So here’s the SocketSite straight scoop on what’s happening with One Rincon Hill’s tower two and why it hasn’t yet broken ground (despite a highly publicized January start).
One: Decreasing volatility in the construction materials market resulted in an opportunist delay in purchasing until the plans for One Rincon Hill’s tower two were finalized. As far as we know those plans weren’t submitted to the city until earlier this week. And the delay in purchasing allowed the developers to save some cash. That’s their story.
Two: While we actually have no doubt that the second tower will be built (although considering the current state of the credit markets, never say never), there is some doubt in who’s going to be doing the actual building (not in terms of the developer, but rather the contactor). Despite the fact that Bovis continues to work on tower one, the contract for tower two was put out to bid with two other players (Webcor and Swinerton). Bovis might be the incumbent, but as far as we know the contract hasn’t officially been awarded. And that’s ours (story).
The official groundbreaking and a quick construction start are now expected to occur at the end of April or beginning of May, but if it’s not Bovis doing the building we’d count on some additional slippage as a new contractor gets up to speed.
Thanks. Good to hear they’re still pushing forward.
Oh no! NOT AGAIN. SFGATE and the Chronicle have another article about One Rincon up today. Strange, but the “urban pioneer” who is featured in the article says how easy it is for him to hop on 280 to get to the South Bay, even though in FACT he is a realtor for Pacific Union in the city. I would not be suprised if he is going to flip his unit. What is the Chronicle’s obsession with 1RH, or is this city so small that people moving into a high rise needs to be featured as a page one story?
I love this tower, so beautiful coming in on the bridge. Heres to 20 more just like it!
anonandon – i think you’re right about the flip. something didn’t look quite right about the furniture when i first looked at the photo…then it just occurred to me what it was b/c of your comment: that’s STAGING furniture!! i’ve seen it before! look how nice-and-neutral it is…
Realtors getting free advertising on the front page of the Chron? Say it ain’t so?!!
A building as prominent on the skyline as this one is bound to have a lot of public interest. Which sells newspapers.
I agree that the unit is all staging furniture. I think The Chronicle needs to expose the “urban pioneer” as just another realtor out to make a flip. The part that drives me crazy is his talking about how convenient 280 is when in fact he does not work in the SouthBay. There are some funny comments on the article including one that said that people who were being nasty about One Rincon were worse than what he reads on Socketsite. As for the second tower, I remain censorious.
[The scene : Rincon developer’s boardroom…]
“OK, we’ve got some serious cash flow problems due to the contract dropouts and that’s getting in the way of the tower 2 start. We can’t let this news spread too far because that might cause further dropouts. What else can we blame the delay on ?”
[hands raise around the table]
“I know – aliens have abducted the project manager and want her to design an air purifier for their home planet.”
“oh oh ! How about the Bovis mascot dog ate the only copy of the blueprints and we need to redraw everything from scratch ?”
“lets blame it on all of the armchair architectural critic sourpusses who don’t like the looks of 1RH. Lets say we need time to redesign tower 2 to look like a giant Razor scooter !”
“construction material volatility”
“switching construction companies would require a delay wouldn’t it ?”
“bingo and bingo. the last two sound plausible. its a wrap.”
Um, people in SOMA like 280 access because they can get to Target and all points east and south quickly (vs. anywhere north of market which takes forever). Idiotic efforts by Daly and Peskin force us to continue to spend money in Daly City and Colma leaving the Mission the Barrio it is and North Beach the tourist trap it is.
“construction material volatility”
Come on. I know these guys ain’t too swift, but to think that developers don’t hedge with futures on a project of this size is hard to believe. Then again, I’m not surprised about anything anymore, the more I learn about real estate as an asset class. “Fail to hedge using techniques well-known to the greenest of 24-year old commodity desk traders – on a $100M+ development”? Yeah, I guess that sounds about right….
