301 Mission #55A: The view from the sales office
With roughly 50 of its 419 units closed since opening in April, 30% of Millennium Tower (301 Mission) is either closed or in contract, up from 15% in February of 2008 and with an average price point of a little over $2 million.
The sales office has moved to unit 55A in the tower with a postcard view of downtown and the bay (asking $3.45M). Four units are being turned into showcase units, including 47B which is being completely re-imagined and should be finished by the end of the month.
And when we say re-imagined, we’re talking dropped ceilings to accommodate new lighting, new moldings, and all new cabinetry and counters throughout. A sneak peek of the kitchen of 47B in the making for the plugged-in:

301 Mission #47B: Kitchen remodel in progress
Millennium Tower San Francisco (301 Mission): Sales Update/Facts [SocketSite]
Millennium Tower (301 Mission) Update: Timing, Kitchen(s) And Bath [SocketSite]

64 thoughts on “Millennium Tower (301 Mission) Update: 30% Closed Or In Contract”
  1. holy metallic tiles, batman! all style no substance…
    i’m actually a fan of the building and the units, but this “showcase” kitchen really freaks me out.

  2. The angle freaks me out more than anything. I feel ill just looking at that photo.
    [Editor’s Note: Since changed and our sneak peak shot really doesn’t do it justice (for which we’ll take the blame). Cheers.]

  3. How can they keep prices so high and a building that empty when Millennium just defaulted on the Four Seasons loan. No amount of metallic paint is going to drive people to pay $1500/sq foot and $1500/month in HOA dues! Poor Millennium. Built during an extravagant bubble period. Unlikely to sell at above cost. Boo hoo.
    [Editor’s Note: The default “pertains only to the debt on the San Francisco Four Seasons Hotel property, which is owned independently of all other Millennium properties, including the Millennium Tower at 301 Mission St.”]

  4. @MP Skeptic
    They defaulted on a loan that was attached to the Four Seasons hotel, not to the company.

  5. At their current rate of sales, this building has an approximately 56-month supply of new units. They should sell out by late 2013. That’s my prediction.
    As long as the profit from the units they do sell is sufficient to cover their loan and selling costs I don’t really see the problem with this business model. Its unprofitable for the developer but the bank gets out whole.

  6. When I visited a few months ago, I was told that the only kitchen color option they had was a putrid light brown. I was told that if I didn’t like it I could easily replace it (studio becker ?). Glad to see they have replaced in in the model pic.
    One other comment; 50/419 = 11.933%. Where is the 30% coming from exactly ?

  7. Question for Jimmy No Longer Bitter – Do you think the developer would prefer to wait to sell it out by 2013 or reduce prices? And, what about the fact that most of the current residents are renters? How does that factor into the economics? Thanks.

  8. One other comment for Will – does it matter if it was the Four Seasons or a loan attached to the Four Seasons? It reminds me of the old, “the problem is contained to subprime” argument. When a company that claims it is rock solid defaults on anything, it is a bad sign. The details of how the loans are structured is really irrelevant, no?

  9. Presumably, the carrying cost for the developer is high given the level of service and the number of staff in this building. With 30% sold or rented,the HOAs won’t cover the operating costs for years. The first units are the easiest to sell because price insensitive buyers want the newest building and the best units and views. The sales velocity will slow to a crawl when price sensitive buyers compare this building to other properties and neighborhoods in San Francisco which are all declining in price. This building will too.

  10. I think that the developer would likely prefer to sell all the units, tomorrow at 10am, for full price, with closings done by 5pm in time for dinner.
    But in the event that doesn’t happen I don’t really see the probem with dragging this out for 5 years as long as the bank is made whole in the end & you, personally, as the owner, don’t have to work too hard on it.
    I have no idea if their rental returns are covering their per-unit financing and maintenance costs or not. If they do then the current situation can persist essentially forever. It’s not out of the question.

  11. With 50 units per 3 mo, they should sell out by the middle of 2011, not 2013. I don’t think they will need to cut the price if they indeed sold 50 units last 3 mo. But then these numbers put out by the developers are always a suspect.

  12. They were 15% sold in Feb. 2008, and are 30% sold now … I stand by my 56 months of inventory number.

  13. Look at the Infinity sales (which have been surprisingly strong) and almost all recently closed units had prices of over $1.5 million. Many in the $2 million range. There are still buyers out there.
    Also, the Millenium Partners entity will likely have more financial flexibility once the Four Season’s debt is restructired.
    “In order to commence discussions with the debt holders of the Four Seasons Hotel in San Francisco, Millennium Partners has strategically withheld payment of debt service,” the statement reads. “Conversations on restructuring the debt have begun, and Millennium Partners is hopeful that they will result in a positive outcome.”

  14. Anyone who buys in Millennium at full price has got serious issues. I believe the 30% sold, but those have likely been in contract for a long while and people put down deposits to reserve the units so if they backed out they would lose their deposit. I actually know of someone who did back out and lost their deposit, but they felt they would rather lose their deposit rather than 20-30% value on the condo. In another year, Millennium will lose a bit of that new car smell and there will still be a large number of unsold units. Congrats to the builder for having the determination to keep prices the same, but if they need to sell the units to stay afloat, they have to drop prices. I can’t see how 30% sold units are going to cover the costs in this building. I don’t see condo prices recovering for a long long time…I don’t even see the decline stopping anytime soon.

