The last days of the Lugo Hotel?
See the Chicago Reader article here
The for-sale Pilsen SRO sees time running out under a city ordinance meant to preserve affordable housing.
By Kari Lydersen
Alfonso Manriquez has lived at the Lugo Hotel in Pilsen since a stroke he suffered ten years ago left him disabled. The Lugo, one of Chicago’s dwindling number of single room occupancy (SRO) hotels, was a good fit for him. The rent was affordable, and nearby public transportation helped him get to his dialysis appointments downtown. It’s also just a block from the Rudy Lozano public library, where Manriquez volunteered to calm himself before dialysis.
Three years ago Manriquez, 42, had a kidney transplant, so he no longer needs dialysis. But he still deals with other health problems, including lupus, limited mobility, and partial paralysis in his hands. He has problems with stress that he worries could trigger another stroke, “like my head will explode.”
Last September Manriquez got a letter that has caused him much stress: he and his fellow tenants were notified that the 54-unit SRO would be put up for sale. The communication was mandatory under the city’s SRO ordinance, which was passed in November 2014 and meant to give nonprofit housing developers a chance to buy for-sale SROs and preserve them as affordable housing.
Since 2011 about 1,600 SRO units have been lost, and since 2008 about 30 SROs have closed, according to a city press release. A growing demand for rental units and gentrification in neighborhoods like Uptown and Logan Square have driven the shift. About 70 SROs remain.
SROs aren’t by definition affordable. But SROs in Chicago have been a bastion of affordable housing for individuals with few other options, including many veterans, people with disabilities, and people with mental illness. While SROs are often called “hotels” and were initially conceived of as transient housing, many residents have lived in the same building for years or even decades.
The ordinance covers “affordable SRO buildings,” defined as those accessible to an individual making $25,000 or less a year, with rent no more than $600 to $700, depending whether utilities are included. Under the law SRO owners must announce their intentions to sell; then for the next six months they must negotiate in good faith with any developers who want to keep the building affordable. Only after the six-month window can the building be sold to a market-rate developer. If a market-rate buyer isn’t found within another 120 days, the whole process starts over.
The six-month window for the Lugo closes on March 15, at which point a market-rate developer can snatch it up.
“THEY’LL PROBABLY MAKE THE ROOMS BIGGER, CHARGE $1,500 A MONTH, AND PUT FOUR COLLEGE KIDS IN THERE, AND THEIR PARENTS WILL PAY.”
—LUGO HOTEL RESIDENT ANTHONY RAMOS
Affordable housing advocates, including the group ONE Northside—a leader in the fight to pass the ordinance—say it has so far been successful. Ten SROs have the triggered the ordinance since it passed.
Of those, one has been purchased by a developer who will keep it affordable, and four are in the process of being acquired by affordable developers, though the six months are up and the sales are not yet final. Four SROs are still within the six-month window: the Lugo and two Uptown SROs, the Hazelton Hotel and the Wilson Men’s Cubicle Hotel. One SRO, at 2001 N. California , went through the process last year but never found a buyer.
Since the ordinance passed, only one SRO, the Olympia Hotel, has been converted to market-rate housing, according to Department of Planning and Development spokesman Peter Strazzabosco. Under the provision of the law that allows developers to opt out of the six-month negotiation period, the Olympia’s 87 tenants each received a $10,600 payout to help with relocation, and the owners paid $1.7 million to a city fund for SRO preservation.
The Resurrection Project, a major affordable housing developer in Pilsen, wants to make an offer on the Lugo Hotel and try to keep it affordable, says CEO Raul Raymundo. But the organization just heard about the Lugo’s plight three weeks ago, Raymundo says, so the group is on a tight deadline to research the building and prepare an offer. Resurrection Project staff visited the building March 3 for a walk-through with a real estate broker and the building manager, Charles Baumgartner Jr.