Anyway, in a thread a while ago about Bosa’s Mission Bay development, some commenter in procurement talked about how materials prices were “skyrocketing” and that’s why Bosa was out telling everyone that the “next” tower would definitely come in higher than $1K per square foot. I was the only one who called him out on this idea (funny, though, SINCE then there HAS been a huge basic materials rally). Now, I guess at 1RH there’s a “window” that THOSE genius procurement managers are seizing that will allow them to CUT costs. Whatever it takes to make these big-ticket sales I guess….
irrational exuberance…
one other thing bugging me – maybe you ORH owners can elaborate: what’s the deal with lighting? i find that so many “luxury” buildings in SF have little, if any, ceiling lighting (and certainly no choice, say, for recessed lights…only seem to have requisite fluoro + minimal task lighting in kitchen & bath. Floor lighting is great, but with walls of windows, where are the electrical outlets for floor or table lamps? I don’t see outlets in the floors. Does everyone string wires under their rugs? Whatup with that?
Socketsite…
Thanks for the long awaited update… 😉 Some questions to you and fellow readers…
1. I was under the impression that the South Tower was originally scheduled to begin construction –last– year and that Jan represented the first reset date. (Originally, constructions of both towers was considered a “two year project”, which now looks highly unlikely, right?)
2. February was the second reset date
3. We’re now talking about April or May (or whenever they get done reselling 20%+ of the North Tower…)
4. Financier CBG (CB Richard Ellis) has had its stock cut in half in the last six months and probably wants to be extra, extra sure its dollars will be returned quickly and with something approximating the original multiple it expected when the project started. The other financier, private union life insurance (et al) fund Ullico, known for their oh-so-honest ways (http://www.nlpc.org/view.asp?action=viewArticle&aid=2349) likely has similar concerns…
Thoughts?
In addition, what are the chances that in addition to looking to reduce costs by finding a hungrier (or perhaps in the case of Webcor, smarter) contractor, they are also considering changing the mix of units in the South Tower (ie fewer 1 beds)? If so, how long might it take to get approval?
Uh yes, Machado is a local realtor who actually lives in SOMA on Beale Street already, not in Noe Valley. He mainly hawks overpriced units at 88 King Street (The Towers). I sometimes wonder if there is anything driving the downtown condo real estate market beyond the realtors themselves . . .
The Milkshake of Despair at 5:43 PM,
That’s some really funny stuff! Made my weekend.
But seriously, what’s the story behind changing contractors in the middle of a development? I can’t imaging Infinity dumping Webcor after building tower 1, then going with someone else to finish tower 2. What’s up with that? And if they do change contractors, it’ll take more than a couple months to catch up.
And is the developer really having that much financial difficulty that they delayed buying materials? I guess it’s a good business move, but doesn’t exude a lot of confidence to the developer and sales team, especially to existing One Rincon residence, contract holders, and future customers.
“the article says how easy it is for him to hop on 280 to get to the South Bay, even though in FACT he is a realtor for Pacific Union in the city”.
This is exactly the sort of comment that is making me reconsider ever reading Socketsite again. I started reading it recently, to try to gain some insight into what is happening in the market, hoping to find serious commentary by real estate professionals. Instead, all I find among the comments is a bunch of nasty, and usually innacurate, trash talk. The individual profiled NEVER says that it’s easy for HIM to access the 280, all he said is that “people [in SOMA] want new, want views, and want access to Interstate 280.” Which happens to be true. Many SOMA residents choose that neighboorhood becuase it offers just about unparalleled access to the 101, 280, and I-80. That was a major factor in my decision to live in SOMA (even though my main office is 10 min away in the Financial District). Anecdotally, my four closest friends in SOMA all work in menlo/palo alto, which is also a huge reason why they chose this location.
But in typical Socketsite reader fashion, a perfectly innocent and true statement was mireported and turned into a nasty bitter jab.
You people really need to grow up.
Dear Fed Up Reader. Let’s see if within the next 6 months, whether this “urban pioneer” does not list his unit (“home”) for sale. I think the “trash talk” you mention was that the article did not mention that the “pioneer” happens to be a realtor, and the furnishings look very much like a staging for a future sale. Did he really buy this unit to live in as a home? Is it so horrible to ask these types of questions? Could it be possible that some are concerned when new towers are owned by close to 40% flippers and investors?