  15. @Walkman:

    One other comment; 50/419 = 11.933%. Where is the 30% coming from exactly ?

    50 out of 419 are closed. 30% are either closed or in contract. Deduction would tell us that the remaining approx. 18% are in contract. That’s around approx. 75 units currently in contract. Those 75 that are financing through a mortgage are likely going to have to wait a long time before their loans fund, given the new sales percentages required by the major lenders.

  16. I still cannot understand the new-paint-smell premium San Franciscan’s are willing to pay for new boxes in the sky. For 3.45 million you could buy a nice single family residence in Noe, the Marina or wherever. Are views really that important to these buyers? Usually, in most cities, high rise condos are a less expensive alternative to houses, but it seems the opposite is happening here. I know about the wine lockers, and spa/gym, but I can have than in my own home, without having to share it with the neighbors. Plus, speaking of the neighbors, go take a walk at some of the “neighbors” who sit or lay across the street from this tower.

  17. Hopefully they won’t default on this building, a la Four Seasons. Would probably make it difficult for buyers to secure financing.

  18. @Editor: Just because they say the default “pertains only to the debt on the San Francisco Four Seasons Hotel property, which is owned independently of all other Millennium properties” doesn’t mean they won’t do it here, if push comes to shove. Hopefully they won’t… would probably make it difficult for buyers to secure financing, thus further ruining sales.

  19. @Fishtarian: That 50 units sold isn’t since “opening” in April…they started writing reservations (and contracts, I’d assume) well over a year ago. That’s probably just 50 closings since April. Totally different story.

  20. anonconfused wrote, “I still cannot understand the new-paint-smell premium San Franciscan’s are willing to pay for new boxes in the sky…”
    I’d wager that few full-time San Franciscans are actually buying in this building. Pure conjecture on my part, but I’d bet it’s a lot of rich out-of-towners buying second, third, or nth homes for their bi-annual shopping trip to Union Square. Or Silicon Valley executive types who want a place to crash after their weekly dinner at Boulevard or Town Hall. Just my guess, but it’s not uncommon in certain Soma buildings.

  21. It will be interesting to see what happens as the supply of affordable units at the Infinity gets absorbed.
    Not that they are the same animal but Rincon v. Infinity v. Millennium.
    What will their identities be in 2010?

  22. @Paul
    What’s your opinion on the Millenium Paul? I know you’re quite successful in SOMA condo market.
    Will their lease to own option help them to maintain their high prices in the meantime? Or will they be forced to drop in light of the “great deals” to be had in the Infinity?
    Also, what’s your input on resale value between the two developments? Which one do you think will be worth more in 5 years, 10 years, etc.?
    Thanks in advance for your response.

  23. Usually, in most cities, high rise condos are a less expensive alternative to houses, but it seems the opposite is happening here.
    I actually disagree.
    The large majority of condos in SF are cheaper than their SFH counterparts, at least on an overall price standpoint. (sometimes the smaller condos have high $/sq ft but their overall price is lower).
    There are a few glam developments where the cost is significantly more than comparable SFH’s. Part of that reason is because developers became enamored with condos, and during the bubble mania when condos appreciated faster than SFH’s people/developers had this silly idea that condos were the wave of the future and were actually more desirable than SFH’s. (the same happened with lofts by the way, suddenly you had these empty lofts with bare floors and no walls commanding higher prices than regular condos).
    but that trend occurred everywhere. Almost all major cities have some condo behemoths that cost way more than comparable SFH’s.
    now that the mania is wearing off, people are realizing the obvious, such as “hmmm… maybe it isn’t luxurious to live in a 710 sq ft apartment” and “hmm…. maybe Phoenix isn’t as awesome as I thought” etc.

  24. Condo Buyer,
    The finishes, amenities and staff to resident ratio at the Millennium are top notch, in these categories I would have to say they are superior to the crop of new construction out there today.
    As far as high end goes, the Grand residences offer a scale that does not exist at other new construction projects and therefore is not comparable to the other projects (OK, Infinity has 2 units that are 3300 sf and there are I think 4 units are available at Rincon available just under 2000 sf, and you can always combine units (This almost never happens (Less than 1%? i.e. Infinity: I would be suprised if there were more than 7 units that did)), but is talked about a lot)).
    The City residences are also not comparable because they are cross between high end condominium / loft.
    That leaves the Residences which I think will be in direct competition with Infinity and Rincon.
    Millennium Tower’s decision to drop prices 15% across the board and not to negotiate prices does a lot to establish their identity and brand. This is the process of building trust and you must admire Millennium Tower’s tenacity.
    I have mixed feelings about lease to own. From the Sellers standpoint I can see the benefit of farming prospective qualified buyers from this process, and of coarse there is income (honestly I think this is a secondary motivation). However, this may be offset by the dilution of your brand and loss of your identity. If done right you will be able to avoid this unfortunate effect, but the best case is par. Done incorrectly (i.e. advertising like crazy and therefore increasing your identity as lease to own, dropping rents, bad tennants, etc.) will be most damaging to the “Residences” brand. An example of “trust”, “identity” and “brand” is MPs current default at Four Seasons; do you feel differently about MT now than before? The people at Millennium Partners are marketing geniuses and in fact they applied this strategy at Four Seasons succesfully after the dot bomb. The team, experience and process are in place already.
    My instict would be not to advertise lease to own directly to the public, but rather to relocation companies, HR, realtors, etc. But what do I know? They are the experts.
    I think it may be prudent to split M T into three seperate entities and establish seperate identities for them. There are several possible robust scanrios.
    The false logic applied many times on Socketsite has been to generalize about Micromarkets or buildings.
    In reality everything is case by case, you cannot provide a valid answer without understanding the question first.
    Will Infintiy be worth more than Millennium in 10 years? I don’t know; it depends which unit you are talking about and how much you are paying for it.
    Another false proposition implied many times on Socketsite is that the primary motivation of people buying a condo in San Francisco is to make the highest return possible. I would say that mostly there is a driving need for housing for people buying. i.e. just got a job, getting married, going to school in SF (yes it happens a lot!).
    I think this is my longest post, sorry if I was not specific enough for you.

