Market View
By Jay Greenberg
The year 2001 certainly is proving to be an exciting one. Four factors are exerting an impact on our housing market during this period of transition. First, a growing rate of vacancies is evident, especially in higher end rentals. Take a drive through the city’s nicest neighborhoods and you will see “For Rent” signs in abundance. Financial markets are a second indicator as they fluctuate beyond most people’s dreams and/or nightmares. Third, interest rates continue to drop and, for the time being, pricing remains steady in our industry. Last, the energy factor is yet another significant component during this time of transition.
Real estate is much slower to react to change than the financial markets. To date, we have not seen a noticeable change in pricing. We have seen a change in the quantity of the buying pool. The number of bidders and over-bidders has been greatly reduced. These are times when many opt to wait and see. There is a great difference between typical real estate investors and financial market investors as evidenced by the amount of capital needed to play the game. If you have $20,000 in the bank you can participate as an investor in the stock market. However, as a real estate investor, this amount may only cover closing costs for a typical San Francisco apartment deal.
My opinion is that we will see a flattening of prices in the San Francisco apartment market. I have reached this conclusion based on the different profiles of the real estate investors as mentioned above, the availability of attractive financing, and the tremendous upside potential still available in most apartment buildings. Even with the loss of jobs, described frequently in the press, San Francisco will continue to experience job growth in 2001. The housing shortage is not over yet—not in this decade and probably not in this century.
The turnover in the 10 + unit sector has started 2001 with a huge bang. Dollar volume for January 2000 was $14 million. Dollar volume for January 2001 was $48 million. The San Francisco office of Marcus & Millichap brokered six of nine transactions including the largest sale of the month, a building with 63 brand new non-rent controlled units in Alamo Square. The next largest sale, brokered by Craig Lipton of Maven Investments, was a beautiful 81-unit downtown apartment building with the kind of units we all would love to own. Stanley Ho and Alana Lam of Prime Reality and George Ju of George Ju Investments brokered the other two transactions.
The highest sale was, the mentioned above, 81-unit apartment building
at 601 Farrell Street, located downtown on the southwest corner
of Farrell and Leavenworth Streets in a neighborhood that has experienced
a lot of change since the early 90s. Although the area is still
characterized by some local color, many young and upwardly mobile
renters are attracted to this increasingly popular neighborhood.
The Farrell building sold for $2.1 million in 1995 and closed this
past January for $9 million. The building has mostly large studio
apartments consisting of junior one- bedrooms. The price works out
to 10.1 Gross Rent Multiplier and $162 sq. ft. Craig Lipton of Maven
Investments brokered the transaction.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Jay Greenberg is real estatebroker with Marcus & Millichap. He can be reached at 415-391-9220 ext. 300. © Copyright 2001.