Decade in

written by
Terrence Jones

Not sure where to invest in 2020?
This thorough review of the previous
ten years should help.

In examining the growth in values in San Francisco, it’s good to have a historical reference on the market for different sized buildings. A unique characteristic of buildings with 16 units or more is that they require an onsite manager by California law. It should be no surprise that these buildings are found mostly Downtown and in the Tenderloin, as this is where the larger buildings were built after the 1906 earthquake. Before the city grew its bus and BART system, and when there were far fewer cars on the road, it made sense to have larger buildings with multiple units relatively close to the Financial District to house workers, because that’s where the jobs were. The Tenderloin was not always the rough and tumble district that it is today. It was a short, flat, and safe walk down Market Street to the Financial District, so it was logical to build bigger buildings there. 

Historically, before and after the imposition of rent control in 1979, small real estate investors bought smaller buildings, which were financed by local and regional banks at relatively low leverage or loan to value (LTV). As these small investors grew their equity, they traded up to larger buildings as they were able. The appeal of larger buildings was the higher return on investment relative to the cost of managing them. This strategy resulted in many small owners with a few larger buildings. Typically, as owners aged, they or their heirs would sell, and a new owner would take over the building. This type of fragmented market operated for many years with multiple small owners in San Francisco. 

In the early 2000s, one of these small owners was able to secure a new financing tool in San Francisco that no other owner in the market had been using. The Lembi family of Skyline Realty started using Wall Street bank financing that offered a much higher LTV or Loan to Value. Most local lenders were offering a 50-60% LTV, while the Lembi’s were able to get as much as 90%. This competitive financing gave Skyline an advantage in the market, and they were able to collect close to 300 of these larger buildings in a relatively short period of time. Unfortunately for the family, these buildings were cross-collateralized, and the debt had a short-term maturity date. The Lembi’s bet that the good times would keep on going but, unfortunately, this was a misstep and their once savvy investments turned into the perfect storm when the financial crisis of 2007-2009 hit. Their loans started to come due at a very bad time when financial institutions were not anxious to replace them on the same terms.  

And because the properties were cross-collateralized, the trouble spread fast. As a result, instead of cornering the market in large apartments, they lost their entire collection of buildings.

By 2010, there was a shift in the market with a handful of large corporate owners buying up the larger buildings from the bankruptcy and from generational sales. These owners used longer term debt from sources around the world. Today, the buildings are professionally managed and run like any business with long-term financial planning. The majority of these buildings do not come back to the open market, but if they do, they are snatched up by the same few corporate owners.

That is the state of the market for large apartment buildings today. So, what does this mean for the smaller investor? What areas should they be looking at? I took a closer look at the sales of buildings in the slightly smaller 5-15-unit category over the past decade in all of the San Francisco Multiple Listing Service (MLS) districts. In this category there are, on average, 110 sales per year. Over the past decade, I found the majority of the sales were in the Inner Mission, with Nob Hill and Pacific Heights coming in a close second and third. The top ten with corresponding sales volume for the 10-year period are listed below:

  1. Inner Mission (102 Sales)
  2. Nob Hill (82 Sales)
  3. Pacific Heights (68 Sales)
  4. Russian Hill (56 Sales)
  5. Central Richmond (50 Sales)
  6. Hayes Valley (48 Sales)
  7. Inner Richmond (47 Sales)
  8. Noe Valley (42 Sales)
  9. Eureka Valley/Dolores Heights (39 Sales)
  10. Marina (36 Sales)


It is good to keep in mind that there are many well-known, popular areas that are appealing to investors, but they did not make the top 10 in the volume category. The districts with fewer than 35 sales in this ten-year period were: Telegraph Hill (34), North Panhandle (34), Haight Ashbury (34), Mission Dolores (34), Inner Sunset (33), Bernal Heights (24), and Cole Valley (15). I did not look at the total sales per district, relative to the total building count in that district because that data is difficult to collect, but it would be interesting to see those statistics. When I was selling buildings in the Tenderloin and Downtown markets exclusively, I did so because those rough and not-so-safe neighborhoods in the early 2000s meant that more people wanted to sell due to the danger and difficulty in managing in these less desirable areas.

Very few buildings in this high volume 5-15 unit category are similar in rents due to rent control, so I thought it would be interesting to look at a simple average price per square foot for each district by year to see which areas have appreciated the most in the past decade. In other words, if a smaller investor wanted to buy a 5-15-unit building in San Francisco in 2010 in one of the top 10 volume sales markets, which market should they have picked to get the best return on their investment in 2019?

As we all know, the market in San Francisco has experienced tremendous growth in values in the past decade. When I compared the average sales price per square foot ($/SF) in 2010 to 2019 in these 10 markets, I found that all had appreciated significantly. On average, all the areas combined rose 103%. However, some areas rose at a much higher rate than others, so which district would have made the best investment?  