  25. “And when we say re-imagined, we’re talking dropped ceilings to accommodate new lighting, new moldings, and all new cabinetry and counters throughout”
    And when we translate this from developer-ese into english what is the message that is being communicated?
    Roughly, “Yeah, yeah we were charging megabucks for cheap finishes but we’ve reformed, honest.”

  26. (the same happened with lofts by the way, suddenly you had these empty lofts with bare floors and no walls commanding higher prices than regular condos).
    The loft development thing in SF was its own phemomenon, down to Wille Brown and Co. turning a blind eye toward “Live/Work” exploitation. It preceded the credit bubble. But yeah, some of the better ones absolutely commanded higher prices than “regular” condos. Deservedly so.

  27. “Almost all major cities have some condo behemoths that cost way more than comparable SFH’s.”
    True, but these types of towers tend to be in “prime” locations,unlike the Millennium, which is not, despite protests from all of its boosters. I myself would pay higher square foot costs for 2500 Steiner, or 2006 Washington, but this is lost on a generation of buyers who think a “penthouse” means top floor only, instead of what it meant in the past which was lofty ceilings, huge windows, generous terraces, fireplaces, and closets bigger than most “luxury” master bedrooms. I will never understand why all tower units are called “luxury condos”, when they are still building real luxury condos in other cities. Seattle, L.A. and Chicago are all still building real luxury towers, many of which have only one or two units per floor. My parents own in a tower in Chicago that has seperate halls and elevators for staff, two units per floor, wrap around balconies, and ceiling heights in excess of 12 feet.

  28. hit the business times today:
    “Millennium Managing Director Rich Baumert said 50 units have closed at the 301 Mission St. tower, for an average of $1,325 a square foot, since the 419-unit building opened two months ago. That includes a penthouse recently sold to a Chinese engineering executive for $8.1 million. Another 70 units are in contract, but Baumert indicated that 10 to 15 percent of those deals are likely to fall through because of the economic crisis. Many other contracts are on hold pending the sale of another home.”
    “Meanwhile, the developer has started leasing select units. Baumert said no more than 15 percent of the units would be rented out, about 60; 25 have been leased thus far, he said. Leases have ranged from a low of $3,500 a month to a high of $17,500 a month, with an average rent of about $6,000.”
    “Even when the housing market was humming along as its dizzying height in 2006, Millennium was projecting that the Mission Street tower would not sell out until 2012, Baumert said.”

  29. I have never posted on Socketsite, but read it almost every day.
    I have been in the institutional commercial real estate investment business for quite some time, and have lived in San Francisco, Paris, New York.
    I moved into the Millennium recently. I have looked at almost every high end condo development in SF, and at several older apartments in the 2.5-7MM range.
    In my view the Millennium is the best condominium product on the market in SF by a huge margin. The units are spacious, with non-convoluted layouts, the amenities are first rate, the service is excellent, and the funny thing is that all these things should be standard in any building charging over $700/foot, and they are not.
    The reason why the Infinity and One Rincon discount so heavily is that there is no value there. The Four Seasons residences look cheap in comparison to the Millennium, and while I like the St. Regis residences, they simply don’t have the space.
    So value for money, I think that this is much better product than the 1500-2000/foot units at the Four Seasons and St. Regis, and the only thing that will weigh on values is the fact that there are so many units in the Millennium.
    In reality, I don’t think it is a huge issue, because the people we see in the elevator and in the facilities seem to have the staying power to not trade in and out of units, and yes, this is frequently a second residence. I think you will have a much more affluent buyer here than late-20-something and young-30-something buyers that are stretching to pay 600/foot for a 1000 sq foot unit at rincon or infinity.
    I don’t think the construction or finishes are second rate, in fact I was disappointed to see that some units are being renovated – the dropped ceilings kill the high-ceiling feel, and the simplicity of the current finishes are better than overly-designed units that won’t stand the test of time.
    And for those of you who are posting that have yet to see a unit, I encourage you to do so. You will probably be very pleased.

