San Diego’s so-called $5,000 per room SRO fee is an in-lieu contribution a property owner pays to the city’s Single Room Occupancy Hotel Replacement Fund when converting or demolishing rooms in an older residential hotel instead of building replacement units. The $5,000 figure comes from a 2020 San Diego Housing Commission study and reflects the per-room amount at that time.1San Diego Housing Commission. Preserving Affordable Housing in the City of San Diego The underlying charge is set by a formula in the Municipal Code tied to current construction costs, so the actual per-room amount moves with the market. The fee is one piece of a larger obligation that also includes tenant relocation payments and a formal Housing Replacement Agreement with the San Diego Housing Commission before any permit will be issued.
When the Fee Applies to Your Building
The rules apply to residential hotels, meaning hotels where guest rooms are used or intended as a primary residence for more than one week. Guests staying 30 consecutive days or fewer are classified as transients and fall outside the protections.2City of San Diego. San Diego Municipal Code O-16979 The Housing Commission has no jurisdiction over an SRO property until the owner applies for a city permit to convert, rehabilitate, or demolish the rooms, at which point the city loops the Commission in.3San Diego Housing Commission. Single-Room Occupancy Units
The Pre-1990 Threshold
A Housing Replacement Agreement, and the fee that typically goes with it, is only required if the SRO hotel received its occupancy permit before January 1, 1990, and the owner did not deliver a notice of intent to withdraw the rooms from the rental market before January 1, 2004.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations Hotels that opened after 1990, or where owners filed that withdrawal notice before the 2004 cutoff, fall outside the replacement requirement. Pull your building’s permit history before assuming the ordinance reaches you.
Exemptions
Three categories are exempt from the Housing Replacement Agreement:
- Converting SRO rooms into a very low income housing project.
- Demolishing SRO rooms to build a new very low income project on the same site within two years, under an agreement with the Housing Commission.
- Demolitions or conversions that create housing for low income seniors operated by a nonprofit organization.
The City Council can also exempt an SRO demolition tied to a redevelopment project, but only after finding the public benefit outweighs the loss of SRO housing supply.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
How the Per-Room Amount Is Actually Calculated
The fee is not a flat dollar figure written into the code. Under Section 143.0550(d)(4), the in-lieu contribution equals 50 percent of the replacement cost of the rooms being demolished or converted. That cost is calculated by multiplying one-half of the total hotel area removed by the current development cost per square foot for comparable SRO hotels in San Diego, including land development costs.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
At the $5,000 per-room figure the Housing Commission cited in 2020, a 20-room conversion runs $100,000 and a 50-room building runs $250,000. Construction costs in San Diego have risen since then, so the current per-room amount is likely higher. Confirm the current per-square-foot rate with the Housing Commission before you budget a project.
The Fee Is One of Four Replacement Options
Paying into the fund is the path most owners choose, but the Municipal Code gives you four ways to meet the one-for-one replacement obligation:
- Build new SRO rooms that meet the affordability and location requirements.
- Rehabilitate hotel rooms that have sat continuously vacant for more than one year before the permit application.
- Convert nonresidential space into SRO rooms.
- Pay the in-lieu fee into the Single Room Occupancy Hotel Replacement Fund.
Owners who physically replace the rooms don’t pay the fee at all. If you go the physical replacement route, the new rooms must sit in the same community plan area as the original hotel unless the Housing Commission approves a site on a public transportation corridor. Rents on replacement units must stay affordable to very low income single-person households using HUD income limits for the San Diego metro area, and the affordability restrictions must be recorded for at least 30 years. The replacement rooms must also be ready for occupancy before anyone moves into the redeveloped site.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
Tenant Relocation Costs on Top of the Fee
Owners often underestimate what relocation adds to the project. Each long-term tenant displaced by a demolition or conversion is entitled to a lump-sum payment equal to two months of their average rent over the preceding 12 months. For rehabilitation projects, the payment drops to one month. On top of that, every long-term tenant receives a rent rebate of $10 per month for each month of residency beyond 90 days, capped at $210.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
Payment is due within five business days after the tenant provides written notice of a move-out date. For a rehabilitation, you can avoid the lump sum by providing comparable housing during the renovation and giving displaced tenants a right of first refusal to return.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
Required Notices Before You File
Before submitting the permit application, you must deliver a Relocation Assistance Notice to every tenant on a form provided by the Housing Commission. The notice has to spell out every benefit the tenant is entitled to receive. Delivery is in person or by mail, and you need written acknowledgment from each tenant. A notice of termination of tenancy cannot be given until that relocation notice has been delivered.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
Getting the Permit Issued
The city will not issue a conversion or demolition permit until the Housing Commission verifies full compliance with the relocation notice and assistance requirements, and until the Housing Replacement Agreement is executed. With the application you must submit a list of every tenant who lived in the hotel during the 180 calendar days before the application date, along with the names of anyone who moved out, was removed, or was evicted during that period and the reason why.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations
The practical sequence: deliver relocation notices, prepare the tenant list and supporting documentation, file the permit application with the city’s Development Services Department, and work through Housing Commission review. The Replacement Agreement is signed before the permit is issued. Timeline varies with project complexity and whether the Commission flags deficiencies; budget several weeks for review and longer if relocation issues surface.
Where the Money Goes
All in-lieu fee revenue goes into the Single Room Occupancy Hotel Replacement Fund, and the code limits spending to a narrow purpose: producing or rehabilitating SRO hotel rooms, or converting nonresidential structures into SRO housing. The money cannot be moved into general city spending.4City of San Diego. San Diego Municipal Code Chapter 14, Article 3, Division 5 – SRO Hotel Regulations The fee substitutes for the physical replacement an owner would otherwise have to build, with the aim of keeping the affordable room supply roughly constant regardless of what happens to any single building.