CFAH

135 Fernwood: Powder Room
It was the doors, tile work, and staircase that caught our attention. It was the full on floor/architectural/renovation plans (pdf) that secured its spot on the site. What can we say, we’re total real estate (and renovation) geeks.
∙ Listing: 135 Fernwood Drive (7/4.5) – $4,285,000 [Barbagelata] [Plans (pdf)]

Comments from Plugged-In Readers

  1. Posted by amused

    The perfect vacation home in Scottsdale for the discerning buyer who happens to like Celine Dion.

  2. Posted by Wayne

    I was in this property 18 months ago when it sold over asking for $3M. It doesn’t seem that there could be much that would need remodelling.
    [Editor’s Note: The scope of work on the plans (dated 3-29-06) includes: “CONVERT 177 S.F. OF EXISTING CRAWL SPACE @ LOWER FLOOR INTO NEW LIVING AREA; ADD A NEW BEDROOM, DEN, BATH & LAUNDRY; REMODEL EXISITNG LIVING SPACE @ LOWER FLOOR; REPLACE EXISTING WINDOWS W/ NEW WINDOWS TO MATCH EXISTING; REPLACE & ADD NEW ELECTRICAL @ MAIN & UPPER FLOORS; REPAIR & REPLACE (E) CONC. PATIOS, STEPS & RETAINING WALLS @ SIDE & REAR YARDS.”]

  3. Posted by Anonymous

    What’s the obsession with bath room towels faucets and washbowls on this website? I thought this was about real estate not interior decoration. Oh well, what do I know. Great entertainment anyway.
    [Editor’s Note: Well, we are (about real estate) but even we can take only so many charts, graphs, and facades. As we wrote, “It was the full on floor/architectural/renovation plans (pdf) that secured its spot on the site.” Regardless, glad we could entertain (if not educate). And thanks for “plugging in.”]

  4. Posted by cynner

    …And those are some “fugly” faucets.

  5. Posted by Lori

    Agreed about the faucet — it looks like it could be one of those Transformer toys from the 80s.

  6. Posted by GreggLynn@Sothebys

    This home is absolutely gorgeous! I’m ready to move in… [Removed by Editor]

  7. Posted by wayne

    No doubt, this is a really beautiful house. I just don’t think it is a whole lot better than when it sold for 3M a little over a year ago. If this sells above 3.5 I will be shocked and it will really speak volumes for the kind of money that is out there.

  8. Posted by Former Monterey Heights Resident

    This one is back for sale after having failed to sell last year at $4.2M (later reduced to $3.9M).
    It’s now asking $3.45M:
    http://www.redfin.com/CA/San-Francisco/135-Fernwood-Dr-94127/home/695136
    I guess the “let’s rent it out for a year until the market comes back” strategy didn’t work out so hot.
    It’s a really nice place. At $2M ($350 psf) it would make sense for a family looking for a large house in a great neigborhood. Patience, patience….

  9. Posted by diemos

    Buy later and save! The motto of the deflationary spiral.
    “At $2M ($350 psf) it would make sense for a family looking for a large house in a great neigborhood.”
    obligatory Dr. Evil moment, (pinky to lips) “two — MILLION — DOLLARS”
    Sorry. Your median two income corporate cubicle drones don’t need 6000 sqft to live in and don’t have two million dollars. Although maybe Mr. Hedgefund or Mr. Banker or Mr Venture Capitalist will buy it if he hasn’t been indicted by then.

  10. Posted by Fishchum

    I just noticed the flat screen is mounted over the fireplace – classic faux pas.

  11. Posted by LMRiM

    I’ve been following this one with morbid curiosity. It’s now down to $3,295,000 – $1,000,000 below its original list price in April 2007 (what about those “comparative market analyses”?):
    http://www.redfin.com/CA/San-Francisco/135-Fernwood-Dr-94127/home/695136
    I went to go see this house in early August 2007. I remember it well because I had just put on a large short position on Countywide, and it was just days before American Home Mortgage blew sky high. The realtor told us there was a lot of interest in the home and that they “had offers”. My wife laughed at him and told him to call us when the price got down to $2M. I told him that the US mortgage market was about to be destroyed. We’re a lot of fun at an open house 🙂
    The links are still live in the editor’s intro above, but they have changed realtors. It’s a very nice place, fair value around $2M. This was a really misguided flip/remodel attempt from an investment point of view, but the flippers’ willingness to implode their capital will ultimately result in someone getting a very nice home.

  12. Posted by tipster

    So asking is at 2005 pricing plus the cost of the remodel?
    Another one!