NOW, if he really did want to live in SOMA to be close to what that area has to offer including access to 280, and lives in this unit that was featured in the article as his home for the next 5 years or more, then I guess we owe him (and you?) an apology. I would bet money however that he is going to try to sell this unit (product) within the year, therefore the article is not honest, and I would rather read the truth, than worry about whether or not it hurts future flipper sales.
anon:
all the points you raise are quite valid. But they miss my point entirely. My point was that folks misrepresented his comment about 280 and trashtalked accordingly.
When buyers signed contracts a couple of years ago, they were sold a complex, not a lone building with the second building “conveniently” stalled. I would use this as a premise to petition getting a deposit back. I’m sure the contract is very tight with regards to building 1, but it was a complex where tower 2 was supposed to be in constructin, not in limbo, that was sold. I’m not sure it would hold but worth a try for some that need to find an out.
ChronReader at March 7, 2008 6:42 PM
Pretty petty comment, try being insightful the next time that why folks plug in.
Back on topic, I hope we the second tower actually get’s built as I see this for the trigger for the planned park in the Caltrans parking area.
Yes, ChronReader – very petty comment, and totally uncalled for. It might stun you to find out that yes, there are other things driving the condo market besides realtors themselves. Mr. Machado is a very well known and respected realtor who usually has a lot of very, very nice listings. I agree with Fed Up Reader in many respects as far as what this site has turned into. Too bad. But like I have said before, in a city with 70% of the population being renters, I guess it should be expected.
TheRealScoop: i find that so many “luxury” buildings in SF have little, if any, ceiling lighting (and certainly no choice, say, for recessed lights…
Dunno about ORH, but I bought in a different tower downtown. The ceiling is the concrete slab between foors, so you can’t recess into it. My Kitchen/Dining has a false ceiling with recessed lighting, as well as at the windows (for lighting and the recessed/retractable shades). The option was there as an ‘aftermarket’ decision whether to install a false ceiling through the rest of the unit, but I chose to keep the extra-high ceilings in the living room and bedrooms, rather than spend about $50k or more to have somebody lower them to instal lighting.
All capital and debt markets are in dis-array and they will get worse before they get better. The CMBS market is basically dead. Building the second tower requires a construction loan of at least 175 MIL and the chances of putting that together now are just very low.
so phase 2 will probably get built but it might not be too soon.
if they dont have a contractor yet it at least 4-6 months away.
same story for the turnberry tower on lansing street. its a better location but still probably also a long delay to start.
the construction cycle is probably over.
I am suprised at the slowdown in condo construction in San Francisco. The S.F. market is much stronger than Chicago, and yet in Chicago dozens of towers are still just beginning to go up. There are probably 40 condo towers as large or greater than One Rincon currently under construction north of the Chicago River alone, and yet sales are not nearly as strong as San Francisco. I would think major lenders would be betting on SOMA and Rincon Hill instead of the midwest.
“I am suprised at the slowdown in condo construction in San Francisco.”
I’m not surprised at all. I don’t have any special insight into this (other than common sense), but I would guess three factors (at least) are at work here.
First, lending markets are international, and now that the USS CreditCrisis (all “credit” to whoever on this blog came up with that term!) is listing badly and just about to capsize, lenders are understandably pulling in the reins everywhere.
Second, SF is an extraordinarily high construction cost market – I’m sure worse than even Chicago. The politicians and poilitics are wholly dysfunctional (again – I bet even worse than Chicago, if you can believe it), the population has been infantilized to the point where they can’t even evaluate costs versus benefits (better to let “Big Government” do it for us), and of course corruption is beyond comprehension. Related to the high cost, the population is stretched income-wise beyond comprehension as well, and that is part of the reason we are referred to as the “Alt-A Bay Area”. Especially in light of the high costs and the risk that the lending pyramid utterly collapses, the penciled out developments probably have narrower “positive NPV windows” today than when they were conceived.
