In a City Hall news conference announced yesterday and held Monday morning, City Attorney Dennis Herrera delivered the news, leaked early to the Chronicle's Matier and Ross, that Academy of Art University, one of the city's largest landlords and far from the most scrupulous, would settle a lawsuit filed by Herrera in the spring. The $60 million settlement will bring the for-profit art institution, one of the nation's largest such schools, into compliance with local law after a lengthy period of flagrant violation.
This settlement requires Academy to provide at least 160 units of affordable housing @ no cost to the city + paying $20M in penalties & fees pic.twitter.com/nzqc96g02l— Jackie Ward (@jackie_ward) December 19, 2016
Herrera filed the lawsuit against the AAU this May, litigation that alleged the school had illegally converted more than half of the forty buildings in its possession to uses they were not zoned for, including student housing. "In implementing their real estate scheme for profit,” the suit read, Academy of Art President Elisa Stephens has "flagrantly ignored and flouted the zoning and planning restrictions applicable to their properties that govern all San Francisco property owners.” Even the school's campus Headquarters on Montgomery was out of compliance. Describing one aspect of the problem, Herrera noted that “This was housing that San Francisco desperately needed in the midst of an affordable housing crisis.” But now, Herrera tells the Chronicle, after the “Academy of Art University and its real estate affiliates behaved for more than a decade like they were above the law,” at last "those days are over.”
According to a press release from Herrera's office, "Among the unauthorized uses were 160 affordable residential units that the academy illegally converted into student housing." Furthermore, "140 units were removed from the city’s stock of rent-controlled housing."
President Stephens delivered a statement to the paper as well: “We are very pleased to reach this agreement," she reportedly said, "which allows the Academy to make significant contributions to San Francisco while maintaining our academic excellence and providing for our students.” Her institution was represented by the law firm Morrison & Foerster.
The terms of the settlement: The AAU will pay $20 million in fines and fees to San Francisco over the course of five years, $7 million of which will fund the city's efforts to buy rent-controlled apartment buildings and maintain them as low-cost housing. Further, the AAU must provide 160 units of low-income housing for senior citizens on two Nob Hill sites, some of the units stemming from new construction. That's a deal the Mayor's Office of Housing and Community Development estimated to be worth $40 million over the 66-years of the agreement according to the Chronicle's reporting, hence the total "$60 million settlement" figure. Last, the school will shut down operations at three sites it owns: 2295 Taylor, 2340 Stockton, and 700 Montgomery, all as it limits future student enrollment to the amount of housing it has available. The settlement process is expected to begin today with the school filing a master development agreement with the city.
The AAU was the subject of two Forbes exposés that appeared in Summer 2015 which took the school to task regarding its dismal graduation rate — at the time, only 32 percent of full-time students graduated after six years — as well as its depressing job placement stats and, of course, its shady land-use tactics. As student enrollment boomed from 2,200 students in 1992 to 18,000 at a 2012 peak, the AAU started swallowing up SoMa, downtown, and Tenderloin buildings for housing and teaching, often running them with disregard to existing zoning and planning codes. Some, for example were rent-controlled housing. Despite years of Planning Commission complaints regarding the school's violations, the institution had done little to change its behavior, and after many hearings on the subject it had only been fined by the city once for a single violation that cost it $420,000. Then, in fall 2015, the Planning Department went ahead and confirmed that a full three quarters of the AAU's buildings were illegal, such as the 74,000-square-foot classroom facility at 601 Brannan, zoned as light industrial and in need of a legislative amendment in order to be changed. Finally, in Spring 2016, Herrera took legal action.
For historical context: The Academy of Art University was founded as a school for "advertising art" by Richard Stephens, current President Elisa Stephens's grandfather, in 1929. One aspect of its considerable wealth: It own and operates the Academy of Art University Automobile Museum, which is in possession of 200 rare vintage vehicles valued at around $70 million. Among the AAU faculty and 2,000 employees are the cartoonist Art Spiegelman and Myth Busters creator Adam Savage. These days, its student body has shrunk from that 2012 high to a more reasonable 8,700.
Last, the Chronicle reports that another, more trivial annoyance — the presence of the Academy's fleet of white buses, and omnipresence in certain downtown areas — will be curtailed. To remove the buses from main city streets, students and staff will be provided with free Muni passes.