A Break
   in the Fog

written by Terrence Jones

Despite San Francisco grinding to a halt, this writer remains optimistic that the city’s future and real estate market will come back fast and strong.

As I write at my home office today, the forty-sixth day of the city’s shelter-in-place (SIP) order, I feel that we are most definitely navigating in uncharted real estate waters. Since the order took effect, we’ve seen a significant change in the market. New listings, those newly in contract, and actual closes of escrow for apartment buildings have slowed to a trickle. 

But before I dive into the sales atmosphere, I’d like to talk about rents. Rents ultimately drive the value of income property. However, the SIP has put many out of work, making it hard for renters to pay their rents. And then the mayor placed a moratorium on evictions for non-payment of rent during the crisis. This has definitely affected revenue for building owners. An April San Francisco Chronicle article noted, “Nearly 6% of San Francisco tenants were unable to pay April rent because of income lost due to the coronavirus pandemic and the shelter-in-place order that has brought economic activity to a halt throughout the region, according to a survey from the San Francisco Apartment Association. The survey of 315 landlords who own 10,377 units citywide found that 596 residential residents, or 5.7%, were unable to pay all or part of their April rent because of the coronavirus and its impacts.”

J.J. Panzer, an SFAA board member, said in the article, “It’s better than I would have expected…I thought there would be an avalanche.” Another director at SFAA said that “only about 3% of his tenants said they could not pay rent due to coronavirus.”  I co-manage a building with Meridian, and we were lucky: all our tenants paid their rents in April.  However, as the SIP drags on, the expectation is that in May the number of tenants who will not pay their rents will be much higher, as those who lost work in the hotel, restaurant, and other smaller businesses start to run out of their savings. 

I asked Danny Liu who works at Corcoran Global Living and leases units of all shapes and sizes in San Francisco what he has seen since the SIP order. He notes, “The big difference in the market since the SIP is that the demand is much lower than it usually is at this time of year. There just aren’t that many lookers.” He thinks that people who are sheltering in place are not moving like they normally do in the spring, to a better apartment or a less expensive apartment, because it would be a huge hassle to move during the shelter-in-place order. They are moving only if they have a really good reason to move, like a break-up with a romantic partner or a roommate they really, really, really cannot stand any longer.

Under the Department of Real Estate rules now in effect, agents can only show vacant units, so this is also complicating and slowing the rental process for lease agents. Typically, in the pre-pandemic world, renters and owners would work together to show occupied units while the existing tenant is in place. Many owners in San Francisco would even offer a cash incentive to the existing tenant that, if the owner can show the occupied unit and is able to get a new tenant without any gap in time, would result in a bonus to the tenant. When that system works well, tenant A moves out on April 30 and tenant B moves in on May 1. But under the pandemic rules, the unit can’t be shown until it is 100% vacant, so instead, tenant A moves out on April 30, but tenant B doesn’t move in until the middle or end of May, and the owner loses money. Despite these restrictions, Danny says he is surprised to see that his clients are not having to drop rental rates to get units rented and the total number of listings are about the same as he sees at this time of year.

I talked with Inna Rubinchik this past week, and we discussed an interesting theory about how the high-end, newly constructed rental market will likely respond to the shelter-in-place experience.  Inna specializes in rentals at Compass and works with both larger building owners and individual unit owners to rent higher end units in San Francisco and Marin counties.

In San Francisco, many of the new construction rentals are located in the South of Market area near technology jobs (think LinkedIn and Salesforce). When tenants moved in at $15,000 and up per month, the sales pitches were “New, New, New,” “walk to work,” and “on-site amenities” like swimming pools and  work-out facilities. The simplicity of pre-SIP living allowed the renter to never leave their spaceship except to take a short walk to work. But in the COVID-19 world, one of the first things to get shut down were those attractive on-site amenities. At the same time, the walk to work was eliminated as companies directed their employees to work from home. In fact, Amazon has asked all their workers to work from home until October. The net result is that renters are stuck in their high-end, relatively small living spaces with only Netflix and high-speed internet to distract them. Unfortunately, many of them see tent encampments when they look out the windows of their own buildings, while their friends, who live in older, traditional neighborhoods like the Marina, Hayes Valley, Marin, and Orinda, are able to go on long walks because their units are near large parks or along the beaches. And realistically, until there is a cure for COVID-19, we might see ourselves under a SIP order again, perhaps as early as this fall or winter. When this is over, Inna thinks those tech workers will leave their high-end digs, en masse, and move to those other areas where they’ll have more space inside and outside. As Inna puts it, “These buildings may be a great landing site for people who just moved to San Francisco and get their first job, but soon enough, they move out to a different part of San Francisco that offers more charm, bigger homes with the added perk of rent control, and where the entire neighborhood becomes their amenity.”