  30. I am moving into my Millennium unit this week and while I acknowledge to potential (likely) downside risk, the developer has done a great job on delivering what was advertised. I sold a SFR in SF and I plan to live in the Millennium. It is not my second home.
    Several posts here refer to a general question of why anyone would pay a premium to live in a “luxury condo” when you can buy a house for less $ psf. In my experience, there are many costs associated with owning a home – maintanance, insurance (earthquake, homeowners), utilities, and monthly upkeep. They add up. I did the math and the HOA dues and condo insurance, while high, were significantly less than the sum of these items. The differential in these costs does not make the cost psf equal, but it does ratonalize them somewhat.
    I will have less square footage, a much better view, I can walk to work (avoiding the sleeping bums on the sidewalk I hear you saying under your breath), and in the end it will cost me less.
    Also, there are some people who have bought second homes in the building, but it is not the norm. Most buyers plan to live here.
    Did I overpay – maybe. But working in my favor (and others who buy here) is that most luxury condo projects (Turnberry, ORH 2, etc.) are delayed or cancelled. The product offered by The Millennium is not for everybody, but it is unique and not likely to be replicated over the next 5-10 years.

  31. I am an RE Agent who has spent lots of time at all of the new construction projects.
    And, it is my opinion that this building is stupidly over priced.
    It’s clear that the building was conceived, built and marketed to attract the super-rich multiple home owner. It competes with the St. Regis, Four Seasons and the Ritz. It’s not meant to compete with the Infinity or One Rincon.
    Unfortunately for the Millenium Partners, those buyers are far fewer in this economy and I predict for them a long, long road. The St. Regis and The Ritz are hurting now too.
    How many buyers are willing to spend $1.9M for a 1BR unit with minimal views and pay $1500 per month in fees (City Residences)? Folks with cash have plenty of choices these days and while the building is beautiful, it’s a risky choice.
    I don’t believe for a second that they are 30% closed or in contract with individual buyers eihter. I suspect that the developer has set up an LLC to purchase a block of units and is including them in the numbers.
    Hopefully their pockets are deep enough to wait this out. Otherwise, they will be forced to make some steep, steep discounts in order to move the homes.

  32. Agreed with PUAgent and Millennium Resident. I have toured this building, and everything about it is exclusive. Exclusive in the vernacular sense of the word, meaning luxurious or high-end. But also exclusive in the literal sense, meaning segregated and isolated. Not my cup of tea, even if I had the scratch, but it is a great building with superior amenities.

  33. ‘And for those of you who are posting that have yet to see a unit, I encourage you to do so. You will probably be very pleased.”
    I’ve seen it, several of them, and it was totally underwhelming. Finish was only on par with Infinity, below BLU. And view? what view? Exactly what are they selling? Life style? Service? Prestige? Pretension? Are they really worth $1000+/sf?

  34. Do today’s condo buyers prefer not having a balcony? I live in a tower and would feel “cooped up” if I could not go outside on my balcony now and then,

  35. Agree with PUAgent. Good post and thanks for bringing people back to reality. I will go a step further. The segment of the economy that would spend millions to live in a building like Millennium is forever changed. It’s like the dot com bubble, i.e. Pets.com’s $10Billion valuation isn’t coming back no matter the economy! This isn’t a “wait it out a couple years” thing. If the economy starts to rebound a little, the segment that Millennium has targeted isn’t going to rebound as well.
    A good analogy to the Millennium is the exclusive seats behind home plate at Yankee Stadium. Those seats were designed for “dumb money” people that work on Wall Street and companies like Lehman, Bear Stears, Citi and others would buy a block of $10K per game seats for the prestige factor. Those days are over and not coming back. Yankee Stadium had to reduce those seats to a fraction of the original price. Millenium was also built purely for the prestige factor. The population of people that would spend money to live in this building is a fraction of what it was, and I don’t see that population coming back to the levels in the past. I read a study recently that stated the number of people in Maryland whose family income was $1M or more has dropped 70%! I’m sure that San Fran has seen a drastic drop in the those with ultra deep pockets too.
    People who think that Millennium sales will rebound when the economy picks back up is delusional. This market isn’t a “waiting game”, its a “CORRECTION”. I don’t understand why people are refusing to admit this. I”ll get off my soap box now. enjoy the weekend!!!!

  36. Justin –
    I live on the 10th floor and would not want to be without my little bit of outdoor space. It’s tougher on these big towers. I’ve been on the balconys on the higher floors of One Rincon and even on relatively calm days the wind up there is scary.

  37. @Paul
    Thanks a lot for the response. I must say I am proud to have brought the longest post out of you, and with a lot of sound input also.
    I understand it would be impossible for you to predict how these developments will turn out in the future, especially if you do not have the exact unit to speak of. I think I will rephrase my question to whose strategy will work in the long run, and how will it affect the tenants? We should speak on the residences since those units would be the most comparable to the Infinity or ORH.
    I understand that appreciation should only be a secondary reason for buying a home. However, assuming a purchaser was torn between the Infinity and Millenium. What would you advise? I assume that buying at the Infinity now you will be forced to sell at a lower price in the future since everyone else bought at a discount. With Millenium, buying at the residences, you are paying a premium, but will you be able to sell at the same premium in the future? Will the new condo smell wear off, or will the Millenium be a unique building in SF that no one will replicate in the near future?

