The 2—4 World
by Erika Burke
We’ve moved into the first quarter of 2007 with a slowing trend in our 2-4-unit market. During the first quarter, 128 multiunits transferred, whereas in the first quarter of 2006, 147 units transferred, and in the first quarter of 2005, 207 units transferred. The average sales price has continued to rise, from $1,264,703 in 2005 to 2006’s $1,377,611 and to $1,434,717 in 2007. In 2005, properties saw an average of 44 days on the market (DOM), 2006 showed 60 DOM, up a little bit to 62 DOM in 2007. The 106.75% overbids of 2005 are gone, though 2007’s 100.19% was up a bit from 2006’s 99.28%.
The dollar volume in the first quarter of 2007 was $183,643,738, versus $202,508,812 for the same quarter in 2006 and $261,793,564 for the same quarter in 2005. The number of transfers and dollar volume are down during this quarter from the prior two years, though happily the average sales price is up, the DOM have stayed constant and sales vs. list price has risen. We may not be doing as much business, but what we are doing is significant and shows a rising average sales price indicating stable asking prices.
Compared with the last quarter or 2006, 19 less 2-4-units were transferred in the first quarter of 2007, though the average sales price rose by $57,106 to $1,434,717 and the sales vs. list price went up 9%. The average of 62 DOM was two more than in the prior quarter, however. Total dollar volume was $183,643,738, down 9.3%. We are slowly moving into the typically frantic spring season and, judging from colleagues’ feedback, the market definitively picked up its pace this past April.
Coldwell Banker held the spot for top dollar volume with $31,980,000 from 24 multiunit listings, for a 17.4% market share, followed by Zephyr Real Estate with a 7.56% market share and dollar volume of $13,888,000. Pacific Union is on Zephyr’s heels with a 7.11% market share and dollar volume of $13,066,000. They each transferred nine multiunit buildings.
Notable Sales
Cia Townsend of Alain Pinel Realtors triumphed with a 2.9% market share and $9.9 million in dollar volume for both listing and selling sides, largely due to her dual agency sale of an Edwardian at 2949-2951 Pacific Ave. This Pacific Heights three-unit sold for $4,950,000. On the market for 147 days, Townsend states that the two-story owners’ unit was perfect for the East Coast buyers, plus the building contains two additional units and an unwarranted studio that were all vacant at close of escrow. The sale was well worth waiting for, making Townsend the top market-share holder for the quarter.
Stephen Pugh of Pacific Union/GMAC brought a four-unit building to market at 3548 Fulton St. in the Inner Richmond. It commanded the highest list price vs. sales price with a 128.11% overbid. The list price was $1,199,000 and it sold for $1,536,000. Aside from his exemplary skill and gift of gab as the MC for the Income Property Marketing Group, Pugh attributes this impressive final sales price to building size and location, which always matters.
The Grand Old Lady Curb Appeal designation belongs to Katherine (Kay) Patterson of Keynote Properties who brought to market a glorious Queen Anne Victorian two-unit at 2509-25091/2 Bush St. She attributes this lady’s exterior beauty to bringing in designer Marsha Ryan of Marin, who chose the white on cream color scheme with daintily trimmed details in deep burgundy and natural wood doors. The ornate wrought-iron fencing and balcony completed the look for this quarter’s quintessential San Francisco eye-candy property. In this case, the beauty on the outside did matter when this property transferred for $1,760,000.
This quarter’s Honorable Mention proves that “Red Is Right.” Silvana Messing of McGuire Real Estate sold 2179-2183 15th St. for $1,662,000–$33,000 over asking. This notably brick-red Marina-style Rousseau was hard to miss and truly unforgettable, something to consider when choosing exterior color.
Two Units
Two-unit sales have remained the leader with 77 transfers and 60% market share in the 2-4-unit sector. The average sales price was $1,359,748, down 1% (or $26,265) from last quarter, though on the whole this figure has risen steadily since 2005. The total dollar volume was $104,700,600, down 20% from the previous quarter. The average DOM was 64, six days more than the previous quarter. The average sales price over list price was up by 1.9% to 100.82%, indicating stable offering prices and recognized value.
Of the 77 transfers, 22 were at asking, 22 sold for over asking and 34 were under asking. This indicates that the buyer’s perception of value for two-unit properties may not be the same as the seller’s. The combined Richmond districts were a hotbed of sales activity, with 20 two-unit transfers, followed by 8 each in the Sunset and Noe Valley, and 6 in the Inner Mission. Pacific Heights brought in the highest sales price–$4 million–with the lowest sales price of $725,000 in the Inner Richmond.
Two-unit sales may have slowed due to myriad causes, including stringent San Francisco Rent Board regulations, newly introduced legislation affecting owner move-in evictions and future condo conversion, and new relocation fees courtesy of last year’s Proposition H. Buyers are looking for vacant properties to avoid pitfalls.