As you can see in the list below, the Inner Mission blew away all the top volume areas, but Hayes Valley, Noe Valley, and Inner Richmond were close behind. The historical investment areas of Nob Hill, Pacific Heights and Russian Hill did well, but they were only in the 90% gain range. A surprise was the Marina and Eureka Valley/Dolores Heights districts, which were only in the 70% range.

District % Increase:

  • Inner Mission180 %
  • Hayes Valley129 %
  • Noe Valley110 %
  • Inner Richmond110 %
  • Nob Hill99 %
  • Pacific Heights97 %
  • Russian Hill96 %
  • Marina77 %
  • Eureka Valley/Dolores Heights77%


When you look a little deeper into the numbers, there were very few sales in the Inner Richmond and Eureka Valley/Dolores Heights in those years, so in those specific markets a single sale can make the gain comparison significantly less accurate. I believe that if there was a further examination of these areas, we would find the increase to be lower for the Inner Richmond and higher for Eureka Valley/Dolores Heights. If we exclude those two markets, then we are left with Inner Mission, Hayes Valley and Noe Valley as the top performers of the last decade. One common thread between these top districts is that they each have appealing retail stores and vibrant restaurants in comparison to some of the other neighborhoods in the top ten. In case you have not noticed, there is quite a bit of fog and wind in the summer in San Francisco. Some of the sunniest and most pleasant weather in the summer months is on the eastern, sheltered side of Twin Peaks, so the Inner Mission, Hayes Valley and Noe Valley tend to be very appealing to renters and buyers. Another connecting factor between the top performing areas is their access to mass transit: particularly BART and MUNI Metro stations. With the arrival of the tech bus routes, I cannot help but see a correlation between the Mission and Hayes Valley with their ready access to the 280 and 101 freeways. With this access, young tech workers can live in this exciting city and easily go to jobs in Silicon Valley and on the peninsula.

Does this mean the desire for the great views offered by the classic apartment buildings of Nob Hill, Russian Hill, Pacific Heights and the Marina are a thing of the past? I don’t think these iconic places to live are gone forever, but I do see that other neighborhoods have become more popular due to their quick access to mass transit and freeways. It can take 20 minutes or more to cross the city, whether by car, bus, bike, electric vehicle alternative (EVA), skateboard, scooter, or unicycle, so it looks like the time savings of being nearer to work and/or public transit is important for many renters as these high growth areas gain traction.

Another analysis that is interesting, relative to the top gainers in the past decade, is the average price per square foot in 2019 in each of these districts: 

  1. Marina ($707)
  2. Pacific Heights ($657)
  3. Russian Hill ($607)
  4. Hayes Valley ($592)
  5. Eureka Valley ($568)
  6. Inner Richmond ($567)
  7. Noe Valley ($556)
  8. Nob Hill ($549)
  9. Inner Mission ($463)
  10. Central Richmond ($450)


Notice that the most expensive markets per square foot do not match up the with the top gainers of the past decade. My theory is that the most expensive markets are those where owners buy and rarely sell. They consider these purchases as a family legacy that will stay in the family for many generations. In 100 years, the views of the bay will still be valuable—even if the water rises a few blocks up the hill after global warming. The Marina may be another story, but the properties left out of the water will certainly have nice views.  Another theory for the substantial gainers is that the top areas of Mission, Hayes, and Noe have been where the building gains have incrementally pushed up through the popularity of converting existing rent control units to tenants-in-common (TIC) ownership. Typically, TIC developers do not overpay for their acquisitions, but more demand certainly can drive up prices. 

Coming full circle, we are left with the burning question of where small to mid-sized investors should place their bets for the next 10 years to see the greatest gains. I wish I knew the answer, because I would stop selling buildings and invest in those markets full time. However, my best guess is we will see more gains around transit. The Geary Bus Rapid Transit project that started in 2019 will likely see growth from Van Ness west to the Pacific Ocean. If the local politicians stop blocking denser rezoning around rapid transit, we will likely see significant growth along the BART lines, specifically near the two stations in the Inner Mission and some gains near Glen Park and Balboa. We could also see significant change around the Caltrain stations in Central Waterfront/Dogpatch, Bayview Heights, and Little Hollywood. However, if these neighborhoods are not cleaned up and made safe and the homeless problem is not dealt with, we may see businesses leave, taking their employees who rent apartments with them, and leaving owners with the inconceivable scenario of loss of property value.

Only time will tell.

Terrence Jones is a Senior Broker Associate at Zephyr Commercial and specializes in the marketing and sale of investment properties. His business specialty is San Francisco rent-controlled apartments. He has extensive experience with sale of properties and 1031 exchanges purchases. He can be contacted at 415-786-2216 or by email at