teh real deal
Realistic Pricing Brings in the Offers
by Mark Bonn and Mirella Webb
In the second quarter of this year, the number of sales picked up a bit compared to the first quarter but still lags far behind the 2007 activity levels. The typical deal size was around $3.4 million and most of the buildings that sold were smaller in size (an average of 12 units). It’s also interesting to mention that in 80% of the deals the sales price was approximately $150,000 lower than the listing price. In a few cases, the buildings went above the asking prices. These were the buildings that were priced well to begin with, such as 790 California St. at 14.5 GRM and 28 Parker Ave. at 14.2 GRM, which received 17 offers.
One of the larger transactions that took place in June of this year was 990 Bay St., which was listed by Robert Barcewski and John Oldfield of Prudential. This 41-unit trophy building right above Ghiradelli Square received five offers and sold for $13.4 million. That is an amazing 18.1 GRM and $353 per sq. ft. This was truly a pride of ownership building with stunning views from the Golden Gate to the Bay Bridge. The building attracts a lot of first-time San Francisco tenants who move into the studios and one-bedrooms for a few years and move out as they outgrow the units. The average stay for a tenant in these units is about six and a half years.
The story of the selling family is truly a San Francisco classic: the property was purchased about 40 years ago by Chinese immigrants who originally made their fortunes in the restaurant business. The parents of the sellers worked extremely hard to be able to buy such a gorgeous building. No wonder some of the selling members were really attached to the building and had a difficult time with the decision to sell. We were told that the buyer was a third-generation San Francisco owner who had his eyes on this building for a number of years. In order to buy this building, he sold 1280 Lombard St. on Russian Hill.
Carolyn Chandler and Samantha DuVall listed his building in April for $4,950,000. At that price tag, this 13-unit building was just under 17 GRM, which was a fair asking price for this premium Russian Hill location. The building was meticulously maintained, and most of the units on the north side had fabulous Bay views. The deal closed in mid-June for $4.575 million and right around 15.5 GRM. The buyer was a long-time San Francisco investor who owns several buildings in the neighborhood.
Also closing in mid-June was 1741-1755 Polk St., a nice corner building at the intersection of Washington Street. This 11-unit property was listed by Citiapartments’ own brokers and included three commercial spaces on the ground floor and eight residential units above. Since the seller bought the building approximately one year ago, there were four move-outs, and the seller remodeled three of the units very tastefully. They also updated the common areas and installed a camera system. In addition, there was one unit that was delivered vacant but was not remodeled. Overall, this was a clean transaction where the buyer received a $15,000 credit before close of escrow and the property sold for $3.75 million, just $100,000 off the asking price.
In early July, Morgan Thomas and Steve Pugh of Alain Pinel Investment Group sold 790 California St. to an out-of-state buyer. This 28-unit, six-story apartment building was marketed by Marc Wilson of TRI, who listed it for $4.795 million. We thought that was a fair price for this trophy corner building only blocks from the financial district. The 14.5 GRM attracted a lot of buyers to the tour and also scared off a few who did not want to compete for the property against other potential buyers. The building received an offer almost immediately and went into contract even before the first Tuesday broker’s tour. This is what happens when buildings are priced well.
A week or two later, the buyer pulled out of the deal. Thankfully, Thomas and Pugh submitted a backup offer, which was immediately accepted by the seller. It took a couple of months for the lender to approve the financing, but during escrow about five units became vacant, which was a benefit for the buyer. He will remodel these units and get market rents, which will increase his revenue and reduce his GRM to just under 14. The new owner will also do some other capital improvements, such as painting the exterior, and upgrading hallways and other units as become vacant. This building will always be in demand, as it should attract young professionals who can walk to work in the financial district just a few minutes away. This deal suggests that with realistic pricing, buildings sell right away and even over the asking price.
We have speculated that with the decline of the dollar, foreign investors would be competing to buy San Francisco properties. But in the past quarter, most of the buyers continue to be local investors coming out of 1031 tax-deferred exchanges. We believe that the remaining months of this year will see some significant deals closing and foreign money will begin coming into our city as it has in New York City.
The rental market continues to be very strong in San Francisco. With gas prices remaining over $4 per gallon, people want to live closer to work and cut down or eliminate their commute. High gas prices combined with the fact that most people are still priced out of the housing market means that rents should continue to rise and the apartment market should remain healthy and active.
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. Mark Bonn and Mirella Webb specialize in the marketing and sale of investment-grade properties, particularly apartments throughout the San Francisco Bay Area. They recently joined the Alain Pinel Investment Group and can be reached at 415-814-6699. Copyright © 2008 by Black Point Press. All rights reserved.