355 1st Street #S2003 Closes Escrow And The Bragging Rights Go To…October 27, 2008
We hereby award “Satchel” the official bragging rights for backing into the previous purchase price for 355 1st Street #S2003 at The Metropolitan (around $825,000). While we’ll let “phatty” and “Recent ORH buyer” split the prize for being closest to its most recent: $600,000 (closed escrow on 10/24/08).
And once again it begs the question: if the sale of this unit was a comp (or perhaps a comp for a comp) in years past, should it be now? Keep in mind there were multiple bids. And this wasn’t an auction (where terms can constrain the pool of buyers).
∙ Bank Owned (With Big Views For Now) At The Metropolitan (355 1st) [SocketSite]
Comments from Plugged-In Readers
I’d expect 1/1s to fall 50% from peak in an area like SOMA/Rincon Hill, where new supply can be built. A 1/1 is a very undesirable piece of property in general, so these should get hit hardest (and it looks like they are).
Posted by: Satchel at September 9, 2008 7:24 AM
So, even with this foreclosure [which is pretty much the worst ‘forced sale’ scenario] the $600k price was 27.3% less than the $825k peak. It’s still well removed from Satchel’s predicted 50% SOMA/Rincon Hill fall from peak to trough. Time for him to ‘unpat’ himself on the back on this one.
Agreed. And the condescending swipe at 1/1s (not EVERYONE can afford a 3/2 or a house on a hill–1/1s are starter homes, for the most part) is reason #1 I don’t miss Satchel around here.
Hey, 27% down, only 23% more to go (from peak prices)i.e. 29.2% down from here. Maybe a little overshoot at the bottom.
Current owners shouldn’t worry, though, as prices for THEIR specific slice of SF only go up (at least in their minds if not reality).
So Recent ORH buyer you are 100% positive that we have now hit bottom and that prices for 1/1 condos in SOMA will not decline any further?
I hope you are right but I doubt it. Perhaps it is still too soon for you to claim that Satchel has to “unpat” himself.
“So, even with this foreclosure [which is pretty much the worst ‘forced sale’ scenario] the $600k price was 27.3% less than the $825k peak. It’s still well removed from Satchel’s predicted 50% SOMA/Rincon Hill fall from peak to trough. Time for him to ‘unpat’ himself on the back on this one.”
you must be joking. we are in inning 3 of 9. I would gladly put a sidebet down that Satchel’s 50% +/- 10% comes out looking dead on. Satchel said peak to trough, not peak to “not trough”
“So Recent ORH buyer you are 100% positive that we have now hit bottom and that prices for 1/1 condos in SOMA will not decline any further?”
I am not positive we have hit rock bottom and clearly I can’t guarantee against any further attrition. However, I don’t believe we will see another 23% downside from current levels. Let’s remember, foreclosures do tend to see the most punishing downside in pricing, and this was still about half of the predicted 50% downside. While we will possibly see further price falls, I think a 50% drawdown for 1/1 as a broader trend for this neighborhood is way off base.
Anon – Nice to see there are some things we do agree on 🙂
Recent ORH buyer,
I suggest that you give up any attempt on trying to convenience people on this board taht price is going to be down 30-40%. Like I do.
i find that time-consuming and completely fruitless. From another angle, what does it do to you even if you were able to change some the views here?
I don’t believe that rents are less smarter, but there are people who always “hope for the best” and they tend to buy, and there are people who like to “prepare for the worst” and they will never buy. So be it.
Let’s enjoy the fun and informational side of SS.
I agree with ORH Buyer that a 50% nominal drop in SF prices(excepting some rare exceptions) is laughable. I also don’t think this one foreclosed property is indicative of the overall market. That’s like finding some random place where prices appreciated, and saying that it is representative of the entire city. That’s the problem with these handpicked “apples”.
With that said, this does represent a 27% price drop on a condo in a relatively desireable building. That’s nothing to sneeze at….just not indicative of the market as a whole either.
and don’t forget the 30% cuts at Symphony Tower; many did buy at the original pre-reduced prices.