Three Units
In the first quarter of 2007, 26 three-unit properties transferred, only 3 less than the prior quarter. The average was 62 DOM, down just one day from the previous quarter. Sales over list was down by 2.5% (at 97.64%), though the average list price rose by 3.4% to $1,518,452 from the last quarter. Total dollar volume was down by 2.7%, to $39,479,750. As with two-units, the number of sales and dollar volume dropped while average sales price increased and DOM remained stable.
Three 3-unit properties transferred at asking, 4 sold over asking and the remaining 19 sold under asking. Could it be that less inventory on our multiunit market is making buyers consider their offers more diligently? Hayes Valley sported four 3-unit sales, with the highest sales price of $4,950,000 in Pacific Heights and the lowest in the North Panhandle for $720,000.
Four Units
When we look at this segment of the market, we finally see an increase across the board. For several quarters, four-units have shown the slowest market share in multiunit sales. But the first quarter of 2007 saw five more properties transferred than in the previous quarter, for a total of 24 sold. The average sales price increased by 16%, to $1,575,558, and volume was up significantly–by $9,923,500 to $37,813,388, for 21% of total volume of all 2-4-unit sales this quarter. DOM decreased by nine days to 54, and sales over list increased by 2.7% to 101.62%. This sector has certainly shown significant activity in all sectors over the last quarter as well as over the first quarter reports for 2005 and 2006. This should be encouraging for four-unit property owners looking for a hospitable sales climate. Your moment has arrived.
Noe Valley led the way with four four-unit transfers, followed by three in the Inner Richmond. Four properties transferred at asking, 10 got over asking and 10 went for under asking. Cow Hollow transferred the highest priced four-unit at $2,899,000 and South of Market had the lowest at $835,000.
Middle-Income Housing
I recently attended a seminar sponsored by the San Francisco Housing Action Coalition at the San Francisco Public Library that addressed the lack of middle-class housing in San Francisco.
The short answer to this dilemma, from what I understood, is that market-rate home ownership programs in San Francisco, like the inclusionary 15% housing requirement for new construction, disallow entry to the median income earner. It was suggested that San Francisco needs to expedite the planning approval and regulatory process in order to boost supply, provide more units, and decrease developers’ holding costs, thereby affecting a lower cost for the land. This will, in turn, lower building costs to effectively pass along those savings and making middle-income housing affordable to buyers.
Further suggestions inspired by policies in cities like San Bruno, Emeryville, Seattle, Detroit and Austin were: a down-payment assistance program locally and federally for middle-income purchasers, state and local tax incentives for builders, a metric which would include converting publicly held lands and industrial sites to building sites and rezoning to increase density and lot size, allowing housing over retail, and making allowances in the building codes for renovations. How is it that other successful U.S. cities have already adopted part or all of these approaches?
It appears that the sale of individual units in a multiunit property is San Francisco’s answer to middle-income housing. Why, then, are the regulations so stringent – nearly preventing the middle-income home seeker access to this needed housing? A conversation about more availability of this type of housing must include the San Francisco Rent Board and San Francisco Board of Supervisors in an effort to at least model, if not exceed, the plans already in place in our nation’s premier cities. These parties must be asked: if the individual sale of multiunits is an effective middle-income housing source, why are buyers and sellers being so stymied by regulation?
The Big Picture
Average sales prices continue to rise in 2-4-unit sales; the legend of the bursting bubble has not affected our market in terms of price per average sale. Certainly, the values of our multiunit properties are increasing, and the demand indicates that buyers are willing to keep up with these increases. The number of transactions and, hence, dollar volume has slowed significantly in 2-3-unit sales compared to 2005 and 2006. But four-unit sales have remained constant and have even increased. These are early times and the word on the street is that the market is building steam.
More positively, we saw a gain in four-unit sales across the board, which we haven’t seen in the last two quarters. Underbids are beginning to become the norm for multiunit properties, which may be a reflection of higher GRMs and lower cap rates, plus the controversial conversion climate. The answer? Keep abreast of developing legislation, and find and put into office new candidates for supervisor who are for income-property ownership and will see the bigger picture. They must see the danger of a bureaucratic extinction of small multiresidential properties as both income-producing rental stock and as prospective unit purchases for the middle-income buyer. This commodity is essential to a healthy, revenue-based, income-bearing property market. Position your properties correctly for sale with an eye on trading up and keeping your portfolio in San Francisco multiunits.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Erika Burke is a realtor with a 25-year background in sales and marketing. She specializes in the sale of San Francisco multiunit properties with Zephyr Real Estate and can be reached at 415-279-1135 or erikaburke@zephyrsf.com. Copyright © 2007 by SF Apartment Magazine. All rights reserved.