News & Research Archive

Pulse Of The Market (Pulse 104 - Downtown)

Aug 02, 2012

 

Do you know what the hip people in LA call their downtown these days? A piece on NPR said it is DTLA.

Last week the city celebrated DTLA's new Grand Park, including the renovation of the Arthur J. Will Memorial Fountain pictured here.

Before moving to San Francisco, I lived in LA for 20 years, and no one ever went to DTLA for anything other than business. Now it is cool!

It wasn't so much the news about the Park that caught my attention as the comments about how DTLA has become a draw in the last 10 years with bars, restaurants, theatres, sports venues and lofts.

Our own downtown park, Yerba Buena Gardens, (we all know it is much better) opened in October 1993, and in 1998, Mayor Willie Brown opened the Children's Garden, taking the first ride on the newly restored Carousel.

Our downtown area is affectionately referred to as SOMA (South of Market Street), as opposed to the Financial District, which is north of Market Street. SOMA began its major transformation in 2000 with the opening of ATT Park in March, 2000. The first residential tower at 219 Brannan started sales in the summer of 2000 with initial prices as low as $400/sq. ft.

The Next Wave

NPR's piece on DTLA's Grand Park mentioned that the revitalization of downtown is happening all over the country, i.e. a lot of people are moving back into the city. "There is a real desire to have interaction and not be isolated. Nobody wants to stay in their car and commute and pollute any more." All that is true, of course, except for young couples who leave San Francisco and must commute and pollute on behalf of their children who need an education, but we will leave that for another Pulse and another day.

The next wave…………I am referring to a new wave of major condominium developments. With the exception of Bosa's Madrone in Mission Bay, there hasn't been construction of a major condominium building in the last couple of years. Only in the last year has financing become available for apartment buildings, and while apartments "pencil" condominiums don't. I understand that Nat Bosa used his firm's own equity to launch the 329-unit Madrone, a gutsy and successful decision.

One Rincon Tower Two broke ground in June. It will be 50 stories when completed, compared to 60 stories at Tower One, and will contain 299 units versus 385 units at Tower One. It is being developed as an apartment complex with a condominium map, meaning that units can be sold as condominiums in the future.

Across from Rincon Tower is 45 Lansing, expected to be 39 stories and 320 units. The site was previously owned by Turnberry Associates. They lost the property during the Great Recession, and it is now being developed by Crescent Heights, the folks who brought us the Metropolitan.

Next up will likely be 201 Folsom, the parcel on the east side of Main Street across from Tishman Speyer's 650-unit Infinity. Tishman is also the developer of 201 Folsom, which will have 600+ units. I have no information when they will break ground, but I wager that it is within the next 12 months.

This image above shows a rendering of 201 Folsom on the right and the existing Infinity 301 Main Street Tower on the left.

There are three more developments likely in the next wave; 399 Fremont, 706 Mission, and 8 Washington.

399 Fremont was called The Californian when entitled by Chicago's Fifield during the last wave. It now has a new developer, OliverMcMillan of San Diego. It will probably be built as an apartment complex with a condominium map. The image above shows the 399 Fremont tower on the left and One Rincon on the right.

Next on the list is 706 Mission, across from the St. Regis at Mission and 3rd Streets. It is going to take a while, probably three or four years until groundbreaking. The developer is Millennium Partners who successfully built the Four Seasons Hotel and more recently the Millennium.

More problematic is a development known as 8 Washington (155 units), which is located at the intersection of Drumm and Washington Streets overlooking The Embarcadero. A contentious fight has been going on for some time between the folks who live in and near Jackson Square and the Golden Gateway Swim & Tennis Club.

Summary

The first wave produced some 10,000 condominiums in SOMA, representing about 20%+ of San Francisco's condominium inventory today. My sense is that the second wave will produce a more modest number and take longer than 10 years.

There seems to be little doubt that San Francisco residential real estate has rebounded better than any other major city in the U.S. As you probably know, commercial real estate prices downtown have soared in the last 24 months, apartment rents continue to escalade, residential home prices have recovered from their depths although they are still back at 2005 levels, and the tech economy is in full bloom (once again).

Prices will recover to their 2007/2008 peaks; we just don't know when. Have a good summer, and call me when you need help.

Written by: Malcolm E.A. Kaufman

E-mail: mkaufman@pulsefactors.com


Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.

Malcolm E.A. Kaufman is Founder of PulseFactors™ LLC. He refers you to his website, pulsefactors.com, where you can see recent issues of Pulse of the Market© and learn more about him. He invites your comments, suggestions, and questions.

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