Note that they likely made the offer right around October 1, and the world has gotten even tougher since they did that.
50% or not, the fact is that we are 30% down, the economy is heading into a recession and the layoffs are *just starting*. That plus the Alt-A resets looming, and the conforming mortgage limits about to fall by over $100K, no one can argue with a straight face that we’re anywhere near a bottom.
No one ever expects how long it takes for a bubble to pop and how hard things fall when it does.
Remember, pet supplies are a big business. The concept that pets.com could fall by 100% was just as laughable as a 50% drop in real estate prices, but we’re more than halfway there and the problems are just getting started.
but there are people who always “hope for the best” and they tend to buy, and there are people who like to “prepare for the worst” and they will never buy. So be it.
May I add: There are people who think prices are still too high but who will buy when things get back to realistic levels. Life is not All black or all white. It’s not renters vs. buyers.
And I do agree that a 27% drop is nothing to sneeze at. If it goes down another 10% a year for 2 years, you’ll easily get the 50% that some deem so laughable.
Excellent point, tipster. Add to that the building wave of defaults on credit cards, auto loans, and corporate debt, and it’s tough to envision a scenario where credit gets easier or cheaper to procure. It took 5+ years for this bubble to reach its “Minsky Moment.” It will take years to filter through the system and clean up.
“the fact is that we are 30% down”
Really? Because a single 1/1, in foreclosure, was down 27%, the entire city is 30% down? And this is a “fact”? These are some seriously staggering and misguided leaps of logic!
As someone who has bought a couple of foreclosed homes (albeit in AZ), I’m convinced that in many cases the price a home goes for in foreclosure is NOT the true FMV.
And believe me…I understand FMV is what a buyer/seller is willing to accept so, in theory, any sell should be representative.
Buying a foreclosed property, however, takes time, capital (since financing is more difficult) and additional risk. Therefore, there an inherent discount.
I’ve seen numerous homes foreclosed then be sold for 20% more in the “open market” weeks later. I’ve also seen plenty of open market sales for a floorplan and then weeks later the exact same floorplan sell in foreclosure for 30% less. So the reality is that, in most cases, a buyer better expect to pay more on the open market than on the exact same property in the foreclosure process.
Many bidders at foreclosures are investors specifically looking to bid at prices LESS than they know they can turn around and sell them for in the near future.
Consequently, this 27% drop from “peak” is at the foreclosure discount and may not represent what this same unit or identical unit will sell for in a week on the open market.
To take it a step further and based on my experience with the foreclosure process, I take this 27% discount from peak as GREAT evidence that we are NOT down 27%.
I think it’s a possibility that this unit (or similar 1/1’s, I should say) could drop to the lower 400k’s as our recession continues. You look at any other part of the country, besides NY, and 400k for a 1 bedroom condo is considered highly expensive. I think it’s unlikely that we’ll go that low though. But I do think this was one of the 1st foreclosures in the area, and more are to come – which means even lower prices. This is by no means a bottom.
I’ll let you know when we hit bottom, because I plan on buying on that date :). You’ll know because I’ll suddenly become a cheerleader for home prices & ownership. 😛
Btw, I must have missed something – what happened to Satchel? Did he leave?
There are three 1/1s in that building, and the ones on higher floors, though without the bay view, are listed, though not selling, at 600K to 675K, so the 600K sale price on this unit was probably not too far off the mark.
i don’t know if anyone noticed, but 355 1st Street #501 was on the market, as an REO i believe, for a whopping 515K. It went off the market after a few days, presumably into contract. any realtor can shed some light?
oh and that was a 1/1.
The fluj corollary to Godwin’s law:
As any internet discussion that contains the phrase “asset class” grows longer, the probability of pets.com being invoked approaches 1.
Tipster, you are absolutely. I used to be somewhat bewildered by you. Then I came to realize that being a pedantry fount on r.e. is actually, truly, your hobby. Alt-a resets, painstaking — though skewed — dollar breakdowns, seizing upon one negative result and applying its percentages outwardly, this is all very much like clockwork. And so is the fluj corollary.