If the Resurrection Project makes an offer, it is unclear whether the Lugo’s owners need to negotiate with the group beyond March 15, or whether they can accept a market-rate offer as soon as the window closes.
“This is uncharted territory,” says ONE Northside housing organizer Mary Tarullo.
Although the group has previously developed hundreds of units of affordable housing, this would be Resurrection’s first SRO.
“This is the only SRO operating in Pilsen,” Raymudo says. “As such, we’d like to maintain and preserve it.”
Byron Sigcho is the executive director of the community organization Pilsen Alliance. Several Lugo tenants contacted him last fall after they were notified of the owners’ intent to sell, and Sigcho says he has been trying to reach the Resurrection Project since December. He’s worried that there may not be enough time for the affordable developer to convince the owner to accept their offer.
“I’m just disappointed it took so long,” Sigcho says. “But we have some hope now.”
Meanwhile, Lugo co-owner William Epmeier says he has been in negotiations with another potential buyer, whom he declined to name.
“I don’t know for sure, but they’ve indicated that, yes, they would continue to operate it as an SRO,” Epmeier says. “Our understanding at the moment is that the buyer, the potential buyer, would continue to run it, but who knows.”
Epmeier declined to give more details; the real estate broker listing the building, Sperry Van Ness, did not follow up on a request for comment. Sigcho says he has left numerous messages for Epmeier, and never gotten a return call. Since affordable housing development is a small world, he and other advocates are skeptical that the potential buyer Epmeier mentioned would really keep the SRO affordable.
Under the ordinance, owners are not allowed to negotiate with potential buyers who would not keep the building affordable until the six-month window ends.
“They’re not supposed to even be in conversation with market-rate buyers,” says Tarullo. “Absolutely not.”
The listing brochure for the Lugo describes Pilsen as “known for its independent, entrepreneur spirit and a culture unique to Chicago. The community continues to see an influx of investment, making this one of Chicago’s most attractive areas for both residences and business.”
Indeed, property values in Pilsen have skyrocketed in recent years. Rents in Pilsen now hover around $1,100 for a one-bedroom apartment, plus utilities, whereas the Lugo tenants pay between $310 and $380 a month, utilities included.
Manriquez, who studied accounting in Mexico and computer science at Malcolm X College before his stroke, says he pays $360 a month in rent. Surviving on social security disability payments, he could not afford much more.
Many Lugo residents, like SRO tenants citywide, fear they also couldn’t come up with the security deposit or pass the credit check needed to rent a standard apartment.
Sigcho noted that the City Council recently approved zoning changes for the conversion of an old factory into a 99-unit apartment complex a block from the Lugo. That development will offer only 10 percent affordable units; the developer met a neighborhood mandate to provide 21 percent affordable housing or “community benefits” by donating an acre of land to the nearby high school. To Sigcho and other housing activists, this shows just how desirable the neighborhood has become to developers.
Anthony Ramos, a 68-year-old navy and army veteran who has lived in the Lugo for seven years, said that if the building is sold he expects it will be renovated and rented out to college students.
“They’ll probably make the rooms bigger, charge $1,500 a month, and put four college kids in there, and their parents will pay,” said Ramos, who moved to the Lugo after the water was cut off at a west Pilsen apartment where he was paying $400 a month. Ramos loves the convenient location and camaraderie of the SRO. While his financial situation is stable thanks to his pension, he said many tenants on disability or working low-wage jobs struggle to pay the rent.
Another tenant, Tom Finn, moved to the Lugo after the SRO he’d lived in for 30 years, Logan Square’s Milshire Hotel, was sold the day before the city ordinance passed. He works nights at another SRO, the Fullerton Hotel.
“With SROs closing, the homeless might not have anywhere to go when it gets cold,” says Finn, who described the Lugo as clean, quiet, and desirable. “I’ve got my bed, my dresser, my TV, my radio, and I’m a happy man. And I’ve got a beautiful view here.”
