Academy of Art agrees to $60 million settlement of SF lawsuit

After a decade of thumbing its nose at San Francisco’s zoning laws, the Academy of Art University has agreed to a $60 million settlement with the city aimed at bringing the school’s many illegally converted buildings into compliance with local rules.

The deal caps a highly charged battle with one of the nation’s largest for-profit art schools, an institution that is also one of the city’s biggest landlords — a fight that culminated in May when City Attorney Dennis Herrera sued the academy.

The city’s lawsuit said that at least 33 of the academy’s 40 buildings throughout the city — including its campus headquarters on New Montgomery Street — were out of compliance with zoning codes, signage laws or historic preservation rules. In addition, Herrera said, the school had taken 160 units of affordable residential units off the market and illegally turned them into student housing.



less The southern campus on New Montgomery houses dozens of classrooms for the Academy of Art. San Francisco City Attorney Dennis Herrera is questioned the improper conversion of buildings by the Academy of Art University in San Francisco into student housing and classrooms. The southern campus on New Montgomery houses dozens of classrooms for the Academy of Art. San Francisco City Attorney Dennis Herrera is questioned the improper conversion of buildings by the Academy of Art ... more Photo: Brant Ward, The Chronicle Photo: Brant Ward, The Chronicle Image 1 of / 18 Caption Close Academy of Art agrees to $60 million settlement of SF lawsuit 1 / 18 Back to Gallery

“Academy of Art University and its real estate affiliates behaved for more than a decade like they were above the law,” Herrera said. “We’ve ensured those days are over.”

Academy of Art President Elisa Stephens said in a statement, “We are very pleased to reach this agreement, which allows the academy to make significant contributions to San Francisco while maintaining our academic excellence and providing for our students.”

Video: Academy Of Art University Evading City Permit Requirements

Under the settlement, the academy has agreed to:

•Pay the city $20 million in fines and fees over five years — $7 million of which would go into a city fund to buy rent-controlled apartment buildings and maintain them as low-cost housing.

•Provide and maintain at least 160 units of low-income housing for senior citizens on two adjacent sites that the academy owns on Nob Hill near Chinatown. Some of the units would be new construction. The Mayor’s Office of Housing and Community Development estimates the deal will be worth $40 million to the city over the 66-year life of the agreement.

•Shut down school operations at three sites the academy owns, at 2295 Taylor St. on Russian Hill, at 2340 Stockton St. near Fisherman’s Wharf, and at 700 Montgomery St. in the Financial District.

•Limit future enrollment to the amount of housing that the academy has on hand.

On a different front, the academy will also work to keep its fleet of buses off of the city’s main traffic arteries and provide students and staff with free Muni passes.

In return, the city has agreed to pave the way for the academy’s illegally converted buildings to be brought into compliance. The changes would mean the Planning Commission and the Board of Supervisors will need to amend zoning codes at the sites.

That process starts Monday, when the school is expected to file an application for a master development agreement covering its buildings and any expansion plans.

If either the commission or the supervisors balk at changing the codes, the deal will have to be renegotiated.

The settlement follows months of negotiations between the city attorney and the academy’s legal team at Morrison & Foerster, led by senior counsel James Brosnahan. The Mayor’s Office of Housing and Community Development, the Planning Department and the Planning Commission were also involved in the talks.

Herrera’s lawsuit said the academy’s building conversions unlawfully deprived San Francisco of housing, skirted neighborhood planning rules and disadvantaged competitors in the real estate marketplace.

“This was housing that San Francisco desperately needed in the midst of an affordable housing crisis,” Herrera said. “I’m pleased this company has finally agreed to be part of the solution rather than a major contributor to the problem.”

Since its founding in 1929, the academy has become the nation’s largest private, regionally accredited art and design school. It now has 8,700 students, and with 2,000 employees, it’s also one of the city’s largest employers.

In the past decade, the academy has also become one of the city’s largest property owners, often buying and converting buildings into dormitories and classrooms without regard to local zoning laws.

Academy President Stephens — the driving force behind the school’s expansion — is a fixture on the civic and charity circuit. The school regularly lends its classic car collection to politicians and other VIPs to use in parades.

As the city’s affordable housing crisis and traffic troubles in San Francisco grew, however, so did complaints that City Hall was giving the school a pass.

The Planning Department pointed out that it was the one that uncovered what the academy was doing, and argued that the school and Stephens threw up an endless series of challenges to efforts to get it to comply with the rules. It wasn’t until Herrera sued that the academy budged.

“Dennis put a gun to Elisa’s head, and she finally caved,” said one source with inside knowledge of the deal who wasn’t authorized to speak for the record.

“This day has been a long time in the making,” Herrera said. “Our work here sends a clear message: No matter how wealthy or politically connected you may be, the same rules apply to everyone.”

San Francisco Chronicle columnists Phillip Matier and Andrew Ross appear Sundays, Mondays and Wednesdays. Matier can be seen on the KPIX TV morning and evening news. He can also be heard on KCBS radio Monday through Friday at 7:50 a.m. and 5:50 p.m. Got a tip? Call (415) 777-8815, or email matierandross@sfchronicle.com. Twitter: @matierandross