Maybe it’s the fresh blue paint that makes 2072 Mission stand out from its less-kept-up neighbors on the busy block between 16th and 17th streets. Or maybe it’s the gallery space at ground level that, a couple years ago, once belonged to the struggling Milan Pizza.

Before Starcity, a communal living development, opened last spring, 2072 Mission St. was a hotel with 16 single residence occupancy (SRO) rooms, typically reserved for San Francisco’s lowest-income residents. Residents there paid $450 a month. Nowadays, its rooms have been renovated and go for $1,900 to $2,100 a month.

Legally, Starcity still operates a residential hotel, according to San Francisco’s Housing Inspection Services and Starcity’s co-founder, Mo Sakrani. But Starcity, like other SRO owners, has discovered a loophole in the city’s regulations: owners are allowed to renovate rooms and charge as much for rent as they like.

Upgrading SRO rooms to attract more-affluent tenants has been a trend in recent years, said Diana Martinez, program manager at the Mission SRO Collaborative, a nonprofit dedicated to providing services to the low-income residents of SROs.

“It’s a new type of definition of what SROs are, which was actually not something that was predicted,” Martinez said.

When the city first passed Ordinance 41 in 1981, the intent was “to preserve affordable housing by preventing the loss of residential hotel units through conversion or demolition, and to prevent the displacement of low-income, elderly, and disabled persons,” according to the city’s website.

A 1979 study counted 26,884 SRO units in San Francisco, and those numbers were diminishing. By 2011, the number of residential units stood at 18,910. Those numbers have gone up slightly; in 2015, the city reported a total of 19,166 units, but that includes units that are no longer affordable to low-income residents.

Of the Mission’s nearly 1,000 SRO units, 75 — or 8 percent — had become unaffordable for low-income residents by 2015.

Martinez said those losses have gotten worse in the last two years.

San Francisco’s regulations on SRO rooms are intended to protect a stock of low-income housing vital to many in San Francisco. As of this year, rooms must be rented for at least 32 days at a time.

Although removing a room from the SRO system can be expensive or even illegal, there is no legal limit to how much rent a landlord can charge for an SRO room.

Increasingly, Martinez said, owners are renovating previously cheap, undesirable housing into dormitory-style living for young, entry-level professionals. At Starcity, residents rent private bedrooms while sharing kitchens, bathrooms and leisure space.

It’s a trend the Mission SRO collaborative has been tracking.

“When I started working here almost three years ago, that’s when construction was going on with different SROs,” Martinez said. “We saw them closing temporarily.”

Back then she and her colleagues at the Mission SRO Collaborative could not figure out exactly why this was happening. Then, two years ago, they did a survey of residential hotels in the neighborhood and found widespread conversion of cheap rooms for low-income residents into renovated rooms for higher income residents.

Martinez said she has seen it happen at the Sunrise Hotel on 447 Valencia St., which currently charges $1,800 per month for a single resident room; at the Kaileh Hotel at 1041 Valencia St., which listed one of its rooms on the rental site Hotpads as a studio for $900 a month in 2015; at the Radha Hotel at 2042 Mission St.; at the Eula Hotel at 306116th St.; and at the Graywood Hotel on 29th St., where, she said, walking through the halls before it was destroyed in a fire, it was clear which doors opened to renovated units because those doors were painted white. The un-renovated units had brown doors.

When Starcity bought the building at 2072 Mission St. in 2015, it was called the Yug Hotel. Only three permanent residents lived there, Sakrani said. He attributed this to mismanagement.

Of the three tenants, one was a man who was almost 80 and needed daily care, according to Sakrani. Starcity arranged to have him taken to San Francisco Healthcare and Rehab on Grove Street, where he is staying long-term. Sakrani said the Starcity team checks on him regularly.

The other two residents are Eduardo, a 78-year-old man from Panama, and O.C., a man in his fifties. Both still live in the Starcity building and pay their old rent, $500 a month. They remained in the building throughout the renovation process, and their rooms were remodeled, Sakrani said.

“We made a decision that we want to keep as much of the history of the building intact as possible, as well as the community of people who were living here,” said Sakrani. “It’s their home, for, in one case, over two decades, and, in another case, over a decade, and so they were informed, throughout our development process, of what was happening, and they were told when they could start utilizing the downstairs space. They were introduced to the new community members as they moved in.”

For the new 14 residents of Starcity, rent is four times what Eduardo and O.C. pay, and what other tenants would have paid before the renovation. But, Sakrani noted, all of the current residents enjoy much better facilities, including a communal kitchen and a backyard patio. The communal spaces are cleaned, and a live-in manager coordinates activities for the residents.

Before the renovation, Sakrani said, one of the rooms was full of black mold, and in a different room, the electricity was out. The building had no kitchen and few bathrooms. There was no laundry facility.

Sakrani believes the two tenants from the Yug Hotel have appreciated the improvements to their living space. O.C. spends time in the common spaces and plays music with the building’s other residents.

Martinez said the Starcity founders have met and worked with the Mission SRO Collaborative to ensure those two residents’ needs are met. Starcity has participated in fire safety training at the Mission SRO Collaborative’s request. Representatives from the fire department and the Collaborative were present.

“We have been in contact with Starcity because … we are working with the city to preserve housing stock and do what we can to mitigate the situation, but in the meantime, SRO buildings are being flipped,” said Martinez.

Closing the Loophole?

Martinez said there are efforts to control rent increases in SRO rooms. The Mission Action Plan 2020, a planning department initiative to retain low-income residents in the neighborhood, recommends additional regulations for SROs. The idea, however, is considered “‘on hold’ because of legal, political, or financial constraints,” according to the plan.

In a city with a housing shortage, Sakrani emphasized that providing housing for middle-income residents helps alleviate the crisis. Compared to other housing development projects in the Mission, Starcity’s rents are more affordable.

The company hopes to attract people who make $50,000 to $80,000 a year. Most new housing development projects in the Mission, Sakrani noted, target people with much higher incomes.

But Martinez said converting buildings designed for low-income residents doesn’t do any good for traditional SRO clients. “Any new housing that does not have low-income rents is not beneficial to the community we work with,” she said.

Sakrani said the company is relatively new and does not plan to develop any more existing residential buildings. “We started to realize the implications of developers who do this on a mass scale,” he said. “It’s really important for us to build partnerships in the community and have a positive effect in the community. There’s still a lot that we can do.”