THE 2–4 WORLD

by Erika Burke

April through June of 2007 has brought us a little spring “bling” in multiunit sales. During the second quarter of 2007, 155 multiunit properties transferred, for a total dollar volume of $229,703,401 and an average 55 days on market (DOM). The average sales price was $1,482,280 or $494,093 per unit, which is up from the last quarter by $61,053 with nine days less on market. The total volume was up by $43,572,763 over last quarter. The dollar volume is $13 million less the dollar volume from the second quarter in 2006, yet the average sales price has risen by $138,421, a significant 9% rise. The DOM are up by seven days from last year at this time.

During the first quarter of 2007, the sale vs. list price was at 100.24%. In the second quarter of 2007 it was 102.97%, which is virtually the same as the second quarter in 2006, when it was 103.07%. These statistics show a fairly stable market for this quarter in terms of seasonable bidding activity; it’s a quarter where buyers are willing to perhaps pay over the asking price for the property purchased.

The front-running real-estate firms have remained steadfast and have consistently performed, taking the top two spots once again. Coldwell Banker represented 57 market transactions for a market share of 17.72% and $81,428,000 in dollar volume, followed by Zephyr Real Estate with 27 transactions for a market share of 8.29% and total volume of $38,085,700. Chris Panou, of McGuire Real Estate was the agent with the highest individual market share at 1.46% with three transactions in both listing and selling agency for a total dollar volume of $6.7 million. We all know Panou, and we know he works hard for his market share. But how is it that he makes it look “easy”?

Of the 122 properties transferred, 50 went for under the asking price, 23 sold at asking or very near asking, and 82 went for over asking. We can determine that multiunit properties are still commanding a strong market share of all residential sales, demonstrated by buyers’ willingness to overbid in this fashion. But it wasn’t all good news: 22 properties sat on the market in excess of 100 days and many of those sold below their asking price. These properties may have required more consideration in the determination of their initial asking price.

An analysis of the MLS marketing remarks for the 2-4-unit property sector for the second quarter revealed that close to half of the properties offered for sale have been upgraded or remodeled, while about a third are vacant or will be offered vacant at the close of escrow. It is still quite prevalent to see notes about Ellis Act evictions, and only about one-quarter of the listings are being promoted as income property. Multiunit fixers are still listed in the same price range as properties that are not fixers. Only 35 sold properties had listed their GRMs, with one as high as 129.41 in the Inner Mission. The appraisers must have a heck of a time figuring in the market nuances that 2006’s Proposition H (relocation fees) has contributed to the asking and final sales prices of residential multiunits.

Notable Sales
Barbara and Robert Callan of McGuire Real Estate brought a three-unit building at 746-750 Divisadero St., near Alamo Square, to market for $995,000 and sold it for 146.23% over the asking price: $1,455,000. The Edwardian units were fully tenant occupied, included what may have been an unwarranted unit, and featured many original architectural details.

Neil Gingold of Vanguard listed a four-unit building at 555 Ashbury St., and Ted Dundas of Coldwell Banker brought the buyer in the fastest sale in the city for the quarter: zero days on market for ratification and sale. It must be technology bringing an up-to-the-minute MLS hotsheet that brought these agents together at the speed of light.

Jason Tom at Sperry Van Ness gets the “You’re so ‘70s” award for his Lake District four-unit listing, which, though tremendously period accurate, lacked that certain curb appeal. Yet it still commanded $56,000 over asking.

A four-unit property, 2648 Bryant St., was listed by Joske Thompson of Coldwell Banker. It sat on the market for 272 days, until Diane O’Connell of Zephyr Real Estate brought the successful buyer.

Two Units
Here’s where the bling is. Two-unit transfers are up, up, up: 102 two-unit properties transferred, which is 25 more than last quarter and represents 65% of the multiunit transfers for this quarter. The average sales price increased by 9.5%, or $85,594. The dollar volume increased by $42,243,33, or $147,424,933 for this quarter, versus the first quarter of 2007. A single unit in a two-unit property sells for an average of $722,671. If you own a two-unit, you might want to consider selling and reinvesting in other San Francisco units using a 1031 exchange to maximize your profits. Two units were on the market 10 days less than the previous quarter and sale vs. list price is up by 2.68%. The most significant change from the second quarter in 2006 is the rise of the average sales price by $160,427.

It looks like the area with the highest number of transfers was District Nine, with 23 two-units transferred, of which 12 were in the Inner Mission. Districts One and Two transferred 20 each, with 6 in the Outer Richmond and 6 in the Inner Sunset.

