the 2-4 world

By Erika Burke

It’s Earth Day as I put the finishing touches on this quarterly market analysis. In the multiunit sector, however, green paint is about all that can be attributed to the 80 2-, 3- and 4-unit properties sold during the first quarter of 2008. Sixteen of the properties were sold as remodels, although none of them mentioned green aspects in their marketing remarks. However, I did see one property tout its radiant heating feature.

Fifteen of the properties were sold completely vacant, 14 sold with one or more vacancies, 13 sold based upon their full occupancy and income potential, 12 sold as fixers, 6 sold for their TIC potential, 10 sold as probates and 2 were bank-owned properties. Owner-user buildings with one or more vacancies have picked up momentum as they are positioned as a compromise to vacating a property by leaving a tenant in place for the new buyer. Fixers always seem to be available in our market and are aggressively sought. When priced appropriately, the 2-unit can be a very good investment for the motivated and organized investor or contractor, especially when vacant. The caveat is that vacant properties are generally priced as they might be for individual sale as a TIC.

The 80 transfers made for a dollar volume of $116,254,025, which is a staggering drop of 87% from this quarter last year and 69% less that the final quarter of 2007. I think we are seeing a bit of seasonal slowing and a large lack of consumer confidence.

It is no surprise that the average sales price has continued to rise to $1,453,175, up $33,548 or 14% from the first quarter of 2007; it has risen from quarter to quarter and year to year, regardless of the fluctuating number of transfers or the dollar volume. Units are not only holding value, but they are rising in value. The lack of volume in number and value has to do with recession expectations, continued fallout from the mortgage crisis, along with local current and upcoming legislation, which keep investors reticent about making a move during a tenuous time.

As a real-estate professional, I say, buy buy, buy. Yes, the average sales price has risen, but there are some lower priced units hitting the market, usually housing a tenant profile that brings lower than market rate rents. In fact, 25 of the 80 multiunits sold in the first quarter transferred for under $1 million.

In 2005, we saw overbids of list vs. sales price of 106.5%. Today’s barely-there percentage is 99.8%. It looks like we are still having trouble letting go of the grandiose expectations of value for our properties that we saw three years ago in the heart of our San Francisco sellers’ market.

Notable Sales
Zephyr Real Estate led in dollar volume during the first quarter by listing and selling 10 of the 80 transfers, or a 11.42% market share. Pacific Union sold 8 for a 10.17% market share, followed by Coldwell Banker with 9 sold, and a 9.45% market share.

Priscilla Stoyanof and Debbie Lamica of Fog Horn Realty sold a $5 million, 4-unit building at 2296-2298 Vallejo St. in Pacific Heights. The final sales price was under the initial asking price, yet this sale came in $1.7 million higher than any other 2-4-unit transfers. Congrats, ladies.

Jeffrey Gore of Coldwell Banker listed the 3-unit at 1926-1930 Taylor St. and Betty Taisch, also of Coldwell Banker, listed 1621-1623 Folsom St. (a 60s throwback fixer). Both tied for the longest stay on the market at 202 days until close of escrow. Never say never to these consummate professionals.

The San Francisco “Painted Lady” award goes to Carren Shagley of Alain-Pinel Realtors for 1021 Hayes St., which sold for $2,100,000. This was a gorgeous fully dressed Queen Anne Victorian, restored and extensively renovated, showcasing our unique San Francisco flavor.

Five multiunits transferred in the Richmond District, six transferred in the Marina District, three in Russian Hill and two each in Cow Hollow, Pacific Heights and Telegraph Hill, with one building transferring here and there in the remaining districts.

2 Units
Fifty-eight of the 80 properties transferred, or 72% of all sold, were 2-unit properties, which stayed on the market an average of 54 days for a total dollar volume of $82,252,025. That is an impressive percentage for our sleepy market and demonstrates the continuation of the most sought after and most prolific type of 2-4-multiunit properties for sale. If you have a 2-unit that has outlived its taxable depreciation, to recapture value it really is the time to put this property up for sale and, likewise, it is the time to invest in another 2-unit property.