Lastly, we just might want to entertain the notion that demand is not quite so “robust” and that the market is not quite so strong as the REIC and the developers would like to have us believe… I mean, there is STILL a lot of capital sloshing around in the world, and you would think that if developers at 1RH are truly filling walkaway units at “higher” prices than originally contracted, *someone* would be in a rush to get some more supply out there.
Straight scoop sounds like a bit of a stretch here. Maybe its what they told you but I’d hardly say it was straight. Materials costs are way up, and have just gotten worse in the last 6 months. These guys are playing a dangerous game by hoping they can delay a bit to try and game when the crisis is over. Makes me wonder if this whole project is ready to implode. This crisis could go on for years, trying to game it out isn’t going to work and shows you are not dealing with seasoned real esate professionals. Look at Infinity, those guys are banging that tower out. No doubt it wont be fun selling those when Tower I isn’t going like they’d hope. But its a quality project, and they’ll get it done and sold before things gets much much worse.
just to clear up who the developer is, it is CBRE Investors, the private equity/opportunistic investment advisor with $37 Billion under managment and is an independent affiliate of CBRE (NYSE:CBG). Word on the street is CBRE Investors is unhappy with Bovis’ performance on the north tower, and consequently is bidding the south tower out. The material costs volatility mention is probably just the gentlemanly way to not say that they are canning Bovis.
Don’t be too certain about the developer needing a construction loan to start this project. Many institutional equity advisors are going with 100% equity in this economic environment and will leverage projects later when/if the credit markets stabilize.
re investor,
Thanks for some useful feedback in a bitter sea of misinformation. First valuable piece of information on this thread.
Anyone know what the reasoning was to have built the big one first? Seems like it might make more sense to build the smaller one and sell it out.
If they haven’t broken ground yet, that’s an ominous sign.
Someone brought up Chicago and all the highrises going up. They all broke ground a year or two (or more) ago.
Several high profile buildings were canceled in just the last two weeks alone. One, a Canyon Ranch spa/hotel/condo building had only sold 20 units in 6 months (with 1 bedroom units starting at $750,000.)
Supposedly, the Ritz condo/hotel is going to be built on Michigan Avenue. That is 40% sold. But they were supposed to start construction in February (already pushed off from last fall) and so far- nothing.
It’s very difficult to get financing right now.
I also don’t believe anything out of the sales center. There have been direct quotes from sales agents and/or developers in Chicago about groundbreaking and literally the next week the project is canceled.
For some reason it might be valuable for us collectively to understand, ORH is some kind of watershed event in SF real estate generally, and on Socketsite specifically. Not only does the project generate endless postings, and sometimes of dubious merit, but the spitting ferocity of exchanges concerning ORH is really surprising (albeit entertaining.)
Some assert that the building is anathema, poorly designed and built, and will lose money for all concerned, where ORH partisan movingback, and others, suggest that this is just the jealous cawing of the peasant renting class.
Does anyone, from either perspective, have a thought as to why this project generates such intense argument? Is it really the fundamentals of cost, value, location? Would be nice to move on.
re investor is correct in that it is CBRE Investors, not the parent company, that is backing 1RH; my bad there. But, as I mentioned, ULLICO is also participating, with a $179MM commitment (syndicated to other lenders).
“For some reason it might be valuable for us collectively to understand, ORH is some kind of watershed event in SF real estate generally, and on Socketsite specifically. Not only does the project generate endless postings, and sometimes of dubious merit, but the spitting ferocity of exchanges concerning ORH is really surprising (albeit entertaining.)”
I could not agree more. Like the beginning of shopping malls, fast food restaurants with “drive-thru” windows, supermarkets, freeways and two car garages, One Rincon is a perfect case study of where we are now, and where we are going, and why some are so concerned. Imagine how many hated to watch neighborhood streetscapes that changed to a sea of garage doors facing the street from front doors and porches, or the closure of local owned markets selling regional produce because of the invasion of the supermarket, 1RH is part of the next trend of a certain economic group walling themselves off from the street. I am most entertained when people talk about buying into 1RH to be “urban pioneers”, when they could not be more suburban. Jane Jacobs, patron saint of many on Socketsite, does not feel that a cube 70 stories up is the answer to urban ills. Rather, being close the street, being able to learn who your neighbors are, watching out for others safety and children, this is what urban living is all about.
