Pulse Of The Market (Pulse 109 - SOMA - The Second Coming)
Jan 07, 2013
In the Beginning
During the 2000 - 2010 decade, about 10,000 condominium units were constructed south of Market Street. It all started in 2000 with 219 Brannan, the first of three 100+ unit buildings known as The Brannan. It ended with the opening of One Hawthorne in March 2010.
It was quite a building spree! Some 10,000 units entered the market representing more than 20% of the entire San Francisco condominium stock (my estimate is 40,000+).
As you probably know, construction financing started drying up in 2008 killing new developments. One Hawthorne was the last building with more than 100 units built and completed before the funding went away.
The mother’s milk of development is, of course, financing, and until recently there hasn’t been much available. As the money spigots started loosening, apartment buildings were the first beneficiaries – they “penciled.” Many of the funding investors were REITs and are not structured to do for-sale development.
One Rincon Tower Two, 399 Fremont, and 45 Lansing will come to market as apartment buildings. The first two are under construction, and 45 Lansing will break ground in early 2013. They are being built as apartment buildings and will have a condominium map in place so that sometime in the future, as rental units become vacant, they can be sold as condominiums. They probably would have been built as condominiums in the previous decade.
Nat Bosa completed selling the 99-unit Radiance in south Mission Bay in 2009. When he could not get construction financing for his 329-unit Madrone, he used his own funds to start construction – way ahead of any other developer. Madrone started selling in July 2011 and was close to sold out at the end of 2012. Prices were raised along the way in sync with a rising market.
The Second Coming
Tishman Speyer’s Infinity Two (my name not theirs) located at 201 Folsom Street and across Main Street from The Infinity will be the first new condominium project of size in SOMA when it breaks ground in 2013. It will have two towers, two podium buildings and approximately 650 units.
It is the only 100+-unit condominium development that is scheduled to break ground in 2013 that I know of. It will probably take 24+ months to complete, which means we will not see any significant new inventory until 2015 or later.
On the Horizon
There will be more. However, they will take some time to reach the market. In the offing are 41 Tehama (Fritzi Realty) 706 Mission (Millennium Partners), 181 Fremont (SKS Investments’ mixed-use office and residential tower), to name a few. Further down the road, and really big, will be major developments on Treasure Island and at Hunters Point, accounting for some 20,000 units ( not in SOMA but surely impactful) and with funding provided by the China Development Bank ($1.7 billion loan to Lennar and partners). While these are very large developments and will take years to complete, and they will eventually provide a significant addition to the City’s housing stock.
What This Means
The condominium market is going to be tight for the next several years, i.e. condo prices will continue to rise: Economics 101 – Supply and Demand. Contact me if you wish to venture forth in this market. It is always challenging and fun.
Happy New Year!
Written by: Malcolm E.A. Kaufman
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.