With a 102.6% list vs. sales price, buyers are still competing for the 2-unit purchase. Of the 58 sold, 10 were remodels, 11 were vacant, 5 showed a vacancy of at least one unit, 5 were sold as TICs, 6 as income property, 7 as fixers, 5 as probates and 2 were bank owned. Here’s an opportunity to go green, if you have the chutzpah to purchase a 2-unit fixer. Lots of rewarding work and some profit should be at the end of a green remodel. This is probably the segment of multiunit property that lends itself most to green remodeling since its use after sale is so varied: owner-users, TIC purchasers, mixed-use and, yes, even income property. It’s no secret that rents are on the rise.

The average sales price for a 2-unit was $1,418,138 or $709,069 per unit. One could purchase a single-family home in this price range; this is a tremendous value. Remodel or make green improvements to make yourself or a San Franciscan who is clamoring for home ownership, or environmentally friendly digs, happy. According to the National Association of Realtors’ annual cost vs. value report, San Francisco is one of the few markets in the United States that shows a significant return on a remodeling investment. It seems to follow suit that this would apply to any efficiency work you might do as well.

3 Units
Fourteen 3-unit properties transferred in the first quarter of 2008, for a total dollar volume of $21,470,000. A list vs. sales price of 100.4% shows accurate asking prices. The average sales price was $1,533,571 or $511,119 per unit. Three-unit buildings transferred faster than they have since 2005, with an average DOM of 50 days. Could the scarcity of availability for the 3-unit have made them more attractive? Seven of the 14 sold for over $1.5 million.

Three were sold as vacant, only two were remodels, two were fixers, two with one or more vacancies, three as income property, one as a TIC and two were probate sales. Of the 14 sold, 6 transferred for under the asking price. The 3-unit that sold at 2375-2379 Chestnut St. had a GRM of 151.79. Now, that’s impressive! The other buildings that revealed their GRMs ranged from 20.90 to 27.89. This is a rise from the 15 to 18 GRMs that we usually see.

I noted that there were a lot of attractive 3-unit properties that transferred last quarter. The average square footage was 3,339 sq. ft. per building. This means most units are over 1,000 sq. ft.—sizeable units.

4 Units
Only eight 4-unit properties transferred in the first quarter of 2008. Half of the properties sold for under $1 million, with two in Crocker Amazon, one in Bayview and the others in Pacific Heights and the Marina. The dollar volume of $12,532,000 is 60% less than the final quarter of 2007 and 133% less than the first quarter of last year. Again, the average sales price of $1,566,500 continues to climb, or in the case of 4-units, we saw similar average sales prices in five of the past nine quarters surveyed. The value per unit is $391,625. That’s a value sure to attract a first-time homebuyer.

The average square footage of the 4-unit is 3,839 sq. ft., a little over 975 sq. ft. per unit with an average cost per sq. ft. of $397.07. These properties were on the market for an average of 74 days and during the first quarter the list vs. sales price was low at 95.86%. GRMs jumped all over the place, from 14.40 to 137.50, though there was income property value in three of the sales.

Seven properties were sold with one vacancy, four were marketed as remodels, one was entirely vacant, three were fixers and three were probates. Previously, the lowest number sold was 16 properties in the final quarter of 2007. Will it only be up from here?

The Big Green Picture
How will going green affect multiunit properties? Going green can mean a financial investment in your property, which can lower operating costs over time, and attract tenants concerned with the environment and their human footprint. Going green seems to be associated with new construction or the upgraded single-family home, rather than the flat, unit, TIC or apartment-grade remodel in San Francisco. As of the first quarter of 2008, it hasn’t crept into our multiunit sales market, though I am sure it is just around the corner.

As products, technicians and services become more commonplace and readily available for green upgrades, the multiunit owners will usually follow. I don’t like to think that the multiunit owner is thwarted by the expense of going green. Is it economical? It may not be as of yet, though I hope that doesn’t mean it only shows up in the higher end properties. Is it the right thing to do? There is great value in joining the local and global push toward conserving our earth’s energy and resources. Contact me if you’ve gone green and are proud and
I’ll eat my words. Now there’s something that’s biodegradable.

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The opinions expressed in this article are those of the authors 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 © 2008 by SF Apartment Magazine. All rights reserved.