You can build the other tower, and 20 others, but will Rincon Hill be an “urban” neighborhood? What is going on is upper middle class flight of buyers choosing to NOT live in mixed urban neighborhoods that have all different types of races and incomes, and instead moving to empty former industrial areas to wall themselves off into towers away from street life and urban activities both good and bad. One Rincon is a perfect watershed event for this city as it is the beginning of a whole group of people choosing not to live with others different from themselves.
In my neighborhood, ON MY SINGLE BLCOK we have everything from students in studio apartments to a single family home that sold for over 6 million. I like living with people different from myself. There is a retired teacher, doctor, muni driver, architect, children, black, white, asian, rich, poor, etc. Will we see such diversity in this tower?
anonfedup,
Well said. That’s a really insightful post IMO.
Your post places 1RH and other developments like it squarely within the culture of creating “pod” communities, withdrawn from the complexities of urban communities, and from the complexities of – well – life itself, and I think goes some way towards linking 1RH with, say, the planned communities just west of St. Louis, for instance. Maybe that’s the seductive appeal for some of all these “amenities” (pool, health club, concierge service, restaurants, valet parking, etc. etc.) that many of these developments trumpet.
It may even tie to the architectural choices, although this is a stretch. I read a sort of polemical but worth reading book about 8 years ago: “An Empire Wilderness” (Robert Kaplan). I gave my copy away to a young lady from a western upper middle class St. Louis suburb and never got it back or heard from her again – LOL! (Kaplan argued that those suburbs were probably the worst places in all the US!). Does anyone have a copy who could check a quote? Kaplan wrote something how the architecture of the American West – with much of the area built out in the postwar period when the desire to “wall off” from the “problems” of urban living – is typically bland, as if the architects just “gave up” knowing that they could never compete with the grandeur of the natural spaces. Unlike perhaps in the older Eastern cities and towns/villages, the built environment of the West always falls short of the natural one (maybe the GG Bridge is an exception!), and might explain a bit why skyscrapers/skyscape in SF and 1RH in particular tend to elicit so many comments that they are jarring/ugly. I mean, competing with the Marin Headlands, and the general topogrsphy of the Bay and surrounding hills and small mountains is a pretty tall order!
Two interesting posts from anonfedup and Satchel. How about a seperate thread to discuss these points?
re investor.
Is it your assertion that CBRE investors/Ullico are immune to the turbulence in the international capital markets?
CBRE (parent company) has seen its stock drop from $42.74 to $18.48… they’ve thus lost almost 57% of market capitalization in just 8 months. They are now down to $3.73 billion in market cap.
I’d be interested to see CBRE Investors balance sheet.
as an investment firm, they rely on capital inflows from investors. obviously, RE investment has dropped precipitously in the last 6 months.
From CBG’s 10-k filing on the SEC website:
Impact of Credit Crunch and Exposure to Weakening Capital Market Conditions. A significant portion of our business involves the sale and financing of commercial properties. For example, during 2007 we generated approximately 12.3% of our revenue from U.S. investment sales and financing activities. The successful completion of such sale and financing transactions is generally dependent on the availability and cost of credit. Therefore, a disruption in the capital markets, such as the type that emerged in the United States during 2007, could adversely affect our property sales and financing businesses.
Obviously, CBRE Investors faces the same challenge.
In adddition: for CBG as a whole 9.8% of their entire global revenue came from California alone. Also, “significant amounts” of their European revenue is concentrated in London and Paris alone.
This building stirs up the emotions of the buyer in today’s market like no other. I bet if the market was roaring there would only be a fraction of interest or discussion that we are seeing on blogs like SS. Buying into a neg. equity market in such a high profile building can be a unsettling experience.