  38. condobuyer,
    I know your question was addressed to someone else, but I’m going to give you some of my thoughts…and I’m an active buyer of real estate….or at least I was. I too looked at the Millennium when it was first being built and almost purchased a unit there. Thankfully I did not. Remember this quote…Value is based on what someone else will pay for something.
    Soooo….if no one is buying at the Millennium, it doesn’t mean that because they are holding their prices firm that their value is stable. It simply means NO ONE IS BUYING AT THE MILLENNIUM. In a few years, yes, this place will lose its new car smell. However the reality is they will have to lower prices or do something clever like not charging association fees for a bunch of years as another way to cut prices without pissing off other residents. however that won’t help you at all if you try to resell. I would hold off on buying anything right now. For sure you won’t lose anything by waiting as there is nothing that will push the housing market up in the short or medium term. Do you really think that 11% unemployment is the catalyst? How about massive budget deficits? Sit tight my friend. Just because the falling knife has slowed doesn’t mean it isn’t still falling. Unless you have the cash to burn and can absorb a 20% loss in value, than you should not buy a luxury expensive condo for over $2M.

  39. Comparing Millennium to ORH and Infinity is like comparing a Mercedes S550 to an Acura TL. Both very nice cars to drive but drastically different in class appeal and consequently price. Which one holds its value better is the question here. I believe The Infinity and ORH will have more potential buyers strictly from their price point. There will, however, always be buyers for the like of the Millennium Towers, especially for the larger units with view. Many are from overseas where 5-10 million is pocket change. They will not even look at ORH or The Infinity just because they have to share the same elevator with those living in a $500K unit. As for discount, Louis Vitton is hurt by the economic down turn as well but you don’t see their stores putting up a July 4th Sale sign. That business model has served them well. If you have to worry about the $1500 and up HOA at the Millennium, you probably can’t afford to live there – and that includes yours truly. For the price of a smallish 1/1 with decent but not great view at the Millennium I can get a significantly larger 2/2 at ORH or The Infinity with a lovely water view and save enough HOA to lease a S550 – even Homer Simpson can make the right choice…

  40. Condobuyer,
    If you can tell me what the economy will be like for the next ten years I can tell you which one will be the correct choice. I do not have that talent (predicting the economy).
    I can tell you this;
    1) My opinion is that when there is uncetainty there is opportunity.
    2) The downside risk of Outsider’s Acura is smaller than the Mercedes S550.
    3) What’s lost in the financial depreciation of the S550 may be made up by certain opportunity costs (i.e. “brand”, “identity”) afforded by driving clients around in it.
    4) Your bankroll and goal will determine what the right choice is for you.
    It’s naive to think that there is only one path to success, what is right for “Paul” may not be right for you.
    Not trying to skirt around things, but in order to give you a good answer I will need to know:
    1) Units and prices.
    2) Where you work
    3) Whats important to you.
    4) What you like to do.
    5) Your general belief system.
    6) Time horizon.
    After figuring out what your goal is (part of its financial, part of its lifestyle, part of its something else) we can make a plan to get your goal.
    Even after you tell me all that, and after seeing a couple of properties you would be suprised that some of the things you believed were important were actually not that important and vice versa.
    There is a financial aspect to most of the goals and there is something else always also. Don’t know if this helps but here is the scorecard so far for me for units sold:
    The Infinity 30+ One Rincon Hill 15+ Millennium Tower 1
    I don’t know what it means. Does it mean that if you are buying at Millennium that you are special? Maybe.
    There is a great book by James Surowiecki called the Wisdom of Crowds.

  41. Thanks for the response everyone. Your input is quite useful. Sounds like Millenium is 0-3.
    Thanks Paul, I had to reread your post to see that you actually did answer some of my questions, albeit indirectly. Impressive scorecard by the way, although i’m surprised to see you only have one unit at the Millenium.

  42. Millenium, One Rincon Hill, The Infinity? The south of Market dream?
    With the economy and many saying it will take years and maybe a decade for real estate to recover, is the dream of a dynamic south of Market residential district still born?
    It seems like the plans for all these residential towers now being abandonned and the office market in SF dead, will south of Market and the empty lots look the same pretty much 5 years and maybe 10 years from now?
    You can build only so many “second home” for upcale folks towers.
    Is the long term viability of the Bay Area and downtown SF still assured?
    Just asking.

  43. “Assurance” is for fools. Nothing is assured. But for those older folks, this real estate downturn is more drastic but really not that different in feel compared to the one in 1980-81 or a decade later in 1990-91 which took till 1995-96 to recover. I bought my house in 1988 and it remained under water for 8 years. Everyone then asked the identical question – is real estate dead ? Will it ever recover ? Bad as the stock market was late 2008 and early 2009, the despair paled compared to the crash of 1987 when the Dow industrial hit 1700. Several high profile suicides in the Asian market occurred at that time. But the market came back and then some. With anticipated inflation down the road, real estate will always have its place including SOMA despite the over supply. The supply and demand rule will right the market as there will not be any major project for years to come until demand catches up. The weak dollar will also continue to make U.S. real estate appealing to foreign investors. Ultimately timing is everything and if you have a short horizon and in for quick profit, you are just playing Russian roulette…

