11/26/16

Here’s what happened in the SF Bay Area Residential and Commercial Real Estate Market since 8/29:

Another hotel has been proposed: a 480-room hotel  at 350 Second St. which is now a parking lot. Other hotel projects are at 55 Howard, 1125 Market, 744 Harrison, 399 5th, 300 5th (on the site of the Shell gas station across from Mosso).

The Tiffany building at 360 Post sold for 135M or $1400 per sq. ft.

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Everyone knows by now that office leasing did slow down in Q3. Cushman issued a report indicating this is the lowest Thrid Quarter office leasing activity since 2001. This did not prevent Amazon’s Twitch from leasing 185,000 sq. ft. at 350 Bush or We Work to lease nearly 80,000 sq. ft. at 2 Embarcadero. Incidentally, there is softening in Residential Sales as well as Retail where a number of establishments have closed shop. More to come on the Residential  slowdown below and for Retail slowdown in upcoming posts. Also, Residential Rents are down and developers stopped building rentals. The doubling of affordable housing requirements makes them stop building condos and focus on hotels: Prop C passed in June requires new projects to include 25% affordable housing. The existing Residential Condos on the Market take longer to sell as illustrated below.

 

According to a Redfin post looking at August Residential Sales Data, 61% of the current inventory has been sitting for more than 30 days. In other words, no one sells in 10 days any longer and properties need to be marketed and shown for at least 30 days. Rincon Hill was the slowest where the typical home sold within 48 days. The article also points out that Russian Hill prices dropped the most compared to August of last year and almost 9% drop. We have no idea what Russian Hill deserves this faith. Conversely Bernal Heights prices increased by almost the same 9% Russian Hill dropped. This is the table that our colleague Redfin distributed in its newsletter:

Place Median Sale Price Year-Over-Year Homes Sold Year-Over-Year Inventory Year-Over-Year New Listings Median Days on Market Avg Sale-to-List
Ashbury Heights $1,630,000 30.4% 15 -11.8% 4 0.0% 13 18 107.2%
Bernal Heights $1,350,000 8.7% 67 4.7% 30 15.4% 74 14 115.3%
Civic Center / Van Ness $803,763 1.7% 26 -23.5% 25 92.3% 49 35 104.0%
Crocker Amazon $908,000 9.5% 19 35.7% 11 0.0% 21 24 106.7%
Daly City $830,000 13.5% 67 8.1% 108 11.3% 70 25 107.1%
Excelsior $833,000 -0.2% 25 4.2% 14 16.7% 30 16 110.3%
Financial District $1,500,000 -16.8% 5 -37.5% 9 0.0% 12 38 99.1%
Forest Hill $2,285,000 23.5% 5 -44.4% 1 NA 5 13 109.8%
Haight Ashbury $1,269,000 -0.5% 7 40.0% 3 NA 6 20 104.3%
Hayes Valley $1,300,000 -7.3% 13 116.7% 11 22.2% 19 15 105.7%
Ingleside $853,000 -3.1% 17 112.5% 2 -50.0% 16 15 113.9%
Inner Richmond $2,065,000 30.5% 16 -60.0% 8 -27.3% 20 14 110.8%
Inner Sunset $1,355,000 -3.2% 22 -21.4% 14 75.0% 22 19 108.5%
Lower Haight $1,433,000 9.2% 15 7.1% 2 100.0% 10 27 108.0%
Merced Heights $670,000 9.8% 14 7.7% 4 -50.0% 12 26 106.7%
Miraloma Park $1,300,100 -8.3% 43 4.9% 20 122.2% 35 22 107.0%
Mission $1,185,000 -1.7% 39 -11.4% 19 -9.5% 41 24 107.4%
Mission Bay $1,220,000 3.4% 27 -10.0% 23 666.7% 39 36 99.2%
Nob Hill $1,480,000 6.6% 20 -25.9% 17 70.0% 24 32 99.2%
Noe Valley $1,650,000 -10.2% 69 1.5% 21 50.0% 66 25 105.3%
Pacific Heights $1,497,500 0.5% 66 40.4% 27 50.0% 60 22 103.2%
Parkside $1,250,000 5.3% 19 -47.2% 8 0.0% 25 15 117.1%
Portola $850,000 5.5% 9 -55.0% 6 -40.0% 10 44 103.2%
Potrero Hill $1,150,000 -18.0% 45 21.6% 14 180.0% 32 25 105.5%
Rincon Hill $1,225,000 7.5% 33 -15.4% 38 65.2% 52 48 99.4%
Russian Hill $1,285,000 -22.1% 30 11.1% 15 114.3% 28 29 100.9%
South of Market $849,500 -10.6% 68 -22.7% 78 169.0% 110 33 102.0%
South San Francisco $811,250 5.9% 44 22.2% 80 60.0% 51 18 106.0%
Sunnyside $1,060,000 -1.4% 15 -11.8% 8 300.0% 12 20 110.7%
Sunset District $1,250,000 -0.4% 138 -18.8% 54 -6.9% 136 15 115.7%
Telegraph Hill $1,500,000 30.4% 10 0.0% 4 300.0% 9 30 101.4%
Tenderloin $654,000 -18.2% 8 60.0% 5 66.7% 5 40 104.2%
Twin Peaks $1,833,500 101.5% 4 -63.6% 3 200.0% 5 18 101.1%
Visitacion Valley $760,000 4.8% 11 -8.3% 8 -27.3% 12 17 108.4%
Western Addition $1,020,000 -20.9% 16 -27.3% 11 120.0% 22 14 106.5%
San Francisco, CA $1,199,500 -0.0% 460 -0.4% 790 47.9% 427 30 106.6%