“Consequently, this 27% drop from “peak” is at the foreclosure discount and may not represent what this same unit or identical unit will sell for in a week on the open market.”
Precisely correct. This property got flogged, and represents among the worst possible outcomes for the sale of this type of property. The ‘best’ scenario might be a seller that didn’t need to sell, and could afford to wait it out, until he gets his price. Is it possible to find another 1/1 that fell this far? Maybe. Is this indicative of the broader trend of the entire neighborhood? Of course not. However, it seems clear that those that ‘want it to be so’ will portray that it is so.
I hear ya…there are also plenty of cases where bank owned or foreclosure get close to FMV.
My main point is that it’s quite leap to assume the entire market is down 27% because of a handful of bank owned/foreclosure sales.
where is Satchel these days anyway?
Yup, found it.
355 1ST ST #501, South Beach, CA 94105** Inactive
Sq. Ft.: N/A
Lot Size: N/A
MLS #: 348609
List Date: 10/11/08
On Market: 16 days
List Price: $515,000
Sorry if this one has been discussed or if it’s not considered an “apple”.
“There are three 1/1s in that building, and the ones on higher floors, though without the bay view, are listed, though not selling, at 600K to 675K, so the 600K sale price on this unit was probably not too far off the mark.”
I guess Tipster forgot to point out #2006 in the same building listed at $788,000 and #2103 listed at $799,000. I guess those just don’t qualify because they don’t fit his skewed theory. Links as below –
I agree with people who say that one cannot use one sale to prove that the market is down 27%.
that said, it is quite telling that this unit sold for as cheaply as it did. In a hot market foreclosures did not sell for much cheaper than comparable non-foreclosures.
in today’s NON-San Francisco markets, foreclosures and short sales are making up significant percentages (if not the majority) of sales. So one can argue (not in SF) that foreclosures represent the market.
But SF does not yet have the high % of foreclosures, so a foreclosure does not necessarily represent “the market” in SF proper, as it does in SoCal as example.
RE is so opaque so it’s hard to know what ‘the market’ is doing. especially in SF. For instance Recent ORH buyer brought up some examples of homes for sale. so it would seem that the clearing price for a Metropolitan Condo around the 20th floor is somewhere between $600k (the latest sale) and $788k (listed prices of homes that have not sold).
I personally wouldn’t dream of buying anything at $788k when a similar unit bought at $600k, but maybe another buyer won’t think this way. (doubtful).
lastly: I would agree with Satchel no matter how much it annoys people. 1/1 are not very desireable. that doesn’t mean they don’t have their place, they do. nor that nobody finds them desireable. just that they are overall less desireable. 1/1 are entry level housing.
I’m not sure what there is to disagree about. what would people in general rather have: a 1/1, or a 3/2? Heck, we see all the time when 3/1 condos just sit because people want that 2nd bath.
so I’d take argument with using a foreclosure of a 1/1 (even though in a desireable building) as overall state of the market.
as for the eventual RE downfall? who knows? anything is possible. at it’s height of power, Tokyo was more cosmopolitan and “desireable” on a world level than SF, and Tokyo fell more than 50%. It was the best place to be on Earth. I’m sure it seemed impossible to the japanese in the 1980’s that their RE would fall so far… but it did.
unfortunately, our country as a whole will face a very serious economic readjustment over the next prolonged period of time. I see no reason why SF would escape that. And I see no reason why SF’s RE values would hold in such a downturn. But we’ll know in 10 years or so.
If foreclosure doesn’t make the market, any home bought without 20% down and 30 yr fixed doesn’t make the market either.
Here’s what sucks: even IF the price fell 50% from its peak, I still couldn’t afford it…
“But I do think this was one of the 1st foreclosures in the area”
This was for sure not one of the first, not even in the Met. There have been a handful! I recall looking at S2303 in Jan/Feb when it became an REO and was listed at $599k by the bank. There have been many more since then at the Met alone…
Hmmmm. I never found Satchel’s posts to be condescending. Seems to me he went out of his way – more than most at any rate – to be civil.
