The City of West Hollywood has budgeted $500,000 for what looks likely to be an expensive battle with the owner of the AKA buildings on the Sunset Boulevard.
At its meeting on Monday night, the City Council approved increasing by $425,000 the $75,000 already allocated to Baker & Hostetler LLP, one of the nation’s leading law firms. Baker & Hostetler is representing the city in a claim filed in September by BPREP 8500 Sunset LLC contesting the city’s decision to ban short-term rentals of units in the West Tower of its 8500 Sunset Blvd. development. BPREP is a company controlled by Korman Communities, which operates the AKA short term corporate rental business, and the Brookfield Property Group. BPREP claims the city’s decision will cost it $40 million.
Councilmember John D’Amico and Mayor John Duran voted against the additional allocation last night. Both had supported BPREP’s appeal on Sept. 4 of a decision by interim Planning and Development Services Director John Keho that the firm’s rental of apartments in the 110-unit building for periods of less than a year were a violation of the city’s ban on short-term rentals. That ban was enacted in response to apartments being taken off the rental market by building owners who hoped to earn more money from short term rentals through services such as Airbnb.
BPREP purchased the 8500 Sunset property from CIM Group last summer, and Korman then 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.
This is a punt on the part of the developer as their legal arguments are specious at best. But litigation costs are chump change for this deep pocketed developer. Fortunately Council member John Heilman outlined the City’s position at the hearing so that it is in the record and will be a high bar for the developer to overcome. The dark side of this litigation is that regardless of the merits of the City’s case, “AKA West Hollywood” only needs to buy one more Council member to prevail.
Council members Duran and D’Amico are out in left field on this issue. Unable to speculate on Duran’s true agenda but it is likely that D’Amico didn’t grasp the scope and not was able to follow the breadcrumbs meticulously laid out by Councilmember Heilman.