I can see “hating on” that lack of architectural style of ORH, but not high rises in general. I lived in New York for Business School and worked there a few years and I will tell you it really was a great city to live in. Granted, the buildings tend to be a little less monolithic and the arhitecture can be quite amazing especially in older parts of the city but there is no reason we cannot have that here. You don’t need to live “close to the street” in order to be urban. Also, I know a lot of people hate ORH and how it sticks out in the middle of the city (like that sharper image doo-dad) but once a few more buildings go up it once be so bad. More to the point of this post, I think ORH specifically generates a lot of the posts/emotion because people are using it as a the canary in the coal mine in SFO. We are watching to see if it utterly implodes, the 2nd tower is postponed or falls through and/or some other florida like disaster strikes.
Cooper, I think the post was not against high rise towers, but against walling yourself off from the city itself. In N.Y.C. you can have a whole mixture on one block from a bodega, a hotel, a new highrise, an older midrise apartment building, and single family townhouses. Where is this diversity being developed into the Rincon Hill plan?. The point was that there is nothing urban about it. To live in a city is to experience people different from yourself. If you want sameness, there are plenty of suburbs to choose from. The only economic diversity riding with you in a Rincon Hill elevator is going to be the delivery boy and the housekeeper, how sad is that?
What I love about our city is how it forces you to live with and understand lives different from your own personal world.
Perhaps there’s a beacon of hope that “Ugly The Sequel” will never arise.
dear anon—I don’t get it. What about ORH walls people off. It’s true there is not a lot of buildings around it but someone has to build first eh. I don’t know what you guys are talking about then.
cooper, I think you meant “stalking horse”, not “canary in the coal mine” analogy
asiagSF
I had never hear the term “stalking horse” before. Now I’ve learned something! Thanks!
That said, I think “canary in the coal mine” is the correct analogy. The miners up through the early 1900’s would bring a canary into a coal mine. The canaries were more sensitive to methane/CO2 than humans. Thus, if the canaries did well, it was assumed the humans would. If the canaries got sick/died it was assumed there was underlying danger to humans.
many posters (myself included) view ORH as a harbinger for future SF real estate.
If ORH (both towers) succeed, it shows underlying strength in the SF real estate market. If they fail, then it shows underlying weakness.
I use ORH more than other towers to gage the market, as it is in MY opinion the most speculative (in a neutral tone sort of way, not a negative way) tower in San Francisco. Speculative both in terms of people buying there (many second home owners, prospective medium-term flippers, prospective landlords, etc) and also in terms of the project itself (somewhat odd location, previously the highest residential tower in SF, high end, etc).
That said, I REALLY like the word harbinger or maybe omen best. The reason: harbingers/omens have a psychologic component to them. An omen often changes a person’s behaviour in a psychological way, causing real world change. An example: an army may see something in a cloud, and thus decide it is time to attack a village.
Harbingers are credited, for example, for bringing Christianity to Europe (through Constantine who saw an omen)
If ORH goes well, it psychologically bolsters the market and may help boost SF RE… if it fails, it could transmit an even more negative psychologic blow to RE in SF.
my last point is supported by many RE supporters who say “ack, it’s the MEDIA causing the downturn” or “quit talking about recession or it’ll be a self-fulfilling prophesy!”
ViewLover writes: When buyers signed contracts a couple of years ago, they were sold a complex, not a lone building with the second building “conveniently” stalled. Perhaps your contract is different from mine, but mine says, in about one million places, “If the second tower is built …” and other language to that effect. I have no doubt that it will be built, but they made it abundantly clear that it was a separate entity. On a lighter note, I’m hoping they don’t rush to build the second tower, because we’ll have a little more space in the parking garage until they do.
it was just a long shot, but it appears that the developers thought about this long shot if I understand skybox as it is mentioned in the contract. no one would have even considered this angle unless there was a reason to; as in covering your bases if you decide not to build the second tower. On the upside, if they don’t build the second tower, eastern views will remain pretty dramatic.
I’ve been to machado listings in the south beach area. I find him difficult to trust. I realized he’s a guy I was regularly playing with in the sauna at the gym, and his hair slid off. How can you buy and trust someone who’s hair slides off?