I believe some of the steepest declines in SF new construction condos will come when one or more developers declare bankruptcy and the new owner can slash and still make money. This is my opinion only. But I think it will happen simply because I have seen it happen in New York and Dallas in two prior downturns. (I can hear the intake of breath as some of you wonder how or why anyone would evoke a reference to the Dallas highrise condo market when discussing San Francisco.)
I am not referring to any particular project at all. Though, someone is surely going to post that “Tishman has very deep pockets.” Thing is, it doesn’t matter how big any of them were or are. This is not your grandmother’s downturn. And I agree completely that it is just starting. I don’t think any builder/developer is going to hang on for years eating large losses (even if they could). And some of those companies are likely not in the same shape they were two years ago. Lord knows what activities they have been in and where else they have invested. For all I know, maybe there are legally ways the companies will survive and only the projects go belly up.
I just don’t think it is avoidable. This is my opinion. I am not a gloom and doomer. If it happens, I feel badly for people who bought recently. I do not wish anyone ill or have any desire to take a buy vs. rent stance. Everyone has their own reasons for doing what they do. I am not an economist or in RE – I’m a CS engineer. I’ve just been around a while. I own property elsewhere. I love this city and I love this site.
While I’m at it, I would like to add that I thought Satchel’s posts were terrific. Like Ex-SFer’s they were thoughtful, well-reasoned and unemotional. I appreciate their efforts and their willingness to take the time to present their views so even techies like me can (mostly) understand. I wish he would still post from time to time just to check in.
Way off topic but it looks like BRK-A is down around its 52 week low at $105,000. Any takers?
FWIW: at times I can see why Satchel sometimes grated on people’s nerves. His points were truthful and accurate IMO, but not always said with finesse. And at times his schadenfreude was clearly visible.
otherwise I agree with you. comments like “Tishman’s got deep pockets” don’t work well in this downturn because many of the companies have complex balance sheets and many rely on the Commercial Paper market and other debt instruments. As I’ve highlit before the CP market and other Asset Backed markets are not functioning correctly. (to say they are “dead” is a misstatement). the CP and ABS market are significantly shut down for finance companies and for RE companies. So if Tishman actually has CASH then they may possibly weather this downturn. if on the other hand they have bank guarantees or rely on rolling their debt then they can quickly become insolvent.
I have NOT done an analysis of Tishman’s books (or any other SF developer) so they may be in a strong position. But many companies traditionally thought to have strong cash positions are in serious trouble. There are obvious companies like GM (say what you want, just over a year ago they had more cash on hand than almost any company on Earth). but also companies like GE who is in trouble.
It is clear that many of the proposed towers will not get built, but that was true even 2 years ago. It is likely but not guaranteed that some of the developers will go bankrupt. I would GUESS that a lot of them are in cash preservation mode and also deleveraging mode (if they’re not they’re fools and they will go down for sure). Thus, a developer would do well if their product is built and they have little to no debt and a fair cash cushion. A developer would likely struggle if they have buildings in the works or if they rely on the CP/ABS/debt markets to fund operations.
but as I’ve said before, it is basically impossible to predict things now because we no longer have free markets. Instead we have a centralized pseudo-planned market system where a few individuals decide on who will “win” and who will “lose”.
If a few people (bernnake, paulson, new prez, a few congressfolk) decide that high cost RE is what needs to be saved then SF will fare better than one would anticipate. if those few people decide that another sector “needs” their help then SF may be thrown under the bus. but it will be a political decision and not an economic decision. and the politics will get ugly. Don’t underestimate the backlash that the politicians will see from flyover land if they start bailing out people who live in $700k homes. I know to you guys those prices seem reasonable, but to Joe and Mary Midwest they are extravagant.
