning these permanent housing into temporary luxury boutique hotels! They agreed to build permanent housing not temporary housing, especially the fact councilwoman Meister pointed out in the contracts and agreement before the buildings were to be constructed such municipal codes and ordinances was initially indicated be upheld and that permanent housing was always the precursor and the utmost priority when building this before short-term ever cane into the American and international lexicon! They ignored such laws and now must suffer in the court of law!

  20. the city is cheating its residents by acting unlawfully, discriminatorily, capriciously, and imperiously. i hope the claimant wins in court where this will ultimately end up.

    the city writes its own laws and then violates them with impunity. regrettably the only way it will change its ways is by getting slapped with a large monetary judgment. Good luck Korman!!!!

    1. the city is cheating its residents by acting unlawfully, discriminatorily, capriciously, and imperiously. i hope the claimant wins in court where this will ultimately end up.

      the city writes its own laws and then violates them with impunity. regrettably the only way it will change its ways is by getting slapped with a large monetary judgment. Good luck Korman!!!!

  21. BPREP and KORMAN could immediately commence mitigating their alleged damages by renting the apartments as they were intended by city code. Presumably whatever Judge hears this case will notice thatfact.

    1. “Pretty ugly”? You are too kind. What a scar they are on the beautiful body of West Hollywood. How did what a previous commenter called “that awful looking prison” get approved in a city that has so much attention on being artful?

      1. Not everyone involved on commissions or council has a keen concept of aesthetics in the development and sometimes lengthy process involved. This in particular was a disaster long in the making sending many red flags which should have sent it to the scrap heap.

        Lacking a cohesive and adaptive vision for how areas such as the Sunset Strip can develop seems to result in chance much like “pinning the tail on the donkey”. Not smart and as we see can have exponential and $$$ repercussions.

        1. Total agreement. An area like the Strip needs some sort of plan other than just being a source of political donations from billboard companies. And the buildings surrounding La Cienega are only a notch above an eyesore in my opinion.

    2. It’s less a matter of the corporate developers being “allowed” to do what they want by the City Council and, MORE of a matter of the systemic power that exists in the private sector being able to complete trump (pun intended) any and all Public Interests! Yes the buildings are “pretty ugly” and references to the “prison industrial complex” are accurate beyond simple appearances. The design of these projects is based on free market fundamentalist obsessions of “maximizing profits and minimizing expenses” as their ONLY relevant priority.

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