The new commune
Startup converts commercial buildings to group housing
A new way for San Francisco to create entry-level housing is taking shape in an old building on a forgotten block — an old bathhouse on the edge of the Tenderloin.
The venture-capital-backed startup Starcity wants to convert the existing commercial building at 229 Ellis St. into 56 units of group housing. The modest threestory brick building housed the San Francisco Turkish Baths until the 1980s and has been vacant for 10 years.
Starcity has also acquired two more sites for group housing: 650 Sacramento St. in the Financial
District, where it is proposing 16 units, and 1028 Kearny St. in North Beach, which is scheduled for 24 units. All three projects are going through the city’s planning process, although the Ellis Street building is furthest along.
Starcity’s idea is to provide stylish, furnished efficiency units of 220 square feet that would rent for about $2,000 a month. Residents would share dining rooms, living rooms, outdoor space and kitchens. Rent includes all utilities and high-speed Wi-Fi. A cleaner comes twice a week. Residents are invited to organized group meals, movie nights, book clubs, lectures, art openings — all organized by a community manager living on site.
While the concept — sometimes derided as “dorms for grown-ups” — shares similarities with other tech-oriented co-living startups like Common or “hacker mansions” like Campus, it is different in that Starcity’s business plan calls for buying and converting commercial buildings rather than gobbling up existing residential buildings or hotels.
Co-founder Jon Dishotsky, a former commercial real estate broker, said Starcity grew out of his realization that the lack of affordable, market-rate housing is killing the soul of cities like San Francisco. The $1,000-a-month apartment he rented when he moved here in 2006 would cost much more than $3,000 today — above what he would have been able to pay then.
The target tenant earns between $50,000 and $100,000 — the teachers, restaurant servers, police officers and entry-level tech workers who struggle to afford the $2,700 studios or $3,500 one-bedrooms popping up on Rincon Hill or Mission Bay.
“If you grew up around here, like I did, you care about the viability of this area,” said Dishotsky, who grew up in Palo Alto. “When I see polls saying that 40 percent of the people are saying that they are considering leaving the Bay Area in the next few years — well, that sucks.”
The business model is based on the assumption that converting an existing building is 20 to 30 percent less expensive than constructing from the ground up. While the buildings will have far more communal space than a typical apartment building, the rent on the micro-units — more than $8 a square foot — will make up for the difference.
“To the individual it’s inexpensive, but the yield is better than an apartment building,” Dishotsky said. “That’s why banks are willing to lend on them. And that’s why investors are interested in doing this.”
The hope is that residents will see value in paying for what they use every day (their sleeping quarters) but not for the living spaces and kitchens they don’t use on a daily basis.
While construction hasn’t started on any of the three larger projects, Starcity has been testing its communal living concept at two sites, an old house on Gilbert Street in West SoMa and one in the Mission near BART’s 16th Street Mission Station. The Mission site is the former Yug Hotel at 2072 Mission St., which was empty except for three residents when Starcity took it over.
Starcity renovated the rooms — they have mini fridges and queen-size beds — and converted the ground-floor former pizza place into a communal kitchen and living room with a back patio. Two of the previous residents will stay put at current low rents; their rooms were renovated.
Chris Maddox, 26, an entrepreneur and writer who was the first resident to move into the Mission Street building, relocated from a Hayes Valley apartment where he was paying $4,200. He said the Mission building has a diversity his old place lacked. So far only 24 percent of the residents moving into Starcity two buildings have worked in the tech industry.
“I used to live with all the hip Millennials — that got old quick,” he said. “I got sick of being around people who were all just like me. Most people here don’t know what Javascript is, which is a good thing. It leads to better conversations about real things happening in the world.”
Alex McLeod, 25, an Australian who lives in the West SoMa house at 52 Gilbert St., also said diversity is a selling point. The SoMa property has two Canadians, an Albanian American, an Iranian American and a native of the United Kingdom. There is a chef, a biologist, a market researcher for a gaming company and a public relations account manager. The group is tight, he said.
“Starcity is really focused on building a good community,” he said.
While several other groups have been criticized for converting affordable residential hotels into housing attractive to more affluent young tech workers — at a higher rent — Dishotsky said that is not a strategy his group will replicate.
“SROs are not something we care to do in the future, plain and simple,” he said. “That’s a stock of affordable housing that serves a need and that’s existing. We don’t want to tamper with that. Our goal is to build new.”
Randy Shaw, executive director of the Tenderloin Housing Clinic, said the Ellis Street project offers “an interesting concept of bringing people together.”
“This will really help revive a dead block,” he said. “These people are adding to supply in a positive way.”
It remains to be seen whether the Starcity plan will work. The last new group housing project proposed in San Francisco was Build Inc.’s plan for 1532 Harrison St. That project lost its financing after former Supervisor John Avalos introduced legislation to apply affordable housing requirements to group housing, which had previously been exempt, said Build Inc. Partner Michael Yarne.
“When you are trying to pioneer a new kind of housing and convince lenders to try out your idea, you have to show some decent margins,” Yarne said. “It was killed before we even raised the money.”
Starcity says that its business model assumes complying with the city’s affordable housing program and that so far fundraising has gone well. A seed round raised $4 million, and the group is trying to raise $30 million more. Early investors include Scribd founder Trip Adler. By 2018, Starcity hopes to have an additional 12 projects — most in the city, but one in Oakland and one on the Peninsula — in the works with between 400 and 600 units.
“This will really help revive a dead block. These people are adding to supply in a positive way.” Randy Shaw, executive director of the Tenderloin Housing Clinic, on Starcity’s Ellis Street project