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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Steve Martin
Guest
Steve Martin

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… Read more »

Kim
Guest
Kim

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?… Read more »

Andrea Reider
Guest

I would settle with these bullies, and then find a very clever way to get back at them. We have all the time in the world to do so.

NO DAMAGES
Guest
NO DAMAGES

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.

blueeyedboy
Guest
blueeyedboy

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… Read more »

Larry Block
Guest
Larry Block

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.

Randy
Guest
Randy

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?

Larry Block
Guest
Larry Block

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… Read more »

RobbyDobby
Guest
RobbyDobby

This is why you’re not on the City Council.

NO DAMAGES
Guest
NO DAMAGES

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.

UCSBGRAD
Guest
UCSBGRAD

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… Read more »

JONATHAN SIMMONS
Guest
JONATHAN SIMMONS

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… Read more »

UCSBGRAD
Guest
UCSBGRAD

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.

AM
Guest
AM

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.

Alan Strasburg
Guest
Alan Strasburg

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.

Tom Smart
Guest
Tom Smart

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.

constituent
Guest
constituent

“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,… Read more »

NO DAMAGES
Guest
NO DAMAGES

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.