  44. Outside,
    Everthing is cyclical and real estate will recover. But it is likely to take a decade.
    San Francisco is overbuilt now with all these condos coming online forcing the cutting of prices.
    Longer term California will likley come out of the recession last. Many jobs have al;ready left the state. Schwab is pulling out of SF for parts east. AAA is leaving.
    My point is I don’t see a large well-paying job base returning to SF anytime in the next decade or two. There is no need for all these towers anymore. Maybe some of the vacant lots could be turned into parks as green space is limited downtown.
    In terms of the Transbay development, is the bullet train ever going to actually get built? That is at best years and years away. Even with it, what is the market for 1.6 million sq feet of office space in the tower planned for the transit center? Job base to warrant such structures in SF no longer exists and may never again.
    Financially the Transbay development makes no sense now – it didn’t totally add up even when things were “booming” several years back. I am not expecting to see the grand plans come to fruition.
    The Peninsula is fighting the bullet train so even if it is ultimately built I think Oakland will be the terminus which makes a lot more sense anyway. Far more central to the Bay Area.
    Yup, real estate will come back but I can see SF not coming back to being the highest priced market in the country – or one of them.
    The jobs and population dynamics are not there IMO.

  45. Douglas,
    It depends from where any recovery finally comes, which is probably years down the road and so it’s impossible to predict. We saw dot commers FLOOD into SF, and then DRAIN right back out. People go where there is opportunity.
    Tech seems played out, but it has seemed that way before and came back. If there’s opportunity somewhere else, a lot of people around here will leave, and vice versa. On the other hand, tech is no longer a Silicon Valley only thing. Tech has really gone mainstream and people can do it all over the country, particularly with the web. So there really is no need for a tech recovery to happen here.
    There’s nothing on the horizon, so it will likely be many years before we really know.

  46. Sadly San Francisco is basically an entertainment destination now. Great views and restaurants. But not a “serious” city where things get done and decisions of import are made.
    Seatlle is arguably the business center of the West now – yep, I know some will say it is LA but LA is fading too. In part because of the California situation.
    Banks and finance made SF an important city at one time. Then came high tech and the dot coms. The city tried to remake itself on that bubble. But even at the dot com boom height financial district vacancies were higher than they were in the boom days of the Wall Street West era. And SF was living off of the Silicon Valley boom. Not generating a business core of its own.
    Ironically the Silicon Valley is not the hub it once was as technology has allowed creativity to go where it wants. Cheap cost of living, no crowds. Whatever.
    I saw a projection of population growth over the next decade in major metro areas. Growth in SF/Oak will be realtively small. So too growth in the San Jose metro area. SF and San Jose will both drop one place on the largest metro areas list over the next decade.
    Both Dallas and Houston will move into the top 5 metro areas by then. Places like Oklahoma City and Atlanta will move up sharply too.
    I agree this will play out over 10 – 15 years. But reading the trends IMO San Francisco will emerge at the end of that period as a lesser important and significantlly smaller city.
    I don’t like to say that. I grew up here. But the city in large part failed to nurture its job base and try to grow it. The city let Pac Bell leave for San Ramon in the late 80s by making it hard to Pac Bell (now AT&T) to build the large floor plates it needed for the 8000 workers it wanted to place in one building.
    On an anecdotal note. We have friends who live in Vallejo. Their son is being transferred back East by Schwab. Their “baby boy” just graduated college and luckily found a job – in Washington DC. What is happening now is that new grads in order to find work are leaving the Bay Area. That is a red flag.
    BTW, our friends are leaving the state too with their sons now gone. Nothing to hold them here. They are moving to Vancouver. No state income tax. Plus a 10 minute drive across the Columbia to Oregon. No sales tax. The home they made a bid on – well, you don’t wanna even go there and especially if you like fishing.

  47. “What is happening now is that new grads in order to find work are leaving the Bay Area.”
    You know something is wrong when the Pacific Stock Exchange building is turned into a fitness gym because the institution moved to Los Angeles.
    Douglas, you understand this city better than most because you have lived in the Bay Area long enough to see the changes, but recent residents (15 yers or less) do not know what you are talking about. Be prepared for all of the haters who refuse to believe this is not the economic engine they claim it is. I think many confuse the fact it is expensive here with being proof that there is more money here, when in fact it is more of a Honolulu situation of not enough land and restrictions on housing growth. I grew up in the Bay Area, own a home in 94123, and share ownership of rental units with my brother in the city, but actually currently live in Chicago because our company downsized the San Francisco office and I was not willing to work for less to stay in S.F. My property is rented out with positive cash flow. I return home to see family & friends about every 3 months, and over the last six years I see San Francisco very differently now that I have lived away. Most of my friends in Chicago look at S.F. the way you described it, which is a weekend “entertainment destination”, but they never talk about it as a serious place. They talk about how fun it would be to live there when they retire!
    I have also seen many of my friends children leaving the Bay Area after graduation from University, which was unthinkable when I graduated CAL in 1987. I remember my parents showing off the city to out of town guests and my Dad driving them down Montgomery past what were at the time the headquarters of the largest banks and financial institutions of the West. Now many of those have moved on to Seattle, L.A. and even Charlotte, and we are slowly turning that district into a residential neighborhood, who would have thought?

