The Lembi empire teeters after tenants resisted a business plan based on forcing them out
Nearly four years after City Attorney Dennis Herrera filed suit against Frank and Walter Lembi and their dizzying array of companies affiliated with CitiApartments for "an outrageous pattern of corporate lawlessness," the powerful and notorious San Francisco landlords have watched their empire crumble.
The Lembi empire consisted of more 300 apartment buildings in San Francisco at its peak. Four Lembi subsidiaries that owned 16 buildings filed for Chapter 11 bankruptcy in February. Twenty Lembi properties were taken over by Lennar spin-off LNR in late May; another 24 buildings are slated to be foreclosed in early June; 51 were deeded back to UBS bank in lieu of foreclosure early last year; and still others are now held by court-appointed receivers and managed by Laramar, an unaffiliated property-management company.
CitiApartments still owns and manages a large portion of the buildings it controlled in its heyday, but it's had to either restructure loans or get payment extensions to hold onto many of them, according to general counsel Ed Singer. The Lembi Group staff has dwindled, and a team of 18 dedicated solely to relocating tenants is now long gone.
For many renters in foreclosed units who managed to ride out what San Francisco Tenants Union director Ted Guillicksen has labeled CitiApartments' "war of terror" against its occupants, the dust has finally settled. Gullicksen says that living in limbo is better than living under Lembi.
There are no more harassing phone calls pressuring them to move. No more sudden utility shutoffs. No armed agents showing up at the doorstep unannounced. No illegal construction projects clamoring away on the other side of paper-thin walls, destroying any hope of tranquility at home.
These are tactics CitiApartments used to drive people out, according Herrera's 2006 complaint and an award-winning Guardian series ("The Scumlords," March 25), in order to vacate units so they could be renovated and removed from rent control protections. A San Francisco Rent Board roster of 174 current and former Lembi properties as of May 25 lists no fewer than 1,890 cases associated with those buildings, the majority of them now settled.
While the sordid history of CitiApartments' strong-arm tactics has been well-documented, tenant-rights advocates say the untold story of the Lembis' rise and demise is that its entire business model hinged on evicting and relocating existing tenants — but that strategy failed, in large part because of a grassroots organizing effort that emboldened renters to stand their ground.
"The economic downturn played a role in it because the money stopped flowing," says Gullicksen, who helped form the CitiStop Campaign in 2004 in response to reports of outrageous tactics. "But if the money kept flowing, I think they would have failed anyway. The end result was inevitable, given the tenant resistance."
Darin Dawson moved into his apartment at 2 Guerrero St. in 1994 on a lease secured through the federal Housing Opportunities for People With AIDS program. Dawson, who was diagnosed in 1987, said things turned sour in 1998 when Trophy Properties I DE LLC — one of the Lembis' dozens of subsidiaries — snapped it up.
Their first contact was to inform him that he would have to move "because we don't allow those kinds of leases in our buildings," he recalled. He fought it with the help of the Housing Authority and managed to stay put. It was the first in a series of standoffs that ultimately stopped last September when the property was repossessed.
"Basically, I just dug my heels in and knew that I couldn't get evicted," Dawson said. Nonetheless, he spent years embroiled in conflict with the Lembi subsidiary while also battling AIDS-related illnesses.
There was the time he was ordered to vacate his apartment for two weeks during a seismic retrofit only to find it trashed when he returned. "The floors were ripped up," he said. "The ceiling was hanging in some places. There was black grease smeared all over the walls." He repaired it himself. Then came the constant phone calls, which started off artificially cheerful but turned threatening if he refused to accept money to relocate.
Dawson pays a base amount of $635 per month for his rent-controlled studio, so he suspected he might be a target. Once a residential manager discreetly warned him that his name was on a "hit list" of tenants whom the owners wanted gone, he said.
According to a confidential document leaked to advocates by an anonymous source, tenants who paid the least came under the greatest pressure to relocate since San Francisco rent-control laws prohibit raising existing occupants' rents to market rate. The document outlines how loan repayment and estimated profits were calculated wholly on the expectation that existing tenants would vacate, rather than relying on normal projections like natural turnover.
"Tenants with significantly below market rents are chosen for thorough screening to see if they might be relocated," according to the document, a 2008 Credit Suisse prospectus concerning a pool of 24 buildings under Lembi ownership that have since been foreclosed. "Those tenants most below market and/or with the longest history are the priority for relocation."
All 24 buildings in question — including properties on Larkin, Market, Cesar Chavez, Post, and Leavenworth streets, in addition to others — were subject to rent control. "At acquisition [Aug. 30, 2007], the portfolio was approximately 5 percent vacant," it notes. "As of May 2008 the portfolio was 19 percent vacant, as a result of Lembi successfully executing their business plan of vacating units and rolling them to market."
Although the paperwork spelling this out in stark terms didn't surface until recently, advocates who worked on the CitiStop campaign essentially figured it out years ago. A collaboration between the Tenants Union, Pride at Work, and other advocacy groups, the campaign sent organizers door-to-door to inform tenants of their rights, hosted potlucks where people could swap horror stories and forge alliances, and staged demonstrations outside CitiApartments' Market Street offices.
They tracked public records from the Assessor-Recorder Office and swooped in to warn tenants whose buildings had fallen into the Lembis' clutches. It didn't always work. According to the Credit Suisse document, Lembi had relocated 2,500 units as of August 2008, a fact pointed to as evidence of its "successful track record." But the relocation team only drove out a small number of the lowest-paying tenants; the vast majority of those who took buyout offers left units that paid closer to market rate.
"They really needed to get more turnover than what they accomplished," Gullicksen said. "The fact that they couldn't is attributable to the CitiStop campaign."
Singer rejected this assessment, saying the real problem was the economic downturn and the loss of capital availability. "I can see why they want to say that, why they want to take credit for bringing down the Lembis," he said. "But I don't think it would have made any difference if [tenants] left or not."
A common complaint nowadays is that former tenants haven't gotten their security deposits back, a matter that has spurred a class-action lawsuit against 57 corporate defendants associated with the Lembi Group.
"They're claiming that they have no money," Brian Devine, an attorney with Seeger Salvas LLP, told the Guardian. Devine estimates that he will end up representing several thousand tenants who are entitled to their deposits. In March, a judge awarded sanctions of $30,000 to Devine's firm because the Lembi Group refused to cooperate with discovery, withholding documents necessary for the case to proceed.
Herrera has encountered a similar recalcitrance in his own suit and won court sanctions of $50,000 in February for the same reason. "We have been engaged in discovery for a long, long time," noted city attorney spokesperson Matt Dorsey. "We're hoping that the judge is at the edge of his patience."
Singer said the problem was that there wasn't enough "people power" to photocopy thousands of documents. The Lembis were never up to any nefarious purpose, Singer insisted — they only wanted to make the buildings nicer. As for the tenants who endured the most brutal relocation tactics? "I can understand why they didn't want to leave," he said. "Some of them didn't leave — and they're still there."