  13. Posted by LMRiM

    That remodel cost quite a bit more than $300K. You should see how much time and work was put into it (I lived around the corner – about two blocks west) and saw it going on for 6+ months.
    The funniest thing was when the realtor told us that the owner had remodeled it for his family because he was being relocated to SF, but that the job would be taking him away again. You should have seen his expression when my wife told him, “Cut the BS”. And then proceeded to give him the address in St. Francis where the owners had been living all along….

  14. Posted by Amir

    @LMRiM,
    How did you arrive at a fair value of about $2M?
    It seems this would be about the price paid in 6/2000, including the remodel and a slight appreciation.
    And do you think this will still be the fair value (and/or market price) come mid 2010?

  15. Posted by LMRiM

    Amir,
    How did you arrive at a fair value of about $2M?
    1999 pricing, more or less, adjusted as follows:
    1. No adjustment for “inflation” because 1999 pricing out there was already bubbly, and SF prices in general have been well above trend (increasingly so) since prop 13 – these prop 13 tailwinds will now become headwinds as long term owners no longer judge the risk of holding as “costless” in the new credit deflationary universe.
    2. Slight adjustment upwards because Monterey Heights is a really nice, stable demographic part of Western SF. Attractive for the top 10% of wage earners who want a family friendly area (but not atttractive to dynastic wealth types who would prefer something more primo like Pac Heights, or possibly St Francis out there.
    3. Slight adjustment downwards because this is one of the 5 or 6 nicest houses in Monterey Heights, and is on arguablythe very nicest corner (just down the street is the Consul General of China’s 10,000 sq ft mansion – 85 St Elmo, originally the mansion of the developer of the neighborhood, who picked the choicest location for humself; 55 St Elmo just next door is also a masterpiece IMHO). However, the demographic of Monterey Heights is not at this exalted level generally, and you don’t want to pay up for the nicest house on the block and/or neighborhood.
    3. Good sized adjustment upwards because this is turn key ready and beautiful (remodelled twice since 2000 – with all new electrical systems, windows, foundation work, entire new lower level, etc.).
    4. Slight adjustment upwards (nominal USD terms) because the US dollar will be toast at sometime over the next 30 years, and if one is trapped in an asset for a while because the capital markets have gone kablooey, the demographics of the neighborhood and the size of the residence make this an attractive place to be “stuck”. This isn’t a 1/1 in the Mission after all!
    5. Adjustment downwards because the current low interest rate environment will not last absent a true global depression. Thus, in paying well above fair value one is making a correlated bet on high asset prices/low rates that is very unlikely to pan out in states of the world in which such low rates could “stick” for any sustained period of time.
    6. Last, $2M is still a LOT of money! Most people in Monterey Heights could never save that much, and that is doubtless true for the overwhelming majority of people in SF! A bet on continued appreciation from these nosebleed levels (unsupported by rent/buy or price/income, or other such methods) is in effect a continued bet that creditors are so dumb that they will continue to subsidize crazy bets.
    I’ll be the first to admit that it’s not an entirely scientific process. No one knows the future, and one has to play the odds with any asset purchase. Fair value is just a way of trying to approximate or get a handle on potential risks when looking at market prices. As for whether this property will be $2M in 2010, obviously I couldn’t say. Most likely, this particular house will get sold before then or pulled off the market. Different people calue unique assets like real estate differently, and the one who values it most highly sets the price at any particular point in time (the “winner’s curse”). However, I do expect that houses currently asking $3.295M and having value characteristics similar to this one WILL be available for $2M by the end of 2010.
    I’d be interested in any predictions out there for what this will sell for. I’ll guess that if the sellers get a little more aggressive, that they would be able to unload it for $2.9M, because someone will look at the 2005 price, the amount of work done, etc., and conclude that it is a deal.

  16. Posted by fluj

    So, according to you, no appreciation has occurred in San Francisco since 1999.

  17. Posted by LMRiM

    No, not at all, fluj. Of course price appreciation as a matter of fact occurred. It just shouldn’t have 🙂 But we are into the correction phase, so no worries! Patience, patience.

  18. Posted by Amir

    I appreciate your thoughts LMRiN, especially the location, prop 13, currency and interest rate adjustment analysis.
    Especially with #4, it appears you’re looking at real estate as an asset class – in the ok-to-nice homes in the very nice ‘hoods – to hedge against the long-term USD. That is, when we hit the sweet spot b/w valuations and low lending terms.
    I agree there’s a high probability that someone with the right bank just won’t be able to help themselves and purchase this within several months.
    If it lingers on until 2010 and isn’t taken off the mkt by then, I’d venture about $2.7M.
    I acually think I’m undercalling it, given this place’s curb appeal and location. But if it does strike that price, wow.

