The 2-4 World
by Robert Link
It should come as no surprise that 2-unit buildings are still a hot commodity in the marketplace. In the first quarter of 2006, 2-unit sales maintained roughly the same volume over the same quarter of last year. The total number of buildings changing hands was 113, compared to 119 in the same period of 2005. Volume decreased by 17% compared to the fourth quarter of 2005; 136 buildings were sold between October and December of last year.
This is an indication not only of the seasonality of buying, but also of the differences in inventory between the last quarter of 2005 and the first quarter of 2006. Until recently, inventory in all property categories has been low, which may come as a surprise to many in the industry given the quantity of offerings that went unsold or were withdrawn at the end of last year. But inventory has recently spiked upward and some have surmised that the late buying season has been due, in part, to the abnormally heavy and late rainy season this year.
There was very little variance between listing prices and sales prices in the first quarter, with the average list price at $1,309,550 and the average sale price being slightly above that number at $1,315,200. Of the 113 sales in the first quarter, the highest price paid for a 2-unit building was $2.45 million in Nob Hill at Clay and Jones streets. Listed by TRI, this offering sold in an astonishing 10 days with an all-cash offer. Of the 113 sales in this category, 45 buildings (39%) sold under the asking price! It goes to show you that not every offering is priced right. Remember that 90% of listings priced 5% under its value will sell. If it priced 5% over its true value, 90% will sit on the market unsold until a price reduction is executed.
The average “days on the market” (DOM) for this group was 52 days, indicating the total marketing time expended from the date of MLS input to the closing date. Total sales volume in this category was $148,621,988.
A notable sale of late was 1934-1936 Grove St.—a vacant, 4,000 sq. ft. fixer listed for $1,150,000 in mid-May that garnered 20 offers. Needless to say, it ratified quickly with a waiting list of backup offers. We’ll have to wait and see where this sale price comes in, but watch for this one to come back on the market in six months as a beautiful TIC offering in the low-to-high 700s per unit.
3-Unit Buildings
There was not much of a difference in the 3-unit market either; sales volume in this sector stayed almost identical to the same quarter one year before. In the first quarter of 2006, 44 buildings sold, compared to 47 in the same quarter of 2005—a slight decrease in volume of 6.8%. The story lies in the significant increase in average sales prices. In the first quarter of 2006, the average list price was $1,575,800 and the average sales price came in slightly higher at $1,590,222. This indicates a 10.2% increase over the same period of last year. Remarkably, this data is showing us a 13% increase over the data collected for the final quarter of 2005, when the average price paid for three units was $1,394,000. This sector has emerged as the strongest seller in the 2-4 category, with average sales prices jumping in the last quarter, bringing the median price in our data sample to $1,572,500.
Of the 44 buildings sold in the first quarter, 9 sold over the $1.9 million level, mostly in Nob Hill and Pacific Heights. Despite the strong market showing, 17 listings sold under the asking list price, again showing us buyers are exerting some leverage in the marketplace. This indicates a 39% rate of sales under the asking price; coincidentally this is the same rate experienced in the 2-unit sales data. Are you seeing a trend here?
Total dollar volume in this category came in at $70 million. Average DOM was 55 days, consistent with the marketing periods for 2-unit buildings. The highest sale was recorded in Pacific Heights at $2.9 million for a 7,000 sq. ft. building, at a cost per sq. ft. of $409, in line with the data average of $414. Normally, a buyer of a building of this size would experience economies of scale with regard to the cost per sq. ft., but not in a trophy neighborhood like Pacific Heights and not in this continually hot market.
4-Unit Buildings
Sales volume in the 4-unit sector in the first quarter of this year remained identical to the same quarter last year, with 25 buildings changing hands. The change in sales volume decreased over the previous quarter, when 28 sales occurred in the sector and the average sales price was a healthy $1,547,696. Average price per sq. ft. held at $381, which was similar to the first quarter of last year, but down from the last quarter of 2005, when the price per sq. ft. was $445.
The average size of the 25 buildings in this sample was 3,589 square feet. You might remember reading in this magazine that most of the city’s 4-unit building supply was constructed in the 1920s. They often feature large one-bedroom units with double parlors, which are often used as two-bedroom rental units by their occupants.
The total dollar volume for this category was $34,225,800 in the first quarter of 2006, with the highest sale occurring at 920-924 Haight St. It was listed and sold by Bonnie Spindler, an associate member of SFAA. The vacant 6,000 sq. ft. building sold at $1.8 million or $300 per sq. ft. Marketing time for this category was in line with averages for 2- and 3-unit buildings, with 59 days on the market from listing to closing. Five buildings in our sample sold at the asking price and six sold under asking. The majority sold with 5% to 10% over the asking price.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Robert Link is a real-estate agent with S & L Realty, a family-run property management and real-estate brokerage firm based in San Francisco’s Richmond District. He can be reached at 415-386-3111 or robert@slrealty-sf.com. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.