In talking with buyers and sellers, I have repeatedly been asked, what will this do to the sales market? In the very short term, the sales that were in contract before the SIP order have seen renegotiation of the sales prices while in escrow. Buildings with 5-plus units have seen many renegotiations. At the low end, a contingent-free sale from another apartment broker I know saw a 2% re-trade. Re-trades of contingency-free contracts are extremely rare. Other brokers in the market have had requests to re-trade for as much as 10% below in the contract price. One of my sales—a 20-unit building that went into contract pre-SIP in Oakland—was re-negotiated down by 6%, accepted by the seller, and is now expected to close next week. In the very short term during the SIP (which is now extended to the end of May), we are seeing  a 5% to 10% drop in closing prices and we expect this trend to continue.

In the intermediate term, after speaking with some of the larger landlords in San Francisco, I expect that after the SIP order is lifted, we’ll see a 10% to 20% reduction in closing prices. The higher reduction in price would be in areas like the Tenderloin where the operations are more challenging. In areas like the Marina and Hayes Valley, the buyers I spoke to expect less impact on prices in those markets.

The longer term is another story. I believe we will come out of this crisis after the summer, stronger and faster than in other markets that have been hit much harder by COVID-19, like Boston, New York, and New Orleans. The Bay Area has done a commendable job in flattening the infection curve due to quick and decisive action at both state and local levels.    

I recently looked at the Center for Disease Control website and the statistics for San Francisco and California, as of mid-May, are pretty good.  Compared to other hot spot states, the rate of actual COVID-19 deaths in California is very low, particularly for one with such a high population.

Number of deaths per state:



New York


New Jersey









When I drilled deeper into individual counties within California, the San Francisco story looks even more hopeful with only 35 fatalities.



Los Angeles County


Riverside County


San Diego County


Santa Clara County


San Francisco County



With so much uncertain and dire news nationwide, these numbers make San Francisco a more desirable place to live than many others. For example, what if you were a recent college graduate and you had job offers at Uber San Francisco and Google New York? Which one would you choose? For me, the current statistics for San Francisco would be a strong factor in my decision for where to start my career.

At some point things will get better, but I think San Francisco will continue to hold its appeal for tech companies and well-paid young workers, who will rent units and buy homes in our severely supply-constrained market, even as other markets struggle.

And there is always the Bay Area’s wonderful year-round weather. We know that the great Pacific Ocean, through rain, water sequesterization, and UV light pulls out much of the air pollution originating from the prevailing air flow from Asia, so by the time it reaches San Francisco, it has been washed clean by one of the best natural HEPA filters on earth, which keeps our fresh air nearly smog-free. We had this before SIP, and we will continue to have it after it’s been lifted.

Having spent time in New York and Hong Kong when I was younger, I can appreciate that San Francisco benefits from an average annual temperature of 70 degrees with a high of 80 and a low of 60. If you have ever shoveled snow during a New Jersey winter or sweated through your dress shirt in a Hong Kong summer, you will understand the value of the mild Bay Area climate.

Another great reason to be optimistic about the real estate market in San Francisco is we are surrounded by great food and entertainment. There is a wide variety of theater and music of every type from the well-known to the just-starting-out. We have a world-class symphony and opera. And I defy you to find a country whose food is not represented at a restaurant here and at a reasonable price. I love my mission burritos, Indian in the Tenderloin, Thai on Clement, dim sum everywhere, Korean at that hole in the wall in the Richmond District, and of course, lumpia. And the city is well-known for its fine-dining and multiple Michelin stars.

Since SIP, we’ve been discussing in our brokerage sales meetings whether the post COVID-19 multi-unit building sales market recovery shows a “U” shaped slow rebound in prices or if it will have more of a “V” shaped quick rebound. If you look at the last big downturn in the economy back in 2008 (see charts) there was a slow drop in sales figures reported in price per unit ($/Unit) and price per square foot ($/SF), then a flattening, and slowly a return to the pre-2008 levels by 2011. This is referred to as a “U” shaped recovery.

At this point, while we’re all still sheltering-in-place, it’s difficult to tell the shape of our recovery, but I’m placing my bet on a V-shaped recovery that is quicker than the other major markets in the rest of the U.S. because of our quick action in flattening the curve, the continuing high number of tech jobs, and of course, our stellar weather, food, and quality of life. Although I do think that when the SIP order is lifted, we are likely to see a 5% to 10% drop in prices from the pre-COVID-19 days, I remain optimistic about our future and I expect the San Francisco market will come back faster and stronger when compared to the rest of the United States. 

Terrence Jones is a Senior Broker Associate with Corcoran Global Commercial. He can be contacted at (415) 786-2216 or terrence@terrencejonesSF.com.