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Santa Monica Eyes Corporate Housing Permit Compliance

Properties: Citrus Suites are in areas designated for multifamily rentals, but the firm compares itself to a luxury hotel.


The question of whether plush corporate housing is an apartment complex or a hotel in disguise will be decided in Santa Monica as the developer readies another property he calls "a Ritz-Carlton you live in."

The 101-unit Citrus Suites at 425 Broadway will debut Wednesday as city officials--concerned about the fate of affordable housing after the demise of strict rent control--are considering whether the first Citrus Suites, which opened at the beach in October 1999, is actually a hotel operating on land set aside for multifamily rental housing.

Extended-stay suites for corporate clients have been popping up in many of the nation's metropolitan areas, but Santa Monica is taking a critical look at the industry.

If Citrus Suites is found in violation, the city would "take steps to bring them into compliance with the permitting they've been granted," said Suzanne Frick, the city's director of planning and community development. "Hopefully they would do that voluntarily."

Frick said Citrus Suites might also be required to collect the city's 12% transient occupancy tax, which it does not pay. The tax, collected by hotels, generated $17.9 million for city coffers last year.

Developer Howard Jacobs said his units clearly comply with city codes.

"We offer real apartments, not glorified hotel rooms," said the president of Citrus Suites. "This is a politically driven, bogus [issue]."

With its upscale touches, Citrus Suites operates at a higher level than most facilities set up to woo business travelers. Corporate housing is one of the fastest growing segments in the nation's hospitality sector, with available inventory estimated to have increased by 13% last year and projected to expand 15% this year, saif Atlanta hospitality consulting and research firm the Highland Group. In 1999, there were 76,421 corporate housing units for rent.

"There's no question that business travel has increased tremendously in the last decade," said Mark Skinner, a partner with the Highland Group. "The corporate apartment offers a much more flexible and less expensive alternative to a hotel."

A unit at Citrus Suites goes for $3,500 to $4,000 a month, less than half the rate for a standard room at Santa Monica's luxury Casa del Mar hotel. Citrus Suites Santa Monica Beach has reported 100% occupancy since shortly after it opened.

"These things are fairly economical for a lawyer in town for a long time litigating a case," said Jack Westergom, managing partner of Manhattan Hospitality Advisors in Manhattan Beach.

Current market conditions are ripe for upscale corporate housing facilities like Citrus Suites, barring sustained slowing in the economy, Westergom said. The residential suite concept, whether the corporate housing or extended-stay hotel model, has tended to focus largely on the mid-market, budget and economy price points, he said, leaving the upscale niche largely undersupplied.

Extended-stay housing, such as Residence Inn, tends to operate more like hotels with same-day check-in and no minimum stay, and corporate housing tends to function more like traditional apartment rentals, Skinner said. Most of the corporate facilities such as Citrus Suites call for a 30-day minimum stay and require tenants to sign a lease agreement and pay a security deposit.

Jacobs calls his facilities "high-end apartment buildings" that combine the washer-and-dryer conveniences of home with the terry cloth and down comforter refinements of a swank hotel--along with weekly maid service, expensive sheets and complimentary satellite TV and high-speed Internet access. Units come with a separate bedroom and a fully equipped kitchen.

The company's marketing tag line is: "We won't seem unusual for a Santa Monica luxury hotel. That is until you realize we're actually not a hotel."

Santa Monica, however, isn't just taking the company's word for it. Frick said her office is determining whether the 70-unit Citrus Suites Santa Monica Beach at 1915 Ocean Front Walk is operating in compliance with the use it was zoned for.

"They were only approved as multifamily and that's what they need to be operating as," Frick said. "If they are operating in a characteristic more similar with a hotel, they may be in violation."

Frick said that question also applies to the new facility on Broadway and a third Citrus Suites complex of 58 units set to open this year at 1455 Fourth St. Both properties, she said, have been permitted solely for multifamily use.

Citrus Suites is just one of about a dozen property owners in the city to come under scrutiny, Frick said, for allegedly offering "short-term visitor accommodations" on land intended for multifamily rental uses. She expects to present her conclusions on the issue to the City Council by the end of March.

Jacobs, meanwhile, calls the city's review of his operations a nonissue and predicts that Frick's office will ultimately find Citrus Suites in compliance.

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