  48. I wonder if those of you who subscribe to such ideas will be around to acknowledge the mistake that is the “shrinking city” stance when the census disproves it next year. The city is definitely losing its less monied people tho. That’s not disputable.

  49. anonn has a good point. A city can exist as an entertainment and retirement destination, without the need for any productive industry. Santa Barbara, the island of Maui, plenty of little places around the world like that. No reason San Francisco can’t become one of them too.
    Not that I would aspire to live in such an economy during my prime working years … but economies do change, and if the city of SF becomes entirely a playground for trustafarians, retirees and tourists then that’s the way it goes.

  50. As an 18 year resident of San Francisco, I disagree with some of the comments above.
    Seattle the business leader of the West Coast? It lost its large bank (Washington Mutual), and Boeing moved its headquarters to Chicago. Yes, Microsoft is still there outside of Seattle, but Silicon Valley neighbors San Francisco.
    SF lost one great big bank (B of A)several years ago, but Wells Fargo has grown tremendously, into one of the nation’s largest. Charlotte still has B of A, but Wells now has Charlotte’s other bank, Wachovia.
    When I moved to SF 18 years ago, the many were already complaining that SF’s days of financial success were in the past, but new enterprises continue to be hatched here.

  51. I have to agree with Dan. As someone who moved here from Seattle in the past year and has close ties to the business community, the idea that Seattle is the business center of the West is simply wrong.
    WAMU is gone, Boeing is gone and floundering, Eddie Bauer just filed bankruptcy, Safeco is gone, Microsoft is a plodding behemoth that’s slowly dying. Not to mention, they do not have Silicon Valley next door.
    Additionally, the downtown is flooded with empty commercial space (the historic Smith Tower is 70% empty and who the hell knows what Chase will do with the empty WAMU Center).
    Finally, if you want to see condo over-supply just look at the downtown Seattle market. There is a host of new “luxury” buildings that just came on the market or have been on the market and they are NOT moving. A friend’s place in one of the best building just sold for 13% below their 2005 pre-construction price. Try that on for bad news.
    I am very happy to be here in SF.

  52. As an 18 year resident of San Francisco, I disagree with some of the comments above.
    I think this boils down to what you are trying to measure. The big names don’t really employ so many people, but they have a disproportionate economic effect in terms of spending power.
    The bulk of the population is employed in industries related to entertainment (both day trips, actual tourism, and conventions) A large second is government workers and health care workers (who cannot be outsourced). So, you have the base of the mountain, and the peaks. I think Douglas’ comments are more apropos to the base than the peaks, which seem to be OK IMO. Corporate Headquarters and banks can never form the base, just as restaurants and nail salons cannot form the peaks. The entire nation has seen a hollowing out of the base, in terms of spending power, so there is no need to blame city politics for that.
    The discussion of peaks is more a beauty contest-type issue. It’s definitely important for the economic well being of high-end restaurants and condos, but not so much for the overall employment/population situation. Btw, the base used to consist of the navy and port workers, and as those jobs disappeared, with entertainment replacing them. This has been going on for over 40 years.
    I wonder if those of you who subscribe to such ideas will be around to acknowledge the mistake that is the “shrinking city” stance when the census disproves it next year.
    As to population, this is of course highly politicized, but the disputes tend to be about recent populations, as government funding based on population really became important in the last few decades. The city reached a peak in 1940, of about 776,000, and then began to bleed people so that by 1970 it had 716K. In the 70s and 80s, the flight to suburbia accelerated, and we bottomed around 678K in 1979. In the 80s, we began to grow again, shooting up to about the 1940 population at the heigh of the .com era in 2000, eventually surpassing the 1940 population by about 4%, depending on whether you believe the state or the census.
    The deviations from the california estimates and the census are interesting. Between 1940-1980, the state’s estimate was usually within 0.2% of the census, and was sometimes higher, sometimes lower. Starting with the 1990 census, the state estimates began to outpace census estimates, and this divergence is growing. So, according to the state, no population loss occurred as a result of the .com bust:
    Year: State Estimate: Census Estimate
    2000___: 781,167:___: 777,532
    2001___: 789,832:___: 784,385

  53. Still, it looks like the city was in fact growing — over 800k residents per the census in 2008. That should be an all-time record, no?

  54. Yes, I think it’s a record.
    But, within 4% of the population of 1940. The bay area, California, and the nation have grown a bit more than 4% over the last 68 years.
    Not to say that a growing population is something to be desired in and of itself. I enjoy the pleasant living in 2-3 story historic homes. The point I am trying to drive home is a pet meme, namely that the expansion of 1980-2000 is not the historical “norm” — it should not serve as a baseline. The inflation we’ve experienced is an abberation that cancelled the exodus of 1960-1980.
    San Francisco is “fully built up” — much like a suburb, really — so that the conservative preservationists will not allow an expansion of lower cost housing that would bring more people in, and it is “fully built up” economically, in the sense that the base of the employment pool will not expereience sustained large wage inflation going forward, relative to the cost of living. So, we have been oscillating. Now, a black swan event is always possible, but the rational expectation is that in the current downturn, people will leave until either the cost of living (primarily rents) declines to match their lowered wages, or until the wages rise again, at which point they will come back in. So, I predict further oscillation, and the derivative around 2009-2010 should be negative.