  19. Posted by LMRiM

    Amir,
    I know that area like the back of my hand, and it sounds like you do too!
    The house literally directly across the street from 135 Fernwood just was listed – at $1.175M.
    http://www.redfin.com/CA/San-Francisco/120-Fernwood-Dr-94127/home/1873596
    A place like that offers a lot of possibilities. It’s perfectly livable in its current condition IMHO (maybe update the bathrooms a little), but with a little work would be a really nice place (take a look at the huge garage/downstairs – probably 1500 square feet down there) and the location is fantastic.
    About prop 13, taxes on that 120 Fernwood place are $800 per year (that’s not a typo). There are a lot of underutilized/rental properties out there – much more than people realize. I lived there from mid-2002 through mid-2008 (rented a 3000 square foot 4/4 with 1000 sq ft+ basement/garage for $3100/mo) and knew most of the people in the neighborhood (we’re semi retired and have plenty of time to meet people). SF is much less wealthy than one might expect if one were to extrapolate the relatively small percentage of houses that have sold at crazy prices since the late 90s. My bet is that a lot of this “premium” was illusory – caused by artificial restriction of supply by prop 13 effects. We’ll see as these long term holds (like 120 Fernwood) come on the market in an entirely different economic climate from what SF enjoyed 1997-2007. When I lived there, I’d estimate at least 5% of the properties were totally vacant (long term).
    55 St Elmo is 150% of the house that 135 Fernwood is, and it went for $3.05M in October 2007 (have to believe it would be lower now!!), but it did need work. One elderly lady lived there for years (basically), in 6000 square feet, and the taxes were about $1000 per year.
    It’ll be fun to see where it all winds up! Best of luck to you in your decisionmaking process, and if you feel like you have to jump the gun, I’d look at light fixers with expansion potential like that 120 Fernwood house.

  20. Posted by fluj

    “o, not at all, fluj. Of course price appreciation as a matter of fact occurred. It just shouldn’t have 🙂 But we are into the correction phase, so no worries! Patience, patience.”
    If it is a matter of fact, why does it not appear in your fair valuation for today?

  21. Posted by LMRiM

    135 Fernwood just cut its price another $200K to $3.095M. And now it’s advertising “*Short Sale*”:
    http://www.redfin.com/CA/San-Francisco/135-Fernwood-Dr-94127/home/695136
    Just to recap, this one was purchased as a flip in 2005 for $3M, and then extensively renovated. I don’t see how they spent less than $500K on the remodel, given the size (6000 sq ft) and the scope of work. The link to the floorplans and drawings in the editor’s intro is still live.
    It originally was asking $4.3M in Spring 2007, but that seems ages ago…..
    Intrinsic value on a home like this in this condition IMO is around $2M. Getting closer – it looks like SF buyers are gaining some wisdom 🙂 I still think it would sell in the high 2’s now, but who knows for how long?

  22. Posted by Geo

    I had been keeping my eye on it, on a price/ft² it is reasonable for the location at $3mm, but it has been sitting on the market for a long time…and I wondered why.
    Sub $3 and this one gets very interesting, too bad I dont want to live beyond my means. she is a beauty.

  23. Posted by LMRiM

    I agree it is a nice place, Geo.
    The price trend is indicative of what has happened in Monterey Heights. 135 Fernwood is just about as nice/expensive as the nabe gets, but shows the same asset price pattern as just about the least nice/cheapest the nabe gets. Did you see 138 San Felipe?
    http://www.redfin.com/CA/San-Francisco/138-San-Felipe-Ave-94127/home/1043369/sfarmls-351735
    Purchased for $1.15M in November 2007, it’s now 75DOM at $997K (after two cuts), and the listing says, “Seller Says Make Offer!”
    It sold for $1.05M in 2005 as a flip by a local realtor, who added a bedroom and bathroom downstairs, so it’s now below the 2005 price, and that’s after the (crude) renovation.
    I couldn’t help but laugh at the current realtor’s video pitch in the listing website:
    http://www.138sanfelipe.com/
    The final line of the video from the used house salesman is priceless irony: “And remember, it is better to own real estate, than to wait to own real estate!”
    LOL. A quick perusal of propertyshark shows that the current seller (the realtor’s client) put down $400K in the first loss position as a downpayment back in 2007. At least $200K of that downpayment has already died and gone to money heaven, and it could get worse. I bet the current seller wishes he had waited to own SF real estate 😉
    BTW, this is another seller who hasn’t gotten the memo that prices are only down 5-10%.

  24. Posted by San FronziScheme

    1 – Let’s see:
    Original asking: 4.285M
    Last asking per LMRiM: 3.095
    Fair value per LMRiM: 2M
    That’s 52% of the work done.
    2 – And Redfin now says “The most recent listing for this property has gone off the market.”
    This means it basically just happened this PM.
    Are they reading SS? Did anyone tip them off this listing was being scrutinized by the bears?