Two-unit properties still show the most promise for owner-occupiers. It looks like the sellers for these properties all held off until spring. Now that they’ve all sold their properties so readily, those sales have also effectively driven up the asking price per unit. As with all things, what goes up must come down. When strategizing your purchases or sales, remember to consider the overall picture of what your action may do to contribute to the stability of our multiunit market in San Francisco.

In San Francisco, with the right sales team and a well-prepared property priced correctly, your property should “move” at any time of the year. Buyers should be encouraged to purchase in the fall and winter, when there is less competition and the sellers are generally eager. Likewise, a smart planner might suggest you sell during this time as well, as those who are looking may have waited for the crowds and the purchasing frenzy to clear. The right time is always now, as long as you have the right support team.

Three Units
The median sales price for a three-unit property has increased by 4%, or $62,634, between the first and second quarter of 2007. In all, 30 properties transferred–4 more than the last quarter, with one day less average DOM and an increase of sale vs. list price by over 6%. Three-unit sales represent 19% of 2-4-multiunit transfers. Total dollar volume of $47,532,580 showed nearly an 8% increase from the previous quarter. The average sales price is up 8% from this quarter last year, or just under $220,000. The average price for a unit in a three-unit building is $527,028, which is the average sales price of an individual tenancy-in-common (TIC) unit, making this sector a less desirable purchase for the investor looking to speculate.

Four three-unit properties transferred in Noe Valley and four also transferred in Eureka Valley/Dolores Heights. North Beach gave us the highest sales price for a three-unit at $4.6 million, though it was completely vacant (always a plus). Bernal Heights had the lowest sales price at $950,000, followed by SOMA at $996,000. District Nine, specifically SOMA, is proving to be an area where a deal may still be possible for multiunit properties.

Four Units
The four-unit market has remained strong for the second quarter of 2007. In all, 27 four-unit properties–3 more buildings than the previous quarter–were transferred, though the average sales price declined by 1% and the DOM increased by 10 days to 64. The sales price vs. list price came down by 1.8% to 99.78%, indicating that buyers are offering either at or slightly under asking prices. The dollar volume declined by less than $2 million, making it $39,107,558 for the quarter. We’ve stayed steady in this market segment for the first half of this year, and it remains commensurate with the same quarter in 2006. The average price for a unit in a four-unit building is $376,034, making this a sensational buy for an investor looking to possibly convert vacant units for resale as TICs. With an 18% market share of units sold, four-unit properties continue to be a strong segment in multiunit sales.

Noe Valley and the combined Richmond districts again each transferred five properties. Two properties transferred in both the Inner Mission and the North Panhandle. The bulk of sales, 71%, sold in the $1-million to $1.75-million range. Eureka Valley was the neighborhood with the four-unit that went for the highest price: $2.3 million. The lowest was a four-unit probate sale in SOMA for $750,000.

The Big Picture
For two-unit sales, the average sales price dropped in 2006, though it has recovered so far this year, along with the amount of transfers for the quarter. Though not as active as this quarter in 2005, we have seen an across the board improvement from 2006. For three-unit sales, the volume of transfers is significantly down from 2005 numbers, but the average sales price is up a small amount. Dollar volume is almost half what it was in 2005, and less than $3 million under 2006 with fewer properties transferred. Four units show an average sales price that is slightly down from 2006, but still well above 2005’s average sales price. The number of transfers, DOM and dollar volume are almost identical to last year.

Two-units are consistently the multiunit segment that sells most voraciously. The three-unit property is not as popular, but may also not be in such abundance. The four-unit property shows a steady sales pattern for the last two years.
Average sales prices continue to rise, which also means that the price per unit continues to rise. Speculators, those investors looking to improve the properties and make them available for resale, are finding those properties to be available less and less due to the individual cost of the units. This phenomenon has made it difficult for the 2-4-unit market to be thought of as an income-producing investment or commodity. There were only two properties listed with GRMs below 17. Investors are learning to navigate the eviction minefield to continue to make units available for individual purchase. The owner-user building is becoming more popular, with the vacant unit being offered fully renovated and the additional bonus of some income-producing units or the ability for the purchaser to sell those units as TICs themselves. We’re seeing a lot of “owner carry” and seller financing being made available. As user-purchasers move into the sales transaction, they cannot qualify for the traditional loan-to-value scenario and require seller financing to even qualify for this type of purchase.

What City Hall and our Board of Supervisors don’t fully realize is the real hunger for home ownership in San Francisco. When a single-family home cannot be purchased for under $700,000, the next best consideration is the flat or TIC. When we’re talking about multiunits, this homeowner market is what we’re talking about. So far, these units are holding their value as average sales prices continue to rise. But, this ship may have sailed in terms of sellers inflating the value of their units. A flat in disrepair that has been upgraded will still command a healthy average sales price, though this is now almost a requirement for any unit sale.

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.