  55. “Fully built-up”. Been in Mission Bay lately – or in Hunters Point, or near those South of Market parking lots?

  56. I’d say that San Francisco has been relatively built up, in terms of empty land that is easily developed, for 50 years now. Other land can be converted to more dense use, but obviously that is more difficult than developing empty fields.
    A city with about the same population as San Francisco is Jacksonville, FL. However, Jacksonville is 885 sq miles, almost 20 times the size of SF. Unlike SF, most of Jacksonville’s metropolitan area population lives within city limits, which includes mostly suburban density.
    San Francisco has grown much more than 4% since 1940, but the growth has been mostly in the suburbs. If SF had expanded its city limits to Gilroy in the south, Santa Rosa in the north, and Antioch to the east, it would be easier to compare population growth with Jacksonville.

  57. “But, within 4% of the population of 1940. The bay area, California, and the nation have grown a bit more than 4% over the last 68 years. ”
    4% in 68 years really does make us more like an exclusive resort community. We are like La Jolla or Montecito with colder weather, tall towers, and a more colorful homeless population.

  58. Given all the 5 and 7 year interest only super jumbo loans with no money down that were handed out like tic tacs over the past few years (until recently of course), there will continue to be heightened anxiety over their mortages and likely continued foreclosure activity even when or if the economy recovers. These people can’t simply refi either because banks want at least 25% down. This is a city that relied on very aggressive lending practices on behalf of banks to keep the values up. Since those practices are gone, there are a lot of people who will NEVER be able to sell their house in this city. What is scary is that the foreclosures in this city won’t just be on people with moderate incomes, they will be on people who have high incomes but simply bought the biggest house they could afford and now can’t refi and even if they had the 25% to put down on the house (which many of them can’t), they don’t want to since they know the house is not worth what they paid.

  59. Douglas – San Francisco has done a lot better than St Louis, Detroit, New Orleans, Buffalo, Philadelphia or most other tradiional American cities for that matter.

  60. Flaneur, why choose such miserable places? Why not Portland, Seattle, Honolulu, San Diego or other desirable areas instead of urban graveyards such as Detroit or Buffalo?

  61. my wife and i both lived and owned the four seasons and st regis and since have sold both so i will give you some facts about the inner workings of these type of condos…first, although 301 Tower is saying they are comparable to the hotel/residences (four seasons/st regis), this not factual…the hotel residences receive full services AND a name that is known internationally. NO one knows of Mill’Tower outside of SF.
    With the Millennium having that many units…good luck, upon them selling them all the units, in fighting to use their limited facilities.
    The developer is subsidizing the HOA dues and they will skyrocket once they sell a certain number of units. Most likely the cost will average $2000/unit/monthly.
    As they did with Four Seasons during the slow times..to keep the avg. selling price high…the partners themselves and some brokers bought ON PAPER units to shoot up the selling avg. selling price. We saw this with our own eyes.
    During the slow time in 2002/3…MP did negotiate quietly on many units to move them. They also rented out many to bring in cash.
    The buyer at Four Seasons is a much different buyer than at 301 Mission….my wife and I would NEVER pay these prices since they do not have the name to move it IF you wish to sell in the future.
    Many buyers at St Regis are younger buyers so you will see a drop in prices there in the next few years when they see their units dropping along with the high HOA dues due to this poorly functioning Starwood who operates the BLDG. Four Seasons is an older wealthier buyer so they are less affected by the market ALTHOUGH THEY ARE REALLY SCARED ABOUT THIS DEFAULT ISSUE…REALLY SCARED. I TALKED TO SOME OF MY FRIENDS WHO STILL LIVE THERE.
    There is no comparison between Starwood who operates ST Regis and Four Seasons..Four Seasons is much better..remember we lived in both and owned.
    IF anyone can put a class act on selling this property Mill’ Tower is Diana Nelson..she is the only one with CLASS,however, she is a salesperson..remember that. However, we liked her.
    Be careful about the terms “in contract”…it is very misleading. They are in trouble and I can assure you that Mill’ Partners does everything with Class beginning with Shawn Jeffries but he can only do so much. IF there is one problem at one property…look to the others with problems involving money.
    They will most likely have to rent out many at a loss but I can assure you people that these sold units WILL NOT hold there value. NO WAY!!! Also,
    Many Brokers were called in for special deals to buy units so you will see a push to dump these units soon.
    This site is monitored very well by their sales staff so any positive news..question the facts.
    Again…Mill’ Partners did a great job at Four Seasons but they are obviously having financial problems based on what I am reading. Diana is darn good at putting things together but again…this is a different economy and before Mill’Partners had some good bucks sitting around to get it done..
    I believe that the times of the recent past are all over…there is not the money being earned as in the past for the numbers they need. We have the money but NO way would be buy these condos. They will go down.
    So…you can take it from us as previous owners of hotel/ residences but the Tower is not in the same category…nice but not the same level internationally speaking. You are seeing St Regis prices coming down per foot as well.
    This is only our opinion but take our word for it…wait and prices will be forced to come down. Best to you Diana and Good luck

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