  25. Posted by anonn

    It would be great if you could express yourself sans derision and archness, LMRiM, but it would seem you’re not capable of doing so. There’s a funny dichotomy at work with you. You’re perfectly capable of being professorial yet not overly pedantic when talking trades, commodities and money markets. Yet when the subject is SF r.e. you simply need to have a dig or three, don’t you? That difference is a real tell.
    Also, you’ve seen plenty of evidence that prices are down 5 to 10 percent, and you know it. 3M + in Monterey Heights = albatross, let alone 4M. I count precisely two ever.

  26. Posted by LMRiM

    138 San Felipe (noted in my post above) looks down more than 10% as well. And that’s about as cheap as you get in Monterey Heights. At the mid-range, 10 Fernwood also closed at 25% under its 2004 price ($1.75M -> $1.32M)!.
    And at the top end, just across the street from 135 Fernwood, 55 St. Elmo went into contract and was sold in 2 weeks at $3M+ in 10/2007. Is $3M+ an “albatross”? Evidently, in 2009 the answer is yes!
    This nabe is down about 20%, on average, rom its peak in early 2006 imo.

  27. Posted by anonn

    Two 3M, ever. You’re basically calling it “the market.” I don’t care. Go ahead.

  28. Posted by LMRiM

    135 Fernwood returns. And 1 DOM!
    http://www.redfin.com/CA/San-Francisco/135-Fernwood-Dr-94127/home/695136
    Now asking $2.985M, which is below the (pre-renovation) 2005 sales price, and $1.3M off the initial wishing price of $4.285M waaaaayyyy back in Spring 2007. The sellers will have to give away the entire value of the fairly involved renovation (6000 sq ft – the links in the editor’s intro are still live so you can see the plans and scope of work), a result that of course is not very surprising. And four years of carrying costs, including more than $150K of property taxes alone. Wow.
    There was a brief mention in the last listing (at $3.095M wishing price) that it was a short sale, but no mention anymore of that in the current listing. Regardless, you can be sure a lot of capital was imploded here (it was very nice of the specuvestors to rehab and expand such a nice property for the benefit of a patient future buyer).
    I still think intrinsic value is no more than about $2M, which is still a lot of money when you think about it.

  29. Posted by Troy

    Nice one, LMRiM. It was refreshing reading your bullet-point breakdown of the $2M valuation, price logic which matches mine quite closely.
    It was only this week that I revisited my understanding of what prices were doing in this environment — I was looking at SFHs in Tokyo via yahoo.co.jp and wondering who could afford all the $2M++ asking prices, then realized that their effective interest rate is still ~2.5% so the carrying cost on $2M there is only around $4000/mo.
    Same effect here in the SB, alas. Ceteris paribus, what was $350K at 8% should in fact be $600K at 5%. But this warping effect will in fact work both ways, though of course is stickier on the way down.
    btw, I love it when annonn gets snippy at you, which is most of the time. I’m a veteran of the craigslist RE boards from 2002-2003, and it’s nice finally seeing the REIC apologists getting their asses handed to them by reality.

  30. Posted by Troy

    $2M, which is still a lot of money when you think about it.
    $2M for a place close to the Chinese Consulate General’s residence?
    /That’s/ some “LLL” logic there for ya. If the yen going from 320 to 120 could spur the 80s buyout boom, imagine what the yuan going from 7 to 4 will do! $3M @ 5% is a $12,000/mo carrying cost, but $12k/mo will be chickenfeed for our future Communist overlords should present trends continue. . .

  31. Posted by anonn

    annonn gets snippy at you, which is most of the time. I’m a veteran of the craigslist RE boards from 2002-2003, and it’s nice finally seeing the REIC apologists getting their asses handed to them by reality.
    Nobody handed me anything, and least of all reality.

  32. Posted by tipster

    No one is handing realtors anything is right.
    Fewer commissions to be had until prices drop further.

  33. Posted by Geo

    showing contingent on redfin…

  34. Posted by LMRiM

    I saw that, Geo. I’m interested to see where it closes. I estimated $2.9M for a selling price back in January (when it was asking $3.295 – see last paragraph of post at January 17, 2009 1:21 PM above), and I suspect that that will turn out to have been a little high, but not a bad estimate imo.
    When we looked at this place back in summer 2007, my wife told the realtor to call us when it got down to $2M, and he laughed and talked about the “strong demand” and that there were already offers in the “high 3s” – that’s when the place was asking ~$4M. I hope they enjoyed the ride over the last two years!

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