Baumgartner, the live-in building manager, says he plans to leave after the sale, to pursue “job opportunities out of state” or become a driver for Uber or Lyft. He’s been at the Lugo 12 years, and has seen the building and the surrounding neighborhood become calmer in that time.
“The place was a little rough—I got rid of all the alcoholics, the drug users, the nonpaying people,” says Baumgartner, 48. The hand-lettered sign in his office reads “All charges for background checks are non-refundable.”
“I’m hearing rumors that they’ll tear it down and build a couple condos,” he adds. “Or tear it down and build a bigger and better Lugo. This was a fascinating place to work, all my tenants are awesome people. But it’s time for a new building, a new face.”
A challenging mission
The Lugo is listed for $1.1 million, and Epmeier said he expects to get the asking price.
An affordable developer would have to a offer a price competitive with the market rate. That could be a challenge to do quickly, as affordable housing projects typically seek out tax credits and loans from “mission-driven lenders” to round out their financing.
Raymundo says he is confident in the Resurrection Project’s ability to get financing, though they are still researching the economics of buying the Lugo and keeping it affordable.
“We have several relationships with the private sector,” Raymundo says. “That’s why we’re doing our due diligence assessment, looking at the market price, the condition of the property. . . . If the facility needs significant repairs, that’s sort of a question mark. That would weigh in on our offer and ability to move forward.”
Conditions in SROs vary. Residents and advocates say that some are poorly managed and offer subpar living conditions, including infamous “chicken coops” where individual rooms’ walls don’t reach the ceiling. Other SROs are considered desirable places to live and offer supportive services—counseling, job training, substance abuse treatment.
Manriquez complains about the Lugo’s uneven floors and mold in his room, and says the communal bathrooms aren’t kept clean. Other tenants also have some complaints, but say overall the building is adequately maintained and quiet. Building violations noted on the city’s website involve the fire escape, failure to remove barbed wire from a fence, and various instances of work done without a permit.
Co-owner Epmeier says the Lugo is “in excellent shape.”
The Lugo’s lobby is spartan but clean and pleasant, with an old-fashioned vending machine and a motivational poster urging “Patience” on the wall. Baumgartner says he has done much work over the years rehabbing the bathrooms, replacing the drop ceiling in the lobby, and otherwise sprucing things up.
Josh Wilmoth is vice president of Full Circle Communities, the affordable housing developer that purchased the Palmer Sawyer SRO in Logan Square with financing from the national nonprofit Corporation for Supportive Housing (CSH). Wilmoth says he would like to see the Lugo kept affordable, and that Full Circle might consider buying it. But he and colleague Carl Kunda say they have probably entered the game too late.
Because of the Logan Square purchase and other affordable housing projects Full Circle has in the works, Wilmoth says, they weren’t able to think about the Lugo seriously until recently. He adds that he would like to get a walk-through of the building and speak with the owner, but he hasn’t yet been able to get in contact.
Epmeier says he would meet with Wilmoth if contacted—”We’re legally bound to.”
Wilmoth says that in an ideal world, a nonprofit developer could buy the Lugo and not only maintain the units as affordable, but offer new supportive services to the residents. Full Circle, which invests 75 percent of its revenue back into such services, will offer things like counseling on mental health, substance abuse, and employment to residents at its Logan Square SRO. Full Circle will also continue to allow tenants to pay their rent weekly, a measure that is crucial for many SRO tenants who have trouble coming up with a month’s rent in a lump sum.
(Epmeier says that the Lugo currently offers supportive services, but he could not specify what those are beyond “nursing that comes in, I’m not sure who it’s through, different agencies depending on the background of the resident.”)
Meanwhile Manriquez says he has been looking for other options, applying for Chicago Housing Authority vouchers and seeking advice from the disability rights group Access Living.
“Because of my health, my situation is very critical,” Manriquez says.”I don’t want to live in the street.”