Market View
By Jay Greenberg
Marcus & Millichap recently conducted a Real Estate Investment Symposium in San Francisco, attended by several hundred Bay Area investors. The theme of the symposium focused on maintaining a positive perspective about the current state and direction of the market. Perspective is important, especially if your property is in one the most dynamic and beautiful cities in an affluent nation with one of the highest standards of living in the world.
Most people who read this article have the good fortuneof owning real estate in this phenomenal place. If you haveheld ontoreal estate for a coupleof yearsor more you have experienced incredible gains, beyond most investors’ dreams. Although we have been bombarded by the doom and gloom of crashing markets, I recommend developing a new perspective about our current housing situation.
First, in spite of an approximately 20% decline in rents recently, we experienced an explosive escalation in rents during the preceding period from 1995 to 2000. Had we conducted a survey of owners in January 2000, we would have found a group of owners quite happy with rental rates. In the following months, between February and October of that year, there was another hike in rents of approximately $300 for every type of unit and location. Meanwhile, the financial markets were crashing and the reality of the business world caught up with the dot.com industry. Today, rents are at the January 2000 level with a vacancy rate of approximately 4%. Most markets would celebrate this type of vacancy factor. In addition, the tenant profile of a San Francisco renter is excellent in contrast to other markets outside the Bay Area.
Second, the sales market for 10+ unit apartments in San Francisco continues to be strong. There has been a slight drop in sales figures between 2000 and 2001. Although rents have dropped 20%, sale prices have held steady. Falling interest rates may be the primary factor in holding current pricing levels. The typical buyers in the past few years have been local investors who understand the dynamics and nuances of our market. Most buyers are mid- to long-term holders and have bought properties with good upside potential that will turn into equity over time. The wild overbidding is gone and the market has become more defined. An over-priced property will not receive activity in today’s market. We have seen a larger decline in volume in the five- to nine-unit sector that may be due to an over-pricing factor. Anything priced correctly today will sell.
The media no longer highlights the housing crunch inSan Francisco on the daily news although vacancies continue. In the last few weeks, many owners finally have rented units that have been available for some time. An excellent rental period, from my experience, extends from mid-May through the end of summer as people move to and from San Francisco. Keep your perspective regarding our current market and you should feel quite good in comparison to your friends who started day trading a few years ago.
James Devincenti of Marcus & Millichap listed
and sold 138 units at 1501 Sutter Street in lower
Pacific Heights. The list price was $13,500,000 with a credit
of $2,750,000 for the completion of a required seismic upgrade in
order to remove the property from the city’s Unreinforced Masonry
Building List. The property, marketed for approximately two weeks,
received seven offers. This well-maintained building with steam
heat consisted of 128 studios and 10 one-bedroom units with a separate
parking garage for approximately 20 cars. The value indicators at
list price less the credit were 8.58 GRM, $160 per square feet or
$77,898 per unit. These figures are considered excellent value numbers
for this location. The final sales price was not disclosed and the
escrow closed in 30 days. This was an as-is sale with no credits.
The actual list price with the credit would have been $10,750,000.
The property sold over this price.
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.