Chart courtesy of Redfin

We mentioned above and in previous posts that Commercial, Residential and Retail prices are going down. We also mentioned that Residential Rents are going down. Finally, we mentioned that developers given affordable housing requirements are moving away from building Residential Rentals or Condos. Another interesting wrinkly, with this background in mind, is that Developers are complaining about sub-contractor costs and availability. We often hear that sub-contractors profit margin gone from about 10% to 20% in the last three years which means construction costs must have gone up about 30% perhaps even more if you take into account the increase in the price of materials such as glass etc. In office leasing for example TIs are easily $100 per sq. foot. about 2x what it used to be in years past. In our opinion, both the Residential and Commercial market will continue to go down the only question is whether it is going to be a correction or a sharp drop.

We hear the 85,011 sq. ft. 400 Montgomery office building in San Francisco sold for about $50 million or about $588 per sq. ft.which if true would be a great price for the buyer considering similar assets even recently as you can read in previous posts trade close to $800 per sq. ft.

 

 

Our friends at FAIS proposed a 300 foot tower at the site they own at 98 Franklin. The project calls for Residential over School facilities (about 70,000 sq. ft.) and Retail. We find the benefits of such a project enormous for the neighborhood and have no doubt it will be approved.

We think that building over historical structures or even other structures will be very hard moving forward. Planning recommended against a tower on top of the Wells Fargo Bank at 1 Montgomery. Swig is back to the drawing board after Planning and Residents criticized its plan to build over the building it owns right next to Blu on Folsom Street. We bet that nothing will be built on top of the old Passport Agency across the street on Folsom. Our opinion is based on anecdotal evidence and a belief that it makes more business sense for a City to direct development to underutilized parcels and neighborhoods in needs of gentrification. At the same time, we think that political moratoriums restricting changes of use need to be eliminated immediately because they harm the neighborhoods affected. In other words, it is best to incentivize developers to build in areas that need gentrification rather than on top of existing structures in developed areas. It will be interesting to see if the structure planned on top of the Macy’s store will be approved: Macy’s sold its 263,640 sq. ft. building for $250M or about $950 oe sq. ft. In case some of you wonder why this is higher than office buildings in the Financial District and elsewhere the short answer is that some sub-markets like Union Square or even South Park command a premium.

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The 117,000 sq. ft. office building over Retail (Blue Bottle and Treasury) at 115 Sansom sold for $83M or $709 per sq. ft.

 

 

 

88 Bluxome the 369,000sq. ft. site of the SFTC sold for $140M or  $379 per sq. ft.

 

 

950-974 Market will be 242 condos and 232 hotel rooms.

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