The lineup for the bailout is already long. banks. insurance carriers. car companies. student loans. airlines. energy companies. perhaps soon we may add municipalities and states to the list.
but as I’ve said before, don’t celebrate too much if they suddenly decide to give 0% mortgages up to $2M with zero down, because that money has to come from somewhere. and that somewhere will be higher taxation for higher income individuals and/or increased federal debt.
my guess is that RE will have to be sacrificed at some point, as we start to see municipalities and states almost default on their debt (like California and New York.)
“This is not your grandmother’s downturn.”
Actually, it is.
“at times I can see why Satchel sometimes grated on people’s nerves.”
Satchel wanted people to wake up to the con that was being perpetrated on them. It’s hard to wake people up by being smooth and pleasant.
but I think that one can be a pedagogue while avoiding the pedantic.
don’t get me wrong, I felt that Satchel’s contributions were enormous, but I also saw where his tone was offputting to some.
He may return as market volatility reduces. (I’m guessing he has his hands full if he was fool enough to gamble the markets) Or not. In many ways his message was said, so he may feel he has little more to contribute. the structural problems with US Real Estate are pretty well known now…
same for me. I’ve pretty much said my piece, so I’m limiting my contributions for the most part to looking at the pretty buildings with a challenging post here and there just for old times sake!
Satchel’s posts, while useful, masked lots of assumptions, stated opinions as fact, and were too long. Reading them was like sifting for gold: lots of work, bound to end in failure, but every once in awhle…
Folks have been predicting economic meltdown since the late eighties (maybe sooner). One of my pet peeves about this embarrassing disaster is that now all these folks get to come out of their bomb shelters and say “see, told you so”! 🙂
Very few people buy a 1br condo and plan to keep it for a long time. It will get harder and harder to get people to buy 1br condos when 1. It costs much more than renting a similar condo down the hall and 2. There is a big risk of a loss when you sell the condo to move for a new job or to buy a home. A friend just bought a home near my apartment in Presidio Heights three blocks away from the home his parents bought (and still live in) back in 1966. He plans to send his kids to Town and UHS and live in the house until he dies so he really does not care if the value of the home drops in the next few years…
P.S. I liked Satchel’s posts and hopes he returns…
“I’ve pretty much said my piece, so I’m limiting my contributions for the most part”
Me too. Not much point in being the “Mad prophet of doom” when anyone can see that things are blowing up. Now it’s mainly a question of what order things are going to be blowing up in. I thought it would be commercial real estate loans next but it’s looking like european bank lending to emerging markets will be the next implosion.
“One of my pet peeves about this embarrassing disaster is that now all these folks get to come out of their bomb shelters and say “see, told you so”! :)”
Hee. Hee. Even a stopped clock is right twice a day. Since I’ve stuck my head out of my bunker allow me to officially say, “I told you so!”
comment at 1:48PM et al.
Oh, how they laughed when I said it was 1929 and the flappers were dancing their last charlseton.
Don’t underestimate the backlash that the politicians will see from flyover land if they start bailing out people who live in $700k homes.
Bigger than the political backlash that happened when they used $750B of taxpayer money to make sure that the Goldman Sach’s partners got their bonus money this year? Probably not.
Where is the political power in this country going to lie in the next decade? With the Speaker of the House, who is from San Francisco and with the President, who is from Chicago, or with a bunch of rural Midwesterners and Southerners who vote Republican?
The new administration is going to do what is best for urban areas first, and it is long past time for that. This is going to include massive transportation infrastructure spending, an end to the subsidization of rural regions and increased spending on education, which is going to mostly help areas with lots of higher education. I also expect lots of spending on scientific and technical R&D.
Which area is going to benefit most from that?
Satchel presented his opinions, often half-baked ones, as fact. When he stuck to what he knew well, which was the nitty gritty of how Wall Street really works, he was fascinating and informative. But when he went off on some tangent on how the United States would inevitably be forced to follow the economic prescriptions from the fringe Austrian school he was pretty far out there.
And most regular readers could not tell the difference, which is what made him kind of annoying. To me at least.
I will still be happy when he comes back though, since he was always interesting reading.
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